But then came February and March, when there were no court dates. Diametrics was running out of money, and in the words of one of its attorneys "needed a result." The court system could not ensure that. The management decided to settle.
CEO Connoy recalls, "I had told Dave and Walt they might have to make personal sacrifices in favor of a sound business decision. Early on they were mad, and they wanted to countersue. But they needed to consider the company's health." Connoy told them the longer they stayed in court, the sooner they'd be out of business.
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It cost Diametrics $5.25 million to settle with PPG. (For a breakdown of the costs, direct and indirect, see "De Facto Injunction," page 7.) For that sum PPG relinquished all claims to the technology. Diametrics, in effect, bought back its freedom.
Walt Sembrowich asserts that Diametrics' innocence was blindingly obvious. To begin with, the technology traces back to the early 1980s and Sembrowich's former company, Arden Medical. The conceptual building blocks for the technology were the sensor cartridge and the liquid battery, both developed at Arden, and much of which was in the public domain. "We spent three years and $22 million developing that technology," says Sembrowich. "If we stole PPG's technology, we must be the dumbest thieves of all time."
Sembrowich asserts that to take a shortcut to the market, "PPG took a giant step backward by taking a mechanized function and manualizing it." Diametrics, in contrast, took a step forward because it transformed a mechanical step into an elegant chemical one. When PPG realized that Diametrics had actually solved the calibration issue and would raise a lot of money from investors, it set out to steal the technology under the guise of a lawsuit alleging trade-secrets and intellectual-property theft.
CEO Connoy says, "Just because you worked on something doesn't mean you developed it. You can't own an idea. PPG couldn't claim ownership of the concept just because they did a couple of flawed experiments." In the language of patent law, a concept must be "reduced to practice" for ownership to be assigned. PPG couldn't patent the technology because it couldn't master it, claims Connoy.
Diametrics' investors and employees were adamant about not settling with PPG, but the management, when faced with the obliteration of the company, saw no choice. Deetz says, "It makes you sick. All your friends in church see that you settled, and they wonder, 'You paid them millions. That's a lot of money. You must have taken something.' " Deetz's response to that is emphatic. The settlement was nothing more than a ransom payment. "If someone kidnaps your child, you'll pay to get the child back," he says. "You know it's not right, but you have no choice."
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Doug Hillier, general manager of PPG's sensor unit and Deetz's former boss, points to the settlement as evidence of Diametrics' guilt. "Diametrics took something of ours, and it had value." And yet the trial transcript notes that PPG scientists' notebooks revealed that PPG had spent just five person-days running experiments on the gas battery. Diametrics spent three years, creating a device so complex that the patent description runs to 200 pages.
If PPG felt that the technology had so much "value," why didn't it push more to develop it? "We found a better way to do calibration," responds Hillier, who adds, "I wouldn't trade our product today for theirs." (Asked where the gas battery came from, Hillier replies, "It may have come from Deetz.")
On a related note, one overture from PPG during the litigation was to merge the two companies. Isn't that evidence that PPG was trying to gain access to something that Diametrics, not PPG, had developed? "I was not privy to the possible marriage of the two companies," Hillier replies. That seems unlikely given Hillier's position as head of the sensor unit.
Finally, PPG seems to be admitting failure or lack of interest in the biomedical business. It has already sold off its other units. The sensor unit forms the bulk of what remains, but the company adds that it, too, will likely be sold.
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It is tempting to ascribe the case of PPG versus Diametrics to corporate skulduggery, but that is really a subplot. Beneath the high science and legal intrigue lie baser motives that explain the costly litigation and waste of resources. At the core of this tale are such inevitable human failings as envy, pride, and spite.
When asked if this case really boils down to one of professional jealousy, Hillier concedes that "there's an element of that." He refers to Arden Medical -- which PPG once tried to buy -- as a "hoax." He labels Deetz deceptive, claiming that once, meeting him at a trade show, Deetz told him Diametrics was working in the "agricultural area" -- even though Hillier learned early on about Diametrics' objectives through one of its cofounders, Ron Eibensteiner.
Hillier insists that PPG's calibration technology is superior to Diametrics' and says a major flaw in Diametrics' product is that it is not "cost-effective" -- even though investors and analysts seem to cite that very feature as a rationale for sinking millions into Diametrics. Diametrics can already manufacture its sensor card for about $2 and sell it for more than $10. Several companies have sought to license the technology, and dozens have inquired about distributing IRMA.
The tenor of Hillier's remarks ultimately reflects the pressures for profit and the hunger for glory. "Doug's a very opportunistic and vindictive person," asserts Ron Eibensteiner. He claims that the suit was kindled by Hillier's jealousy of Deetz's technical acumen and Deetz's resentment at having to submit his technical judgm
