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When Fiduciary Duties and Entrepreneurial Innovation Collide: AngioScore v. TriReme

Some legal rights and obligations are so venerated and longstanding that they have become virtual absolutes—categorical imperatives that trump other less urgent considerations. But what happens when two such absolutes collide? This was a question that the US District Court of the Northern District of California had to wrestle with recently, in a case pitting directors’ fiduciary duties against their entrepreneurial rights to innovate.[1]

The case concerned a medical device company’s complaint against its former director for breach of fiduciary duty. His offense? Secretly developing a new technology that competed with (and arguably improved upon) the corporation’s core product line.

The plaintiff, AngioScore, is a Delaware corporation and leading producer of “specialty balloon catheters” used to treat plaque occlusions in blood vessels – a common cardiovascular condition.[2] The principal defendant, Dr. Eitan Konstantino, had helped found AngioScore in 2003, and was an inventor of AngioSculpt – the flagship device in AngioScore’s product line. After serving as a senior officer and director of AngioScore for two years, Konstantino in 2005 sought and received permission from the AngioScore board to start a new company, TriReme Medical, to produce a “bifurcation stent,” a product with distinct clinical uses (and a distinct market) from AngioSculpt’s. He remained on AngioScore’s payroll as a chief scientist, however, until 2007, when the parties terminated their employment relationship. Konstantino nevertheless continued to serve on the AngioScore board, subject to the standard array of fiduciary duties that directors owe their corporations.

Flash forward to 2009. TriReme’s foray into bifurcation stents had met with little commercial success, and it was searching for alternative growth avenues. Konstantino began to experiment with specialty balloon catheters, homing in on a new design: although the basic materials were the same as AngioSculpt’s, Konstantino’s device – which would come to be known as “Chocolate” – altered the design in a way that could result in greater precision and reliability. The Chocolate device was designed and prototyped through much of late 2009, undergoing its first animal test in early 2010. It has since proven to be a significant commercial success.

Such entrepreneurial innovation is something we typically applaud, and is thought by many to be a core driver of economic growth. In this instance, however, Konstantino’s innovative zeal came with a significant string attached: he remained on the AngioScore board, fiduciary duties intact. Moreover, by entering the specialty balloon market, he caused TriReme to stray from a limitation on its product line it had inherited at its 2005 founding, when AngioScore’s board specifically disclaimed commercial interests in bifurcation stents (but nothing else). This type of resolution is now commonplace among Delaware firms,[3] and for good reason: if outside investors cannot trust the good faith and loyalty of managers, then capital markets – another central driver of economic growth – are sure to languish. The 2005 product-line demarcation enabled Konstantino to wear two “hats” (one for AngioScore and one for TriReme) without falling into an irresolvable conundrum requiring him to partition his “undivided loyalty” among two masters.[4]

The case presented one additional factual twist: Konstantino never came clean to others about his simultaneous pursuit of the Chocolate device at TriReme, even when confronted by fellow AngioScore board members in February 2010 (a confrontation that led to his resignation). Rather, at various times, he took concrete steps to conceal that portion of the device’s development that overlapped with his board service. These steps included: (a) inaccurately characterizing the status of TriReme’s interest in specialty balloons as being preliminary and prospective; (b) taking steps to hide an early provisional patent he filed on the Chocolate device while still on the AngioScore board; and (c) emphatically denying – through a deceptive letter sent through counsel – that he and/or TriReme had “evaluated, negotiated or otherwise pursued the acquisition or licensing of any technology that competes with AngioScore’s products.”[5] Only years after the instant litigation had commenced did plaintiffs discover the nature and extent of Konstantino’s work on Chocolate contemporaneous with his AngioScore board service.

Among many other issues, this case teed up for U.S. District Court Judge Yvonne Gonzalez Rogers a tantalizing tension between the “inveterate, established law of fiduciary duties” on the one hand, and innovation rights on the other. When pitted against one another, which prevails? Although the case law on the fiduciary duties of corporate opportunities is vast,[6] this dispute was arguably one of the first to present squarely the question of whether fiduciary norms take precedence over general policies encouraging innovation.[7] This question is particularly salient in California, where statutes significantly constrain an employer’s ability to constrain the mobility of its employees.[8]

After a six-day bench trial, on July 1, 2015, the Court released a 63-page opinion siding with the plaintiffs. Judge Gonzalez Rogers held (a) that Konstantino breached his fiduciary duties under Delaware law by appropriating a corporate opportunity belonging to AngioScore; (b) that TriReme and its affiliates aided and abetted Konstantino in this breach; (c) that Konstantino and TriReme misled AngioScore about the breach; and (d) that defendants’ collective conduct violated California’s Unfair Competition law.[9]

The opinion contains interesting insights about several important issues, ranging from equitable tolling, to causation, to damages, to corporate governance, to corporate successorship, and even to Greek mythology. In addition to its wide-ranging analysis, the opinion is well drafted, and thus likely to garner attention among corporate law textbook writers. However, the gravamen of the court’s substantive opinion concerns the legal prioritization of directors’ fiduciary duties against the right to innovate. Here, the opinion leaves no doubt that fiduciary duties do not yield (at least not fully). Assessing the defendants’ claim to the contrary, Judge Gonzalez-Rogers wrote:

The fact of inventorship does not absolve a director of his fiduciary obligations with respect to inventions he may develop that compete with the corporation he serves. To hold otherwise would work an absurdity. Directors of corporations would be free to invent and develop competing technologies for their own benefit, concealing the same from the companies they serve, even where elements of those inventions would likely benefit the companies. This scenario stands in stark opposition to the foundational principles of corporate governance, which demand that directors exalt the interests of the companies they serve above their own.[10]

The opinion goes on to hold both Konstantino and TriReme affiliates liable for significant damages (discussed below).

The AngioScore-TriReme opinion could well become an important landmark for navigating the devilish details of directors’ fiduciary duties, particularly (though not exclusively) in technology industries. And, while it may not be the last word on the subject, the opinion provides a significant and noteworthy reference point for future cases. As I prepare to teach this case to my own corporate law students, I will be sure to highlight several characteristics that stand out:

Beyond these individual observations, there is a greater reason this case seems destined to command attention in classrooms, courtrooms, and boardrooms: It is unlikely that we have seen the end of this species of dispute. The economic stakes within many technology industries are simply too high to leave the remaining tensions between corporate governance and innovation untested. In the meantime, the AngioScore-TriReme opinion represents an important cautionary tale for director-inventors (and their advisers) – one whose lessons we would all do well to heed.


[1] AngioScore v. TriReme et al, FINDINGS OF FACT AND CONCLUSIONS OF LAW, 12-cv-03393-YGR (available at (hereinafter “AngioScore-TriReme opinion”).

[2] In 2014, AngioScore was acquired by the Spectranetics Corporation.

[3] See Del. Gen. Corp. Law 122(17).

[4] See Meinhard v. Salmon, 164 N.E. 545 (N.Y. 1928).

[5] AngioScore-TriReme opinion, supra note 1 at 97.

[6] For an overview of the case law, see Eric Talley, Turning Servile Opportunities to Gold: A Strategic Analysis of the Corporate Opportunities Doctrine, 108 Yale L.J. 277 (1998).

[7] Although the defendants asserted this to be a case of first impression, some notable early precursors to this dispute can also be found. See, e.g., Energy Resources Corp. v. Porter, 438 N.E.2d 391 (Mass. App. Ct. 1982) (finding that a corporate director appropriated a corporate opportunity in pursuing a government research grant in his own capacity, one that eventually culminated in a patent).

[8] See Cal. Bus. & Prof. Code 16600 (declaring non-competition agreements to be generally against public policy, subject to enumerated exceptions).

[9] See Cal. Bus. & Prof. Code 17200.

[10] AngioScore – TriReme opinion, supra note 1, at 15.

[11] See Del. Gen. Corp. Law 122(17).

[12] AngioScore-TriReme opinion, supra note 1, at 35.

The preceding post comes to us from Eric Talley, the Isidor & Seville Sulzbacher Professor of Law at Columbia Law School. Professor Talley served as a testifying expert witness on behalf of Plaintiff AngioScore in the underlying action.  The views herein are his alone, and not those of AngioScore or its counsel

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