According to court filings, Philips North America and Probo Medical have reached a settlement agreement to resolve their ongoing legal dispute concerning the manipulation of proprietary software in Philips ultrasound machines.

A note, submitted to Judge Joseph R. Goodwin on May 3rd, and attributed to Probo's lawyer, Christopher D. Smith of Bailey Glasser LLP, summarizes the new development:

The parties write to inform you that after extensive negotiation, last night, the parties signed a detailed, 8-page term sheet to resolve this matter. Before I proceed, know that counsel for Philips North America, LLC reviewed this letter, and they have agreed to the contents and representations in it. The parties are in the process of reducing the terms to a final settlement agreement, which would result in dismissal with prejudice of the pending lawsuit. As you undoubtedly know, the parties have spilled considerable ink lately, and we know that the Court is busy considering the issues raised by the parties in advance of trial. We always appreciate the Court’s consideration, but we wanted to give you courtesy notice that the parties have agreed to resolve the matter. The parties are working diligently to paper that resolution and will stipulate to the dismissal of this action as soon as possible.

Financial terms of the settlement have not been disclosed.

The lawsuit, filed by Philips in May 2021, concerned accusations that Probo Medical, and several entities it has acquired, systematically enabled unauthorized software options on Philips ultrasound systems in violation of licensing agreements, effectively bypassing Philips' revenue from these options and potentially compromising device integrity. In its complaint, the OEM argued these unauthorized actions violated federal and state laws against computer fraud and digital rights infringement, and also posed serious risks to patients and healthcare providers by potentially affecting the safety and efficacy of the devices.

New-York-based Avista Capital Partners, a private equity firm focused exclusively on healthcare with over $8 billion invested in more than 45 growth-oriented healthcare businesses worldwide, acquired a majority stake in Probo Medical from Varsity Healthcare Partners in 2022. No financial details or deal terms were disclosed, but sources say the price may have been in the $450 million range. Since then, Probo Medical has acquired a string of parts and service providers, including Ultra Select, National Ultrasound, and Alpha Source.

As the case unfolded, court records show that discovery-related disputes emerged. Philips asserted that Probo engaged in a pattern of noncompliance and accused the company of withholding critical documents and providing evasive responses. In response to these challenges, Philips sought a motion for default judgment, which would allow the case to skip to the damages phase without a trial on the substantive allegations.

The lawsuit is emblematic of big picture issues in the medical device market, where the unauthorized use of proprietary software can have significant legal and ethical repercussions. For right-to-repair advocates, the issue stems mainly from uncooperative manufacturers who withhold necessary service information in the interest of securing service contracts, while OEMs stress the safety risks of unauthorized access and their legal right to protect intellectual property.

Last week, the FDA released its final guidance to provide the medical device industry clarity on the definition of "remanufacturing" for reusable devices needing maintenance or repair, a lingering point of ambiguity in an overarching discussion about right-to-repair.