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Orthopedic and Dental Industry News Complete Archive »

Troubling Consistency at Sofamor Danek BY ROBIN R. YOUNG CFA, OCTOBER 25, 2004

Two whistle blower lawsuits in the last 13 months. Two court rulings in favor of Dr. Gary Michelson's claim that Sofamor Danek infringed his property rights. A court ordered permanent injunction against Sofamor Danek last month in a patent case. Five cases, three rulings, one troubling, consistent theme. Ethics.

Angry former employees or customers can claim all kinds of things. Every solid corporate citizen has had one or two rogue employees that bend or break the rules. And when we see such things, they catch us by surprise because we know these events are rare and typically don't reflect the true culture of these companies.

This was the case when the first Whistle Blower case against Sofamor Danek was announced in September 2003 and that was still the case when the second one was announced earlier this year. Then, the first Michelson ruling for $100 million was announced a couple months ago. Not good. Then the second one for $400 million was announced three weeks ago. Is a pattern emerging? Then the permanent injunction regarding Cross Medical's (now Biomet) pedicle screw patents two weeks ago. What is going on at Sofamor Danek?

Sofamor Danek is the largest supplier of spinal implants in the world. It is a division of Medtronic, Inc., one of the most admired medical product companies in the world. In response to the Whistle Blower lawsuits against Sofamor Danek, Medtronic announced that a special committee of its Board of Directors has been formed to conduct an independent inquiry into these kick back allegations.

What will they announce in response to the intellectual property rulings? The Cross Medical ruling was especially curious. Cross Medical had originally sued JNJ's DePuy Spine division. That case took almost five years and entailed more than one lawsuit. JNJ spent millions of dollars trying to prove that the patents in question either were invalid or didn't apply. Cross Medical, a company whose annual revenues would qualify as petty cash for JNJ, prevailed. They prevailed, not by outspending JNJ or out maneuvering JNJ. They won because their patents are strong and their argument was valid. Before the final court ruling, JNJ reached a license agreement with Cross Medical. Five other companies have since sought and received license agreements from Cross Medical (now Biomet). Sofamor Danek chose to fight even after the JNJ experience.

What were they thinking? That they knew something JNJ or the five other companies didn't? Or perhaps the senior executives at Sofamor Danek didn't respect Cross Medical, the court's five years of study on this issue or the caliber of the combatants. Whatever the reasoning, the outcome was more than a hand slapped. It was a permanent injunction. No other firm received such harsh treatment from the court.

Every company, large and small, confronts questions of ethical responsibility. How employees behave when facing such decisions depends on many factors not the least of which is their corporate culture. Originally, the Sofamor Danek culture was built around meeting the needs of a small but growing community of spine surgeons. And early in its development, the company faced a make or break test in the Pedicle Screw lawsuit feeding frenzy. It could have taken the easy way and settled with the cabal of Philadelphia lawyers. But to do so would have abandoned their surgeon base. The company chose not to and faced the possibility of bankruptcy if it lost. It fought every lawsuit. It won every lawsuit. To this day, that decision and the loyalty it implied is returned by spine surgeons throughout the U.S.

Most of the senior executives who lived through those times are gone. Ron Pickard, the CEO during those times, retired and still lives in the Memphis area. Others have left to join Wright Medical, NuVasive, MedWave and other firms.

What is the Sofamor Danek corporate culture today? Certainly the firm is much larger than it was when Ron sold it to Medtronic. And now that it is part of the massive Medtronic organization, the culture has no doubt changed. However, in light of these recent rulings, we have to ask the question; at Sofamor Danek, when confronted with issues of ethics, which matters more, market dominance or market leadership?

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