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Medical Device Industry, Non-Compete Agreements, Sales Person Non-Compete Agreement

Devicor, Major Player in Medical Device Industry, Loses Non-Compete Case Against Former Employee

Devicor Medical Products, a major player in the medical device industry, has lost its bid to prevent a former employee from working for Hologic, a company with divisions that compete against Devicor in the breast biopsy product market.

In June 2005, Keith Reed began work as a sales representative for Ethicon Endo-Surgery, Devicor’s predecessor.  In that role, Reed’s primary responsibility was selling the Mammotome breast biopsy system in his Central Florida sales territory.  Five years later, Reed became a Devicor employee when the company acquired certain parts of Ethicon’s breast health business.  As part of his transition to Devicor, Reed signed an employment agreement that contained non-compete, non-disclosure and non-solicitation clauses.  Reed subsequently signed an amended employment agreement that contained a “Non-Compete Exception”, which allowed for employment within a separate division of a competing company.  In August 2011, Reed resigned from Devicor and began working in sales for Hologic, where he sold breast and prostate imaging equipment and related software.   Devicor sued, alleging breach of contract, misappropriation of trade secrets, and unfair competition.  In a lengthy, technical and highly-detailed opinion, Chief Judge Susan Dlott of the United States District Court for the Southern District of Ohio denied Devicor’s request for a preliminary injunction.  The verdict can only be seen as a resounding win for Reed and Hologic, and a harsh rejection of Devicor’s dramatic overreaching.

Let me explain:  Much of this case hinges on the structure of Hologic and the relevant markets in which certain divisions of that company operate.  Hologic has two principal divisions:  One called Interventional Breast Solutions (IBS) and one called Sentinelle.  IBS sells breast biopsy equipment and competes directly with Devicor in that market.  But Reed does not work under the IBS division.  Reed works in the Sentinelle division of Hologic, where he sells imaging equipment.  Yes, Reed still interacts with many of the same hospitals and physicians as he did during his days at Devicor, but he is not selling them biopsy solutions.  He is only selling imaging equipment.

You can imagine how the case unfolded. Devicor overplayed its hand from the outset.  Devicor argued that Reed knew about the company’s confidential information and trade secrets and could use that information against them, that Reed knew the identity of key customers and industry contacts and that Reed was violating his non-compete agreement because certain divisions of Hologic competed in the same market.

First, recall that the “Non-Compete Exception.”  Reed’s employment agreement contained the following carve-out:

Notwithstanding the foregoing, with respect to any Conflicting Organization whose business is diversified, I understand that I will be permitted to render services to any division, department or demonstrably separate segment of such Conflicting Organization that does not engage directly or indirectly in the same business as the Company

That Exception seems to apply here.  Hologic is a Conflicting Organization, but, Sentinelle is a separate segment of the company that does not compete in the breast biopsy medical device market.  Of course, as if Devicor was trying to be the most completely predictable non-compete plaintiff ever, they argued that the Exception could not apply because Hologic and Sentinelle are the same company.  In other words, that the Exception was intended to apply only in the case of a completely separate corporate subsidiary.  The court rejected this argument out of hand, concluding that the Exception applied and that Reed was working in the Sentinelle division of Hologic, selling a separate, non-competing product and, therefore, not violating the terms of his agreement.

But it does not end there.  Devicor lost on every other issue.  Reed did everything right.  First, he made a clean break from Devicor.  There were no allegations that he took any of Devicor’s materials or confidential information with him.  Likewise, there was no evidence that Reed solicited any of Devicor’s clients.  Reed still had frequent contact with many of those same clients because he was selling them imaging equipment, but in spite of that frequent contact, he never once tried to get Devicor clients to start purchasing biopsy equipment from Hologic’s IBS division.  Of course, that did not stop Devicor from pushing the argument that Reed could have been marketing IBS biopsy equipment on the side.  The record, however, suggested otherwise.  When an IBS rep reached out to Reed and asked him if he had contact information from any of his former Devicor clients, Reed said he could not discuss biopsy equipment sales with her and that he could not provide her with the requested information.   When Reed gets calls from current clients who ask him about breast biopsy equipment, he informs them that, due to his non-compete agreement, he cannot answer those questions.  And when Reed’s former customers call him with questions about their Devicor products, rather than using it as an opportunity to get the client to switch to IBS, Reed refers them to his old supervisor at Devicor.  In short, Reed did everything possible to honor his commitments under his non-compete agreement.

One has to wonder if Devicor pursued the case more for strategic reasons than for the actual merits.  It is possible that the company wanted to send a signal to others in the industry that it would take aggressive (and costly) steps to thwart any perceived threat to its interests.  In other words, if you even come close to the line, expect a lawsuit.

The case is Devicor Med. Products, Inc. v. Reed, 1:11CV645, 2013 WL 1315037 (S.D. Ohio Mar. 29, 2013).

Jonathan Pollard is a trial lawyer and litigator based in Fort Lauderdale, Florida.  He focuses his practice on cases involving non-compete disputes, antitrust and business torts.  He represents clients in Miami, Fort Lauderdale, Boca Raton, West Palm Beach, Jupiter, Fort Myers, Tampa, and Orlando.

 

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