A federal judge has fined Boston Scientific Corporation (BSC) more than $7 million for violating a A Federal Trade Commission (FTC) order that was designed to preserve competition in a vital area of medical technology. It's the largest civil penalty ever imposed for violation of an FTC order.
U.S. 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 (HP).
The judge ordered BSC, headquartered in Natick, Massachusetts, to pay $7,040,000 in civil penalties to the United States. The largest previous civil penalty for violation of an FTC antitrust consent order was $4 million.
"BSCs goal was to drive HP out of the catheter market," Judge Saris wrote in her opinion. "BSC 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 FTCs 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."
Intravascular ultrasound (IVUS) catheters are tiny medical devices that, when inserted into a persons 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 United States.
Prior to 1995, about 50 percent of the IVUS consoles used with catheters in hospitals were manufactured by Hewlett-Packard Company and about 40 percent were manufactured by a company called CVIS. BSC and CVIS were two of just three companies that made IVUS catheters. When BSC made plans to purchase CVIS and SCIMED Life Systems, Inc., a company that planned to enter the IVUS market, the FTC moved to block the acquisitions as anticompetitive because it would have put BSC in the position of controlling 90 percent of the IVUS market.
The FTC subsequently agreed to allow the merger to proceed on the condition that BSC comply with an agreement to share its IVUS catheter technology, licenses, and know-how with HP. The FTCs order sought to permit HP to acquire IVUS catheters from BSC for use with its consoles and to develop catheters of its own to compete with BSC.
Judge Saris ruled that BSC was "a substantial contributing cause" to Hewlett-Packards decision to leave the field in 1998. In a decision released on Friday, March 28, the judge said that BSC "acted in bad faith," took an "obstreperous approach" to the FTCs order, refused to provide its latest catheters to HP, withheld intellectual property for an important "automatic pullback device" that improves the accuracy of the catheters measurements, and interfered with HPs efforts to develop its own technology.
Judge Saris held that one of the casualties of HPs departure was the loss of its new catheter, the Scout, which was substantially superior to BSCs catheters. The court held that BSCs 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 HPs exit, patients with heart disease were left with technology inferior to that available in 1995."
Although BSC claimed that it had a genuine difference of opinion with HP over what the FTC required BSC to share, the court held that BSC had tried to "hide the ball" from the FTC. If BSC "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 BSC violated the order until at least March 1998 and must pay approximately 50 percent of the maximum provided for by statute for the period prior to July 9, 1997, when the FTC warned BSC that it was violating the order. For its continued refusal to comply after that date, however, Judge Saris determined that BSC "chose to take the risk of ignoring the FTCs staff interpretation" and must pay in excess of 90 percent of the maximum for the remaining period.