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Analysis

'Purely Private Dispute'? Amazon-Bound Exec Escalates Optum Trade-Secrets Suit

By Steven Porter  
   February 08, 2019

The proxy skirmish between a major healthcare player and an aspiring disruptor is headed to the First Circuit Court of Appeals, where judges will be asked to weigh in on whether an ex-Optum vice president should be blocked from starting his new job.

As attorneys for United Health Group's Optum Inc. seek to block one of the company's former vice presidents from starting his new job with Amazon's healthcare initiative, the executive at the center of the conflict is fighting to take the proceedings private.

After being sued last month for allegedly breaching his Optum employment contract and taking trade secrets to a competitor, David Smith asked the judge to force Optum into closed-door arbitration, rather than the public record of a federal courtroom. The judge declined that request Tuesday, and Smith appealed to the First Circuit.

Smith was hired in December as the new director of product strategy and research for Amazon's joint healthcare venture with Berkshire Hathaway and JPMorgan Chase, so his dispute with Optum represents a proxy skirmish between the interests of an established healthcare powerhouse and those of an aspiring disruptor.

While attorneys for Optum describe the Amazon-backed venture as a competitor to Optum, Smith and his attorneys dispute that characterization. The kerfuffle comes as the venture ramps up hiring, with an emphasis on recruiting what newly hired Chief Technology Officer Serkan Kutan described as "the best technology team in health care."

Two days of hearings last week elicited a few crumbs of information about what the Amazon-backed venture helmed by CEO Atul Gawande has in store. Chief Operating Officer Jack Stoddard testified that the initiative is "currently using data, analytics, and expertise to combine products from third-party vendors" that could include Optum, as The Wall Street Journal reported. When asked whether any ideas could be scaled up and sold to consumers beyond the pool of employees who work for the three companies behind the initiative, Smith reportedly said that's "not the near-term goal."

Smith argued that his employment contract with Optum requires that the present dispute be handled in arbitration, saying in a court filing last week that the matter represents "a purely private dispute" with "no issue of public interest."

Optum's attorneys, however, argued that the U.S. District Court for Massachusetts could issue a temporary restraining order (TRO) against Smith before addressing the arbitration question, and Judge Mark Wolf agreed, finding that the court clearly had jurisdiction to issue a TRO, should it choose to do so.

"The Arbitration Policy is not ambiguous," Wolf wrote in a ruling Tuesday. "Smith's disagreement with the court's understanding of the plain meaning of the relevant language does not create an ambiguity."

Wolf put proceedings in the District Court on hold, pending appeal of his decision on the TRO request and motion to compel arbitration.

But Wait. There's More.
 

Optum's attorneys asked Wolf to do one more thing at the District Court level before the First Circuit weighs in: issue an injunction to restrict Smith's activity.

They laid our their reasoning Wednesday in a 21-page memo with a significant amount of redacted material, arguing that every day Smith is allowed to work for the Amazon-backed venture—which Optum calls "ABC"—is an opportunity for him to use Optum's confidential information and trade secrets.

"And the longer Smith works at ABC, the more entrenched he becomes in the company, and the greater the risk his employment poses to Optum," they wrote, adding that there is a public interest at play.

"Granting an injunction pending appeal would not harm the public interest; to the contrary, it would benefit the public," they wrote. "The public has a strong interest in ensuring that contracts are upheld."

Optum's attorneys asked Wolf to permit the redactions, saying the material was hidden from public view "out of an abundance of caution." Wolf rejected the request Thursday, ordering Optum to file an unredacted version by 9:30 a.m. Friday. Optum's attorneys complied, filing an unredacted motion that included quotes from testimony during last week's hearings.

While attorneys for Smith argue the Amazon-backed venture isn't a competotor to Optum, Optum complains that the venture is still figuring out its model and taking a "haphazard and disingenuous approach" to making sure Smith doesn't divulge Optum's trade secrets. Smith's new job descriptioin, albeit vague, seems to align with what he had been doing for Optum. The removal of redactions revealed three areas in which Smith won't be working: pharmacy, healthcare benefits administration, and specialty networks.

The filing notes, furthermore, that ABC is paying for two sets of attorneys for Smith and that ABC has committed to keep paying Smith's salary—which is $300,000 per year, according to an offer of employment filed with the court—even if the court blocks Smith from beginning his new job.

Smith, his attorneys, and attorneys for Optum did not respond to HealthLeaders' requests for comment.

Editor's note: A version of this story was first published Wednesday, February 6, 2019, then it was updated Thursday and Friday with additional information.

Steven Porter is an associate content manager and Strategy editor for HealthLeaders, a Simplify Compliance brand.

Photo credit: Photo credit: Editorial credit: Sundry Photography / Shutterstock.com


KEY TAKEAWAYS

The defendant, David Smith, is appealing to the First Circuit. He's trying to force the proceedings into closed-door arbitration.

The plaintiff, Optum, is trying to get the federal courts to block Smith from working for the Amazon-backed healthcare venture.

More information must be released by Friday morning, after a judge rejected a request for significant redactions.


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