Orthopedic Surgeon Sues Arthrex Over Royalties

Litigation is heating up between Stephen S. Burkhart, M.D. and Arthrex, Inc. over a royalties dispute.

Recently retired, Dr. Burkhart is a San Antonio, Texas-based orthopedic surgeon who specialized in arthroscopic shoulder surgery. He is a past president of the Arthroscopy Association of North America and holds numerous patents related to arthroscopic surgical devices and procedures.

Based in Naples, Florida, Arthrex is a private medical device company. According to its website, Arthrex “has pioneered the field of arthroscopy and develops more than 1,000 innovative products and procedures each year.”

The litigation stems from an ongoing relationship between Dr. Burkhart and Arthrex. In the early 1990s, Dr. Burkhart met Arthrex’s CEO Reinhold Schmieding. According to Dr. Burkhart’s complaint: “For over twenty years since, Dr. Burkhart has exclusively dedicated his expertise and inventions to Arthrex.”

Dr. Burkhart filed his complaint last year, alleging in part that Arthrex “intentionally underpaid royalties, assigned arbitrary royalty percentages to products, avoided acknowledging that Dr. Burkhart made significant contributions to products, diverted Dr. Burkhart’s work to others with reduced or non-existent royalty rights, and excluded Dr. Burkhart from product-development initiatives.”

In support of his claims, Dr. Burkhart relies on an audit. According to Dr. Burkhart’s complaint, in 2019 he engaged a “firm of independent public accountants, to conduct an audit of Arthrex’s royalty payments.” The firm identified hundreds of products to which Dr. Burkhart was allegedly owed royalties.

Arthrex has since responded and counterclaimed. In its answer, Arthrex “admits that following the audit, it confirmed 417 products should be included as part of the royalty payments.” However, Arthrex denied Dr. Burkhart’s other allegations.

Where is the dispute if Arthrex admitted that 417 products should be included as part of the royalty payments?

In an affirmative defense, Arthrex claims that Dr. Burkhart “owe[s] Arthrex more than Arthrex allegedly owes Plaintiffs [Dr. Burkhart].” Arthrex is alleging that certain royalty bearing products of Dr. Burkhart “were accused of or found to infringe ‘the intellectual property right of any third person.’” Additionally, Arthrex claims that “[t]hese patent lawsuits, settlements, and judgments have cost Arthrex well over $100 million” and that Dr. Burkhart has purportedly refused to indemnify Arthrex.

The only thing that the parties seem to agree on is their upcoming deadline. If the parties cannot reach a settlement in their non-binding arbitration, then they will be ready for trial by November 2021.