Amazon, JPMorgan and Berkshire Hathaway have big plans to shake up U.S. healthcare, and they need industry expertise to do it. But after the venture poached an Optum VP to gain just that, Optum hit back with a trade secrets lawsuit against its former executive.
Optum says David Smith, its VP of corporate strategy, violated his noncompete agreement when he jumped ship for the closely watched new outfit. The healthcare services company, part of health insurance giant UnitedHealth, sued the former executive this month in federal court in Boston. Specifically, Optum sued for breach of contract and misappropriation of trade secrets.
Smith joined Optum in 2016 and left to serve as Director of Product Strategy and Research at the Amazon/J.P. Morgan/Berkshire partnership late last year, joining marquee CEO hire Atul Gawande. The partnership has hired two others from UnitedHealthcare and Optum, too.
Optum now claims Smith can’t fulfill his new duties without violating his noncompete agreement, which bars him from competing with Optum for one year after his departure. The restriction, plus others included in the agreement, are “reasonably necessary to protect Optum’s legitimate business interests,” the suit says.
Citing Smith’s departure and the two others, Optum argues that the partnership hired Smith as part of a “larger plan to lift Optum’s model or, at the very least, to duplicate or develop similar products and services.” Days before leaving the company, Smith printed and emailed himself confidential documents belonging to Optum, UnitedHealth's chief legal officer Marianne Short wrote in a letter accompanying the suit.
In a filing days after the lawsuit, Smith's lawyers wrote that the allegations are flawed for several reasons. For one, "Optum fails to identify the actual trade secrets that Smith allegedly misappropriated," the defendant's lawyers wrote. Additionally, the company didn't provide evidence that Smith retained confidential information after termination, or that he misappropriated any confidential info.
"Optum does not identify what specific documents are entitled to trade secret protection, why they are entitled to trade secret protection, or that such documents are even retained by Smith," Smith's lawyers wrote. "Instead, Optum’s Memorandum paints in broad strokes, claiming Smith had Optum’s product strategy plans and that it 'cannot be credibly disputed' that Smith had extensive knowledge of Optum’s trade secrets."
They called the argument "nonsense" and said "Optum’s failure to carry its burden to identify the specific trade secrets that Smith allegedly misappropriated is fatal to its claim."
When Amazon, JPMorgan and Berkshire Hathaway unveiled their plan to team up early last year, the companies said they hope to improve healthcare outcomes for their U.S. employees and lower their care costs. The partnership in June named Gawande, a prominent doctor and researcher, as its CEO; over the summer, Gawande said the team will target middlemen in an effort to reduce waste in healthcare, Bloomberg reports.
The group plans to focus on high administrative costs, high prices, and inappropriate uses of healthcare, the helmsman said. That plan to target middlemen could include a focus on pharmacy benefit managers, a service Optum offers.
Meanwhile, Amazon has been a force weighing on pharma and healthcare for years, as market watchers try to predict the tech and retail giant's intentions in the field. A famous market-disrupter, Amazon could theoretically upend the pharma supply chain if it chooses to get into the prescription drug sales business.
After the company entered the partnership, Wells Fargo analyst David Maris wrote that "we continue to believe that eventually, Amazon will provide pharmacy services for this entity and others, as it has the logistical capability at a minimum."
It's not uncommon for companies to sue former employees when they jump ship to a rival. Genentech, for instance, recently sued ex-staffers after it found they were working for a biosimilar maker developing copycats to Genentech drugs. And in a different type of case but one that was closely watched, Teva sued a former employee for allegedly passing trade secrets to her boyfriend, who was serving as CEO of generics rival Apotex.
Editor's note: This story was updated with arguments from Smith's attorneys.