Masimo Awarded $420 Million in Antitrust Victory over Tyco Nellcor

Following a four-week trial that ended in late March, a federal jury in Los Angeles determined that Tyco Healthcare’s Nellcor division (Pleasanton, CA), a business unit of Tyco International Ltd. (Pembroke, Bermuda), violated antitrust laws related to the sales of its pulse-oximetry technology and awarded $140 million in damages to the plaintiff, Masimo Corp. (Irvine, CA). Under antitrust laws, the award is automatically tripled to $420 million. The Tyco unit must also pay all of Masimo’s legal costs.

Specifically, the jury ruled that Nellcor unlawfully exercised and maintained monopoly power through a series of anticompetitive practices—including sole-source agreements, bundling of unrelated products, compliance-based pricing contracts, and exclusionary marketing agreements with manufacturers—that constituted unlawful restraints of trade.

Masimo’s Kiani: A $420 million message.

Commenting on the verdict, Joe E. Kiani, Masimo’s founder, chairman, and CEO, said his company sought legal relief from Tyco’s practices, which prevented purchasing decisions from being made on the merits of the particular product. “We are gratified that the jury found in our favor. Today, my hope is that this verdict will do more than simply open competition in the pulse-oximetry market, but also send a strong message that medical product sales and purchases should be based on each individual product’s ability to help clinicians improve patient care. We hope this verdict will benefit patients and our nation’s healthcare system by fostering vigorous competition, thereby promoting innovative, cost-effective technologies.”

The Medical Device Manufacturers Association (MDMA; Washington, DC) hailed the jury verdict as “a victory for patients, innovation, and the healthcare system as a whole, as well as a critical step in addressing anticompetitive and other questionable practices by certain dominant manufacturers and hospital GPOs.” MDMA has been a steadfast critic of what it considers to be the anticompetitive practices of some medtech manufacturers and group purchasing organizations (GPOs) that sell medical equipment directly to hospitals. According to MDMA executive director Mark Leahy, “Dominant manufacturers should not be able to prevent doctors, nurses, and patients from accessing innovative, cost-effective products.”

MDMA’s Leahey: A blow for access.

MDMA’s actions are largely credited with bringing the matter of alleged anticompetitive practices in the medtech and hospital supply industries to the attention of federal regulators. The Senate Judiciary Antitrust Subcommittee has held three hearings on the subject over the last several years. Last year, committee chair Senator Mike DeWine (R–OH) and ranking member Senator Herb Kohl (D–WI) introduced the Medical Device Competition Act of 2004, which, according to MDMA, would “ensure open and fair access to innovative, cost-effective medical technologies.”

The legal skirmishes between Masimo and Tyco Healthcare’s Nellcor division regarding anticompetitive practices in the pulse-oximetry market have gone on for several years and have involved a number of suits and countersuits. Masimo has been on the upside of most of the verdicts, but Nellcor can cite a few victories as well. And while many industry analysts detected an aura of finality in the latest jury verdict, apparently such a sighting is premature.

Shortly after the verdict was announced, Nellcor president David Sell expressed “disappointment” and asserted that Nellcor’s business practices have always been in full compliance with federal and state antitrust laws. “We will not pay any monetary damages unless there is a final ruling against Nellcor, after all appeals and other steps in the case are complete.” The company said it plans to challenge the jury verdict in posttrial motions and, if necessary, will formally appeal the case. Sell emphatically insisted that “this verdict will have absolutely no impact on Nellcor’s ongoing ability to provide products and services to its customers.”

© 2005 Canon Communications LLC

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