Synthes Accuses Stryker of Raiding Sales Staff

Michael Russell should have known better. The career salesman has always played by the rules, remaining loyal to his employers and avoiding unethical behavior. He is well-versed in the intricacies of non-compete clauses and sales contracts. Russell clearly knows the difference between right and wrong.

Yet he still chose to engage in unethical—and possibly illegal—activity after resigning from Synthes Inc. last summer, charges a lawsuit recently filed by the Swiss maker of trauma devices. The suit accuses Russell and former Synthes sales representatives Jonathan Sassani and Kristen Phillips-Cheng of misappropriating trade secrets and breaching their contractual and fiduciary obligations to the company. The complaint filed in U.S. District Court in Philadelphia, Pa., by West Chester-based Synthes USA Sales LLC also names as a defendant Stryker Corp., which hired the trio to sell nails, screws, plates, other devices and tools to fix broken bones. Synthes claims its rival hired Russell, Sassani and Phillips-Cheng to boost its presence in northern California’s biomedical sector, worth an estimated $114 billion, according to the California Healthcare Institute. “Immediately prior to Russell, Sassani, and Phillips-Cheng’s resignations, Stryker had little presence in the northern California territories…” Synthes’ lawsuit states. “More specifically, Stryker’s contract with a major, independent distributor of products, called Bioinitiatives, expired, and Stryker was looking to regain its business presence in the region. Accordingly, Stryker decided to raid Synthes’ business by hiring multiple [Synthes] sales consultants and…disregarding all obligations owed to Synthes.”

After resigning from Synthes (between Aug. 31 and Oct. 3), Russell, Sassani and Phillips-Cheng immediately began working for Stryker and soliciting former customers, Synthes contends. Russell, in particular, began wooing clients while he was still working for Synthes but had already accepted a position at Stryker, the lawsuit claims. The Corte Madera, Calif., resident also allegedly criticized his former employer to win new business, and—on at least one occasion—convinced doctors to use Synthes devices to complete a surgery on behalf of Stryker. Such behavior violates the non-solicitation agreement Russell and his colleagues signed when they began working for Synthes.

Similar allegations are levied against Sassani, a San Francisco, Calif., resident. He is accused of contacting at least one former Synthes customer by text message to set up a business meeting and soliciting former clients in his new role at Stryker. The non-solicitation agreements he, Russell and Phillips-Cheng (of Menlo Park, Calif.) signed with Synthes prevents them from disclosing “highly proprietary and trade secret information, including customer lists” and soliciting customers (current or prospective) for a year after leaving Synthes. The agreements also prohibit the trio from recruiting other Synthes employees to join competitors.

“Since their resignations, and despite Synthes’ reminders of their obligations to Synthes, Russell, Sassani, and Phillips-Cheng are routinely soliciting customers with whom they had direct dealings and coverage responsibilities while employed by Synthes,” the lawsuit states. “In so doing, [Russell, Sassani and Phillips-Cheng] are using and/or disclosing Synthes’ confidential and trade secret information, thus depriving Synthes of its competitive advantage.”

Neither Stryker nor Synthes is commenting on the lawsuit. Blank Rome LLP attorney Anthony Haller vocalized Synthes’ formal position on pending legal cases to The Philadelphia Inquirer, telling the newspaper that Synthes “does not comment on pending litigation.” Haller is leading two Synthes lawsuits against former sales representatives.

Based in Solothurn, Switzerland, Synthes develops and manufactures instruments, implants and biomaterials used to fix broken bones and damaged soft tissue. Late last year, the company’s shareholders approved a $21.3 billion takeover by New Brunswick, N.J.-based Johnson & Johnson. Synthes holds a significant portion of one of the medical-device industry’s biggest markets—the repair of broken and diseased bones. Often, the plates, screws and other orthopedic implants that Synthes developss are used in emergency and mandatory surgeries rather than elective ones.

As populations age and incomes rise in emerging economies, demand for these devices is expected to grow substantially, analysts have said. In 2010, Synthes’ net sales jumped 8.6 percent to nearly $4 billion. North American sales rose 4.6 percent to $2.1 billion, while Asia-Pacific sales increased 19 percent to $424 million. A merger with Synthes would give J&J a nearly 28 percent share in the orthopedic-devices market, double that of second place Stryker, according to Wells Fargo Securities. J&J executives consider this $30 billion market among the industry’s most attractive, and told investors in 2010 that it is growing 6.4 percent annually, more than a percentage point faster than medical-equipment sales overall.