United States Attorney Michael J. Sullivan, Assistant Attorney General Robert D. McCallum, Jr., and Federal Trade Commission Bureau of Competition Director Joe Simons announced today that a federal judge has fined Boston Scientific Corporation (BSC) more than $7 million for violating an 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 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, a medical device manufacturer 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.
"BSC’s 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 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."
FTC Competition Director Simons said, "We are pleased that Judge Saris has underscored, with this penalty, the importance of complying with the FTC’s orders. The penalty here should serve as a clear signal to all firms under FTC order that they must abide by those terms or face severe consequences. Penalties are meant to penalize and deter, and we hope that everyone will take that lesson from the result here."
The U.S. Department of Justice’s Office of Consumer Litigation in Washington, DC, and the U.S. Attorney’s Office in Boston filed suit against BSC 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 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 FTC’s 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-Packard’s 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 FTC’s order, refused to provide its latest catheters to HP, withheld intellectual property for an important "automatic pullback device" that improves the accuracy of the catheter’s measurements, and interfered with HP’s efforts to develop its own technology.
Judge Saris held that one of the casualties of HP’s departure was the loss of its new catheter, the Scout, which was substantially superior to BSC’s catheters. The court held that BSC’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 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 FTC’s staff interpretation" and must pay in excess of 90 percent of the maximum for the remaining period.
The trial was handled by Drake Cutini and Patrick Jasperse of the Office of Consumer Litigation, U.S. Department of Justice in Washington, DC, Assistant U.S. Attorney Anita Johnson of Sullivan’s Office, and Anne Schenof and Kenneth Libby, in the Compliance Division of the FTC’s Bureau of Competition, Washington, DC.
The FTC’s Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, D.C. 20580, Electronic Mail: email@example.com; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published "Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws," which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.
(Civ. No. 00-12247-PBS)