From a marketing standpoint, the American Medical Association and Sunbeam Corp. were a perfect match.
The AMA stood to make an estimated $1 million a year in royalties by selling its name and seal to Sunbeam-money that could compensate for declining membership dues.
The venerable serpent and staff would help Sunbeam capture a booming new market for home healthcare and wellness products.
Their contract, which was included in court papers filed last week, went beyond endorsements to an array of projects including marketing the AMA's own consumer products along with Sunbeam's in retail stores. Sunbeam also agreed to boost royalties if the AMA helped persuade retailers to carry Sunbeam products (See box).
The AMA's outright refusal this month to honor the contract signed on Aug. 5 came as a blow to Sunbeam, and the company filed a federal lawsuit last week to compel the AMA to comply with contract terms.
In the suit, Sunbeam claims its exclusive five-year rights to the AMA name and seal are worth more than $20 million and that the AMA damaged the reputation of Sunbeam products by trying to back out.
"The AMA cannot just change its mind and expect to walk away from our agreement because of adverse publicity directed at the AMA," Sunbeam Chairman Albert Dunlap said.
AMA Board of Trustees Chairman Thomas Reardon, M.D., said the AMA board never approved or reviewed the controversial deal. It drew heavy fire from consumer groups and other associations, which charged the AMA was placing profits ahead of patients.
Last week Reardon said he asked AMA General Counsel Kirk Johnson to conduct an "in-depth analysis" of how the deal occurred, which he expected to receive this week.
It might be difficult, however, to pin blame because at least three AMA departments were involved.
According to court documents, the agreement was reviewed and approved by representatives of the AMA's financial services and legal departments and signed by AMA Chief Operating Officer Kenneth Monroe. The deal reportedly was initiated by the AMA marketing department in late 1996.
Reardon said the AMA's Council on Ethical and Judicial Affairs belatedly reviewed the agreement and made its feelings against the deal known to the board, which then told Sunbeam in a Sept. 6 letter it would not honor the contract.
AMA staff who initiated talks with Sunbeam may have envisioned a windfall with little risk. AMA membership dues have been on the decline, constituting just 31.5% of total operating revenues in 1996 compared with 35.8% the year before.
Sunbeam estimated the deal would pump $1 million a year into the coffers of the AMA, which had a 1996 operating profit of $7.6 million and revenues of $220.7 million.
Under the contract, Sunbeam could put the AMA seal on all its 151 Health at Home products. The agreement allowed the AMA to withhold use of its trademark on a particular product if it found the product's "medical efficacy" was unsatisfactory. There were no terms, however, for breaking the deal.
The AMA faced a flurry of criticism after the deal was announced Aug. 12. Speculation continued over the future of AMA Executive Vice President John Seward, M.D., who is undergoing the second major flap of his 18-month tenure. Last spring, Seward was involved in the AMA's controversial decision to support a ban on partial-birth abortions in what was viewed as an attempt to curry favor with Congress for the economic advantage of physicians.
American Hospital Association President Richard Davidson, speaking to reporters in Washington last week, said the debacle serves as a "critical juncture" for the AMA and other associations.
"I think they'll evaluate what it is they'll be involved with, the kind of things they'll lend their name to and kind of question their value system," he said.