MEMC Electronic Materials, Inc. et al v. Balakrishnan
Filing
54
ORDER GRANTING IN PART AND DENYING IN PART Plaintiffs' Motion for Preliminary Injunction re 49 Brief filed by MEMC Pasadena, Inc., MEMC Electronic Materials, Inc.. Signed by Judge Algenon L. Marbley on 9/11/2012. (cw)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
MEMC ELECTRONIC MATERIALS,
et al.,
Plaintiffs,
v.
KARTHIK BALAKRISHNAN,
Defendant.
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Case No. 2:12-CV-344
JUDGE ALGENON L. MARBLEY
Magistrate Judge Norah McCann
King
OPINION AND ORDER
Plaintiffs MEMC Electronic Materials, Inc. and MEMC Pasadena, Inc. (collectively
referred to as “Plaintiffs” or “MEMC”) seek a preliminary injunction against Defendant Karthik
Balakrishnan, until trial, to prevent him from: (1) working for Iosil Energy Corporation (“Iosil”)
in any capacity, and (2) improperly using and disclosing MEMC’s confidential, proprietary
information and trade secrets. (Doc. 49, 50.) Upon this Court having held a preliminary
injunction hearing and the parties having filed post-hearing briefs, (Doc. 48–51), this matter is
now ripe for decision. For the following reasons, MEMC’s motion for a preliminary injunction
is GRANTED in part and DENIED in part. This Court preliminarily enjoins Balakrishnan from
using and disclosing MEMC’s confidential, proprietary information and trade secrets, but not
from working at Iosil.
I. BACKGOUND
A. Factual History
Many of the facts in this case are disputed by the parties. The Court attempts to identify
the points of contention below.
1. Balakrishnan’s Work Experience Prior to Joining MEMC
Balakrishnan holds a PhD from Washington University where he studied, among other
things, multi-phase reaction engineering and semiconductor material processing. Before joining
MEMC, Balakrishnan worked at General Electric for nine years, implementing new technology
into the manufacturing process, operating reactors using multi-phase reaction engineering, and
working on pilot plants.
2. MEMC’s Business Operations and Balakrishnan’s Responsibilities at MEMC
MEMC Electronic Materials, Inc. is a Delaware corporation with its principal place of
business in St. Peters, Missouri. MEMC Pasadena, Inc. is also a Delaware corporation with its
principal place of business in Pasadena, Texas. Balakrishnan started at MEMC in August, 2009,
and served as Director of Polysilicon Product Technology at MEMC Pasadena, Inc. MEMC’s
major market segments are semiconductor materials, solar materials, and energy. MEMC
Pasadena, Inc., where Balakrishnan worked, produces granular polysilicon, which is the base
material used in manufacturing silicon wafers. Silicon wafers are used in the semiconductor
industry. The parties dispute the extent of MEMC’s involvement in the polysilicon industry.
There are several basic methods that can be employed to manufacture polysilicon, but the
two primary methods use either a fluidized bed reactor (“FBR”) or a Siemens reactor, and the
same general three steps are used in both of these methods. First, impure silicon is reacted with
other materials to form a gas containing silicon and some other chemical compound (including,
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but not limited to, chlorine, hydrogen, iodine, or bromine). Second, the resulting gas is purified
in a distillation process. Third, the polysilicon is extracted from those purified gases in a process
called chemical vapor deposition. This last deposition phase is accomplished in either a FBR or
Siemens reactor. What differentiates polysilicon manufactures from one another is how well
each step is managed.
MEMC asserts that it has performed extensive research and development, and invested a
significant amount of time and money, in the FBR and Siemens reactor methods, and that both
methods are essential to its business. New technologies at MEMC are generally kept as trade
secrets rather than put into patents. If a competitor has access to these trade secrets, MEMC
explains, the learning curve for producing polysilicon can be reduced greatly.
MEMC also argues that Balakrishnan was exposed to a number of its trade secrets. He
was responsible for taking research and development ideas and transferring those ideas to the
manufacturing floor. Balakrishnan was involved in research and development related to both
FBRs and Siemens reactors. He had access to important presentations, discussions, and key
metrics at MEMC.
Balakrishnan disputes MEMC’s characterization of its business, and contends that
polysilicon is simply a raw material used by MEMC to make its final products. Balakrishnan
argues that MEMC does not make polysilicon for sale. There was testimony at the hearing that
as of April 30, 2012, MEMC could buy granular polysilicon cheaper than it could produce it.
Balakrishnan explains that his responsibilities at MEMC were well-defined. He primarily
worked on: production of the input raw material silicon tetrafluoride, used in producing silane;
production of hydride, used to make silane gas; production of silane gas; improvement of the
existing FBR in Pasadena; and recovery of waste from the silane process. Balakrishnan asserts
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that he did not work on MEMC’s Merano, Italy plant or its Siemens reactors. He also testified
that he did not work on kerf recovery or recycling at MEMC or MEMC’s proposed joint venture
with Samsung.
3. Balakrishnan’s Agreement with MEMC
Balakrishnan entered into an agreement with MEMC when he started work in August,
2009. Because of an explosion that occurred on MEMC’s plant on Balakrishnan’s first day,
Balakrishnan testified that he went through his paperwork quickly and did not review the
agreement because his immediate help was needed at the site of the explosion. A section in the
agreement entitled “Confidential Information” provides that Balakrishnan will use his “best
efforts and diligence both during and after [his] MEMC employment to protect the confidential,
trade secret and/or proprietary character of all Confidential Information.” (Doc. 1-1 at 2.)
Balakrishnan will also refrain from “directly or indirectly, us[ing] (for [himself] or another) or
disclos[ing] any Confidential Information, for so long as it shall remain proprietary or
protectable as confidential or trade secret information.” (Id.)
The “Competitive Activity” section of agreement restricts Balakrishnan’s ability to
engage in certain competitive activities:
I shall not, directly or indirectly (whether as owner, partner, consultant, employee
or otherwise), at any time during the period of two (2) years following termination
for any reason of my final employment with MEMC, engage in or contribute my
knowledge to any work or activity that involves a product, process, apparatus,
service or development which is then competitive with or similar to a product,
process, apparatus, service or development on which I worked or with respect to
which I had access to Confidential Information while at MEMC at any time
during the period of five (5) years immediately prior to such termination
(“Competitive Work”), unless I first obtain the express written consent of a duly
authorized offer of MEMC, which consent may be withheld in MEMC’s sole
discretion. Following the expiration of said two (2) year period, I shall continue
to be obligated under the “Confidential Information” section of this Agreement
not to use or disclose Confidential Information so long as it shall remain
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proprietary or protectable as confidential or trade secret. For purposes of this
paragraph, a semiconductor device shall not be considered competitive with, or
similar to, any product of MEMC.
(Id.) Finally, the agreement provides that it “shall be construed under the laws of the State of
Missouri.” (Id. at 4.)
4. Security at MEMC
MEMC presented testimony at the hearing that it takes measures to protect its trade
secrets by: limiting access to information based upon an employee’s level in the company;
requiring employees to sign confidentiality and non-disclosure agreements; having security
checkpoints; allowing access to the facility with badges only; locking and securing the premises;
shredding important information; and protecting computers with passwords that must be changed
frequently.
There was also testimony at the hearing, however, that badges are not always checked at
MEMC. Balakrishnan points out that there is no hard drive encryption or other security
measures used on MEMC’s portable laptop computers, even though employees and contractors
are permitted to remove the laptops from MEMC property.
5. Balakrishnan’s Departure from MEMC
In November 2011, Balakrishnan told his supervisor at MEMC that he was leaving for
vacation. Balakrishnan stopped going to work on November 11, 2011, but he was not on
vacation. Instead, he began work at Iosil’s Groveport, Ohio manufacturing plant on November
14, 2011. Balakrishnan had signed an offer letter with Iosil, on October 6, 2011, more than a
month prior. Nevertheless, his effective resignation from MEMC was not until November 27,
2011. Upon resigning, Balakrishnan told his supervisor at MEMC, Steve Wachnowsky, that he
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was moving to Canada to be with his wife. On March 7, 2010, MEMC learned Balakrishnan was
not in Canada, but had joined Iosil in Ohio.
After Balakrishnan’s departure, MEMC hired forensic investigators, Kroll Ontrack
(“Kroll”), to examine Balakrishnan’s MEMC laptop. Kroll’s investigation revealed ten mass
storage devices had been connected to Balakrishnan’s laptop in the seven-week period between
October 6, 2011 and November 26, 2011. At the hearing, Balakrishnan admitted that he did use
eight of the ten storage devices. He no longer had the devices, though, because he “used to leave
them laying around in [his] car in Houston and not keep up with them,” “they went bad,” and he
eventually threw them away. (Doc. 44 at 313:2–4.)
Kroll also discovered that, between September 2, 2011 and November 13, 2011, data
destruction applications had been installed, run, and subsequently uninstalled. Balakrishnan
conceded at the hearing that he ran data destruction applications. MEMC points out that
because these programs were run, it is now impossible to ascertain how much data was deleted
or transferred from Balakrishnan’s MEMC laptop. According to Kroll, Balakrishnan accessed
his laptop as late as November 27, 2011.
Balakrishnan argues that the reliability of Kroll’s analysis is questionable because
MEMC failed to secure the laptop after he returned it in late November 2011, and Kroll did not
receive the laptop for analysis until January 31, 2012. Kroll’s forensic evidence does not show
any wrongdoing, Balakrishnan contends, and can be parsed into the following three categories:
(1) five laptop files; (2) six link files showing files that were accessed on external devices; and
(3) data deconstruction applications.
As for the five laptop files, one was accessed on November 6, 2011, and four were
accessed on November 19, 2011. Balakrishnan refers to the file accessed on November 6, 2011,
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as the “Poly Strategy” file, and presented testimony at the hearing that this file was accessed in
connection with a presentation Balakrishnan was working on for MEMC. As for the other four
files, Balakrishnan could not have accessed the files on November 19, because: he used data
deconstruction applications prior to November 19; he had already packed his laptop to send back
to MEMC as of November 19; and Gail Coppens, a physiotherapist who owned a clinic that
Balakrishnan’s wife was contemplating purchasing, testified at her deposition that Balakrishnan
and his wife were with her at her clinic on November 19. Coppens testified that she never
observed Balakrishnan on a laptop that day.
As for the six link files showing files that were accessed on external devices,
Balakrishnan contends that the use of flash drives was commonplace at MEMC. Only one of the
six link files pointed to MEMC files, and those files were related to an MEMC project
Balakrishnan was working on at the time they were accessed.
Finally, with respect to the data deconstruction software, Balakrishnan ran the software
because he placed personal information on his laptop, which included banking, immigration, and
tax information, as well as information about Gail Coppens’s clinic. This practice was not
prohibited by MEMC policy.
6. Iosil’s Business Operations and Balakrishnan’s Responsibilities at Iosil
The parties disagree about how to categorize Iosil’s primary business, and whether Iosil
is MEMC’s competitor. MEMC asserts that Iosil is trying to compete in the polysilicon
marketplace, which MEMC argues is evident from all three of Iosil’s anticipated growth paths—
licensing technology, pursuing joint collaborations in the polysilicon industry, and
manufacturing polysilicon directly. Balakrishnan contends that Iosil is not MEMC’s competitor.
Iosil explores technology related to the use of iodine in polysilicon production. Iosil’s goal is to
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demonstrate the scalability of the iodine process, not to manufacture polysilicon, whereas
MEMC produces semiconductor and solar materials. Balakrishnan also notes that Iosil has no
plans involved in: production of granular polysilicon, kef recovery, and ingot, wafer, solar cell,
or solar module production. Balakrishnan responsibilities at Iosil include building the pilot plant
and chemical production, specifically, reacting metallurgical grade silicon with iodine. MEMC
has never used iodine or metallurgical grade silicon in polysilicon production.
B. Procedural History
MEMC filed its complaint and motion for a temporary restraining order (“TRO”) on
April 18, 2012. (Doc. 1, 3.) This Court held a Local Rule 65.1 conference on April 19. Both
parties were present and had the opportunity to be heard. On April 20, MEMC’s TRO was
granted, and Balakrishnan was temporarily enjoined and restrained from, inter alia: (1) “[u]sing
or disclosing any confidential, proprietary, and/or trade secret information of MEMC”;
(2) “[e]ngaging in or contributing knowledge to any work or activity that involves a product,
process, apparatus, service, or development which is then competitive with or similar to a
product process, apparatus, service, or development on which Balakrishnan worked or with
respect to which Balakrishnan had access to Confidential Information while at MEMC (including
by working for Iosil Energy Corporation)”; and (3) “[b]reaching the terms and conditions of the
Agreement.” (Doc. 8.) The TRO remains effective until this Court’s ruling on MEMC’s request
for a preliminary injunction.
This Court held a preliminary injunction hearing on June 1, 2012. The parties filed posthearing opening and reply briefs, which became ripe for review on July 9, 2012.
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II. STANDARD OF REVIEW
A preliminary injunction is a remedy used by the court to preserve the status between the
parties pending trial on the merits. Univ. of Texas v. Camenisch, 451 U.S. 390, 395 (1981).
When determining whether to grant a preliminary injunction, this Court must balance the
following four factors: “(1) whether the movant has shown a strong likelihood of success on the
merits; (2) whether the movant will suffer irreparable harm if the injunction is not issued;
(3) whether the issuance of the injunction would cause substantial harm to others; and
(4) whether the public interest would be served by issuing the injunction.” Overstreet v.
Lexington-Fayette Urban Cnty. Gov’t, 305 F.3d 566, 573 (6th Cir. 2002).
These factors are not prerequisites, but are factors that are to be balanced against each
other. United Food & Commercial Workers Union, Local 1099 v. Sw. Ohio Reg’l Transit Auth.,
163 F.3d 341, 347 (6th Cir. 1998). A preliminary injunction is an extraordinary remedy which
should be granted only if the movant carries his or her burden of proving that the circumstances
clearly demand it. Leary v. Daeschner, 228 F.3d 729, 739 (6th Cir. 2000).1
1
In his reply brief, Balakrishnan contends that “[t]o prevail on its request for a preliminary injunction,
MEMC, must prove each of the four preliminary injunction factors by clear and convincing evidence.”
(Doc. 51.) Balakrishnan’s characterization of the law is incorrect. When determining whether to grant a
preliminary injunction, courts are engaging in a balancing exercise. For example, if three of the four
factors weigh in favor of granting the preliminary injunction, and the fourth factor weighs in favor of
denying the injunction, the court can, nevertheless, grant injunctive relief. Due to the limited purpose of a
preliminary injunction, and given that the hearing is often in haste, “[a] party . . . is not required to prove
his case in full at a preliminary-injunction hearing.” Univ. of Texas, 451 U.S. at 395. The case law cited
by Balakrishnan does not support his contention that each factor of the balancing test must be proven by
clear and convincing evidence in order for the Court to grant injunctive relief. See Corl v. Citizens Bank,
Case No. 2:08-CV-234, 2008 U.S. Dist. LEXIS 82676, at *6–7 (S.D. Ohio July 1, 2008) (explaining that
“[u]nlike a preliminary injunction, a permanent injunction requires Plaintiff to show actual success on the
merits, rather than a mere likelihood of success on the merits, as well as a demonstration that she has
already suffered irreparable injury,” and that plaintiff must demonstrate his or her right to this permanent
injunctive relief by clear and convincing evidence); Chicago Title Ins. Corp. v. Magnusson, 487 F.3d 985,
991 (6th Cir. 2007) (explaining that a plaintiff has a burden of showing that a covenant not to compete is
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III. LAW AND ANALYSIS
A. Likelihood of Success on the Merits
MEMC brings seven causes of action in its Complaint, and each will be evaluated to
determine the likelihood of MEMC’s success on the merits.
1. Injunctive Relief (Claim 1)
MEMC asks this Court preliminarily and permanently to enjoin Balakrishnan in its first
cause of action. An injunction, however, is a remedy, not a cause of action. Hammond v.
Citibank, N.A., No. 2:10–CV–1071, 2011 WL 4484416, at *11 (S.D. Ohio Sept. 27, 2011); see
Reyes v. Wilson Mem. Hosp., 102 F.Supp.2d 798, 801 n.1 (S.D. Ohio 1998) (noting that claim for
injunction “does not constitute a separate legal claim for relief”). This Court need not consider
MEMC’s first cause of action in its likelihood of success evaluation.
2. Misappropriation of Trade Secrets in Violation of the
Ohio Uniform Trade Secrets Act (Claim 2)
Under the Ohio Uniform Trade Secrets Act, Ohio Revised Code §§ 1333.61–69
(“UTSA”), “[a]ctual or threatened misappropriation may be enjoined.” O.R.C. § 1333.62(A). A
“trade secret” is defined as:
information, including the whole or any portion or phase of any scientific or
technical information, design, process, procedure, formula, pattern, compilation,
program, device, method, technique, or improvement, or any business information
reasonable by clear and convincing evidence in order for there to be a viable claim for breach of the
covenant under Ohio law); Am. Sys. Consulting, Inc. v. Devier, Case No. 2:07-cv-818, 2007 U.S. Dist.
LEXIS 66339, at *5–6 (S.D. Ohio Sept. 7, 2007) (explaining that “[t]he moving party must demonstrate a
right to injunctive relief by clear and convincing evidence,” but that the four factors are not “prerequisites
to be met”); Patio Enclosures, Inc. v. Herbst, 39 F. App’x 964, 969 (6th Cir. 2002) (“To be granted an
injunction, the plaintiff must demonstrate, by clear and convincing evidence, actual irreparable harm or
the existence of an actual threat of such injury,” rather than all four factors) (internal quotations and
citations omitted).
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or plans, financial information, or listing of names, addresses, or telephone
numbers, that satisfies both of the following:
(1) It 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.
(2) It is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy.
O.R.C. § 1333.61(D).
A plaintiff must establish the following by a preponderance of the evidence to maintain a
claim for trade secret misappropriation: (1) the existence of a trade secret; (2) the acquisition of a
trade secret as a result of a confidential relationship; and (3) the unauthorized use of a trade
secret. Heartland Home Fin., Inc. v. Allied Home Mortg. Capital Corp., 258 F. App’x 860, 861
(6th Cir. 2008) (citing Hoover Transp. Serv., Inc. v. Frye, 77 F. App’x 776, 782 (6th Cir. 2003)
(per curiam)).
When evaluating whether a party possess a trade secret, Ohio courts evaluate:
(1) The extent to which the information is known outside the business; (2) the
extent to which it is known to those inside the business, i.e. by the employees;
(3) the precautions taken by the holder of the trade secret to guard the secrecy of
the information; (4) the savings effected and the value to the holder in having the
information as against competitors; (5) the amount of effort or money expended in
obtaining and developing the information; and (6) the amount of time and expense
it would take for others to acquire and duplicate the information.
State ex rel. Besser v. Ohio State Univ., 732 N.E.2d 373, 378 (Ohio 2000). Plaintiff has the
burden of identifying and demonstrating that the alleged trade secret is included in categories of
protected information under the UTSA, and must take active steps to maintain the secrecy of the
trade secret. Id. Information “is entitled to trade secret status only if the information is not
generally known or readily ascertainable to the public.” Id. at 379. A court must evaluate
whether the information has been disclosed to outside parties and whether security policies exist
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to safeguard the information. Novak v. Farneman, No. 2:10–CV–768, 2010 WL 4643002, at *3
(S.D. Ohio Nov. 9, 2010) (collecting cases). The existence of a non-disclosure agreement is also
a factor for a court to consider. Id. at *3 (citing ALTA Analytics, 75 F.Supp.2d at 785).
“While individual pieces of information available in the public domain do not qualify as
trade secrets, ‘a new combination of known steps or processes can be entitled to trade-secret
protection.’” Id. at *4 (citing Mike’s Train House, Inc. v. Lionel, LLC, 472 F.3d 398, 411 (6th
Cir. 2006)). The same is true “even if some of the information is available in patent applications,
so long as the entire trade secret is not revealed in the application.” Id. (citing Allied Erecting &
Dismantling Co., Inc. v. Genesis Equip. & Mfg., Inc., 649 F.Supp.2d 702, 713 (N.D. Ohio
2009)).
MEMC argues Balakrishnan cannot be trusted to protect MEMC’s trade secret
information. The circumstances surrounding his furtive departure indicate intent to use MEMC’s
trade secret information to benefit Iosil. MEMC also contends Balakrishnan took MEMC trade
secret information and downloaded it onto his mass storage devices. At least one MEMC
document has turned up already at Iosil. Plaintiffs urge that the Court “should disbelieve
Balakrishnan’s assertion that the eight portable storage devices did not (or do not) contain
MEMC confidential and trade secret information.” (Doc. 49 at 13.)
Balakrishnan responds that MEMC is unlikely to succeed on the merits of its UTSA
claim because it cannot demonstrate MEMC protects its trade secret information once it has been
accessed properly. MEMC is also unable to satisfy element (3) of its UTSA claim, that
Balakrishnan acquired MEMC trade secret as a result of unauthorized use. See Heartland Home,
258 F. App’x at 861. Balakrishnan’s use of MEMC’s trade secrets was authorized, he claims.
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MEMC has not sustained its burden of demonstrating that it is likely to succeed on the
merits of its UTSA claim. At the hearing, MEMC successfully demonstrated that trade secrets
exist at MEMC and are integral to its business. For example, when asked if intellectual property
and trade secrets were important to MEMC, Dr. Milind Kulkarni, vice president and chief
technology officer of the solar materials business, replied: “Absolutely. That is the essential
piece for our differentiation. We are a technology company. Without that, we cannot compete.”
(Doc. 44 at 17:7–11.) According to Kulkarni, because of Balakrishnan’s position as Director of
Polysilicon Product Technology, he had access to confidential and trade secret information
including, but not limited to: “[b]lue books and so-called processes of record, these are recipes
that are used to run all different types of processes, and all the presentations we were making
that had confidential information which related to Pasadena technology for which Karthik was
directly responsible, but also to other technologies such as Siemens technology.” (Id. at 21:24–
25, 22:1–5.) The Court is convinced MEMC could satisfy the first element of Heartland Home.
See 258 F. App’x at 861.
MEMC also demonstrated that trade secrets are acquired as the result of a confidential
relationship. Employees at MEMC, like Balakrishnan, sign agreements in which they agree to
“use [their] best efforts and diligence both during and after [their] MEMC employment to protect
the confidential, trade secret and/or proprietary character of all Confidential Information.” (Doc.
1-1 at 2.) MEMC also, inter alia, limits access to certain information based upon an employees’
level in the company, and allows access to the facility only with a badge. The Court believes
MEMC will most likely be able to satisfy the second element of its UTSA claim as well.
MEMC has more difficulty, however, with the third element of its UTSA claim. The
Court does not believe the likelihood of MEMC being able to prove Balakrishnan acquired
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MEMC trade secrets as the result of unauthorized use is high. At the hearing, MEMC failed to
show which, if any, trade secrets Balakrishnan was misappropriating or using without
authorization.
Dr. Kulkarni was asked at the hearing if he was concerned that MEMC’s confidential
information and trade secrets may be compromised if Balakrishnan is allowed to work at Iosil.
He responded as follows:
As I mentioned, Karthik is technically highly competent. He’s excellent. And he’s
aware of what MEMC does. He was directly responsible for significant portions
of our polysilicon technology, and he had free access to all of our polysilicon
technology. And Iosil is in the business of developing new polysilicon
technology. And as I mentioned to you independent of the chemistry, what
differentiates a competitor is how well you produce polysilicon in these three
steps: making of gases containing silicon, purification of these gases, and
production of silicon from these gases.
So Siemens technology he has indirect knowledge of, and fluidized bed
technology he directly understands it. So there are not too many other options for
anybody as far as the reactors are concerned. And definitely Karthik’s
background, his capabilities and what he learned in MEMC is going to be of
significant value to Iosil, and they’re going to cut down the development time by
many years. And this is going to adversely affect all competitors.
(Doc. 44 at 27:8–25, 28:1–6.) But the fact that Balakrishnan is good at his job and is highly
competent should not factor into the Court’s analysis with respect to the UTSA claim. Nor
should the fact that Balakrishnan had authorized access to a number of MEMC trade secrets.
MEMC needs to show that Balakrishnan misappropriated trade secrets through unauthorized use.
“[S]imply being exposed to the possibility of misappropriation or threatened misappropriation,
however, is not sufficient for [O.R.C.] § 1333.62 purposes.” Prosonic Corp. v. Stafford, 539
F.Supp.2d 999, 1006 (S.D. Ohio 2008). MEMC “must establish actual or threatened
misappropriation.” Id.
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MEMC attempts to show unauthorized use by pointing to the facts that Balakrishnan
transferred data on mass storage devices prior to his departure and ran data deconstruction
software. If this was the only evidence for the Court to consider, it may be persuasive. But
Balakrishnan presented testimony at the hearing that the use of mass storage devices was
commonplace at MEMC. He also explained that he used the data deconstruction software to
erase personal information from his computer. Balakrishnan presented testimony and evidence
that casts doubt on MEMC’s position that Balakrishnan used the mass storage devices to transfer
MEMC trade secrets and confidential information. See infra Part I.A.5. For example, MEMC
failed to secure Balakrishnan’s laptop once it was returned, and presumably anyone could have
accessed the laptop between the time it was returned and the time Kroll analyzed its contents.
Moreover, for each file or link file that contained MEMC information and that was accessed on
Balakrishnan’s laptop in November 2011, Balakrishnan provided an explanation that linked the
file or link file to a particular project he was working on that required him to access that file or
link file. Stated simply, MEMC has yet to identify one trade secret that Balakrishnan transferred
improperly from his MEMC laptop. It appears unlikely, therefore, that MEMC will be able to
prove the third element of its claim.
MEMC argues this Court should, nevertheless, preliminarily enjoin Balakrishnan because
of the doctrine of inevitable disclosure. Balakrishnan counters that MEMC will be unable to
show the inevitable disclosure rule applies because it cannot show: (1) Balakrishnan had detailed
and comprehensive knowledge of MEMC’s trade secrets; (2) Iosil is a competitor of MEMC; and
(3) MEMC trade secrets would be useful to Iosil.
Under the inevitable disclosure rule:
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[A] threat of harm warranting injunctive relief can be shown by facts establishing
that an employee with detailed and comprehensive knowledge of an employer’s
trade secrets and confidential information has begun employment with a
competitor of the former employer in a position that is substantially similar to the
position held during the former employment.
Procter & Gamble Co. v. Stoneham, 747 N.E.2d 268, 279 (Ohio App. 2000). The reasoning
behind this doctrine is that an individual cannot compartmentalize a competitor’s knowledge and
that disclosure or misappropriation of trade secrets is inevitable. Dexxon Digital Storage, Inc. v.
Haenszel, 832 N.E.2d 62, 68–69 (Ohio App. 2005). In Ohio, it is presumed that “a threat of
harm warranting injunctive relief exists when an employee with specialized knowledge
commences employment with a competitor.” Contech Const. Prod., Inc. v. Blumenstein, No.
1:11cv878, 2012 WL 2871425, at *11 (S.D. Ohio July 12, 2012).
While MEMC will most likely be successful in demonstrating that Balakrishnan has
detailed and comprehensive knowledge of MEMC’s trade secrets, MEMC will have more
difficulty showing Iosil is a competitor of MEMC and that MEMC’s trade secrets will be useful
to Iosil.
First, at present, MEMC can buy polysilicon cheaper than it can manufacture it. Its
primary market segments are semiconductor materials, solar materials, and energy. Iosil, on the
other hand, is developing technology to purify silicon into polysilicon, using iodine. It is not
producing polysilicon yet. One day, Iosil may compete with MEMC, but the companies are not
competing right now. Given these differences, it is not clear that MEMC’s trade secrets will be
useful to Iosil. Moreover, Balakrishnan testified that his responsibilities at Iosil are different
from his prior responsibilities at MEMC. In fact, the knowledge he gained working on pilot
plants and with new technology at General Electric for nine years, will be more useful than his
experience at MEMC while he is at Iosil.
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MEMC likelihood of success on its UTSA claim is not high, at least not high enough, to
justify the “extraordinary remedy” of preliminarily enjoining Balakrishnan from working at Iosil.
See Leary, 228 F.3d at 739.
3. Misappropriation of Trade Secrets Under Common Law (Claim 3)
MEMC argues that Balakrishnan misappropriated trade secret in violation of Texas
common law in its third cause of action. It does not, however, address the likelihood its success
on this claim in its preliminary injunction briefing.2 Balakrishnan argues he did not violate
Texas common law for the same reasons he did not violate the UTSA. Without any case law or
developed argument from the parties with respect to this claim, the Court will not consider this
claim for purposes of determining MEMC’s likelihood of success on the merits.
4. Violation of the Computer Fraud and Abuse Act (Claim 4)
Similarly, Plaintiffs do not discuss their likelihood of success with respect their claim for
violation of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030, et seq. (“CFAA”).
Balakrishnan addresses this claim briefly in a footnote, and argues that Plaintiffs are not entitled
to relief on their CFAA claim because there was no evidence the Balakrishnan has had access to
MEMC’s computer system since November 2011. Again, because neither party elaborates on
MEMC’s likelihood of success with respect to the CFAA claim, this claim will not be considered
for purposes of determining the likelihood of MEMC’s success on the merits.
2
In one instance in its reply brief, MEMC briefly mentions Texas and Missouri law in connection with an
argument related to its claim under the UTSA. (Doc. 50 at 14) (“Texas and Missouri law are in accord
[with Ohio law].”) This blanket assertion does not provide the Court with sufficient information to
address the likelihood of MEMC’s success with respect to its third cause of action.
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5. Breach of Contract (Claim 5)
MEMC brings a breach of contract claim alleging Balakrishnan has breached his
agreement with MEMC. See infra Part I.A.3. MEMC argues that its likelihood of success with
respect to this claim is high because its agreement is reasonable and its trade secrets and
confidential information are a legitimate, protectable interest under Missouri law. The fact that
the agreement lacks a geographical restriction does not affect its enforceability because courts
analyzing Missouri law routinely enforce covenants not to compete that do not contain
geographical limitations. Balakrishnan’s work at Iosil clearly violates the terms of his agreement
with MEMC.
Balakrishnan responds that Missouri courts construe covenants not to compete narrowly,
and do not enforce restrictions that are meant merely to protect an employer from competition by
a former employee. Balakrishnan also argues that MEMC is seeking to do much more than
prevent him from using MEMC trade secrets—MEMC is seeking to prevent him from working
at Iosil altogether, which is an impermissible expansion of Missouri law.
The Court must engage in a two-part inquiry. First, the Court must determine whether
the agreement is valid, and second, if it is valid, whether Balakrishnan breached the agreement.
Under Missouri law, restrictive covenants are enforced in equity if they are reasonable under the
circumstances and enforcement serves legitimate protectable interests, which includes trade
secrets. Mayer Hoffman McCann PC v. Barton, 614 F.3d 893, 908–09 (8th Cir. 2010) (applying
Missouri law). MEMC can use a “non-compete agreements to protect itself from unfair
competition by misuse of its trade secrets.” Healthcare Servs. Of the Ozarks, Inc. v. Copeland,
198 S.W.3d 604, 613 (Mo. 2006).
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The “Confidential Information” section of Balakrishnan’s agreement will most likely be
found valid under Missouri law. During and after his employment, Balakrishnan is prevented
from disclosing MEMC confidential information or trade secrets, and it is clear that under
Missouri law MEMC can use an agreement to protect itself from unfair competition by misuse of
this type of information. Id.; see Superior Gearbox Co. v. Edwards, 869 S.W.2d 239, 247–48
(Mo. App. 1993) (trade secrets and confidential information are a protectable interest under
Missouri law). For the same reasons MEMC is likely to be unsuccessful on the merits of its
UTSA claim, however, it is likely to be unsuccessful in proving Balakrishnan has breached the
“Confidential Information” section of his agreement with MEMC. See infra Part III.A.2.
The Court is also concerned that the “Competitive Activity” language in MEMC’s
agreement goes too far by prohibiting any competition without a geographical limitation. (Doc.
1-1 at 2–3.) Under the agreement, Balakrishnan is prohibited, for a two-year period, from
engaging in or contributing his knowledge to “any work or activity that involves a product,
process, apparatus, service or development which is then competitive with or similar to a
product, process, apparatus, service or development on which [he] worked or with respect to
which [he] had access to Confidential Information while at MEMC at any time during the period
of five (5) years immediately prior to such termination.” (Id. at 2) (emphasis). For an employee
like Balakrishnan, who was exposed to many different “processes”—a broad and undefined term
in the contract in and of itself—while at MEMC, this provision effectively prevents him from
working in his field after leaving MEMC.
Even more problematic is the fact that this language has no geographical restriction. This
Court finds unpersuasive the case law that MEMC cites to support its contention that “[c]ourts
analyzing covenants under Missouri law routinely enforce covenants to not compete that do not
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contain geographic limitations.” (Doc. 49 at 28.) In all of the cases cited by MEMC, the courts
found that the covenant at issue was not void without a geographical limitation specifically
because it was only prohibiting the solicitation of a former employer’s clients. See Schott v.
Beussink, 950 S.W.2d 621, 627 (Mo. App. 1997) (“The absence of a geographical limitation in
this case does not render the restrictive covenant unenforceable” because “the covenant does not
prevent employees from practicing in any particular geographical area, it merely prohibits them
from soliciting employer's clients”); Mayer Hoffman, 614 F.3d at 908-09 (“Although the
restrictive covenants in this case are not restricted geographically, Missouri law recognizes that a
customer restriction may substitute for an explicit geographical restriction.”). The language in
Balakrishnan’s covenant not to compete is much broader.
Because MEMC likelihood of proving Balakrishnan breached the “Confidential
Information” section of his agreement is low, and because this Court has doubts about the
validity of the “Competitive Activity” language, MEMC is unlikely to succeed on the merits of
its breach of contract claim.
6. Breach of Duty of Loyalty and Conversion (Claims 6 and 7)
Plaintiffs do not discuss their likelihood of success with respect to their breach of duty of
loyalty and conversion claims. Balakrishnan argues these claims will be displaced under O.R.C.
§ 1333.67(A).
Section 1333.67(A) provides that, the UTSA displaces “conflicting tort, restitutionary,
and other laws of this state providing civil remedies for misappropriation of a trade secret.”
Contractual remedies, other civil remedies that are not based on misappropriation of a trade
secret, and criminal remedies, however, are not displaced under § 1333.67(A). Claims “which
are based entirely on factual allegations of misappropriation of trade secrets” are barred by
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§ 1333.67(A). See Miami Valley Mobile Servs., Inc. v. ExamOne Worldwide, Inc., Case No.
3:11–cv–158, 2012 WL 441148, at *12 (S.D. Ohio Feb. 10, 2012) (citing Glasstech, Inc. v. TGL
Tempering Sys., Inc., 50 F.Supp.2d 722, 730 (N.D. Ohio 1999)). “The relevant question is
whether the facts supporting the common law claim are solely dependent on the same operative
facts as the UTSA claim.” Id. at *13 (citing Allied Erecting & Dismantling Co., 649 F.Supp.2d
at 721).
MEMC’s claims for duty of loyalty and conversion will likely be displaced by
§ 1333.67(A). Both claims appear to be dependent on the same operative facts as MEMC’s
UTSA claim. See Miami Valley, 2012 WL 441148, at *13; (Compl. ¶ 114–18) (“While
employed at MEMC, Balakrishnan breached his duty to MEMC by wrongfully transferring
MEMC’s confidential, proprietary and trade secret information outside the company in order to,
on information and belief benefit Balakrishnan and his new employer, Iosil, to the detriment of
MEMC.”); (Id. at 119–24) (“Balakrishnan wrongfully transferred MEMC’s confidential,
proprietary and trade secret information outside the company in connection with his secret
departure from the company to join a competitor, Iosil.”). It is unlikely MEMC will be
successful on its breach of duty of loyalty and conversion claims.
B. Irreparable Harm
In the Sixth Circuit, “[a] plaintiff’s harm from the denial of a preliminary injunction is
irreparable if it is not fully compensable by monetary damages.” Overstreet v. LexingtonFayette Urban County Gov’t, 305 F.3d 566, 578 (6th Cir. 2002). More specifically,
“[i]rreparable harm generally results from misappropriation of intellectual property by a
competitor because of the potential for lasting and unjust competitive harm that would otherwise
not occur.” Ethicon Endo-Surgery v. Crescendo Techs., Case Action No. 1:07cv1016, 2009 WL
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2707805, at *6 (S.D. Ohio Aug. 24, 2009) (citations omitted). “[T]he loss of trade secrets
cannot be measured in money damages” because “a trade secret once lost is, of course, lost
forever.” Novak, 2010 WL 4643002, at *5 (citing FMC Corp. v. Taiwan Tainan Giant Indust.
Co., Ltd., 730 F.2d 61, 63 (2d Cir. 1984)).
MEMC argues that both Ohio and Missouri law are clear that misuse or threatened
misuse of trade secret information cannot be fully or adequately compensated through monetary
damages, and injunctive relief is warranted as a result. Balakrishnan contends MEMC’s
argument that it will suffer irreparable harm absent a preliminary injunction is unconvincing
because it took two and a half months to file suit after learning that Balakrishnan was working
for Iosil. Balakrishnan also notes that during the preliminary injunction hearing, Dr. Kulkarni
testified that the direct negative impact Iosil could have on MEMC as a result of Balakrishnan’s
breach could be measured in dollars.
MEMC has not met its burden of demonstrating it will be subject to irreparable harm for
the same reasons it is not likely to succeed on its USTA claim—it has not shown that
Balakrishnan has, or threatens to, misappropriate MEMC trade secrets. See infra, Part III.A.2.
C. Harm to Others3
In evaluating the harm to third parties, the Court must “balance the harm a plaintiff would
suffer if its request for a preliminary injunction were denied with the harm the defendants would
suffer if they were to be preliminarily enjoined.” Novak, 2010 WL 4643002, at *6 (citing Corp.
Exp. Office Prods. v. Warren, Nos. 01-2521 DBRE, 01-2667 DBRE, 2002 WL 1901902, at *27
(W.D. Tenn. May 24, 2002)).
3
Neither party addresses factors three or four in its post-hearing briefing. Rather, the parties have
incorporated arguments by reference from prior briefing.
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MEMC argues that the harm it will suffer as a result of Balakrishnan’s misappropriation
and breach outweighs the harm Balakrishnan would suffer if his employment with Iosil was
terminated. Because Balakrishnan entered into an agreement with MEMC willingly and
knowingly, enforcing that agreement, MEMC argues, results in no inequity. Balakrishnan argues
the harm to MEMC is speculative at best. Balakrishnan again asserts that he has not taken any
trade secrets or violated his agreement with MEMC. As a result, an injunction would simply
prohibit him from engaging in the lawful activity of earning a living.
As explained above, MEMC has not shown that it is likely to succeed in proving that
Balakrishnan misappropriated trade secrets and/or breached his agreement with MEMC. Harm
to MEMC is speculative at this point, while Balakrishnan clearly will be harmed if this Court
enjoins him from working at Iosil because he will be unemployed. This factor weighs in favor of
denying MEMC’s preliminary injunction motion.
D. Public Interest
MEMC argues that granting a preliminary injunction in this case will promote public
policy because the public has an interest in enforcing valid covenants and allowing employers to
protect their valuable trade secrets. Balakrishnan argues that granting a preliminary injunction in
this case would undermine the public interest because there is no unfair or illegal activity to
enjoin.
Enforcing the “Competitive Activity” section of Balakrishnan’s agreement would not be
in the public interest because this Court doubts that provision of the agreement is valid under
Missouri law. The public interest factor weighs in Balakrishnan’s favor.
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IV. CONCLUSION
The balancing test factors all weigh in favor of denying MEMC’s request to prevent
Balakrishnan from working at Iosil. This Court, therefore, DENIES MEMC’s request to
preliminarily enjoin Balakrishnan from working with Iosil until trial on the merits. However,
because this Court finds that the “Confidential Information” section of Balakrishnan’s agreement
with MEMC is most likely valid under Missouri law, MEMC’s request to preliminarily enjoin
Balakrishnan from using and disclosing MEMC’s confidential, proprietary information and trade
secrets is GRANTED.
IT IS SO ORDERED.
s/ Algenon L. Marbley
Algenon L. Marbley
United States District Judge
Dated: September 11, 2012
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