EOFlow, the Korean medical tech firm that Medtronic decided to acquire in May for $738 million, has hit a snag in its entry into the U.S. market following legal disputes concerning trade secret violations and patent infringements with Insulet, a U.S. insulin pump developer.

Insulet lodged a civil lawsuit on Aug. 3, asserting that EOFlow's EOPatch infringes upon the patents of its Omnipod product, speculating that their former executives, now employed by EOFlow, might have leaked confidential information.

EOPatch is Korea's first tubeless, wearable, and disposable insulin pump device and allows continuous subcutaneous insulin infusion (CSII) for insulin-dependent type 1 and 2 diabetes for up to 3.5 days (84 hours). Additionally, the device eliminates the need for a separate controller since users can control it using their smartphones.

According to the court documents from the U.S. District Court of Massachusetts, Judge Dennis Saylor issued a preliminary injunction on Oct. 6 against EOFlow.

The preliminary injunction, a judicial measure intended to prevent the sale of potentially patent-infringing products during an ongoing lawsuit, demands the claimant to demonstrate imminent and substantial damage due to patent infringement convincingly. Consequently, EOFlow has been prohibited from manufacturing and marketing products developed using Insulet's trade secrets while the trial progresses.

The decision puts a temporary halt to EOFlow's U.S. expansion plan for EOPatch.

The company filed a device license application for the EOPatch with the U.S. Food and Drug Administration (FDA) last December.

EOFlow suspended from trading on Kosdaq following US court decision

In response to the court's decision, EOFlow said that it has temporarily halted the production, marketing, and sale of its EOPatch product, excluding the EOPump (Actuator) on Tuesday.

The halt will cost the company about 2.6 billion won ($1.94 million), which accounts for 39.86 percent of its sales in 2022.

Consequently, the Kosdaq Market Division of the Korea Exchange also suspended the trading of EOFlow's stocks from Tuesday.

The suspension will continue until the KRX determines whether the company will undergo a listing eligibility review.

"Although we believe that there is no infringement of trade secrets, a provisional injunction filed by Insulet has been granted," the company said. "In order to minimize the legal risk of future litigation, we have decided to suspend the production, marketing, or sale of EOPatch products until we completely resolve the matter."

The company added that they plan to consult U.S. and Korean litigation representatives or legal advisors to consider filing an appeal against the injunction decision and come up with proactive strategies for winning the main lawsuit and revitalizing production, sales, and marketing externally from the litigation are under intensive exploration.

Meanwhile, Medtronic is scheduled to acquire EOFlow later in the year.

EOFlow CEO Kim Jae-jin, its largest shareholder, signed a share transfer agreement with Medtronic Korea Holdings, a company established by Medtronic in May, which entails a change in the largest shareholder.

Accordingly, Kim will transfer about 5.64 million shares (18.54 percent of the company's total outstanding shares) to Medtronic Korea at 30,000 won per share. The total price is about 169.2 billion won.

Besides, Medtronic plans to acquire 22,955,839 shares, representing more than 50 percent of EOFlow's total shares, by acquring12.92 million shares by participating in the third party-allotment capital increase of EOFlow in October and making a tender offer for existing stocks at 30,000 won per share, and push ahead with voluntary delisting of EOFlow.