Court: District Court, N.D. Ohio; October 24, 2014; Federal District Court
Eric Hunter, employed by Orthofix from 2000 to 2012 as a medical device salesman, abruptly resigned via email and joined competitor DJO after Orthofix denied his proposal to become an independent distributor. Hunter and fellow salesman Bob Lemanski conspired to leave Orthofix, taking confidential sales information, including unexecuted orders, to DJO. A bench trial was held from July 15-17, 2014, with final arguments on August 21, 2014.
Hunter, a 46-year-old former employee with no prior medical device sales experience, had signed an employment agreement with Orthofix that included non-compete and non-disclosure clauses governed by Texas law. He began as a territory sales manager, later becoming a district sales manager, and was responsible for developing relationships with orthopedic doctors and other medical professionals. After a compliance violation in 2009, he was demoted and lost part of his territory to Lemanski. In April 2012, Hunter and Lemanski proposed their independent distributor plan to Orthofix, which was ultimately rejected.
In June 2012, after Orthofix rejected their independent distribution proposal, Eric Hunter and Bob Lemanski began planning to leave Orthofix for DJO. Richard Spina, then DJO's area vice president of sales, reached out to Hunter, who introduced Lemanski as his partner. They discussed the transition to DJO and exchanged messages about how to avoid breaching their non-compete agreements with Orthofix. Hunter proposed the idea of selling pain cream to prompt their firing, thus circumventing the non-compete clauses. In August 2012, Hunter sent his Orthofix employment agreement to Spina and presented a business plan for a distribution relationship with DJO, emphasizing their combined experience and potential revenue growth in the Detroit and Northwest Ohio markets. They discussed their strategy to enhance sales and customer engagement, ultimately providing Spina with detailed sales reports and W-2 forms from Orthofix during a meeting at a restaurant.
Lemanski and Hunter devised a strategy to join DJO while circumventing legal complications from their Orthofix employment agreements. Upon joining DJO, Lemanski agreed to refrain from selling bone growth stimulators for one year, instead marketing pain relief products to doctors he had previously serviced through Orthofix. Hunter would then sell bone growth stimulators to those same doctors after being introduced by Lemanski, ceasing sales to his Orthofix customers and referring them to other DJO representatives. Hunter resigned from Orthofix on November 13, 2012, via email, and met with DJO representatives that same morning, signing an employment contract guaranteeing a minimum of $230,000 in salary and commissions for his first year. He resigned without notice to preempt Orthofix from appointing a replacement to his accounts.
Text messages between Hunter and Lemanski indicated their intention to keep Orthofix representatives out of certain territories before their departure. Hunter claimed he left due to Orthofix’s regulatory issues but did not mention these concerns in his resignation email or raise them with supervisors prior to leaving. His departure was motivated by a desire to become an independent distributor and earn more with DJO. Upon leaving, Hunter retained numerous Orthofix documents on his personal laptop, including sales reports and physician information, and did not delete them, believing no confidential information was present. He also possessed hard copies of patient files, which he agreed to burn after a recommendation from Orthofix HR. After joining DJO, Hunter began contacting Orthofix customers with another DJO representative, claiming his departure was due to fraud investigations at Orthofix. Following their exit, sales of bone growth stimulators in their territory dropped significantly, with Orthofix estimating damages of $1,623,877 in lost profits from accounts handled by Hunter and Lemanski.
Orthofix's counsel faced challenges in defining what constituted trade secrets or confidential information under the employment agreement during the trial. Ultimately, they identified the "playbook," an aggregate of information collected by sales representatives about physicians in their territories. Orthofix does not use a standardized method for gathering this information; instead, regional sales managers provide varying instructions. In Hunter's region, sales representatives were required to maintain detailed customer lists that included data on physician usage of bone growth stimulators, types of surgeries performed, and preferences.
Hunter gathered physician-specific information through interactions with physician staff and meetings, often documented in spreadsheets. These spreadsheets included key contacts, physician schedules, and indicators of whether a physician was "underutilizing" stimulators. Additionally, Hunter recorded physicians' beliefs in the value of bone growth stimulators and their prescribing habits, differentiating between "believers" and "non-believers."
Hunter and Lemanski also created customer and target lists for future employment at DJO and maintained a list of physicians for sending holiday cards. Furthermore, Hunter had access to a password-protected sales portal that contained territory-specific sales data, order history, and tracking for submitted orders, accessible only to him and his district sales manager.
Hunter had access to wholesale price information from Orthofix, allowing physicians to purchase stimulators at discounted rates, resell them to patients, and bill insurance, retaining the profit from the difference. Orthofix aimed to keep these wholesale prices confidential to prevent competitors from undercutting them; however, their wholesale agreements lacked non-disclosure provisions, permitting physicians to disclose prices to competitors. Hunter retained documents with Orthofix's wholesale prices on his personal laptop after leaving the company.
In May 2012, Hunter negotiated new wholesale prices for bone growth stimulators for Mercy Health Systems, specifically involving Dr. Leo Clark, a neurosurgeon who used these devices. After joining DJO in November 2012, Hunter solicited Dr. Clark to purchase DJO products at lower prices than those previously negotiated with Orthofix.
Orthofix sought to protect its competitive information through strategies like requiring sales representatives to maintain detailed playbooks of physician information, although not uniformly enforced by all supervisors. Hunter's supervisor, Summers, only requested a basic customer list and did not prioritize the protection of playbooks, believing in trusting well-compensated representatives. Orthofix required employees to sign agreements prohibiting the disclosure of confidential information, but there was no clear communication to Hunter regarding what constituted confidential information during his employment.
Orthofix pursued legal claims for the misappropriation of trade secrets under the Ohio Uniform Trade Secret Act, breach of contract related to the non-disclosure provision in Hunter’s employment agreement, and tortious interference. Hunter counterclaimed for unpaid commissions.
Orthofix alleges that the playbook information qualifies as a trade secret under Ohio law and that Hunter misappropriated this information upon leaving the company. Hunter contends that the playbook does not meet the criteria for trade secret protection. To succeed in a claim of trade secret misappropriation under the Ohio Uniform Trade Secrets Act (OUTSA), Orthofix must demonstrate: 1) the existence of a trade secret; 2) acquisition through a confidential relationship; and 3) unauthorized use. The burden of proof lies with Orthofix to show, by a preponderance of the evidence, that the playbook holds trade secret status.
OUTSA defines a trade secret as information that derives independent economic value from not being generally known or readily ascertainable, and that is subject to reasonable efforts to maintain its secrecy. The Ohio Supreme Court employs a six-factor test to assess whether a trade secret exists, focusing on the information's knowledge outside and inside the business, the precautions taken to protect it, its economic value, the resources expended in its development, and the difficulty others would face in replicating it.
The court notes that compilations of non-individually protectable information can collectively constitute a trade secret. Despite Hunter's argument that individual elements of the playbook are publicly available, the court emphasizes that the combination of this information can provide a competitive advantage. Additionally, while personal relationships are valuable in sales, they do not negate the potential protection of the information collected. The court suggests that Orthofix's claim may be weakened by insufficient efforts to safeguard the playbook information.
The Sixth Circuit requires that possessors of potential trade secrets take proactive measures to maintain their secrecy, as public disclosure nullifies their trade secret status. Disclosure to customers without a confidentiality agreement compromises protection. In this case, Hunter's supervisor, Summers, failed to adequately safeguard the playbook for Hunter's territory, and Orthofix lacked a cohesive strategy to protect this sensitive information. Orthofix made no significant efforts to retrieve Hunter's playbook details after his departure, and wholesale prices were shared with customers without confidentiality provisions.
Orthofix's argument references a nondisclosure clause in Hunter's employment agreement, which mandates confidentiality from employees and distributors. The company also points out that sales data in its portal required unique logins, and its Code of Conduct mandates confidentiality regarding proprietary information, which includes research, product details, and customer lists. However, while the sales portal provided some protection, it primarily served as an order submission tool, and Hunter did not access it after his termination.
The court finds that Orthofix's general employee confidentiality agreements were insufficient to maintain trade secret status without reasonable enforcement or monitoring efforts. Ultimately, the complaint against Hunter centers on his departure to a competitor, reflecting a non-compete issue rather than a clear case of trade secret misappropriation.
Defendants obtained much of the relevant information through their employment interactions with plaintiffs, which is the concern of a noncompetition agreement. The court previously addressed non-compete issues through a stipulated order. While Hunter's departure from Orthofix was described as “boorish,” it did not alter the nature of the information as trade secrets. Orthofix claims Hunter breached the non-disclosure provision of his employment agreement, which prohibits the use or disclosure of confidential information acquired during employment. Hunter contends that this provision is unenforceable under Texas law. The provision outlines "confidential information" to include customer lists, trade secrets, and other sensitive business information developed by Orthofix. The court found that the confidential information defined in the non-disclosure provision aligns with what qualifies as trade secrets under Ohio law. Orthofix's inability to specify confidential information that is not also a trade secret undermines its misappropriation and breach of contract claims. The court noted that the non-disclosure provision effectively functions as a lifetime non-compete clause without limits, which would be unenforceable under Texas law. The court previously reformed Hunter’s non-compete clause to a one-year, 100-mile limitation and would apply similar reformation to the non-disclosure clause.
In terms of tortious interference, Orthofix alleged that Hunter interfered with its contracts with physicians by making disparaging comments after joining DJO and by converting customer orders intended for Orthofix to DJO. The court found merit only in the second claim, concluding that Hunter and Lemanski hoarded orders for Orthofix bone growth stimulators to take them to DJO upon their departure, with 46 total orders identified, three of which were attributed to Hunter's customers.
Hunter and Lemanski returned Orthofix orders to the doctors, claiming they could not fulfill them due to no longer working for the company. They offered to substitute the requested Orthofix bone growth stimulators with DJO stimulators, resulting in DJO filling most of those outstanding orders. Orthofix must demonstrate five elements to prove tortious interference: the existence of a business relationship or contract, Hunter's knowledge of it, intentional and improper action by Hunter to disrupt it, lack of justification for such actions, and resultant damages. The court found that Hunter tortiously interfered with Orthofix's contracts with 46 doctors, lacking justification and causing Orthofix to suffer damages in lost profits. The court determined damages of $62,039 based on a 36.5% profit margin and a $3,695 unit cost.
Regarding Hunter's Counterclaim for unpaid commissions and expenses, Orthofix acknowledged a debt of $8,710, while Hunter claimed $20,262. The court found Hunter did not adequately support his claim for the larger amount, deeming his resignation email insufficient evidence. The court accepted Orthofix’s calculation of $8,710 based on testimony regarding commission awards. Consequently, Hunter receives this amount, with no interest due on the tendered sum. The court ruled in favor of Hunter on Orthofix’s misappropriation and breach of contract claims while ruling in favor of Orthofix on the tortious interference claim. The findings resulted in Orthofix being awarded $62,039, and Hunter awarded $8,710.
