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Protege Biomedical, LLC v. Z-Medica, LLC

United States District Court, D. Minnesota

July 24, 2019

Z-MEDICA, LLC, Defendant.





         This action arises out of patent and trade secret disputes between Plaintiff Protégé Biomedical, LLC (“Protégé”) and Defendant Z-Medica, LLC (“Z-Medica”). Both Protégé and Z-Medica create hemostatic, or blood-clotting, products. In an effort to sell the company, Protégé engaged in an acquisition discussion with Z-Medica. Protégé alleges that it shared trade secret information with Z-Medica during that discussion and that Z-Medica wrongfully incorporated the trade secret information into its own patent. Protégé also alleges that, by using the trade secret information, Z-Medica breached a non-disclosure agreement.

         Protégé brings the following claims against Z-Medica: (I) Breach of Non-Disclosure Agreement; (II) Violation of the Federal Defend Trade Secrets Act of 2016 (“FDTSA”), 18 U.S.C. § 1836; (III) Violation of the Minnesota Uniform Trade Secrets Act (“MUTSA”), Minn. Stat. § 325C.01; (IV) Unjust Enrichment; (V) Tortious Interference; (VI) Declaratory Judgment of Non-Infringement; and (VII) Declaratory Judgment of Invalidity of Z-Medica's Patents. Before the Court now is Z-Medica's Motion to Dismiss for Lack of Personal Jurisdiction and Failure to State a Claim.

         Because Protégé has made a prima facie showing that Z-Medica is subject to personal jurisdiction in Minnesota, the Court will deny Z-Medica's Motion to Dismiss for Lack of Personal Jurisdiction. Because Protégé has not alleged sufficient facts to show that Z-Medica contracted with Protégé, the Court will dismiss Count I without prejudice. Because Protégé's claims of tortious interference and unjust enrichment are barred, the Court will dismiss Counts IV and V with prejudice. Because Protégé has alleged sufficient facts to support its claims of trade secret violations and non-infringement, the Court will deny Z-Medica's Motion to Dismiss with respect to Counts II, III, and VI. Finally, because Protégé has stated a claim as to the invalidity of one patent, but has not stated a claim with respect to others, the Court will dismiss Count VII in part and without prejudice.


         Protégé is a Minnesota company that was founded in 2011 by Michael and Susan Wuollet. (1st Am. Compl. (“FAC”) ¶¶ 4, 9, Jan. 25, 2019, Docket No. 52.) Protégé specializes in researching, inventing, and developing hemostatic, or blood-clotting, products. (Id. ¶¶ 10, 13.) Its products are available for sale in the animal market and have recently been cleared by the Food and Drug Administration for sale in the human market. (Id. ¶ 12.) Protégé keeps certain information collected in its research and development work as trade secrets. (Id. ¶ 13.)

         Z-Medica is a Delaware LLC with its principal place of business in Connecticut. (Id. ¶ 5.) Z-Medica manufactures “QuikClot” products, which accelerate blood clotting in humans. (Decl. of Dina Dubey (“Dubey Decl.”) ¶ 4, Feb. 7, 2019, Docket No. 62.) Z-Medica sells its products throughout the U.S. and internationally, with less than 1% of revenue coming from sales in Minnesota. (Id. ¶ 6-7.) Z-Medica employs 121 people throughout the U.S., with approximately half reporting to its Connecticut office. (Id. ¶ 9.) Two employees work from home offices in Minnesota as sales representatives. (Id. ¶ 10.) Z-Medica sells its products in Minnesota, but does not have an office in the state and is not licensed to do business here. (FAC ¶ 7; Dubey Decl. ¶¶ 9, 11, 14.)

         II. Investment Discussions and Non-Disclosure Agreement

         In December 2017, Protégé hired Duff & Phelps, a financial advising firm, to assist in its efforts to sell the company. (FAC ¶ 15.) Duff & Phelps reached out to Doug Schillinger, a Managing Director at Z-Medica's minority owner DW Healthcare Partners (“DWHP”), a private equity investment firm, to initiate a discussion about Z-Medica acquiring Protégé. (Id. ¶ 16; Dubey Decl. ¶ 17-18.) Schillinger was also a member of Z-Medica's Board of Directors at the time. (FAC ¶ 16.) Protégé alleges that both it and Duff & Phelps understood Schillinger to be an agent of Z-Medica when Duff & Phelps reached out to him. (FAC ¶ 17.) Duff & Phelps also sent two emails directly to Z-Medica prior to the acquisition discussions. (Dubey Decl. ¶ 19.)

         On January 23, 2018, Schillinger and Protégé signed a non-disclosure agreement (“the NDA”). (FAC ¶ 18; Decl. of Adam Stormoen (“Stormoen Decl.”) ¶ 4, Ex. 1 (“NDA”) at 5, Dec. 12, 2018, Docket No. 26-1.) The NDA was created by Duff & Phelps and is titled “Project Falcon, ” which was Duff & Phelps's internal reference to Protégé. (Stormoen Decl. ¶ 4; NDA at 1.) The body of the NDA does not identify either Z-Medica or DWHP, instead stating, “[t]he [BLANK] (“Buyer”) is interested in obtaining information about [Protégé] in order to study the feasibility of Buyer's purchase of [Protégé].” (NDA at 1.) It prohibits “the Buyer” from using Protégé's “Confidential Information . . . for any purpose whatsoever other than for the purpose of studying the feasibility of a purchase of [Protégé] by Buyer.” (Id.) The NDA excludes from the definition of “Confidential Information” any information in the public domain at the time of the NDA's execution; information which becomes public after execution; and information independently developed by “the Buyer” without use of Protégé's Confidential Information. (Id. at 2-3.)

         Below his signature on the NDA, Schillinger listed his company as DWHP and his title as Managing Director. (Id. at 5.) Nonetheless, Protégé alleges that Schillinger “held himself out as having authority to sign an NDA on behalf of Z-Medica” and that it entered discussions with Z-Medica because it understood that Z-Medica was bound by the NDA as “the Buyer.” (FAC ¶¶ 19, 24.) Protégé also alleges that, prior to any direct discussions with Z-Medica, Schillinger made Z-Medica employees aware of the NDA. (Id. ¶ 21.)

         On February 9, 2018, Protégé attended a conference call with Schillinger, representatives from Duff & Phelps, and two directors from Z-Medica. (FAC ¶ 29; Dubey Decl. ¶ 20.) Protégé alleges that it prefaced the discussion with the statement, “[s]ince we're all under an NDA, ” and that no one from Z-Medica denied being subject to the NDA. (FAC ¶ 29.) During the call, Protégé shared confidential and trade secret information. (FAC ¶ 30.) This information included “a unique combination of: (1) Protégé's technical information; (2) Protégé's know-how information; (3) Protégé's strategy in obtaining its patent, and (4) Protégé's marketing strategy, ” (collectively, “Trade Secret Information”). (Id.) Protégé alleges that Z-Medica was unaware of the Trade Secret Information prior to the call. (Id. ¶ 32.)

         Following the February 9 call, Dina Dubey, Z-Medica's Chief Operating Officer, and Jessica Gould, Z-Medica's then-Director of Corporate Development, emailed Duff & Phelps to coordinate Protégé's attendance at a previously scheduled testing session in Boston, where Z-Medica was planning to test products from several companies. (Dubey Decl. ¶¶ 1, 20-21, 23.) Susan and Michael Wuollett attended that testing session with Dubey and Gould on April 17. (Id. ¶ 24.) Afterward, Susan Wuollett exchanged thank you emails with Dubey and Gould. (Id. ¶ 25.) On May 5, 2018, Z-Medica emailed Duff & Phelps to state that Protégé's product did not meet Z-Medica's standards. (Id. ¶ 27.)

         III. The Patent

         Both Protégé and Z-Medica use materials known as aluminum silicates in their products. (See FAC ¶¶ 62, 97-98.) Aluminum silicates may be hydrated or non-hydrated. (See id.) Hydrated aluminum silicates include materials known as clay, Kaolin, and Kaolinite. (FAC ¶¶ 98, 101.) Z-Medica uses hydrated aluminum silicates in its inventions, while Protégé does not. (FAC ¶¶ 101-02.)

         On April 10, 2018, Z-Medica filed a continuation patent application (the “Continuation Application”) for its “Clay-Based Hemostatic Agents.” (FAC ¶ 34; Decl. of Charles Nauen ¶ 2, Ex. 1 (“Continuation App.”) at 2, Feb. 7, 2019, Docket No. 61-1.) Z-Medica applied for a continuation of application No. 15/841, 843, which itself was a continuation of other Z-Medica patent applications dating back to 2006. (Continuation App. at 2.) Protégé alleges that Z-Medica relied on and incorporated Trade Secret Information it obtained during the February 9 conference call in the Continuation Application to “expand the scope of [its] patented subject matter.” (FAC ¶¶ 34-36.)

         Protégé does not specify where its Trade Secret Information appears in the Continuation Application or how its use expands Z-Medica's patent portfolio. Both the Continuation Application and an earlier application dated November 29, 2007, describe the use of hydrated aluminum silicates in Z-Medica's inventions. (Continuation App. at 10, 15.) Likewise, both applications state that, while “[t]he hemostatic agents generally include clay materials, ” “[t]he present invention is not limited to clay, ” and reference other hemostatic materials that are within the inventions' scope. (Id. at 10, 25.)

         The Continuation Application was approved on October 2, 2018, and became the “‘106 Patent.” (FAC ¶¶ 42-43 & Ex. A, Docket No. 52-1.) The ‘106 Patent describes the use of both hydrated aluminum silicates, such as kaolin, and unspecified aluminum silicates. (See ‘106 Patent at 20.)

         In September 2018, the Food and Drug Administration cleared Protégé's gauze product for use in the human market, and Protégé made plans to market the product. (FAC ¶ 41.) However, following approval of the Continuation Application, on October 10, Protégé received a letter (the “Letter”) from Z-Medica warning Protégé that if it marketed its gauze product, it would risk patent infringement allegations from Z-Medica. (Id. ¶ 43 & Ex. 2 (“Letter”) at 1, Jan. 25, 2019, Docket No. 52-2.) Specifically, the Letter warned that Protégé's product would infringe on Claims 1 and 11 of the ‘106 Patent and possibly on other Z-Medica patents. (Letter at 1; FAC ¶ 43.)

         Protégé alleges that its product is ready to ship and that it has “multiple imminent business deals that would deliver its product to the human market in 2019.” (FAC ¶¶ 45-46.) Protégé also alleges that companies have decided not to do business with Protégé because of Z-Medica's statements about patent infringement. (Id. ¶ 48.)

         IV. Procedural History

         Protégé brought this action against Z-Medica on January 25, 2019, alleging seven Counts: (I) Breach of NDA; (II) Violation of the FDTSA, 18 U.S.C. § 1836; (III) Violation of the MUTSA, Minn. Stat. § 325C.01 et seq.; (IV) Unjust Enrichment; (V) Tortious Interference; (VI) Declaratory Judgment of Non-Infringement; and (VII) Declaratory Judgment of Invalidity of Z-Medica's Patents. (FAC ¶¶ 50-108.) On February 7, 2019, Z-Medica moved to dismiss the Amended Complaint for lack personal jurisdiction pursuant to Rule 12(b)(2) and for failure to state a claim pursuant to Rule 12(b)(6). (Mot. to Dismiss, Feb. 7, 2019, Docket No. 57.)


         I. Personal Jurisdiction

         A. Standard of Review

          “Federal Circuit law applies to the jurisdictional analysis for a claim of patent infringement.” WhatRU Holding, LLC v. Bouncing Angels, Inc., 2014 WL 641517, at *2 (D. Minn. Feb. 19, 2014) (citing 3D Sys. V. Aarotech Labs., Inc., 160 F.3d 1373, 1377 (Fed. Cir. 1998)). “When the action includes non-patent claims that go ‘hand-in-hand' with the patent infringement claim, Federal Circuit law also applies to the non-patent claims.” Id. (quoting Amana Refrigeration, Inc. v. Quadlux, Inc., 172 F.3d 852, 856-57 (Fed. Cir. 1999)). Because Protégé's patent claims arise out of the same set of facts and are “intimately involved” with its non-patent claims, the Court will apply Federal Circuit law in deciding jurisdictional questions. Id.

         “Because the parties have not conducted discovery, [Protégé] need[] only to make a prima facie showing that [Z-Medica was] subject to personal jurisdiction” in Minnesota. Silent Drive, Inc. v. Strong Industries, Inc., 326 F.3d 1194, 1201 (Fed. Cir. 2003) (internal quotation marks omitted). For purposes of a prima facie showing, the Court must view “the pleadings and affidavits . . . in the light most favorable to the plaintiff.” Id. (internal quotation marks omitted).

         B. Analysis

         The Court may exercise personal jurisdiction over Z-Medica if: (1) Minnesota's long-arm statute is satisfied; and (2) exercis[ing] jurisdiction satisfies the requirements of due process. Silent Drive, 326 F.3d at 1200-01. “Because Minnesota's long-arm statute, Minn. Stat. § 543.19, reaches as far as the Constitution allows, the Court need only consider whether exercising personal jurisdiction over [Z-Medica] is consistent with due process.” Pope v. Elabo ...

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