Lenox MacLaren Surgical Corporation v. Medtronic, Inc. et al

Filing 53

ORDER Denying 30 Motion to Intervene by Medtronic Sofamor Danek USA, Inc. and 32 Defendants' Motion to Stay and Compel Arbitration, by Judge Richard P. Matsch on 5/5/2011.(rpmcd)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Senior District Judge Richard P. Matsch
Civil Action No. 10-cv-02139-RPM
LENOX MACLAREN SURGICAL CORPORATION
Plaintiff,
v.
MEDTRONIC, INCORPORATED, a Minnesota corporation;
MEDTRONIC SOFAMOR DANEK, INCORPORATED, an Indiana corporation;
MEDTRONIC PS MEDICAL, INCORPORATED, d/b/a
MEDTRONIC NEUROLOGIC TECHNOLOGIES, a California corporation; and

MEDTRONIC SOFAMOR DANEK CO., LTD.,
Defendants.

ORDER DENYING DEFENDANTS’ MOTIONS

Lenox MacLaren Surgical Corporation (“Lenox”) sued Medtronic Sofamor Danek
USA (“MSD USA”), a Tennessee corporation, in Civil Action No. 07-cv-02054-MSKKMT, alleging patent infringement, violation of the Colorado Consumer Protection Act,
and business disparagement/trade libel. In that action, the court granted the
defendant’s motion to stay and to compel arbitration pursuant to an arbitration clause
contained in an Exclusive Supply and License Agreement (“License Agreement”)
between Lenox and MSD USA dated April 15, 2000, which covered any dispute arising
out of or relating to the agreement. The parties agreed to arbitrate the entire dispute,
and in the demand statement Lenox claimed that MSD USA breached contractual
obligations under the License Agreement and that breach of the License Agreement
would negate the license thereby giving rise to patent infringement. Lenox also claimed

intentional interference with contract; fraudulent inducement to contract; fraudulent
misrepresentation and concealment; intentional interference with prospective economic
relations; violations of the Colorado Consumer Protection Act; business
disparagement/trade libel; fraud, and unfair competition.
The dispute was heard by a three member arbitration panel which issued a Final
Order and Award of Arbitrators, dated March 11, 2010. The Arbitrators found that the
License Agreement was not violated by MSD USA’s loaner program because it had the
right to make all marketing decisions during the one year of exclusivity. It also had the
right to name the product the “Sofamor Danek Bone Fragmenter” in marketing the
product by loaning the devices for use in more than 2800 surgical procedures.
Lenox claimed that MSD USA also breached the License Agreement by
producing and selling the “Midas Rex” bone mill as a competing product contrary to the
exclusivity provision. The Arbitrators rejected that claim by determining that the Midas
Rex was not “generally similar in design.”
Lenox did prevail on its claim of intentional interference with prospective business
relations by the issuance of a voluntary recall of the Lenox product in October, 2006, to
clear it out of the marketplace and replace it with the Midas Rex. The Arbitrators found
that Ron Moore, a sales executive for Medtronic Neurologic Technologies, an affiliate of
MSD USA, urged its sales force to call on the domestic customers immediately after the
recall as persuasive evidence of an intent to interfere with the business of Lenox by
clearing the Lenox bone mills out of the market and found that the recall was wrongful.
They said that the recall decision was made at an executive level without specifying the

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entity. They found that the Midas Rex bone mills had been produced and sold by an
affiliate Medtronic company.
To remedy the tortious interference, the Arbitrators awarded Lenox $246,000 in
damages based on the profits to “Medtronics” from the sales of the Midas Rex mills to
“former Lenox bone mill owners [sic].” Although the Arbitrators did not identify the
company making the sales, counsel has represented that the sales were made by
Medtronics PS Medical, Incorporated. The award with interest has been paid.
On September 1, 2010, Lenox filed this action for monopolization and attempted
monopolization of the “Surgical Bone Mill” market in violation of the Sherman Antitrust
Act, 15 U.S.C. § 2. The named defendants do not include MSD USA.
The named defendants are separate entities within a corporate complex.
Medtronic, Inc., a Minnesota corporation, is the overall owner of the various entities with
its executive office in Minneapolis, Minnesota. Its subsidiary, Medtronic Sofamor
Danek, Inc., an Indiana corporation, has its office in Memphis, Tennessee. MSD USA is
a wholly owned subsidiary of Medtronic Sofamor Danek, Inc. and is its operating entity
with its office in Memphis. Medtronic PS Medical, Inc. (“PS Medical”) is a California
corporation with its office in Minneapolis and is wholly owned by Medtronic, Inc.
Medtronic Sofamor Danek Co., Ltd. (“MSD Japan”) is organized under the laws of
Japan with its principal place of business in Osaka, Japan. It marketed Lenox bone
mills in Japan and reported the product failures that gave rise to the voluntary recall in
the United States. PS Medical is the company that manufactured and marketed the
Midas Rex bone mill.

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The named defendants filed a motion to stay this lawsuit and to compel
arbitration under the arbitration provision in the Agreement. MSD USA moved to
intervene as an additional party defendant under Fed.R.Civ.P. 24. Although these
motions are related, they are not interdependent. Granting the motion to intervene
would be adding support to the motion to compel arbitration because the broad
arbitration clause in the License Agreement includes all disputes between MSD USA
and Lenox arising out of or relating to the License Agreement which would include a
claim that MSD USA violated the Sherman Act. It and the named defendants contend
that the complaint alleges that MSD USA engaged in concerted conduct with the other
Medtronic entities to create the demand for a bone mill product by its loaning market
strategy and initiating the recall by claiming defective products in Japan and replacing
the Lenox mills with the Midas Rex products.
The simple answer to this motion to intervene is that the Arbitration Award
precludes any liability of MSD USA in this action, as the named defendants argued in
their motion to dismiss under Rule 12(b)(6). Because of claim preclusion, MSD USA
has no interest to be protected by participation in this action. That defense is not
available to the named defendants. Accordingly the motion to intervene is denied.
The named defendants seek to enforce the arbitration clause in the License
Agreement in their motion to stay and compel arbitration. There is authority supporting
enforcement by a non-party under circumstances where state law would permit the
movant to enforce the contract. Arthur Anderson LLP v. Carlisle, 129 S.Ct. 1896
(2009).

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The reciprocal obligations of Lenox and MSD USA to sell and purchase the
Lenox bone mills to a minimum of 500 ended after 12 months. MSD USA made no
additional purchases in the remaining 4 years of the term of the License Agreement
which expired on April 15, 2005. There is nothing in the License Agreement indicating
any intent to benefit any entity other than MSD USA, excepting that it had the right to
“assign the Agreement to Medtronic, Inc., or to any entity in which Medtronic, Inc., has a
direct or indirect ownership of at least fifty percent” under Section 13.3. There was no
assignment.
The recall was in October, 2006, and all of the conduct giving rise to the
complaint in this case occurred after that time, excepting, of course, for the placement
of the Lenox mills under the trade name Sofamor Danek Bone Fragmenter with those
“customers” to whom the Midas Rex would be marketed. The License Agreement
therefore relates to the antitrust claims only to the extent that the acquisition of the
Lenox bone mills provided the opportunity to develop a market which Medtronic PS
Medical exploited with the sale of the Midas Rex mills. As to the defendants in this case
the antitrust claims cannot be said to arise out of or relate to the License Agreement.
The moving defendants are unable to point to any provision of the License
Agreement that they could enforce against Lenox as a third party beneficiary or
otherwise. Indeed, Lenox had no enforceable obligation to MSD USA after April, 2001,
other than warranty indemnification and the arbitration clause all of which continued
after expiration. To permit the defendants to shield themselves from trial by invoking
the arbitration provision in the License Agreement would deny the plaintiff a fair
opportunity to present its claims to a jury.
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Upon the foregoing, it is
ORDERED that the motion to intervene by Medtronic Sofamor Danek USA, Inc.,
and the defendants’ motion to stay and compel arbitration are denied.
Dated:

May 5th, 2011
BY THE COURT:
s/Richard P. Matsch
________________________________
Richard P. Matsch, Senior District Judge

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