When 3M reported its first quarter results in May, the company chose not to record any liability related to a lawsuit initiated by the former owners of Acolyte Biomedica, Ltd. The company reasoned at the time that "liability is not probable." That hasn't stopped both sides from taking their case to the public as the trial related to an unmet earnout kicked off earlier this week.

3M acquired Acolyte in February of 2007 for £10. 4 million, gaining control of the MRSA-screening technology sold under the BacLite brand name. An earnout clause was included in the agreement that could have been worth as much as £41 million had the sales of BacLite hit certain milestones by 2009. However, 3M shelved efforts to gain FDA approval less than a year after the deal, citing that it discontinued its efforts only after the technology "failed to meet certain standards of the marketplace."

Acolyte's former owners, British private equity firm Porton Capital and the Ministry of Defence-controlled Ploughshare Innovations, claim that 3M failed to "actively and diligently" market the product and that the company "botched" its clinical trials, producing reliability results of just 50 percent for the technology. The BacLite product was already cleared for use in Europe, having achieved over 95% reliability in earlier trials in the UK, according to the former investors.

In May, Porton also called for an FDA investigation, claiming that 3M failed to explain why it never conducted new trials incorporating FDA guidance. Porton also said that 3M didn't disclose alleged conflicts of interest, and markets more expensive competitors to BacLite, including FastMan and Simplexa, which also screen for MRSA, or methicillin resistant staphylococcus aureus.

3M is being represented by Bickel & Brewer name partner William Brewer III, while Stephen Phillips QC is providing counsel to the UK government and Acolyte's co-investors. The five-week trial is behing held in London's High Court.

Litigation around earnout clauses is fairly common. Last year, the former owners of modeling agency Wilhelmina International reached a settlement related to an earlier earnout clause.

While 3M appears confident that it won't be held liable, recent cases have placed a higher burden on buyers to prove that efforts were made to promote acquired products or services. AmerisourceBergen Corp., for instance, lost a decision in 2007 based on the court's findings that the company failed to actively market the products of Bridge Medical, acquired five years earlier. More recently, in Massachusetts, a court of appeals overturned a decision that had cleared PerkinElmer of its obligations to the former owners of Sonoran as part of an earnout agreement related to the acquisition, while in Ohio, NA Management Corp. lost a case related to an earnout that was included in its Eggert Agency acquisition.

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