By Thomas Long, J.D.
In a long-running global trade secret dispute between medical device makers Heraeus Kulzer GmbH and Biomet, Inc., over Heraeus’s proprietary formula for bone cement used in orthopedic surgery, a district court abused its discretion by quashing a subpoena by Biomet’s Swiss subsidiary seeking discovery under 28 U.S.C. §1782 for use in mounting a defense against Heraeus’s claims in a German tribunal, the U.S. Court of Appeals in Philadelphia has held. According to the appellate court, the district court erred in determining that granting discovery to Biomet would be abusive of the aims of Section 1782. Because the district court’s analysis was cursory, conclusory, and rendered with an incomplete understanding of the underlying foreign proceedings, the Third Circuit vacated the district court’s order and remanded for a new analysis of the merits of Biomet’s request (In re Application of Biomet Orthopaedics Switzerland GmbH, August 6, 2018, Rendell, M.).
In the 1970s, Heraeus provided third-party Merck with its bone cement formula, subject to confidentiality obligations and restrictions on use, in order for Merck to distribute Heraeus’s bone cements in Europe. In 1997, Heraeus began supplying the bone cement to a joint venture between Merck and Biomet. In 2004, Merck transferred all of its interests in the distribution of Heraeus’s bone cement products in Europe to the Biomet Group (which included Biomet Switzerland). Heraeus then formed its own distributor in Europe and informed the Biomet Group that it was no longer allowed to distribute Heraeus bone cements.
In the interim, entities related to Biomet developed its own bone cements. In 2008, Heraeus sued affiliates and employees of the Biomet Group in Germany for misappropriation of trade secrets, asserting that these defendants assisted a third-party company, Esschem, in replicating certain copolymers for use in making the cements. The German proceeding consisted of two stages. The first, which had concluded, consisted of the trade secret claims against Biomet defendants other than Biomet Switzerland, as well as a claim seeking an order requiring Biomet Switzerland to surrender its certification documents as the designated "responsible manufacturer," so Heraeus could inspect them. The second stage—still pending—involved claims against Biomet Switzerland for injunctive relief and declaration of liability, and a claim seeking an order requiring Biomet to waive its rights as the responsible manufacturer.
In 2009, Heraeus sought and obtained Section 1782 discovery from two Biomet entities and Esschem in the Eastern District of Pennsylvania and the Northern District of Indiana, for use in the first stage of the German proceeding. The German court, relying in part on documents produced via the Section 1782 request, held that the Biomet defendants (other than Biomet Switzerland) had misappropriated some of the asserted trade secrets and provided them to Esschem. Heraeus filed suit against Esschem in 2014 in the Eastern District of Pennsylvania, relying in part on the same Section 1782 documents. Esschem sought extensive discovery from Heraeus, and the information obtained was produced subject to a protective order stating that Biomet, Inc., and its affiliates could not have access to the materials.
Biomet Switzerland was entitled to offer new evidence in the second stage of the German proceeding in its defense, and Heraeus was required to re-prove its allegations. Heraeus indicated that it intended to use the Section 1782 evidence obtained in the first stage. Biomet sought to obtain for its defense the discovery produced by Heraeus in the 2014 litigation against Esschem. The Eastern District of Pennsylvania quashed Biomet’s subpoena because it was concerned that the request was abusive of Section 1782. Biomet appealed.
Under Section 1782, a federal district court may order a person "residing" or "found" in the district to give testimony or produce documents for use in a proceeding in a foreign or international tribunal, upon the application of any interested person. There was no dispute that the discovery was for use in a foreign tribunal and that the application was made by an interested person, but Heraeus contended that the law firms that were the subject of the subpoenas were not persons who were found in the Eastern District of Pennsylvania. The district court had assumed without deciding that Section 1782’s requirements had been met, but it exercised its discretion to quash based on the factors set forth in the case of Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004). Noting that Section 1782 authorized but did not require district courts to provide judicial assistance to foreign tribunals or to persons involved in proceedings abroad, the Supreme Court set forth factors to help a district court determine whether granting discovery would serve the aims of providing efficient assistants to participants in international litigation and encouraging foreign countries to provide similar assistance to our courts.
The district court determined that Biomet did not show that the German court would be receptive to the discovery in the form of "thousands of pages of documents" submitted "on the eve of the appeal hearing." It also deemed the requests to be unduly intrusive to Heraeus, due to the protective order. In the district court’s view, Section 1782 discovery would allow Biomet to obtain improper access to Heraeus’s proprietary information.
In the appellate court’s view, the district court’s analysis under Intel was cursory and conclusory. The district court relied on an incomplete understanding of the pertinent facts surrounding the German proceeding. The district court failed to appreciate Biomet Switzerland’s need for discovery, criticized its "delay" in seeking that discovery, and misconstrued the nature of the German proceeding, the appellate court said. First, it was untrue that Biomet had delayed seeking the documents for a "criminal appeal hearing" in a matter that had commenced eight years earlier. The second stage of the German proceeding was civil in nature, the Third Circuit explained. Although there was a criminal component to the first stage, there was nothing in the record to point to a purely criminal proceeding. Moreover, the second stage was the first proceeding against Biomet Switzerland in particular, and it was not an appeal. Biomet stated in its Section 1782 application that it sought discovery to defend against Heraeus’s trade secret and certification waiver claims.
Second, there was no delay, as Biomet was unaware until 2017 that Heraeus had produced documents in the Esschem litigation that could undermine its trade secret claims. Biomet asserted that these documents could establish that the copolymer specifications had issue were no longer pertinent because Heraeus used different specifications currently. As for the volume of the submission, the district court improperly placed the burden on Biomet to show that the German court would be receptive, rather than requiring Heraeus to prove otherwise. In addition, the files had already been packaged in the earlier litigation, so there was no reason to believe producing them would be burdensome. Finally, there was no reason, in the Third Circuit’s view, to foreclose Section 1782 discovery just because trade secrets were involved. Heraeus’s concerns in this regard could be addressed via another protective order or tailoring of the discovery request.
Accordingly, the appellate court vacated the district court’s order and remanded for further proceedings.
This case is No. 17-3787.
Attorneys: Arthur P. Fritzinger (Cozen O’Connor) for Biomet Orthopaedics Switzerland GmbH. Matthew M. Wolf (Arnold & Porter Kaye Scholer), Cameron M. Nelson (Greenberg Traurig LLP) and Mary F. Platt (Fineman Krekstein & Harris, PC) for Esschem Inc., Greenberg Traurig LLP, and Fineman Krekstein & Harris PC. Robert R. Anderson (Arnold & Porter Kaye Scholer) for Heraeus Medical GmbH.
Companies: Biomet Orthopaedics Switzerland GmbH; Esschem Inc.; Greenberg Traurig LLP; Fineman Krekstein & Harris PC; Heraeus Medical GmbH
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