A federal judge in California dealt a setback to CareFusion Corp. (NYSE:CFN) in its anti-trust and patent infringement lawsuit against Medtronic Inc. (NYSE:MDT), tossing the anti-trust claims but giving CareFusion an out.
Judge Lucy Koh of the U.S. District Court for Northern California ruled that CareFusion failed to prove that Medtronic sought to illegally dominate the markets vertebroplasty and kyphoplasty, but gave the San Diego-based company a month to file an amended complaint.
CareFusion accused Medtronic of scheming to keep competitors out of the markets by the “acquisition of assets from third parties in an illegal attempt to monopolize, monopolization, and obtaining and acquiring knowingly invalid and unenforceable patents,” according to court documents. “[Medtronic has] eliminated competition and obtained approximately 85 percent or more market share in the minimally invasive vertebral compression fracture treatment product market and approximately 97 percent or more market share in the alternative kyphoplasty product market.”
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The lawsuit also seeks a judgment that four related patents are either invalid or not infringed by San Diego-based CareFusion.
Vertebroplasty involves the placement of bone cement products into fractures of the vertebrae, which are commonly related to osteoporosis. In kyphoplasty, a balloon is used to create a void in the vertebrae before the bone cement is used. The void can also be created by cutting tools or other expandable devices.
The lawsuit alleges that Medtronic and its Kyphon Inc. subsidiary “continued to seek and obtain numerous patents for minor, trivial, and/or obvious modifications to its kyphoplasty procedures and/or the equipment used during a kyphoplasty procedure” and “actively sought to acquire additional patents related to the minimally invasive vertebral compression fracture treatment products, including kyphoplasty, from third parties as part of a scheme to eliminate and/or reduce competition in that market and in the alternative kyphoplasty product market,” according to court documents.
The suit cites Kyphon’s $12.3 million acquisition of an exclusive license to 23 patents held by Dr. Peter Bonutti in 2002, its 2003 buyout of Germany’s Sanatis GmbH for $3.2 million, its 2005 deal to acquire five patents from Dr. J. Lee Berger for $1 million and a licensing deal for intellectual property held by Dr. Harvinder Sandhu that same year for an undisclosed amount. All were “part of [Medtronics’] scheme to eliminate competition” in the marketplace, according to the lawsuit.
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It also charges Medtronic with artificially raising the price of its kyphoplasty products, including an alleged scheme to defraud Medicare.
“Kyphon embarked on a years-long pricing and marketing scheme that defrauded Medicare and enabled it to charge higher, inflated prices for its kyphoplasty products,” according to court documents. The company, “to entice certain hospitals and doctors to pay these higher, inflated prices for its kyphoplasty products,” allegedly “convinced those hospitals and doctors to keep patients receiving the kyphoplasty procedure overnight, even though kyphoplasty is typically an outpatient procedure, so that Medicare could be billed at a higher rate for an inpatient procedure.”
“Kyphon’s pricing and marketing scheme, which was facilitated by its monopoly power, defrauded the United States government of millions of dollars,” according to the lawsuit. “As a result of Kyphon ‘s illegal pricing and marketing schemes, Kyphon settled with the United States Department of Justice for $75 million.”
The suit also alleges that Kyphon looked to hold on to its monopoly by trying to stifle competition using patent infringement lawsuits, including cases it filed against Disc-O-Tech Medical Technologies Ltd., which the companies settled before Kyphon bought Disc-O-Tech in December 2006. The Federal Trade Commission later forced Kyphon to sell off Disc-O-Tech’s Confidence line of bone cement injection products. Medtronic bought Kyphon in 2007 for nearly $4 billion.
CareFusion, looking to enter the market, waited until a pair of Medtronic patents expired in February last year before launching its 8 Gauge Inflatable Bone Tamp kyphoplasty device, according to court documents, timing its Food & Drug Administration applications to the patents’ expiration. In response, the lawsuit alleges, Medtronic “issued numerous threatening statements directed towards CareFusion as part of Defendants’ scheme to eliminate competitors, and specifically CareFusion,” according to the lawsuit. The suit cites a number of media and analysts’ reports indicating an expectation that Medtronic would sue CareFusion once the product was launched and several statements by Medtronic CEO Bill Hawkins that the company planned to “vigorously defend and assert our IP against any of those that we have reason to believe are infringing our intellectual property.”
But Koh ruled that the complaint fails to show how Medtronic’s allegedly anti-competitive conduct harms both competition and CareFusion.
“CareFusion’s only allegations are that Defendants made public statements about protecting and enforcing their intellectual property rights. CareFusion has not alleged that Defendants made direct threats of litigation against them or exacted a license agreement in exchange for not bringing suit. Thus, Defendants’ conduct does not rise to the level of bad faith patent enforcement,” Koh wrote, according to court documents.
“Moreover, it is not clear how Defendants’ public statements regarding defending its intellectual property have caused any injury to CareFusion,” she wrote. “CareFusion is not defending itself in a suit, but rather is the party initiating the litigation.”
As for the alleged Medicare fraud scheme, Koh ruled that the lawsuit doesn’t establish how the alleged scheme hurt CareFusion.
“Defendants did not charge a lower price for their kyphoplasty products or restrict their sale of products,” she wrote. “CareFusion … argues that it lost sales in the vertebroplasty cement market. Yet CareFusion did not start selling vertebroplasty cement until 2006, many years into Defendants’ alleged scheme. Even more telling, CareFusion makes no allegations as to how the Medicare pricing scheme actually harmed competition overall — on CareFusion’s own allegations, the true harm was to the federal government’s Medicare program, not to consumers or competitors.”
And the argument that Medtronic’s actions harmed CareFusion’s kyphoplasty sales doesn’t hold water, Koh ruled.
“CareFusion did not enter the kyphoplasty market until April 2010, leaving its allegations of harm highly speculative and indirect,” the judge wrote. “CareFusion does not explain why it did not enter the market when, on its own allegations, it was ready to do so ‘for at least two years’ prior to the expiration of the patents in February 2009. … [I]t is not clear to the Court how CareFusion can plausibly allege lost sales from Defendants’ acquisition of patents and other companies at a time when CareFusion was not in the market. Moreover, CareFusion fails to allege unlawful conduct that caused injury to CareFusion and to the market overall — on the face of its Complaint, CareFusion timed its entrance into the kyphoplasty market based on the expiration of the … patents.”
The Massachusetts Medical Devices Journal is the online journal of the medical devices industry in the Commonwealth and New England, providing day-to-day coverage of the devices that save lives, the people behind them, and the burgeoning trends and developments within the industry.
