Free Answering Brief in Opposition - District Court of Delaware - Delaware

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE

ETHYPHARM S.A. FRANCE and ETHYPHARM S.A. SPAIN, Plaintiffs, v. BENTLEY PHARMACEUTICALS, INC. Defendant.

) ) ) ) C.A. No.: 04-1300 (SLR) ) ) ) ) ) ) ) )

PLAINTIFFS' OPPOSITION TO DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

Francis J. Murphy, Esquire (No. 223) MURPHY SPADARO & LANDON 1011 Centre Road, Suite 210 Wilmington, DE 19805 Tel: (302) 472-8100 Fax: (302) 472-8135 Attorneys for Plaintiffs Of Counsel: Dwight P. Bostwick, Esquire Bruce R. Grace, Esquire Jonathan D. Fine, Esquire Baach Robinson & Lewis PLLC 1201 F Street, NW, Suite 500 Washington, DC 20004 Tel: (202) 833-8900 Fax: (202) 466-5738 Dated: September 15, 2006

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TABLE OF CONTENTS Page TABLE OF AUTHORITIES........................................................................................................ ii NATURE AND STAGE OF PROCEEDINGS ............................................................................1 SUMMARY OF ARGUMENT..............................................................................................................1 STATEMENT OF FACTS ............................................................................................................3 I. Bentley's Management Control of Belmac......................................................................3 A. B. C. D. II. The Bentley and Belmac Boards of Directors........................................................4 Bentley's Control over Belmac through Bentley's CEO ..........................................5 Bentley's Control over Belmac through Management Agreements ........................6 Bentley's Control over Hiring, Compensation and Budgets ....................................8

Bentley's Control of the Ethypharm Relationship with Belmac ...................................10 A. B. C. D. Bentley Takes Control of Laboratories Belmac (1994-1996) ..............................10 Bentley Responds to Threatened Termination (1997).............................................14 Bentley Confirms Ethypharm's Ownership of Trade Secrets (1998-2000) ..........16 Bentley Directs the Theft of Ethypharm's Technology and Customers (2000-2003)........................................................................................19

III.

Ethypharm's Reasonable Understanding of Bentley's Role ..........................................26

ARGUMENT..........................................................................................................................................29 I. II. The Controlling Standard of Review.............................................................................29 The Law Applicable to a Subsidiary Corporation's Conduct as Agent for its Parent ..30 A. Express Agency............................................................................................................30 1. 2. B. III. The Arrangement Between Parent and Subsidiary ....................................31 The Relevance of the Arrangement to Plaintiffs' Claims .......................32

Apparent Agency .........................................................................................................36

The Joint Tortfeasor Basis for Liability Precludes Dismissal ...........................................38

CONCLUSION ......................................................................................................................................40

i

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TABLE OF AUTHORITIES

FEDERAL CASES Amco Ukreservice & Prompriladamco v. America Meter Co., 312 F. Supp. 2d 681 (E.D.Pa. 2004) ...................................................................................................................37 Bhatnagarv. Surrendra Overseas, 52 F.3d 1220 (3d Cir. 1995)..............................................38 Brug v. Enstar Group, Inc., 755 F. Supp. 1247 (D. Del. 1991) ...............................................39 CR Bard Inc. v. Guidant Corp., 997 F. Supp. 556 (D. Del 1998)............................................31 Ethypharm S.A. France v. Bentley Pharmaceuticals, Inc., 388 F. Supp. 2d 426 (D. Del. 2005)..........................................................................................................................39 Gizzi v. Texaco, Inc., 437 F.2d 308 (3d Cir. 1971). .................................................................36 IRS v. Gaster, 42 F.3d 787 (3d Cir. 1994) ...............................................................................38 Japan Petroleum Co. (Nigeria) Ltd. v. Ashland Oil, Inc., 456 F. Supp. 831 (D. Del. 1978)............................................................................................................................32, 33 Lony v. E.I. Du Pont de Nemours & Co., 935 F.2d 604 (3d Cir. 1991)...................................38 Phoenix Canada Oil Co. v. Texaco, Inc., 842 F.2d 1466 (3d Cir. 1988).....................30, 32, 34 Publicker Indust., Inc. v. Roman Ceramics Corp., 603 F.2d 1065 (3d Cir. 1979)...................32 Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133 (2000) ..........................................30 Taylor v. Peoples Natural Gas Co., 49 F.3d 982 (3d Cir. 1995) .............................................36 United States v. Bestfoods, 524 U.S. 51 (1998) .......................................................................37 Williams v. Chrysler Corp., 163 F.3d 183 (3d Cir. 1998) .................................................29, 30

STATE CASES Chrysler Corp. v. Chaplake Holdings, Ltd., 822 A.2d 1024 (Del. 2003) ................................32 Miles Inc. v. Cookson America, Inc., 1994 Del. Ch. LEXIS 221 (Del. Ch. Nov. 7, 1994)............................................................................................................................38, 39

ii

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NATURE AND STAGE OF PROCEEDINGS The complaint filed by plaintiffs Ethypharm S.A. France and Ethypharm S.A. Spain (collectively "Ethypharm") alleges that defendant Bentley Pharmaceuticals, Inc. ("Bentley") misappropriated Ethypharm's trade secrets and interfered with Ethypharm's customer relations. The complaint premised Bentley's liability on two alternative grounds: (i) liability as principal for the conduct of its agent Laboratorios Belmac S.A. ("Belmac"), Bentley's wholly-owned subsidiary; and (ii) liability as a joint tortfeasor engaging in the alleged misconduct together with Belmac. Earlier in this proceeding, the Court denied Bentley's motion to dismiss "without prejudice to renew if, as discovery proceeds, it becomes evident that defendant cannot be liable either as a joint tortfeasor or under the agency test." D.I. 27 at 12. Following extensive discovery limited to the agency and joint tortfeasor allegations, Bentley now renews its motion, seeking summary judgment as to Ethypharm's allegations of agency. summary judgment, however, as to its liability as a joint tortfeasor. SUMMARY OF ARGUMENT In its brief in support of summary judgment, Bentley contends that it simply acted as a corporate parent exercising ordinary oversight of its subsidiary Belmac. It denies any appreciable role in Belmac's relationship with Ethypharm, much less in its misappropriation of Ethypharm's proprietary technology and interference with its customers. According to Bentley, Ethypharm's assertion that Belmac was Bentley's agent in these matters is based on mere "snippets of evidence" consisting of: (i) "overlapping" membership between the Bentley and Belmac boards; (ii) James Murphy's dual role as Bentley's CEO and "a Belmac officer;" (iii) the existence of "sporadic communications" between Ethypharm and Murphy; and (iv) a "handful" of letters written on Bentley letterhead that Murphy sent to Ethypharm in the mid-1990s. D.I. 65 at 3. This recitation is so far removed from a fair summary of the evidence as to be disingenuous. The evidence attained through discovery tells a very different story. Indeed, what is most surprising about Bentley's brief is how studiously it avoids disclosure of the true facts relating to Bentley has not moved for

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agency and the full history of the relationship between the parties. In truth, Bentley orchestrated every significant aspect (and many insignificant ones) of Belmac's business. Contrary to

Bentley's assertion that Belmac was managed by Belmac's board of directors, it was Bentley's board of directors that directly controlled Belmac. Belmac's own board never even met. Bentley imposed a management contract on Belmac that made Bentley directly responsible for all major aspects of running Belmac's business. Contrary to sworn declarations Bentley has filed with this Court stressing that Belmac's general manager has "significant autonomous authority" to operate Belmac, discovery has shown that Bentley's board (and not Belmac's board) expressly authorized Bentley's CEO Murphy (and not Belmac's general manager) to assume full control over any negotiations involving Belmac, and it had Murphy appointed as the sole authority to act on Belmac's behalf. Bentley never amended or revoked the authority it vested in its CEO. This is direct evidence of agency. The evidence also refutes Bentley's assertion that Murphy's interaction with Ethypharm only involved "sporadic communications" and that he only sent a "handful" of letters to Ethypharm on Bentley letterhead. In fact, James Murphy was intimately involved in every important contact with Ethypharm, and he was consulted by Belmac personnel whenever he was not directly involved. In every instance he held himself out as Bentley's CEO. He did so orally when he attended meetings, handing out his Bentley CEO card; he did so in every written communication; he did so consistently and repeatedly, not just sporadically. Just as he was the central figure for Bentley in the ongoing negotiations with Ethypharm as to its venture with Belmac, Murphy was intimately involved, as well, in the termination of that relationship and in the decision to have Bentley go it alone in the microgranulation pharmacology business, abandoning Ethypharm but exploiting Ethypharm's trade secrets and customers. Discovery has shown that Bentley, acting through its CEO, masterminded the coordinated action that simultaneously unfolded on November 14, 2001, when: (i) Bentley announced that "through its Spanish subsidiary" it had filed for four new patents relating to Ethypharm's proprietary -2-

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technology; (ii) Belmac sent Ethypharm a notice of termination that had been thoroughly vetted with Bentley; and (iii) Belmac signed a deal with one of Ethypharm's principal customers to replace Ethypharm as the customer's supplier. In short, the evidence revealed in discovery, that Bentley was the principal calling the shots for its agent Belmac ­ and especially directing them in reference to the matters that give rise to the instant case ­ represents anything but "snippets." It is more than sufficient to defeat summary judgment. It is, in fact, overwhelming. STATEMENT OF FACTS I. Bentley's Management Control of Belmac In its brief, Bentley asserts that its wholly owned Spanish subsidiary's management and operation is completely independent from Bentley. This central fact is hotly disputed. The evidence shows that Bentley and Belmac operate far outside corporate norms and that Bentley exerts an extraordinary degree of direction and control over its subsidiary, particularly with respect to the claims in this lawsuit. Bentley is a Delaware corporation with its principal place of business in Exeter, New Hampshire. Before January 1996, Bentley was known as Belmac Corporation, and it had its headquarters in Tampa, Florida.1 Bentley is traded on the New York Stock Exchange as "BNT."2 Bentley describes itself in press releases as an "international" company that acts "through its wholly-owned Spanish subsidiary."3 Similarly, in presentational materials to third parties,

Bentley refers to Belmac, its wholly-owned Spanish subsidiary, as a "Division" of Bentley's overall operations, under the managerial control of Bentley in the United States.4 This

representation ­ not the characterization found in Bentley's brief ­ is precisely accurate. The

1 2 3 4

B1284, ¶ 34; B1310, ¶ 34; B12. B1285, ¶ 39; B1311, ¶ 39. B38; B529. B621, B623, B625; B659-61. -3-

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evidence shows that Belmac is merely the operating arm of Bentley, treated like a division of the parent company, under its total domination and control. In the period pertinent to this action, Bentley derived 99-100% of its revenues from its Spanish subsidiaries, and as much as 56% of Bentley's annual revenues came from omeprazole manufactured with proprietary technology and trade secrets belonging to Ethypharm.5 In keeping with this economic reality, Bentley has not functioned as a parent company providing only high level oversight and administrative support to its autonomous subsidiary.6 Instead, its Spanish pharmaceutical operations are Bentley's sole business, and Bentley has structured its relationship with Belmac to direct and control its subsidiary's most important operations. A. The Bentley and Belmac Boards of Directors

Bentley's control over the management of Belmac starts with the way the parent company has structured the boards of directors of the two entities. Bentley, as Belmac's sole shareholder, appoints each member of the Belmac Board. James Murphy, Bentley's CEO and Chairman of its Board, personally votes the shares on behalf of the parent corporation in making these appointments.7 Since at least 2003, there has been a 100% overlap between the top officials of Bentley and the three Board members of Laboratorios Belmac.8 From 1995 to 2003, Bentley's two highest officials ­ its CEO and its CFO ­held two of the three positions on Belmac's board.9 This overlap in the two boards, however, is the starting point for Bentley's control over Belmac, and not, as Bentley claims, the end point. In fact, the Belmac board is largely a paper entity. It never actually meets.10 Instead, its members individually sign certain legal papers once per year.11 The Belmac board itself never considers or decides strategy, establishes budgets, considers product development issues, sets compensation, hires or fires, or otherwise manages the
5 6

JT-A-1139-40:101-102; JT-A-1138:95; JT-A-1140:105; JT-A-1059:188; B413; B430. B1196-1200, ¶ 6d. 7 Id. at ¶ 6. 8 Id. at ¶ 6d.; JT-A-1020-21:33-34. 9 JT-A-1020:30-32. 10 JT-A-1030:73; JT-A-1155:164. 11 Supra note 10. -4-

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company.12 All of these functions are carried out by Bentley's board, either directly or under its express authorization.13 Bentley's board meets regularly and generates regular board minutes and management reports related to the company as a whole and to Belmac in particular. The only memorialization of strategy and decision-making with respect to Belmac takes place at Bentley headquarters in the United States ­ not at Belmac in Spain. Thus, Bentley's management reports contain a prioritized list of action items relating to its Spanish operations and designate which Bentley official is responsible for such action.14 B. Bentley's Control over Belmac through Bentley's CEO

In the declarations by James Murphy and Adolfo Herrera that Bentley filed with this Court in support of its original motion to dismiss, Bentley asserted that Herrera, as Belmac's GM, has extensive operational authority in running Belmac and that James Murphy's "involvement with Belmac is limited to discussing general strategies with Mr. Herrera and to addressing issues that exceed the power delegated to Mr. Herrera."15 These declarations omitted, however, many material facts ultimately uncovered in discovery. For instance, Bentley's board of directors has formally vested complete authority for negotiating transactions on behalf of Belmac not in Herrera but in Bentley's own CEO, James Murphy.16 On December 8, 1994, just a few days after taking over as Bentley's top official and before Murphy's first trip to meet with Ethypharm's officials, the Bentley board met in the United States. At that meeting, James Murphy, Chairman of the Bentley board, requested and received express authority from the board to negotiate agreements involving Belmac as agent for the U.S. parent company.17 The board minutes read: Mr. Murphy asked for authority to negotiate transactions involving the Spanish subsidiary [Laboratorios Belmac]. The [Bentley] Board affirmed that the
12 13 14 15 16 17

JT-A-1030:73; JT-A-1155:164; JT-A-1153:154-55; JT-A-1017:20-21. See, e.g., B375-76; B582-83, ¶ 30; B187. See, e.g., B358, ¶ 11-14; B582-83, ¶ 30; B591. B1253, ¶ 12. B15, B23. Supra note 16. -5-

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authority to negotiate has already been vested, but that any agreement must be subject to [Bentley] Board approval.18 At his deposition, Murphy confirmed that he had authority as "president of the parent company" to negotiate transactions for Belmac and that his express authority from Bentley's board was never revoked or amended.19 It was also Murphy, and not a local Spanish official, who in 1995 was named Belmac's "Consejero Delegado," a position under Spanish law that is vested with sole and absolute authority to act for the company.20 Hence, any authority Herrera had in running Belmac has been personally delegated to him by Murphy and not by Belmac's non-functioning board. In short, the sworn declarations previously filed by Bentley completely misportray how Belmac was managed.21 C. Bentley's Control over Belmac through Management Agreements

In addition to the authority over Belmac that Bentley's board delegated to its president, Bentley also exercised control over the management of its subsidiary through a series of management agreements.22 Although executed by Murphy and Herrera, neither of these top officials disclosed the existence of these management agreements in their sworn declarations filed with the Court on the subject of the parents' management and control of its subsidiary. Under these management agreements, Bentley provided Belmac with comprehensive management services. The "Management Support Service Agreement" in force from July 1998 to January 2002 called for Bentley to provide the following services, among others: 1. "Technical Operations," including "Quality control and quality assurance on a day-to-day basis" and "assistance . . . designed to give [Belmac] the information they request on technical issues." "Marketing and Marketing Services," including "Identification of potential clients and formulation of worldwide lists thereof for [Belmac]" and "availability

2.

18 19 20 21 22

B23. JT-A-1033-34:85-86. B1197, ¶ 4; JT-A-1021:35-36. Murphy still holds this title. B1197, ¶ 4. B1255-60, ¶¶ 9-23; B1196-1200. B245-50; B251-68; B563-72. -6-

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to respond to inquiries . . . and take charge of relations with the clientele . . . including periodic trips abroad to make personal visits to each client's headquarters." 3. "Corporate Services," including "all the company's catalogs, flyers, and other advertising publicity materials intended to be distributed. . ." "Managerial Services," including: "a. Formulation of strategic programs for [Belmac]. b. Determination of [Belmac's] pricing policy. c. Development of new product lines and new business opportunities for [Belmac] d. Assistance in making financial decisions and formulating financial policy, including foreign currency planning and investment opportunities for [Belmac]. e. Travel to [Belmac's] headquarters to examine the operations and advise key personnel." "Accounting and Finance," including the "formulation and review of budgets." "Administrative," including "selection of top management personnel for [Belmac]," "formulation of adequate compensation structures," "standards to be applied to all the personnel management and hiring practices," "Establishment on a tactical basis of the operating activities policy in such areas as . . . local legislation." "Product Development," including "Development and testing of all new products." "Quality Assurance," including "Availability to control and supervise the procedures for inspection ... and make certain they are in compliance with the specified quality standards."23

4.

5. 6.

7.

8.

In short, contrary to Bentley's assertions (and the sworn declarations of Murphy and Herrera) that Belmac's board and GM were fully responsible for managing Belmac's business, these management agreements establish that Bentley controlled all of the top-level managerial functions for Belmac.24 Bentley invoiced its Spanish subsidiaries, including Belmac,

23 24

B252-55; B261-64. Bentley not only provided top-level management, it also involved itself in the most mundane issues. As one example, Ethypharm's GM in Spain expressed his frustrations over Bentley's involvement in an internal memo dated October 10, 2000, which states: Organigramme[Laboratorios Belmac's Organizational chart]: this is no joke, the general manager in Belmac Spain told us this subject has to receive authorisation from Mr. Murphy president of the company in the U.S.!! (B339, ¶ 3.) Laboratorios Belmac did, indeed, send its own organizational chart to Bentley for review and approval on October 30, 2000, prior to sending it to Ethypharm. The fact that something as minor -7-

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approximately $8 million dollars for the comprehensive management services it provided.25 While this money was invoiced, Belmac's debt was ultimately forgiven by Bentley in exchange for additional stock in Belmac, despite the fact that Bentley already owned 100% of Belmac's stock. No money changed hands.26 Bentley and Belmac relied, however, on the fact that Bentley was invoiced to comprehensively manage its subsidiary to justify significant tax benefits.27 When these facts came out in discovery, Bentley attempted to downplay their significance, asserting that these management agreements were a mere accounting practice and tax scheme. Yet whatever their tax purpose, the evidence shows that these services were billed for and rendered. That Bentley did, indeed, provide these extensive management services is confirmed by records Bentley produced only after discovery ended. These records, kept to justify its tax benefits, reflect that top Bentley officials spent between 30% and 80% of their time managing the operations of Laboratorios Belmac.28 Having relied upon the fact that Bentley managed its Spanish subsidiary for years to obtain enormous tax benefits, Bentley should not now be heard to claim that these agreements were just a sham to save taxes and thereby disavow providing these services in order to support its summary judgment motion. Indeed, one wonders how the tax authorities in the United States and Spain would view Bentley's current position. D. Bentley's Control over Hiring, Compensation and Budgets

That Murphy acted for Bentley and not simply as Belmac's President is further confirmed by the fact that he, like other Bentley personnel that provided Belmac management, was

and uncontroversial as a basic organizational chart of Belmac required the approval of the CEO and Chairman of the Board of the parent company in the U.S. is compelling evidence of Bentley's total control over its agent Belmac. 25 B1149-95. 26 B1243-44, ¶ 46; B1250-51, ¶ 46. 27 JT-A-1079:266-67. 28 B1109-48. These documents were only produced to plaintiffs after repeated requests and after the close of phase 1 discovery. They show that Stote, Bentley's Chief Technical Officer, regularly spent 80% of his time providing management services to Belmac, and he has never held a position at Belmac. Murphy regularly spent 50% of his time managing Belmac's operations as his personal daily diaries confirm. B749-1102; B1013-1108. -8-

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compensated solely by Bentley.29 When Murphy acted for Belmac, he did so under Bentley's express authorization, for Bentley's benefit, and Bentley paid him handsomely.30 Bentley not only paid its own personnel to manage Belmac, but it controlled decisions regarding hiring, firing, compensation, and bonuses for top Belmac employees. Since 1994, Bentley's CEO has hired or fired each of the general managers of Belmac.31 In addition,

decisions regarding the salary of the Spanish GMs are made each year by the Bentley board of directors following review and approval by the Bentley compensation committee.32 The Bentley board also regularly awards Bentley stock or stock options to dozens of top employees of its Spanish subsidiary.33 As with compensation, bonuses, and awards of stock, the Bentley board ­ and not the Belmac board ­ meets to approve Belmac's annual budget.34 The Bentley board also formally approves the budget for studies and research and development, the very work product that Bentley and Belmac have derived from the misappropriation of Ethypharm's trade secrets.35 In its brief in support of summary judgment, Bentley stresses that Belmac's business is centered in Spain, that Belmac employs hundreds of workers, operates the manufacturing and distribution facilities, has bank accounts, raises financing, and obtains a host of government authorizations to conduct its business. This evidence misses the point. Ethypharm does not dispute that Belmac is Bentley's operating arm or that the business of manufacturing and selling products produced with Ethypharm's technology is centered in Spain. The agency issue

presented is not where the manufacturing operations take place but who has control over those

29 30

JT-A-1029:69; JT-A-1124:39. B23; JT-A-1033-34:85-86; Bentley paid Murphy up to $900,000 per year in compensation, bonuses and options; Belmac paid Murphy nothing. JT-A-1027-28:60-64; JT-A-1065:210-11. 31 JT-A-1016-17:17-20. 32 JT-A-1017-18:20-23; B195; B200. 33 JT-A-1018:23; JT-A-659-60:107-12; B275-76. 34 JT-A-1153:154. 35 JT-A-1152-53:150-54. -9-

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operations. The total control that Bentley, as principal, exercises over Belmac, its agent, has been thoroughly exposed by the evidence reluctantly disgorged by Bentley in discovery. II. Bentley's Control of the Ethypharm Relationship with Belmac The evidence of Bentley's control as principal over Belmac is not limited to the Bentley board resolutions, management agreements, and decision-making structures that Bentley has imposed upon its wholly-owned Spanish subsidiary, it is especially demonstrated in the close control that Bentley exercised over the relationship with Ethypharm. This is hardly surprising. Bentley quite naturally was most directly involved in the relationship that was the very core of its business. A. Bentley Takes Control of Laboratories Belmac (1994-1996)

In the early 1990s, Ethypharm looked to establish relationships with one or more companies outside France to manufacture omeprazole and other drugs using its proprietary pellet technology.36 As part of this effort, Ethypharm approached and began a relationship with a small company in Spain called Rimafar.37 The local nature of the venture began to change in 1992 when a U.S. company, then known as Belmac Corporation, purchased Rimafar and changed Rimafar's name to Laboratorios Belmac.38 Belmac Corporation subsequently changed its own name to Bentley in 1996. Neither Belmac Corporation ("Bentley"), Laboratorios Belmac ("Belmac"), nor its predecessor Rimafar had any experience in pellet technology or the manufacture or sale of omeprazole, lansoprazole, or other microgranulated products. As all parties recognized for years, Ethypharm was the sole owner of this pellet technology.39 Control over the Belmac-Ethypharm relationship shifted fundamentally beginning in late 1994 when James Murphy became the top executive of Bentley. One of Murphy's first acts as

36 37 38 39

JT-A-253:169. JT-A-61:12-13. JT-A-60:8-9. JT-A-61:11; see, e.g., B203; B99-106; B137-40; B285; B309. - 10 -

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Bentley's top official was to schedule a series of meetings with Ethypharm officials in France and Spain to redefine, modify, and expand the Belmac-Ethypharm relationship.40 Around the same time, Murphy fired the GM of Belmac, citing "philosophical differences in corporate direction."41 Murphy then obtained authorization from the Bentley board of directors to assume full authority for all negotiations on Belmac's behalf, and, shortly thereafter, he assumed, and has at all times retained, formal legal authority over Belmac as its "Consejero Delegado."42 Patrice Debregeas, CEO of Ethypharm France, and Adolfo de Basilio, GM of Ethypharm Spain, testified that Murphy introduced himself at his first meetings as the head of Bentley, Belmac's parent company in the United States. 43 Murphy spoke of Bentley's new plans and the strategies Bentley wished to implement through Belmac.44 Ethypharm's understanding that Bentley was intervening directly to restructure the operations of Belmac and assume control of the Ethypharm relationship is confirmed by contemporaneous written records. For example, on December 6, 1994, just prior to his first meetings, Murphy wrote to Ethypharm on parent company letterhead. Expressly identifying himself as President of Bentley (then called Belmac Corporation), Murphy wrote: During my visit to Paris, I am most anxious to speak about opportunities to expand our collaborative relationship in the areas of manufacturing, microgranulation of products [omeprazole]... and other ways in which our companies can grow and prosper together.45 Murphy has admitted that he was "acting on behalf of both companies, both entities" (Bentley and Belmac) during these contacts with Ethypharm.46

40 41 42 43 44 45 46

B12-14; B31-36. B1335. B23; B1197, ¶ 4; JT-A-1021:35-36. JT-A-267:227-28; JT-A-341:67-68. JT-A-341:67-69. B12. JT-A-1033:84. - 11 -

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Following their first meeting, Bentley sent Ethypharm a Letter of Intent.47 Consistent with the representations to Ethypharm regarding Bentley's decision to take control over the Ethypharm relationship, the Letter of Intent stated: This letter of intent is presented to Ethypharm by [Bentley], in good faith, to ensure that [Bentley] will employ its best efforts to enter and conclude negotiations for the establishment of a Joint-Venture relationship for the purpose of establishing a mutually synergistic business relationship between our respective companies. It is the intention of both parties to enter a mutual secrecy agreement to ensure the proprietary rights of each party. Based upon the guidance and negotiation of our respective lawyer to encompass the best interest of both parties, a contract for occupancy of space by Ethypharm in the Zaragoza facility will be entered into. [Bentley] wishes to establish a Joint-Venture with Ethypharm to research and develop a number of pharmaceutical products including but not limited to, ... omeprazole. 48 As yet another example, on January 19, 1995, Murphy sent Ethypharm a draft press release describing the status of their discussions.49 Again, the press release came under cover of a letter on parent company letterhead from Murphy as President and CEO of the parent company. Bentley's draft joint press release described "the first stage agreement to establish a joint venture with Ethypharm of France (a leading European drug delivery company) in the Belmac manufacturing facilities in Zaragosa, Spain."50 The press release referenced omeprazole and indicated that the recently entered agreements with Ethypharm would allow Bentley, the U.S. parent company, to "join the ranks of other major multinational companies committed to the Spanish market" and "will also further expand the manufacturing relationship which it already
47 48

B39. B39. These events took place before the parent company changed its name from Belmac Corporation to Bentley. Hence, the letterhead and its text refer still to the parent as "Belmac Corporation." There is no dispute, however, that references to Belmac Corporation, as opposed to Laboratorios Belmac, are to the parent company in the U.S. and not to the Spanish subsidiary. In all such instances, we have substituted the name Bentley for Belmac Corporation to avoid confusion. 49 B37-38. 50 B38. - 12 -

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has with Ethypharm in novel dosage forms by training more Belmac personnel to fulfill an increasing demand in contract manufacturing based upon Ethypharm technologies." Bentley ­ at that time still named Belmac Corporation ­ identified itself in the press release as "an international pharmaceutical and health care company based in Tampa, Florida."51 During his initial meetings with Ethypharm in 1994 and 1995, exercising the negotiation authority granted him by Bentley's board of directors, Murphy orally agreed to modify the existing arrangement with Ethypharm regarding the manufacture and sale of omeprazole in a number of important respects, including the following: · · · · Belmac staff would be increased and restructured to accommodate Ethypharm's needs; Belmac would come to agreement with Ethypharm regarding prices to be paid for rent and improvements to the Belmac plant. Products manufactured by Belmac for Ethypharm would have Ethypharm's name on the boxes. Agreements were reached regarding "free sales certificates" for export of products manufactured for Ethypharm.52 Ethypharm responded to the receipt of Bentley's draft press release and Letter of Intent by attempting to memorialize in writing the terms of the agreements that Ethypharm had entered into orally with Murphy. The parties exchanged a number of drafts of global agreements and engaged in additional discussions concerning them.53 As part of the negotiation, Murphy sent Ethypharm hand-marked, revised drafts of the proposed agreements.54 No global agreement was ever signed.55 However, Ethypharm moved forward with the relationship and continued to provide Belmac access to confidential know-how and technology

51 52

Id. JT-A-287-89:305-13; B31-36. While certain aspects of Bentley's proposed "joint venture" were not agreed to, it is beyond dispute that Murphy negotiated, modified and orally agreed to these central aspects of the Ethypharm-Belmac relationship. 53 JT-A-289:314-16; B40-47; B51-65; B66-82. 54 B40-47; JT-A-1041-42:117-21. 55 JT-A-1050:153. - 13 -

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relating to microgranulation based upon the oral agreements entered between Ethypharm and Bentley's top official, James Murphy.56 B. Bentley Responds to Threatened Termination (1997)

At the end of 1996, an audit uncovered numerous critical deficiencies relating to the manner in which Belmac was manufacturing omeprazole and other microgranulated products for Ethypharm.57 In addition, the relationship was not sufficiently profitable for Ethypharm.

Ethypharm decided to terminate the relationship, take its technology, know-how and machinery relating to omeprazole and other microgranulated products, and look for another contract manufacturer. As a result, on January 20, 1997, Adolfo de Basilio, Ethypharm's GM in Spain, sent a termination letter to his counterpart, Clemente Gonzalez-Azpetia, who was then the Belmac GM.58 Because Murphy had told Ethypharm that Bentley was in control of decisionmaking for its Spanish subsidiary, Basilio duly requested Gonzalez-Azpetia to "transmit these decisions to your mother company in the U.S."59 As anticipated, the response to Ethypharm's letter did not come from Belmac but from Bentley, the mother company. On Bentley letterhead and expressly writing in his capacity as "Chairman & CEO of Bentley," Murphy responded directly to Ethypharm's termination letter. His January 28, 1997 response begins by acknowledging the continued existence of an agency relationship: I am writing with regard to the fax that I received from your Spanish office. I am confused because, ever since I assumed control of Laboratorios Belmac, I have received nothing but extremely positive comments from your Spanish staff . . . . .60 Murphy's admission that he, as the top official from Bentley, "assumed control" of the subsidiary powerfully reinforced Ethypharm's understanding that Bentley, not Belmac, was calling the shots in this relationship. Murphy asked in this letter to meet directly with Ethypharm officials to solve
56 57 58 59 60

JT-A-292:326-28. B111-14. B115-16. Id. B117-18. Emphasis added. - 14 -

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all problems between Ethypharm and Belmac. Accepting this invitation, Claude Dubois, the GM of Ethypharm France, traveled to the United States to meet with Murphy, the CEO and Chairman of Bentley, on February 5, 1997.61 Murphy attended the meeting alone.62 The February 5, 1997 meeting was a defining moment for the relationship between the two organizations. Following the exchange of proposals from both sides regarding how to solve the problems of their respective Spanish subsidiaries, James Murphy, on behalf of Bentley, and Claude Dubois, on behalf of Ethypharm France, entered into another oral agreement.63 Dubois memorialized the terms of this oral agreement in correspondence following the meeting.64 Dubois testified that this oral agreement with Murphy formed the basis of the continued relationship with Bentley and Belmac for years to come.65 Following this oral agreement, the subsidiaries of Bentley and Ethypharm took immediate action to implement the decisions of their parent companies.66 Ethypharm continued (unsuccessfully) to urge that the oral agreement be reflected in a single written agreement but, in the absence of such a written agreement, the parties continued to abide by their oral understandings. In April 1997, Murphy had planned to fly from the U.S. to continue discussions with Ethypharm but, at the last minute, he could not attend.67 As a result, he expressly delegated the authority to continue the negotiations to Belmac's GM Gonzalez-Azpetia.68 Notwithstanding this delegation of authority, Bentley continued to direct and control all significant decision-making.

61 62

B119-24; JT-A-464:128-29. B119-24. 63 JT-A-445-46:52-55; JT-A-464-68:128-144. Murphy's notes and Dubois' notes from the February 5, 1997 (B119-24) meeting are very similar and demonstrate unequivocally that Murphy was negotiating the terms of a new arrangement with Ethypharm as he had been authorized to do by Bentley's board of directors. 64 B125-34; B141-43. 65 JT-A-467-69:140-46. 66 B133-36. 67 JT-A-469:146. 68 B144; JT-A-469-70:146-50. - 15 -

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For example, Murphy's contemporaneous handwritten notes of a telephone call with the Belmac GM on August 28, 1997, relating to negotiations with Ethypharm, stated: 8/28/97 Spain Phone Call

Ethypharm ­ many changes Issues: 1. microgranulation in future limitation 2. Exclusivity -3. Omeprazole 4. Too restrictive 5. Any change in shareholders clause TELL them: We have previously spent tremendous amt of time and money in contract attempts we will not review such a restrictive and ludicrous contract that includes control of Belmac shareholders etc. until a new more reasonable version is received and they become current on their bills.69 Murphy admits that this passage means that Murphy was instructing the Belmac GM regarding what to "tell" Ethypharm in response to Ethypharm's contract proposals.70 As his extensive diary notes from 1994 through 2002 repeatedly confirm, Murphy never surrendered the negotiation authority that Bentley's board had conferred on him in late 1994.71 C. Bentley Confirms Ethypharm's Ownership of Trade Secrets (1998­2000)

On September 2, 1997, Ethypharm Spain sent Belmac yet another draft global agreement and outlined in detail the events of the past year, including a description of the role Murphy, as Bentley's CEO, played in the decision-making process.72 The letter again confirmed the

understanding, shared by all parties, that Belmac was manufacturing omeprazole, lansoprazole, and other microgranulated products "with Ethypharm technology, know-how, machinery and patents."73 The very next day, the Belmac GM responded, stating that he had sent the draft agreement to Murphy at the parent company for his review and comment.74

69 70 71 72 73 74

B147. JT-A-1050:151-53. B749-1012. These excerpts from Murphy's diaries relate to Ethypharm and omeprazole. B148-68. B149; B152. B169-72. - 16 -

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In the early spring of 1998, because Bentley was contemplating being acquired by another company, Bentley became more active in seeking to formalize the terms of its relationship with Ethypharm.75 For this reason, Murphy from Bentley along with a few officials from Belmac, traveled to Ethypharm's offices in France on April 2, 1998, to discuss the status of the relationship.76 The meeting took place in English so Murphy could participate fully. Most of the Belmac officials, who were Spanish speakers, could not.77 At the meeting, Ethypharm again reiterated its long-held understanding that Bentley and Belmac had orally agreed that all the technology, know-how, and trade secrets relating to omeprazole were the sole property of Ethypharm and that neither Bentley nor Belmac would compete with Ethypharm in the manufacture and sale of omeprazole.78 Gerard Leduc, then the number two official at Ethypharm, handed out copies of a typed one-page document memorializing these understandings and asked Murphy to confirm its contents.79 In front of the entire group of Bentley, Belmac, and Ethypharm officials attending the meeting, Murphy agreed that Belmac was using Ethypharm's trade secrets to manufacture omeprazole and other microgranulated products and confirmed that neither Bentley nor Belmac would compete with Ethypharm in the manufacture or sale of these products.80 Murphy also agreed to provide written confirmation of his statements in a letter sent on Bentley letterhead. Murphy's own handwritten notes of this meeting, although cryptic, clearly reflect that he promised to take this action. Murphy's notes read: Draft Letter ­ BNT ­ non-compete Using knowledge of Ethypharm81
75 76

JT-A-633:50-52. Id.; JT-A-634:54-55; JT-A-470-71:152-53. Bentley argues that Murphy's interactions with Ethypharm took place at Ethypharm's request. This is not true. This 1998 meeting, the meetings in 1994, 1995 and 2000 were all held at Bentley's request to advance Bentley's agenda. 77 JT-A-634:56-57. 78 JT-A-456-57:95-98. 79 B214; JT-A-456-57:95-98; JT-A-292:325-28. 80 Supra note 79. 81 B211. - 17 -

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BNT is the NYSE symbol for Bentley.82 Following the meeting, Ethypharm sent the one-page certification that Leduc had earlier circulated to both Bentley and Belmac on April 2, 1998.83 Murphy never disavowed this

certification or the oral confirmation he gave at the April 2, 1998, meeting but he failed to send the requested confirmation letter to Ethypharm as promised.84 Ethypharm continued to rely, however, on Murphy's oral agreement regarding non-competition and Ethypharm's ownership of trade secrets, and in providing additional omeprazole trade secrets shortly after the meeting.85 The first hint of any challenge to Ethypharm's proprietary rights took place in 1999 when Ethypharm discovered that Belmac's GM had been quoted in several pharmaceutical periodicals stating, in essence, that Belmac owned the technology, know-how, and machinery relating to omeprazole and other microgranulated products.86 These public statements were directly at odds with the repeated assurances from Bentley and Belmac that the technology and trade secrets at issue were the sole property of Ethypharm.87 When he learned of these public statements, Patrice Debregeas, the President and CEO of Ethypharm, sent a letter directly to James Murphy at Bentley stating: [Ethypharm] places great value in its intellectual property. ...As you surely know, and, as evidenced by numerous documents, this is the sole property of Ethypharm, and Belmac has only been authorized by Ethypharm to use this property to supply Ethypharm's customers.88

82

B1285, ¶ 39; B1311, ¶ 39. Contrary to the testimony of Ethypharm witnesses, the content of the one page document handed out at the meeting which identified Murphy as Bentley's representative, and Murphy's own notes, Murphy testified the reference to "BNT" (the NYSE symbol for Bentley) means Belmac in this instance. Ethypharm believes a jury would not find Murphy credible on this ­ or on the many other material issues of fact that are hotly disputed. 83 B239-41; B212-14. 84 JT-A-456-58:95-102. 85 JT-A-292:327-28. 86 B283-99. 87 See, e.g., B203; B214; B137-40; B145-46. 88 B283-86; B291; JT-A-398:118-19. - 18 -

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Murphy wrote back the very next day. As always, he did so as Chairman and CEO of Bentley on Bentley letterhead.89 His April 9, 1999 letter begins: I have received your letter concerning reference to Ethypharm technology and understand your concerns. Our intentions have always been to promote the [omeprazole] in a fashion that would maximize market potential and obviously advance the best interests of both of our companies. He then requested a meeting with Ethypharm officials to "discuss how both companies can prosper from joint announcements and even collaborate in more lucrative relations."90 In short, Murphy's letter confirmed once again: (i) Bentley's continued control over Belmac's relationship with Ethypharm; (ii) Bentley's continued direct dealings with Ethypharm concerning that relationship; and (iii) Bentley's continued acknowledgment that the know-how, technology, and trade secrets used to manufacture omeprazole were the sole property of Ethypharm.91 D. Bentley Directs the Theft of Ethypharm's Technology and Customers (2000-2003)

Contrary to the assurances of Bentley's CEO that he wished only to advance the mutual interests of Bentley and Ethypharm, the events over the next three years demonstrated that his strategy was to promote only Bentley's interests. In September 2000, Murphy flew to Paris to meet with Ethypharm's new GM in France, Pierre Germain.92 Upon his return, Murphy sent Germain a fax dated October 6, 2000, describing the substance of their recent discussions.93 As always, Murphy wrote on Bentley letterhead under his title as Chairman and CEO of Bentley. In his fax, Murphy set forth a new proposal for Ethypharm: My thoughts for collaborating in Spain are as follows: 1. Bentley will assume the administrative oversight of the operation and guarantee Ethypharm income, through royalties equal in value to the current profit that Ethypharm is currently deriving from the Spanish organization.

89 90 91 92 93

B309. Id. Id. B346. Id. - 19 -

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2.

Ethypharm will be in a better position because you will also receive the additional profit resulting from the elimination of expenses attributable to personnel, operations, and overhead. Laboratorios Belmac will act on the behalf of Ethypharm to increase business through our business development and manufacturing groups. Lab. Belmac will bear the burden of personnel, overhead, expenses associated with the operation. The growth in new business above the current base business will be divided between our organizations with 30% of the net profit to Ethypharm and 70% to Lab. Belmac.94

3.

As with previous correspondence to and from Murphy, this fax confirmed that Bentley remained firmly in control of the strategy and decision-making relating to Ethypharm. More importantly, it provided the first hint that Murphy was searching for a way to terminate Ethypharm's direct involvement in the manufacture and sale of omeprazole in Spain by having Bentley take over all administrative responsibilities and putting the relationship on a royalty basis. Murphy's proposal also demonstrates that Murphy recognized that Belmac could not terminate the Ethypharm relationship while continuing to use Ethypharm's proprietary trade secrets without authorization from, and a substantial payment (30% gross royalty) to, Ethypharm. Ethypharm rejected Bentley's new proposal, and following further meetings between the principals in November 2000,95 Bentley became increasingly concerned that Ethypharm might withdraw its proprietary pellet technology and terminate the relationship as it had threatened to do in 1997.96 Such an act would have devastating consequences to Bentley, a publicly traded company in the U.S. with 35-56% of its annual revenues dependant on products manufactured with Ethypharm's technology. Belmac's GM testified that this fear of a termination by

Ethypharm prompted him to discuss with Murphy the possibility of preemptively terminating the relationship while continuing to manufacture omeprazole based on Belmac's purportedly new advances in the Ethypharm technology.97

94 95 96 97

Id. See infra notes 136-41. JT-A-668:143-45. Id. - 20 -

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In its summary judgment brief, Bentley incorrectly asserts that Ethypharm and Murphy had no contact after 2000.98 This is not the issue in any event. The issue is whether Bentley was actively involved in the decision to terminate the Ethypharm relationship and abscond with Ethypharm's technology and customers during this period. And on that issue the evidence turned up in discovery is compelling. From early 2001 to November of 2001, Murphy repeatedly considered and discussed whether to terminate the relationship with Ethypharm and manufacture omeprazole and other microgranulated products without Ethypharm's permission.99 That Bentley continued to take the leading role is reflected in Murphy's own handwritten notes and Bentley records.100 On February 16, 2001, for example, Murphy made a note showing that he was considering severing ties with Ethypharm and announcing Belmac's purported omeprazole advancements. The note stated: "Action Items ­ ... Ethypharm ­ Meeting ­ Severe [sic] Tie ? Announce omeprazole".101 At the same time, Bentley's Operation Update of February 2001, provided to Bentley's board of directors, stated: "Ethypharm ­ negotiations terminated due to lack of full commitment from Ethypharm."102 Murphy's notes of a meeting with Herrera on March 27, 2001 outline numerous steps being taken in Spain ­ including the pursuit of four Spanish patents ­ to try to obtain an allegedly independent legal foundation for the manufacture and sale of omeprazole and lansoprazole.103 Two months later, Murphy wrote a handwritten note dated May 23, 2001, reflecting his consideration of a date in the fall of 2001 for terminating the Ethypharm relationship.104

98 99

See, e.g., B455-87; B495-96; B498-99. JT-A-668:143-45; see, e.g., B438, B448; B451-54; B489-90; B494. 100 Supra note 99; see, e.g., B358, ¶¶ 11-14. 101 B438. 102 B442, ¶ 1e. 103 B447-48. 104 B454. - 21 -

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Around this time, Gerard Leduc of Ethypharm France, unaware that Bentley considered "negotiations terminated," sent a draft global contract to Bentley.105 In his June 8, 2001 cover letter that enclosed the draft, Leduc proposed that he and Murphy, as two top officials of the parent companies, meet "alone, or if necessary, assisted by one of our lawyers, [to] discuss this draft of agreement" in light of the fact that relations at their respective Spanish subsidiaries had become strained.106 On August 10 and September 17, 2001, Ethypharm wrote again to Murphy requesting a response to this proposal.107 Murphy did not respond, either to agree to meet Leduc or to tell him he should only deal with Belmac officials. Instead, Murphy was actively discussing with his subordinates in Spain whether to terminate the Ethypharm relationship preemptively and continue production of omeprazole built on the foundation of Ethypharm's knowledge and customer base.108 Murphy's handwritten notes of a discussion with Herrera on July 13, 2001, read: "Ethypharm $1.5 mil more profit if Break 23 Nov cancel contract (4 months before)"109 Murphy admits that these handwritten notes show that he expected $1.5 million more in profit from the manufacture of omeprazole if he were to "break" the existing manufacturing relationship with Ethypharm.110 The notes also set a specific target date of November 23, 2001, for the cancellation of the existing arrangement with Ethypharm. Nor was Bentley's plan confined to Belmac's operations in Spain. On June 15, 2001, Herrera faxed a letter to Murphy at Bentley discussing a "development plan" relating to the registration of omeprazole and lansoprazole in the United States.111 And, in October 2001, in advance of the termination notice to be sent to Ethypharm, Bentley considered adopting complex
105 106 107 108 109 110 111

B455-87. B457. B495-96; B498-99. JT-A-668:143-45; B497; B500. See also supra notes 99 to 104. B489. JT-A-1067-68:220-22. B488. - 22 -

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new tax planning structures "for the intellectual property currently under development in Spain."112 Bentley's plans culminated in coordinated action on November 14, 2001. On that date, Belmac sent a notice to Ethypharm indicating that it was terminating the current relationship regarding the manufacture of omeprazole.113 While insisting at his deposition that it was his idea to terminate the Ethypharm contract, Herrera ultimately admitted that he consulted with Murphy over a six-month period and obtained his authorization prior to sending the November 14, 2001 letter: Q: A: Did you ever have to get authorization from Mr. Murphy before providing information to Ethypharm? When I decided not to continue the manufacturing contracts and supply contracts [with Ethypharm] that were current, because it was an important topic for the company, I communicated to Mr. Murphy my decision and I consulted with him.114

Herrera testified that he discussed all of the factors relating to this decision with Murphy as early as April or May of 2001 because it "was a very important topic."115 On the same date its subsidiary sent its termination notice, Bentley, the parent company, issued a press release relating to developments based on Ethypharm's misappropriated trade secrets: BENTLEY PHARMACEUTICALS FILES FOUR NEW PATENTS FOR IMPROVED ORALLY-DELIVERED PRODUCTS, INCLUDING OMEPRAZOLE AND LANSOPRAZOLE Nov 14, 2001 NORTH HAMPTON, NH, Nov. 14 ­ Bentley Pharmaceuticals, Inc. (AMEX: BNT), a drug delivery company with a commercial presence in Europe, announced today that through its wholly-owned Spanish subsidiary, Laboratorios Belmac, it has submitted four new patents over the past year for improved formulations of orally delivered products. . . .116

112 113 114 115 116

B506-10, B506. B523-28. JT-A-666:135. JT-A-668-69:143-46, 145. B529. - 23 -

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The press release quoted "James R. Murphy, Chairman and CEO" of Bentley at length about how these developments would "help Bentley . . . effectively compete in what is becoming a crowded generic market" and how Bentley "intends to commercialize [these products] in the U.S. markets by licensing to other pharmaceutical companies."117 Also on November 14, 2001, Belmac signed an agreement relating to the exchange of omeprazole trade secrets and the manufacture of omeprazole with Pharmalliance, one of Ethypharm's main existing omeprazole customers in Spain.118 Thus, Bentley simultaneously implemented the three key elements of its plan to convert Ethypharm's proprietary technology: (i) the termination of the Ethypharm contract; (ii) the misappropriation of trade secrets in the guise of "new" patents; and (iii) the recruitment of Ethypharm's major customers. In their depositions, both Herrera and Murphy testified that it was a "coincidence" that these related events took place on the same day.119 A jury is entitled to reject this flimsy explanation (and almost certainly would). On summary judgment, however, it is not the Court's province to decide issues of material fact. It is enough to decide that a reasonable jury could properly draw the inference this was no "coincidence" and that, just as it had directed every aspect of the ongoing negotiations with Ethypharm, so, too, had Bentley orchestrated the termination of the Ethypharm relationship and the theft of its proprietary technology. After the termination, Bentley's close control over the matters at issue in the Complaint remained evident. On December 12, 2001, in response to the November 14 letter and Belmac's failure to supply omeprazole to Ethypharm's customers, Ethypharm wrote to Belmac: As our subcontractor using our technology to produce our product namely Omeprazol, you have a clear obligation to deliver suitable product on a timely basis . . . . Your recent letter[ ] of November 14, 2001 . . . only underscores the fact that your non-performance was a deliberate attempt to damage Ethypharm, damage our customer base, and possibly set the stage to compete with Ethypharm for the
117 118 119

Id. B530-32. JT-A-1072:240; JT-A-670:153-54. - 24 -

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continued business of our licensees using Ethypharm's core technologies, knowhow and customer base.120 Consistent with prior practice, Belmac's GM sent a draft proposed response to Murphy for his review.121 In poorly translated English, the December 26, 2001, cover fax stated: Dear Mr. Murphy: Together you will find a draft of the letter that we have prepared to send to Ethypharm, as answering to its written. Please, inform me if you agreed with it, and so, to proceed to send it122 Belmac then delayed sending any response to Ethypharm until January 2, 2002, after Murphy had the opportunity to review and approve its contents.123 On January 3, 2002, Murphy writing from his Bentley e-mail address and identifying the subject as "Bentley," wrote the following to an administrator at Laboratorios Belmac: Dear Concha, Please remind Adolfo [the General Manager of Laboratorios Belmac] to send me the complete omeprazole dossiers for generic filing in the USA Jim Murphy124 Consistent with its press release announcing plans to pursue the marketing of competitive products, this e-mail further demonstrates that Bentley wanted the omeprazole dossiers that were based upon Ethypharm trade secrets for Bentley's own use in the United States. On January 22, 2002, Bentley sent an "Operations Update" to all members of the Bentley board of directors which "highlights many of the key activities that are discussed at [Bentley] management meetings."125 The first section of the "Operations Update" related to "Spain

Activities" and included the following item: e. Ethypharm customers for omeprazole in process of recontracting with Lab. Belmac.126

120 121 122 123 124 125 126

B548-50. B556-58. B556. B573-77. B578. B595-99, B596. B596. - 25 -

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The "Ethypharm customers" referenced in the Bentley Operations Update are those such as Pharmalliance, that Belmac had recruited while still with Ethypharm and with which on November 14, 2001, and December 6, 2001, it signed agreements relating to the manufacture of omeprazole.127 All of these "Ethypharm customers" were still under contract with Ethypharm. As recognized by its own letter giving four months notice of termination, Belmac was obligated by written contract to manufacture omeprazole for Ethypharm's customers until at least March 23, 2002.128 Instead, it abandoned that obligation and recruited these customers away from Ethypharm, a practice that Bentley's management and board of directors approved and ratified.129 III. Ethypharm's Reasonable Understanding of Bentley's Role The Ethypharm-Belmac venture was extremely profitable for all parties. For instance, in 2001, Ethypharm's omeprazole accounted for 56% of Bentley's reported net sales of $26.4 million,130 or approximately $14.7 million. From this stark fact alone, coupled with Murphy's repeated representations, Ethypharm fully understood that Bentley had a serious and ongoing interest in the Ethypharm relationship and in issues relating to omeprazole, lansoprazole, and pellet technology. From 1994 until 2002, Murphy personally met with, corresponded with, or telephoned most of Ethypharm's top officials in France and Spain.131 Every official of Ethypharm deposed in this litigation testified to his or her clear understanding that Bentley was directing and controlling the decisions with regard to the Ethypharm relationship.132 Ethypharm's officials also testified that Murphy introduced himself as the top official of Bentley, stressed his role as Bentley's Chairman and CEO, and made it clear that he was imposing Bentley's strategic goals upon Belmac. For example:

127 128 129 130 131 132

B530-32; B553-55. B523-28. B596. B430, B431a. JT-A-1031-32:77-78. See, e.g., JT-A-289:316; JT-A-338:57; infra. - 26 -

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Patrice Debregeas, at the time the President and CEO of Ethypharm France and President of Ethypharm Spain, testified: Q: Mr. Debregeas, I'm trying to understand the core of your belief that Bentley Pharmaceuticals, Inc. is responsible for the actions taken by Laboratorios Belmac. And so would you tell me why you believe that Bentley Pharmaceuticals, Inc., is responsible for these actions. The chairman and CEO of Bentley declared to me repeatedly that he's in charge, he's the boss, he assumes responsibility.133

A:

Gerard Leduc, the General Manager at Ethypharm France during the relevant period, summed up his understanding as follows: Bentley, for me, is like my headquarters in [Paris], as the place where decisions are made, not the place where products are made.134 Claude Dubois, the General Manager of Ethypharm France, testified: Q: A: Did you also understand that Mr. Murphy was president of Laborotorios Belmac? No, its possible but I always considered Mr. Murphy as the chairman and CEO of ­ of Belmac Corporation [the former name of the parent company in the U.S.] and then Bentley Pharmaceuticals.135

James Murphy's central role, as Bentley's Chairman and CEO, and the subordinate role of Belmac's local officials in Spain, was vividly portrayed at a restaurant meeting among the parties in Paris on November 22, 2000.136 Murphy attended the restaurant meeting with Herrera, the Belmac GM. Gerard Leduc, Pierre Germain, and Yves Liorzou attended from Ethypharm France, and Adolfo de Basilio attended from Ethypharm Spain.137 At the restaurant, the top officials of the parent companies ­Murphy, Leduc, and Germain ­ sat alone at one table. The General Managers of the two Spanish subsidiaries sat at another table with Liorzou.138 The top officials discussed and agreed upon matters of central importance to the two parent companies ­ the status of the draft omnibus contract, the scope of the Belmac license, whether to supply

133 134 135 136 137 138

JT-A-414:182. JT-A-860:150. JT-A-445:50-51. JT-A-936-38:166-75; JT-A-906-09:47-61; JT-A-872:200-01; B381-84; B379-80. Supra note 136. Id. - 27 -

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Belmac with trade secrets relating to an updated aqueous formulation of omeprazole, and whether to install additional equipment in the Belmac plant for omeprazole manufacturing.139 Meanwhile, the GMs of the two Spanish subsidiaries, sitting at the other table, discussed "logistics."140 As the Ethypharm participants to the restaurant meeting testified, it was clear that the officials from the Spanish subsidiaries had no authority to agree on important issues whereas the officials from the parent companies had clear authority to ­ and did ­ decide these issues on behalf of their subsidiaries.141 In sum, Ethypharm's reasonable understanding that Bentley was directing and controlling the decision-making relating to the claims in this lawsuit was reinforced by the following: (1) As he was authorized to do by the Bentley board of directors, Murphy, as

Bentley's Chairman and CEO, directly negotiated the terms of the oral agreements relied upon by Ethypharm for almost a decade. 142 (2) Murphy corresponded with Ethypharm for nearly a decade and, during that time

­ on every occasion and not just "sporadically" ­ h