“‘California courts have recognized that self-evident variants of the known art cannot be protected’ under trade secret law.” – Federal Circuit
The U.S. Court of Appeals for the Federal Circuit (CAFC) issued a precedential decision Friday in International Medical Devices, Inc. v. Cornellreversing the United States District Court for the Central District of California’s denial of judgment as a matter of law (JMOL) on trade secret misappropriation, breach of contract, and patent invalidity claims. The district court had found that Dr. Robert Cornell and several other defendants misappropriated four trade secrets related to cosmetic penile implants, breached a nondisclosure agreement (NDA), and that two patents were invalid for failure to name an inventor. The CAFC reversed the denial of JMOL on those claims but affirmed the district court’s denial of JMOL for the defendants with respect to counterfeiting liability. The opinion was authored by Judge Dyk and joined by Judge Reyna and Judge Taranto.
International Medical Devices, Inc. (IMD), Menova International, Inc., and James Elist manufacture and sell the Penuma cosmetic penile implant. Dr. Cornell attended a Penuma surgical training session hosted by James Elist in March 2018 and signed an NDA. During the training, James Elist disclosed several ideas for improving the implant, including incorporating internal cavities to create more flexibility, placing mesh tabs near the distal tip to allow tissue ingrowth, and suturing the mesh tabs with absorbable sutures. IMD, Menova, and James Elist alleged that Dr. Cornell and his associates used this information to develop a competing implant, Augmenta, and filed patent applications without naming James Elist as an inventor. The jury returned a verdict finding misappropriation of four trade secrets, breach of the NDA, counterfeiting, and patent invalidity. The district court awarded $5,772,044 in reasonable royalties, $11,544,088 in exemplary damages, $1,000,000 in statutory damages for counterfeiting, and entered a permanent injunction for five years.
The Federal Circuit examined whether the four asserted trade secrets qualified for protection under the California Uniform Trade Secrets Act (UTSA). The first three alleged trade secrets involved internal pockets within the silicone body to add softness and elasticity, mesh tabs at the distal tip to facilitate tissue ingrowth, and absorbable sutures combined with the mesh tabs. The CAFC found that these concepts were disclosed in publicly available patents issued to Subrini in 1992 and Finney in 1980 and held that what is disclosed in a patent is “generally known to the public” and cannot be a trade secret. IMD, Menova, and James Elist argued that the prior art patents had never been embodied in actual products, but the CAFC found this position “unsupported and incorrect.” The patent disclosures made the alleged trade secrets generally known, whether or not they were ever commercialized.
Moreover, the CAFC concluded that the “California courts have recognized that self-evident variants of the known art cannot be protected” under trade secret law. Translating a generally known concept from the environment of a therapeutic implant to the adjacent environment of a cosmetic implant could not sustain trade secret protection where both environments presented the same problem solved by the same solution. Regarding the fourth alleged trade secret, a list of instruments and materials used for the surgery, the Federal Circuit found that IMD did not preserve the secrecy of the list’s contents. The evidence showed that the instrument list was emailed to Dr. Cornell and to a third party, SCA Surgery, without any explicit indications of confidentiality.
The denial of JMOL on the breach of contract claim was also reversed by the CAFC, which found that the claim depended on the same alleged trade secrets and failed in light of the NDA’s exclusion of information that “was or becomes generally available to the public.”
Turning to the patent invalidity claim, the CAFC examined whether James Elist was the true inventor of U.S. Patent Nos. 10,413,413 and 10,980,639. A person who contributes only what is already known in the prior art does not contribute to conception and is not an inventor. Since the trial record established that the ideas James Elist contributed were generally known, those ideas could not sustain an inventorship claim. The CAFC also noted that claims incorporating internal pockets, mesh tabs, and absorbable sutures were rejected as unpatentable over prior art during prosecution, and the patents were allowed only after the applicants amended the independent claims to recite a “measured property of hardness difference between two locations on the implant.” However, there was no evidence that James Elist contributed this feature. The denial of JMOL on the invalidity of the ’413 and ’639 patents was therefore reversed.
The CAFC affirmed the denial of JMOL on the counterfeiting claim against Dr. Cornell and his medical practice, Robert J. Cornell, M.D., P.A. Cornell argued that the Penuma mark was registered only for goods, whereas they offered only services. The CAFC found that the district court correctly recognized trial evidence supporting a jury finding that Dr. Cornell offered the Penuma implant as a good, noting that “Dr. Cornell testified his website advertising Penuma surgeries was in anticipation of being credentialed to provide this product.”
In a related opinion issued today, the CAFC addressed the taxation of costs and attorneys’ fees. The district court had taxed $589,343 in costs and denied attorneys’ fees. The CAFC vacated the costs judgment and remanded for the district court to allocate net costs, noting that the companion case altered which side prevailed on several claims. Some defendants against whom costs had been assessed, including Richard Finger, were not liable for any judgments following the disposition of the companion case. The CAFC also dismissed the cross appeal for attorneys’ fees as moot, since the reversal of the misappropriation judgment eliminated any basis for fees under California Civil Code Section 3426.4
