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Tuesday, February 8, 2011

TIME OUT in the Fifth Circuit

Surgery On January 12, 2011, the Fifth Circuit issued its opinion in a contracts case, Cole v. Sandel Medical Industries.  Sandel makes medical supplies that are supposed to improve hospital safety.  In order to encourage innovation, Sandel offers small payments -- up to $4000/year for five years -- to medical professionals who submit ideas via Sandel's website.  Nearly half of the company's products are the result of such submissions, and in only one case, when the submitted idea was patentable, did Sandel pay a more substantial royalty.

After being informed by a Sandel sales rep., Jeff Penfield, of the gist of Sandel's willingness to pay for ideas, Cole, a San Antonio nurse, submitted an idea related to Sandel's TIME OUT products, which help remind medical professionals to double check that they have the right patient, the right procedure, the right -- that is, correct -- limb, organ, etc. before proceeding.  The form on which she submitted her idea -- basically a bright orange TIME OUT warning sign -- contained the following terms:

I do not give any rights in my submission to Sandel Medical Industries L.L.C.(SMI). Any rights in my submission may be givento SMI only in a future agreement between SMI and myself.

I agree not to reveal my submission (verbally or in writing) to anyone other than SMI, for one year from the date of this agreement.

SMI agrees not to use, sell, or disclose to others, any of the submitter’s information provided above. SMI accepts this submission only for evaluation. SMI and submitter shall have no further obligations to each other, unless a seperate [sic] agreement is entered into.

One year after telling Cole that it was not going to pursue her idea, Sandel began marketing an orange TIME OUT surgical towel that it later acknowledged was the product of Cole's suggestion.  Still later, Sandel claimed that it was also paying someone else for the idea and was only offering Cole a contract to maintain good relations with submitters.  Sandel offered Cole its standard compensation agreement.  She made a counteroffer, which Sandel rejected, and she then sued seeking $10 million for breach of contract and fraud.

Affirming the District Court's dismissal of the case, the Fifth Circuit found that the internet form on which Cole submitted her idea constituted nothing more than an unenforceable agreement to agree, as it lacked a price term.  The Fifth Circuit rejected Cole's alternative argument that Penfield had made an offer when he told her of Sandel's reimbursement policy which she had accepted by submitting her idea.  The Court reasoned that this offer, if such it was, was revoked by the internet submission form, which the Court construed as as superseding offer.

[JT]

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