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Masimo Antitrust Litigation Status
Nellcor has been involved in an antitrust lawsuit brought by Masimo Corporation
in which Masimo claimed that Nellcor's contracts with hospital group purchasing
organizations (GPOs) and other contracting practices limited the amount of pulse
oximetry sales Masimo could achieve. In March 2005, the trial phase ended with a
jury finding Nellcor liable for four business practices: sole source agreements,
"market share" discounts (pricing based on percentage purchase levels),
bundling discounts and OEM co-marketing agreements. (A fifth practice was initially
included in the suit, but that claim was rejected.)
We are pleased to report that on March 22, 2006, the district court issued a decision
regarding post-trial motions in this case, with the following outcomes:
- The judge reversed the jury liability finding regarding two business practices:
bundled discounts and OEM co-marketing.
- The district court vacated the entire $140 million damage award (which is tripled
in antitrust cases).
- The judge ordered a new trial to re-assess the damages amount for the remaining
two practices because the original award was not supported by the evidence.
- The Court found no evidence that Masimo is "currently suffering" antitrust
injury from either market share discounts or sole source contracts in place today.
After the new trial to reassess alleged damages, Nellcor will appeal any remaining liability
to the Court of Appeals, as we firmly believe our business practices have always been fair,
legal and ethical, and that we have always complied with federal and state antitrust laws.
GPO Contracts
GPOs are private firms that pool their members' collective healthcare product needs to
enhance the purchasing power of their members. The end result is lower pricing for participating
hospitals.
The majority of the current GPO contracts for pulse oximetry products have moved to dual-source
or multisource arrangements. GPOs follow a rigorous process to select vendors to whom they issue
contracts. Many evaluation factors are considered, including clinical benefits and performance
of products, pricing, the ability to provide adequate service and support, and so forth.
Please note the following points:
- The eventual outcome of this case has absolutely no impact on Nellcor's ability to
provide products and services to our customers. In addition, customers can continue to purchase
according to the terms of any existing contracts with Nellcor (directly or through a GPO agreement).
- Nellcor has been awarded, and continues to be awarded, numerous GPO contracts. Our
contracting practices are not unique and are widely used by many medical device manufacturers
within the healthcare industry. In fact, Masimo itself participates in GPO contracts.
- GPO member hospitals have always had the option to purchase from Nellcor or other manufacturers
of their choosing, whether on contract or not. Participation in the contract agreements is
voluntary.
- The discounts GPO agreements provide are highly valued by all our customers and have contributed
to lower pricing year after year for participating hospitals.
In a competitive environment, business success is built on many factors, including market timing,
appropriate product choice and market-desired features and benefits, customer service, technical
support, customer brand preference, and reputation for performance and reliability. The marketplace
is constantly changing, and Nellcor will continue to respond to customer needs and preferences.
Nellcor will also continue to comply with all federal and state antitrust laws, and conduct itself
with utmost integrity.
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