Contract due diligence is a critical task that should never be taken lightly. And while ensuring an NDA is properly signed may seem like an administrative task, understanding the rights and authority of the signature holders requires close scrutiny. This is the lesson that Protégé Biomedical learned the hard way in their dealings with Z-Medica, a competitor partially owned by the private equity firm DW Healthcare Partners.1
Protégé Biomedical, a company in the blood products space, had matured to a point where they were ready to sell and engaged the financial advisory firm Duff & Phelps. Z-Medica was identified as a potential buyer, and discussions were initiated with the help of Doug Schillinger, a managing director at DW Healthcare Partners and a member of Z-Medica's board of directors. After negotiations, an NDA was prepared on behalf of Z-Medica by Duff & Phelps and signed by Schillinger.
In the subsequent discussions, Protégé shared confidential information and trade secrets with Z-Medica. Ultimately, Z-Medica decided Protégé's product did not meet its standards and decided not to proceed with the deal. Several months later, Z-Medica obtained a patent for a blood-clotting product that coincided with Protégé's FDA approval for their similar product. Z-Medica notified Protégé that their product might infringe on the patent, and Protégé filed a lawsuit alleging that Z-Medica had violated the NDA by using confidential information shared during the discussions.
Z-Medica had one problem with the suit – Doug Schillinger's signature on the NDA. Schillinger did not identify himself as a Z-Medica board member but as a managing director of DW Partners. To make matters worse, there were blank spaces in the NDA for the recipient and buyer.
Z-Medica argued that it couldn't have breached the NDA because it wasn't legally considered a party to it. Although Protégé professed its belief that Schillinger was on behalf of Z-Medica, there was no proof showing that Z-Medica had given Schillinger that authority.
The court agreed with Z-Medica that it was not bound by the NDA, and Protégé lost the lawsuit.
Key takeaways
This cautionary tale highlights some key takeaways for following contract due diligence best practices and ensuring an NDA is properly signed:
- It is essential to scrutinize the authority of signature holders and ensure that everyone involved in negotiations is bound by the NDA. Titles matter and should not be taken lightly.
- Never assume that an individual is signing on behalf of a particular party without proper documentation.
- Avoid leaving blank spaces in the contract.
Footnote
1. Protégé Biomedical, LLC v. Z-Medica, LLC, 394 F. Supp. 3d 924 (D. Minn. 2019)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.