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Phoseon Technology, Inc. v. Heathcote

United States District Court, D. Oregon

December 27, 2019

PHOSEON TECHNOLOGY, INC., Plaintiff,
v.
JENNIFER HEATHCOTE, Defendant.

          Julia E. Markley and Edward Choi, Perkins Coie llp, 1120 N.W. Couch Street, 10th Floor, Portland, OR 97209. Of Attorneys for Plaintiff.

          Craig A. Crispin and Ashley A. Marton, Crispin Employment law pc, 1834 SW 58th Avenue, Suite 200, Portland, OR 97221; Jennifer G. Redmond, Sheppard, Mullin, Richter & Hampton llp, Four Embarcadero Center, 17th Floor, San Francisco, CA 94111; Y. Douglas Yang, Sheppard, Mullin, Richter & Hampton llp, 333 South Hope Street, 43rd Floor, Los Angeles, CA 90071. Of Attorneys for Defendant.

          TEMPORARY RESTRAINING ORDER

          MICHAEL H. SIMON, UNITED STATES DISTRICT JUDGE

         Plaintiff Phoseon Technology, Inc. (“Phoseon” or “Plaintiff”) brings this lawsuit against Defendant Ms. Jennifer Heathcote (“Heathcote” or “Defendant”). Pending before the Court is Plaintiff's motion for a temporary restraining order (“TRO”), seeking to enjoin Defendant from: (a) working or performing any services for or on behalf of either GEW (EC) Ltd. or its United States subsidiary GEW, Inc. (collectively, “GEW”); (b) soliciting current or prospective customers of Plaintiff; (c) using, disclosing, or deriving any benefit from Plaintiff's trade secrets or confidential information in any manner; and (d) circumventing, or attempting to circumvent, any temporary restraining order that may be issued by this Court through the use of third-parties, agents, or any business or entity that Defendant owns or controls or is employed by or otherwise affiliated with, including, but not limited to, Defendant's consulting business, Eminence UV.

         STANDARDS

         In deciding whether to grant a motion for a TRO, courts look to substantially the same factors that apply to a court's decision on whether to issue a preliminary injunction. See Stuhlbarg Int'l Sales Co. v. John D. Brush & Co., 240 F.3d 832, 839 n.7 (9th Cir. 2001). A preliminary injunction is an “extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is entitled to such relief.” Winter v. Nat. Res. Defense Council, Inc., 555 U.S. 7, 22 (2008). A plaintiff seeking a preliminary injunction generally must show that: (1) he or she is likely to succeed on the merits; (2) he or she is likely to suffer irreparable harm in the absence of preliminary relief; (3) the balance of equities tips in his or her favor; and (4) an injunction is in the public interest. Id. at 20 (rejecting the Ninth Circuit's earlier rule that the mere “possibility” of irreparable harm, as opposed to its likelihood, was sufficient, in some circumstances, to justify a preliminary injunction).

         The Supreme Court's decision in Winter, however, did not disturb the Ninth Circuit's alternative “serious questions” test. All. for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1131-32 (9th Cir. 2011). Under this test, “‘serious questions going to the merits' and a hardship balance that tips sharply toward the plaintiff can support issuance of an injunction, assuming the other two elements of the Winter test are also met.” Id. at 1132. Thus, a preliminary injunction may be granted “if there is a likelihood of irreparable injury to plaintiff; there are serious questions going to the merits; the balance of hardships tips sharply in favor of the plaintiff; and the injunction is in the public interest.” M.R. v. Dreyfus, 697 F.3d 706, 725 (9th Cir. 2012).

         In addition, a temporary restraining order is necessarily of a shorter and more limited duration than a preliminary injunction.[1] Thus, the application of the relevant factors may differ, depending on whether the court is considering a temporary restraining order or a preliminary injunction.[2] Indeed, the two factors most likely to be affected by whether the motion at issue is for a TRO or a preliminary injunction are the “balancing of the equities among the parties” and “the public interest.”

         BACKGROUND

         Phoseon's co-founder and Chief Financial Officer is Mr. Chris O'Leary. Declaration of Chris O'Leary (“O'Leary Decl.”), ¶ 1 (ECF 2 at 141). As explained by O'Leary, Phoseon is a privately-owned electronic manufacturing company based in Hillsboro, Oregon. Founded in 2002, Phoseon makes products that use ultraviolet (“UV”) light produced by light emitting diodes (“LED”). These products are used for drying or “curing” inks, coatings, and adhesives in various commercial and industrial settings. Id. at ¶ 2. As further explained by Heathcote, in UV curing, inks, coatings, and adhesives are collectively referred to as “formulations.” These formulations move and behave like a liquid or paste but are in fact solids. As a result, the formulations can be jetted, sprayed, dispensed, or physically transferred to other products using a wide range of coating and printing methods. Unlike water-based or solvent-based formulations, UV formulations have photoinitiators that react to UV light. The UV light is absorbed by the photoinitiator, which then transfers energy to the other materials in the formulation causing all the tiny solid material in the formulations to join together in one large chain, effectively converting in a fraction of a second the solid but liquid-like formulation into a solid, cross-linked polymer or plastic. Declaration of Jennifer Heathcote (“Heathcote Decl.”) at ¶ 2.

         Phoseon has offices in Europe and Asia and sells its products to customers worldwide. When Phoseon began in 2002, the curing industry used arc lamps almost exclusively. Phoseon states that it innovated the use of UV LED instead of mercury arc lamps and that UV LEDs emit less heat, use less power, perform more uniformly, eliminate the need for toxic mercury in the curing process, and allow the user more control than arc lamps. Phoeon further states that UV LED technology has grown rapidly due to its advantages over mercury arc lamps. With more than 300 international patents, including its patented TargetCure™, WhisperCure™, and Semiconductor Light Matrix™ technologies, Phoseon asserts that it is now an industry leader in the widely adopted UV LED curing technology for industrial and commercial applications. O'Leary Decl. at ¶ 2.

         Further, the core technologies and design solutions for UV LED curing applications are in constant development, requiring significant time and expense for research and development. Phoseon invests many millions of dollars annually to improve its curing products and related services and accessories, retain a technological and competitive edge over its competitors, and to acquire and maintain new and existing customer relationships. The development of next generation architectures and design solutions for UV LED curing applications by Phoseon and its competitors can have dramatic effects on the market and each other's products and services. Phoseon asserts that the disclosure of any proprietary information related to Phoseon's UV LED curing systems and products could have disastrous effects on its established market share, product roadmaps, and customer relations. O'Leary Decl. at ¶ 3. The industry for UV curing systems is fiercely competitive. Within the global market for Flexographic curing, for example, there are less than ten major customers worldwide. Id. at ¶ 4.

         Also, Phoseon's trade secrets and confidential information derive independent economic value from not being generally known to the public or to other persons or entities who can obtain economic value from their disclosure or use. Phoseon adds that it takes reasonable efforts to protect their confidentiality. Every employee at Phoseon must sign confidentiality and nondisclosure agreements. By signing these agreements, each employee explicitly acknowledges that he or she will not use or disclose any of Phoseon's trade secrets and confidential information. In addition, Phoseon employs customary methods to protect its trade secret and confidential information, including policies across the company for protecting such information on its computer networks; using card lock doors for all facilities; and employing full-time IT security services. Phoseon also maintain a policy of only distributing confidential information on a “need to know” basis. Id. at ¶ 5.

         GEW (EC) Ltd. is headquartered in the United Kingdom and has a subsidiary in the United States, GEW, Inc., located in North Royalton, Ohio. (As stated previously, the Court refers to GEW (EC) Ltd. and GEW, Inc. collectively as “GEW”). GEW is the historic market leader in UV curing systems using the older technology of mercury arc lamps. Phoseon asserts that with the decline of mercury arc lamps and the rise of UV LED technology in the curing industry, GEW has been trying to transition its business to use the UV LED technology. GEW recently began to offer products and services that compete directly with those offered by Phoseon. Phoseon now considers GEW to be a primary competitor in the global UV LED curing market. Id. at ¶ 6.

         Phoseon hired Jennifer Heathcote to serve as Phoseon's Regional Sales Manager for the North America region in the UV Printing market segment, commencing June 16, 2014. Heathcote's starting salary was $115, 000 per year, in addition to commissions, a hiring bonus, and other benefits. Beginning June 1, 2018, Phoseon transferred Heathcote into the position of Business Development Manager with a focus on Analogue and Flexographic Printing applications. Heathcote worked for Phoseon as a sales and business development executive through October 12, 2018, when Phoseon terminated Heathcote's employment. Id. at ¶¶ 7-11. At the time of her termination, Heathcote's title with Phoseon was Global Director of Business Development, and her annual salary was $140, 000.

         Through Heathcote's two positions at Phoseon and during her four-year tenure, Phoseon gave Heathcote access to Phoseon's trade secret and confidential information relating to Phoseon customers, the market, pricing, strategy, product roadmaps, and product performance. As a Business Development Manager and as Global Director of Business Development, Heathcote worked on global business development and marketing. Specifically, she was responsible for, among other things, developing and implementing sales strategies and action plans to expand Phoseon's presence and sales in assigned territories and vertical markets; creating marketing materials; identifying and penetrating new business in the Analogue Printing market segment and Flexograhic applications; managing key existing customer relationships; and partnering with engineering and customer support internally and externally to coordinate the delivery and installation of Phoseon's technology. Ms. Heathcote's work required her to travel most of the time, throughout North America and internationally, to meet with current and prospective customers, speak at trade shows, and attend industry events. Id.

         Phoseon's Regional Sales Managers and Business Development Managers exercise substantial and specialized knowledge, expertise, and professional judgment relating to Phoseon's UV LED products and equipment to perform their work. Phoseon provides and gives such employees access to detailed confidential information about, and extensive training on, the use and technology of Phoseon UV LED products; device and equipment pricing; customer lists; product road maps; and Phoseon's sales strategies regarding both current and prospective customers and markets. Additionally, Sales Managers have access to and use device and equipment pricing lists in their jobs. Id. at 12.

         On or about April 9, 2014, in advance of her start date of June 16, 2014, Phoseon sent Heathcote a written offer of a job. Id. at ¶ 8. As is typical in the niche UV LED industry, due to the confidential and trade secret information that Heathcote would necessarily be exposed and have access to in her position as a Regional Sales Manager, her initial job offer from Phoseon provided that her employment was contingent upon her execution of the Confidential Information, Inventions, Nonsolicitation and Noncompetition Agreement (“Agreement”) that Phoseon enclosed with Heahtcote's offer letter. Heathcote signed the Agreement on or about June 16, 2014, her first day of work. Id. at ¶ 13.

         The Agreement provides, in relevant part:

Section 1. Definitions
1.1Competing Business” means any business whose efforts are in competition with the efforts of the Company. A Competing Business includes any business whose efforts involve any research and development, products or services in competition with products or services which are, during and at the end of the Term, either (a) produced, marketed or otherwise commercially exploited by the Company or (b) in actual or demonstrably anticipated research or development by the Company.
1.2 “Confidential Information” means any information that (a) relates to the business of the Company, (b) is not generally available to the public, and (c) is conceived, compiled, developed, discovered or received by, or made available to, me during the Term, whether solely or jointly with others, and whether or not while engaged in performing work for the Company. Confidential Information includes information, both written and oral, relating to Inventions, trade secrets and other proprietary information, technical data, products, services, finances, business plans, marketing plans, legal affairs, suppliers, clients, prospects, opportunities, contracts or assets of the Company. Confidential Information also includes any information which has been made available to the Company by or with respect to third parties and which the Company is obligated to keep confidential.
* * *
1.7Term” means the term of my employment with the Company [Phoseon], whether on a full-time, part-time or consulting basis.
Section 2. Ownership and Use
* * *
2.3 Except as required for performance of my work for the Company or as authorized in writing by the Company, I will not (a) use, disclose, publish or distribute any Confidential Information, Inventions, Materials or Proprietary Rights or (b) remove any Materials from the Company's premises.
* * *
Section 4. Noncompetition and Nonsolicitation
* * *
4.2 During the Term and for two years after the end of the Term, I agree (except on behalf of or with the prior written consent of the Company) that I will not, directly or indirectly (a) solicit, divert, appropriate to or accept on behalf of any Competing Business, or (b) attempt to solicit, divert, appropriate to or accept on behalf of any Competing Business, any business from any customer or actively sought prospective customer of the Company with whom I have dealt, whose dealings with the Company have been supervised by me or about whom I have acquired Confidential Information in the course of my employment.
4.3 During the Term and for two years after the end of the Term, I will not engage in, be employed by, perform services for, participate in the ownership, management, control or operation of, or otherwise be connected with, either directly or indirectly, any Competing Business. For purposes of this paragraph, I will not be considered to be connected with any Competing Business solely on account of: my ownership of less than five percent of the outstanding capital stock or other equity interests in any Person carrying on the Competing Business. I agree that this restriction is reasonable, but further agree that should a court exercising jurisdiction with respect to this Agreement find any such restriction invalid or unenforceable due to unreasonableness, either in period of time, geographical area, or otherwise, then in that event, such restriction is to be interpreted and enforced to the maximum extent which such court deems reasonable. The Company, in its sole discretion, may determine to waive the noncompetition provisions of this Section 4.3. Any such waiver shall not constitute a waiver of any noncompetition or forfeiture provisions of any other agreement between the Company and me.
* * *
Section 5. Termination of Relationship
* * *
5.2 I agree that at the end of the Term I will deliver to the Company [Phoseon] (and will not keep in my possession, re-create or deliver to anyone else) any and all Materials and other property belong to the Company, its successors or assigns. I agree to sign and deliver the ...

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