Wright Medical Technology, Inc. v. Paragon 28, Inc.

          ORDER

          Philip A. Brimmer Chief Judge

         This matter is before the Court on defendant’s Motion to Dismiss Counts Eleven through Seventeen of the Third Amended Complaint [Docket No. 112]. The Court has jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1338.

         I. BACKGROUND^[1]

         Plaintiff Wright Medical Technology, Inc. (“Wright”) is a medical device developer, manufacturer, and distributor. Docket No. 89 at 3, ¶ 9. Among its products are surgical plates and other instruments used to repair bones in the foot and ankle areas. Id. Defendant Paragon 28, Inc. (“Paragon”) also manufactures and distributes orthopedic plate systems and other devices used to repair bones in the foot and ankle. Id. at 8, ¶¶ 33-34.

         Paragon was founded by three former high-level Wright employees – Albert DaCosta, Frank Bono, and Matt Jarboe – and one former Wright independent contractor, Lee Rosenthal (collectively, “the founders”). Id. at 10-11, ¶¶ 43-44. Since Paragon’s founding, at least thirteen former Wright employees or independent contractors have begun working for or with Paragon. Id. at 11, ¶ 44. Each of the former Wright employees worked in the same or substantially the same position at Paragon as he or she had at Wright. Id. at 12, ¶ 47.

         While employed at Wright, these individuals had access to and knowledge of Wright’s trade secrets, including its current and planned product lines, business plans, customers, sales, and other valuable information. Id. at 12-13, ¶¶ 48-49. Each of the founders had entered into a confidentiality agreement with Wright agreeing to keep confidential Wright’s trade secret information. Id. at 14, ¶ 52. Further, at least twelve of the former employees had signed confidentiality, non-competition, non-solicitation and/or intellectual property rights agreements while at Wright. Id. at 12, ¶ 46.

         Wright contends that the former employees misappropriated its confidential and trade secret information for the benefit and financial gain of Paragon, with the approval of Paragon. Id., ¶ 48. For example, Wright alleges that several former employees sent Wright confidential or trade secret information to themselves via email before they left employment at Wright. See, e.g., Id . at 20, ¶ 74; at 23, ¶¶ 86-87; at 32, ¶ 117; and at 35, ¶¶ 136-37. Wright contends that the misappropriation was “for the direct benefit of Paragon” and gave Paragon “a significant and unfair competitive advantage.” See, e.g., Id . at 20, ¶ 76.

         Further, Wright alleges that the founders knowingly and deliberately misappropriated Wright’s confidential and trade secret information. More specifically, Wright alleges that Bono and DaCosta, while at Wright, were privy to confidential and trade secret information that included the specific contractual terms and licensing agreements entered into between Wright and surgical consultants or Wright and Key Opinion Leaders (“KOLs”). Id. at 17, ¶ 63. Wright alleges that DaCosta and Bono misappropriated this information by using it to solicit certain surgical consultants and KOLs to cease their relationships with Wright and switch to similar roles at Paragon. Id. Further, Wright alleges that Rosenthal induced former employee Luke Gordon to solicit a Wright contract manager for the contract manager’s list of products purchased from Wright so that Paragon could undercut Wright’s pricing and induce the contract manager to purchase equivalent devices from Paragon. Id. at 22-24, ¶¶ 81, 88-90.

         Finally, Wright alleges that Paragon has participated in unfair competition. For example, Paragon promoted a “cadaver course” intended to teach surgeons to perform procedures of the foot and listed Dr. Christopher Hyer, a Wright KOL, as “anticipated course faculty” on the course’s promotional material. Id. at 37, ¶ 142-43. The advertisement included Dr. Hyer’s name and photo. Docket No. 89-19. Wright alleges that Dr. Hyer did not provide consent for Paragon to use his name and picture and that Paragon was aware that it did not have Dr. Hyer’s consent. Docket No. 89 at 37, ¶ 144-45. Wright argues that this constitutes false advertising. See Id . at 37. Moreover, Wright alleges that Paragon engaged in unfair competition when it submitted a patent application that was nearly identical to a patent application that W right had filed a month prior. Id. at 20-21, ¶¶ 77-79. It also alleges that Paragon has offered several KOLs equity or ownership interests in Paragon and that the KOLs are using Paragon products in surgical procedures without disclosing their interests, which constitutes unfair competition. Id. at 17, ¶ 64; at 76, ¶ 300.

         On September 28, 2018, Wright filed its Third Amended Complaint [Docket No. 89], raising seventeen claims against Paragon. Docket No. 89 at 38-85. Paragon filed a partial Motion to Dismiss Counts Eleven through Seventeen of the Third Amended Complaint [Docket No. 112] on October 31, 2018. The claims Paragon seeks to have dismissed are (1) misappropriation of trade secrets under the Federal Defend Trade Secrets Act (“DTSA”), 18 U.S.C. § 1836; (2) trade secret misappropriation under the Colorado Uniform Trade Secrets Act (“CUTSA”), Colo. Rev. Stat. § 7-74-102(4); (3) unfair competition under the Lanham Act, 15 U.S.C. § 1125(A)(1); (4) common law unfair competition; (5) intentional interference with contracts; (6) civil theft; (7) conversion. Id. at 70-84. Wright filed a response [Docket No. 115], to which Paragon replied. Docket No. 118.

         II. LEGAL STANDARD

         To survive a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a complaint must allege enough factual matter that, taken as true, makes the plaintiff’s “claim to relief . . . plausible on its face.” Khalik v. United Air Lines, 671 F.3d 1188, 1190 (10th Cir. 2012) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “The ‘plausibility’ standard requires that relief must plausibly follow from the facts alleged, not that the facts themselves be plausible.” RE/MAX, LLC v. Quicken Loans Inc., 295 F.Supp.3d 1163, 1168 (D. Colo. 2018) (citing Bryson v. Gonzales, 534 F.3d 1282, 1286 (10th Cir. 2008)). Generally, “[s]pecific facts are not necessary; the statement need only ‘give the defendant fair notice of what the claim is and the grounds upon which it rests.’” Erickson v. Pardus, 551 U.S. 89, 93 (2007) (per curiam) (quoting Twombly, 550 U.S. at 555) (omission marks omitted). “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged – but it has not shown – that the pleader is entitled to relief.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) (internal quotation marks and alteration marks omitted); see also Khalik, 671 F.3d at 1190 (“A plaintiff must nudge [his] claims across the line from conceivable to plausible in order to survive a motion to dismiss.” (quoting Twombly, 550 U.S. at 570)). If a complaint’s allegations are “so general that they encompass a wide swath of conduct, much of it innocent, ” then plaintiff has not stated a plausible claim. Khalik, 671 F.3d at 1191 (quotations omitted). Thus, even though modern rules of pleading are somewhat forgiving, “a complaint still must contain either direct or inferential allegations respecting all the material elements necessary to sustain a recovery under some viable legal theory.” Bryson, 534 F.3d at 1286 (alteration marks omitted).

         III. ANALYSIS

         A. Trade Secret Misappropriation

         Paragon argues that Wright’s claims for trade secret misappropriation under DTSA and CUTSA must be dismissed for failure to state a claim because (1) Wright has failed to show that Paragon itself was responsible for any misappropriation; (2) Wright has failed to allege that the Paragon founders engaged in misappropriation; and (3) Wright has failed to sufficiently identify its trade secrets. Docket No. 112 at 6-9.

         To state a claim for misappropriation of trade secrets, Wright must allege facts supporting the following elements: (1) Wright possessed a valid trade secret; (2) the trade secret was disclosed or used without consent; and (3) Paragon knew, or should have known, that the trade secret was acquired by improper means. Gates Rubber Co. v. Bando Chemical ...