Contracts

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7^th Circuit Court of Appeals

Case Name: Thomas A. Russell v. Zimmer, Inc.

Case No.: 22-2529

Officials: Sykes, Chief Judge, and Rovner, and Lee, Circuit Judges.

Focus: Contracts

Russell, an orthopedic trauma surgeon who invented a range of products, including bone substitutes and surgical devices, was among a group of inventors who held shares in CelgenTek, a medical device company. These inventors hailed Russell’s creations as game-changing innovations in the orthopedics field.

In 2015, the group of inventors, referred to as the “Inventors,” entered into an agreement with Zimmer, granting Zimmer exclusive distribution rights for specific CelgenTek products. At the time, CelgenTek was facing severe financial difficulties. Zimmer initially acquired a 10% ownership stake in CelgenTek for $2 million and later acquired the remaining 90% in 2016. As part of the agreement, the Inventors retained the right to receive a percentage of the net proceeds from the products they had developed, referred to as “earnout products.” Zimmer committed to using “Commercially Reasonable Efforts,” as defined in the Agreement, to market and sell these earnout products.

Between the date of the agreement and the year 2019, Zimmer disbursed approximately $130,000 to the Inventors as earnout payments. However, the Inventors initiated a lawsuit, alleging that Zimmer had failed to fulfill its obligation to use Commercially Reasonable Efforts.

The Seventh Circuit Court upheld the decision that the Inventors had not presented a valid claim. Many of the 21 actions and inactions that Zimmer was accused of were based on the Inventors’ expectations of how Zimmer should have marketed and sold the earnout products, or what the Inventors themselves would have done had they retained control over sales. Other allegations revolved around alleged promises made by Zimmer before the agreement’s signing, which were not actionable due to the presence of an integration clause within the agreement.

Affirmed.

Decided 09/21/23

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