Spine-product rivals now battle in court

It's the American dream to go out on your own and build a company, but it's the American reality that you can end up in court over it.

David Paul headed development of spine products at a Chester County orthopedic-device company when he resigned in 2003 to create a rival enterprise.

Now his growing firm, Globus Medical Inc., is on trial in federal court in Philadelphia, accused by Paul's former employer, Synthes (USA) L.P., of benefiting from the use of trade secrets and confidential information, including product designs, manufacturing methods and regulatory strategies.

At stake are tens of millions of dollars in damages sought by Synthes, which has North American headquarters and 1,400 employees in West Chester.

Globus and the three executives on trial contend they have done nothing wrong. In thousands of pages filed in the three-year-old lawsuit, Globus also accuses Synthes of defamation, trade libel, interference with prospective contractual relationships, and unfair competition.

A civil jury began hearing testimony yesterday in the courtroom of U.S. District Judge Lawrence F. Stengel, which was packed with dark-suited attorneys.

"In a word, they cheated," attorney Kevin M. Flannery said in an opening statement for Synthes, which is represented by the Center City law firms Dechert L.L.P. and Blank Rome L.L.P.

Synthes contends that Globus improperly used resources and information that Paul and Synthes employee Richard Kienzle obtained while working at Synthes, unlawfully recruited its employees, and improperly misappropriated and passed off Synthes' products as its own.

One of three Globus defendants on trial, Lawrence Binder, is accused of downloading 2,300 computer files that were electronic blueprints for Synthes products.

"Mr. Binder admitted he downloaded at least some of them onto a CD," Flannery told jurors, noting that Binder said he had since misplaced that CD.

"The reason Globus is successful has nothing to do with taking trade secrets," defense attorney John P. McShea countered in an opening statement. Globus and its executives are represented by McShea Tecce P.C. and Conrad O'Brien Gellman & Rohn P.C.

"They devised a way to do this business better, smarter. The reason Globus was formed in the first place was, ideas that David Paul brought to Synthes were rejected," McShea said.

The defense portrayed Synthes - the No. 3 maker behind Medtronic Inc. and Johnson & Johnson in the $4.2 billion spinal-implant market - as an "old established" company out to squelch a successful newcomer.

As for product designs Synthes says Globus stole, McShea argued that they can be found in standard engineering textbooks or on the Internet. "This is not confidential information," he said.

Paul left Synthes because his entrepreneurial ideas for doing things were rebuffed, the defense said.

"We're innovative. These defendants aren't cheats," McShea said. "This is a Goliath vs. David - the David being David Paul."

Globus has grown rapidly to 180 employees in Audubon, Montgomery County, and a 300-person sales force, a 133,000-square-foot technology and fabrication facility, and revenue of $82 million last year. The firm claims on its Web site to be the largest privately held spinal-implant manufacturer in the United States.

A native of India, Paul came to the United States in the early 1990s. After getting a master's degree in mechanical engineering from Temple University, he joined Synthes Spine in Paoli. "It was recognized early on, this guy had talent," McShea said. "He's the genie who got out of the bottle. They may regret they ever let him go."

Synthes attorney Flannery painted a far different picture of Paul and the Globus team.

Four months before leaving Synthes, in September 2002, Paul convened a "secret meeting" at his home to show slides and a "detailed plan" for competing with Synthes, Flannery said.

"He put together a secret group of employees" who had at "their fingertips" confidential Synthes documents. With ideas they had "conceived of" at Synthes, they left and filed patent applications.

Some employees who joined Globus had "noncompete agreements," promising not to work for a competitor for a year. Others, like Paul, had "confidentiality agreements. They broke those agreements," Flannery asserted.

Synthes salespeople converted business from doctors and hospitals to Globus while still Synthes employees, he said. Sales personnel also switched Synthes with Globus products in hospitals before they left. "The result was the immediate conversion of millions to Globus' business, practically overnight," Flannery said.

Eleven of Globus' first 12 product-development engineers came from Synthes. One, Bill Rhoda, was in charge of a "spacer" device that goes between disks in the spine. When Rhoda left, he told Synthes he was joining his father's trucking company, but instead went to Globus, Flannery said.

Globus' first product, titanium spacers, was approved by the FDA in July 2003, a few months after Globus opened its doors. Synthes contends that Globus got such quick regulatory approval because it took Synthes' detailed safety-testing plans and copied word for word 510(k) filings that contained some trade secrets.

Synthes (USA) L.P.

Headquarters: West Chester.

Business: Provides instruments and implants to U.S. hospitals; parent company is publicly held.

2006 revenue: $1.48 billion.

Founded: 1974.

Employees: 8,451 company-

wide as of Dec. 31.

CEO: Michel Orsinger.

Globus Medical Inc.

Headquarters: Audubon, Pa.

Business: Spinal-implant devices; privately held.

2006 revenue: $82 million.

Founded: March 2003.

Employees: 180, plus sales force.

CEO: David Paul.

SOURCES: Companies listed, Bloomberg NewsEndText