Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION-D. Minn.: Preliminary injunction barring termination of medical laser supply agreement denied, (Dec 29, 2014)

By Linda O’Brien, J.D., LL.M.

The federal district court in Minneapolis has denied a motion for preliminary injunction by a supplier of medical laser equipment in its action against a laser equipment manufacturer over the termination of the parties’ supply agreement (Wave Form Systems, Inc. v. AMS Sales Corporation, December 22, 2014, Montgomery, A.).

American Medical Systems (AMS) manufactures medical devices, including the “GreenLight” brand laser equipment used in the treatment of certain prostate afflictions. Through its subsidiary, AMS Sales Corporation, AMS sold the lasers either directly to health care providers or through a network of Mobile Service Providers (MSPs). In 2012, Wave Form Systems, an Oregon supplier of laser equipment to health care providers, entered into a Mobile Provider Agreement (MPA) with AMS to become part of its network. The MPA required MSPs to purchase a post-warranty service plan, established non-competition obligations, and provided a termination date of December 31, 2014. The MPA also included a choice of law provision designating Minnesota as the governing law.

Subsequently, the business relationship between Wave Form and AMS soured and Wave Form was informed that it would not be authorized to offer GreenLight laser services after December 31, 2014. Wave Form filed suit, seeking a declaratory judgment that it was a franchisee under the Minnesota Franchise Act (MFA), the termination of the MPA would violate the MFA, and AMS violated the non-competition clause of the MPA. Wave Form then moved for preliminary injunctive relief to enjoin AMS from ending the MPA on December 31, 2014.

Irreparable harm. The court determined that Wave Form did not demonstrate the threat of irreparable harm in the absence of relief. According to the court, AMS was exempt from the MFA’s registration requirement, since the alleged offer or sale of a franchise to Wave Form was to a resident that was not domiciled, actually present, or operating in Minnesota, and the sale did not violate Oregon law. Any harm resulting from lost profits due to Wave Form’s inability to offer GreenLight services was not irreparable and could be readily compensated with money damages. Evidence of harm to Wave Form’s reputation, goodwill, and customer relationships was insufficient to warrant injunctive relief because Wave Form was able to continue to provide “top quality” service in its non-GreenLight laser treatment services, which constituted 80 percent of the procedures Wave Form provided.

Likelihood of success on the merits. Wave Form did not show a “fair chance of prevailing” on its claims that the MFA would be violated if the MPA expires on December 31, 2014, since AMS failed to provide the required notice of non-renewal. The court noted that the MFA was intended to protect franchisees located within Minnesota. Moreover, it was unclear that the required purchase of post-warranty service plans constituted a franchise fee since the plans had a reasonable business purpose.

Balance of harms. The balance between the irreparable harm to Wave Form and the injury caused by granting the preliminary injunction weighed in favor of AMS. The court noted that Wave Form was aware for months that the MPA would terminate according to its own terms and had sufficient time to adjust to a business environment that did not include its agreement with AMS. Although AMS might receive some financial gain if the MPA was extended, the benefit was counterbalanced by harm caused by forcing the parties to remain in an undesirable business relationship.

Public interest. Finally, the public interest factor weighed in favor of AMS. In rejecting Wave Form’s contention that the MFA should alter a contract term that was agreed upon when the agreement was executed in 2012, the court concluded that the express termination clause of the MPA should be honored and the parties obligations under the agreement will end on December 31, 2014.

The case is No. 14-3976.

Attorneys: Karla M. Vehrs (Lindquist & Vennum PLLP) for Wave Form Systems, Inc. Kirk W. Reilly (Gray Plant Mooty Mooty & Bennett, PA) for AMS Sales Corporation and American Medical Systems, Inc.

Companies: Wave Form Systems, Inc.; AMS Sales Corporation; American Medical Systems, Inc.

Cases: FranchisingDistribution MinnesotaNews