IP Law Daily, TRADE SECRETS—D. Mass.: Clinical research company failed to show trade secrets were acquired improperly, (Apr 17, 2023)

By Linda O’Brien, J.D., LL.M.

Forensic analysis of the laptop of a former employee was insufficient to show that his new employer gained access to or used the company’s trade secrets.

A clinical research organization failed to demonstrate a likelihood of success on the merits of its claims to enjoin the alleged trade secret misappropriation by a former employee who went to work for a clinical trial management business, a federal district court in Boston, Massachusetts has ruled. There was insufficient evidence that the former employee acquired trade secrets by improper means and factual disputes existed as to whether the former employee breached his non-compete agreement and whether another former employee improperly solicited him for the position for the new company. Thus, the company’s motion for a preliminary injunction was denied (Parexel International LLC v. Signant Health Holding Corp., April 13, 2023, Kelley, A.).

Parexel International LLC is a global clinical research organization (“CRO”) which provides clinical development and consulting services to life sciences and biopharmaceutical companies in the development of new treatments. Ruben Ceballos was employed by Parexel as a Director of Project Leadership and, in that role, had access to confidential information such as customer lists, vendor lists, pricing information, a customer relationship database, and pricing models. In November 2018, Ceballos was required to sign a Key Employee Agreement (KEA) which contained confidentiality and non-disclosure provisions restricting the disclosure of that information. The agreement also included a provision that prohibited him from working for a competing company for six months after the end of his employment at Parexel.

In January 2022, Katherine Trainor, a colleague of Ceballos at Parexel and who had signed a similar KEA, sent a message to a co-worker indicating that she had talked with Ceballos and he want to leave the company along with her (Trainor). In February 2022, Trainor left her employment with Parexel and joined clinical trial management provider Signant Health. In August 2022, Ceballos informed Parexel executive Shannon Macquarrie that he had been offered employment with Signant. Macquarrie responded that Ceballos was subject to the terms of the KEA and Parexel would enforce the six-month restriction prohibiting from beginning his employment with a competitor until March 2023. However, Ceballos resigned from Parexel and started a new position with Signant in September 2022. An audit of Ceballos’ Parexel laptop revealed that he had previewed, accessed, and/or downloaded numerous files which contained client pricing and intelligence information, employee information, training and project management information, and documents relating to Parexel client Pfizer.

In November 2022, Parexel filed suit against Ceballos, Trainor and Signant and its two subsidiaries, asserting claims for violations of Defend Trade Secrets Act (DTSA) and Massachusetts Uniform Trade Secrets Act (MUTSA), breach of contract, breach of fiduciary duty, tortious interference, and unfair and deceptive trade practices. Before the court was Parexel’s motion for a preliminary injunction, seeking to prevent Ceballos from running clinical trials for Signant clients and from supervising, recruiting, or training other employees who run clinical trials for Signant clients.

DTSA and MUTSA. The court found that there was insufficient evidence that the defendants used improper means to acquire its trade secrets to establish a likelihood of success on the merits of a claim for misappropriation of a trade secrets under the DTSA and MUTSA. Parexel did demonstrate a likelihood that the files Ceballos accessed prior to leaving his employment with Parexel contained trade secrets by specifically identifying the types of documents that were misappropriated and asserting that the information represented highly guarded commercially valuable trade secrets that would give Signant a competitive advantage. The company also showed that it employed a range of measures to protect its confidential information and it was likely that those efforts to protect their trade secrets were reasonable. However, Parexel had to demonstrate that the trade secrets were obtained through improper means in breach of a confidential relationship. While the facts raised questions about Ceballos’ conduct, they did not show that the defendants acquired trade secrets by improper means as it was unclear if the defendants acquired those trade secrets at all. While the forensic analysis showed that Ceballos previewed, accessed, and/or downloaded files related to Parexel’s clients shortly before leaving his employment, it was unclear as to whether Signant came into possession of any information contained in those files. Since there was insufficient evidence to determine that the defendants obtained or used the trade secrets at issue, the plaintiff did not meet its burden to show the improper means element.

Breach of contract. Parexel failed to establish a likelihood of success on the merits of its breach of contract claim against Trainor. According to the court, Trainor stated in her declaration that she did not play any role in recruiting Ceballos, did not ask him to apply or suggest he leave Parexel, told Signant’s recruiter that she could not be involved in his hiring process, and any conversations with Ceballos were only between friends. Ceballos also attested in his declaration that he applied for the Signant position only after seeing it publicly posted and Trainor did not approach him about the position or convince him to apply in any way. The total evidence available to the court did not demonstrate that Trainor violated the non-solicitation of her employment agreement.

Additionally, there is a factual dispute as to whether Parexel and Signant can be fairly described as competitors, which precludes injunctive relief on the issue of whether Ceballos violated the KEA non-competition provision by joining Signant within days of leaving Parexel. While the term “competing company” is broadly defined in the KEA, the focuses of the two companies diverge to different aspects of the same industry, extending the restrictive covenant to Ceballos’ work with Signant broader than necessary. The likelihood of success on the merits turns on whether the restrictive covenant is enforceable as to Ceballos’ work with Signant. Since Ceballos’ non-compete provision may be more expansive than is necessary and cannot be tailored to protect a legitimate business interest, Parexel did not establish a likelihood of success on its breach of contract claim against Ceballos.

Tortious interference. Parexel asserted that Signant and Trainor tortiously interfered with the KEAs of Ceballos and Trainor by allowing Trainor to recruit Ceballos to a competitor. However, Parexel failed to show a likelihood of success on the merits of this claim. There was factual dispute as to whether Signant interfered with Trainor’s non-solicitation provision or whether Ceballos violated his non-compete agreement as to preclude the grant of injunctive relief, the court concluded.

The case is No. 1:22-CV-11896-AK.

Attorneys: Danielle Y. Vanderzanden (Ogletree Deakins Nash Smoak & Stewart, P.C.) for Parexel International LLC. Tyree Preston Jones, Jr. (Reed Smith LLP) and Cassandra Santoro Fuller (Morgan, Brown & Joy LLP) for Signant Health Holding Corp., Signant Health LLC, Signant Health Global LLC, Ruben Ceballos and Katherine Trainor.

Companies: Parexel International LLC; Signant Health Holding Corp.; Signant Health LLC; Signant Health Global LLC

Cases: TradeSecrets MassachusettsNews GCNNews