Most trade disputes between medical device companies involve intellectual property (IP). While the conflict between LightLab and Volcano is relatively small compared to others in the medical device industry (e.g. check out last year’s $1.7B battle between Boston Scientific and J&J), the lessons to be learned are large.
Briefly, Volcano is developing a competing product to LightLab’s OCT system, and accelerated their program by purchasing LightLab’s laser supplier Axsun. The dispute involves allegations of patent infringement, unauthorized disclosure of confidential information, and contract performance issues.
At the end of January, both LightLab and Volcano issued press releases claiming victory in the most recent rulings. Eric Swanson, LightLab co-founder and editor of Optical Coherence Tomography News, just posted an entertaining summary of the recent court documents. Despite these rulings, the legal skirmishes will continue, and the only safe prediction is that the lawyers will be the winners.
What are the lessons learned?
1. Implement supply agreements. Without a supply agreement in place, Volcano/Axsun could have simply cut off LightLab’s supply of lasers – yikes! Before you do anything else today, ask yourself if you have the right supply agreements in place with your key vendors. Supply agreements should commit your vendor to providing an ongoing supply of components, with acceptable cost, quality and delivery terms. You may want exclusivity too, at least for some field of use. To get ongoing supply, you’ll probably need to commit to being an ongoing purchaser, with minimum quantities and agreed-upon payment terms. Don’t skimp on solid legal advice on the contract, as there are dozens of terms that need to be worked out (like the one that keeps the contract in force even if the supplier gets a new owner).
2. Don’t be sloppy with confidential information. Ensure that appropriate non-disclosure agreements are in place, that confidential information is appropriately documented and labeled, and that confidential information is shared only to the minimum extent necessary.
3. Winners compete successfully on many fronts at once. Typically we think of competition as a marketplace activity – price, features and support. Winning in the marketplace is imperative but not sufficient. Competition over IP is extremely common in medical devices, so we spend lots of money building and enforcing patent portfolios. LightLab/Volcano illustrates another front – competition over control of key vendors. Competition over distributors can be equally fierce (at Candela, we locked up the best international distributors long-term). Competitors sometimes try to influence government policy and regulations (such as reimbursement rulings or FDA guidance) in their own favor. Competition is tough, so be proactive – use Michael Porter’s Five Forces framework to identify the your competitive fronts, and make sure you have a plan for each.
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