Tuesday, November 03, 2009

Pulse Oximeter Maker Liable for Sole Source Discounts, Not Budling

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

A federal district court in California did not err in discarding a jury's finding that a manufacturer of pulse oximeters violated federal antitrust law through its offering of bundled discounts to customers, but confirming the jury's liability finding on two other bases, the U.S. Court of Appeals in San Francisco has decided in an unpublished opinion.

The manufacturer could have acted illegally through sole source agreements and market share discounts it offered to customers, the appellate court said. In addition, the trial court's calculation of damages suffered by a complaining competitor was proper. Therefore, each of the trial court's rulings was upheld.

Antitrust Liability

The manufacturer did not violate Sec. 2 of the Sherman Act through the bundled discounts it offered to customers. The defending manufacturer's discounts were not alleged to have resulted in prices that were below an appropriate measure of its costs. Because no anticompetitive tying or pricing was asserted, the discounts could not, as a matter of law, have violated the statute, the court stated.

Rejected by the appellate court was an argument that the bundling practices were actually illegal market-share agreements, rather than general bundled discounts. Even if it could have been concluded that certain bundling contracts were exclusive dealing arrangements, in that the discounts were conditioned upon a near-complete exclusivity requirement, the evidence concerning the pervasiveness and effects of the varied bundling arrangements was insufficient to support a finding that the arrangements foreclosed competition in a substantial share of the relevant market. Therefore, the trial court did not err in vacating a jury verdict of liability regarding the bundling agreements.

The trial court correctly determined that a reasonable jury, based on the evidence presented at trial, could have concluded that the defending manufacturer violated the federal antitrust laws through sole source agreements and market share discounts it offered to customers. Sufficient evidence had been introduced to support the jury's finding.

On appeal, both parties offered the same evidence that had been presented to the jury and reviewed by the district court. The defending manufacturer failed to proffer any reason at appeal that compelled reversal of the jury's verdict.


The district court did not err in its calculation of damages resulting from the manufacturer's antitrust violations. The court properly determined, based on the evidence presented at trial, that all harm incurred by a complaining competitor on account of the defending manufacturer's anticompetitive business dealings with customers occurred before July 2001, as adherence to that cutoff date did not “absolutely lack evidentiary support.”

The competitor itself had stated that “the period between 1998 and 2001” was “when all harm was done” to it. Therefore, the court did not abuse its discretion in denying the competitor a new trial on damages, the appellate court said.

In addition, an apparent awarding of some post-July 2001 damages was not error, the appellate court noted. That award was based on a conclusion that the competitor should receive damages associated with oximetry monitor sales lost pre-July 2001, which consequently included the flow of lost sensor sales stemming from the lifespan of those devices.

Because of this installed base of monitors, the district court correctly determined that a hard stop on damages would cut them off prematurely. Moreover, because the competitor offered unreasonable models for calculating damages, it was proper for the court to adopt the defendant manufacturer's model—the only reasonable alternative—as its basis for calculating damages, the court concluded.

Concurring Opinion

A concurring opinion contended that the majority arrived at the correct result with respect to the bundling agreements, but for the wrong reason. According to the concurrence, the majority's conclusion—that the evidence on record was insufficient to support the jury's liability verdict that the manufacturer's bundling contracts constituted exclusive dealing arrangements—applied only with respect to the theory that bundling itself was a form of exclusive dealing. However, such a theory no longer held water after Cascade Health Solutions v. PeaceHealth (2007-2 Trade Cases ¶75,846), the concurring opinion argued.

The court should have based its decision instead on the ground that the complaining competitor had waived the argument that the bundling agreements at issue should be treated as market-share discounts.

The October 28 memorandum decision is Masimo Corp.v. Tyco Health Care Group, L.P., 2009-2 Trade Cases ¶76,780.

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