Haller

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF OHIO

EASTERN DIVISION

STERIS CORPORATION, et al., ) CASE NO. 1:25 CV 2778

) JUDGE DONALD C. NUGENT

Plaintiffs, )

v. ) MEMORANDUM OPINION

) AND ORDER

FREDERICK HALLER, et al., ) .

Defendants.

This matter is before the Court on the Motion of Defendants Frederick Haller and

Endolastic, Inc. (“Endolastic”) for Judgment on the Pleadings on Plaintiffs’ Complaint.CECF #9)

In addition, Plaintiffs Steris Corporation (“STERIS”) and U.S. Endoscopy Group (“US

Endoscopy”) have filed a Motion for Judgment on the Pleadings on the Defendants’

Counterclaims (ECF # 13). Both motions are now fully briefed.

Factual and Procedural Background

Plaintiff STERIS is engaged in the business of infection prevention and decontamination,

with a long list of products and services. Complaint J25 (ECF #1 at §25). Plaintiff US

Endoscopy is a wholly owned subsidiary of STERIS acquired in 2012. US Endoscopy is a leader

in the design, manufacture and sale of therapeutic and diagnostic medical devices and

accessories used in gastrointestinal endoscopy markets worldwide. STERIS and US Endoscopy

currently develop endoscopy technology sold under STERIS branding. (ECF #1 at §26)

Defendant Haller founded Intelligent Endoscopy in 2014. Intelligent Endoscopy was in

the business of developing, manufacturing, marketing and selling endoscopic band ligation

products, including an endoscopy band ligation product, the SMARTBAND multi-band ligation

system (the “SMARTBAND System”). Haller was involved in all aspects of research and

development for Intelligent Endoscopy and was the primary inventor for the technology

developed by Intelligent Endoscopy including concepts that were commercialized and patented

and other concepts that remained under development. (ECF #1 at 27, 29)

In 2020, Plaintiff US Endoscopy entered into an Asset Purchase Agreement (“APA”)

with Intelligent Endoscopy in which Intelligent Endoscopy sold all of its assets to U.S.

Endoscopy, including all intellectual property owned by Seller or held by Seller in its operation

of the business. In anticipation of the APA, on December 18, 2020, Haller executed a

Confidentiality and Invention Assignment Agreement with Intelligent Endoscopy in which

Haller assigned to Intelligent Endoscopy all inventions and other developments that he

developed while employed by Intelligent Endoscopy. Under the Confidentiality and Invention

Assignment Agreement, Haller agreed to maintain the confidentiality of the Intelligent

Endoscopy confidential information and agreed not to use or disclose any such information,

including trade secrets and other proprietary Intelligent Endoscopy information. The

Confidentiality and Assignment Agreement was included as an Assumed Contract that US

Endoscopy acquired under the APA. (ECF #1 at ff 27, 31-45)

Also in December 2020, STERIS offered Haller a full-time job as Director, Research &

Development, Banding Products, which he accepted. In this job, Haller’s responsibilities

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included driving growth and profitability for STERIS’s banding/ligation product portfolio and

developing future ligation products, technologies, and methodologies. (ECF #1 at { 48.) Haller

signed an Employment Agreement with STERIS which included confidentiality, return of

records and non-competition provisions. The Employment Agreement also included a provision

where Haller agreed to assign to STERIS any Inventions, Ideas or other Intellectual

Developments he made during his employment. (ECF #1 at J 48-52). During the course of his

employment with STERIS, Haller entered into two Long-Term Equity Incentive Plan

Agreements (“LTI”’) with STERIS. The first in 2021 which includes the 2021 Restricted Stock

Agreement and the 2021 Nondisclosure and Non-competition Agreement (“2021 LTT’) and the

second in 2022 which includes the 2022 Restricted Stock Agreement and 2022 Nondisclosure

and Non-competition Agreement (“2022 LTT’). Under these Agreements Haller agreed to keep

STERIS’s invention records, trade secrets, and other information in strict confidence and not

disclose them to anyone or use them to further his own business or benefit and, upon termination

of his employment with STERIS, he would wait a period of two years to engage in a business

that competes with STERIS. (ECF #1 at | 56-57).

In 2023 STERIS restructured its endoscopy related workforce and closed its North

Carolina facility where Haller worked and the SMARTBAND System products were

manufactured. During his employment at STERIS Haller emailed confidential STERIS

documents to his personal email and never returned any STERIS records or documents upon his

termination. (ECF #1 9 58-63).

In January 2024, Haller formed Defendant Endolastic and is its chief executive officer.

STERIS asserts that Endolastic competes directly with STERIS and US Endoscopy in the

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endoscopic technology market. Plaintiffs further allege that Haller and Endolastic have

wrongfully co-opted U.S. Endoscopy’s intellectual property, confidential information, and trade

secrets to further Endolastic’s business. Finally, Plaintiffs assert that Haller’s work for

Endolastic violates four of his non-competition agreements. (ECF #1 at FJ 64-87). Plaintiffs’

Complaint asserts the following claims: Breach of the Asset Purchase Agreement (U.S.

Endoscopy against Haller) (Count I); Breach of the Confidentiality and Invention Assignment

Agreement (US Endoscopy against Haller)(Count IJ); Breach of the Employment

Agreement(STERIS against Haller)(Count II); Breach of the 2021 Non-Disclosure and Non-

competition Agreement (STERIS against Haller)(Count IV); Breach of the 2022 Non-Disclosure

and Non-competition Agreement (STERIS against Haller)(Count V); Conversion (US

Endoscopy against Haller and Endolastic)(Count VI); Conversion (STERIS against Haller and

Endolastic)(Count VII); Tortious Interference (US Endoscopy against Endolastic)(Count VID;

Tortious Interference (STERIS against Endolastic)(Count IX); Violation of the Defend Trade

Secrets Act (US Endoscopy against Haller and Endolastic)(Count X); Violation of the Defend

Trade Secrets Act (“DTSA”) (STERIS against Haller and Endolastic)(Count XI); Violation of

the Ohio Uniform Trade Secrets Act (““OUTSA”)(US Endoscopy against Haller and

Endolastic)(Count XID; and Violation of the Ohio Uniform Trade Secrets Act (STERIS against

Haller and Endolastic)(Count XID.

Defendants filed two counterclaims against Plaintiffs. (ECF #8) The first is for

Declaratory Judgment on the Restrictive Covenants asserting that a real and justiciable

controversy exists concerning the validity, enforceability and breach of the restrictive covenants

in the Employment Agreement, the APA, the Confidentiality and Inventions Assignment

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Agreement, and the 2021 LTI and 2022 LTI Agreements. (ECF #8 {J 67-72) The second

Counterclaim is for Unfair Competition asserting that Plaintiffs filed this action to unfairly

eliminate Defendants as competitors of the endoscopic method for treating GERD. (ECF #8 □□

73-80).

Standard of Review

Fed. R. Civ. P. 12(c) provides, “[a]fter the pleadings are closed — but early enough not to

delay trial — a party may move for judgment on the pleadings.” The standard of review for a

motion for judgment on the pleadings is the same as for a motion to dismiss for failure to state a

claim under Fed. R. Civ. P. 12(b)(6). E.E.0O.C. v. J.-H. Routh Packing Co., 246 F.3d 850, 851

(6" Cir. Ohio 2001) (citing Grindstaff v. Green, 133 F.3d 416, 421 (6" Cir. Tenn. 1998)). “{A]ll

well-pleaded material allegations of the pleadings of the opposing party must be taken as true,

and the motion may be granted only if the moving party is nevertheless clearly entitled to

judgment.” Poplar Creek Dev. Co. v. Chesapeake Appalachia, L.L.C., 636 F.3d 235, 240 (6"

Cir. 2011) (citation omitted).

The complaint must contain “sufficient factual matter, accepted as true, to ‘state a claim

to relief that is plausible on its face.’” Solo v. UPS Co., 819 F.3d 788, 793 (6" Cir. Mich. 2016)

(quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). In construing the pleadings, the Court

accepts the factual allegations of the non-movant as true, but not unwarranted inferences or legal

conclusions. Holland v. FCA US LLC, 656 F. App'x 232, 236-37 (6" Cir. Mich. 2016) (citing

Gregory v. Shelby Cnty., 220 F.3d 433, 446 (6 Cir. Tenn. 2000)).

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Discussion

I. Defendants’ Motion for Judgment on the Pleadings of Plaintiffs’ Complaint

A. Misappropriation of Trade Secrets

Defendants assert that Plaintiffs’ claims for misappropriation of trade secrets under the

DTSA and the OUTSA (Counts X-XIID fail because the Complaint does not describe the alleged

trade secrets with particularity sufficient to differentiate them from the processes and

information described in publicly available patent applications and information posted on

STERIS’s website. Further, Defendants contend that Plaintiffs failed to assert factual allegations

sufficient to show that they protected their alleged trade secrets given the publicly available

patent applications and information on STERIS’s website and that they also failed to assert

factual allegations sufficient to show that Defendants actually used their alleged trade secrets.

To state a claim under the DTSA, a plaintiff must allege: “(1) the existence of a trade

secret[;] (2) that is related to a product or service used in, or intended for use in, interstate or

foreign commerce; and (3) the misappropriation of that trade secret[.]” Jn re Island Indus., Inc.,

No. 23-5200, 2024 WL 869858, 2024 U.S. App. LEXIS 5077 (6th Cir. Feb. 29, 2024) (quotation

and citation omitted). To state a claim under OUTSA, a plaintiff must allege: “(1) the existence

of a trade secret; (2) acquisition of a trade secret as a result of a confidential relationship or

through improper means; and (3) an unauthorized use of the trade secret.” Novus Grp., LLC v.

Prudential Fin., Inc., 74 F 4th 424, 427-28 (6th Cir. 2023) (citing Tomaydo-Tomahhdo L.L.C. v.

Vozary, 82 N.E.3d 1180, 1184 (Ohio Ct. App. 2017)). Courts consider DTSA and OUTSA

claims together because the definition and requirements are generally the same. See James B.

Oswald Co. v. Neate, 98 F.4th 666, 675 (6th Cir. 2024) (considering DTSA and OUTSA claim

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together); see also Sunjoy Indus. Grp., Ltd. v. Permasteel, Inc., No. 22-cv-1896, 2023 WL

406211, 2023 U.S. Dist. LEXIS 13257 (S.D. Ohio Jan. 25, 2023) (“Courts consider these state

and federal law claims together because the definition and requirements of the OUTSA and

DTSA are essentially the same.”’).

A “trade secret” is information the owner “has taken reasonable measures to keep...

secret” that “ ‘derives independent economic value... from not being generally known to, and not

being readily ascertainable through proper means by, another person who can obtain economic

value from the disclosure or use of the information.’ ” James B. Oswald Company v. Neate, 98

F.4th 666, 675 (6" Cir. 2024)(quoting 18 U.S.C. § 1839(3)). A plaintiff must define the trade

secrets with “reasonable particularity,” meaning “particular enough as to separate the trade secret

from matters of general knowledge in the trade or special knowledge of persons skilled in the

trade.” Caudill Seed & Warehouse Co., Inc. v. Jarrow Formulas, Inc., 53 F Ath 368, 381(6th Cir.

2022). “Whether a particular type of information constitutes a trade secret is a question of fact.”

Id. at 381 citing Alph C. Kaufman, 540 8.W.3d at 818 (quoting Fastenal Co. v. Crawford, 609

F. Supp. 2d 650, 672 (E.D. Ky. 2009)) see also Best Process Sols., v. Blue Phoenix Inashco USA

Inc., 569 F. Supp. 3d 702, 713 (N.D. Ohio 2021)(Determining whether information constitutes a

trade secret is a “highly fact specific inquiry.”) At this stage of the proceedings, on a motion to

dismiss, courts generally find “so long as the plaintiff can put forth general categories of its trade

secrets and provide the type of factual allegations...that allow for the reasonable inference that

the defendants improperly disclosed some of those trade secrets...the plaintiff has done all that is

required to survive a motion to dismiss.” C.R.H. Indus. Water, LLC v. Eiermann, No.

1:23-CV-01805, 2024 WL 4856109, at *4 (N.D. Ohio Nov. 21, 2024) citing Best Process Sol.,

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Inc., 569 F.Supp.3d at 714.

Here, Plaintiffs contend that the Complaint satisfies the pleading requirements by

identifying several trade secrets misappropriated by Defendants including confidential

information related to STERIS’s research and development of novel innovations in ligation

techniques to treat GERD and obesity (ECF #1 J 53-55, 72-74, 172, 200) and confidential US

Endoscopy and STERIS technical documentation and manuals related to research and

development of endoscopic products. (ECF #1 JJ 154m 172, 189, 200). While Defendants

contend that these allegations are insufficient to separate any alleged trade secrets from

information in the public domain, plaintiffs are not required to disclose in detail their trade

secrets at this early point in the proceedings because doing so would “expose the secrets and

undermine their value.” Church Mut. Ins. Co. v. Smith, No. 3:14-CV-749-JHM, 2015 WL

3480656, at *4 (W.D. Ky. June 2, 2015). Accordingly, the Court finds that Plaintiffs have

sufficiently described their trade secrets to survive a motion for judgment of the pleadings. A full

factual comparison of Plaintiffs’ trade secrets to information in the public domain is more

appropriate on a motion for summary judgment.

Defendants contend that Plaintiffs failed to assert factual allegations sufficient to show

that they protected their alleged trade secrets given the publicly available patent applications and

information on STERIS’s website. The Complaint demonstrates that Plaintiffs took appropriate

steps to safeguard their confidential information including preparing non-disclosure agreements

with employees, contractors, suppliers, electronic and IT safeguards and restricting access to

trade secrets on a need to know basis. (ECF #1 at $f] 32-33, 50-51,157, 175) Indeed, a number of

the non-disclosure agreements are at issue in this action. Further, while Plaintiffs’ alleged trade

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secrets may work in conjunction with products subject to patents, the allegations in the

Complaint do not limit Plaintiffs’ trade secrets to inventions set forth in patent applications or

information available on STERIS’s website. As noted above, a more factual intensive

comparison of Plaintiffs’ alleged trade secrets with publicly available information is more

appropriate at the summary judgment stage.

Finally, Defendants assert that the Complaint fails to allege that Plaintiffs actually used

Plaintiffs’ trade secrets. Plaintiffs note that “actual use” is not required to state a claim for trade

secret misappropriation under the DTSA or OUTSA because both require disclosure or use of a

trade secret. See 18 U.S. C. § 1839(5)(B)Gi); Ohio Rev. Code § 1333.61(5). Here, Plaintiffs

allege that Haller had access to Plaintiffs’ confidential trade secret information and that he

disclosed these trade secrets to Endolastic and that Endolastic used the information to develop

products incorporating Plaintiffs’ trade secrets. See ECF #1 {ff 32-33, 50-51, 53-55, 72-74, 78-

79, 154, 157, 172, 175, 189, 200). The allegations detailing Haller’s work while at STERIS and

his work assigned to Endoscopy and the descriptions of the Endolastic patent on products used to

treat GERD and obesity—allegedly the same confidential research performed by Haller while at

STERIS --are sufficient to make Plaintiffs’ allegations of disclosure and use of Plaintiffs’ trade

secret information plausible. Plaintiffs have alleged plausible claims for trade secret

misappropriation under the DTSA and OUTSA.

B. Breach of Contract Claims

Defendants assert a number of reasons that Plaintiffs claims of breach of contract (Counts

I-V) fail. First Defendants contend that all of the breach of contract claims are predicated on

Haller’s alleged misappropriation of trade secrets and as such fail. As the Court has denied

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Defendants’ motion for judgment on the pleadings as to the trade secret claims, this argument

fails. The rest of Defendants arguments relating to the breach of contract claims all involve

factual questions not appropriate on a motion to dismiss. These include questions of whether

Haller signed the 2021 and 2022 LTI agreements, whether Endolastic actually competes with

Plaintiffs, and whether the time periods in each contract have elapsed. Defendants’ motion for

judgment on the pleadings as to the breach of contract claims (Counts J-V) is denied.

C. Preemption of Conversion and Tortious Interference Claims

Plaintiffs assert claims of conversion in Counts VI and VII alleging that Haller and

Endolastic wrongfully converted US Endoscopy’s intellectual property (Count VI) and

STERIS’s intellectual property (Count VID. In Count VIII Plaintiffs allege that Endolastic

interfered with the APA and Confidentiality and Invention Assignment Agreement between

Haller and Endolastic and with the Employment Agreement, 2021 LTI and the 2022 LTI

between Haller and STERIS (Count IX) by relying on Haller’s knowledge of US Endoscopy’s

and STERIS’s intellectual property and confidential information to develop copycat products.

Defendants argue that these claims are preempted by OUTSA.

OUTSA expressly “displace[s] conflicting tort, restitutionary, and other laws... providing

civil remedies for misappropriation of a trade secret.” R.C. § 1333.67(A). “[C]ourts analyzing

whether OUTSA preempts a particular claim must look to whether that claim relies on the same

operative facts that formed the basis for the party's trade secrets misappropriation claim.”

Campfield v. Safelite Grp., Inc., 91 F.4th 401, 414 (6th Cir. 2024) (citing Stolle Mach. Co. LLC v.

RAM Precision Indus., 605 F. App'x 473, 484 (6th Cir. 2015)). “[W]here the state-law claim has a

factual basis independent from the facts establishing the OUTSA claim, the portion of the claim

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supported by an independent factual basis survives preemption.” Jd. (quotations omitted); see also

Stolle Mach. Co., 605 F. App'x at 484 (“The test to determine whether a state law claim is

displaced by OUTSA is to determine whether the claims are no more than a restatement of the

same operative facts that formed the basis of the plaintiff's statutory claim for trade secret

misappropriation.”) (quotation and citation omitted). The “key inquiry is whether the same factual

allegations of misappropriation are being used to obtain relief outside the Uniform Trade Secrets

Act.” Hanneman Fam. Funeral Home and Crematorium v. Orians, 174 Ohio St.3d 130, 235

N.E.3d 361, 367 (Ohio 2023) (citation omitted).

In general, “granting a motion to dismiss on the ground that a claim is preempted by

OUTSA is inappropriate where it is ‘unclear whether discovery would enable plaintiff to base its

additional state law claims on facts different from those alleged in its trade secret claim.’ ” ADSC

Holdings, Inc. v. Damman, No. 20-cv-2554, 2021 WL 4189724 at *1, 2021 U.S. Dist. LEXIS

196552 at *3 (N.D. Ohio Feb. 10, 2021) (quoting Thermodyn Corp. v. 3M Co., 593 F.Supp.2d

972, 990 (N.D. Ohio 2008)).

Plaintiffs contend that they allege bases for conversion independent of their trade secret

claims. Specifically, Plaintiffs alleges that in Count VI, US Endoscopy alleged it acquired all

rights and ownership to Intelligent Endoscopy’s intellectual property, including confidential, non-

trade secret information, as well as all inventions developed by Haller and assigned to Intelligent

Endoscopy. In Count VII Plaintiffs allege that Defendants have used and refused to release

STERIS’s intellectual property, which includes STERIS’s records, as well as public and

confidential (but not trade secret) information that belongs to STERIS. The only difference

between the conversion claims and the misappropriation of trade secret claims is that Plaintiffs

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include intellectual property and confidential information that is not a trade secret but claim that

Defendants are using this information in contravention of Plaintiffs’ ownership rights. The fact

that all confidential information converted may not be a trade secret does not prevent preemption.

See Allied Erecting & Dismantling Co. v. Genesis Equip. & Mfg., Inc., 649 F. Supp. 2d 702, 722

(N.D. Ohio 2009); Bliss Clearing Niagara, Inc. v. Midwest Brake Bond Co., 270 F.Supp.2d 943,

948-49 (W.D.Mich.2003) (“[A]llowing otherwise displaced tort claims to proceed on the basis

that the information may not rise to the level of a trade secret would defeat the purpose of the

UTSA.”); Ethypharm S.A. France v. Bentley Pharms., Inc., 388 F.Supp.2d 426, 433 (D.Del.2005)

(“Because all claims stemming from the same acts as the alleged misappropriation are intended to

be displaced, a claim can be displaced even if the information at issue is not a trade secret.”). In

this case, Plaintiffs’ conversion claims (Counts VI and VII) are preempted by OUTSA.

The factual allegations made by US Endoscopy in support of its tortious interference with

contract claim against Endolastic (Count VIID are mainly a restatement of the same operative

facts supporting its trade secret misappropriation claim: US Endoscopy and Haller had a contract

for the sale of Intelligent Endoscopy’s assets to US Endoscopy including all of Intelligent

Endoscopy’s intellectual property and all inventions developed by Haller and assigned to

Intelligent Endoscopy; Intelligent Endoscopy and Haller had a contract obligating Haller to

maintain confidentiality and assign all inventions to Intelligent Endoscopy; Endolastic was aware

of these contracts; and by relying on Haller’s knowledge of US Endoscopy’s intellectual property

and confidential information and inventions, it developed and advertised Endolastic’s copycat

products. See ECF #1 f§ 135-138). As such, Count VIII is preempted by OUTSA.

Unlike Count VIII, Count IX includes some independent bases from Plaintiffs’ OUTSA

claims as follows: STERIS alleges that Haller executed an Employment Agreement with STERIS

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which required him to return all records upon termination of employment, assign all ownership

rights to any inventions or developments made by Haller in the course of his employment with

STERIS, keep confidential all proprietary or sensitive business information and not compete

directly with STERIS for one year following termination of his employment. Haller also executed

the 2021 and 2022 LTI Agreements which contained additional non-disclosure and non-

competition clauses. Endolastic was aware of these contracts and intentionally interfered with

these contracts. Accordingly, Count IX is not preempted by OUTSA in so far as it alleges

interference with the Employment Agreement and the 2021 and 2022 LTI Agreements.

Defendants’ Motion for Judgment on the Pleadings is granted in part as to Counts VI, VII

and VIII and denied as to Counts I-V and IX.

I. Plaintiffs’ Motion for Judgment on the Pleadings as to Defendants’ Counterclaims

Defendants Haller and Endolastic assert two counterclaims against Plaintiffs. The first is

for Declaratory Judgment on the restrictive covenants found in the Employment Agreement, the

APA, the Confidentiality and Inventions Assignment Agreement, and the 2021 and 2022 LTI

Agreements (collectively, the “Agreements”). (ECF #8 {J 68-72)The second is for unfair

competition asserting that Plaintiffs filed their Complaint to unfairly eliminate Haller and

Endolastic as competitors for treating GERD and to interfere with Endolastic’s business

relationships, including its attempts to secure investors and to perform clinical trials. Jd. at {] 74-

80.

Plaintiffs have moved for judgment on the pleadings on the counterclaims asserting that

Defendants have failed to state claims for declaratory judgment or unfair competition. (ECF #13)

With respect to Defendants’ counterclaim for declaratory judgment, Plaintiffs contend that the

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counterclaim is redundant of Plaintiffs’ affirmative claims— “no more than the inverse of

Plaintiffs’ breach of contract and tortious interference claims” and must be dismissed. /d. at 7.

Federal district courts have substantial discretion in deciding whether or not to exercise

jurisdiction over a declaratory judgment action. W. World Ins. Co. V. Hoey, 773 F.3d 755, 758 (6"

Cir. 2014). Typically, courts evaluate jurisdiction over a declaratory judgment using the five

factors found in Grand Trunk W.R.R. Co. v. Consol. Rail Corp., 746 F.2d 323, 326 (6 Cir.

1984). The Grand Trunk factors examine whether the declaratory judgment (1) would settle the

controversy; (2) would serve a useful purpose in clarifying the legal relations at issue; (3) is being

used merely for “procedural fencing” or to “provide an arena for a race for res judicata”; (4)

would increase friction between state and federal courts and improperly encroach on state

jurisdiction; and (5) whether there is a more effective, alternative remedy. Malibu Media, LLC v.

Redacted, 705 F. App'x 402, 405 (6th Cir. 2017) citing Grand Trunk, 746 F.2d at 326.

The district court in Malibu Media did not discuss the Grand Trunk factors when

dismissing Redacted’s counterclaim for declaratory judgment finding that it was redundant of

Malibu Media’s copyright infringement suit and thus failed to state a claim upon which relief

could be granted under Fed. R. Civ. P. 12(b)(6). On appeal, the Sixth Circuit noted that district

courts typically evaluate whether a declaratory judgment “will serve a useful purpose” by

“looking specifically at the issue of redundancy and may do so without relying on the Grand

Trunk factors.” Malibu Media, 705 F. App’x at 405-406. See, e.g., Fed. Deposit Ins. Corp. v.

Project Dev. Corp., 819 F.2d 289 (6th Cir. May 27, 1987) (unpublished table decision) (finding

that a magistrate judge appropriately denied a motion to add a counterclaim because “when a

counterclaim merely restates the issue as a ‘mirror image’ to the complaint, the counterclaim

serves no purpose”); Orleans Int'l, Inc. v. Mistica Foods, L.L.C., No. 15-13525, 2016 WL

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3878256, at *2-3 (E.D. Mich. Jul. 18, 2016) (dismissing declaratory judgment counterclaim under

Rule 12(b)(6) because it was redundant to the plaintiff's claims and therefore did not serve a

useful purpose); Pettrey v. Enter. Title Agency, Inc., No. 1:05-cv-1504, 2006 WL 3342633, at *3

(N.D. Ohio Nov. 17, 2006) (determining that there was “no useful purpose” for retaining the

defendants’ declaratory judgment counterclaims when the factual and legal issues were identical

and the counterclaims would be rendered moot by adjudication of the plaintiff's claims).

Review of Counterclaim 1, the Complaint, the Answer and the Affirmative Defenses

asserted by Defendants reveals that the declaratory judgment counterclaim does not present any

issues not already before the Court. In Counts I-V of the Complaint, Plaintiffs allege that Haller

breached various restrictive covenants set forth in the APA, Assignment Agreement, Employment

Agreement, and the two LTI Agreements. Further, Plaintiff alleges in Count XIII that Endolastic

tortiously interfered by procuring those breaches. Defendants assert in their Answer and

Affirmative Defenses that Haller did not breach those Agreements and that Endolastic did not

procure those breaches. Defendants assert in Counterclaim 1 that Plaintiffs “lack a legitimate

business interest reasonably to protect, in that they possess no trade secrets related to the

SMARTBAND system.” (Counterclaim, ECF #8, 7 70) However, in their Answer Defendants

stated that Plaintiffs “have publicly disclosed numerous trade secrets about” the SMARTBAND

system, and further asserted as an Affirmative Defense that “Plaintiffs do not have a legitimate

business interest that justifies enforcing the restrictive covenants in the contracts attached to the

Complaint.” (Answer 99155, 157, 173, 175, 187, 198; Affirmative Defenses 4) Finally,

Defendants’ allegation in their Counterclaim that “the temporal and geographic restrictions in the

Agreements are unreasonable and unenforceable; the scope of prohibited activities in the

Agreements are unreasonable and unenforceable” (Counterclaims, J 70) is virtually identical to

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Defendants tenth Affirmative Defense, “[t]he restrictions in the restrictive covenants in the

contracts attached to the Complaint are unreasonable and overbroad as to duration, geographic

scope and scope of activity.” (Affirmative Defense, J 10)

Defendants’ contend that the declaratory judgment counterclaim is not a mirror image of

Plaintiffs’ breach of contract and tortious interference claims because the counterclaim adds new

facts and seeks to declare the restrictive covenants unenforceable rather than merely finding that

Defendants did not breach them in this instance. However, it is clear to the Court that Defendants

will have a full opportunity to litigate their defenses that the contracts’ restrictive covenants are

invalid, unreasonable and unenforceable while litigating Plaintiffs’ affirmative claims. As such,

Counterclaim 1 seeking declaratory judgment is redundant to Plaintiffs’ affirmative claims and

Defendants’ Answer and Affirmative Defenses and is dismissed.

In their counterclaim for unfair competition, Defendants allege that Plaintiffs view

Defendants as competitors of the endoscopic method for treating GERD and filed their Complaint

to unfairly eliminate Defendants as competitors for treating GERD and to interfere with

Endolastic’s business relationships, including its attempts to secure investors and perform clinical

trials. (ECF #8 74-76) Further, Defendants assert that based on the assurances Defendants

provided, as well as Plaintiffs actions and representations to the EEOC, Plaintiffs lacked an

objective and reasonable basis to expect success on the merits of the litigation. Finally,

Defendants allege that Plaintiffs’ filed their Complaint with the subjective intent to injure

Defendants’ ability to be competitive. (/d at ff 77-78) In their motion for judgment on the

pleadings Plaintiffs contend that Defendants have failed to plausibly plead that Plaintiffs’ lawsuit

is objectively baseless requiring dismissal of the unfair competition counterclaim.

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“Ohio common law recognizes a claim for unfair competition based on malicious

litigation.” Restoration Hardware, Inc. v. Bungalow Home, LLC., No. 2:19-CV-4978, 2020 WL

4436357, at *3 (S.D. Ohio Aug. 3, 2020) quoting Ashley Furniture Indus., Inc. v. Am. Signature,

Inc., No. 2:11-CV-427, 2015 WL 12999664, at *3 (S.D. Ohio Mar. 12, 2015) (quoting □□□ Metal

Sales, Inc. v. All Metal Source, LLC, No. 1:10-cv-2343, 2011 WL 867020, at *2 (N.D. Ohio Mar.

11, 2011)). “To successfully establish an unfair competition claim based upon legal action, a

party must show that the legal action is objectively baseless and that the opposing party had the

subjective intent to injure the party's ability to be competitive.” Jd. (quoting Am. Chem. Soc. v.

Leadscope, Inc., 133 Ohio St. 3d 366, 367 (Ohio Sup. Ct. 2012)).

The Sixth Circuit has extended the Noerr-Pennington doctrine, which provides private

parties with immunity from anti-trust liability when they are petitioning for government action, by

analogy to claims brought under both state and federal laws, including common law claims of

tortious interference such that trademark owners (or trade secret owners) are protected against

anti-competition claims that arise from their use of legal proceedings to enforce their rights. The

Noerr-Pennington doctrine contains a narrow exception in which immunity does not apply to

sham lawsuits filed for the purpose of interfering with competition. To constitute sham litigation,

“the lawsuit must be objectively baseless in the sense that no reasonable litigant could realistically

expect success on the merits.” Restoration Hardware, Inc., 2020 WL 4436357, at *3 citing Prof’.

Real Estate Investors, Inc. v Columbia Pictures Indus., Inc., 508 U.S. 49, 60-62 (1993) (quoting

Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 144 (1961)

City of Columbia v. Omni Outdoor Advertising, Inc., 499 U.S. 365, 380 (1991).

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The issue of whether a lawsuit is objectively baseless is a question of law for the Court

and may be decided on a motion to dismiss. J.M. Smucker Co. v. Hormel Food Corp., 526 F.

Supp. 3d 294, 309 (N.D. Ohio 2021) citing Ashley Furniture Indus., 2015 WL 12999664, at *4

(citations omitted); see also Prof! Real Estate Inv'rs, 508 U.S. at 67, 113 S.Ct. 1920 (the question

whether a suit is objectively baseless is purely one of law).

The Court has carefully reviewed the Complaint, as well as Defendants’ filings and has

determined that Plaintiffs have plausibly pled claims of trade secret misappropriation, breach of

contract and tortious interference such that Defendants’ factual assertions to the contrary do not

demonstrate that this lawsuit is objectively baseless. As such, Defendants’ counterclaim for unfair

competition is dismissed.

Conclusion

For the reasons stated above, the Defendants’ Motion for Judgment on the Pleadings

pursuant to Fed. R. Civ. P. 12(c) (ECF #9) is granted in part as to Counts VI, VII and VIII and

denied as to the remainder of the Complaint. Plaintiffs’ Motion for Judgment on the Pleadings as

to Defendants Counterclaims (ECF #13) is granted and the Counterclaims are dismissed.

IT IS SO ORDERED.

United States District Jud

DATED: tn Lh 29 1

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