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Following Trade Secrets Litigation

Boston Scientific settles controversial Trade Secrets Lawsuit

According to Medical Product Outsourcing, Boston Scientific settled a lawsuit with ECRI Institute. See paragraph below:

With a Dec. 3 trial date fast approaching, Boston Scientific and the ECRI Institute have settled a potentially controversial lawsuit that could have spotlighted efforts by Boston Scientific and other medical device companies to keep the prices of their major products secret. No terms were disclosed. ECRI, a nonprofit consulting and market research firm based in Plymouth Meeting, Pa., collects data on medical device prices from more than 400 hospital clients and, in return, discloses to them the average and lowest-selling prices for each product. The hospitals use the information as a tool in negotiations with the companies. Boston Scientific had said that ECRI illegally disclosed its trade secrets. It also argued that ECRI interfered with its business relationships by inducing hospitals to violate sales contracts that require the hospitals not to disclose the prices they pay for Boston Scientific’s heart defibrillators and other devices. The lawsuit had drawn attention to arguments that the secrecy in device pricing has contributed to rising costs. Sen. Charles E. Grassley, Republican of Iowa, has introduced legislation that would require the device industry to disclose average prices on a quarterly basis starting in 2009. Jeffrey Lerner, the chief executive of ECRI, declined to comment on whether the settlement would require ECRI to change its price consulting service.

This is an interesting case for a few reasons:
(1) are the Boston Scientific prices truly protected by trade secrets law? Does publication to third parties (the hospitals) of the prices negate any trade secret protection Boston Scientific might have in the prices, even though it is alleged that, by contract, the hospitals were not allowed to divulge the price information? In other words, is a contractual term not to divulge the information a reasonable attempt to preserve the confidentiality of the information?

(2) did ECRI do anything wrong if it acquired the information from third parties who were obviously willing to give up the information (ECRI was under no obligation to keep the trade secrets of Boston Scientific confidential)?

(3) is ECRI liable for inducing breach of third party contracts held by Boston Scientific when the third parties have only divulged alleged trade secret information but have not breached the contract in any other way (by refusing to purchase the product, for instance)?

(4) does this type of secrecy hinder the marketplace from performing optimally? Are hospitals paying too much for these devices and are those costs being passed on to the consumer?

It’s too bad that this case was settled because these are compelling issues.


November 26, 2007 - Posted by | Intellectual Property, Trade Secrets | ,

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