Masimo Corp., the small manufacturer of pulse oximetry technology that has spearheaded a national battle against large, dominant device manufactures, prevailed in an antitrust lawsuit against its giant competitor, Tyco Healthcare.
Finding in favor of Masimo, which accused Tyco of monopolizing the hospital marketplace with the help of its contracts with hospital group purchasing organizations, a Los Angeles federal jury awarded the Irvine, Calif.-based privately held company $140 million in damages. Under antitrust laws, the damages are automatically tripled to $420 million plus attorneys' fees. Officials at Nellcor, the Tyco Healthcare company that directly competes with Masimo, said in a news release that it would challenge the verdict in post-trial motions and, if necessary, appeal.
The decision arrives at a time when the GPO industry is formulating a voluntary ethics initiative aimed at averting legislation that would regulate its business practices (March 21, p. 12). Small manufacturers of medical equipment, like Masimo, have long complained that they have been shoved out of the hospital marketplace by large companies, like Tyco, that have cozy relationships with GPOs.
"My sincere desire is that this verdict will do more than simply open competition in the pulse oximetry market, but also send a strong message that product sale and purchases should be based on each individual product's ability to help clinicians improve care," said Joe Kiani, founder and chief executive officer of Masimo, in a news release. "We hope this verdict will benefit patients and our nation's healthcare system by fostering vigorous competition, thereby promoting innovative, cost-effective technologies."
Masimo has been involved in litigation with Nellcor since late 1999. A year ago, a federal jury in Los Angeles found that Nellcor infringed on certain Masimo patents and rejected Nellcor's claims that Masimo infringed on a Nellcor patent. Nellcor appealed some of the decisions concerning Masimo's patents, according to the Masimo Web site.
The case takes an important step for other small medical technology companies, said Mark Leahey, executive director of the Medical Device Manufacturers Association, or MDMA. "The case, I think, shows how Tyco utilized anticompetitive practices of bundling arrangements and sole source contracting through their relationships with hospital GPOs to foreclose the market," Leahey said. "This highlights the need for reform both as it relates to certain contracting practices of dominant manufacturers as well as the contracting practices of certain GPOs. ... This kind of foreclosure of the marketplace would not be as easy to manipulate if the GPOs weren't involved."
The GPO industry is not buying those arguments, noting that the business practices under debate are not unique to the hospital industry. The verdict does not remedy the fact that hospitals are not willing to contract with "any willing vendor," as the MDMA would like, said Robert Betz, president and CEO of the Health Industry Group Purchasing Association. "I haven't seen anything new here. Maybe (the MDMA) wants to spin it into some landmark decision, but if you are looking at the basis of the argument that these practices are peculiar to healthcare or somehow or other healthcare providers are not getting quality products, I don't get either," Betz said.
Officials at Premier and Novation, the nation's two largest GPOs, said they were not parties to the litigation and had no comment on the outcome. Both GPOs said they have purchasing contracts with both Masimo and Nellcor. The Masimo contract has been in place at Novation since 2003 and at Premier since 2002.
Nellcor said in a news release it is disappointed by the jury's decision but remains committed to its products. "There will be absolutely no impact on Nellcor's ongoing ability to provide products and services to its customers as a result of this verdict," David Sell, president of Nellcor, said in the release.