Two Biomet subsidiaries are on the hook for some $2.7 million in royalty payments to a prominent spine surgeon it stopped paying in 2008, after a New Jersey appeals court upheld a lower court’s ruling in Dr. Neil Kahanovitz’s favor.
Kahanovitz, the former president of the North American Spine Society, sued Biomet units Electro-Biology Inc. and EBI LLC, winning a breach of contract claim on appeal in 2011. He’d inked a royalties deal worth $250,000 a year in 1992, but stopped actively consulting for them in YY, according to the decision by the New Jersey Superior Court’s Appellate Division.
The contract called for the payments to continue "during the term of this agreement and for so long as Kahanovitz is performing services within the agreement field," according to the appeals court, with the contract set to expire in November 2008.
"The issue is whether the annual $250,000 payment was due even after the November 30, 2008 date referenced in the 2004 Agreement so long as Kahanovitz continued to practice as an orthopedic surgeon," according to court documents.
The court agreed with Kahanovitz that the lower court was correct in considering the testimony of the Electro-Biology and EBI executives who made the deal with the surgeon, according to the documents. Then-EBI CEO James Pastena told the lower court that the agreement was meant to reward Kahanovitz for as long as he practiced in the spine surgery field.
"Pastena testified that the underlying purpose of the agreement encompassed a number of factors: ‘1) To take a leading light, a world renown figure . . . and lock him into the corporation . . . so nobody else could take advantage of his input’ and 2) ‘because of the exclusivity’ of the agreement, to ‘use him as an advisor’ more generally. According to Pastena, ‘this royalty was to continue for as long as he was in the practice of medicine’ and EBI ‘would have stated exactly if [it had] wanted it to end,’" according to the documents. "Pastena also testified that Kahanovitz’s consulting activities as previously defined would end on November 30, 2008, but that the royalty payments would continue so long as Kahanovitz was a practicing spine surgeon. The consulting agreement would be reviewed and modified at the end date if necessary. Pastena explained that as long as Kahanovitz ‘was working as a spine surgeon with his image, with his contacts, with his advice that’s how long this would last.’"
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