Swissray and Serviscope tangle in legal battle over service programs

Serviscope charges that Swissray raided employees

Swissray International wants to be more than just a manufacturer of conventional and digital x-ray systems, but it may find its expansion strategy tougher than originally thought. The Hitzkirch, Switzerland, company's plans got sidetracked this month when independent service organization Serviscope filed a lawsuit in a New York state court charging Swissray with trying to steal Serviscope's employees, trade secrets, and customers for a medical equipment asset management program that Swissray is allegedly building.

Serviscope of Wallingford, CT, announced on Oct. 16 that it had filed litigation in New York Supreme Court charging Swissray and its subsidiary, Swissray Healthcare, of trying to enter the U.S. market for asset management services by allegedly misappropriating Serviscope trade secrets and by illegally soliciting Serviscope employees and customers.

At the heart of the issue is a company called Service Support Group, an imaging equipment distribution and service firm located in Gig Harbor, WA, that Swissray acquired this month. Swissray described the acquisition as a means for gaining access to U.S. distribution channels for its AddOn-Multi-System, a digital x-ray system now under 510(k) review at the Food and Drug Administration.

Swissray may also have other designs for the SSG business, at least according to Serviscope. SSG was founded by former Serviscope employees, including Kenneth Montler and Michael Harle, who now hold senior positions at two Swissray subsidiaries. Serviscope alleges in its lawsuit that when Montler and Harle formed SSG a year ago, along with Gary Durday, who is now CFO of Swissray Medical Systems, they began to solicit Serviscope employees and customers in the northwestern U.S. with the intention of creating an asset management business. These solicitations were made in violation of agreements and fiduciary duties allegedly made with Serviscope, according to court documents. Serviscope charges that the SSG executives in mid-1997 began acting in concert with Swissray, which was planning to acquire SSG.

Serviscope contends that in addition to SSG's activities in the Northwest, the company hired several key employees from Serviscope's central region. Serviscope declined to comment on how many people the company has lost and stated that the ISO is financially healthy and profitable this year.

Serviscope was prepared to sue SSG and its principals last year, but in November 1996 the principals and SSG promised to back off. When the agreement faltered, Serviscope filed suit against Swissray and Swissray Healthcare, the subsidiary that Swissray formed for the purpose of buying SSG, according to Serviscope. Swissray closed that acquisition on Oct. 17.

The lawsuit filed in New York seeks an injunction restraining Swissray and anyone acting in concert with the company from illegally soliciting employees or customers from Serviscope. Serviscope obtained a temporary restraining order from the court enjoining Swissray from knowingly gaining protected information from current and former employees of Serviscope. At an Oct. 24 hearing, the court dismissed Swissray's motion to have the temporary restraining order removed, but granted the company's request for a two-week adjournment to gain additional time to respond to Serviscope's allegations. The judge also extended the temporary restraining order for two weeks.

Issues to be decided at the next hearing include whether Swissray will be permanently enjoined from the alleged activities and whether Serviscope will receive compensatory and punitive damages.

Serviscope's allegations are without merit, according to Swissray vice president of international sales and marketing Ueli Laupper. Serviscope employees came to Swissray of their own accord, and his company has never induced Serviscope employees to go to work for Swissray, he said. Indeed, Swissray does not offer asset management services in the U.S., making Serviscope's complaint completely unfounded, Laupper said.

Serviscope believes that Swissray is indeed in the asset management business, citing documents the company claims Swissray has filed with the Securities and Exchange Commission, as well as past statements by company executives.

Laupper concedes only that Swissray is looking at asset management as a future supporting business for its core business, which is selling x-ray systems and providing multivendor service. He denies having an asset management program at the present.

"They are charging that we were competing in asset management, but we do not have an asset management program," Laupper said. "That's why we cannot compete and so we really can say this lawsuit by Serviscope is completely unfounded."