Dr. Pollack, the Plaintiff, was the sole owner of a dermatology practice known as Philadelphia Institute of Dermatology (“PID”), for which Dr. Shawe worked as a dermatologist and Dr. Badawy as a surgeon. They had worked as PID independent contractors for several years until they left PID and formed their own new practice, called “Skinsmart.”

PID’s patient files and information were maintained in its office’s computer system. Only certain PID employees could access the system in its entirety.

In late 2001, Dr. Pollack had opened negotiations with Drs. Shawe and Badawy about possibly selling part of PID to them. Although the parties reached a tentative agreement in June of 2002, the two doctors presented resignation letters to Dr. Pollack on August 5, 2002. Before that they asked PID staff members to make copies of PID’s appointment books and to print out portions of the database (the “Patient List”).

Skinsmart opened its doors on September 3, 2002, under a lease that they had signed before their final day at PID. While still affiliated with PID they offered employment to Ms. Wilson, a PID employee who had served as Dr. Pollack’s medical assistant for many years.

The Court found that Ms. Wilson used the Patient List to call scheduled PID patients and try to reschedule them with Skinsmart. Drs. Shawe and Badawy also called patients and sent out a mailing. A substantial number of Skinsmart’s patients came from the Patient List and resulted in approximately $700,000 of revenue.

Trade secret claim

Dr. Pollock asserted a claim for misappropriation of trade secrets. The Court said that to prevail the Plaintiff must show: (1) the existence of a trade secret; (2) that it was of value to him and important in the conduct of his business; (3) that by reason of ownership, he had the right to the use and enjoyment of the secret; and (4) that the defendants obtained the secret while they were in a position of trust and confidence under circumstances making it inequitable and unjust for them to disclose it to others or make use of it themselves, to the prejudice of the plaintiff.

The Court listed several factors helping determine whether certain information is a trade secret: (1) the extent to which the information is known outside of the owner’s business; (2) the extent to which it is known by employees and others involved in the owner’s business; (3) the extent of measures taken by the owner to guard the information’s secrecy; (4) the information’s value to the owner and to his competitors; (5) how much effort or money the owner spent in developing the information; and (6) how easily others could properly acquire the information.

The 20,000 name Patient List was indeed a trade secret worthy of protection; it had been compiled over many years by PID’s substantial efforts; PID spent money on computers, software and employees to keep and maintain it; the information was not universally known or accessible; PID sought to protect the information’s secrecy; and the Patient List was indeed valuable and important to PID, being a core component of the practice. Dr. Pollack was the sole owner of PID and thus he owned the Patient List.

The Court said that a duty not to disclose trade secrets may arise from either a restrictive covenant or a confidential employment relationship. While the parties had no written contracts guiding them in this case, the defendant doctors were found to have a confidential relationship while working at PID. They violated it by having defendant Ms. Wilson copy the Patient List and use it call to patients to reschedule them for Skinsmart. The Court granted Partial Summary Judgment to the Plaintiff against the individual defendants, leaving to a jury the amount of damages to be awarded.

Unjust enrichment

Dr. Pollack also claimed that the defendants were unjustly enriched. The Court found that the Patient List, taken from PID without compensation, definitely benefited the defendants in setting up Skinsmart. Thus, it determined that it would be inequitable for the Defendants to retain the benefits without paying PID for the value. The Court granted Summary Judgment to Dr. Pollack and left to a jury what the amount of damages should be.

Duty of loyalty

The Plaintiff also claimed a breach of the implied duty of loyalty. Since loyalty is a component duty within the agent-principal relationship, the Court had to find that the defendants were indeed agents of PID. The three elements establishing an agency relationship are: (1) the principal’s manifestation that the agent acts for him; (2) the agent’s acceptance of the undertaking; and (3) the parties’ understanding that the principal is to be in control of the parties. Ms. Wilson’s position as a PID employee established her agency status. Though no written contract existed, the defendant doctors were found to be under an agency relationship because they treated patients at PID, because PID managed the billing and paid all the overhead for all patients they saw there, and because PID paid them for their services. The Court found that the individual defendants’ unauthorized use of the Patient List to establish Skinsmart was a clear breach of their duty of loyalty to PID. The Court also granted Summary Judgment to Dr. Pollack and left to the jury the matter of damages.

Settled out

In the end, the parties agreed to a $400,000 settlement.

>> back>>