Zimmer can’t shake Stryker poaching charges

Zimmer Holdings

Zimmer (NYSE:ZMH) can’t shake a lawsuit filed by Stryker (NYSE:SYK) alleging a scheme to poach sales reps from Stryker’s operations in Las Vegas and Arizona, a federal judge ruled yesterday.

Stryker sued Zimmer and a spate of former employees in April 2011, accusing its arch-rival of devising a scheme to "create an instantly successful spine organization, with all of the hard-earned customer relationships and highly trained sales management and employees enjoyed by Stryker Spine," according to court documents.

"Zimmer’s scheme is simple. Using the recommendations of former Stryker Spine sales leaders it previously recruited, Zimmer first identified high-potential Stryker employees – who each had strict contractual obligations not to directly or indirectly solicit other Stryker employees to leave their employment – and induced them to breach these contractual obligations by asking them to gauge their co-workers’ initial level of interest at an ‘opportunity’ with Zimmer," according to the documents. "Once these trusted ‘ringleaders’ planted the bait, Zimmer would make contact with the new Stryker recruits, offering significant salary increases and additional perks to capture the attention of employees who had no prior contact with or interest in working for Zimmer."

The alleged scheme led to the loss of "nearly 2 entire sales branches," Kalamazoo, Michigan-based medical device company Stryker claims, adding that it expects to lose million in sales from the alleged poaching.

Zimmer asked Judge Dennis Cavanaugh of the U.S. District Court for New Jersey for summary judgment on a variety of the charges for both the Warsaw, Ind.-based firm and for the individual defendants. But Cavanaugh left the bulk of the case intact, ruling that Zimmer and its co-defendants must face a jury over charges that the company stole trade secrets and the individual defendants breached their contracts. Cavanaugh dismissed charges that were duplicative of the core trade secret theft and breach of contract claims.

"The evidence indicates that Zimmer hired Stryker’s employees en masse for the purpose of securing Stryker’s customers. The targeting of the Las Vegas and Arizona branches, and the coordinated switching of clients to branch managers, leaves a fact question as to Zimmer’s intent to interfere with Stryker’s prospective economic advantage," the judge wrote. "As to Stryker’s reasonable expectation to this advantage, the facts tend to show that had it not been for the actions of Zimmer and the coordinated individual defendants, Stryker would not have lost the customers they had, nor would they have lost the profits they did."

"Stryker has presented evidence that its employees, at both the Las Vegas branches and Arizona branches, were approached by Zimmer employees and they subsequently left the employ of Stryker to work for Zimmer," he wrote. "Stryker has presented sufficient evidence to create a question of fact that is proper for jury determination.

"Plaintiff has presented sufficient evidence such that a reasonable jury could conclude that Zimmer ‘knew or had reason to know that the trade secret was acquired by improper means,’" the judge wrote. "Based exclusively on the commutations [sic] between Zimmer and Stryker employees and the timing of the mass resignation, there is clearly a question of fact as to whether Zimmer acted intentionally."

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