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Elenza, Inc. v. Alcon Laboratories Holding Corp.

Supreme Court of Delaware

March 20, 2018

ELENZA, INC., Plaintiff Below, Appellant,
v.
ALCON LABORATORIES HOLDING CORPORATION and ALCON RESEARCH, LTD., Defendants Below, Appellees.

          Submitted: January 17, 2018

         Court Below-Superior Court of the State of Delaware C.A. No. N14C-03-185

          Upon Appeal from the Superior Court of the State of Delaware: AFFIRMED.

          Timothy J. Simeone, Esquire (Argued), Charles T. Kimmett, Esquire, Walter E. Anderson, Esquire, and John R. Grimm, Esquire, Harris, Wiltshire & Grannis LLP, Washington, District of Columbia; Andrew D. Cordo, Esquire and F. Troupe Mickler IV, Esquire, Ashby & Geddes, Wilmington, Delaware; for Plaintiff-Below, Appellant Elenza, Inc.

          Heidi K. Hubbard, Esquire, Daniel P. Shanahan, Esquire, David Randall J. Riskin, Esquire (Argued), Tamara A. Rubb, Esquire, and Michelle L. Hood, Esquire, Williams & Connolly LLP, Washington, District of Columbia; Michael P. Kelly, Esquire, Daniel M. Silver, Esquire, and Benjamin P. Smyth, Esquire, McCarter & English LLP, Wilmington, Delaware; for Defendant-Below, Appellees Alcon Laboratories Holding Corporation and Alcon Research, Ltd.

          Before STRINE, Chief Justice; VALIHURA, VAUGHN, SEITZ, and TRAYNOR, Justices.

          SEITZ, Justice

         Replacement lenses used to treat eye cataracts have a limitation-the new lenses focus only at one distance. In most cases, reading glasses are still required after surgery. Elenza, Inc. thought it had a solution to the problem-an electro-active intraocular lens ("EAIOL") that used electric power and changes in eye pupil size to "trigger" the focus of an artificial lens. If it worked, patients could see clearly at multiple distances without glasses.

         Alcon Laboratories Holding Corporation, a developer of artificial lenses, was also exploring EAIOL lenses. Elenza and Alcon decided to jointly pursue the technology, first by signing a Non-Disclosure Agreement ("NDA"), followed by a Stock Purchase Agreement ("SPA"). Unfortunately, the project fizzled after Elenza failed to meet development milestones in the SPA. Much to Elenza's surprise, two years later, Alcon filed a patent application for an EAIOL and announced that it was working with Google, Inc. to develop an EAIOL.

         Elenza filed suit in Superior Court and claimed that Alcon breached its agreements with Elenza and misappropriated Elenza's EAIOL trade secrets. Before trial, the Superior Court granted in part Alcon's motion for summary judgment, finding that Elenza failed to support its trade secret claims. The court also limited Elenza's damage claims. Elenza's contract claims went to trial. A jury found against Elenza on all claims.

          On appeal, Elenza argues that the Superior Court erred when it granted summary judgment on its trade secret claims. According to Elenza, at the summary judgment stage, its trade secret disclosures were sufficient to prove that trade secrets existed and that Alcon used or disclosed those secrets in its later development efforts. We need not, however, reach Elenza's claim on appeal that it raised disputed factual issues about the existence of trade secrets because we agree with the Superior Court that, at summary judgment, Elenza failed to support its claim that Alcon improperly used or disclosed any of Elenza's alleged trade secrets. Thus, we affirm the Superior Court's judgment.

         I.

         Alcon Laboratories Holding Corporation ("Alcon") develops and markets standard cataract replacement lenses, called intraocular lenses ("IOL").[1] Elenza, Inc. ("Elenza") was an ophthalmic company that sought to develop an electro-active intraocular lens ("EAIOL"). A standard IOL can only focus at one distance, but an EAIOL might be able to focus at multiple distances using a physiological trigger and special battery technology. In 2009, Alcon became interested in developing an EAIOL and considered potential partners, including Elenza. On May 24, 2010, Elenza and Alcon signed a Non-Disclosure Agreement ("NDA") and discussed development of an EAIOL that would use pupil size as the physiological trigger.[2]The parties, along with other investors, decided to enter a two-step Stock Purchase Agreement ("SPA") to advance EAIOL development.[3] In the first step, the "Initial Closing, " Alcon would acquire 30% of Elenza's outstanding shares for roughly $7.5 million.[4] In the second step, the "Milestone Closing, " Alcon would make a second investment if Elenza: (1) completed a successful clinical study confirming Elenza's ability to develop a reliable physiological trigger based on pupil diameter, to be assessed by a Joint Development Committee; (2) executed a Development Agreement; and (3) procured a Research License.[5]

         In December 2011, Alcon decided that Elenza had not met the first milestone, causing the parties to sign a "Clarification Agreement" that formally terminated their relationship and dissolved all remaining contractual obligations, except the obligation to keep information exchanged under the NDA confidential.[6] Elenza could not find new investors for its EAIOL project and ceased its operations in August 2013 for lack of funds.[7] Alcon continued its research and development and filed an August 29, 2013 patent application for an accommodative lens.[8] Alcon also announced almost a year later that it was collaborating with Google to develop an EAIOL.[9]

         On March 20, 2014, Elenza filed a complaint against Alcon and claimed breach of contract and misappropriation of trade secrets. Alcon responded by filing a motion for judgment on the pleadings. The Superior Court denied Alcon's motion, finding the "timing of Alcon's . . . Patent Application permits the reasonable inference that Alcon misappropriated Elenza's trade secrets, " and finding "genuine issues of material fact about whether Alcon disclosed Elenza's trade secrets."[10] In April 2015, Elenza filed a second amended complaint, adding claims for patent infringement and breach of fiduciary duty, and removed the case to federal court. A month later, however, Elenza dropped the patent infringement and breach of fiduciary duty claims, and requested the case be remanded back to the Delaware Superior Court.

         After remand, the Superior Court granted Elenza's motion to file a third amended complaint, which brought seven claims against Alcon: misappropriation of trade secrets, breach of contract, breach of the implied covenant of good faith and fair dealing, intentional misrepresentation, affirmative misrepresentation, misappropriation, and conversion. Elenza sought $473.7 million in damages, based on its "enterprise value" as of December 15, 2011-when Alcon determined the Second Milestone was not met.

         Following extensive discovery, Alcon moved for summary judgment. The Superior Court granted the motion for the misrepresentation, conversion, misappropriation, and disclosure of trade secrets counts.[11] Pertinent to the trade secret claims, the Superior Court found:

Elenza failed to present evidence upon which a reasonable factfinder could find disclosure of its trade secrets. Elenza has not established a prima facie case, through expert testimony or other evidence, that Alcon used or disclosed any trade secret, defined with a reasonable degree of precision and specificity, that was not already known or readily ascertainable. There is no genuine issue of material fact as to the disclosure of trade secrets.[12]

         The court also refused to allow Elenza to pursue lost enterprise damages, finding the claim too speculative.[13] But, the court denied the motion as to the breach of contract and breach of the implied covenant of good faith and fair dealing claims, finding genuine issues of material fact whether Elenza met the Closing Milestone and whether Alcon fraudulently induced Elenza to sign the Clarification Agreement. The breach of contract and breach of the implied covenant of good faith and fair dealing claims went to trial. A jury returned a verdict in favor of Alcon.

         II.

         Elenza raises three issues on appeal. First, Elenza argues the Court erred by finding that Elenza failed to make a prima facie case for the existence and misappropriation of trade secrets. Second, Elenza argues that the court improperly denied its request for lost enterprise damages. And third, Elenza asserts it should have a new trial on its breach of contract and breach of the implied covenant of good faith and fair dealing claims, because they were inextricably intertwined with Elenza's trade secrets claims.

         This Court reviews the denial of a motion for summary judgment de novo.[14] Summary judgment is appropriate when, viewing the facts in the light most favorable to the nonmoving party, "there is no genuine issue as to any material fact" and the movant "is entitled to a judgment as a matter of law."[15] The movant must present sufficient evidence from which a rational trier of fact could find in its favor.[16] "This Court will not draw unreasonable inferences in favor of the non-moving party."[17] Because we find dispositive Elenza's failure to raise disputed issues of material fact about Alcon's misappropriation of trade secrets, we need not reach the other issues raised on appeal.

         A.

         Under the Delaware Uniform Trade Secret Act, a trade secret is:

[I]nformation, including a formula, pattern, compilation, program, device, method, technique or process, that:
a. Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and
b. Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.[18]

         To prove trade secret misappropriation, the plaintiff must demonstrate that: (1) a trade secret exists; (2) the plaintiff communicated the secret to the defendant; (3) there was an express or implied understanding that the secrecy of the matter would be respected; and (4) the secret information was improperly used or disclosed to the injury of the plaintiff.[19] A trade secret can be "[t]he combination of steps into a process . . ., even if all the component steps are known, so long as it is a 'unique process which is not known in the industry.'"[20]

         In its Amended Designation of Trade Secrets, Elenza defined its trade secrets as "the technologies and information . . . both individually and when combined, in whole or in part, to form an electro-active intraocular lens that, when triggered through any variety of mechanisms, applies an electric charge to a liquid crystal filled lens in order to change the refractive index of the lens."[21] These technologies include: hermetic seals, haptics and injectors, blink-filter algorithms, application-specific integrated circuits ("ASICs"), photovoltaic cells, and batteries.[22] Elenza's expert conceded that each of the technologies identified by Elenza in its Amended Designation of Trade Secrets is generally known or readily available to the public.[23]Elenza was therefore forced to take a different tack, claiming its specific use of each component, when combined into an EAIOL process, is a trade secret.[24] In other words, the alleged trade secrets are the "information on how one could actually fabricate one of these essential components and to do so under the constraint of maintaining compatibility with all of the other components."[25] Even assuming, however, that Elenza's combination of known technologies into a process qualifies as a trade secret, we agree with the Superior Court that Elenza failed to raise disputed issues of fact as to whether Alcon misappropriated Elenza's trade secrets.

         B.

         Under the Delaware Uniform Trade Secret Act, misappropriation means:

Disclosure or use of a trade secret of another without express or implied consent by a person who:
1. Used improper means to acquire knowledge of the trade secret; or
2. At the time of disclosure or use, knew or had reason to know that his or her knowledge of the trade was:
A. Derived from or through a person who had utilized improper means to acquire it;
B. Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or
C. Derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or
3. Before a material change of the person's position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.[26]

         Elenza argues that it constructed a "web" of conduct that supports its misappropriation claim, based on certain aspects ...


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