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Cognate Bioservices, Inc. v. Smith

United States District Court, D. Maryland, Northern Division

March 17, 2015

COGNATE BIOSERVICES, INC., et al., Plaintiffs,
ALAN K. SMITH, et al., Defendants. No. WDQ-14-2950


WILLIAM D. QUARLES, Jr. District Judge.

Cognate BioServices, Inc. ("Cognate"), Healthbank, Inc. ("Healthbank"), Oncocidex, Inc. ("Oncocidex"). Theradigm, Inc. ("Theradigm"), and Vesta Therapeutics, Inc. ("Vesta"), (collectively "the Plaintiffs"), sued Alan K. Smith and Alan Smith Consulting, Inc. ("Alan Smith Consulting"), (collectively "the Defendants"), for violations of the Computer Fraud and Abuse Act, [1] misappropriation of products, and misappropriation of trade secrets. Pending are the Plaintiffs' motion for leave to file an amended complaint, the Defendants' motion for summary judgment, and third-party MacroCure's motion to vacate a magistrate judge's discovery order.[2] No hearing is necessary. See Local Rule 105.6 (D. Md. 2014). For the following reasons, the Plaintiffs' motion will be granted; the Defendants' motion will be denied as moot; and MacroCure's motion will be denied.

I. Background

A. Allegations in the Amended Complaint

The Plaintiffs are all Delaware corporations with their principal places of business in Maryland. ECF No. 36-3 at ¶¶ 1-5. Cognate is a contract service manufacturer and developer of human cell therapy products and services in the biomedical industry. ECF No. 36-3 ¶ 11. Healthbank is a customer of Cognate engaged in the business of cryogenic storage of human cell products. Id. ¶ 15. Oncocidex, Theradigm, and Vesta are customers of Cognate engaged in the business of developing human or veterinary cell therapy products and services in the biomedical industry. Id. ¶ 16.

The Plaintiffs have "spent valuable time, labor, and substantial sums of money in creating and developing" their Trade Secrets[3] and Trade Products.[4] Id. ¶¶ 12, 17. The Plaintiffs' Trade Products have "acquired a reputation of excellent quality" through the Plaintiffs' "quality work, long experience, and skill." Id. ¶ 13. The Plaintiffs' Trade Products and Trade Secrets are valuable and a source of substantial revenues and potential income. See id. ¶¶ 14, 18. The Trade Secrets were developed by Cognate on behalf of Healthbank, Oncocidex, Theradigm, and Vesta. Id. ¶ 20. The Plaintiffs devoted "great sums of money" to developing their Trade Secrets "which cannot be duplicated without improperly obtaining access to these Trade Secrets." Id. ¶ 19.

From December 2003 to May 2010, Smith was President and Chief Executive Officer ("CEO") for Cognate. ECF No. 36-3 ¶ 21.[5] While President and CEO, Smith "had access to and authority over others' access to [the] Plaintiffs' computer systems and all information contained therein, including the Trade Products and Trade Secrets owned by the Plaintiffs." Id. ¶ 24. Through his position, Smith owed a duty of confidentiality to the Plaintiffs, including "his obligation to maintain the strict security precautions to preserve the secret confidential and proprietary nature of Plaintiffs' processes, formulas, designs, systems, assays, documents[, ] [] forms, methods, data, techniques, and other proprietary information constituting Plaintiffs' Trade Secrets and Trade Products." Id. ¶ 24.

At all relevant times, Cognate's computer systems stored confidential information owned by Cognate and its customers, including the Plaintiffs' Trade Secrets and Trade Products. ECF No. 36-3 ¶ 29. Cognate provided Smith with a Dell Laptop (the "Cognate Laptop") for his work as President and CEO. Id. ¶ 30. Cognate's employee handbook required Smith to return the Cognate Laptop and all passwords to Cognate at the end of his employment. Id. ¶ 31.[6] After Smith's resignation and termination in May 2010, he did not return the Cognate Laptop or the computer passwords. Id. ¶ 33.

On May 5, 2010, Smith "began serving as the head of U.S. operations for MacroCure." ECF No. 36-3 ¶ 25. MacroCure, Ltd. ("MacroCure") is an Israel based "biotechnology company focused on the development and commercialization of advanced cell therapy products." Id. ¶ 8. Although MacroCure's principal place of business is in Israel, the Plaintiffs allege that it "employs a Production Manager in the United States, " and "work[s] with the American Red Cross through its agent [] out of Philadelphia, and has otherwise engaged in interstate commerce in the United States through, inter alia, its [prior] contract with Cognate and its employment of Smith in Maryland." Id. The Plaintiffs further allege:

MacroCure hired Smith-himself a Maryland-based employee and Maryland resident - with knowledge and intent that Smith would use [the] Plaintiffs' trade secrets and products in his employment with MacroCure.... Smith acted as MacroCure's agent and within the scope of his employment when he accessed [the] Plaintiffs' computer systems without authorization for the purpose of obtaining Plaintiffs' proprietary information. All of these trade secrets were misappropriated from [the] Plaintiffs' Maryland businesses, servers, and networks.

ECF No. 36-3 ¶ 8.[7]

On August 27, 2010, Smith formed Alan Smith Consulting, Inc., a biotechnology consulting service. Id. ¶ 26.[8] On October 18, 2012, Smith returned the Cognate Laptop to Cognate. Id. ¶ 36. Smith never returned the computer passwords. Id. ¶ 35. Smith and Alan Smith Consulting "provided and continue to provide biotechnology services to MacroCure." Id. ¶ 26.

Smith knew his authority to use and access Cognate's computer systems was revoked upon the termination of his employment. ECF No. 36-3 ¶ 35. "Based on Plaintiffs' current and ongoing analysis of the Cognate Laptop, Smith accessed or attempted to access the Cognate network at least six times following his May 5 Termination-on May 6, 2010, May 19, 2010, June 5, 2010, June 29, 2010, August 5, 2010, September 29, 2010, and possibly on April 9, 2012." Id. ¶ 37. Smith "accessed more than 150 files from the Cognate servers" and "copied from the Cognate servers more than 100 files onto the Cognate Laptop." Id. (emphasis removed).

Smith "purchased a laptop paid for by MacroCure (the "MacroCure Laptop") just days after leaving Cognate in May 2010." ECF No. 36-3 ¶ 41. On May 25, 2010, "Smith used the Cognate Laptop to access MacroCure's internal network, from which he drafted an email message with the subject Process SOP Track Changes' - knowing (i) that [the] Plaintiffs consider their process [standard operating procedures ("SOPs")] to be among their most valuable and protected confidential Trade Secrets, (ii) that [the] Plaintiffs have invested significant time and resources in their development, (iii) that these SOPs are valuable precisely ...

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