Medinol Ltd. v. Boston Scientific Corp.
| Decision Date | 02 December 2004 |
| Docket Number | No. 01 Civ. 2881(AKH).,01 Civ. 2881(AKH). |
| Parties | MEDINOL LTD., Plaintiff, v. BOSTON SCIENTIFIC CORP., et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
Elizabeth L. Grayer, Keith Richard Hummel, Rory O. Millson, Cravath, Swaine & Moore, New York, NY, for Medinol, Ltd.
Keith Richard Hummel, Rory O. Millson, Cravath, Swaine & Moore, New York, NY, for Nasr Salman, for Judith Richter, Jacob R. Richter.
Johanna M. Toth, Edwards & Angell, LLP (NJ), Short Hills, NJ, Peter J. MacDonald, Richard J. Innis, Hale & Dorr, L.L.P., New York, NY, for Boston Scientific Corp.
John P. Cooney, Jr., New York, NY, Robert B. Fiske, Jr., Davis Polk & Wardwell, New York, NY, for Peter M. Nicholas.
Jeffrey J. Chapman, Richard H. Klapper, Samuel W. Seymour, Sullivan & Cromwell, L.L.P., New York, NY, for Lawrence C. Best.
This is a case about stents, the splint-like, tubular devices that are inserted into weakened or occluded veins or arteries of the human body to form a strengthening mesh with their interior walls, to prevent their collapse, and to enable blood to flow. The protagonists are two biotechnology companies and some of their principals and executives. The plaintiff, Medinol, Ltd. ("Medinol"), is an Israeli company engaged primarily in research and development, and manufacturing, of stents. The defendant Boston Scientific Corporation ("Boston Scientific" or "BSC"), is a Delaware corporation that does business in many states and nations, directly and through subsidiaries. Defendant is a leading distributor of stents, some of its own make, and some manufactured by others. The individual parties are Boston Scientific's Chairman and former Chief Executive Officer, Peter M. Nicholas, and its Chief Financial Officer, Lawrence C. Best, both of whom are defendants,1 and Medinol's Chief Executive Officer, Dr. Judith Richter, and its Chairman and Chief Technology Officer, Dr. Jacob Richter, both of whom are counterclaim and third-party defendants.
On October 25, 1995, Medinol and Boston Scientific entered into a close and extensive contractual relationship, relating to research, development, manufacturing and distribution of stents, the licensing of intellectual property, and the contribution of capital by BSC into Medinol. The relationship was to last ten years, or longer with renewals. However, following a number of years of apparent fulfillment, the relationship soured into recriminations of treachery and breach. On April 5, 2001, Medinol filed this lawsuit and, soon after, Boston Scientific filed counterclaims and third-party complaints. The charges and counter-charges of the parties raise complex issues of breach of contract, misappropriation of trade secrets, and many other statutory and common law wrongs. After extensive discovery in the United States, the United Kingdom and Israel, Medinol, BSC, Nicholas and Best have moved for summary judgment.
This opinion discusses the contractual rights and obligations of the parties, and the merits of their respective charges and counter-charges. I hold that Medinol's claims against the individual defendants Best and Nicholas are insufficient in law, and I order them dismissed. Many of Medinol's and Boston Scientific's claims against each other are also dismissed. A core number, largely involving their disputed contentions as to their contractual relations, remain for trial. The procedures that the parties are required to follow for an early trial are also set out in the concluding paragraphs of this decision.
Plaintiff Medinol is a privately-held Israeli biotechnology company specializing in stent development. On October 25, 1995, Medinol entered into three agreements with defendant BSC, an American leader in the field of medical technology: a Supply Agreement, a Transaction Agreement, and a Stockholder Agreement. The parties contemplated a wide-ranging partnership which, they hoped, would combine their expertise and resources to create improved stent technology and increased sales of stents.
Under the Supply Agreement, described below in more detail, Medinol agreed to develop and manufacture stents, and Boston Scientific agreed to market and distribute them. The Supply Agreement was structured as a requirements contract, obligating Medinol to sell to BSC as many stents as BSC required for resale. Under the Transaction and Stockholder Agreements, Boston Scientific was to invest some $70 million in Medinol, in two installments, in exchange for a share of ownership and a role in the management of Medinol. The Stockholder Agreement was also signed by Dr. Judith Richter, Medinol's Chief Executive Officer, and Dr. Jacob Richter, Medinol's Chairman and Chief Technology Officer (collectively, the "Richters"). The Richters co-founded Medinol and together owned approximately two-thirds of its stock, either directly or through corporate holdings.
Boston Scientific purchased its first installment of Medinol stock for $40 million on the day it signed the Transaction Agreement, October 25, 1995. It purchased its second installment of Medinol stock for $20.5 million on February 26, 1997, buying out the interest of shareholder Benad Goldwasser, and in the process settling claims that Goldwasser had asserted against Medinol and the Richters. On March 3, 1997, BSC executed a Shareholder Release and Indemnity Letter, which "irrevocably, unconditionally and forever release[d]" Medinol, the Richters, and others from all claims arising before that date.
The relationship between the parties proceeded smoothly for several years. Medinol had developed, and BSC was marketing, Medinol's "NIR" stent, and the parties collaborated on several stents that improved on the NIR. BSC had developed its own Radius stent prior to entering into its contracts with Medinol, but it agreed in the Supply Agreement to "concentrate" its business on marketing NIR stents, and it apparently complied with this obligation. The NIR achieved several successes; it began to be sold in the European market in 1996, and in 1998 the United States Food and Drug Administration indicated that it would approve the NIR stent and delivery system without inspecting Medinol's production facilities. However, BSC also expressed its unhappiness regarding Medinol's production levels, quality, setbacks of dates set in the Supply Agreement and other matters, leading to squabbles between the parties. Nevertheless, the collaboration envisioned by the parties appeared to continue.
Both parties engaged in research and development for next-generation improvements of the NIR stent. Medinol developed the NIR Conformer, the NIR pRINce, the NIRSIDE, the NIRenal/NIR Peripheral, and the NIRflex. The NIRflex was considered the NIR's most promising successor. It was designed as an improvement of the NIR that was more flexible and better structured, so that when it expanded in diameter it would not contract in length. Medinol allegedly began work on the NIRflex in April 1998, and it finalized its design and presented it to BSC in June 1999. BSC's products included the NIR ON Ranger, the NIR ON Ranger w/Sox, and the NIR Primo premounted stent systems, the systems which BSC manufactured and sold in accordance with the Supply Agreement. BSC also developed the NIR Sine and NIR Sine II, roughly simultaneously with Medinol's development of the NIRflex. After consultations, the parties agreed to focus on the NIRflex and not pursue the NIR Sine II.
Manufacturing NIR stents involved a three-step process known as "etch, fold, and weld." In the etching stage, which Medinol subcontracted to Suron Ltd., an Israeli company, the stent pattern was chemically etched onto a sheet of surgical grade stainless steel. The next two stages used a fold-and-weld machine to transform the flat etching into a circular stent with interlocking components. Once the stent was created, it needed to be electropolished, a task which under the Supply Agreement was generally undertaken by BSC. Finally, stents needed a delivery system in order to be inserted into the human body, and BSC manufactured balloon catheters as a stent delivery system.
Since 1996, BSC also manufactured replication NIR stents for research and development but not for commercial sale. Rather than using the etch, fold, and weld method employed by Medinol, BSC employed, in producing these stents, a cheaper laser-cut method, using a laser to cut a design from round metal tubing. Both parties now call these "NIR knock-off" stents, abbreviated as "NIRKOs." BSC produced at least 72,000 NIRKO stents from mid-1997 to mid-2000. The parties dispute if BSC produced these stents with, or without, Medinol's knowledge and authorization.
The relationship between the parties began to deteriorate amid recriminations around the year 2000. While Medinol was to be the principal manufacturer of stents under the Supply Agreement, that contract contemplated the establishment by Medinol of an "Alternative Line" which BSC would maintain and on which BSC could manufacture stents if Medinol failed to produce stents in the required quantities. On April 21, 2000, at a meeting between the Richters and James Tobin, who became BSC's Chief Executive Officer in 1999, Tobin revealed to the Richters that BSC had established another, clandestine production line for the manufacture of NIR stents, which it had called, alternately, "BBD" (for "Building a Better Deal"), or "Project Independence." This production line, housed at a BSC facility in Ireland and overseen by its subsidiary Boston Scientific Ireland Ltd. ("BSIL"), had begun to produce stents without the knowledge of Medinol, but had not engaged in any full-scale distribution.
Tobin's revelation caused animosity between Medinol and BSC, and hastened the...
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