Masimo receives payment over suit against Covidien for antitrust violations

Jan 12 2010

Masimo (Nasdaq: MASI), the inventor of Pulse CO-Oximetry™ and Measure-Through Motion and Low Perfusion pulse oximetry, announced today that it retained $30,064,684 from a payment from Covidien, following the Ninth Circuit Court of Appeals' October 2009 affirmance of a Federal District Court decision that Tyco Healthcare, now Covidien, violated the antitrust laws through anticompetitive business practices related to the sale of its pulse oximetry products. The decision found that Covidien had unlawfully maintained monopoly power in violation of Section 2 of the Sherman Act, and that Covidien's sole-source agreements and market-share based compliance pricing contracts constituted unlawful restraints of trade in violation of Section 1 of the Sherman Act and unlawful exclusive dealing in violation of Section 3 of the Clayton Act.  The Ninth Circuit also stated that above-cost bundling discounts when combined with sole-source or market-share–based compliance contracts can be anticompetitive when such practices involve a significant portion of the market. The suit was originally filed by Masimo in 2002.  The judgment against Covidien for the antitrust violations was for $43.5 Million; however, the total payment, after reimbursement for legal fees, costs, and interest was $58,982,215.  The portion of the total payment from Covidien that was not retained by Masimo was paid to the law firm that handled the trial for Masimo.

Some confusion seems to have occurred in the last few days as a result of another ruling by the Ninth Circuit Court of Appeals in January 2010 in the Allied Orthopedic Appliances case against Covidien.  The Allied Orthopedic case has no impact on the finding of antitrust liability in the Masimo case.  As noted by the District Court Judge in the Allied Orthopedic decision when referencing the Masimo antitrust case against Covidien, "the instant case [referring to Allied Orthopedic] is 'entirely different' and focuses on overcharges paid by customers on pulse oximetry consumables as a result of Tyco's [now Covidien] foreclosure of generic sensor manufacturers."  

Joe E. Kiani, Founder and CEO of Masimo, stated: "We are happy to have received the payment, but we are hopeful that the results that we have fought will be served, which is to help improve patient care while also reducing cost by improving caregivers' access to cost-effective, innovative products.  This ruling is the result of one of many efforts Masimo has pursued for many years to open markets so that medical products are judged on their merits rather than artificial restraints on hospital purchasing.  Opening competition in the pulse oximetry market has caused pulse oximetry pricing to decrease by over 30%.  But, also, many people's lives were either saved or improved as a direct result of their access to Masimo pulse oximeters. "