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Heraeus Medical GmbH v. Esschem, Inc.

United States Court of Appeals, Third Circuit

June 21, 2019

HERAEUS MEDICAL GMBH, Appellant
v.
ESSCHEM, INC.

          Argued: October 23, 2018

          On Appeal from the United States District Court for the Eastern District of Pennsylvania (E.D. Pa. No. 2-14-cv-05169) Honorable Cynthia M. Rufe, U.S. District Judge

          Bruce P. Merenstein Samuel W. Silver John R. Timmer Schnader Harrison Segal & Lewis, John Nilsson Matthew M. Wolf [Argued] Arnold & Porter Kaye Scholer R. Reeves Anderson Arnold & Porter Kaye Scholer Counsel for Plaintiff-Appellant Heraeus Medical GmbH.

          Benjamin P. Gilford Greenberg Traurig, Richard D. Harris [Argued] Cameron M. Nelson Gregory E. Ostfeld Greenberg Traurig Mary F. Platt Fineman Krekstein & Harris Counsel for Defendant-Appellee Esschem, Inc.

          Before: KRAUSE, COWEN, and FUENTES, Circuit Judges

          OPINION

          KRAUSE, CIRCUIT JUDGE.

         The case before us involves another skirmish in a long-running, cross-border court battle over the alleged theft of a trade secret: Heraeus Medical GmbH's recipe for its bone cement. In this appeal, we consider whether Heraeus' suit against Esschem, Inc.-a company that works as a chemical manufacturer for Heraeus' main competitor-is barred by the statute of limitations under the Pennsylvania Uniform Trade Secrets Act. At summary judgment, the District Court held that all of Heraeus' claims, including those for Esschem's alleged continuing misappropriation during the three-year limitations period, are time-barred and entered judgment for Esschem. We agree that alleged misappropriations that occurred more than three years before Heraeus filed suit are time-barred, but because we hold that Pennsylvania applies the rule of separate accrual to continuing trade secret misappropriations, Heraeus may sue for misappropriations that occurred within the three-year period before filing. We thus will reverse in part and affirm in part the District Court's grant of summary judgment.

         I. Background[1]

         Heraeus is a German company that develops and produces Palacos, a bone cement used to anchor artificial joints in joint replacement surgeries. To make Palacos, Heraeus developed its own particular process to manufacture two key components: copolymers known as R262 and R263 (the "copolymers"). Biomet also sells bone cement and is one of Heraeus' major competitors in this market. To make its bone cement, Biomet uses the same copolymers, which it buys from Esschem, a Pennsylvania company that manufactures acrylic polymers and monomers.

         Heraeus holds trade secrets related to the "overall specifications for the . . . bone cement," including "specifications for [the] copolymers." App. 81. These trade secrets changed hands several times over the years before allegedly falling into Esschem's possession. In 1972, thirteen years after Palacos first came on the market, Heraeus entered into a distribution agreement with Merck, pursuant to which Heraeus disclosed its trade secrets so that Merck could "obtain and maintain regulatory approval" to distribute Palacos. App. 84. Merck was also obligated under the agreement to protect Heraeus' trade secrets from disclosure to third parties without first obtaining Heraeus' consent. This arrangement was in place until 1997, when Merck and Biomet entered into a joint venture that took over the distribution of Palacos. At that point, Heraeus agreed to supply the joint venture, and only Merck, pursuant to its confidentiality agreement with Heraeus, had access to the trade secrets covering the copolymers.

         In 2004, however, Biomet acquired Merck's shares in the joint venture, taking over the distribution agreement and, unbeknownst to Heraeus, also gaining access to Heraeus' trade secrets. Upon learning of the joint venture's sale to its competitor, Heraeus announced it would terminate the distribution agreement in August 2005, but by the time Heraeus severed its ties with Biomet, Biomet had already launched its own competing bone cement-a feat that Heraeus alleges its "competitors had failed to do for decades" and that it contends has since cost it 50 percent of its market share. App. 88. Suspecting that Biomet's bone cement was created using its trade secrets, Heraeus acquired and analyzed samples of Biomet's bone cement in 2005 and discovered that, except for "[m]inor discrepancies," it "w[as] virtually identical to" Heraeus' bone cement and that Esschem was manufacturing the copolymer components for Biomet. App. 89.

         Over the next few years, Heraeus took legal action to protect its trade secrets. It filed suit for trade secret misappropriation against Biomet in Germany in December 2008, and shortly thereafter, in aid of that litigation, brought discovery suits in the United States against both Esschem and Biomet.[2]

         In its discovery suit against Esschem, Heraeus sought "documents relating to communications between Esschem and . . . Biomet . . . regarding the development" of the copolymers. In re Heraeus Kulzer GmbH, 2009 WL 2981921, at *3. At the time, Heraeus' theory was that Biomet had "instruct[ed Esschem] to manufacture [the copolymers] using Heraeus' highly confidential information and trade secrets." App. 651. After an appeal, this Court ordered expedited discovery from Esschem in July 2010. Heraeus Kulzer GmbH, 390 Fed.Appx. at 93. Esschem then produced several e-mail chains between employees of Biomet and Esschem in which they discussed the development of the copolymers. In those chains, all of which had been produced to Heraeus by March 2011, Biomet employees Dan Smith and Rainer Specht specifically "discuss[ed] the specifications for R262 and R263" with Esschem employees. Appellee's Br. 37-38.

         Discovery against Esschem ended sometime between August and December 2011, but discovery and litigation against Biomet continued for several more years. In the course of the proceedings against Biomet-specifically, in a December 2011 deposition-Dan Smith corroborated what the e-mail chains had indicated: that Biomet employees were "direct participants," Appellant's Br. 11 (quoting Sealed App. 1703) in the development of the copolymers and that "their work with Esschem . . . ultimately led to the copolymers manufactured by Esschem for use in Biomet's bone cement," id. Heraeus contends it was not until "that time," i.e., December 2011, that it had "sufficient information to believe that Esschem had actively participated in the misappropriation of [its] trade secrets." Id. at 12.

         Just short of three years later, on September 8, 2014, Heraeus sued Esschem for trade secret misappropriation in the Eastern District of Pennsylvania. The complaint included one count for misappropriation of trade secrets under the Pennsylvania Uniform Trade Secrets Act (PUTSA) and five counts for common law claims.[3]

         Following discovery, Esschem moved for summary judgment, arguing that all of Heraeus' claims were time-barred. Under the PUTSA, a plaintiff has three years from when "the misappropriation was discovered or by the exercise of reasonable diligence should have been discovered" to bring suit. 12 Pa. Cons. Stat. § 5307. Esschem argued that Heraeus discovered or should have discovered the alleged misappropriations as early as 2005, making its PUTSA claims untimely. And because the common law claims were based on the same facts as the PUTSA claims and were subject to statutes of limitations of no more than four years, they were also untimely.

         In its opposition motion, Heraeus countered that it did not discover the necessary facts to sue for trade secret misappropriation until "the end of 2011," and that any dispute over when it discovered those facts was an issue of triable fact that precluded summary judgment. App. 663. Heraeus also urged that continuing misappropriations were subject to the separate accrual rule, so that, under the PUTSA, each additional use of Heraeus' trade secrets within three years of the filing of the complaint gave rise to a separate and timely cause of action.

         The District Court rejected both of Heraeus' arguments and ruled that the statutes of limitations had run on its PUTSA and common law claims. At the very latest, the Court found, Heraeus was aware of "the facts supporting its misappropriation claims" against Esschem by January 2009. Heraeus Med. GmbH v. Esschem, Inc., 285 F.Supp.3d 855, 861 (E.D. Pa. 2018). It also held that Esschem's additional uses of the trade secrets between September 2011 and the filing of the complaint in September 2014 were part of a single and time-barred cause of action under the PUTSA because Esschem's continued use of the trade secrets was "nothing more than a continuation of the original alleged misappropriation." Id. at 863. Interpreting the PUTSA to adopt the separate accrual rule, it reasoned, would "eliminate the statute of limitations altogether" by allowing Heraeus to "sit by for nearly a decade" after learning all facts necessary to bring a claim and to obtain damages for the entire period so long as one misappropriation took place within the statute of limitations.[4] Id. On that basis, the Court granted summary judgment for Esschem, and Heraeus now appeals.

         II. Jurisdiction and Standard of Review

         The District Court had diversity jurisdiction under 28 U.S.C. § 1332(a) and we have jurisdiction under 28 U.S.C. § 1291. Because we are sitting in diversity and Heraeus brings state claims, we apply Pennsylvania law to address the parties' arguments related to the PUTSA's statute of limitations. See Ragan v. Merchs. Transfer & Warehouse Co., 337 U.S. 530, 533 (1949); Lafferty v. St. Riel, 495 F.3d 72, 76 (3d Cir. 2007) (citing Guar. Tr. Co. of N.Y. v. York, 326 U.S. 99, 110 (1945)).

         We review the District Court's grant of summary judgment de novo. Faush v. Tuesday Morning, Inc., 808 F.3d 208, 215 (3d Cir. 2015). To prevail at this stage, the moving party must establish that "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). All facts should be viewed "in the light most favorable to the non-moving party," with "all reasonable inferences [drawn] in that party's favor." Scheidemantle v. Slippery Rock Univ. State Sys. of Higher Educ., 470 F.3d 535, 538 (3d Cir. 2006). A factual dispute is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

         III. Discussion

         On appeal, Heraeus raises the same two arguments it did below. First, it contends that it did not discover sufficient facts to state a claim against Esschem until December 2011, and therefore its September 2014 suit fell within the three-year limitations period. And to the extent there is a dispute over when Heraeus discovered sufficient facts to state a claim, Heraeus argues, this is a factual dispute for the jury. Second, Heraeus posits that even if the limitations period began to run before September 2011, Esschem would still be liable for each time it used the trade secrets to manufacture the copolymers between ...


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