A federal judge has fined Boston Scientific Corporation more than $7 million for violating a Federal Trade Commission (FTC) order that was designed to preserve competition in an important area of medical technology.
The fine is the largest civil penalty ever imposed for violation of an FTC antitrust order. US District Judge Patti B. Saris held that Boston Scientific acted in ‘bad faith’ and ‘harmed’ people with heart disease when it reneged on its obligation to license its intravascular ultrasound technology to a competitor, Hewlett-Packard Company.
The judge ordered Boston Scientific, a medical device manufacturer headquartered in Natick, MA to pay $7,040,000 in civil penalties to the US. The largest previous civil penalty for violation of an FTC order was $4 million.
‘Boston Scientific’s goal was to drive HP out of the catheter market,’ Judge Saris wrote in her opinion. ‘Boston Scientific violated not only the letter but also the spirit of the consent order, the very purpose of which was to create an independent competitor. The FTC’s authority must be vindicated; otherwise, parties to anticompetitive mergers will have every incentive to sign a consent decree to induce the FTC to withdraw its injunction, and then breach the promises made in the order.’
The US Department of Justice’s Office of Consumer Litigation in Washington, DC, and the US Attorney’s Office in Boston filed suit against Boston Scientific on behalf of the FTC in 2000. Trial on the assessment of civil penalties was held in August and September 2002.
Intravascular ultrasound (IVUS) catheters are tiny medical devices that, when inserted into a person’s coronary arteries, reflect images from inside the coronary arteries to an attached console so that cardiologists can observe the location and amount of damage to the arteries from cholesterol buildup and other diseases. Cardiologists need this information for diagnostic and treatment purposes. The precision of the measurements also are vital to gauging the effectiveness of new drugs that are being tested to combat coronary artery disease, the leading cause of death in the US.
Prior to 1995, about 50% of the IV US consoles in hospitals were manufactured by Hewlett-Packard and about 40% were manufactured by a company called CVIS. Boston Scientific and CVIS were two of just three companies that made IVUS catheters. When Boston Scientific made plans to purchase CVIS and Scimed Life Systems, a company that planned to enter the IVUS market, the FTC moved to block the acquisitions as anticompetitive.
However, the FTC subsequently agreed to allow the merger to proceed on the condition that Boston Scientific comply with an agreement to share its IVUS catheter technology, licenses, and know-how with Hewlett-Packard. The FTC’s order sought to permit Hewlett-Packard to acquire IVUS catheters from Boston Scientific for use with its consoles and to develop catheters of its own to compete with Boston Scientific.
Judge Saris ruled that Boston Scientific was ‘a substantial contributing cause’ to Hewlett-Packard’s decision to leave the field in 1998. In a decision released on Friday, the judge said that Boston Scientific ‘acted in bad faith,’ took an ‘obstreperous approach’ to the FTC’s order, refused to provide its latest catheters to Hewlett-Packard, withheld intellectual property for an important ‘automatic pullback device’ that improves the accuracy of the catheter’s measurements, and interfered with Hewlett-Packard’s efforts to develop its own technology.
Judge Saris held that one of the casualties of Hewlett-Packard’s departure was the loss of its new catheter, the Scout, which was substantially superior to Boston Scientific’s catheters. The Court held that Boston Scientific’s virtual monopoly resulted in a decline in its research and development funding and in innovation. ‘The most poignant concern is that people with heart disease were harmed…. [A]fter HP’s exit, patients with heart disease were left with technology inferior to that available in 1995.’
Although Boston Scientific claimed that it had a genuine difference of opinion with Hewlett-Packard over what the FTC required Boston Scientific to share, the Court held that Boston Scientific had tried to ‘hide the ball’ from the FTC. If Boston Scientific ‘was uncertain of the reach of the Order, it had an obligation to do more than see how close to the sun it could fly with impunity.’ The Court also noted that, ‘there is a compelling interest in vindicating the authority of the FTC in enforcing its consent decrees, and in deterring parties from flouting the terms of consent decrees.’
In calculating civil penalties for its refusal to license the automatic pullback device, Judge Saris determined that Boston Scientific violated the order until at least March 1998 and must pay approximately 50% of the maximum provided for by statute for the period prior to July 9, 1997, when the FTC warned Boston Scientific that it was violating the order. For its continued refusal to comply after that date, however, Judge Saris determined that Boston Scientific ‘chose to take the risk of ignoring the FTC’s staff interpretation’ and must pay in excess of 90% of the maximum for the remaining period.