A Seattle-based start-up that developed and sold retained surgical sponge detection systems.
The client’s exclusive distributor, a multi-‐billion dollar medical products distribution company, sued the client for breach of contract. The distributor was represented by a large firm with multiple lawyers assigned to the case.
The client believed the lawsuit was really an effort by the distributor to force the company to sell its technology to the larger distributor. By failing to distribute the product as promised, the distributor was bleeding the client of its cash, and had sued as a preemptive strike. The client had limited resources to fight the suit, but the suit was “bet the company” litigation from Client’s perspective.
After our investigation, we agreed to a fixed fee/contingency fee hybrid where the contingency portion could be converted at a multiple to warrants in the company. Two partners led the case. We counseled the client on expanding its distribution network based on the plaintiff distributor’s termination of the exclusivity arrangement, developed a strategy for dealing with the original distributor’s threats to new distributors, advised the client to terminate the original distributor agreement and then filed a counterclaim based on patent and trade secret claims because the original distributor continued to sell the client’s products it had retained in inventory.
The fee agreement allowed the client to mount an aggressive defense of the original claim. After the counterclaim was filed, the case settled on terms more favorable than if the client won all issues at trial. The client was able to renegotiate a far more favorable non-‐exclusive contract, allowing it to expand its business far more quickly than it expected.