New lawsuit against MN company shows the dangers in the business of blood

Categories: Business

bloddonation.jpg
Flickr via Michelle M. F.

When the Minneapolis-based company General Blood LLC launched in 2010, it came with a promise that it could revolutionize the market for blood. Founders Ben Bowman and David Mitchell wanted their company to connect the blood donation centers across the country to hospitals and labs, getting them blood quicker and cheaper.

But according to a lawsuit filed last month in Hennepin County District Court, getting through to parts of that market hasn't been so simple. And that's led to a feud in court between General Blood and one of its suppliers, the Oklahoma Blood Institute, showing the world the inner workings of the complicated business of buying and selling blood.

See also:
The Business of Blood

The court filings have mostly been a game of "he said, she said" so far, but the case boils down to this: General Blood works as an intermediary for the Oklahoma Blood Institute, buying the blood that the center receives through donations and selling it to researchers and hospitals (and receiving the profit that goes along with that).

Over the last few months of 2013, however, General Blood didn't make all of its payments to the Institute, an amount that totaled nearly $500,000, so the Institute is taking General Blood to court to get that money back.

But there's far more to the story than a company simply not paying its supplier. In court filings, General Blood openly admits that it hasn't paid OBI fully. But it also says it doesn't need to pay that money back. That's because it claims the CEO of the Oklahoma Blood Institute abused his power as an executive member of another blood co-op, violating a confidentiality agreement between the two companies.

What General Blood is arguing is this: Because the Oklahoma Blood Institute had an agreement with General Blood, the Institute's CEO, John Armitage, knew how much General Blood was charging to a particular researcher at the University of Utah, for a certain price. Then, because of his position as the vice chair for the blood center co-op Blood Centers of America, Armitage informed the co-op of the deal.

General Blood alleges that the co-op then offered to sell its blood to the researcher for a lower price than what General Blood was charging. Not wanting to lose its client, General Blood was forced to lower its prices. In effect, the company says, the lack of confidentiality by Armitage made General Blood lose out on about $14 million, according to the filings.

"So that's the thing," said General Blood CEO Ben Bowman. "So the risk I have with keeping confidentiality is that a center could just go around and work with [a client] directly. And that means the work I've done with the client, connecting them, is for nothing, and we lose out on that deal"

But Armitage calls the claims "baseless," saying that there could have been countless other ways for the BCA to connect with the supplier.

"That somehow magically there is only one way, and that's through me, for someone to purchase the amount they claim, is a pretty big stretch," said Artmiage. "It's a pretty big stretch to think that in this day, with the Internet and aggressive business practices, that anybody running an organization would not be able to connect to any one supplier at this point."

While we can't say who's right, what the case does show is something that few people may know: that even in the market for blood - a market that we like to think is driven by charity - one of the biggest forces is still profit.

If the companies don't settle, the case will most likely head to trial next year.


Send your story tips to the author, Robbie Feinberg. Follow him on Twitter @robbiefeinberg.




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