Ev3 Sues Cardiovascular Systems Over Sales Reps’ Departure

Were the departures of nearly a dozen sales representatives from one Twin Cities medical device maker to another in less than a year a sign of a competitive market for talent, or the product of an underhanded scheme? That’s the central question in a legal battle unfolding between Plymouth-based Ev3 and its New Brighton rival, Cardiovascular Systems Inc. Ev3 charges CSI has damaged its business by “raiding” its sales force, and that it is benefitting from confidential information some of the new hires might have taken with them. In one case highlighted in the legal filing, Ev3 says a former sales rep used the delivery of an honorarium check from Ev3 to a physician customer as the basis for trying to persuade that doctor to purchase CSI’s product. CSI officials denied the allegation and say, more broadly, that the Ev3 lawsuit merely is an attempt to stifle fair competition. A Ramsey County judge in January issued a temporary restraining order that, among other things, prevents former Ev3 employees who were subject to nondisclosure requirements in the employment agreements, from using confidential information from their previous employer while on the job for CSI. But the order stopped short of barring the workers from working at CSI, as Ev3 had requested. As the case continues – with Ev3 seeking more than $50,000 in damages – an emerging paper trail provides a window on the sales relationships between medical device companies and physicians. Steven Wheeler, the Ramsey County District Court judge hearing the case, said during a hearing last month that the parties might want to settle the matter before that window opened further, since physicians who are their customers likely would object to being pulled into what the judge called a “mud fight.” “Have any of you thought about the fact that, as a result of this big fight you’re in – which I’m suggesting you might want to consider trying to resolve – you’re going to be dragging in all of your customers, and they’re not going to be very happy about that?” Wheeler asked. “These doctors are very independent people.” Doctors use the competing devices from Ev3 and CSI to perform atherectomy procedures – treatments in which physicians pass a tiny cutting device through a catheter to the point of a blocked artery. Doctors then use the devices to grind away plaque from inside the blood vessels – sort of a “Roto-Rooter” treatment that clears a diseased artery. For several years, Ev3 has sold tiny stents and balloons that doctors use in catheter procedures to squish plaque against artery walls, thereby treating blockages in the legs. But last year, the company acquired a leading atherectomy product called SilverHawk as part of its acquisition of California-based FoxHollow Technologies Inc. Ev3 officials said the product would give them access to an atherectomy market worth about $200 million in the U.S. alone in 2007, according to a regulatory filing last year. The markets for treating peripheral artery disease with stents and balloons, by comparison, were worth $635 million and $200 million respectively, the officials said. But about a month after the Ev3 merger with FoxHollow was announced, CSI received clearance from the Food and Drug Administration to sell its own atherectomy device, a product called Diamondback 360. Ev3 sued CSI over the circumstances surrounding the departure of 11 Ev3/FoxHollow reps for jobs at CSI between May and January. Among other things, Ev3 alleges breaches of confidentiality on the part of at least one sales rep who might have taken with him the names of Ev3’s “key opinion leaders” and “thought leaders” – labels the company uses to describe some of its best physician customers. Key opinion leaders are doctors who repeatedly have used Ev3’s atherectomy product and become believers in the technology, said Jeffrey Bouslog, an Ev3 attorney, during a court hearing in early January. Thought leaders are a small subcategory of the key opinion leaders, Bouslog said, who are paid to lead gatherings of physicians at which they demonstrate use of the product and explain its benefits versus those from other companies. The identity of the key opinion leaders is especially sensitive information in the realm of atherectomy procedures, Ev3’s attorneys said, because doctors tend to believe in either “squishing” plaque with stents and balloons or “cutting” it with atherectomy devices. “These are people that they would have to take, you know, years to develop … to figure out which ones like to use the technology or can be convinced to use the technology as opposed to using the squishing technology,” Bouslog said. Ev3 also claimed that at least one former employee breached their duties of loyalty by talking with customers about moving their business to CSI before the sales reps stopped working for Ev3. In one case, Bouslog described an e-mail exchange between a sales rep and a physician in which the doctor closed the message by writing, “Miss u tons.” “Give us a chance to get a rep in there to talk to that doctor, to establish a relationship with that doctor,” Bouslog said in arguing for a temporary restraining order. “These are deep personal relationships. You don’t say ‘Miss u tons’ at the end of an e-mail unless there is a pretty strong relationship.” Craig Brandt, an attorney for CSI, argued during that same hearing that Ev3’s lawsuit and request for a restraining order against CSI amounted to a heavy-handed use of the legal system to thwart legitimate competition. The former workers did not have no-compete provisions in their employment agreements with Ev3, Brandt said, so it’s perfectly legal for them to take jobs with CSI. (FoxHollow was based in California, and Brandt noted that non-compete contracts are unlawful and unenforceable under California law.) The court action amounts to an effort by Ev3 to inject such no-compete contracts into those employment agreements, he said. There was no strategy at CSI to “raid” employees, Brandt said. On the contrary, he said, newly hired CSI workers initiated talks about leaving Ev3 because they were dissatisfied with the changes taking place as a result of the merger. Brandt disputed the idea that CSI pressured Ev3 reps to make arrangements with doctors about taking the physicians’ business with them to new jobs at CSI. He noted that doctors make decisions about which device to use based on the best interest of any given patient, not the solicitation efforts by sales reps for various competitors. CSI officials say the products are not, in fact, competitors in treating some patients, because doctors might conclude that only the CSI device is appropriate. Finally, Brandt argued that the identities of the key opinion leaders were common knowledge in the industry and therefore not confidential information. “Putting aside for the moment the defective legal nature of plaintiff’s purported causes of action, this motion must be denied because plaintiffs have not demonstrated that they are in reality faced with immediate and irreparable harm,” Brandt wrote in a filing with the court. “Plaintiffs include very little discussion of substance as to the supposed injury with which they are imminently faced.” In January, Wheeler ruled that the identities of the top physician customers at Ev3 are confidential information. Wheeler said former workers subject to non-disclosure requirements should not disclose the identities of Ev3’s key opinion leaders and thought leaders to anyone, especially people at CSI. Wheeler denied Ev3’s request that the employees be prohibited from contacting those doctors. But the judge wrote that sales reps “must be able to trace, document, and account, with specificity, how they were able to identify such prospect through information, records, or documents obtained outside their employment with Ev3.” Wheeler also prohibited the workers from disclosing to prospective CSI customers confidential information obtained while at Ev3 about any shortcomings or deficiencies in their former employer’s product. But preventing the sales reps from working at CSI wasn’t necessary, Wheeler said. Legal actions such as the Ev3 lawsuit aren’t unprecedented and happen in a variety of industries, said Thomas Gunderson, an analyst with Piper Jaffray in Minneapolis. In 2006, for example, Boston Scientific won a temporary restraining order against Little Canada-based St. Jude Medical to stop the hiring of workers from Boston Scientific’s heart device division in Arden Hills. CSI filed paperwork in January to raise $86.2 million in an initial public offering of stock, and that filing indicates the company did “reasonably well” selling its product during the fourth quarter of 2007, Gunderson said. At the same time, he said, CSI’s sales were small compared to those for Ev3’s atherectomy product. The lawsuit demonstrates the importance of the sales force in selling health care products. “A lot of what goes on with medical technology, pharmaceutical and biotech companies has to do with the relationship – the trust level that the physician, the physician’s office and the hospital have with the individual rep,” Gunderson said. “If you’re a company and you think you’ve been wronged, it’s better to nip it in the bud than to go down a trail of continuing lost [market] share, and then raise your objection.” SOURCE: Twincities.com