by Michael R. Greco
The medical device industry remains a hotbed
for non-compete litigation, and the reason is plain and simple. Economic
justification. Sales reps develop close relationships with surgeons who
purchase millions of dollars worth of medical devices each year. Top reps at
industry leaders commonly have multi-million dollar books of business and are
often viewed by physicians as an integral part of the team when it comes to the
delivery of care. If and when these reps switch firms, there's a real risk that
their clients will follow them. And that's not all. Their colleagues may follow
Consider the recent
case filed by Abbott Laboratories against its former sales executive,
Samuel Conaway, and his new employer, Boston Scientific. Abbott claims that
after Conaway left to join Boston Scientific, he and his new employer began to
unlawfully poach Abbott's sales force. Recognizing that sales reps control
revenues, it's no wonder that Abbott is willing to spend top dollar on an AmLaw
100 law firm to address its concerns. And make no mistake about it, these types
of cases are certainly expensive.
Even modest non-compete cases in the medical device
industry easily rack up attorneys'
fees in the high six figures. Consider Medtronic
v. Hughes and St. Jude Medical (Minnesota 2011) [an enhanced version of this opinion is available to lexis.com
subscribers] where Medtronic successfully recovered over
$615,000 in fees. Imagine how fees can multiply in cases where the parties
engage in a race
to the courthouse, which is not uncommon when someone finds a basis to file
in California. See, e.g., Advanced
Bionics Corp. v. Medtronic, 29 Cal. 4th 697 (2002) (where the
California Court held that California courts should not generally enjoin
litigants from pursuing similar claims or defenses in foreign courts, even
where important and unique California public policies [such as employee
mobility] are at stake) [enhanced version].
Just as the medical device industry remains a
hotbed for non-compete litigation, it also remains a viable candidate for
non-compete mediation. Mediating
these disputes presents unique challenges because these lawsuits bear all of
the hallmarks of ordinary litigation compressed into a short and urgent
timeframe. It is expensive, fast paced, driven by emotion, and often embraces
issues of tremendous importance. But a mediator with extensive non-compete
litigation experience can help craft creative solutions, and that is what is
required to resolve disputes of this nature. Courts presiding over these
disputes have discretion to fashion equitable remedies. Why wouldn't a mediator
be called upon to help the parties work toward a similar mutually acceptable
result? But this cannot happen unless the parties cooperate with their
mediator, and sometimes obstacles get in the way. "What obstacles?", you might
ask. Here are five.
Sunk Costs -
As noted above, these cases are expensive, and the fees mount rapidly. Attorneys'
fees are viewed by parties as sunk costs - costs that have been incurred that
cannot be recovered if they settle. The longer parties wait to mediate, the
harder it becomes to settle. This is particularly true in two instances: (1)
cases involving startups where resources are scarce; and (2) cases where an
attorneys' fee provision or statutory equivalent is present. To address this
issue, consider mediating earlier in the lifespan of a case; perhaps at the
close of expedited discovery before a preliminary injunction hearing.
Reactive Devaluation -
Reactive devaluation is a cognitive bias that occurs when a proposal is
devalued if it appears to originate from an antagonist. This phenomenon alone
demonstrates the greatest value of mediation. The parties are relying on the
mediator to help them find a solution, and not just any solution, but rather, a
durable one that is mutually acceptable to the parties. A mediator is uniquely
situated to help the parties overcome this obstacle.
Negotiating Conventions -
In a classic settlement negotiation, each side begins with a position, and
moves a little bit at a time (often a very little bit). It is not uncommon for
one side or the other or both to begin with an extreme position and wait for
the other side to capitulate so as to gain the upper hand. An effective
mediator will assume control of the mediation in an unassuming fashion and
steer the parties toward a constructive dialogue. In essence, an effective
mediator lets the parties know that resolution is their choice, but the process
towards resolution will be shaped by the mediator.
Imbalance of Power - This factor most commonly exists in cases
between industry leaders and startups with fewer resources. The role of the
mediator is not to ensure equal power among the participants to the mediation;
after all, a mediator is an impartial participant in the settlement process. That
does not mean, however, that the mediator cannot help the parties overcome the
difficulties presented by an imbalance of power. An effective mediator
will create ground rules for the parties' discussion, ensure that each side has
a full and fair opportunity to air their views, and determine what topics must
be addressed and in what order.
Lack of Information -
Notwithstanding all of the money parties spend on discovery, it is amazing how
poorly they understand one another's perspective, and at the end of the day it
comes down to poor communication and lack of information. A good mediator will
spend a lot of time listening to each side in order to ensure a thorough
understanding of each side's viewpoint. A party's desire for confidentiality
will always be respected, but providing the mediator with a complete
understanding of each side's view of the world will enable the mediator to move
each side towards a lasting peace that addresses each side's interests.
The bottom line? The market for medical devices is
intensely competitive, perhaps second only to the market for top notch medical
device sales reps. This is a $100 billion industry that is certain to continue
spawning non-compete litigation for years to come. Litigation is expensive,
distracting, emotionally draining, and certainly unappreciated by clients. Mediation
is an alternative that can save parties precious time and resources. It is
imperative that parties choose a mediator who has significant experience in
restrictive covenant and trade secret litigation so that the mediator can
efficiently and incisively cut through the issues. Using a mediator
sufficiently attuned to the factors a court will use to determine the
enforceability of a restrictive covenant will get the parties to a settlement
faster and cheaper than the courts, and it will do so with less uncertainty,
less publicity, less precedent, and more control.
Michael R. Greco is a partner in the Employee
Defection & Trade Secrets Practice Group at Fisher & Phillips, and he
received his mediation training from the Center for Dispute Settlement in
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Read more articles at Fisher & Phillips' Non-Compete
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