Team scores massive trade secrets verdict

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A federal jury this month awarded a Massachusetts medical device manufacturer what is believed to be one of the largest trade secret misappropriation verdicts in the last five years.

The team from the Goodwin law firm that helped its client score $170 million in compensatory damages and an additional $282 million in exemplary or punitive damages was led by Boston partners Robert D. Carroll and Robert Frederickson III, along with Alexandra Valenti of New York.

Getting to that near-complete victory required surviving a summary judgment battle over whether their client’s claims were time barred, among other issues.

The lawyers also had to contend with the Court of Appeals for the Federal Circuit reversing a preliminary injunction that the trial judge had granted.

The plaintiff in question is Insulet Corp., which designs and manufactures disposable insulin patch pumps, most notably the Omnipod, an adhesive wearable device that monitors patient glucose levels and delivers insulin.

After it had been in development for five years, the Food and Drug Administration approved the first-generation Omnipod for sale in the U.S. in 2005. Insulet continued to develop other variations of Omnipod, including one in 2019 that added a smartphone-based app to connect to the wearable patch pump, spending more than $600 million on research and development along the way.

On the other side of the world, another company, EOFlow, was developing, manufacturing and selling a product with a similar purpose but, at least initially, different technology. EOFlow’s first-generation wearable insulin patch pump, the EOPatch, received regulatory approval in Korea in December 2017.

The companies were set on a collision course after EOFlow hired several former high-level Insulet employees in 2017.

That same year, EOFlow began developing its second-generation EOPatch, the EOPatch2, which received regulatory approval in Korea in 2019 and hit the market in both Korea and Europe two years later. The EOPatch2 was so successful that it attracted the attention of one of Insulet’s main competitors, Medtronic, which announced plans to acquire the EOPatch for $738 million in May 2023. (Medtronic’s operational headquarters are in Fridley, Minnesota, while it’s legal headquarters are in Ireland.)

Three months earlier, Insulet had finally gotten its hands on an EOPatch2 and discovered to its dismay that the EOPatch2 and Omnipod were virtually identical under the hood. Insulet drew a straight line between the misappropriation of its trade secrets and its former employees joining EOFlow. It filed suit in U.S. District Court in Boston on Aug. 3, 2023.

“Fair and honest competition in these markets is a good thing, and there’ve been a lot of companies that have tried to do what Insulet has done with patch pumps, including companies like Medtronic, and no one’s really gotten any traction,” Frederickson told Massachusetts Lawyers Weekly.

When EOFlow’s deal with Medtronic was announced, it raised a lot of questions, Frederickson added.

“How does this small company — with not a lot of resources, almost no research-and-development spend, and no real meaningful experience in this space — how could they possibly have gotten something that Medtronic is willing to pay three-quarters of a billion dollars for?” he asked.

Insulet received its answer once its engineers got their hands on an EOFlow 2 and cracked it open, Frederickson said.

“It wasn’t just, to them, a reverse engineering or copying, but someone with inside information really knew how to make effectively a knockoff version of the Omnipod,” Frederickson said.

Insulet’s worst fear became that the deal with Medtronic would close, and there would be a “wholesale tech transfer” from EOFlow to Insulet’s well-resourced competitor, Frederickson said.

Early wins and a setback

The EOFlow-Medtronic deal was almost at the finish line when, on Aug. 29, 2023, U.S. District Court Chief Judge F. Dennis Saylor IV granted Insulet’s motion for a temporary restraining order, halting the flow of information from EOFlow to Medtronic.

Knowing that order would be in effect for no more than 28 days, Insulet’s legal team rushed to get documents produced in discovery to confirm suspicions that to that point had only been based on circumstantial evidence, Frederickson said.

Many of the documents were in Korean, which posed less of a problem now that there are computer tools, including artificial intelligence, to do the translations, Frederickson said.

“The machine translations are imperfect but allow you to at least triage to some extent and figure out what’s important,” he said.

With the help of a law firm in Korea in reviewing some of the documents, the Goodwin team culled them to a subset of several hundred for which they got certified translations.

Saylor would go on to issue a preliminary injunction on Oct. 6, 2023, enjoining EOFlow “from manufacturing, marketing or selling any product that was designed, developed, or manufactured, in whole or in part, using or relying on the Trade Secrets of Insulet.”

By the time the parties were arguing the defendants’ appeal before the Federal Circuit Court of Appeals on May 6, the preliminary injunction had been modified to provide EOFlow limited carve outs to serve patients in South Korea, the European Union and the United Arab Emirates.

The Federal Circuit issued an immediate temporary stay and then, in an opinion issued on June 17, reversed the injunction altogether, finding that Insulet had not yet shown a likelihood of success on the merits.

While disappointing, the decision was not a major setback, given that by then the trial was less than six months away and the deal between EOFlow and Medtronic was off, lessening fears of an imminent technology transfer, Frederickson said.

“That allowed us to focus on just litigating the case and getting through a tremendous amount of discovery in a relatively accelerated clip,” he said.

Timeliness of suit disputed

For Insulet’s suit to be timely under the Defend Trade Secrets Act, it needed to have been commenced no later than three years after “the date on which the misappropriation with respect to which the action would relate is discovered or by the exercise of reasonable diligence should have been discovered.”

That prompted a major question at summary judgment: Did Insulet discover or should it have discovered EOFlow’s alleged misappropriation of its trade secrets before Aug. 3, 2020?

EOFlow, represented by lawyers from Cooley, lobbied for Saylor to adopt an “inquiry notice” standard. Using that standard, they argued that Insulet’s claims should be time barred, as the company had multiple reasons to start asking questions before 2020.

Insulet first became aware of EOFlow in 2016 and remarked in internal communications on the apparent similarities between the Omnipod and EOFlow as early as January 2018, the defendants noted.

Insulet company officials also came across the EOPatch at American Diabetes Association conferences in 2018 and 2019, the defendants argued, though Insulet countered that those officials had not been able to handle or closely inspect the device on either occasion.

EOFlow again got on the radar of high-ranking Insulet officials when it announced that it had received “breakthrough designation” status from the FDA in March 2019. The emails that circulated internally at Insulet after EOFlow’s announcement also referenced the “past Insulet folks” that were “running EOFlow.”

Insulet countered that it only obtained an EOPatch2 in February 2023, after the product launched commercially in Europe.

“On the Insulet side, we emphasized the information that was being put out into the public before Insulet was able to get its hands on this device in late 2022 and early 2023 frankly pointed away from any evidence of misappropriation because it was focused on different technologies and the older-generation product,” Frederickson said.

In terms of evaluating the timeliness question, EOFlow had on its side “every court to have thus far considered the issue,” Saylor acknowledged, citing decisions of the 8th and 2nd U.S. Circuit Courts of Appeals and federal District Courts in California, Delaware, New York, Washington and Puerto Rico.

However, the plaintiff persuaded Saylor that the best guidance could be found in the U.S. Supreme Court’s 2010 decision in Merck & Co. v. Reynolds, which involved the accrual of the limitations period of a private action for securities fraud. The DTSA and the statute at issue in Merck may not have been literally identical but were “substantially alike” as interpreted, Saylor concluded.

“It of course gives this Court considerable pause to adopt a standard that is at odds with every other reported decision on the issue,” Saylor wrote. “But it also gives the Court pause to ignore the clear implications of a Supreme Court opinion interpreting almost identical language.”

Applying the Merck standard, Saylor found that the plaintiff “plainly had at least a cause for concern that defendants had engaged in prohibited conduct by early 2019.”

However, he continued, “a mere cause for concern is not enough to trigger the running of the limitations period under the DTSA. Instead, the analysis turns on when a hypothetical similarly situated company, exercising reasonable diligence, should have discovered the misappropriation.”

On that front, there were multiple material factual disputes best left to a jury, Saylor decided, denying the defendants’ summary judgment motion.

Star witnesses, key find

At trial, one of the “inflection points” between the two sides’ narratives was that the defendants highlighted that one need not misappropriate trade secrets but rather could purchase Insulet’s product off eBay, open it up and inspect it, Frederickson noted.

“That’s a true statement, but that doesn’t tell you how they make it, how they fit together, all of the thousands of user and customer and patient experiences that caused these minor changes in design that brings the Omnipod into the product that it is today,” he said.

The plaintiff’s star witnesses were a pair of engineers who had been working on the Omnipod since its inception.

“That was a tremendous, tremendous resource because we basically learned their lived experience from the device, and that allowed us to home in on where this other company was making decisions that seemed to suggest they knew the answer without doing the work,” Frederickson said.

Key evidence was also mined from millions of pages of discovery showing that Insulet’s information had, in fact, been used including a computer-aided design file that one of the former Insulet employees gave to EOFlow in an early design meeting.

“We saw a couple of emails that referenced that CAD file, but we hadn’t found it,” Frederickson explained. “We just kept asking and asking witnesses and the attorneys and pulling that thread, and eventually we received the first copy of an Omnipod computer-aided design file that was in EOFlow’s possession.”

The revelation became a focal point of the presentation at trial. Witnesses were asked how the file got there, who had looked at it, when it was used, and when it was transferred.

“That became a bit of a centerpiece of the case,” Frederickson said.

In the end, there were minor aspects of the jury’s verdict that went the defendants’ way. One of the five trade secrets that the plaintiff had sued over — the “bubble channel” — was found not to be a valid trade secret, and one of the individual defendants was found not to have misappropriated Insulet’s trade secrets, though the company had only sought nominal damages of $1 per trade secret from its former employees.

Aside from that, it was a near-complete victory for the plaintiff. Particularly gratifying was the jury’s finding that three of five trade secrets had been willfully and maliciously misappropriated, justifying the award of punitive damages, Frederickson said.

The parties will be back before Saylor on Jan. 3 to discuss what happens next.

For the plaintiff, “seeking some form of injunctive relief following a pretty favorable verdict would be a logical next step,” Frederickson said.

Attorneys for the defendants did not respond to Massachusetts Lawyers Weekly’s request for comment, but Frederickson said he and his colleagues anticipate an appeal, especially given that the company’s CEO has made public statements to that effect.

That appeal may take the form of revisiting the summary judgment battle on the statute of limitations issue or focus on the other issues that the defendants have been litigating fiercely from the beginning of the case, such as the degree of specificity with which Insulet had identified certain trade secrets or the reasonableness of the measures that Insulet had used to preserve their secrecy.