In a summons lodged with a federal court in Los Angeles in early July, recently created North Carolina-based UniStrip Technologies claimed that LifeScan Scotland, together with its US sister company LifeScan Inc, had engaged in anti-competitive and monopolistic business practices in a bid to keep UniStrip out of the market.
The complaint asks the court for a jury trial, an injunction to restrain LifeScan's alleged anti-competitive behaviour and unspecified damages. If upheld, the complaint could severely disrupt LifeScan's highly lucrative market share in the US where it is one of the top two producers of home diagnostic kits for diabetics.
According to UniStrip, LifeScan has withheld rebates and other incentives from US wholesalers and retailers which stock UniStrip's strips, which retail for around one-tenth of the price of LifeScan strips.
UniStrip launched its generic testing strips in the US in April after receiving approval from the Federal Drug Administration last November.
The company's chief executive Richard Admani said that LifeScan's business practices amounted to a "flagrant violation" of antitrust laws. "Unfortunately, filing the lawsuit is the only way to stop LifeScan's exclusionary behaviour," he said.
"Many people with diabetes need a low-cost alternative for test strips. We want to be able to distribute our product without LifeScan threatening or choking off retailers who want to sell our product."
But on Friday, a spokesman for LifeScan Scotland told the Sunday Herald that UniStrip's claims were "without merit and we intend to defend against them".
The spokesman said that the lawsuit centres around the use of testing strips in Lifescan metering devices made from 2012 onwards.
Earlier this year, LifeScan filed a patent infringement lawsuit against UniStrip to try to stop it marketing its strips for use in LifeScan's latest generation of metering devices.
"LifeScan cannot assure the performance or provide support for test strips developed by third parties that are not licensed for use in our products," the spokesman said.
The US market for blood glucose monitoring devices accounts for almost half of the rapidly growing £5 billion global market, currently dominated by Roche and LifeScan.
Single-use testing strips used in meters are normally self-administered by diabetics between two and eight times each day to monitor glucose levels.
This month's legal action by UniStrip is not the first time LifeScan has faced a challenge from a new and smallish company wanting to establish itself in the US diabetes diagnostics market.
Last year, LifeScan filed a patent-infringement suit against the tiny Decision Diagnostics, which also produces testing strips.
With a workforce at its Inverness base of over 1000 people, LifeScan Scotland is the Highlands' largest private-sector employer. The Inverness plant is the home of LifeScan's global research and development arm, and all of LifeScan's products are designed there.
Although the devices themselves are now made by a contracted manufacturer, most of the disposable test strips are made in the Highland capital, with a smaller amount made by a sister plant in Puerto Rico.
Between 2010 and 2011, LifeScan Scotland received £2 million of public money in Regional Selective Assistance to help with new product development. In 2012, it was announced it would receive a further £2.8m from Highlands and Islands Enterprise as part of a deal to establish the Inverness plant as the firm's global research and development HQ.
The £9.5m deal was supposed to create 19 new jobs and secure 1100 jobs at the Inverness plant, but last year Lifescan axed 40 jobs in the city as part of a cut in its global workforce by 250 in response to what it called "fundamental and irreversible shifts" in its global market. Because of this global restructuring announcement in July 2013, the £2.8m HIE grant was never claimed, a company spokesman told the Sunday Herald.
LifeScan Scotland's financial reports submitted to Companies House show steadily rising profits in the three years to the end of 2012. Operating profits of £84.7m in 2010 rose to £97.6m in 2011 and £102.8m in 2012. During the same period, turnover grew from £168.1m in 2010 to £175.9m in 2012.
One industry insider said he believes UniStrip's legal action against LifeScan could well be opportunistic. "In a competitive field like this, a company wanting to grow market share might well think that it is more cost-effective to spend $10m pursuing a lawsuit than the much larger amount of money necessary to develop new products," he said.
Investment is developing new technologies that will eventually replace testing strip devices, such as devices that scan light passing through eyeballs to calculate blood-glucose levels.