There’s more bad news afoot for for now-bankrupt Innovative Spinal Technologies. A pair of doctors is suing the Mansfield, Mass.-based implants maker for fraud and breach of contract.
The lawsuit, filed in U.S. District Court for the Northern District of New York by Creative NeuroScience Applications LLC, accuses IST and former CEO Scott Schorer of breaching an agreement to license a patent developed by doctors Frank Boehm Jr. and Benedetta Melnick for percutaneous placement of spinal screws and connecting rods.
According to the suit, the parties signed an agreement for IST to license the patent on the last day of 2004, after Schorer and IST said they planned to incorporate the technology into an IST device, obtain the necessary approvals, put it through clinical trials and get it to market.
In return, IST agreed to payments totaling $610,000 and a schedule of milestone payments totaling $2.4 million, pegged to achieving certain revenue goals.
The agreement also called for IST to pay out the balance of any unpaid milestone fees “within 30 days of the closing of such consolidation or merger or reorganization or such sales of assets or stock,” according to the complaint.
But IST and Schorer “diverted the funds and squandered its money to projects other than those for commercializing” the patent, according to the complaint, despite assuring Boehm and Melnick that “funding received by outside investors and entities would be devoted in significant portion, if not entirely, toward development, promotion, and marketing of the technology.”
“The funds” refers to the reported $75 million IST raised in venture capital funding.
CNA wants a jury to decide if it is owed any damages, void the contract with IST and restore its patent assignment.
Schorer told MassDevice that he couldn’t discuss the case in detail because it’s active litigation.
“We followed the terms of the agreement and did not misrepresent any aspect of the assignment arrangement,” Schorer said. “We put a significant amount of resources into commercializing IST’s technology, which included the Boehm-Melnick concept. We paid all fees on time or ahead of schedule and look forward to resolving this matter in court.”
IST filed for bankruptcy in May after seven years of operation.