Alpha-Stim

Outline of Electromedical Products International, Inc.

Effort To Protect Its Intellectual Property 

 

Over the past several years, Electromedical Products International, Inc. (“EPII”) has been forced to legally deal with what it asserts is improper use of its technology and copies of its technology from former employees, distributors and competitors in the electromedical field. Below is an outline of each of the legal actions EPII brought in an effort to protect its intellectual property.

Electromedical Products International, Inc. v. Ray Smith

On February 7, 2003, EPII filed suit against Ray Smith, who served as the Vice President of Science for EPII up until his termination on January 31, 2003. In its petition, EPII alleged that Dr. Smith had breached his Non-Disclosure/Non-Circumvention Agreement with EPII by providing trade secrets to Dr. Harold Stecker, Owner of the Healthpax CES device and by attempting to publish a book written on behalf of EPII after his termination. EPII requested a Texas District Court to issue an injunction enjoining Dr. Smith from disclosing, publishing and/or using EPII’s confidential information and trade secrets and enjoining Dr. Smith from competing with EPII in any business similar to EPII for a period of three years from the date of termination. ¹

The lawsuit went to trial on July 29, 2003, and the court issued a judgment permanently enjoining Ray Smith from directly or indirectly participating in a business in a similar capacity to EPII’s business and from disclosing, disseminating, lecturing upon publishing, using or permitting the disclosure of any and all information disclosed to Ray Smith during his employment with EPII. Ray Smith was additionally ordered to return all copies of all unpublished manuscripts, monologs, articles, books and studies written on the subject of CES, TENS and/or wound healing while an employee of EPII or thereafter. Dr. Smith was also ordered to return all copies of the manuscript he was working on at the time of his dismissal, “Cranial Electrotherapy Comes of Age.” Finally, Dr. Smith was ordered to pay EPII for its attorneys’ fees in the amount of $14,800.00 and ordered to reimburse EPII for its costs in recovering data from Ray Smith’s work computer, such amount being $5,200. ²

On October 2, 2003, the court made its findings of fact and conclusions and found in particular that:

1. Prior to and following Ray Smith’s termination, EPII discovered or was provided with correspondence between Smith and third parties that led it to be concerned that Smith was violating the terms of his Non-Disclosure and Non-Circumvention Agreement;

2. Following Dr. Smith’s termination on January 31, 2003, Smith emailed Hayworth Press stating that he had lost his job due to a large company layoff and that he wanted to continue working on the manuscript from home;

3. On February 7, 2003, Smith emailed Hayworth Press asking for a new contract for him to enter into to write the manuscript, and he also indicated that he was in communication with a manufacturer of a CES device who had asked for 200 copies of the manuscript when it was published;

4. On February 26, 2003, Smith sent an email to T. K. Wolf, an EPII distributor, regarding the possibility of him working at T. K. Wolf;

5. At a February 21, 2003 hearing, the court entered into an order enjoining Smith from publishing or using confidential business information or from participating in a business with similar capacity to EPII’s until further ordered by the court;

6. On March 14, 2003, Smith sent an email to Hayworth Press stating that “the judge concluded that EPII had not shown any case against me” at the February 21, 2003, hearing;

7. During his employment with EPII, Smith directed customers of EPII to competitor’s products on several occasions; and

8. During his employment with EPII, Smith continued research with distributors after EPII had directed him not to continue research. ³

At the trial, Ms. Nancy Campbell, President of Therapeutic Resources, Inc. appeared and testified on Dr. Smith’s behalf. Therapeutic Resources was a former distributor of EPII’s products, whom EPII had terminated around the same time of Dr. Smith’s termination from EPII. During her testimony, Ms. Campbell discussed a product that she was selling on behalf of Dr. Harold Stecker and his company, Health Directions, Inc. She testified that Dr. Stecker had created a copy of the Alpha-Stim device and was selling it under his label, the Healthpax. ⁴

Following the Final Judgment entered into by the District Court, Dr. Smith filed an appeal with the Texas Eleventh Court of Appeals. The Court of Appeals reviewed the case and upheld the judgment of the trial court. ⁵

Electromedical Products International, Inc. v. Therapeutic Resources, Inc. and Nancy Campbell

Following its victory over Ray Smith, EPII had another issue to deal with, two of its former distributors were apparently developing, manufacturing and selling a CES device with technology copied from EPII’s Alpha-Stim CES device. Therapeutic Resources, Inc. and its president, Nancy Campbell, “Therapeutic Resources,” and Dr. Harold Stecker and Health Directions, Inc., “Health Directions,” had both signed Non-Disclosure and Non-Competition Agreements while distributors for EPII.

Shortly after the Smith trial was completed, EPII sent a demand letter to Therapeutic Resources demanding it cease and desist all sales of competing CES devices and copies of EPII’s technology. Therapeutic Resources responded by filing a suit in Federal District Court in the State of Washington seeking a declaratory ruling that the agreements EPII sought to enforce were non-binding and unenforceable. After months of legal maneuvering to determine where the suit should be heard, the Federal District Court in Washington State ruled that EPII could arbitrate its claims against Therapeutic Resources in Dallas, Texas.

EPII had learned from a doctor in Florida that Therapeutic Resources had committed “bait and switch” tactics by using EPII’s sales material to sell the Health Directions’ CES device. Nancy Campbell admitted to selling the Health Directions’ CES Device, which she purchased through yet another former distributer of EPII’s, Mr. Larry Paros. ⁶

After EPII terminated Therapeutic Resources distributorship in 2003, Ms. Campbell filed an anonymous complaint with the FDA alleging that EPII kept two sets of books and misrepresented the effectiveness of its products. This resulted in a full-scale investigation of EPII by the FDA, and EPII was exonerated. Ms. Campbell admitted to filing the complaint with the FDA. ⁷

During the arbitration, it was also revealed that EPII had notified Nancy Campbell back in 2000 that Dr. Stecker had a new device on the market. Ms. Campbell told EPII that she would “keep her ears open and let [EPII] know” if Ms. Campbell heard anything about the new device being on the market. In actuality, Therapeutic Resources was selling Stecker’s CES device at that time. ⁸

Terry Eberhart, a distributor for EPII, testified during the arbitration that Ms. Campbell called him six months before the hearing and tried to get Mr. Eberhart to sell the Stecker CES device, using the better Alpha-Stim in the clinic to lure in the customer and then sell them the lower priced Stecker CES device in a classic “bait and switch.” ⁹

Following a two-day hearing, the arbitrator issued his order on November 14, 2005. In the order the arbitrator concluded the following:

1. Ms. Campbell is using her knowledge gained as an EPII distributor to attempt to recruit EPII distributors to sell Stecker’s CES device;

2. Ms. Campbell and Therapeutic Resources breached their non-competition and non-disclosure agreement with EPII;

3. The Non-Disclosure and Non-Competition Agreement was binding and enforceable;

4. The arbitrator enjoined Nancy Campbell and Therapeutic Resources from contacting any distributor of EPII’s and attempting to (i) sell such distributor products similar to EPII’s Alpha-Stim, or to (ii) cease being an EPII distributor; and

5. Awarded EPII damages in the total amount of $61,462.00. ¹⁰

At the conclusion of the arbitration, EPII went back to the Federal Court in Washington to have the arbitrator’s award entered into by the court and to collect outstanding attorney’s fees from Ms. Campbell and Therapeutic Resources. The parties entered into a confidential settlement agreement settling the remaining outstanding issues between them.

Electromedical Products International, Inc. v. Harold Stecker, Health Directions, Inc., Lawrence Paros, and Neurobics, Inc.

Upon learning of Dr. Stecker’s activities in the CES field, EPII also requested he cease and desist from violating the terms of his non-competition and non-disclosure agreement. When Dr. Stecker also questioned the validity of his non-competition and non-disclosure agreement EPII filed suit to enforce the terms of the agreement.

At issue was a new setting on Stecker’s CES device, the Healthpax. The original version of the Healthpax only provided a 100 hertz setting. Following Dr. Stecker’s time as an EPII distributor, he reintroduced the Healthpax back on the market, this time with an added .5 hertz setting. EPII hired an independent expert, Dr. Mohammed Ferdjallah of the University of Tennessee, to compare the .5 hertz setting on the Healthpax with the .5 hertz setting on the Alpha-Stim. Dr. Ferdjallah concluded that the .5 hertz waveform on the Healthpax was identical to the Alpha-Stim’s .5 hertz waveform and that the similarity could not be the product of random design. ¹¹ Based upon this report, it was EPII’s belief that Dr. Stecker had copied EPII’s .5 hertz waveform.

On June 30, 2004, EPII and Dr. Stecker settled their case. In the settlement Dr. Stecker agreed to:

1. Remove the Healthpax from the market and cease all sales until the .5 hertz setting could be removed from the device;

2. Avoid any future sales of devices with copies of EPII’s technology.

3. Destroy all plans and specifications showing how EPII’s technology was copied;

4. Remove the .5 hertz setting from all Healthpax devices returned for servicing; and

5. Cease sales of the Healthpax to a list of former EPII distributors. ¹²

Dr. Stecker also acknowledged that he was the sole owner of the Healthpax technology, and no other person could lay claim to the technology. ¹³

During the course of the litigation with Nancy Campbell, EPII discovered that Dr. Lawrence Paros and his company, Neurobics, Inc. had teamed up with Dr. Stecker in developing the .5 hertz setting. Following the settlement agreement with EPII, Dr. Stecker assigned his interest in the .5 hertz setting to Dr. Paros, who began to produce the CES Ultra.

Like the Healthpax, the CES Ultra contained a 100 hertz setting and a .5 hertz setting. Dr. Mohammed Ferdjallah issued another report in which he determined the .5 hertz setting in the CES Ultra was also a duplication of the Alpha-Stim .5 hertz setting. EPII then filed suit against Dr. Paros, Neurobics, Inc. and Neuro-Fitness, LLC to enforce the terms of Dr. Paros’ own non-competition and non-disclosure agreement and against Dr. Stecker and Health Directions, Inc. for violation of the first settlement agreement.

On April 30, 2007 the Federal District Court in Fort Worth, Texas entered a final judgment and permanent injunction enjoining both Dr. Stecker and Dr. Paros, and their companies, from manufacturing, selling or distributing any CES product emitting a waveform similar to EPII’s .5 hertz waveform, and from publishing or using, or allowing others to publish or use, any technology similar to EPII’s .5 hertz waveform.

The permanent injunction was part of a settlement agreement entered into by and between the parties. In addition to the restrictions stated in the injunction, Dr. Paros and Dr. Stecker agreed to pay EPII a total of $31,000 in damages. ¹⁴

Electromedical Products International, Inc. v. Stephen Satra

Dr. Stecker and Dr. Paros revealed to EPII during the litigation that Stephen Satra had developed the .5 hertz setting for them. Both Paros and Stecker indicated that perhaps Mr. Satra had “reverse-engineered” the Alpha-Stim’s .5 hertz waveform to develop the .5 hertz setting used in the Healthpax and CES Ultra.

EPII filed suit against Mr. Satra, seeking to enjoin him from copying EPII’s proprietary information. Mr. Satra agreed to settle the matter and agreed to cease and desist from selling, manufacturing or developing any CES device with technology similar to EPII’s .5 hertz waveform setting. ¹⁵ The Federal District Court entered into a Final Judgment enjoining Mr. Satra from such activities.

Conclusion

With the Satra matter settled, EPII successfully brought to conclusion its efforts to protect its products from being copied and sold by its former employees, distributors, competitors and their associates. EPII takes the protection of its proprietary information very seriously. EPII conducts significant research on its products, and efforts by others to “piggyback” on EPII’s research by the copying of its products cannot be permitted.

1. Original Petition and Application for Injunction Relief, Cause No. C39569, Electromedical Products Int’l, Inc. vs. Ray Smith; In the 29th Judicial District of Palo Pinto County, Texas; filed February 7, 2003.

2. Final Judgment, Cause No. C39569, Electromedical Products Int’l, Inc. vs. Ray Smith; In the 29th Judicial District of Palo Pinto County, Texas, entered into on August 11, 2003, by Judge Jerry Ray.

3. Electromedical Products Int’l, Inc. v. Ray Smith, Findings of Fact and Conclusions of Law entered into on October 2, 2003.

4. Trial Transcript, Electromedical Products Int’l, Inc. vs. Ray Smith; Cause No. C39569; In the 29th Judicial District of Palo Pinto County, Texas, July 29, 2003.

5. Memorandum Opinion, Ray Smith v. Electromedical Products Int’l, Inc., Texas Court of Appeals – 11th District, August 18, 2005.

6. Arbitrator’s Award, Electromedical Products Int’l, Inc. v. Therapeutic Resources, Inc. and Nancy Campbell,

American Arbitration Association, Cause No. 71181 M 00181 04, November 14, 2005, pp. 5-6.

7. Id. at 6.

8. Id. at 8-9.

9. Id. at 11-12.

10. Id. at 10, 11 and 15-16.

11. Dr. Mohammed Ferdjallah, Time and Frequency Analysis of Alpha-Stim and Healthpax, July 19, 2005.

12. Settlement Agreement, Electromedical Products Int’l, Inc. v. Health Directions, Inc. and Harold Stecker; In the 29th Judicial District Court, Palo County, Texas, June 30, 2004.

13. Id. at 3.  Permanent Injunction, Electromedical Products Int’l, Inc. v. Health Directions, Inc., et al., Civil Action No. 4:06CV289A; U. S. District Court, Northern District of Texas, Dallas Division, April 30, 2007.

14. Settlement and Release Agreement, Electromedical Products Int’l, Inc. v. Health Directions, Inc., et al., Civil Action No. 4:06CV289A; U. S. District Court, Northern District of Texas, Dallas Division, February 27, 2007.

15. Final Judgment and Permanent Injunction, Electromedical Products Int’l, Inc. v. Stephen Satra, Civil Action No. 4:07CV343Y, U. S. District Court, Northern District of Texas, Dallas Division, January 18, 2009.

 

Date Recall Initiated	October 29, 2007
Date Posted	April 08, 2008
Recall Number	Z-0712-2008
Product	CES Ultra, Cranial Electrotherapy Stimulator, Serial Numbers: 1000 through 3999, Manufactured by Arco Electronics Limited, Distributed by Neuro-Fitness LLC, Fall City, Washington 98024
Code Information	Serial Numbers: 1000 through 3999.
Recalling Firm/ Manufacturer	Neuro-Fitness LLC 33631 #2 Redmond-Fall City Rd. Fall City , Washington 98024
For Addition Information Contact	Michael Stevens 425-821-4968
Reason For Recall	No FDA clearance for the .35Hz/.45Hz frequency option on device.
Action	Consignees were notified of this recall by an Urgent Device Recall Letter sent via U.S. First Class mail on 10/29/07. The letter instructs users to contact the recalling firm to make arrangements to return the device. The letter also instructs users to return an enclosed response card. Consignees who do not respond will receive a follow-up telephone call two weeks after initial mailing of recall notice. For more information, contact firm at 1-866-937-4237.
Quantity in Commerce	3,000 units
Distribution	Worldwide Distribution

Enforcement Report

The FDA Enforcement Report is published weekly by the Food and Drug Administration, Department of Health and Human Services. It contains information on actions taken in connection with agency Regulatory activities.

 

 October 20, 2004
04-42

RECALLS AND FIELD CORRECTIONS

PRODUCT
HealthPax (HP-1). Cranial Electrotherapy Stimulator GZJ. Recall # Z-0019-05.
CODE
HP-1.
RECALLING FIRM/MANUFACTURER
Health Directions, Inc., Morrisville, PA, by letter dated April 8, 2004. Firm initiated recall is complete.
REASON
Implied claims (extremes of compulsive or addictive behavior) are outside the scope of clearance for the device.
VOLUME OF PRODUCT IN COMMERCE
3,475 units.
DISTRIBUTION
CA, MA, NJ, NY, PA, TX and WA.

 

Click here to view full text in PDF

---