Lawsuits stem from hiring of sales reps: Big device makers battle to protect trade secrets

  • Comments
  • Print

A spate of lawsuits involving the state’s largest medical-device makers underscores the fiercely competitive nature of the life sciences sector, particularly when the billion-dollar companies need to protect trade secrets.

Warsaw orthopedics manufacturer Biomet Inc., Indiana’s fourth-largest private company, is at the center of much of the messy litigation, which stems from a former sales representative’s move to rival Zimmer Holdings Inc., also based in Warsaw.

In two unrelated lawsuits, Biomet sued in July 2007 the Kentucky sales rep and Zimmer, the state’s eighth-largest public company. Collectively, Biomet is asking circuit and federal courts in Indiana to award it in excess of an eyepopping $70 million.

In turn, the Kentucky distributor and his Louisville companies, Fields Medical Corp. and Fields & Stallings LLC, sued Biomet in mid-June for interfering with contracts it signed with Zimmer.

Not to be outdone, Bloomington-based Cook Group Inc., the state’s seventhlargest private company, sued four former sales reps and the competitor they went to work for, California-based Endologix Inc. The February suit, which was transferred to the U.S. District Court, Southern District of Indiana in Indianapolis, seeks damages to be determined at trial.

The common thread among all the suits-allegations of breaching non-compete agreements and interfering with contracts-typifies the competitive nature of the industry, experts say.

Often, conflicts result from the hiring of a rival’s sales team, whose existing relationships with surgeons and hospitals are attractive to companies wanting to build business without the headache of training new staff, local attorney Don Knebel said. Knebel is chairman of Barnes & Thornburg LLP’s intellectual property, technology and biotechnology departments and is not involved in any of the cases.

“That’s why there are non-competes in these industries and that’s why it is so frequent that medical-device companies hire each other’s sales forces,” he said, “and why there is so much litigation.”

Anthony Cox, a professor of marketing at the Indiana University Kelley School of Business in Indianapolis who specializes in the marketing of medical products and services, concurred.

“You want salespeople who are knowledgeable in the product area and so forth,” he said, “but I think also for medical devices, there is often a level of trust and comfort that can develop from a company’s sales rep and a surgeon.”

The relationships can become so cordial that vendors sometimes will sit in on surgeries and serve as consultants. Indeed, Cook representatives often are present in the operating room when the company’s stent graft-used in the treatment of abdominal aortic aneurysms-is inserted, according to its complaint.

Biomet vs. Zimmer

Despite their common location in Warsaw, Biomet and Zimmer have been anything but neighborly. Within a two-week span in July 2007, Biomet sued former Kentucky sales rep Randy Fields, as well as Zimmer and two other employees that arrived from Biomet. In June, however, Fields turned the tables on Biomet and sued it.

In the case against Fields, Biomet alleges that he sold the assets of his orthopedics distributorship to Zimmer before his six-month non-compete agreement with Biomet ended.

“Making matters worse, Fields is currently working for, or on behalf of, a Zimmer distributor in the same territory that he called on for Biomet, and he is soliciting Biomet’s sales representatives and … customers in that territory on behalf of Zimmer,” lawyers for Biomet wrote.

Biomet alleges breach of contract and violation of trade secrets, among other charges, and is seeking $20 million in damages and the rescission of Fields’ agreement with Zimmer.

In the meantime, Fields and his two companies filed suit against Biomet in a Kentucky court nearly two months ago, accusing it of interfering with his contract with Zimmer.

As an independent contractor, Fields distributed Biomet’s products in Kentucky, Tennessee and West Virginia. But the relationship began to sour, according to Fields’ complaint, in January 2007, when Biomet presented Fields with new distribution agreements that executives deemed less favorable than the previous contract. The company ultimately rejected the agreement and instead aligned with Zimmer.

Undeterred, Biomet executives arranged a meeting in Kentucky with two of Fields Medical’s leaders to try to persuade them to renege on the agreement they had entered into just days earlier with Zimmer, the complaint alleges.

Enticements included upfront cash payments to Fields Medical, signing bonuses for their sales representatives, equity options in Biomet, and a commitment to protect the company and its reps against any court claim that might result from shelving the Zimmer deal.

In June 2007, one of the Fields executives, Kirkland Stallings, accepted the offer and launched a competing distributorship and enticed many of Fields’ reps to follow him back to Biomet, according to the complaint. Most had two-year noncompete agreements with Fields, however.

They distributed Biomet’s products in the same territory as they did while working for Fields, until a Kentucky judge granted Fields a temporary injunction in May of this year directing Stallings to cease selling. Fields filed its suit less than a month later.

“By soliciting and inducing Stallings to form a distributorship to sell the Biomet defendants’ products, Biomet interfered with, induced the breach of, and deprived FMC of the benefit of [its] contractual relationship with Stallings,” lawyers for Fields wrote.

Besides monetary damages, Fields is seeking to permanently bar Biomet from breaching the contractual agreements Fields has with its sales reps.

In an unrelated case, Biomet is suing Zimmer and two of its executives who left Biomet. Biomet is alleging misappropriation of trade secrets and interference with non-compete agreements, as well as other charges. Biomet is asking the court to nullify the agreement between Zimmer and its two former employees, and to award at least $50 million in damages.

Citing policy, spokespeople for Biomet and Zimmer declined to comment.

Cook’s complaint

Meanwhile, Cook is suing four of its district sales managers living in New Hampshire, New York, Pennsylvania and Rhode Island for breaching their contracts by leaving for Endologix Inc. Its stent competes directly with Cook’s product, according to the complaint that also names Endologix as a defendant.

Cook’s suit alleges that Endologix began pursuing salespeople from its aortic division beginning in late 2007. After the four left, Cook notified Endologix in January of its 24-month non-compete agreement.

Endologix countered that the clause is too broad to enforce. “Indeed, on its face, the Cook [non-compete] expressly extends across a defined ‘territory’ from Algeria to Yemen (and 96 countries in between) …,” lawyers for Endologix wrote.

A trial is set for August 2009. Cook is asking the court to enforce the non-compete agreement and is seeking damages in an amount to be established at trial.

The local office of Cincinnati-based Taft Stettinius & Hollister LLP is representing Cook. Endologix has hired the local firm of Hoover Hull LLP. Lawyers for both either declined to comment or didn’t return phone calls.

J. Michael Brooks, president and CEO of the Indiana Health Industry Forum, is familiar with the cases but reasoned that similar disagreements span all corners of the corporate world.

“There’s no question that some of these industries are extremely competitive,” he said. “Companies are doing what they can to protect their business.”

Please enable JavaScript to view this content.

Story Continues Below

Editor's note: You can comment on IBJ stories by signing in to your IBJ account. If you have not registered, please sign up for a free account now. Please note our updated comment policy that will govern how comments are moderated.