NJ Appellate Division Upholds Summary Judgment in Favor of Former Employee and Employer on Alleged Trade Secret Theft

By Sean Mack, Esq.
smack@pashmanstein.com

NJ Appellate Division: Former employees can use substantial knowledge gained from their work experience to compete, where the manufacturing process is largely disclosed publicly and is susceptible to reverse engineering  (UCB Manufacturing, Inc. v. Tris Pharma, Inc., 11-2-1124 , (App. Div. August 27, 2013))

The New Jersey Appellate Division, interpreting New York law, upheld the grant of summary judgment in favor of a former employee and his new employer who were alleged to have stolen trade secrets and confidential manufacturing information to develop a competing generic cough syrup.   The court’s conclusion rested primarily on the trial court’s finding that no trade secrets had been articulated and the alleged confidential information could be gleaned from an expired patent, other public information, and the former employee’s general knowledge and negative-know-how – knowing what does not work.

Plaintiff, the manufacturer of Tussionex, a cough syrup, brought claims of breach of a confidentiality agreement and unfair competition against one of its former employees and his new employer, a competitor generic drug manufacturer.  Plaintiff alleged that defendants stole confidential information and used that information to develop a generic version of Tussionex.

The former employee was primarily responsible for formulation development and was the lead formulator for one of the cough syrups, which was based on a proprietary technology involving an extended release suspension system that utilizes a coated polymer resin to control the rate of drug release.  During a five day evidentiary hearing, experts testified about the complexity of the manufacturing process for Tussionex, which prevented generic alternatives from quickly entering the market place after the plaintiff’s patent expired.

On a summary judgment motion, the parties disputed whether defendants manufactured their generic alternative using confidential and proprietary information, or from publicly available information and general knowledge and skill defendant obtained from his work experience.

Despite those disputed facts, the trial court concluded, and the Appellate Division affirmed, that much of the alleged confidential information is disclosed on the product label and patent and is susceptible to reverse engineering, and therefore is not subject to protection as a trade secret or as confidential information.

The Appellate Division then confirmed the grant of summary judgment in favor of defendants, finding that the plaintiff had no legitimate business interest in preventing the former employee and competitor from using non-confidential information and know-how to compete with Plaintiff.  The court went on to find that the confidentiality agreement signed by defendant was overbroad in that it sought to restrain the use or disclosure of knowledge and information not protectable as a trade secret and imposed unreasonable restrictions on defendant’s employability in his specialized field.

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