Insulet Corporation v. EOFlow, Co., Ltd. Et al. (D. Mass. 23-cv-11780).

Following a jury trial in  November in which EOFlow was found liable for willful trade secret misappropriation relating to insulin pumps  and an award of $452 million in damages, Insulet moved for an injunction prohibiting EOFlow from using, possessing, selling or otherwise distributing Insulet’s trade secrets anywhere in the world and requiring assignment of certain EOFlow patents that incorporate elements of the trade secrets.  EOFlow objected on the grounds that the proposed injunction would constitute an impermissible double recovery and that, as worded the injunction is overly broad.

Judge Saylor granted the injunction in part.  He found that Insulet would clearly face irreparable harm if EOFlow were permitted to continue with unfettered use of the trade secret information.  He noted that EOFlow had already negotiated a deal to be obtained by Medtronic prior to the initiation of the lawsuit, and that the continued availability of EOFlow’s product constituted a genuine threat to Insulet’s ability to expand its market.  He further found that money damages would be inadequate, in part because the questionable financial condition of EOFlow made it unlikely that it would be able to satisfy the judgment, much less any prospective uses of the information.  He rejected EOFlow’s argument that the balance of equities favored denial because an injunction would force EOFlow to shut down, noting that reliance on an infringing product is insufficient to deny injunctive relief and the injunction would not prevent EOFlow from developing products through lawful means.

Judge Saylor also found the scope of the proposed injunction to be reasonable.  H found that the language of the Defend Trade Secrets Act plainly permits worldwide injunctive relief where the offender is a U.S.-based corporation or citizen.  EOFlow and two other defendants met this criteria.  EOFlow Co., Ltd., while a Korean company, conducted multiple acts of infringement in the United States, which also provides adequate grounds under the DTSA for injunctive relief.

Judge Saylor rejected EOFlow’s argument that the injunction should be limited to only three and one-half years, the purported “head start” value of the misappropriated information, finding that there was limited evidence that the Insulet product could be reverse-engineered, while there was evidence that legitimate competitors had been unable to develop a competing product despite investing millions of dollars in the effort.  Accordingly, he determined that a permanent injunction was appropriate.

Judge Saylor further agreed that assignment of the EOFlow patent applications was appropriate.  Insulet’s expert testified at trial that the applications described proprietary aspects of Insulet’s misappropriated information, and Judge Saylor determined that equitable reassignment was proper to prevent continued use of the information by EOFlow.

Regarding the duplicative damages argument, Judge Saylor acknowledged that monetary damages cannot be awarded for periods of time that would be covered by the injunction.  Insulet had been awarded $170 million in unjust enrichment damages for the trade secret misappropriation and another $282 million in exemplary damages for the willful and malicious nature of the misappropriation.  Insulet put forth two theories of damages – a “head-start” theory focusing on the benefit to EOFlow in accelerated product development through use of the trade secret information, and a “market value” theory representing the value of the information to a prospective buyer, based on the agreed-upon sale of EOFlow to Medtronic.  Each of these included prospective sales and value – Insulet did not present evidence of its actual damages.  Accordingly, the jury’s damage award was necessarily based in substantial part on EOFlow’s future, unrealized gains, which would overlap with the injunctive relief sought.  He determined that he could refashion the award to avoid duplicative recovery.  He noted that the issue of which to eliminate for the duplicative portions was up to Insulet, who had elected the injunction and whatever damages that were not duplicative of the injunction.

Judge Saylor agreed with Insulet that benefits already obtained by EOFlow, such as avoiding significant research expenses and regulatory costs, are backward-looking and thus permissible in conjunction with the injunction.  In considering just what those avoided costs were, however, he noted that the jury had not awarded the full amount sought on one of the trade secrets, and that the verdict form offered no way to determine what of the damages on that secret were forward-looking and which were already realized.  He accordingly eliminated the damages on that trade secret entirely, to ensure that no duplicative recovery would occur.  Ultimately, he cut the compensatory damages down to $25.8 million.

Judge Saylor also agreed with EOFlow that the language of the DTSA required reducing the exemplary damages in light of the lower compensatory award.  The DTSA provides that exemplary damages may be awarded in “an amount not more than 2 times the amount of the [unjust enrichment] damages awarded,” and the “award” does not exist until final judgment is entered, meaning it is the $25.8 million that can be doubled.  Taking into account the percentage increase the jury had awarded as exemplary damages, Judge Saylor reduced the exemplary portion to $33.6 million.  He rejected EOFlow’s argument that exemplary damages are duplicative of injunctive relief , finding that while exemplary damages are designed to deter future conduct, they are punishing past behavior.

EOFlow sought a stay of both the monetary and injunctive relief while their planned appeal is pending without the need to post a supersedeas bond, which is typically the full amount of the award plus 10% to cover interest and $500 to cover costs.  While a bond can be avoided where the defendant is clearly able to pay the awarded damages or where the bond would put the defendant’s other creditors in undue jeopardy, Judge Saylor found that neither condition was met.  EOFlow admitted that it lacked sufficient resources to meet the first condition, and claimed to have $39 million in debt.  Judge Saylor determined that the bond requirement was not likely to place these creditors at undue risk.  He accordingly required EOFlow to post bond equal to $65,340,500 to stay the monetary judgment.

Regarding staying the injunctive relief, Judge Saylor noted that the traditional four-step test for injunctive relief would apply (as a stay is effectively an injunction against the entering of the injunction), with the first step being modified from a “likelihood to prevail on the merits” to the establishment that the appeal raises “serious and difficult questions of law in an area where the law is somewhat unclear.”  EOFlow’s primary argument to that effect is that the claims were time-barred because an inquiry-notice standard should have been applied rather than the discovery-based standard that was applied.  While Judge Saylor agreed that this met the modified criteria, he found that EOFlow could not show irreparable harm if the injunction were not stayed in whole.  Instead, he noted that the EOFlow product at the time of trial was only approved for use in the European Union and in South Korea, and therefore permitting the injunction to take effect elsewhere would not harm EOFlow.