UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK CARL ZEISS MEDITEC, INC.,
Civil Action No. Plaintiff, Complaint v. INSIGHT PHOTONICS SOLUTIONS, INC., Defendant. Plaintiff Carl Zeiss Meditec, Inc. ("Zeiss"), by its attorneys, Dorsey & Whitney LLP, for its Complaint against Defendant Insight Photonics Solutions, Inc. ("Insight"), states as follows:
1. This action arises out of Insight's willful and bad faith breaches of a 2017 development agreement (the "Development Agreement") by and among Zeiss, Insight, and a joint venture between Zeiss and Insight, called Ophthalmic Laser Engines, LLC ("OLE"). Under the Development Agreement, Insight was obligated to develop ophthalmic laser technology for use by Zeiss and OLE, all of which was funded by Zeiss.
2. But that's not what Insight did. Instead, on information and belief, it used the funding provided by Zeiss for the development of other applications exclusively for the benefit of Insight. As a result, Insight is years behind schedule—deliverables that were required in 2018 and 2019 are nowhere near fruition. Even under the most optimistic scenario, which requires millions of additional investment dollars and assumes zero engineering or manufacturing setbacks, Insight does not expect any deliverable until at least 2026. Insight is so far behind schedule that the technology at issue is now lagging its competitors'—technology that was years ahead when Zeiss began funding it.
3. The Development Agreement contained a schedule of deliverables for Insight, to which Insight was required to adhere. It failed to do so. Because of Insight's delays and resulting failures, Zeiss has suffered millions of dollars in damages: not only has Insight squandered the millions of dollars funded by Zeiss with nothing to show for it, but, as a result of Insight's failures and breaches, Zeiss was forced to explore and fund alternative technology from third parties, even though it had already pre-paid Insight for inventory under a separate agreement, which Insight failed to deliver.
4. As the "developer" under the Development Agreement, Insight provided periodic information to Zeiss regarding the project's status—technological, financial and operational. However, Insight regularly provided Zeiss with incomplete and/or inaccurate information: Insight has misled Zeiss about the use of its investment, the timelines for deliverables and the overall progress of the project. Insight also concealed problems from Zeiss and provided inaccurate and/or misleading financial reports.
5. Insight willfully and in bad faith breached the Development Agreement by: (i) failing to develop the technology according to the schedule in the Development Agreement; and (ii) using Zeiss's funding to develop alternative technology for third parties, in violation of both its development obligations and exclusivity restrictions.
6. As a result of Insight's breaches of the Development Agreement, Zeiss has suffered at least $150 million in damages.
PARTIES, JURISDICTION AND VENUE
7. Plaintiff Carl Zeiss Meditec, Inc. is a New York corporation with its principal place of business located at 5160 Hacienda Drive, Dublin, CA 94568.
8. Upon information and belief, Insight Photonics Solutions, Inc. is a Delaware corporation with its principal place of business located at 2650 Crescent Drive, Ste. 201, Lafayette, CO 80026.
9. This Court has jurisdiction pursuant to 28 U.S.C. § 1332(a) because the parties' citizenship is diverse and the amount in controversy exceeds $75,000, exclusive of interest and costs.
10. Insight is bound by the jurisdictional and venue provision of the Development Agreement, which states that each of the parties "irrevocably and unconditionally submits to the exclusive jurisdiction of the state or federal courts located in Westchester County, New York" and "irrevocably and unconditionally waives any objection to the laying of venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.”
11. Venue is proper by virtue of the venue provision in the Development Agreement. RELEVANT FACTS The Parties and the Development Agreement.
12. Zeiss is world-leading developer and innovator of medical devices and medical device technology. Zeiss creates and supplies cutting-edge technologies and application-oriented solutions for ophthalmology and microsurgery.
13. Insight is a company that develops swept lasers for various uses in a range of different fields.
14. Beginning in 2012, Zeiss and Insight began discussing opportunities to work together in connection with the development of swept laser chips. The purpose of the 3 1 collaboration was for Insight to develop advanced laser chips for Zeiss to use in its ophthalmic lenses—for both research and commercial purposes.
15. In December 2013 the parties entered into a development agreement pursuant to which Zeiss funded Insight's initial development of an akinetic swept laser chip for akinetic swept laser devices.
16. Approximately six months later, in May 2014, the parties entered into another agreement, a Development and Supply Agreement (the "DSA"), which was amended three times—in December 2014, July 2015 and then again in December 2015.
17. In February 2017, the parties restructured their relationship, through a series of related and connected transactions, all of which had an effective date of February 24, 2017.
18. First, Zeiss purchased from Insight a 52% interest in OLE, for over $5.5 million, with Insight retaining the remaining 48% of OLE. The ownership interests remain the same today.
19. Second, Zeiss and Insight entered into an "Amended and Restated Limited Liability Company Agreement" (the "OLE Operating Agreement"), pursuant to which Zeiss contributed over $8.5 million to fund the business, nearly all of which was ultimately paid to Insight—on top of the more than $5 million it paid to Insight for its interest in OLE.
20. Third, Zeiss, Insight, and OLE executed the Development Agreement, which, along a separate supply agreement, replaced the DSA.
21. Under the Development Agreement, Insight was obligated to develop swept laser chips for research and commercial use. The parties agreed to a development schedule, which was set forth in Exhibit B to the Development Agreement (the "Schedule"). 4 1
22. Insight was supposed to develop the technology "in a stable, commercially saleable form that is capable of being integrated by [OLE] into the Products in accordance with the terms of this [Development] Agreement, the Supply Agreement, any related SOWs and the Specifications" agreed to by the parties. See § 2.1(b).
23. Under § 2.1, Insight was required to use its "best efforts to expeditiously complete development" of the technology pursuant to the Roadmap and any underlying statements of work.
24. Section 2.1(c) of the Development Agreement required Insight to advise on the "progress of [its] development, and any and all material problems encountered therein, the efforts being made to overcome such problems, estimates of completion dates, and such other information" that is reasonably requested.
25. Section 3.8(a) of the Development Agreement, titled "Exclusivity", states that Insight "shall not, directly or develop, manufacture, market or sell any Components or substantially similar product containing swept source lasers for or to any third party located within the Territory for use within the Field of Use.”
26. The Development Agreement also required Insight to "indemnify, hold harmless and defend [OLE], Zeiss and their Affiliates and their respective officers, directors, employees, agents, successors and permitted assigns (collectively, 'Company Indemnitees') any and all losses, damages, liabilities, deficiencies, claims, actions, judgments, settlements, interest, awards, penalties, fines, costs or expenses of whatever kind or nature whatsoever, including, without limitation, reasonable attorneys' fees, fees and costs of enforcing any right to indemnification under this [Development] Agreement (collectively, 'Damages') arising out of or resulting from (a) the breach by [Insight] of any of its representations, warranties or covenants 5 1 set forth in this Agreement, (b) [Insight]'s negligence, fraud, bad faith or willful misconduct in the performance of this [Development] Agreement, or material breach of this [Development] Agreement." Development Agreement, § 5.4.
27. With the execution of the Development Agreement, Zeiss had funded or paid directly to Insight over $19 million.
28. Fourth, the Zeiss and Insight entered into a "Prepaid Inventory Agreement" under which Zeiss prepaid Insight for components that were to be developed under the Development Agreement. Those components were to be delivered "by no later than November 30, 2019," but Insight has failed to do so. Currently there is no indication or evidence that they will ever be delivered. Insight's Breaches of the Development Agreement
29. Not long after the parties entered into the Development Agreement, Insight's development work fell behind schedule. Insight missed its first several deliverables under the Schedule and has continued to miss deadlines ever since.
30. Components and other deliverables that were due in 2018 still have not been delivered. Technology that was supposed to be ready for commercialization and research applications in 2020 are nowhere near fruition, and even accepting Insight's most optimistic recovery proposal (with all of its assumptions and flaws, as well as the additional millions of dollars required to fund it), there will be no deliverables until at least 2026 or beyond, if ever.
31. As a result of the delays and missed deadlines, Zeiss began requested information from Insight about the development progress and schedule, as well as Insight's development costs and expenditures. 6 1 32. Insight, however, willfully misled Zeiss and failed to provide answers or even documentation to substantiate the money it had spent or the work it had performed. Often, information provided by Insight was misleading and/or inaccurate.
33. In fact, despite specific, repeated requests for detailed cost information—namely, how Insight was spending so much of the money Zeiss funded without any tangible results— Insight failed to provide it. Instead, Insight provided summarized information or information that was simply not credible.
34. As the delays continued to mount, and the development cost and expenditure information did not add up, Zeiss became suspicious. For example, of the more than $8 million funded by Zeiss and paid to Insight through OLE for the Ophthalmic laser project, Insight apparently used more than half of that for personnel expenses, meaning more than $4 million in fewer than three years.
35. As part of its oversight under both the Development Agreement and as Managing Member of OLE, Zeiss became aware that Insight had been developing—and pouring resources into—separate applications for akinetic swept laser chip technology. These applications were not covered by the Development Agreement and also could not be exploited by Zeiss or OLE.
36. Rather, they would be solely for the benefit of Insight—and to whomever it chose to sell or license the technology.
37. Insight's diversion of Zeiss's investment and OLE's resources away from ophthalmic laser technology is a bad faith, willful and material breach of the Development Agreement.
38. Insight's delays and failure to deliver working technology have compounded the damage to Zeiss. Components and other technology supplied by Insight that were supposed to be 7 1 ready in 2018 and 2019 (subject to a separate agreement) were so far behind schedule that Zeiss had to obtain them elsewhere—even though it had already funded and paid for them. Zeiss spent at least $3 million in this regard.