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OBP Corporation v. Welch Allyn, Inc. (Lawyers Weekly No. 12-156-16)

COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. SUPERIOR COURT
CIVIL ACTION
NO. 2016-01496-BLS1
OBP CORPORATION d/b/a OBP MEDICAL
vs.
WELCH ALLYN, INC.
MEMORANDUM OF DECISION AND ORDER ON
WELCH ALLYN, INC.’S MOTION TO DISMISS
PLAINTIFF’S FIRST AMENDED COMPLAINT
Defendant, Welch Allyn, Inc., allegedly misappropriated confidential business
information belonging to plaintiff OBP Corporation. The confidential business information was
a list of OBP’s customer names, along with confidential sales information. Welch Allyn obtained
the confidential information from Owens & Minor, Inc., OBP’s primary distributor. Welch
Allyn allegedly used the confidential business information to craft a marketing plan intended to
steal OBP’s customers and to eliminate OBP as a competitor in the market for a selfilluminating,
disposable vaginal speculum. Welch Allyn now moves to dismiss OBP’s First
Amended Complaint (Amended Complaint) pursuant to Mass. Civ. P. 12(b)(6). For the reasons
that follow, the motion is DENIED.
BACKGROUND
The following comes from the allegations, taken as true, in OBP’s Amended Complaint.
OBP sells a variety of medical examination instruments to hospitals and physician
offices, including a self-illuminating disposable vaginal speculum. It generates its customers
through direct marketing and sales efforts, and sells its products by entering into pricing
agreements directly with individual customers and with group purchasing organizations (GPOs)
acting on behalf of hospital systems and/or physician’s offices. The individual customer
agreements identify OBP’s customers and the prices OBP negotiated directly with them.
Similarly, the GPO agreements identify the prices OBP negotiated with the GPOs and include
provisions indicating that the terms of the agreement are confidential.
Since June 2011, OBP has used Owens & Minor to fulfill orders from OBP’s customers.
In connection with this service, Owens & Minor stocks its distribution centers with OBP
products. Owens & Minor orders products directly from OBP at an agreed upon unit price based
on demand from OBP’s customers. When Owens & Minor fulfills customer orders, it charges
customers according to the terms set forth in OBP’s pricing agreements with the customers.
OBP reimburses Owens & Minor through “rebates” for any difference between that price and the
fixed price Owens & Minor pays to OBP. As part of this process, OBP provides copies of the
relevant pricing agreements to Owens & Minor. In return for its fulfillment services, OBP pays
Owens & Minor an administrative fee.
Owens & Minor operates pursuant to a Code of Honor, made publicly available on its
website, in which it states that the customer and sales information of suppliers like OBP will not
be disclosed to third parties and will only be used for purposes of effectuating the parties’
business relationship. The Code of Honor specifically provides that:
[a]ll Company records and information related to the Company, its customers,
suppliers and teammates is confidential … [and] no teammate or director of the
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Company may provide or disclose confidential or proprietary information to anyone
outside the Company (or even within the Company except to teammates who need
to know such information to perform their work) or use such information other than
in conducting the Company’s business.
Code of Honor at 9. The Code defines “confidential information” as “any information that has
not been disclosed to the public” including “customer lists, contracts, pricing and purchase
information,” “supplier lists, contracts, pricing and product information,” and “all written or
verbal agreements between the Company and its teammates, customers, suppliers, strategic
partners, agents and other third parties.” Id. at 9-10.
In November 2014, Welch Allyn, a global manufacturer of medical diagnostic equipment,
introduced a self-illuminating disposable vaginal speculum that competes with OPB’s product.
About a month before it did so, Welch Allyn obtained from Owens & Minor a spreadsheet
referred to as an “opportunity report.” The opportunity report lists OBP’s customer and sales
information associated with OBP’s vaginal speculum. The report specifically identified the
names and addresses of 582 customers who had ordered OBP’s vaginal speculum through Owens
& Minor and the annualized sales totals for each of these customers. OBP alleges that this
information came from the pricing agreements it shared with Owens & Minor on a confidential
basis.
After receiving the opportunity report, Welch Allyn employees exchanged several emails
concerning the information. In one email dated November 7, 2014, Welch Allyn’s Director of
Channel Management and Marketing wrote: “When we use this, let’s not be blatant about where
we got the info. I don’t want Owens to have problems with OBP, they may get their feathers
ruffled if they find out that Owens provided the list to us. Let’s just tread carefully here.” In a
second email dated November 18, 2014, Welch Allyn’s Product Manager for Vaginal Speculums
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explained: “It’s rare that we are given a list of customers that are buying a known competitor … I
just wan[t] to make sure we try to take advantages in 2014.” In yet another email sent two days
later, Welch Allyn’s Vice President of Acute Care wrote to Sales Managers: “I wanted to reach
out to you on some targeted efforts surrounding the launch of our new LED vag spec. I’ve
attached a list of accounts using the OBP spec and their respective volumes. (This list was
supplied by Owens & Minor and should be treated as highly confidential. This shouldn’t be
emailed out or sent to anyone else.).” (Emphasis in original).
Welch Allyn ultimately used the information from the opportunity report to craft a
marketing plan allegedly intended to steal OBP customers and eliminate OBP as a competitor in
the market for the single-use medical examination instrument. The marketing campaign was
coordinated with a patent infringement lawsuit Welch Allyn filed against OBP in September
2014. In the lawsuit, Welch Allyn claimed that OBP’s vaginal speculum infringed on a Welch
Allyn patent and that OBP unlawfully copied Welch Allyn’s color coded trade dress. In an email
dated December 3, 2014, Welch Allyn’s Product Manager for Vaginal Speculums explained that:
The faster we can move customers over from OBP, the more impact we also have on
the litigation effort with regard to potential settlement. We want to disrupt OBP
business and growth as quickly as possible. I suggested a back pocket offer for initial
discount with larger purchase (end user). While I know we don’t typically want to
discount a new product, in this case business disruption may save us litigation costs.
Two months after this email was sent, in February 2015, Welch Allyn began offering what it
called the “OBP Back Pocket Offer” – an offer to provide OBP customers with a free reusable
light (having a retail value of $ 300) for use with the Welch Allyn vaginal speculum. The offer
significantly reduced the cost of Welch Allyn’s speculum. Around this time, Welch Allyn also
began sending sales representatives to hospital departments where OBP had long sold its
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products.
In May 2016, OBP brought this action against Welch Allyn. OBP alleges that the
customer and sales data that Owens & Minor provided in the opportunity report was confidential
and that Welch Allyn wrongfully obtained and used this information in connection with the
launch of its self-illuminating vaginal speculum. OBP’s Amended Complaint asserts claims for
common law misappropriation of confidential business information (Count I), statutory
misappropriation of confidential business information (Count II), conversion (Count III), unjust
enrichment (Count IV), violations of c. 93A (Count V), and interference with business relations
(Count VI). Each claim is based on Welch Allyn’s alleged receipt and use of OBP’s confidential
customer information.
ANALYSIS
Welch Allyn moves to dismiss the Amended Complaint its in entirety pursuant to Mass.
R. Civ. P. 12(b)(6). To withstand a motion to dismiss under Rule 12(b)(6), a complaint must
contain “allegations plausibly suggesting (not merely consistent with) an entitlement to relief….”
Iannacchino v. Ford Motor Co., 451 Mass. 623, 636 (2008), quoting Bell Atl. Corp. v. Twombly,
550 U.S. 544, 555-557 (2007). Although the complaint need not set forth detailed factual
allegations, a plaintiff is required to present more than labels and conclusions and must raise a
right to relief “above the speculative level.” Id.
To prevail on a claim of misappropriation of trade secret or confidential business
information, a plaintiff must show that it: (1) possessed a trade secret or confidential business
information; (2) took reasonable steps to preserve the secrecy of that trade secret or confidential
business information; and (3) the defendant breached a duty not to disclose or use the trade secret
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or confidential business information. See Peggy Lawton Kitchens, Inc. v. Hogan, 18 Mass. App.
Ct. 937, 939 (1984). Welch Allyn argues that OBP’s misappropriation claims must be dismissed
because OBP’s Amended Complaint fails to assert facts satisfying any of these elements.
Specifically, it contends that the Amended Complaint does not allege sufficient facts to show
that: (1) the customer and sales information in the opportunity report belonged to OBP rather
than to Owens & Minor; (2) OBP took appropriate steps to ensure the confidentiality of the
customer and sales information; and (3) Welch Allyn had a duty to refrain from using the
customer and sales information. Welch Allyn further argues that these reasons also justify
dismissal of OBP’s other claims for conversion, unjust enrichment, violation of c. 93A, and
interference with business relations.1
A. Ownership of the Customer and Sales Information
Welch Allyn’s first contention fails because the Amended Complaint affirmatively
alleges that OBP owned the information in the opportunity report. Specifically, the Amended
Complaint alleges that the content of the opportunity report came from the customer names and
pricing information in OBP’s pricing agreements and that OBP provided those agreements to
Owens & Minor on a confidential basis for the sole purpose of facilitating Owen & Minor’s
fulfilment services. Taking these allegations as true, OBP adequately pleads ownership of the
confidential customer and sales information found in the opportunity report.
B. Efforts to Preserve Confidentiality
Welch Allyn’s second contention fails because Amended Complaint adequately pleads
1 Because Welch Allyn’s motion to dismiss the misappropriation count is denied, the court
declines to consider at this time the separate grounds for Welch Allyn’s motion to dismiss other
counts.
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that OBP took reasonable steps to keep its customer and sales information confidential, such as
by not making the information publicly known outside its business and by employing password
protected computers and employee agreements to protect against disclosure. See Optos, Inc. v.
Topcon Med. Sys., 777 F. Supp. 2d 217, 240 (2011). In making its argument, Welch Allyn
stresses that OBP has not alleged that it entered into a nondisclosure or confidentiality agreement
with Owens & Minor restricting the use of the information contained in the opportunity report.
The lack of such an agreement, however, is not fatal to OBP’s misappropriation claims.
In the absence of a confidentiality agreement, a confidential relationship will be implied
where the facts demonstrate that the disclosures were made to facilitate a specific relationship
such as that between employer and employee, purchaser and supplier, or prospective licensee and
licensor. See Burten v. Milton Bradley Co., 763 F.2d 461, 463 (1st Cir. 1985). The Amended
Complaint alleges that Owens & Minor’s role was to fulfill orders from customers that OBP
generated through its direct marketing and sales efforts. It further alleges that in order to
facilitate Owens & Minor’s fulfillment services, OBP was required to provide Owens & Minor
with the identity of its customers and the terms of its customer pricing agreements. These
allegations suggest that the disclosures of OBP’s customer and sales information were made in
order to promote the supplier/distributor relationship between Owens & Minor and OBP, and that
therefore a confidential relationship should be implied.
That such implication is appropriate is bolstered by the fact that Owens & Minor’s Code
of Honor, promoted on its website, specifically provides that it will not disclose customer and
sales information of suppliers like OBP to third parties and will only use such information for
purposes of effectuating the parties’ business relationship. The presence of the Honor Code on
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Owen & Minor’s website plausibly suggests that OBP took reasonable steps to preserve the
confidentiality of its customer information.
C. Duty Not to Use the Customer and Sales Information
Welch Allyn’s third argument, that the Amended Complaint fails to demonstrate a breach
of a duty to not use OBP’s customer and sales information, is also without merit. “Under
Massachusetts trade secret law, a third party who knowingly benefits from a trade secret which a
person in a confidential relationship obtained from the plaintiff is liable to the plaintiff for the
misappropriation of that trade secret.” Data Gen. Corp. v. Grumman Sys. Support Corp., 795 F.
Supp. 501, 507 (D. Mass. 1992); see also Optos, Inc., 777 F. Supp. 2d at 240 (“A party who
knowingly benefits from the breacher’s trade secret bounty is also liable.”); Curtiss-Wright Corp.
v. Edel-Brown Tool & Die Co., 381 Mass. 1, 3 n. 2 (1980) (observing that when a purchaser
provides a competitor with a supplier’s confidential plans and specifications, “[r]elief may be had
against [the] competitor despite the lack of any legal relationship between the competitor and the
supplier whose plans were appropriated.”). To recover, a plaintiff need show that the third party
had actual or constructive notice that the information it obtained and used was a trade secret. See
Curtiss-Wright Corp., 381 Mass. at 5-6 & n.4.
In the present case, the Amended Complaint states a claim for misappropriation against
Welch Allyn despite the absence of allegations that Welch Allyn and OBP themselves had a
confidential relationship. The Amended Complaint alleges that it is well known in the medical
instrument industry that customer and sales information is not public information. It also quotes
internal Welch Allyn emails from November 7, 18 and 20, 2014, suggesting that Welch Allyn
knew (1) the information it received from Owens & Minor was highly confidential, (2) receipt of
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such information was extremely rare, and (3) Owens & Minor could get in trouble if OBP
discovered the disclosure. Taken together, these allegations plausibly suggest that Welch Allyn
had either constructive or actual notice that it was in possession of OBP’s confidential business
information and therefore had an obligation to refrain from using the information to compete
with OBP. See Curtiss-Wright Corp., 381 Mass. at 5-7 (holding that a defendant supplier who
received plaintiff’s confidential drawings from the Navy and used them to win a Navy bid was
properly held liable because the supplier knew, or should have known, that it had received the
plaintiff’s trade secrets).
CONCLUSION
For the reason stated above, Welch Allyn, Inc.’s Motion to Dismiss Plaintiff’s First
Amended Complaint is DENIED.
By the Court,
________________________
Edward P. Leibensperger
Justice of the Superior Court
November 14, 2016
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