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Lenox Maclaren Surgical Corp. v. Medtronic, Inc.

United States Court of Appeals, Tenth Circuit

February 7, 2017

LENOX MACLAREN SURGICAL CORPORATION, Plaintiff - Appellant / Cross-Appellee,
MEDTRONIC, INC.; MEDTRONIC SOFAMOR DANEK, INC.; MEDTRONIC PS MEDICAL, INC., d/b/a Medtronic Neurologic Technologies; MEDTRONIC SOFAMOR DANEK CO., LTD., Defendants-Appellees / Cross-Appellants.

         Appeal from the United States District Court for the District of Colorado (D.C. No. 1:10-CV-02139-MSK-NYW)

          Derek T. Ho, Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C., Washington, D.C. (G. Stephen Long, Nicole A. Westbrook, Jones & Keller, Denver, Colorado, with him on the briefs), for Plaintiff-Appellant/Cross-Appellee.

          Mark C. Fleming, Wilmer Cutler Pickering Hale and Dorr, LLP, Boston, Massachusetts (Ari Holtzblatt, Ryan McCarl, Wilmer Cutler Pickering Hale and Dorr, LLP, Washington, D.C., and Steven Zager, Akin Gump Strauss Hauer & Feld LLP, New York, New York, with him on the briefs), for Defendants-Appellees/Cross-Appellants.

          Before LUCERO, HARTZ, and McHUGH, Circuit Judges.

          McHUGH, Circuit Judge.


         In 2010, Lenox MacLaren Surgical Corporation ("Lenox") sued several related corporations-Medtronic, Inc.; Medtronic PS Medical, Inc. ("PS Medical"); Medtronic Sofamor Danek, Inc. ("MSD, Inc."); and Medtronic Sofamor Danek Co. Ltd. ("MSD Japan") (collectively, "Defendants")-for monopolization and attempted monopolization in violation of § 2 of the Sherman Act. 15 U.S.C. § 2. Lenox alleged that Defendants engaged in illegal activity to advance a coordinated, anticompetitive scheme in which a related non-party, Medtronic Sofamor Danek USA, Inc. ("MSD USA"), also participated. Lenox had sued MSD USA in 2007 on claims arising from the same set of facts.

         This appeal, the third in this case, challenges the district court's disposition of Defendants' second motion for summary judgment, which claimed that Lenox could not prove the elements of its antitrust claims against any of the named Defendants individually, and that Defendants cannot be charged collectively with the conduct of MSD USA or of each other. They also argued that the doctrine of claim preclusion bars Lenox's claims, in light of the prior proceeding against MSD USA. The district court granted summary judgment, holding that because Lenox could not establish each of the elements of an antitrust claim against any one defendant, or establish a conspiracy among them, Lenox's claims fail as a matter of law.

         Lenox now appeals, alleging several errors in the district court's substantive analysis of Lenox's § 2 claims. Defendants cross-appeal to preserve their argument that, even if the district court erred in resolving Lenox's antitrust claims, we should affirm on the alternative basis of claim preclusion.

         For the reasons set forth below, we conclude that Lenox raised a viable antitrust theory, but we decline to address the merits of Lenox's antitrust claims because to the extent Defendants can be held liable under Lenox's theory of antitrust liability, they are in privity with MSD USA. As a result, Lenox's claims are barred by the claim preclusion arm of res judicata. We therefore affirm the district court's grant of summary judgment for Defendants on that basis.


         The parties' dispute traces back to 2000, when Lenox entered into an agreement to sell bone mills-surgical tools that Lenox manufactures-through MSD USA. The arrangement with MSD USA did not go as Lenox had hoped: MSD USA initiated a recall of Lenox's bone mills, and one of the present defendants, PS Medical, began to manufacture and sell its own bone mills to former users of Lenox's product. As we explain in greater detail below, it is this failed arrangement that forms the factual nucleus of this case.

         Before proceeding further into the background recitation, we pause to clarify the identities of, and relationships among, the several Medtronic entities involved in this dispute. In our decisions resolving the two prior appeals in this case, and in Lenox's various filings in the district court, the four named defendants often are referenced as one: in Lenox MacLaren Surgical Corp. v. Medtronic, Inc. (Lenox I), 449 F.App'x 704 (10th Cir. 2011) (unpublished), they are "the Medtronic Defendants"; and in Lenox MacLaren Surgical Corp. v. Medtronic, Inc. (Lenox II), 762 F.3d 1114 (10th Cir. 2014), and many of Lenox's filings, they are "Medtronic." For purposes of assessing the district court's order and the issues raised in this appeal, however, it is important to keep the actions of the various entities separate.

         A. The Medtronic Entities

         Medtronic, Inc. is the highest-tier Medtronic entity named as a defendant in this case and is the parent or grandparent corporation of the other three defendants, as well as non-party MSD USA, the Medtronic entity Lenox sued in the prior litigation and arbitration. PS Medical and MSD, Inc. are wholly owned subsidiaries of Medtronic, Inc.; and MSD Japan and MSD USA are wholly owned subsidiaries of MSD, Inc. The relevant corporate structure thus looks like this:

. Medtronic, Inc. (defendant)
o MSD, Inc. (defendant)
■ MSD Japan (defendant)
■ MSD USA (non-party)
o PS Medical (defendant)

         B. Factual History [1]

         Lenox was one of the first companies to design and produce a bone mill, which is a medical tool that grinds bone into fragments for use in spinal-fusion surgeries. In April 2000, Lenox entered into a five-year Exclusive Supply and License Agreement (the "license agreement" or the "agreement") with MSD USA. The agreement granted MSD USA the exclusive right to purchase Lenox's bone mills, rebrand them, and distribute them. In exchange, MSD USA promised to "refrain from purchasing [bone mills] from any third party or from producing [bone mills] itself, " and agreed to certain minimum purchase requirements. Specifically, the agreement required MSD USA to purchase 500 bone mills in the first year and to purchase 100 bone mills per quarter thereafter to maintain the exclusivity of its distribution rights. Among other additional provisions, the agreement contained a dispute resolution clause under which the parties agreed to arbitrate "any dispute arising out of or relating to" the agreement.

         MSD USA made the initial purchase of 500 bone mills in the first year but did not purchase any bone mills after that. Lenox therefore notified MSD USA in 2001 that its distribution rights were no longer exclusive.

         MSD USA sold some of the 500 Lenox bone mills but distributed the rest through a "loaner program, " whereby doctors and hospitals could use the bone mills for free while MSD USA retained ownership of them. Under this program, the bone mills were returned to MSD USA after each surgery to be sterilized and redistributed for reuse. MSD USA sold or loaned some of the bone mills to MSD Japan, which marketed them to doctors and hospitals in Japan.

         In November 2002, after MSD USA had purchased the 500 Lenox bone mills, PS Medical began developing a pneumatic bone mill of its own. This device proved commercially unsuccessful, and in 2006, PS Medical began developing a new electric bone mill called the Midas Rex.

          Between 2000 and 2006, Lenox and MSD USA received only one complaint about Lenox's bone mill-an April 2003 report from an MSD Japan representative stating that a piece of metal was found in the ground bone fragments produced by the device. Lenox reviewed the report, determined the malfunction was caused by user error, advised MSD USA of its determination, and did not hear anything further about the incident from MSD USA.

         Then, on September 4, 2006, an MSD Japan representative generated three new complaints. Each complaint was logged on a "Reported Event Form, " and included an identical event description: "Metal fragments were mixed with bone fragments (New product)." The reported complaints allegedly came from three Japanese surgeons, but when Lenox located these surgeons they denied lodging the complaints.[2] The Reported Event Form, which appears to be a standard, fill-in-the-blank document, contains the following stock instruction: "Please complete all applicable sections and return to MSD Global." There is no Medtronic entity known as MSD Global.

         MSD USA received these complaints and, in October 2006, initiated a recall of Lenox's bone mill. But even before it initiated the recall, in mid-to-late September, MSD USA employees began taking steps to replace Lenox's bone mills loaned to physicians with PS Medical's Midas Rex bone mill. PS Medical started selling the Midas Rex in January 2007. It specifically targeted prior users of the Lenox bone mill, using MSD

          USA's customer list. As we detailed in Lenox II, PS Medical went on to attain a monopoly in the market for surgical bone mills. 762 F.3d at 1123-24.

         C. Procedural History

         1. Prior Proceeding Against MSD USA

         Lenox sued MSD USA in 2007, alleging that MSD USA entered into the license agreement, engaged in the loaner program, and initiated the recall, all for the purpose of creating market demand for a mechanical bone mill, clearing the market of Lenox's competing bone mill, and then filling that market vacuum with the Midas Rex bone mill. Specifically, Lenox asserted claims for patent infringement, violation of the Colorado Consumer Protection Act, and trade libel. MSD USA moved to compel arbitration under the terms of the license agreement. The district court granted the motion, and the lawsuit was administratively closed and stayed pending the outcome of the arbitration.

         Once in arbitration, Lenox filed an Amended Arbitration Demand Statement, adding, among others, a claim for intentional interference with Lenox's prospective economic relations. After an evidentiary hearing, the arbitral panel rejected most of Lenox's claims, concluding, among other things, that the loaner program and production of the Midas Rex bone mill did not breach the license agreement, that MSD USA did not breach the covenant of good faith and fair dealing, and that the loaner program did not infringe Lenox's patent. The arbitrators did determine, however, that MSD USA's recall of the bone mills was "intentional and wrongful, " and that MSD USA thereby intentionally interfered with Lenox's prospective business relations. The arbitrators concluded MSD USA was liable to Lenox for $246, 000 in damages, plus prejudgment interest, and issued an award to that effect.

         MSD USA paid Lenox the damages owed, and the parties thereafter agreed to administratively reopen the district court proceeding and to dismiss the case with prejudice.

         2. This Case

         In September 2010, Lenox filed the present case against Defendants, alleging monopolization and attempted monopolization in violation of § 2 of the Sherman Act, as well as ...

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