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COMPOSIFLEX, INC. v. ADVANCED CARDIOVASCULAR SYS.

May 21, 1992

COMPOSIFLEX, INC., Plaintiff,
v.
ADVANCED CARDIOVASCULAR SYSTEMS, INC., Defendant.



The opinion of the court was delivered by: GLENN E. MENCER

 Plaintiff Composiflex, Inc. ("Composiflex") initiated suit in February, 1991 against Advanced Cardiovascular Systems, Inc. ("ACS") alleging breach of contract and misappropriation of trade secrets. Composiflex is an Erie, Pennsylvania corporation while ACS has its principal place of business in Santa Clara, California. Presently before the court is a motion for summary judgment filed by Advanced Cardiovascular Systems, Inc. At the heart of the disagreement between the parties is a Development and License Agreement ("D&L Agreement") that the parties entered into on April 18, 1989.

 ACS is a medical device company that was primarily formed in the late 1970s to manufacture angioplasty products. Angioplasty is an alternative to heart bypass surgery. Plaintiff Composiflex was contacted in 1986 by ACS to determine whether Composiflex had continuous process technology in place to make a urethane coated guiding catheter less expensively. Apparently Composiflex had developed the technology for structures with properties similar to those that ACS required. In July, 1988 Composiflex and ACS decided to enter into a long-term contract whereby Composiflex would develop a technique to manufacture in a "continuous" process a large quantity of urethane guiding catheters. After numerous drafts had been negotiated, the final contract was executed in April, 1989, which was the Development and License Agreement.

 A key part of the D&L Agreement states: S

 a. Composiflex shall proceed diligently to develop fully a process to produce commercially Development Products comprising urethane coated vascular guiding catheters, and supply ACS with proof of its capacity to manufacture at least 900 such guiding catheters per week in accordance with the specifications set forth in Exhibit A no later than 9 months from the effective date of this Agreement. ACS shall supply Composiflex with reasonably necessary quantities of Kevlar/Teflon catheter subassemblies required by Composiflex to meet its obligations under this Agreement.

 b. Once ACS has made a determination that such guiding catheters supplied hereunder are clinically acceptable, ACS shall purchase, pursuant to standard ACS Purchase Orders, nine hundred (900) such guiding catheters per week from Composiflex for two (2) years.I

 ACS planned to compensate Composiflex for its work by paying it $ 148,500.00 for some of the development costs; $ 7.50 for each of the catheters that Composiflex manufactured for two years; and then a royalty of $ 2.00 per unit on each of the catheters that ACS manufactured for five years thereafter.

 In order for the plan to work, both parties were required to disclose confidential information to one another. ACS had to disclose to Composiflex how it made its braid assembly in order for Composiflex to be able to impregnate it with urethane and then coat over the urethane. For its part, Composiflex had to disclose the precise group of urethanes, the exact method of impregnating the braid with urethanes, and the method of coating over the impregnated braid.

 The project apparently ran into a number of snags which culminated in the critically important letter of October 18, 1990 from Tim Machold, an operations manager for ACS who was directing the guiding catheter program, to Alex Hannibal, the president of Composiflex. The letter stated: S

 Because of the future expenses, the size of available and budgeted resources, the need to support two guiding catheter product lines and discussing of these issues with management and staff we have chosen not to continue this project at this time. This seems to be a good point in the relationship to halt activity in that ACS knows very little of the technical details of the Composiflex process and has only performed heart model tests on the prototype to date. This limited exposure allows us to maintain mutual confidentiality which we feel is necessary.

 In the future, we are planning to automate a urethane guiding catheter process. At that time, having a better understanding of a clinically superior guiding catheter perhaps we could continue to use the services of Composiflex. It is my hope that you will understand the circumstance of forming a new group, focusing on higher priority projects and the lack of resources to devote to the current arrangement.

 I am sorry that my first contact with you had to be on these terms. Please call me to discuss this issue further at your earlier convenience.

 Sincerely,

 Tim Machold

 Operations Manager, ASGI

 Composiflex asserts that this letter from Tim Machold was a unilateral termination of the contract. ACS, on the other hand, describes the letter as a response to a demand for $ 28,000 additional dollars that Composiflex asked for in a letter dated September 30, 1990. ACS believes that "As a result of the demand for more money, ACS notified Composiflex by letter dated October 18, 1990 that it had "chosen not to continue this project at this time." (Defendant's brief in support of motion for summary judgment at page 4). This would, on the surface at least, appear to be a strained interpretation of the Machold letter, in that no reference is made anywhere in the letter to any demand for additional funds ...


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