Two companies entered into an exclusive distribution agreement for a medical bed that was marketed to hospitals and long term care facilities. The agreement contained a provision automatically extending the exclusivity period if the distributor agreed to purchase at least $200,000 of beds in 2011. Though the CEO of the distributor orally agreed to purchase $800,000 worth of beds in December 2010, the manufacturer still attempted to cancel the agreement six months later and enter into an exclusive agreement with a competitor of the distributor. The court found that damages from this breach were foreseeable and consequential under New York law, and awarded the distributor just over $1 million as a result.
VitalGo manufacturers a hospital bed called the Total Lift Bed that can incline to a near 90-degree angle with the occupant harnessed and upright. The bed is used by hospitals when treating obese and elderly patients. The most expensive models of the bed can exceed $10,000. Kreg Therapeutics, Inc. sells and rents specialty medical equipment to medical providers. It sought a distribution arrangement with VitalGo for the beds.
The companies negotiated and entered into an agreement in December 2009. Kreg received exclusive distribution rights in Indiana, Illinois, Wisconsin, and Atlanta, Georgia. The exclusivity lasted until 2011, but the contract provided for an extension of the period. Kreg could obtain an extension by choosing to make a minimum purchase commitment of $200,000 in each of its four territories before January 2011. If Kreg did so, the exclusivity period automatically extended for an additional year. Six months after signing the initial agreement, the two companies added an amendment. The amendment granted Kreg exclusivity in several new territories, including parts of Florida, New Jersey, and St. Louis, Missouri. Kreg gained exclusivity in these territories through May 2012. The amendment did not, however, specify whether the new date applied to the original territories as well.
In June 2011, Ohad Paz, VitalGo’s CEO and Managing Director, emailed Craig Poulos, Kreg’s President, complaining that Kreg had not performed under the contracts as required to maintain exclusivity. Kreg responded that it was willing to make minimum purchase commitments for the remainder of 2011, but that it wanted an update on design problems that Kreg had raised with VitalGo. A week later, RecoverCare, a competitor of Kreg, issued a press release announcing a nationwide exclusivity arrangement for the TotalLift bed. VitalGo and RecoverCare entered into a multi-year agreement in August 2011. In September 2011, Kreg requested five new beds from VitalGo, and VitalGo refused to fill the order. Kreg then filed suit. Continue reading ›