Carl Zeiss Meditec, Inc. v. Topcon Medical Systems, Inc.

• Court: District Court, N.D. California
• Decided: June 22, 2023
• Docket: 4:19-cv-04162
• Status: Unknown

Opinion

1 2 3 UNITED STATES DISTRICT COURT 4 NORTHERN DISTRICT OF CALIFORNIA 5 CARL ZEISS MEDITEC, INC., 6 Case No. 4:19-cv-04162-YGR Plaintiff, 7 PRETRIAL ORDER NO. 1 v. 8 Re: Dkt. Nos. 566 & 570 TOPCON MEDICAL SYSTEMS, INC., et al., 9 Defendants. 10

11 This Order resolves the outstanding dispute between the parties1 concerning the 12 identification of the trade secrets upon which the pending counts are based. 13 By way of background, the Corrected Fourth Amended Complaint (“C4AC”) identifies 14 three claims for misappropriation of trade secrets (Counts 1-3), two contract claims (Counts 4-5), 15 and a copyright infringement claim (Count 6). (See generally Dkt. No. 483-3 (redacted).) Through 16 the discovery process, plaintiff Carl Zeiss Meditec, Inc. (“Zeiss”) has filed numerous disclosures 17 identifying the trade secrets upon which their misappropriation claims are based. Following 18 plaintiff’s Fourth Supplemental Disclosure of Trade Secrets and the resulting discovery dispute, 19 the Court instructed the parties to meet and confer on the trade secrets that form the basis of 20 Counts 1-3. Following such discussions, plaintiff reduced the number of trade secrets they claim 21 from seventy-three (73) to five (5). As set forth in the Fifth Supplemental Disclosure of Trade 22 Secrets, the five trade secrets are numbered as follows: Trade Secrets Nos. 1, 31, 46, 64, and 72. 23 (See Dkt. No. 550-10 (redacted).) Of these five trade secrets, two (Trade Secrets Nos. 31 and 46) 24

25 1 Defendants Topcon Medical Systems, Inc., Topcon Healthcare Solutions, Inc., and certain identified employees are collectively referred to as “Topcon.” 26 To the extent there are references in this Order to information or documents which the 27 parties have requested be seal, such requests are denied solely as to this Order on the grounds that 1 are disputed by Topcon. 2 Pending before the Court are letter briefs from Zeiss and Topcon regarding these two 3 disputed trade secrets and the relevant discovery conducted thereto. Having carefully reviewed 4 parties’ letter briefs as well as their supporting materials and for the reasons given herein, the 5 Court FINDS that plaintiff’s proposed Trade Secret No. 31 does not constitute a trade secret as a 6 matter of law, and the Court STRIKES plaintiff’s proposed Trade Secret No. 46 as a procedurally 7 improper attempt to insert a newly proposed trade secret into the instant proceedings. Accordingly, 8 only Trade Secrets numbered 1, 64 and 72 will form the factual basis of Zeiss’ underlying trade 9 secret claims. 10 * * * 11 The instant dispute is but the latest attempt to articulate plaintiff’s alleged trade secrets in a 12 clear and actionable list. 13 In January 2023, the Court declined to expand the scope of a previously imposed 14 injunction on the grounds that the relief sought was outside of the allegations contained in the 15 Third Amended Complaint. (Dkt. No. 450.) The Court granted leave for plaintiffs to amend the 16 Fourth Amendment Complaint to address shortcomings with the motion identified by the Court. 17 (Id.) Plaintiffs were admonished, however, to specifically address the trade secrets they believe 18 were implicated in the allegedly improper conduct by Topcon. (Id.) Plaintiffs subsequently 19 submitted a renewed motion for preliminary injunction in which they sought to respond to the 20 Court’s prior order by specifying the at-issue trade secrets. (Dkt. No. 482.) 21 At the March 10, 2023 hearing held on plaintiff’s motion, the Court explained at length 22 how plaintiff had largely failed to allege actionable trade secrets. (See, e.g., Dkt. No. 519, Hearing 23 Transcript at 104.) Counsel for plaintiff responded, “I certainly understand your explanation now . 24 . . . it’s perfectly clear,” and remarked that he was “happy to” work with defendants to narrow the 25 list of 73 alleged trade secrets in the Fourth Supplemental Disclosure of Trade Secrets to reflect 26 only those alleged trade secrets plaintiff would seek to present at trial. (See id. at 106-08.) 27 Despite counsel’s emphatic assurances that plaintiff would meet and confer with 1 defendants’ attempts to meet and served the Fifth Amended Disclosure of Trade Secrets on March 2 23, 2023, the day before opening expert reports were due.2 (Dkt. No. 528.) Topcon subsequently 3 filed a request for a case management conference to discuss plaintiff’s Fifth Supplemental 4 Disclosure of Trade Secrets and its impact on the pleadings. (Id.) The request asserted, among 5 other things, that Topcon was prejudiced by Zeiss’ filing of the Fifth Supplemental Disclosure of 6 Trade Secrets so close in time to previously scheduled expert report and other discovery deadlines. 7 (Id. at 3:9-17.) The Court subsequently scheduled a further case management conference for May 8 8, 2023. (Dkt. No. 541.) 9 Prior to that case management conference, the parties timely filed a joint statement 10 regarding the Fifth Supplemental Disclosure of Trade Secrets. (Dkt. No. 550.) Topcon asserted 11 therein that each of the five alleged trade secrets comprising the Fifth Supplemental Disclosure of 12 Trade Secrets were “a departure from Zeiss’ [Fourth Supplemental Disclosure of Trade Secrets]” 13 but stated that they did not oppose Trade Secrets Nos. 1, 64, and 72. (See generally id. at 2-3.) 14 Plaintiff rejected defendants’ characterization of the Fifth Supplemental Disclosure of Trade 15 Secrets “as injecting new trade secrets.” (Id. at 6:11.) 16 /// 17

18 2 Though having multiple opportunities to do so, plaintiff has not challenged defendants’ rendition of these events. 19 The Court notes that the parties have also disputed the trade secret disclosures before 20 Magistrate Judge Beeler. On April 3, 2023, parties submitted a joint discovery letter brief 21 regarding whether Zeiss’ Fifth Supplemental Disclosure of Trade Secrets should be struck. Dkt. No. 533. Topcon generally contested the validity of the Fifth Supplemental Disclosure of Trade 22 Secrets and sought an order limiting the scope of expert discovery to the trade secrets disclosed in the Fourth Supplemental Disclosure of Trade Secrets. Id. at 1. Zeiss rebuffed Topcon, arguing that 23 the Fifth Supplemental Disclosure of Trade Secrets was “expressly requested” by this Court and taking the position that the Disclosure did not contain new secrets and instead represented a 24 distillation of prior trade secret disclosures. Id. at 3-4. 25 Magistrate Judge Beeler responded in an order dated April 10, 2023. See Dkt. No. 540. 26 That order noted that “parties have directed their opening expert reports at different trade-secret lists” as a result of “Zeiss [ ] [having] served its fifth disclosure on March 23 – one day before 27 opening reports were due . . . .” Id. at 2. Magistrate Judge Beeler ordered the parties to “meet and 1 After parties were unable to resolve the outstanding dispute concerning the Fifth 2 Supplemental Disclosure of Trade Secrets at the May 8, 2023 conference, the Court ordered them 3 to submit letter briefs on the two trade secret disclosures in dispute. (Dkt. No. 567.) Before the 4 Court are those letter briefs with respect to Trade Secrets Nos. 31 and 46. The Court addresses 5 each in turn. 6 Trade Secret No. 31. Zeiss’ Fifth Supplemental Disclosure of Trade Secrets describes 7 Trade Secret No. 31 as follows: 8 The specific proprietary and confidential requirements and processes for creating and verifying a HFA Report (10-2 OD/OS, 10-2-HFAIIi, 24-2 OD/OS, 24-2 HFAIIi, 30-2 9 HFAIIi), described in TPCN_0012269.

10 (Dkt. No. 550-10 (redacted).) Notwithstanding this disclosure came on the last day of discovery, 11 plaintiff again attempts to further revise3 this trade secret in their letter brief to read: 12 The specific proprietary and confidential requirements and processes for creating and verifying an SHFA4 Report (10-2 OD/OS, 10-2-HFAIIi, 24-2 OD/OS, 24-2 HFAIIi, 30-2 13 HFAIIi), described in CZMI867-79 and TPCN_0012269. 14 (Dkt. No. 570, Pl.’s Letter Brief at 1) (tracking in red the revisions proposed in plaintiff’s letter 15 brief). 16 The parties’ positions from each’s letter brief are summarized as follows: 17 Topcon argues that Trade Secret 31 should be struck in its entirety for three reasons. First, 18 defendants take issue with the identification of a trade secret by reference to a third-party 19 document. (Dkt. No. 566, Def.’s Letter Brief at 1.) More particularly, Topcon argues “Zeiss is 20 attempting to claim as its own trade secret the method developed by Topcon’s contractor, Calcey, 21 for extracting data off a PDF copy of an HFA report,” namely a spreadsheet Calcey created, 22

23 3 Plaintiff explains their further revisions were made “[b]ased on Judge Beeler’s guidance, and upon meeting and conferring with Topcon, and as proposed [at the last case management 24 conference.]” Pl.’s Letter Brief at 1. Further, the joint statement submitted prior to the May 8, 2023 case management conference explained that parties had agreed to swap “SFA” for “HFA” 25 and to remove the word “verifying.” Dkt. No. 550, Joint Case Management Statement at 7. 26 4 “SFA” refers to a “Single Field Analysis,” which is a type of Humphrey Field Analyzer (“HFA”) report. See Dkt. No. 566, Defs.’ Letter Brief at 1. The HFA is a device created by 27 plaintiff that assists providers seeking to diagnose and treat significant issues related to glaucoma. 1 TPCN_0012269 (hereinafter, “Calcey Document”). (Id.) Second, defendants contend the 2 “parameters and corresponding values”5 contained in the Calcey Document cannot be Zeiss 3 confidential information since they “are thoroughly taught by Zeiss in its manuals so that doctors 4 know how to read HFA reports and diagnose patients,” and are therefore public information. 5 (Def.’s Letter Brief at 2.) Third, Topcon asserts the fifth formulation of Trade Secret No. 31 “has 6 nothing in common with the prior version” and should therefore be rejected. (Id.) Defendants do 7 not respond to the additional revisions plaintiff suggests in their letter brief. 8 Plaintiff makes three points in defense of Trade Secret No. 31. First, defendant has 9 allegedly “incorrectly questioned the citation to” the Calcey Document. (Pl.’s Letter Brief at 1.) 10 Second, the reference to CZMI867-79 (hereinafter, the “Specifications Document”) in plaintiff’s 11 most recent revision of Trade Secret No. 31 is appropriate since it provides helpful context for the 12 trade secret and has been “continuously cited” in plaintiff’s papers since 2019. (Id. at 1-2.) Third, 13 the Specifications Document “discloses how Zeiss creates the features that are contained in the 14 Calcey document.” (Id. at 2.) 15 The Court finds plaintiff’s defense of Trade Secret No. 31 unpersuasive for three reasons. 16 First, parties concede the Calcey Document, which Zeiss seeks to incorporate by reference into 17 Trade Secret No. 31, was created by a subcontractor of Topcon, not by Zeiss. As a threshold 18 matter, it strains credulity that a document created not by claimant but by a third party gives rise to 19 an actionable trade secret. Such a document by definition is not secret to Zeiss and therefore does 20 not give rise to an actionable secret. See DVD Copy Control Assn., Inc. v. Bunner, 31 Cal.4th 864, 21 881 (2003) (“Trade secrets[’] . . . . only value consists in their being kept private.”) (internal 22 quotations & citations omitted). 23 5 Defendants acknowledge in their letter brief that Zeiss’s expert, Dr. Daft, was asked 24 during a deposition to identify Zeiss confidential information reflected in the Calcey Document and could only point to a cell in the first tab of the spreadsheet specifying “that the extraction 25 should proceed ‘within 10 seconds.’” See Def.’s Letter Brief at 1 (citation omitted). The expert further suggested new technologies would not be valuable to Zeiss’ competitors unless it 26 facilitated data extraction from Zeiss reports in ten seconds or less as that is what consumers would require, and therefore that mention of the timing threshold renders the Calcey Document a 27 Zeiss trade secret. Dkt. No. 565-14 (sealed version of Dr. Daft deposition transcripts, appended to 1 Second, deposition testimony from Zeiss’ expert that the Calcey Document contains Zeiss 2 confidential information is unavailing. Defendants acknowledge that Zeiss’ expert identified as 3 Zeiss confidential information certain text in the Calcey Document stating that data extraction 4 from SFA/HFA reports should be completed within 10 seconds. (Defs.’ Letter Brief at 1.) In 5 relevant part, the expert opined that, “The Zeiss . . . trade secret 31 [is] the performance 6 specifications,” such as the time it takes Topcon’s solution to extract data from Zeiss’ reports. 7 (Dkt. No. 565-14 (sealed version of Dr. Daft deposition transcripts, appended to Defs.’ Letter 8 Brief as Ex. 6, at 134:20-135:1-4).) Yet, the expert simultaneously admitted that Zeiss does not 9 engage in such data extraction since it is able to use the underlying raw data. (See id. at 137.) 10 Thus, the testimony from Zeiss’ expert, even if credited, addresses a timing requirement for a 11 technological process (data extraction) which would only apply to Topcon, not Zeiss. Thus, Zeiss 12 has failed to allege a trade secret that it, itself, practices or holds. See, e.g., Cal. Civil Code § 13 3426.1(d) (defining “trade secret” under California law to refer to information, including methods 14 or processes, of an entity that the entity derives value from and keeps private). 15 Third, Zeiss’ attempt to add a cross-reference to the Specifications Document in its most 16 recent iteration of Trade Secret No. 31 reads as an unconvincing attempt to salvage their otherwise 17 flawed trade secret disclosure at the last possible moment and without affording defendant the 18 opportunity to respond. By contrast to the Calcey Document, which was not created by Zeiss, the 19 Specifications Document was prepared by Zeiss and sets forth the requirements for creating and 20 formatting SFA/HFA reports. (See Dkt. No. 569-8 (sealed version of the Specifications Document, 21 appended to Pl.’s Letter Brief as Ex. C).) Inclusion of a cross-reference to this document is 22 inappropriate because, as stated above, there is a meaningful difference between the process by 23 which Zeiss generates such reports and the process by which Topcon allegedly extracts data from 24 the resulting PDFs. The Specifications Document addresses only the former and is not alleged to 25 implicate the latter. Since Zeiss does not contend that Topcon generates SFA/HFA reports, it is 26 unclear how the Specifications Document could be cited alongside the Calcey Document as 27 reflecting the same confidential Zeiss processes. 1 As plaintiff’s articulation of “Trade Secret No. 31” suffers from numerous flaws, the Court 2 finds Trade Secret No. 31 fails to state an actionable trade secret and should, on those grounds, be 3 struck.6 4 Trade Secret No. 46. Zeiss’ Fifth Supplemental Disclosure of Trade Secrets identifies 5 Trade Secret No. 46 as follows: 6 Proprietary and confidential exportable, encrypted OCT data structures and formats to be analyzed in reports using common media types (PDF, EXPS, or XML) that can be 7 decrypted by the IMG Export Software7 that is expressed at CSMI0176117-119. 8 (Dkt. No. 550-10 (redacted).) 9 Defendants’ argument is fundamentally that Trade Secret No. 46 concerns the output data 10 of certain Zeiss algorithms, which cannot constitute a trade secret as such data is publicly and 11 routinely disclosed. (Def.’s Letter Brief at 2.) Defendants correctly note that counsel for plaintiff 12 conceded the same. In its own words, Zeiss previously represented that Trade Secret No. 46 claims 13 “the OCT data that Zeiss exports in a raw encrypted format.” (See Dkt. 550, Joint Case 14 Management Statement at 8:11; see also Pl.’s Letter Brief at 2 (“This trade secret relates to the 15 data structures that result from applying the algorithm identified in Trade Secret 72 . . . in reverse, 16 to encrypt data, which can then be decrypted by that algorithm . . . .”).) In other words, plaintiff 17 seeks to claim as a trade secret the output of their algorithm, including the format of the output 18 data. 19 Plaintiffs defend Trade Secret No. 46 on different grounds. They note that Topcon has 20 previously objected to Trade Secret No. 46 because “encryption, as opposed to decryption, had not 21 been sufficiently disclosed in prior trade secret disclosures.” (Id.) Zeiss further asserts that 22 encryption and decryption were disclosed in Zeiss’ Fourth Supplemental Disclosure of Trade 23 Secrets at Nos. 72 and 73 and that “all experts . . . were deposed on both encryption and 24 6 The Court need not reach other arguments raised by the parties. For instance, plaintiff 25 rejects defendants’ earlier request to strike the word “processes” from Trade Secret No. 31, which defendant does not renew in their letter brief. See, e.g., Pl.’s Letter Brief at 1. 26 7 “IMG Export Software (comprised of the IMG License source code and IMG Encryption 27 source code)” is a type of software provided by Zeiss to certain third parties for the purposes of 1 decryption.” (Id.) Plaintiff avers there is no meaningful difference between encryption and 2 decryption since they “use the same algorithm, just run in different directions” and invokes 3 authorities suggesting that use of a modified trade secret, such as in the context of decryption vs. 4 encryption, may trigger liability. (See id. at 2 (citing to an Eastern District of Missouri case and 5 the Restatement (First) of Torts for the proposition).) Lastly, Zeiss contends that Trade Secret No. 6 46 “is a counterpart to Trade Secret 72, and a revision of Trade Secret 73 . . . .’”8 (Id. at 3.) 7 The Court agrees with defendants that plaintiff’s proposed Trade Secret No. 46 refers to 8 the outputs of Zeiss’ algorithms rather than the methods by which such algorithms operate. This 9 much is clear from the plain text of the trade secret as identified by plaintiff. 10 The Court next considers whether Zeiss has previously identified a trade secret claiming 11 the output of their algorithm. Zeiss claims their proposed Trade Secret No. 46 is an aggregation of 12 earlier versions of Trade Secrets Nos. 72 and 73 which read: 13 Trade Secret No. 72: Decrypting raw OCT data from Cirrus devices into standard image format so that it can be viewed outside of the CZMI environment. 14 Trade Secret No. 73: Enabling the comparison of encrypted raw OCT data from Cirrus 15 devices to decrypted OCT data in standard image format. 16 (See Dkt. No. 565-4 (sealed version of plaintiff’s Fourth Trade Secret Disclosure, appended to 17 Def.’s Letter Brief as Ex. 1).) 18 The Court finds plaintiff’s reference to earlier Trade Secrets Nos. 72 and 73 as a means to 19 save Trade Secret 46 unavailing. These previously claimed trade secrets do not refer to outputs. 20 Instead, they refer to processes of encryption and decryption. As plaintiff points to no other earlier 21 trade secret disclosures as encompassing proposed Trade Secret No. 46, the Court determines that 22 Trade Secret No. 46 represents an attempt by plaintiff to claim a new trade secret.9 23 8 Plaintiff views Trade Secret No. 46 as relating to “the encrypted format of Zeiss’ internal 24 [ ] files resulting from using Zeiss’’ proprietary algorithm to establish an encryption,” whereas Trade Secret No. 72 “is addressed to the proprietary algorithm itself.” Pl.’s Letter Brief at 3. 25 9 The notion that plaintiff may have disclosed proposed Trade Secret No. 46 in the context 26 of making its source code available to Topcon is without merit. First and foremost, the Court considers whether the content of proposed Trade Secret No. 46 has been previously identified as a 27 trade secret by Zeiss. It has not. Second, and as a factual matter, source code perhaps offers a 1 This bald effort to reframe the scope of plaintiff’s trade secret claims is both late and 2 prejudicial. Discovery closed. Dispositive motions are in process and trial is approaching. 3 Furthermore, plaintiff has already stated they do not intend to claim such outputs as a trade 4 secret.10 In light of this, the Court sees no reason to permit an about face on this key point at such 5 a late stage in the instant proceedings. 6 * * * 7 For the foregoing reasons and based upon the repeated briefing on these issues, and 8 further, to expedite and streamline the next phase of this litigation with a “just, speedy, and 9 inexpensive determination” of this issue, the Court FINDS plaintiff’s identification of Trade 10 Secrets No. 31 without basis as a matter of law and STRIKES plaintiff’s proposed Trade Secret No. 11 46 as an improper attempt to introduce a new trade secret into the proceedings after discovery has 12 closed. See Fed. R. Civ. P. 1. Accordingly, Trade Secrets Nos. 31 and 46 cannot form the basis of 13 plaintiff’s trade secrets claims set forth in the C4AC. Plaintiff’s trade secrets claim is therefore 14 limited in scope to the undisputed trade secrets identified in plaintiff’s Fifth Supplemental 15 Disclosure of Trade Secrets and numbered 1, 64, and 72. 16 17 18 simply by having access to Zeiss’ source code. 19 10 While the procedural analysis is dispositive, the Court notes that plaintiff’s failure to 20 explain why the outputs of their algorithm constitute a trade secret as a matter of law is another ground on which their proposed Trade Secret No. 46 could be struck. 21 Zeiss’ letter brief does not establish, as a threshold matter, how such outputs constitute a 22 trade secret. Nor has plaintiff previously done so. In fact, they explicitly stated on the record that they do not claim such outputs as a trade secret and do not explain this flip flop. See Dkt. No. 572, 23 Transcript of Proceedings held on May 8, 2023 at 18:9-13. 24 The Court suspects Zeiss’ failure to plainly address how the outputs constitute a trade secret is indicative of the weaknesses of such a claim. Being distributed widely to Zeiss customers 25 and affiliated researchers, the outputs would not appear secret to Zeiss. While it may be that the outputs are confidential to Zeiss or even proprietary information, this does not mean they are 26 automatically trade secrets. In the absence of any filing setting forth Zeiss’ view on how proposed Trade Secret No. 46 constitutes a trade secret and in light of the weaknesses with such a claim 27 identified here, the Court finds an alternative ground exists for striking proposed Trade Secret No. 1 IT IS SO ORDERED. 2 Dated: June 22, 2023 3 OR Hag ee □ 4 UNITED STATES DISTRICT COURT JUDGE 5 6 7 8 9 10 11 a 12

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