Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-08-56314/USCOURTS-ca9-08-56314-0/pdf.json

Nature of Suit Code: 410
Nature of Suit: Antitrust
Cause of Action: 

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FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

ALLIED ORTHOPEDIC APPLIANCES 

INC., on behalf of itself and all

others similarly situated; BROOKS

MEMORIAL HOSPITAL INC.; DEBORAH

HEART AND LUNG CENTER; NORTH

BAY GENERAL HOSPITAL INC.; No. 08-56314

SOUTH JERSEY HOSPITAL INC., D.C. No. Plaintiffs-Appellants, 

2:05-cv-06419-

v. MRP-AJW

TYCO HEALTH CARE GROUP LP, a

Delaware partnership;

MALLINCKRODT INCORPORATED, a

Delaware corporation,

Defendants-Appellees. 

395

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ALLIED ORTHOPEDIC APPLIANCES 

INC., on behalf of itself and all

others similarly situated,

Plaintiff,

and No. 08-56315

NATCHITOCHES PARISH HOSPITAL D.C. No. SERVICE DISTRICT,

 2:05-cv-06419- Plaintiff-Appellant, MRP-AJW

v. OPINION

TYCO HEALTH CARE GROUP LP, a

Delaware partnership;

MALLINCKRODT INCORPORATED, a

Delaware corporation,

Defendants-Appellees. 

Appeal from the United States District Court

for the Central District of California

Mariana R. Pfaelzer, District Judge, Presiding

Argued and Submitted

December 8, 2009—Pasadena, California

Filed January 6, 2010

Before: David R. Thompson and Barry G. Silverman,

Circuit Judges, and Susan R. Bolton,* District Judge.

Opinion by Judge Silverman

*The Honorable Susan R. Bolton, United States District Judge for the

District of Arizona, sitting by designation. 

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COUNSEL

Herbet E. Milstein, Cohen Milstein Sellers & Toll PLLC,

Washington, DC; and Bruce E. Gerstein and Joseph Opper,

Garwin Gerstein & Fisher LLP, New York, New York, for the

plaintiffs-appellants.

Theodore B. Olson, Christopher D. Dusseault, and Margaret

A. Farrand, Gibson Dunn & Crutcher LLP, Los Angeles, California, for the defendants-appellees. 

OPINION

SILVERMAN, Circuit Judge:

Plaintiffs in this antitrust suit are a group of hospitals and

other health care providers that purchased pulse oximetry sensors from Tyco Healthcare Group LP after November 2003.

They allege that they overpaid for the sensors because Tyco

used two kinds of marketing agreements to foreclose competition from generic sensor manufacturers in violation of Section

1 of the Sherman Act, 15 U.S.C. § 1. They also allege that by

introducing OxiMax, a patented pulse oximetry system that is

incompatible with generic sensors, Tyco unlawfully maintained its monopoly over the sensor market in violation of

Section 2 of the Sherman Act, 15 U.S.C. § 2. 

The district court denied Plaintiffs’ motion for class certification and later granted Tyco’s motion for summary judgment

on the Section 1 and 2 claims. We agree with the district court

that Tyco’s agreements do not violate Section 1; there is no

evidence that they foreclosed competition in a substantial

share of the sensor market. We also agree that there is no Section 2 violation; the undisputed evidence shows that the patented OxiMax design is an improvement over the previous

design. Innovation does not violate the antitrust laws on its

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own, and there is no evidence that Tyco used its monopoly

power to force customers to adopt its new product. Accordingly, we affirm the district court’s judgment on the merits

and have no need to reach the class certification issue. 

BACKGROUND

The pulse oximetry products at issue in this litigation

include sensors and monitors. Sensors attach to a patient’s

body. A monitor receives and interprets the signal from a sensor and then displays the patient’s level of blood oxygenation.

Stand-alone monitors measure only blood oxygenation. Multiparameter monitors measure various patient diagnostics in

addition to blood oxygenation. Monitors are more expensive

than sensors on a unit basis, but the volume of sensor sales is

much larger than the volume of monitor sales. 

Tyco was an early entrant in the pulse oximetry market and

was able to establish an installed base of monitors greatly

exceeding that of its competitors. Its technology was initially

protected by its “R-Cal” patent, which prevented competitors

from selling sensors compatible with its installed base of

monitors. Tyco anticipated that upon expiration of the R-Cal

patent in November 2003, competitors would begin to produce generic sensors compatible with its installed base of

monitors. It thus set about creating a new proprietary

oximetry technology. 

Tyco’s plan matured into what became known as the “OxiMax Strategy.” Tyco created a new patented sensor design

that contained a writable memory chip. Moving the digital

memory chip from the monitor to the sensor allowed Tyco to

add new features to the OxiMax sensors, such as the ability

to store the patient’s oxygen saturation history in the sensor

itself (the “sensor event reporting” feature) and the ability to

inform a physician of possible causes of and solutions for signal interruption (the “sensor messaging” feature). 

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The digital memory chip also allowed Tyco to move essential calibration coefficients from the monitors into the sensors

themselves. Because the new OxiMax monitors do not contain any calibration coefficients, they are incompatible with

generic sensors. However, OxiMax monitors are compatible

with new types of sensors that Tyco develops. Previously,

when Tyco introduced a new sensor, customers either had to

buy a new monitor or reprogram their entire installed base of

stand-alone and multiparameter monitors with the appropriate

calibration coefficients. With the OxiMax system, customers

can adopt new types of sensors without affecting their

installed base of monitors because the necessary coefficients

are contained in the sensors themselves. This reduces costs for

customers and frees sensor designers from having to use the

predefined coefficients programmed into the installed base of

monitors. Moving the calibration coefficients into the sensors

therefore facilitates the development and introduction of new

types of sensors. 

For example, Tyco developed the Max-Fast Adhesive Forehead Sensor for use with the OxiMax system. According to

Tyco, the Max-Fast sensor “has a more efficient and spectrally different [Light Emitting Diode]” than previous versions of the sensor. “Because the MAX-FAST sensor is

calibrated specifically for use on the forehead, its calibration

differs from the existing RCAL curve set,” and consequently

it can only be used with the new OxiMax system. 

Tyco launched OxiMax in March 2002 and notified equipment manufacturers that all remaining R-Cal boards were

being discontinued in February 2003. It used two kinds of

marketing agreements to help sell the OxiMax system:

“market-share discount” agreements and “sole-source agreements.” Market-share discount agreements allowed customers, typically small hospitals or groups of small hospitals, to

purchase Tyco’s products at discounts off list prices if they

committed to purchase some minimum percentage of their

pulse oximetry product requirements from Tyco. The greater

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the percentage of the customer’s requirements purchased from

Tyco, the greater the discount Tyco gave. The agreements did

not contractually obligate Tyco’s customers to buy anything

from Tyco. The only consequence of purchasing less than the

agreed upon percentage of Tyco’s products was loss of the

negotiated discounts. 

Sole-source agreements existed between Tyco and group

purchasing organizations or “GPOs.” GPOs are consortiums

of healthcare providers that negotiate purchasing contracts

with healthcare equipment vendors, like Tyco. Members of a

GPO may purchase equipment from a vendor at negotiated

prices. Under Tyco’s sole-source agreements, a GPO agreed

that it would not enter into a purchasing contract with any

other vendor of pulse oximetry products, and Tyco in return

offered a deeper discount. Like Tyco’s market-share discount

agreements, the sole-source agreements at issue here did not

contractually obligate GPO members to purchase anything

from Tyco. 

After expiration of Tyco’s R-Cal patent in November 2003,

a number of companies, including Masimo and GE, began

manufacturing generic R-Cal sensors. Masimo planned to

price its generic sensors between $5.75 and $7.50 each. GE

priced its sensors at $6.50. In contrast, the average price for

Tyco’s branded sensors was just over $10. By March of 2004,

Tyco estimated that 44% of the installed base of stand-alone

monitors and 24% of the installed base of multiparameter

monitors used OxiMax technology. From 2002 to 2005,

Tyco’s share of stand-alone pulse oximetry monitor sales in

the U.S. was between 62% and 64%. In 2006, its market share

dropped to 35%. In October 2007, Masimo estimated that its

share of new monitor sales in the U.S. was roughly 40% to

45%. 

Plaintiffs brought this suit alleging that Tyco’s introduction

of OxiMax and its use of market-share discount and solesource agreements violate Sections 1 and 2 of the Sherman

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Act, 15 U.S.C. §§ 1, 2. The district judge granted Tyco’s

motion for summary judgment on Plaintiffs’ claims. The court

held that Tyco’s market-share discount agreements and solesource agreements did not create an unreasonable restraint on

trade under Section 1 because hospitals’ commitments under

the agreements were “voluntary and [could] be ended at any

time, and hospitals [were] thus free to switch to more competitively priced generics.” It further held that Tyco’s introduction of OxiMax, both alone and in combination with its other

business practices, was not unreasonably restrictive of competition under Section 2. The OxiMax design was a “superior

and more sophisticated offering than the previous generation

R-Cal system” and Tyco “did nothing to force OxiMax monitors on its customers.” Plaintiffs timely appealed the district

court’s final judgment. We affirm. 

DISCUSSION

We have jurisdiction pursuant to 28 U.S.C. § 1291. A district court order granting summary judgment is reviewed de

novo. See Padfield v. AIG Life Ins. Co., 290 F.3d 1121, 1124

(9th Cir. 2002). Summary judgment is proper if the record,

viewed in the light most favorable to the non-moving party,

shows “that there is no genuine issue as to any material fact

and that the moving party is entitled to judgment as a matter

of law.” Fed. R. Civ. P. 56(c); see also Universal Health

Servs., Inc. v. Thompson, 363 F.3d 1013, 1019 (9th Cir.

2004).

I. Tyco’s Market-Share Discount and Sole-Source

Agreements Did Not Violate Section 1 of the Sherman

Act

Section 1 of the Sherman Act, 15 U.S.C. § 1, prohibits

“[e]very contract, combination . . . or conspiracy, in restraint

of trade or commerce among the several States.” Plaintiffs

premise their Section 1 claim on just one theory of liability:

exclusive dealing. As the district court noted, Plaintiffs do not

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include Tyco’s introduction of OxiMax within their Section 1

claim. They have not advanced any legal theory that Tyco

used its marketing agreements to tie its sensor sales to sales

of its OxiMax monitors. 

[1] Exclusive dealing involves an agreement between a

vendor and a buyer that prevents the buyer from purchasing

a given good from any other vendor. There are “wellrecognized economic benefits to exclusive dealing arrangements, including the enhancement of interbrand competition.”

Omega Envtl., Inc. v. Gilbarco, Inc., 127 F.3d 1157, 1162

(9th Cir. 1997). Consequently, “an exclusive-dealing arrangement does not constitute a per se violation of section 1.” Twin

City Sportservice, Inc. v. Charles O. Finley & Co., Inc., 676

F.2d 1291, 1303-04 (9th Cir. 1982). Under the antitrust rule

of reason, an exclusive dealing arrangement violates Section

1 only if its effect is to “foreclose competition in a substantial

share of the line of commerce affected.” Omega, 127 F.3d at

1162 (quoting Tampa Elec. Co. v. Nashville Coal Co., 365

U.S. 320, 327 (1961)).1

It is significant that the market-share discount and solesource agreements in this case did not contractually obligate

Tyco’s customers to purchase anything from Tyco. Rather,

the agreements provided only for substantial discounts to customers that actually purchased a high percentage of their sen1Omega and Tampa involved alleged violations of Section 3 of the

Clayton Act, 15 U.S.C. § 14, which also prohibits exclusive dealing

arrangements. Our circuit has held that “a greater showing of anticompetitive effect is required to establish a Sherman Act violation than a section

three Clayton Act violation in exclusive-dealing cases.” Twin City, 676

F.2d at 1304 n. 9. Accordingly, although a Clayton Act violation may be

found where an agreement has the probable effect of foreclosing competition, Omega, 127 F.3d at 1162, in a case under Section 1 of the Sherman

Act, the plaintiff must prove that the exclusive dealing arrangement actually foreclosed competition, McGlinchy v. Shell Chemical Co., 845 F.2d

802, 811 (9th Cir. 1988) (“To establish a section 1 violation under the

Sherman Act, a plaintiff must demonstrate . . . [that the agreement] actually causes injury to competition.”). 

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sor requirements from Tyco. Plaintiffs’ expert, Professor H.E.

Frech III, nevertheless testified that Tyco’s agreements foreclosed a substantial share of the U.S. sensor market by providing “an incentive as opposed to a requirement for

exclusivity.” 

[2] As the district court correctly observed, Frech’s expert

report ignored a key fact: R-Cal compatible generic sensors

that cost less than Tyco’s sensors entered the market upon the

expiration of the R-Cal patent. Frech’s opinion did not take

that into account. He never explained why price-sensitive hospitals would adhere to Tyco’s market-share agreements when

they could purchase less expensive generic sensors instead.

He postulated that if a hospital chose to purchase a competitor’s monitor, that hospital could lose Tyco’s discounts on the

sensors it continued to need for its installed base of Tyco

monitors. Nonetheless, even such a hospital could simply

begin to purchase less expensive generic sensors for its

remaining Tyco monitors. We thus agree with the district

court that on the facts of this case, something more than the

discount itself is necessary to prove that Tyco’s market-share

discount agreements forced customers to purchase its sensors

rather than generics.

[3] Any customer subject to one of Tyco’s market-share

discount agreements could choose at anytime to forego the

discount offered by Tyco and purchase from a generic competitor. The “easy terminability” of an exclusive dealing

arrangement “negate[s] substantially [its] potential to foreclose competition.” Omega, 127 F.3d at 1163-64 (citing

Roland Mach. Co. v. Dresser Indus., Inc., 749 F.2d 380, 394-

95 (7th Cir.1984), and other cases); see also XI PHILIP E.

AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW, ¶ 1807a at

129 (2d ed. 2000) (“Discounts conditioned on exclusivity in

relatively short-term contracts are rarely problematic.”). The

market-share discount agreements at issue here did not foreclose Tyco’s customers from competition because “a competing manufacturer need[ed] only offer a better product or a

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better deal to acquire their [business].” Omega, 127 F.3d at

1164.

[4] The sole-source agreements did not foreclose competition for the same reason. At any time, a GPO member could

simply forego the negotiated discounts with Tyco and purchase less expensive generics instead. Tyco’s sole-source

agreement with HealthTrust is somewhat more problematic

than the others because it prevented its members from belonging to any other GPO. This meant that HealthTrust members

that decided to purchase pulse oximetry products from vendors other than Tyco could not access discounts by joining

other GPOs. There is no evidence, however, that HealthTrust

members were unable to access less expensive generic senors

through other means. “If competitors can reach the ultimate

consumers of the product by employing existing or potential

alternative channels of distribution, it is unclear whether such

restrictions foreclose from competition any part of the relevant market.” Id. at 1163.2

[5] Plaintiffs did not present evidence that Tyco’s marketshare and sole-source contracts foreclosed competition in a

substantial share of the market for pulse oximetry sensors.

Vendors of generic sensors remained able to compete for

Tyco’s customers by offering their products at better prices.

The agreements therefore did not constitute unreasonable

restraints on trade under Section 1. 

2

In a previous antitrust suit against Tyco, we affirmed the same district

court’s holding that the trial evidence supported the jury’s finding that

Tyco’s market-share discount and sole-source agreements violated Sections 1 and 2 of the Sherman Act. Masimo Corp. v. Tyco Health Care

Group, No. 07-55960, 2009 WL 3451725, 2009 U.S. App. LEXIS 23765

(9th Cir. Oct. 28, 2009). As the district court correctly ruled, Masimo is

distinguishable from this case. The R-Cal patent was still in effect during

the time period at issue in Masimo, so owners of Tyco’s R-Cal monitors

had no choice but to purchase Tyco’s sensors for use with those monitors.

Furthermore, the sole-source agreements in that case contractually obligated GPO members to purchase a set percentage of their pulse oximetry

requirements from Tyco. 

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II. Tyco’s Introduction of OxiMax Did Not Violate Section

2 of the Sherman Act

“There are three essential elements to a successful claim of

Section 2 monopolization: (a) the possession of monopoly

power in the relevant market; (b) the willful acquisition or

maintenance of that power; and (c) causal ‘antitrust’ injury.”

Cal. Computer Prods., Inc. v. Int’l Bus. Mach. Corp., 613

F.2d 727, 735 (9th Cir. 1979) (“CalComp”). For purposes of

Tyco’s motion and this appeal, the parties agree that Tyco is

a monopolist in the U.S. pulse oximetry sensor market. The

focus of the dispute is whether Tyco unlawfully maintained

its monopoly power in that market by introducing OxiMax. 

Plaintiffs contend that Tyco maintained its monopoly by (1)

designing its new patent-protected OxiMax senors to be compatible with its new OxiMax monitors and the installed base

of R-Cal monitors, but designing its new OxiMax monitors to

be incompatible with the old R-Cal sensors; and (2) allegedly

forcing customers and OEMs to adopt the new OxiMax monitors by discontinuing its R-Cal monitors and implementing

other exclusionary business practices. Plaintiffs argue that the

district court erred in rejecting these arguments because it did

not balance the benefits of Tyco’s alleged product improvement against its anticompetitive effects. They further argue

that the district court impermissibly decided disputed issues of

material fact regarding the sufficiency of Tyco’s innovation

and the competitive effect of its overall OxiMax strategy. We

agree with the district court.

A. Product Improvement Alone Does Not Violate 

Section 2

[6] “Section 2 of the Sherman Act proscribes ‘monopolization’; it does not render unlawful all monopolies.” Foremost

Pro Color, Inc. v. Eastman Kodak Co., 703 F.2d 534, 543 (9th

Cir. 1983). “A monopolist, no less than any other competitor,

is permitted and indeed encouraged to compete aggressively

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on the merits, and any success it may achieve solely through

‘the process of invention and innovation’ is necessarily tolerated by the antitrust laws.” Id. at 544-45 (quoting Berkey

Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 281 (2d Cir.

1979)). Accordingly, “[a]s a general rule, courts are properly

very skeptical about claims that competition has been harmed

by a dominant firm’s product design changes.” United States

v. Microsoft Corp., 253 F.3d 34, 65 (D.C. Cir. 2001). 

[7] However, changes in product design are not immune

from antitrust scrutiny and in certain cases may constitute an

unlawful means of maintaining a monopoly under Section 2.

Foremost, 703 F.2d at 545. For example, in United States v.

Microsoft, the plaintiffs showed that Microsoft harmed competition by integrating its Web browser, Internet Explorer,

into the Windows 98 operating system. 253 F.3d at 65-66.

Microsoft provided no “procompetitive justification,” id. at

59, for having integrated Internet Explorer into Windows.

Having failed to show “that its conduct serve[d] a purpose

other than protecting its operating system monopoly,” the

D.C. Circuit held that Microsoft had violated Section 2 of the

Sherman Act. Id. at 66-67.

[8] In contrast, a design change that improves a product by

providing a new benefit to consumers does not violate Section

2 absent some associated anticompetitive conduct. See CalComp, 613 F.2d at 735-36 (holding that a design change must

not be “unreasonably restrictive of competition”). In CalComp, a manufacturer of peripheral computer devices argued

that “IBM made design changes on certain of its CPUs, disk

drives and controllers of no technological advantage and

solely for the purpose of frustrating competition” from peripheral device manufacturers. Id. at 739. However, there was

uncontroverted evidence that IBM’s changes allowed it to

reduce manufacturing costs and prices to the consumer and

also improved performance of the product. Id. at 744. We thus

held:

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IBM, assuming it was a monopolist, had the right to

redesign its products to make them more attractive to

buyers whether by reason of lower manufacturing

cost and price or improved performance. It was

under no duty to help CalComp or other peripheral

equipment manufacturers survive or expand. IBM

need not have provided its rivals with disk products

to examine and copy, nor have constricted its product development so as to facilitate sales of rival

products. The reasonableness of IBM’s conduct in

this regard did not present a jury issue.

Id. (citation omitted). 

Following CalComp, we decided Foremost Pro Color, Inc.

v. Eastman Kodak Co., 703 F.2d 534 (9th Cir. 1983). Kodak,

a monopolist in photographic film and amateur still cameras,

had introduced a new line of smaller cameras and related film

products. Id. at 537. The new film could not be processed

with previously used photographic paper and chemicals, so

photofinishers had to buy all new paper and chemicals from

Kodak. One such photofinisher, Foremost, brought suit alleging that Kodak had introduced its new system to maintain its

monopoly in violation of Section 2. Id.

Foremost made no allegation that Kodak’s new film was

not an improvement over previous films. Rather, it simply

alleged that Kodak had unlawfully maintained its monopoly

by “continually researching and developing new photographic

products . . . that are incompatible with then existing photographic products and photofinishing equipment” and then

introducing those products “in such a manner that [Foremost]

was required to purchase new paper, chemistry and photofinishing equipment.” Id. at 543 (alteration in original). 

We held that such an allegation does not state a claim for

relief under Section 2. It was “of no legal import” that Foremost had characterized Kodak’s activities “as a form of tech410 ALLIED ORTHOPEDIC v. TYCO HEALTH CARE

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nological predation” because a monopolist has “the right to

redesign its products to make them more attractive to buyers.”

Id. at 545 (citing CalComp, 613 F.2d at 744). We acknowledged, however, that introduction of a new and improved

product design could constitute a violation of Section 2 where

“some associated conduct . . . supplies the violation.” Id.

(quoting Berkey Photo, 603 F.2d at 286 n.30). Specifically,

we held that to state a claim for relief under Section 2, 

product introduction must be alleged to involve

some associated conduct which constitutes an anticompetitive abuse or leverage of monopoly power,

or a predatory or exclusionary means of attempting

to monopolize the relevant market, rather than

aggressive competition on the merits. 

Id. at 545-46. 

[9] CalComp and Foremost therefore stand for the uncontroversial proposition that product improvement by itself does

not violate Section 2, even if it is performed by a monopolist

and harms competitors as a result. See IIIB AREEDA &

HOVENKAMP ¶ 776a at 285-86 (3d ed. 2006) (“At the very

least, as all courts recognize, product improvement without

more is protected and beyond antitrust challenge.”). There is

no violation of Section 2 unless plaintiff proves that some

conduct of the monopolist associated with its introduction of

a new and improved product design “constitutes an anticompetitive abuse or leverage of monopoly power, or a predatory

or exclusionary means of attempting to monopolize the relevant market.” Foremost, 703 F.2d at 545-46.

There is no room in this analysis for balancing the benefits

or worth of a product improvement against its anticompetitive

effects. If a monopolist’s design change is an improvement,

it is “necessarily tolerated by the antitrust laws,” id. at 545,

unless the monopolist abuses or leverages its monopoly power

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erwise “would be contrary to the very purpose of the antitrust

laws, which is, after all, to foster and ensure competition on

the merits.” Id. at 544. “Antitrust scholars have long recognized the undesirability of having courts oversee product

design, and any dampening of technological innovation would

be at cross-purposes with antitrust law.” United States v.

Microsoft Corp., 147 F.3d 935, 948 (D.C. Cir. 1998). 

To weigh the benefits of an improved product design

against the resulting injuries to competitors is not just unwise,

it is unadministrable. There are no criteria that courts can use

to calculate the “right” amount of innovation, which would

maximize social gains and minimize competitive injury. A

seemingly minor technological improvement today can lead

to much greater advances in the future. The balancing test

proposed by plaintiffs would therefore require courts to weigh

as-yet-unknown benefits against current competitive injuries.

Our precedents and the precedents we have relied upon

strongly counsel against such a test. See CalComp, 613 F.2d

at 744; Foremost, 703 F.2d at 545-46; Berkey Photo, 603 F.2d

at 286-87. Although one federal court of appeals has nominally included a balancing component in its test, it has not yet

attempted to apply it. See United States v. Microsoft Corp.,

253 F.3d 34, 59, 66-67 (D.C. Cir. 2001) (including balancing

as the last step of its test but not applying that step, either

because the defendant had provided no justification for its

product change or because the plaintiff had not rebutted the

justification provided). Absent some form of coercive conduct

by the monopolist, the ultimate worth of a genuine product

improvement can be adequately judged only by the market

itself. Berkey Photo, 603 F.2d at 287.

B. Undisputed Evidence that OxiMax Was an

Improvement

[10] In this case, it is undisputed that by placing a digital

memory chip in the sensor and moving the calibration coefficients from the monitor to the sensor, Tyco made its new Oxi412 ALLIED ORTHOPEDIC v. TYCO HEALTH CARE

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Max system incompatible with generic sensors and harmed

generic sensor manufacturers. We must therefore decide

whether there remains a genuine issue that the OxiMax sensor

design provided some new benefit to consumers and thus constituted an improvement. 

[11] First, the United States Patent and Trademark Office

found the OxiMax sensor design to be sufficiently innovative

over the prior art to deserve a patent, and there is no allegation, much less proof, that the patent is invalid. Although, as

the district court properly noted, there is not a per se rule barring Section 2 liability on patented product innovation, the

existence of a patent on a new product design is some evidence that the change is an improvement over previous

designs. After all, “the proper amount of gains to innovation

are left to Congress, who has the authority to vary the terms

of patent protections, the point in time from which the protections run, or the scope of patentable innovations.” IIIB

AREEDA & HOVENKAMP ¶ 777d at 311.

[12] Second, it is undisputed that Tyco’s new sensor design

allows it to introduce new types of sensors without requiring

its customers to purchase new monitors or reprogram their

installed base of monitors. This added flexibility promotes the

introduction of new types of sensors, such as Max-Fast, and

reduces costs for consumers of pulse oximetry equipment. It

also allows new functions, such as sensor event reporting and

sensor messaging, to be included in the sensors themselves.

Plaintiffs have provided evidence that Max-Fast is no more

accurate than previous forehead sensors and that physicians

have not found the sensor event reporting or messaging features very useful. But even if Tyco has not yet been able to

successfully utilize the new flexibility provided by the OxiMax platform, that in no way contradicts that the platform

facilitates the introduction of new types of sensors and sensor

functions and will reduce costs for consumers in the long run.

Tyco’s internal documents show that from the very earliest

stages of its development of OxiMax, it aimed to produce a

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new technology that both served as “a new, flexible platform

for future oximetry innovation” and added customer value by

improving performance. To ensure that the new feature set

enabled by OxiMax would help to differentiate its new sensors from generics, Tyco surveyed clinicians and initially

received positive feedback. Plaintiffs focus on statements

showing that Tyco hoped its new technology would constitute

a barrier to entry for generic sensor manufacturers. However,

even legitimate product improvement can have the effect of

harming or even destroying competitors. Statements of an

innovator’s intent to harm a competitor through genuine product improvement are insufficient by themselves to create a

jury question under Section 2. Cf. Oahu Gas Serv., Inc. v.

Pac. Res., Inc., 838 F.2d 360, 368-69 (9th Cir. 1998) (“Where

a monopolist’s refusal to aid a competitor is based partially on

a desire to restrict competition, we determine antitrust liability

by asking whether there was a legitimate business justification

for the monopolist’s conduct.”). 

Likewise, Plaintiffs mistakenly focus on documents showing that, sometime in 2001, Tyco began to realize that the sensor messaging and sensor event reporting features were less

valuable than it initially believed and worried that the market

would perceive its new technology as nothing more than a

way to lock out generics. These documents do not create a

genuine issue of material fact about whether OxiMax represented an improvement over previous sensor designs. Since

technological innovation “is accompanied by tremendous

uncertainty as to cost, technical success, and eventual market

success . . . ex post realizations are rarely a useful indicator

of ex ante expectations.” IIIB AREEDA & HOVENKAMP ¶ 775c

at 284. Evidence of an innovator’s initial intent may be helpful to the extent that it shows that the innovator knew all

along that the new design was no better than the old design,

and thus introduced the design solely to eliminate competition. But the documents here show that Tyco initially believed

that clinicians would value the new feature set. Moreover, the

documents show that Tyco continued to believe that the flexi414 ALLIED ORTHOPEDIC v. TYCO HEALTH CARE

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bility of the new OxiMax platform would appeal to consumers at the point that it introduced OxiMax. 

[13] In sum, Plaintiffs have presented no evidence to refute

that the patented OxiMax sensor design facilitates the introduction of new types of sensors with added capabilities at less

cost to consumers. The district court properly concluded that

Plaintiffs had not created a genuine issue of material fact on

whether OxiMax was a genuine improvement.

C. Tyco Did Not Use Its Market Power to Force

Adoption of OxiMax

Although it is undisputed that the OxiMax sensor design is

an improvement over previous designs, Tyco may still have

violated Section 2 if any of its other conduct “constitutes an

anticompetitive abuse or leverage of monopoly power, or a

predatory or exclusionary means of attempting to monopolize

the relevant market.” Foremost, 703 F.2d at 545-46. 

[14] Plaintiffs argue that Tyco forced consumers to adopt

OxiMax by discontinuing the older R-Cal technology. A

monopolist’s discontinuation of its old technology may violate Section 2 if it effectively forces consumers to adopt its

new technology. Berkey Photo, 603 F.2d at 287 n.39. Here,

however, there was uncontroverted evidence that Masimo was

effectively competing for pulse oximetry monitor sales during

the relevant time period. By 2006, Tyco’s share of new monitor sales in the U.S. had dropped to 35%, and by 2007, Masimo’s share had grown to 40% to 45%. Masimo and GE were

also selling generic sensors compatible with Tyco’s R-Cal

monitors, and Masimo was able to make its own proprietary

sensors compatible with Tyco’s R-Cal monitors by employing

a simple cable. Given all these alternatives, Tyco did not force

consumers to purchase its OxiMax monitors simply by discontinuing its support of the R-Cal technology. 

[15] Plaintiffs’ argument that Tyco could have made its

monitors compatible with the old sensors also fails. Our preALLIED ORTHOPEDIC v. TYCO HEALTH CARE 415

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cedents make clear that a monopolist has no duty to help its

competitors survive or expand when introducing an improved

product design. Foremost, 703 F.2d at 545 (citing CalComp,

613 F.2d at 744, and other cases). The evidence shows that

the OxiMax monitors’ incompatibility with R-Cal sensors was

the necessary consequence of moving the calibration coefficients from the monitor into the sensor. Thus, the product

improvement at issue in this case, not some associated conduct by Tyco, caused the incompatibility. 

As already discussed, Tyco’s market-share discount and

sole-source agreements did not force consumers to purchase

Tyco’s pulse oximetry products. Further, Tyco’s use of an

equipment financing program to induce hospitals to adopt its

new OxiMax monitors was upheld by the jury in the Masimo

case, and Plaintiffs do not argue here that it independently

violates the antitrust laws. Plaintiffs’ only remaining argument, that Tyco exploited hospitals’ desire to standardize on

a single brand of sensors, says nothing about why the hospitals chose to adopt OxiMax sensors over competing sensors

in the first place.

[16] In sum, Plaintiffs have provided no evidence that Tyco

used its monopoly power to force consumers of pulse

oximetry products to adopt its new OxiMax technology.

Absent evidence of such compulsion, the only rational inference that can be drawn from some consumers’ adoption of

OxiMax is that they regarded it to be a superior product.

Berkey, 603 F.2d at 287. The district court therefore properly

concluded that Plaintiffs had failed to create a genuine issue

of material fact regarding Tyco’s introduction of OxiMax and

properly granted summary judgment on the Section 2 claim.

CONCLUSION

[17] Plaintiffs have presented no evidence to refute Tyco’s

evidence that its OxiMax sensor design facilitates the introduction of new types of sensors with added capabilities at less

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cost to consumers. Nor have Plaintiffs presented any evidence

that Tyco used its monopoly power to coerce adoption of OxiMax. Tyco’s market-share discount agreements and solesource agreements did not prevent consumers from choosing

to purchase the less expensive generic sensors that existed in

the market. The district court therefore properly granted Tyco

summary judgment on the claims under Sections 1 and 2 of

the Sherman Act.

AFFIRMED. 

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