First, thanks to Seth for allowing me to guest post during his absence. For more on me, please check here.
Now, on to the main topic. The medical device industry is well-known for the competition between companies for good sales talent. Judge Susan Richards Nelson has penned a textbook example of how to analyze a motion for a preliminary injunction in a non-competition case in her decision earlier this month in Boston Scientific Corp. v. Kean and St. Jude Medical S.C., Inc.
The case is in many ways a typical non-compete dispute in the medical device industry. Kean worked as a sales representative for Boston Scientific from 1999 until January 2011. In that role, he signed a non-competition agreement which state that he could not “sell, solicit the sale of, support the sale of, support or supervise the sale or implantation or other use of, or otherwise have any involvement whatsoever with the sale, manufacturing, research and development, marketing or other business aspect of any Competitive Product.” Significantly, the restrictions were limited to customers with whom Kean had worked during the preceding 12 months.
Kean resigned from Boston Scientific to take a similar position at competitor St. Jude Medical. Within days of his resignation, Boston Scientific sent him a letter reminding him of his non-compete agreement, and listing 74 providers and 14 hospitals at which he had worked during his last year of employment that he was barred from calling on. When mediation failed, this lawsuit ensued.
Judge Nelson relied on the four familiar Dataphase factors in her consideration of Boston Scientific’s motion for a preliminary injunction. She first analyzed plaintiff’s likelihood of success on the merits, noting that this does not require a showing that there is a greater than 50 percent likelihood that it will prevail, but only that it has a “fair chance of prevailing” and that its claims provide a “fair ground for litigation.” Because a non-compete must be reasonable to be enforced, the Court’s primary task was to consider whether Boston Scientific’s non-compete with Kean was reasonable; i.e., whether whether the restraint is necessary for the protection of its business or customer goodwill, and whether it is narrowly tailored (in terms of time and geography) to adequately protect those interests.
In the medical device industry, many courts have recognized that non-compete agreements may protect an employer’s important and legitimate interests in long-term customer relationships, especially because sales representatives are provided with significant technical and clinical knowledge and typically work very closely with the physicians implanting the devices (including providing technical assistance in the operating room during the implantation procedures). Here, the Court concluded that Boston Scientific’s agreement was narrowly drawn because it applied only to customers with whom Kean had worked in the last year of his employment and only to products that he had actually sold. As such, the agreement was reasonable and enforceable, and based on the facts of the case there was sufficient evidence to establish a likelihood that Kean had breached the terms of his non-compete.
The Court next considered the second Dataphase factor: irreparable harm and the inadequacy of legal remedies. Recognizing that Minnesota courts have consistently held that irreparable harm may be inferred from the breach of a valid non-compete agreement if the former employee obtained a personal hold on the customer good will of his former employer, and because customer relationships in the medical device industry are developed over significant time periods with substantial investment of training and clinical support, Judge Nelson found that Boston Scientific would face irreparable harm to those relationships if Kean continued to violate his non-compete.
Finally, the Court dispatched the remaining two Dataphase factors quickly: on the balance of harms analysis, it found that Kean could still sell medical devices to doctors and hospitals not included on the restricted list, and that his compensation from St. Jude would not be affected by the restriction. And because the public interest favors enforcement of valid agreements and the protection of legitimate business interests, this fourth factor also supported enforcement of the agreement.
For those who are looking to understand how a Court will analyze a motion for preliminary injunction to enforce a non-compete agreement, Judge Nelson’s opinion in Boston Scientific Corp. v. Kean and St. Jude Medical S.C., Inc. provides an excellent starting point.