IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

FORTIS ADVISORS LLC, solely in its capacity as representative of former stockholders of Auris Health, Inc.,

Plaintiff,

v. JOHNSON & JOHNSON, ETHICON, INC., ALEX GORSKY, ASHLEY MCEVOY, PETER SHEN, and SUSAN MORANO,

Defendants. )

) ) ) ) ) ) ) ) ) ) ) ) ) C.A. No. 2020

- 0881

- LWW

MEMORANDUM OPINION
Date Submitted: May 22, 2024 Date Decided: September 4 , 2024
Bradley R. Aronstam, Roger S. Stronach & Dylan T. Mockensturm, ROSS ARONSTAM & MORITZ LLP, Wilmington, Delaware; Philippe Z. Selendy, Jennifer M. Selendy, Sean P. Baldwin & Oscar Shine, SELENDY GAY PLLC, New York, N ew York ; Counsel for Plaintiff Fortis Advisors LLC William M. Lafferty, Susan W. Waesco, Elizabeth A. Mullin Stoffer & Kirk C. Andersen, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; Joshua A. Goldberg, Muhammad U. Faridi, Diana M. Conner & Lauren S. Potter, PATTERSON BELKNAP WEBB & TYLER LLP , New York, N ew York ; Counsel for Defendants Johnson & Johnson, Ethicon Inc., Alex Gorsky, Ashley McEvoy, Peter Shen, and Susan Morano
WILL, Vice Chancellor1

Earnout provisions are common risk allocation tools in merger agreements, particularly involving private company sellers. The buyer pays a n upfront sum and an additional amount if the seller’s business achieves specific targets by a deadline

. This contingent approach lessens the buyer’s risk of overpaying where the seller’s
future performance is uncertain. The seller, however, risks losing the earnout payment along with operational control after closing. A seller may be loath to agree
to an earnout structure without contractual assurances from the buyer and a strong belief in the value of its business. The seller in this case had both. Auris Health, Inc. was a venture

- backed
start up on a path to bring life

- changing technologies to market. Led by Dr. Frederic Moll, the visionary architect of robotic surgery, Auris had developed two novel surgical robots in record time : Monarch and iPlatform . Monarch had unmatched capability to diagnose and treat lung cancer. And iPlatform took Moll’s original market

- leading surgical robot to new heights with innovative features for laparoscopic and endoscopic procedures

. While Auris was making strides, Johnson & Johnson was attempting to develop its own surgical robot called Verb. Entering the surgical robotics market

was vital for J&J

. Yet Verb was falling increasingly behind the schedule J&J had
announced to the market , despite J&J ’ s colossal investments . J&J looked to Auris

as a solution.2

Auris was well funded and had strong prospects . It was wary of an acquisition , especially by J&J since Verb was a potential competitor o f iPlatform.
J&J understood Auris’s hesitations and put together a proposal it w ould not refuse.
J&J o ffered to pay $3.4 billion up front and another $2.35 billion upon the
achievement of two commercial and eight regulatory milestones

— five for iPlatform , t wo for Monarch , and one that could be satisfied by either robot

. The regulatory milestones were ambitious, but corresponded to approvals for procedures that the Auris robots were on track to complete. Auris agreed to a n earnout component after securing J&J ’ s commitment to devote commercially reasonable efforts befitting a “priority medical device” in furtherance of the milestones

. J&J’s promise to Auris was broken almost immediately after closing. Instead of providing efforts and resources to achieve the regulatory milestones, J&J thrust
iPlatform into a head

- to

- head faceoff against Verb called “Project Manhattan

. ” Verb and iPlatform were forced to complete a series of procedures to be ranked against one another

. Auris feared that a poor performance would be the end of iPlatform
since it had learned J&J’s robotics budget left no room for Verb and iPlatform to be developed in parallel. J&J would either combine the robots or kill one

. The iPlatform alpha robot was months old. Verb was in its beta iteration after years of development. For iPlatform to survive a surgical showdown against the more advanced robot , the Auris team spent countless hours creating engineering and3

software workarounds

. P rogress toward iPlatform ’ s regulatory milestones ceased while technical debt from shortcuts in its development amassed. Both robots successfully completed the assigned procedures. J&J decided that iPlatform was the better bet. But for iPlatform, winning Project Manhattan was losing. To salvage its years of investment in Verb , J&J directed that Verb’s
hardware and team be added to iPlatform . The iPlatform robot effectively became

a parts shop for Verb. J&J knew Project Manhattan would hinder, rather than promote, iPlatform’s achievement of the regulatory milestones. It also knew that combining iPlatform and Verb would cause further complications. But J&J viewed the resulting delays as beneficial since it could avoid making the earnout payment

. When J&J’s actions put the first iPlatform milestone out of reach, the other milesto nes fell like dominos

. J&J wrote off the iPlatform milestones u nder the pretext of a n unforeseen policy change that would require the robot to achieve regulatory clearance through a different pathway than the one listed in the merger agreement

. J&J then implemented an employee incentive plan with different targets . Auris ’s former
stockholders proceeded to sue for breach of contract, breach of the implied covenant of good faith and fair dealing, and fraud. J&J’s defenses to th ese claims take two main forms. First, J&J asserts that the merger agreement gave it broad discretion to use the Auris products in a way that4

advanced J&J ’ s overall robotics strategy without regard to the milestones . The merger agreement says otherwise. Second, J&J blames the missed milestones on iPlatform’s technical problems. T his defense is dubious; it was concocted after J&J was sued. The record indicates that the technical issues were both expected and solvable.
After weighing an abundance of evidence , I find that J&J breached its contractual obligations. The bespoke earnout provision negotiated by the parties required J&J t o treat iPlatform as a priority device , to provide efforts in support of the regulatory milestones, and to avoid making decisions based on the contingent payment. J&J violated each obligation

— most blatantly when iPlatform was made
to compete against and combine with Verb

. J&J also breached the implied covenant of good faith and fair dealing when it failed to devote efforts to achieve the revised regulatory pathway. But J&J did not breach the merger agreement in relation to the Monarch regulatory milestones. Additionally, Auris claims that J&J fraudulently induced it to merge by promising vast resources and a “ light touch” integration . For the most part, the challenged statements are fluffy, forward

- looking , and aspirational. There is an exception

. One Monarch milestone involved regulatory clearance by a near

- term deadline using a J&J

- developed catheter

. J&J told Auris that this milestone was so certain to be met that J&J viewed the associated payment as up front consideration

.5

J&J neglected to mention that it was under a regulatory investigation because a patient in a clinical study using the catheter had recently died , which put the
milestone in doubt. Auris is entitled to damages for J&J’s breaches of contract and of the implied covenant of good faith and fair dealing as they relate to the iPlatform regulatory milestones. It is also entitled to damages for fraud concerning the Monarch milestone. Damages with interest exceed $1 billion , which com pensates Auris ’ s former stockholders for the earnout payment they would have received absent J&J’s
failed efforts and fraud. What remains irretrievably lost is t he transformative potential of Auris’s robots.6

I. BACKGROUND The following facts were stipulated to by the parties or proven by a preponderance of the evidence at trial. 1 The record supporting these findings of fact
includes the testimony of 23 fact and 9 expert witnesses over 10 trial days , 78 deposition transcripts, and 6,209 joint exhibits. 2
A. Dr. Moll and the da Vinci Robot Robotically assisted surgery allow s physicians to perform minimally invasive operations with computer

- assisted equipment

. 3 Surgical robots, or Robotically Assisted Surgical Devices (RASD s ) , are used to perform these procedures. RASDs typically comprise several components and subsystems, including a surgeon console, a computing tower, and a surgical bed or cart with mounted robotic arms attached to instruments. 4
Dr. Fred eric Moll first witnessed early progress in robotic surgery as part of a Stanford Research Institute (SRI) project funded by the United States Department of

1 Joint Pre

- trial Stipulation and Order (Dkt. 523) (“PTO”)

. 2 Facts drawn from exhibits jointly submitted by the parties are referred to by the numbers provided on the parties’ joint exhibit list and cited as “JX

– ” unless otherwise defined. See Dkt. 575

. Pin cites for joint exhibits refer to the page of the exhibit as marked rather than internal or Bates pagination, unless otherwise noted. Deposition transcripts are cited as “[Name] Dep.” See Dkt. 509. Trial testimony is cited as “[Name] Tr.” See Dkts. 545

- 54. 3 PTO ¶ 75.
4 Id. ¶ 76.7

Defense several decades ago

. 5 SRI’s objective was to create a means for surgeons to operate remotely on patients in the battlefield

. 6 Though rudimentary, the device
SRI developed could transmit a surgeon’s hand movements from a computer to actuators in the field that controlled a robotic instrument. 7 Moll saw the “potentially transformative” promise of robotic

- assisted surgery as having “enormous implications in laparoscopy

. ” 8 Laparoscopy is a minimally invasive surgical technique in which narrow tubes are inserted into the abdomen or pelvis through puncture wounds

. 9 Moll had been exposed to e merging laparoscopy techniques during his medical residency and turned his focus to developing safe laparoscopic tools and methods

. 10 He observed that a trade

- off to minimal openings
in the body is the difficulty surgeons face in reaching the relevant anatomy. 11 Using the insights gained at SRI, Moll imagined that computer replication of hand movements outside the body to robotic hands inside the body could resolve laparoscopic access barriers

. 12

5 Moll. Tr. 9

- 10

. 6 Id.
7 Id. at 10. 8 Id.
9 Id. at 6

- 7

. 10 Id. at 6.
11 Id. at 10.
12 Id.8

In 1995, Moll founded Intuitive Surgical, Inc. to pursue the objective of making laparoscopic surgery intuitive

. 13 He developed a product called the da Vinci
robot

— a cart

- based system with two arms to hold surgical instruments and a third arm for a viewing laparoscope

. 14 Moll’s vision was to “mimic the capabilities of open surgery inside the body” by using a computer interface to transmit movements to tiny tools inside the abdomen in a “systematic and controlled way.” 15 Developing the da Vinci robot was no small feat

. The Intuitive team encountered many technical challenges , including problems with tool function, software stability, arm collisions, and intra

- device heat distribution. 16 The issues

were addressed with mitigation strategies now typical to robotic surgery

. 17 Dr. Barry Gard i ner, a physician who pioneered laparoscopy in general surgery, contributed vital clinical knowledge to solve these issues and develop the robot

. 18
The da Vinci system was not Moll’s only innovation at Intuitive

. He also instituted the minimally viable product (MVP) approach , which has become the

13 PTO ¶ 77; Moll Tr. 11

- 12.
14 Moll Tr. 11

- 12. 15 Id. at 13. 16 Id. at 16

- 17

. 17 Id. at 17

- 19 (discussing the use of surgical assistants to move and adjust the robot during a procedure, which remains standard today)

. 18 Moll Tr. 14; see JX 2598 at 3.9

industry standard for bringing new, complex medical device s to market. 19 The MVP development strategy involves creating a functional prototype to gain feedback from an engineering and clinical standpoint before adding more complex features

. 20 This method increases efficiency by allowing for testing of a l ower - risk device before making further investments

. 21 Regulatory approval is sought for the stripped

- down version , ensuring that it meets patient safety and effectiveness requirements

. 22
Intuitive followed an MVP strategy with the da Vinci system . It first sought regulatory approval for a basic three

- arm version of the device

. 23 In 2000, the Food and Drug Administration (FDA) , which regulates the sale of medical devices in the United States and monitors their safety and effectiveness , approved the minimally viable da Vinci robot through the 510(k) process . 24
The 510(k) (or Premarket Notification) process is one of three regulatory pathways through which high or moderate risk medical devices obtain FDA approval

. 25 The 510(k) p athway is for low to moderate risk devices with a legally

19 Moll Tr. 15

- 17; see Gompers Tr. 1935

- 36; Grennan Dep. 71

- 72; Shen Tr. 1169

. 20 Moll Tr. 15

- 16

. 21 Id. at 16; see Khan Tr. 30 41

- 3042.
22 Moll Tr. 16. 23 JX 14 ; see Moll Tr. 15

- 16

. 24 Moll Tr. 19; PTO ¶ 79. 25 PTO ¶ 81.10

marketed predicate device. 26 It involves a comprehensive review of appropriate safety and performance data to determine if a new device is substantially equivalent to an approved predicate

. 27 The second pathway is a De Novo Classification Request, which is used when a novel low to moderate risk device lacks a legally marketed predicate. 28 De Novo approval often requires clinical testing data to demonstrate a device’s safety and effectiveness

. 29 The third pathway, called Premarket Approval (PMA) , is the most onerous and required for high risk devices

. 30 Consistent with its MVP strategy, Intuitive went on to pursue and receive 510(k) clearance for a four

- arm version of the robot in 2002. 31 The da Vinci robot was rapidly adopted by customers and Intuitive became focused on manufacturing and selling the system

. Mol l, having achieved his objective, moved on to “continue down a path of innovation.” 32 Today, Intuitive is considered the market leader in RASDs. 33 It has a market capitalization of over $ 100 billion and controls a majority of the surgical robotics

26 Id.
27 Id. ¶ 82 ; see JX 4492 (“Wittwer Rep

. ”) ¶ 137

. 28 PTO ¶ 81. 29 Wittwer Rep

. ¶ 137. 30 PTO ¶ 81; see Wittwer Rep

. ¶ 148. 31 See JX 4511 (“Tillman Rep

. ”) ¶ 94

. 32 Moll Tr. 21. 33 PTO ¶ 77.11

market. 34 Intuitive’s robots have performed hundreds of thousands of procedures worldwide, cementing Moll’s legacy as the “father of robotic surgery

. ” 35
B. Auris and the Next Generation of Surgical Robot s Moll set out to start a new RASD innovation company called Auris Health,
Inc

. In 2009, Moll raised Auris ’s seed funding

. 36 Early investors included venture capital funds such as J&J Innovation, a subsidiary of Johnson & Johnson. 37
Moll intended that Auris w ould advance RASDs beyond the base architecture of da Vinci to match strides in minimally invasive surgery

— specifically in endoscopy. 38 Endoscopy involves inserting a flexible tube called an endoscope into the body through its natural openings. 39 He hoped to improve endoscop ic technique with robotic s as he had done for laparoscopy

. 40 Early

- stage Auris was a “vision

- oriented, mission

- oriented” company . 41 Its visionary leaders included not only Moll but also Gardiner, who remained

34 Moll Tr. 21; see JX 711 at 19

- 22; Royan Tr. 1376

- 77. 35 JX 1868; see Moll Tr. 21; JX 1868; Shen Tr. 1106; Grennan Tr. 2555.
36 PTO ¶ 87. 37 Id. ¶ 88. 38 Moll Tr. 22

- 23. 39 Id. at 23. 40 Id. at 23

- 24.
41 DeFonzo Tr. 316 , 319

.12

instrumental in providing clinical expertise. 42 A combination of leadership and dynamism gave Auris the momentum to rapidly develop its first RASD , called
ARES , and secure FDA clearance

.

1. ARES Auris began developing the ARES robot in 2012

. 43 It was designed for endoscopic procedures. 44 David Mintz, an engineer who had worked alongside Moll since Intuitive’s early days, was tapped to spearhead the project. 45 After 18 months of development, Auris began using ARES in overseas clinical studies for endourology (or urology) and bronchoscopy. 46 Endourology involves the use of endoscopic surgical techniques to treat conditions affecting the urinary tract. 47 Bronchoscopy is a procedure in which a flexible tube called a bronchoscope is passed through a patient’s throat to view or treat the lungs and airways. 48

42 Moll Tr. 27.
43 Mintz Tr. 554

- 55.
44 Id. 45 Moll Tr. 24

- 25. 46 Mintz Tr. 555.
47 See Moll Tr. 64 ; see also PTO ¶ 154

. 48 See Moll Tr. 33 ; see also PTO ¶ 147

.13

ARES received 510(k) clearance for bronchoscopy in May 2016, using Intuitive’s da Vinci robot as its predicate device. 49 It was never commercialized

. ARES was, instead, a step in Auris’s MVP strategy

. Auris assess ed ARES’ s clinical capabilities first before build ing commercial RASDs with the benefit of that knowledge

. 50

2. Monarch Auris’s Monarch robot was the “commercial embodiment” of ARES. 51 In 2016 , Moll hired Richard Leparmentier, a n experienced engineering manager, to lead the Monarch project. 52
Monarch is a revolutionary RASD . It can send a flexible endoscope through lung airways to locate, identify, and biopsy lesions found on preoperative computed tomography ( CT ) scan s . 53 Its initial iteration, called Monarch Bronch 1.0, could navigate the outer lung non

- invasively . In March 2018, it became the first in the Monarch device line to receive 510(k) clearance. 54 The next iteration of Monarch

—

49 JX 275. 50 Moll Tr. 25

. 51 Id. at 26

. 52 Id. at 32

- 33

. 53 JX 5054; Moll Tr. 33. 54 PTO ¶ 91; JX 334; JX 331 ; see Leparmentier Tr. 979

.14

an endourology

- focused device called Monarch Uro

— received pre

- submission feedback from the FDA in November 2018. 55

3. iPlatform In 2016, Auris began to create another robot in parallel with Monarch: the
iPlatform surgical system

. Mintz was put in charge of the iPlatform project. 56 Josh DeFonzo was hired as Auris’s head of operations to oversee both the iPlatform and Monarch programs. 57
iPlatform was devised as a bed based RASD with integrated surgical arms, a physician console, and a control tower

. 58 It would be differentiated from da Vinci in several ways. Unlike the cart

- based da Vinci system, which could only fit in large
or custom

- built operating rooms, iPlatform had “zero footprint” since its robotic arms were mounted beneath a surgical bed. 59 Though iPlatform would first be developed for laparoscopic applications (like da Vinci), it would eventually gain concomitant (laparoscopic and endoscopic) capabilities

. 60 iPlatform had six robotic

arms versus da Vinci’s four

. 61

55 JX 858 ; see JX 637

. 56 Moll Tr. 26. 57 Id. at 27. 58 PTO ¶ 99 ; Moll Tr. 26

- 31; JX 5064

. 59 Mintz Tr. 566. 60 Mintz Tr. 567 ; Moll Tr. 32; see JX 1347 at 5

. 61 Mintz Tr. 567 ; see JX 1347 at 5

.15

Within a year, the iPlatform prototype was completing labs on human cadavers using three robotic arms

. 62 Cadaver labs are considered the ideal , ethical
way to test a RASD’s safety and effectiveness before live experimentation

. 63 By

summer 2017, iPlatform was completing cadaver lab procedures using five robotic

arms . 64
In December 2017 , iPlatform reached “concept freeze”

— a “critical step” where a design concept is deemed viable

. 65 The design included iPlatform’s bed

based architecture, six so

- called “Silverton” robotic arms , insertion tools , and

more. 66 Mintz presented its risk case and solutions to Auris’s executive team for approval. 67 The conceptual design was approved, and iPlatform proceeded to the next stage of product development. Auris began to work iteratively with the FDA on a plan for regulatory approval for iPlatform. I n August 2018, Auris made its first 510(k) pre - submission to the FDA , listing a cart

- based da Vinci RASD as the predicate device

. 68 Auris ’s
pre - submission form discussed a bronchoscopy indication for iPlatform

.

62 JX 292 at 7; Gardiner Tr. 743

- 47 ; see also JX 5012 at 1

. 63 Gardiner Tr. 745. 64 JX 292 at 7; see JX 1347. 65 Mintz Tr. 55 7

- 59 ; JX 1347.
66 JX 292 at 5

- 6, 30, 35

- 37, 57, 84.
67 Mintz Tr. 56 0

- 6 ; JX 292 at 20, 141. 68 JX 545 at 34

.16

In October 2018, t he FDA provided feedback to Auris, including that it would require clinical testing and data to be presented with iPlatform’s application. 69 The
FDA also explained that the listed indication was a mismatch for the predicate device. 70 Because the cited predicate device lacked a bronchoscope and did not perform the bronchoscopic procedures iPlatform’s application contemplated , the FDA said that it was “unclear if the 510(k) pathway [wa]s appropriate

. ” 71 In
response, Auris withdrew bronchoscopy from iPlatform’s 510(k) application and changed the predicate device to a more apt da Vinci robot. 72 Auris believed that if it addressed the FDA’s feedback and provided appropriate clinical data, iPlatform would receive 510(k) clearance. 73 Auris continued to refine its iPlatform prototype. Prostatectomy and Nissen fundoplication cadaver procedures were successfully completed in the fall of 2018. 74

69 JX 743 at 5. 70 Id. at 4

. 71 Id. at 3

. 72 JX 2468 at 5 ; Mintz Tr. 604

- 06. 73 JX 743 at 3 ; Mintz Tr. 605

- 06; see also JX 2468.
74 JX 699; Gardiner Tr. 748

- 49. A prostatectomy is a procedure to remove all or part of the prostate. A Nissen fundoplication is an upper abdominal procedure that treats gastroesophageal reflux disease. See Prostatectomy , Mayo Clinic, https://www. mayoclinic.org/tests

- procedures/prostatectomy/ about/pac

- 20385198 (last visited Aug. 31, 2024); Nissen Fundoplication , Cleveland Clinic, https://my.clevelandclinic.org/ health/treatments/ 4200

- nissen

- fundoplication (last visited Aug. 31, 2024) ; see also Gardiner Tr. 728

- 30; Mintz Tr. 580.17

By December 2018, the “alpha” version of iPlatform had been built , roughly a year after the concept freeze stage. 75
C. J&J’s Verb Robot As robotic surgery gained momentum , Johnson & Johnson desired RASD market share. A significant portion of J&J’s revenue came from its subsidiary Ethicon, Inc.’s sales of surgical instruments. 76 J&J recognized an “existential threat”
to its instrument business as Intuitive

- branded instruments were sold for the growing number of da Vinci robots in hospitals. 77 In 2012, with new Chief Executive Officer Alex Gorsky at the helm , J&J partnered with SRI to develop a RASD to compete with da Vinci. 78 Pablo Garcia Kilroy was the lead engineer on the project. 79 When the RASD showed commercial potential in 2015 , J&J formed a joint venture called Verb Surgical Inc. with Verily Life Sciences LLC (a subsidiary of Alphabet Inc.). 80 Kilroy became Verb’s lead engineer. 81

75 Mintz Tr. 569

- 70; PTO ¶ 99.
76 JX 1529 at 7 (2018 tax form showing the largest portion of J&J’s revenues w as from surgical and medical instruments sales, totaling over $4.149 billion). This decision refers to Ethicon and Johnson & Johnson as “J&J.”
77 JX 215 at 4; Morano Tr. 1435 ; see also JX 5019 at 23

. 78 Kilroy Tr. 2139 ; Shen Dep . 10

- 12; JX 2661 at 6. 79 Kilroy Tr. 2078.
80 PTO ¶ 72; Kilroy Tr. 2078. 81 Kilroy Tr. 2079.18

Verb’s robotic surgery system had three main structures: a table

- mounted center component with four robotic arms, a user console for the surgeon to operate the robot, and a tower containing the controller for the robot and a vision system. 82 The user input devices for controlling the Verb robot were novel

. I nstead of using physical controls, magnetics tracked the surgeon’s hand movements in an open
console and reproduce d them to guide the robot. 83 Like iPlatform, Verb e ncountered challenges during the design process

. They included dexterity issues both inside the body (like suturing and tying knots) and outside the body (involving arm collisions and maneuverability)

. 84 Dexterity came with a trade

- off in stiffness, which allowed for control of flexible apparatus es and surgical tools. 85 Verb also faced u ser interface issues, i mpairing the surgeon’s ability to complete a procedure with ease in the open console

. 86
But unlike iPlatform, Verb was plagued by delay s . By fall 2017 , Gorsky learned that Verb had fallen significantly behind schedule. 87 J&J nonetheless aimed

82 Id. at 2082. 83 Id. at 2084. 84 Id. at 2085, 2 0 87

- 88; see also JX 912 at 13

- 18; Kilroy Dep. 62:4

- 17. 85 Kilroy Tr. 2084

- 85 86 Id. at 2087. 87 See JX 224 at 21 (J&J Sept. 28, 2017 Digital Surgery Update to Gorsky: “Verb launch is delayed, increasing hurdles to achieving the plan . . .”); id. at 33 (“Verb is our largest bet to establish a leading robotics presence. However, we do not believe it is currently on a path to deliver this.”) ; id. at 41 (reflecting that since Q1 2015 to the present (3Q 2017),19

for a 2020 commercial release . D uring a n earnings call in January 2018 , Gorsky said that Verb was “on track” for a 2020 launch date. 88
The next month , Gor s ky asked J&J’s Board of Directors for an additional $400 million of funding for Verb to advance a “Gen 1 system towards launch in
2020

. ” 89 While preparing for the meeting, Gorsky recognized the “significant importance of the project” and questioned whether J&J had the “right capabilities”
to deliver the robot. 90 Susan Morano, J&J’s Vice President of Business Development for the Medical Devices group who reported to Gorsky, conveyed to her colleagues that Gorsky had asked her “[h]ow did we get this so wrong (internally and with Verb)[?]” 91 In June 2018, Ashley McEvoy became J&J’s Executive Vice President, Worldwide Chairman of MedTech (f/k/a Medical Devices). 92 She reported directly to Gorsky during his tenure

. 93 As the head of MedTech, McEvoy appreciated the

Verb had fallen two years behind schedule for a U.S. launch date and required pre

- launch funding of $430 million versus the anticipated $200 million)

. 88 JX 290 at 18 (Gorsky: “I got a chance to visit see the prototype

. I would say overall that it[’]s on track and we ’ re continuing to make refinements in it . . . So overall the project remains on track with our timelines and we ’ re excited about it.”)

. 89 JX 647 at 2, 1 7

. 90 JX 295 at 2

- 3. 91 Id. at 2. 92 McEvoy Tr. 2565. 93 Id.20

need for J&J to disrupt the RASD market before more competitors could enter the
space. 94 Gorsky told McEvoy to “take lead” on the Verb initiative and tackle risks to the project’s announced 2020 launch date. 95 Two months later, in August 2018, McEvoy sent Peter Shen to visit Verb for a “deep dive

. ” 96 Shen, a mechanical engineer by training with limited robot i cs experience, was J&J’s Global H ead of MedTech Research & Development. 97 After his visit, Shen told McEvoy that despite some progress , the Verb team had yet to “declare [a] design concept” and suffered from “[c]hurning and l ack of focus .” 98 J&J’s internal consulting group, Accelerando, was then asked to assess Verb’s

status

. Its conclusions resulted in a revised launch date of 202 2 , which was given

an 85% probability of success. 99 I n October 2018 , J&J set a reduced scope for the Verb RASD with a planned initial release outside the United States

. 100

94 Id. at 2567. 95 JX 504; JX 711.
96 JX 533 ; see McEvoy Tr. 2573

. 97 Shen Tr. 1102. 98 JX 533

. 99 JX 711 at 3 (“Accelerando process was initiated resulting in revised delivery timelines of 2022 (vs. 2020).”); id. at 9 (“85% confidence date: Q4 2022”)

. 100 Id.21

D. J&J’s Interest in Auris W hile Verb’s setbacks compounded , J&J began to consider other ways to enter the RASD market . In early 2017, it evaluated investing in Auris , which J&J personnel had been aware of and impressed by since 2015. 101 Morano visited Auris and described it as a “key hedge” for J&J. 102 In May 2017 , J&J invested $45 million in Auris ’s Series D round and secured

a board observer seat. 103 The investment followed extensive due diligence by J&J into the Monarch platform , including technical assessments by third

- party product development consultant Sagentia Innovation

. 104 By late 2017, J&J (including Morano) had learned about iPlatform and worried it could “take the wind out of
Verb

. ” 105 In May 2018, J&J’s Chief Scientific Officer William Hait , who led the company’s Lung Cancer Initiative, visited Auris. After seeing Monarch’s potential to diagnose and treat cancer in otherwise inaccessible areas of the lung, he became

101 JX 142; JX 186; Morano Tr. 1438

- 40. 102 Morano Tr. 1438

- 40; JX 186 at 3

- 4. 103 JX 195; PTO ¶ 107. 104 JX 475; Kozak Tr. 1579. 105 JX 261 (“Big learning is that [Auris has] been quietly developing a mainframe [with] the potential to really disrupt as it combines their arms with their endoluminal . . . And they say it will launch in 2 years which if true will completely take the wind out of Verb.”).22

“maniacally focused” on gaining access to the robot. 106 Hait returned to J&J and gave a presentation to its executive committee on Monarch ’s unique potential to
advanc e the Lung Cancer Initiative

. 107 Gorsky asked Hait to be a point of contact for a J&J team exploring a deeper relationship with Auris. 108 Sagentia was charged with conduct ing additional technical due diligence into Auris’ s technology. 109 In July 2018 , Morano recommended to Gorsky that J&J invest another $200 million in Auris (called “Antwerp” internally at J&J ). 110 Although the initial focus was on accessing Monarch given Hait’s enthusiasm , iPlatform became a crucial factor. Shen expressed to Morano that he was “very concerned” Verb was “significantly behind” and suggested “ explor[ing] ” “iPlatform as a backup plan” for
Verb. 111 At the same time, Gorsky told Morano that he “want[ed] [ A ] ntwerp added
to [V] erb” with the “ back end tech” shared. 112 To address this directive , Morano and
her team prepared a presentation for Gorsky that outlined Auris’s “‘ hybrid’

106 Hait Tr. 921

- 23; see Hait Dep. 266

- 68. 107 Hait Tr. 922

- 23 ; see JX 95

. 108 JX 95. 109 JX 447; JX 487; Kozak Tr. 1580

- 82. 110 JX 495 at 9.
111 JX 481.
112 JX 485 (Morano reporting her conversation with Gorsky to McEvoy : “He wants antwerp added to verb

– which I told I don’t think makes sense but that it could absolutely be a separate endoluminal system

. . . which he was ok with but wants the ‘back end tech’ shared

– which I believe is our strategy

. ”)

.23

laparoscopic/[e]ndoluminal opportunity ,” including a “potential partnership with Verb.” 113 At Gorsky’s request, Hait and Shen began collaborating on a plan to “mesh”
Verb and iPlatform. 114 Gorsky felt the need to be “fully engaged” beyond his typical involvement with an investment because of Auris’s importance to J & J’s “future surgical and digital/robotics platform

. ” 115
E. J&J’s Acquisition Strategy By August 2018 , J&J hoped to obtain a controlling interest in or outright acquir e Auris . McEvoy approved an acquisition assessment but asked that it be “done VERY quietly ” since “Verb [was] in a fragile state.” 116 D ue d iligence continued. 117 J&J’s engineers visited the Auris site, spending hours asking Mintz

113 JX 495 at 10.
114 JX 507 (Hait to Shen: “I am now more fully aware of Antwerp in the context of your broader robotic/digital surgery initiative and would be happy to work closely with you to plan a strategy where we can mesh the two

. ”); see Hait Tr. 941 ; see also JX 598 (Hait to McEvoy : “I reviewed VERB with the Med Device team and was impressed with the passion and progress but also heard significant challenges. Auris will likely be best in

class endoluminal robotic surgery and have a competitive laparoscopic instrument whereas VERB is likely to have the most sophisticated data analytics

. Alex has challenged us to find a way to ‘ mesh ’ the two projects.”)

. 115 JX 506. 116 JX 527 at 1

. 117 See JX 557.24

“good, hard, technical questions, challeng[ing] [Auris] on the right points, ” and examining the robot

. 118 Sagentia participated in J&J’s technical diligence. 119
Given the sensitivities with Verb , J&J proceeded cautiously . In September, Hait wrote to Shen: “[W]hat if we combine the engineering expertise of Auris and the iPlatform laparoscopic and endoluminal device with the data analytics of VERB[?] In this way , we will have hedged out bets in robotics , take [n] the lead in endoluminal , and protect [ed] at least some of our investment in VERB.” 120 Shen responded that “there [were] major complexit [ ies ] and implications to this discussion ” and asked t o keep “ the conversation within a small group for now.” 121
Shen asked to talk when the two were together in Shanghai later that month. 122 In the interim, J&J learned that Medtronic

— a competitor

— was interested in acquiring Auris. 123 The news prom p ted “a critical moment that require [d] [J&J] to accelerate.” 124 Auris falling into a competitor’s hands was a “doomsday scenario”
for J&J. 125 In considering next steps, Shen told Morano that “iPlatform c[ould] be a

118 Mintz Tr. 57 5

- 7 7

. 119 JX 557 at 3.
120 JX 600.
121 Id.
122 Id. 123 JX 619.
124 Id. 125 JX 670 (Hait to Shen); see also JX 679

.25

plan B for [J&J]” but questioned whether J&J could “ do both ( Verb and iPlatform ). ” 126 In late September , Shen and Hait met in Shanghai and discussed plans for Auris

. 127 Shen later recapped the meeting for McEvoy, highlighting a

“ compl e mentary” approach where Verb would focus on general surgery and iPlatform would have “combo capabilities” including endoluminal surgery

. 128 He believed this was a “‘Fail Safe plan for [J&J’s] robotic strategy. ” 129 With the “go” from McEvoy, Shen and Hait presented their plan to Gorsky, who was “pleased.” 130
F. J&J’s Acquisition Strategy Hait was tasked with initiating acquisition discussions with Moll. 131 In his first outreach on October 1, 2018 , Hait praised Monarch’s unmatched capability to

screen for lung cancer. He also shared that “[J&J’s] medical device group ha[d] become increasingly impressed with iPlatform, as [the Auris] team makes

126 JX 619

. 127 JX 664. 128 JX 660. 129 Id.
130 Id. ; JX 664. 131 JX 661 at 2.26

extraordinary progress.” 132 Hait told Moll that J&J was interested “in exploring a more substantial relationship. ” 133 Auris was, at the time , considering a new investment round to support the independent development of its robots. It was not searching for a buyer

. 134 Auris’s leadership felt that a merger, particularly with a large company, c ould cause a loss
of the autonomy that had made its success possible. 135 With J&J in particular, Auris feared that Verb c ould displace iPlatform

. 136
J&J understood these concerns and strategized on finding “what matter[ed] most” to Auris

. 137 Given the “criticality” of th is issue, McEvoy and Gorsky “le[d] from the top” on strategy. 138 They

— with S hen, Hait, Morano, and other senior leadership

—

prepared for an in

- person meeting at Auris ’s Redwood City, California headquarters by assessing Auris’s “[v]ision and [i]nterests.” 139 These interests
included Auris’s desire to understand J&J’s “vision [on] how Antwerp and Verb

132 JX 661 at 2. 133 Id. at 2

. 134 See Hebert Tr. 13 98

- 99; Salehizadeh Tr. 1345. 135 Moll Tr. 3 8

- 40

. 136 Id. at 40. 137 JX 736 at 1

. 138 Id. 139 JX 838 at 4.27

coexist.” 140 Gorsky’s talking points for the Redwood City meeting said : “We see the Verb and Antwerp programs as complementary.” 141 Gorsky represented as much to Moll during dinner in California , emphasizing that Verb and iPlatform would be developed in parallel and that iPlatform was a priority for J&J. 142 On November 28, Gorsky called Moll to propose acquiring a 51% equity stake
in Auris. 143 Auris had no interest in selling a majority of its business

. 144 By mid

December, J&J began preparing a full acquisition proposal, including an earnout component based on regulatory and sales milestones. 145
On January 2, 2019, Gorsky presented Moll with an offer to acquire Auris for a $3 billion upfront payment and $2 billion in potential earnout payments

. 146 Gorsky represented that J&J would “spend multiples” o f what Auris alone could invest in developing its robots

. 147 Further diligence and negotiations ensued, with Auris

140 Id.
141 Id. at 7.
142 Moll Tr. 42; see also JX 838 (prepared talking points for Auris meeting); Moran o Tr. 1517; DeFonzo Tr. 326

- 331

. 143 Gorsky Dep. 210

- 13; Morano Tr. 1458; JX 852; JX 837 at 28; JX 5100 at 4.
144 See JX 929; Huffines Dep. 426

- 27. 145 JX 934. 146 PTO ¶ 110.
147 JX 1004 at 6; Moll Tr. 45.28

continuing to question whether J&J would expect iPlatform to compete with Verb , and J&J assuring Auris that it planned to fund and launch both products

. 148
G. The Ashley Challenge Meanwhile, J&J was exploring a budget for its entire robotics division. McEvoy decided that the total robotics budget including “[V]erb, instruments, IT, [and] Antwerp” would be capped at “$500

- $600” million per year. 149 This budget cap would later be called the “Ashley Management Decision” or “Ashley Challenge.” 150 At J&J, a “management decision” is a top

- down “budget challenge”
for a division

. 151 On January 10, 2019, McEvoy ’s team sent her an estimated profit and loss statement for the robotics program. 152 The total expenses for Verb , Auris, and “Orthopedics” for 2019 through 2022 were projected to be $3. 167 billion

. 153 Hours later, a revised draft was circulated reflecting McEvoy’s feedback. 154 A line item called “AAM RISK ADJUSTMENT” was added, which reduced total projected

148 JX 1028; JX 1032; see DeFonzo Tr. 480; Morano Dep. 218

. 149 JX 846. 150 Id. ; see JX 1090; McEvoy Tr. 2603

- 06

. 151 See Lenard Tr. 1787; Shen Tr. 1247

. 152 JX 1118 at 5. 153 McEvoy Tr. 26 10

- 15. 154 JX 1119 at 1.29

expenses for 2019 through 2022 to $ 2. 296 billion

. 155 McEvoy explained that the “AAM risk adjusted line

- item” was “in reference to a proposed synergy between Verb/[iP]latform.” 156 She felt these “synergies” were “potentially achiev[able]” once J&J brought “both platform teams together,” after J&J had “more time to understand the synergy opportunities.” 157
H. Negotiations Progress. J&J continued to conduct diligence throughout January

. I t learned about trade

- offs in iPlatform’s design and other system issues that the Auris team was working to resolve. 158 Both parties agreed to a three

- stage diligence process and to defer further technical due diligence. 159 Negotiations on deal terms progressed. On January 18, Auris sent J&J a counteroffer for $3.9 billion in upfront consideration and $3.5 billion in contingent payments based on regulatory and sales milestones for iPlatform and Monarch

. 160 The regulatory milestones would be tied to 510(k) approval , which was the expected

155 Id. at 6

. 156 JX 1139 at 1 ; see McEvoy Tr. 2607

- 16. 157 JX 1135 at 1. 158 JX 1141; JX 1145; JX 1284. 159 Morano Tr. 1477; JX 1077; JX 1052. 160 JX 1210.30

pathway

. 161 J&J offered that net sales milestones include sales of not only iPlatform and Monarch but also Verb “to address [ Auris’s ] concerns about Verb.” 162 On January 24, Gorsky called Moll to deliver J&J’s formal counteroffer. It included upfront cash consideration of $3.4 billion and a total potential earnout of $2.2 billion. 163 J&J spread the contingent payments across six milestones

— four regulatory and two sales based. 164 One of the proposed milestones provided Auris with $100 million upon Monarch receiving FDA 510(k) approval for lung tissue ablation. Gorsky told Moll that this milestone w as so “high[ly] certain[]” of being
achieved that J&J viewed it as “effective ‘up front’” consideration

. 165
I. The NeuWave Patient Death The Monarch lung tissue ablation milestone required the use of an Ethicon device called the NeuWave FLEX Microwave Ablation System. The NeuWave
FLEX is a catheter

- based instrument that delivers microwave energy to ablate or destroy tissue. 166 At the time of J&J’s January 24 offer , FLEX had regulatory approval for soft tissue ablation but not a lung

- specific use

. 167 Monarch , by contrast ,

161 JX 1072 at 4 ; DeFonzo Tr. 363

- 64 ; Moll Tr. 58

- 59.
162 JX 10 72 ; JX 10 27 ; JX 1077; JX 1145. 163 JX 1215 at 5. 164 Id. 165 Id. at 6 ; see also JX 1249 at 3 ; Moll Tr. 51

. 166 Moll Tr. 50. 167 JX 161 at 3.31

had already attained FDA clearance for bronchoscopy and was approved only for lung procedures

. 168
In June 2018 , NeuWave Medical (a subsidiary of J&J’s Ethicon subsidiary) initiated a ten

- patient study using FLEX to treat lung lesions. 169 On December 4,
2018 , a study participant died weeks after being treated with FLEX

. 170 J&J immediately reassigned leadership of the study to Hait, who suspected that the FDA would p lace the study on hold for some period

. 171 Hait was right. Nine days after the patient death was reported to the FDA, the
FDA launched a for

- cause inspection into whether the study violated FDA rule s because NeuWave had not obtained an investigation device exemption (IDE) in advance

. 172 An IDE provides FDA approval to perform a clinical trial of a device that has not been cleared for marketing or the intended indication. 173 The FDA investigation involved an in

- person investigat ion at Ethicon’s “sponsor site from December 13, 2018 to December 19, 2018.” 174

168 See supra note 54 and accompanying text. 169 JX 1901 at 25 ; see JX 4511 at 88

. 170 JX 1901 at 30.
171 Hait Tr. 961

- 63.
172 JX 1673; JX 1550 at 157 ; see JX 2648 at 35, 36; JX 2313 at 8

- 9, 13

. 173 Wittwer Rep. ¶ 87.
174 JX 1673 at 2; see also Wittwer Tr. 1964

- 65.32

On January 14, 2019, J&J ’s Auris deal team was briefed on the NeuWave patient death

. 175 They sought to understand whether the “patient death was going to affect the overall value of Auris.” 176 Team members preparing talking points for Gorsky to deliver to Moll were mindful of the “nuances” to the Monarch lung tissue ablation milestone “and what will be required for the FDA approval (still in
discussion ) .” 177 As of January 22, J&J’s team believed that a to

- be

- offered year - end 2022 target for the Monarch lung tissue ablation milestone remained “ achievable

. ” 178 On March 20, the FDA sent J&J a letter stating that it had concluded the use of FLEX on lung lesions posed a “significant risk” to participants and that J&J should have applied for an IDE before launching the study

. 179 J&J received the FDA’s letter on April 3. 180 J&J would need to conduct a new clinical study under an IDE, then obtain a lung

- specific approval for FLEX

— a process that could take several years. 181 Only then could Monarch obtain clearance for use with FLEX. 182

175 JX 1182; JX 1171

. 176 Kozak Tr. 1572 ; see JX 1182 at 1

. 177 JX 1239. 178 JX 1220 ; see also JX 1239; JX 6028

. 179 JX 1673 at 2

. 180 Id. at 1 ; Bryant Tr. 2490

- 91. 181 Wittwer Tr. 1966

- 68; Wittwer Rep

. ¶¶ 95

- 101. 182 Wittwer Tr. 1967

- 68.33

Moll was not told about the NeuWave patient death until shortly after the merger closed in early April 2019

. 183
J. The Merger Agreement J&J’s preliminary draft merger agreement included ten potential earnout milestone s . 184 Two Monarch

- specific milestones concerned 510(k) approval for certain indications , including lung tissue ablation

. 185 Six milestones concerned iPlatform regulatory approvals for general surgery, a gastrointestinal (GI) surgery, and four to

- be

- determined “ umbrella ” procedures that Auris was to fill in

. 186 There were also two net sales milestones. 187 Auris sent back a revised draft of the merger agreement with revisions to the proposed milestones. 188 The Monarch lung tissue ablation milestone was changed to “soft tissue ablation,” which Auris believed would not require clinical testing. 189 As for iPlatform, Auris proposed milestones in line with its MVP strategy that began with less complex procedures and built to more complex procedures

. 190

183 JX 1730; Moll Tr. 174

. 184 JX 5016 § 2.07. 185 Id. § 2.07(a)(i)

- (ii); see supra note 165 and accompanying text. 186 JX 5016 § 2.07 (a)(iii)

- (vii) ; DeFonzo Tr. 366

- 68

. 187 Id. § 2.07 (a)(ix)

- (x). 188 JX 1278; JX 1285

. 189 JX 1278 at 227; DeFonzo Tr. 361

- 63; JX 1334. 190 DeFonzo Tr. 369; see JX 1620 (the “Merger Agreement”) § 2.07(a).34

All of the iPlatform milestones were for laparoscopic procedures, rather than more complex concomitant ones . 191 Auris insisted that approval of any “ upper abdominal” and “lower abdominal” procedure s by year end 2021 would satisfy the first iPlatform regulatory milestone. 192 Th is wa s in contrast to the “general surgery”
indication suggested by J&J, which would have required Auris to demonstrate the safety and effectiveness for the most complex procedure in the “general surgery”
umbrella

. 193 The subsequent milestones matched specific umbrella procedures that Auris was targeting. 194 J&J accepted these changes. The agreed

- upon regulatory milestones for iPlatform were:
1. General Surgery Milestone : $400,000,000 if iPlatform obtain ed “510(k) premarket notification(s) allowing marketing and sale of an iPlatform Product offering, with a specific indication for one upper abdominal surgical procedure and one lower abdominal procedure” by the end of 2021 (the “General Surgery Milestone”) ; 195 2. Upper Abdominal Umbrella Milestone : $150,000,000 if iPlatform obtain ed “510(k) premarket notification(s) allowing marketing and sale of an iPlatform Product offering(s) for . . .

191 Merger Agreement § 2.07(a)(i)

- (viii); see Moll Tr. 49

- 50. 192 See JX 5016 at 3

- 4; Merger Agreement § 2.07(a)(iii); DeFonzo Tr. 365

- 67. 193 DeFonzo Tr. 364

- 65 ; compare JX 5016 § 2.07(a)(iii) (J&J draft proposing regulatory approval on iPlatform “for general surgery procedures”), with Merger Agreement § 2.07(a)(iii) ( final version requiring iPlatform regulatory approval for “one upper abdominal surgical procedure and one lower abdominal surgical procedure”)

. 194 DeFonzo Tr. 366

- 68; compare JX 5016 § 2.07(a)(iv)

- (vii) (J&J leaving brackets for umbrella milestones for Auris to fill in), with Merger Agreement § 2.07(a)(iv)

- (vii) (listing specific indications). 195 Merger Agreement § 2.07(a)(iii).35 upper abdominal Umbrella Procedure(s)” by the end of 2023 (the “Upper Abdominal Milestone”) ; 196 3. Colorectal/Lower Abdominal Umbrella Milestone : $150,000,000 if iPlatform obtain ed “510(k) premarket notification(s) allowing marketing and sale of an iPlatform Product offering(s) for . . . urological Umbrella Procedure(s)” by the end of 2023 (the “Lower Abdominal Milestone”) ; 197 4. Urologic Umbrella Milestone : $150,000,000 if iPlatform obtain ed “510(k) premarket notification(s) allowing marketing and sale of an iPlatform Product offering(s) for . . . colorectal/lower abdominal Umbrella Procedure(s)” by the end of 2023 (the “Urologic Milestone”) ; 198 and 5. Gynecologic Surgery Umbrella Milestone : $150,000,000 if iPlatform obtain ed “510(k) premarket notification(s) allowing marketing and sale of an iPlatform Product offering(s) for . . . gynecological Umbrella Procedure(s)” by the end of 2023 (the “Gynecologic Milestone”)

. 199 The Monarch

- related milestones were: 6. Endourology Milestone : $100,000,000 if Monarch obtain ed “510(k) premarket notification(s) allowing marketing and sale of a Monarch Product offering, with a specific indication for endourology procedure(s)” by the end of 2020 (the “Endourology Milestone”) ; 200 and 7. Robotic Soft Tissue Ablation Milestone : $100,000,000 if Monarch obtain ed “510(k) premarket notification(s) allowing

196 Id. § 2.07(a)(iv). “Umbrella Procedure” is defined as “any procedure or procedure category within a specialty, which represents higher complexity or risk and when cleared by the FDA includes covered procedures of less complexity or lower risk within that specialty.” Id. § 10.03(uuu). 197 Id. § 2.07(a)(v). 198 Id. § 2.07(a)(vi). 199 Id. § 2.07(a)(vii). 200 Id. § 2.07(a)(i).36 marketing and sale of a Monarch Product offering, with a specific indication for robotically driven (or controlled) soft tissue ablation ” by the end of 202 2 (the “Soft Tissue Ablation Milestone”)

. 201 An additional regulatory milestone could be satisfied by either iPlatform or Monarch:
8. Robotic GI Endoluminal Milestone : $150,000,000 if either iPlatform or Monarch obtain ed “510(k) premarket notification(s) allowing marketing and sale of an iPlatform Product offering (or, alternatively

. . . a Monarch product offering), with a specific indication for procedure(s) specifically including Endoscopic Submucosal Dissection (ESD)” by the end of 2023 (the “GI Milestone”)

. 202 Finally, there were two commercial milestones that could be satisfied by either Verb or Auris products:
9. First Step Net Sales Milestone : $500,000,000 if Robotics Net Sales before the end of 2022 reach ed or exceed ed “$575 million in the aggregate”; 203 and 10. Second Step Net Sales Milestone : $500,000,000 if Robotics Net Sales before the end of 2022 reach ed or exceed ed “$575 million in the aggregate

. ” 204 Auris ’s markup of the draft merger agreement proposed a one - way anti

reliance clause favoring Auris. It also included a provision that would obligate J&J
to take efforts to develop and commercialize the Auris robots consistent with “a

201 Id. § 2.07(a)(i i ). 202 Id. § 2.07(a)(viii).
203 Id. § 2.07(a)(ix). 204 Id. § 2.07(a)(x).37

company in the medical devices industry of comparable size and resources to
J&J

. ” 205 Auris had I ntuitive in mind as the measure of industry standard efforts. 206
J&J accepted the one - way anti

- reliance clause but proposed an inward

- facing efforts provision

. 207 The efforts supplied were to be measured by J&J’s own standards, which J&J assured Auris was beneficial since J&J was “the biggest
healthcare company in the world” with standards exceeding the industry. 208 J&J agreed that these “commercially reasonable efforts” would be to the end of achieving the iPlatform and Monarch regulatory milestones. 209 As a residual assurance, Auris negotiated for language that tied J&J’s efforts to its “usual practice” for “priority medical device products

. ” 210
The final Merger Agreement was executed on February 12, 2019 by Ethicon, Antwerp Merger Sub, Inc., Auris, and Fortis as the Auris stockholders’ representative

. 211 At the time, Auris had a high level of confidence in achieving regulatory clearance via the 510(k) pathway , in iPlatform’s and Monarch’s ability to

205 JX 1278 at 159 , 232 ; see DeFonzo Tr. 381

- 82

. 206 DeFonzo Tr. 381. 207 Id. at 381

- 83; see also Hinchliffe Tr. 3145

- 46; Hinchliffe Dep. 206

- 07

. 208 DeFonzo Tr. 382. 209 Merger Agreement § 2.07(e) (i), (ii) ; see Shen Tr. 1152

. 210 Merger Agreement § 2.07(e)(ii); see DeFonzo Tr. 382

- 83; Hinchliffe Tr. 3145

- 46.
211 PTO ¶ 111.38

deliver on the milestones , and a shared vision with J&J for the robots

. 212 The merger was set to close on April 1.
K. Pre
- Closing Preparations Verb continued to struggle . McEvoy told Gorsky as much on March 10, prompting Gorsky to ask why Verb’s timelines “continue to change with multiple explanations for delays and issues.” 213 T o address Gorsky’s concerns, Shen proposed an “assessment between Verb and iPlatform from a portfolio perspective.” 214 Celine Martin, who oversaw J&J’s robotics and digital surgery
program, was “aligned” with the proposal. 215
Shen’s “worry” about “Verb vs. iPlatform ” was that the “Verb team [would] know [the J&J’s leadership team’s] hesitation.” 216 As he told McEvoy, they must be “all in for Verb.” 217 Shen believed that “Verb + iPlatform [wa]s [J&J’s] bullet proof strategy to compete.” 218 As he wrote on the day the Auris merger closed :

“ Delivering of Verb milestones i s our No. 1 priority.” 219

212 DeFonzo Tr. 363

- 64; Gardiner Tr. 748

- 61. 213 JX 1581; see also JX 1590 at 2; Shen Tr. 1112

- 14.
214 JX 1581 at 1

. 215 Id. 216 JX 1630.
217 Id. 218 Id. 219 JX 1663; see Shen Tr. 1152 , 1308. During his testimony, Shen said that this was “not false.” Shen Tr. 1308.39

L. Project Manhattan F our days after closing, Shen drafted a “Plan to Technically Assess Verb Platform and iPlatform.” 220 He wrote that the objective was “to assess the robotic system (Digital Surgery) development status from Verb and Auris and recommend an optimal path to bring the system(s) to market , considering factors such as launch schedule , project risk identification and mitigation , specialty indication launch
cadence , surgeon preference , etc .” 221 He described three possible outcomes. First, J&J could “ [d] evelop both systems in parallel and the[n] make the final commercialization decision .” Second, it could “[c] hoose one of the two ” systems. Or, third, it could “[m] erge them into a single development by combining the best of each.” 222
Shen sent a draft of the plan to Martin, writing: “I am still thinking about how we do this highly sensitive assessment work. We cannot lose [the] Verb team at this point.” 223 He also sent a draft to Kilroy

— Verb’s lead engineer. Kilroy envisioned

220 JX 1702.
221 JX 1703.
222 JX 1702. 223 JX 1703.40

that the robots would be merged into a combined system

. 224 He suggested that Shen revise “framing the project objective in a way that is less controversial.” 225
Shen then edited the document . The new version stated that the objective of the assessment was to “find synergies between platforms to decrease project risk and accelerate time to commercialization. ” 226 He removed the description of the three post

- assessment “potential scen arios” outlined in his prior draft. 227 He titled the assessment “Project Manhattan.” 228
Shen sent the revised version to Moll on April 9. 229 Moll was aghast. During negotiations, J&J had told Auris it would perform a post

- closing “technology audit” to understand Auris’s systems and ways that J&J’s “global candy store” of resources
could be beneficial to Auris

. 230 DeFonzo ’s discussions with J&J similarly led him
to understand that a “technology audit” would be conducted to understand “technologies available within Ethicon unrelated to Verb” that could help Auris.” 231

224 Kilroy Tr. 214 3; Kilroy Dep. 43

- 44

. 225 JX 1710. 226 JX 1725 at 2.
227 JX 1703 at 2; see JX 1725. 228 JX 1725. “Manhattan” was an internal code name for Verb. See JX 2833 (discussing “Manhattan” as “Verb”); Lenard Tr. 1799; JX 2658 at 1. 229 JX 1719; JX 1725. The version sent to Martin and Kilroy was never shared with Moll.
230 Moll Tr. 47

- 48. 231 DeFonzo Tr. 400

- 01.41

But a comparative assessment between Verb and iPlatform had not been mentioned

. 232 On April 22, Shen formally introduced Project Manhattan to the Verb and Auris teams, describing it as a “Technical Assessment of Verb Surgical Platform and Auris iPlatform.” 233 He said that a “deep dive assessment” would be conducted “in the following areas” for each platform:

• Master controller or [user input device]
• Robotic components and systems
• Instrumentation
• Visualization system
• Data connectivity
• Machine learning and [d] ata analytics. 234 Shen said that Project Manhattan would be “co

- le [d] ” by Kilroy and Mintz and completed over the “next 60

- 70 days. ” 235
Moll promptly told Shen of his concern that “[s]upporting a complex and detailed 90 day technical review by all Auris technical heads w[ould] affect [Auris’ s ] ability to stay on schedule.” 236 Shen responded that “the system should stay as it is (no need to be dressed up) for review.” 237 By this point, t hough, Moll and the Auris

232 See Moll Tr. 70

- 72; JX 1500. 233 JX 1813; see Shen Tr. 1158.
234 JX 1813 at 1

- 2. 235 Id.
236 JX 1830; see Moll T r. 76

. 237 JX 1838.42

team had learned that J&J capped the robotics budget (i.e., the Ashley Management Decision), leading them to doubt that Verb and iPlatform would be developed on “parallel path[s]

. ” 238 It seemed to them that Project Manhattan was a “bakeoff”
between Verb and iPlatform. 239 The Auris team feared that only one robot could win; the loser would be deprioritized, deemphasized, and cease to exist. 240
Auris’s suspicions were well placed. Amid Project Manhattan, Martin wrote that she did not “see [J&J] running parallel path [V] erb

- Auris all the way to 510k”
becaus e “P & L will not support it and it is very inefficient.” 241 A n internal J&J retrospective document from the next year recognized that “[Project Manhattan was [ a] financial necessity[]” given the significant expense of “[d]eveloping 2 complex robots at the same time.” 242 The probable end goal was to find ways to “mesh” the robots, consistent with Gorsky’s earlier aspirations and the budget set by the Ashley Management Decision. 243 Auris leadership thus viewed Project Manhattan as an existential threat to iPlatform . Because the months

- old iPlatform alpha robot would be pitted against a

238 Moll Tr. 76 ; id. at 47

- 48; Mintz Tr. 586

- 87

. 239 Moll Tr. 72 ; DeFonzo 403

- 0 6

. 240 Moll Tr. 72.
241 JX 1947.
242 JX 2774 at 5. 243 See supra notes 114, 156

- 57 and accompanying text ; JX 2656 ; Lenard Day 2 Dep. 23

- 24

.43

Verb post

- beta robot that had been through years of iterations , Auris had to quickly
prepare to “surviv e . ” 244 Mintz focused on creating “workarounds” for system “bugs,” which he described as “ the engineering and software equivalent of Band

Aids, duct tape, and baling wire.” 245 iPlatform incurred a significant “technical debt” from going “backwards rather than forwards in development [] to prop up a system” for an unanticipated head

- to

- head evaluation. 246 In exchange for short term stability to compete against Verb, iPlatform largely suspended its development plan, MVP strategy, and beta version progress. 247 Project Manhattan consisted of seven procedures performed by eight “key opinion leader” surgeons (“KOLs”). M ost of the KOLs were experienced on the Verb device but had never used iPlatform. 248 Two of the KOLs had worked closely on Verb’s development. 249 The procedures performed were: Roux

- en - Y gastric bypass (RY GB ) , low anterior resection ( LAR ) , v entral hernia , partial nephrectomy ,

244 Mintz Tr. 5 88

- 89 245 Id. at 589. 246 Moll Tr. 76; Mintz Tr. 590.
247 See Mintz Tr. 587

- 88; JX 1793. 248 JX 2125 at 2. 249 These KOLs were Dr. Moni k a Hagen and Dr. Keith Kim. Hag e n Tr. 2282; Hagen Dep. 16

- 18; Kim D e p. 28, 28

- 49. Moll asked that Gardiner, who was experienced with iPlatform , be a KOL. His request was rejected. Mintz Tr. 594

- 95 ; Moll Dep. 633

- 34.44

hysterectomy , and lobectomy. 250 After the procedures, the KOLs rat ed each system’s capabilities. 251
Both iPlatform and Verb successfully completed all seven procedures. 252 T he KOLs gave iPlatform positive feedback and rated the system somewhat or nearly ready for clinical use , with the exception of lobectomy

. 253 iPlatform’s performance
in one RY GB lab and the hysterectomy lab were rated equal to that of d a Vinci. 254

250 JX 2103 ; JX 2125 ; JX 2131

. RYGB surgery, also called bariatric surgery, reduces the size of the stomach and reroutes part of the small intestine. LAR surgery treats rectal cancer by removing part of the rectum and reconnecting the rectum to the colon. Ventral hernia surgery repa irs protrusions of the intestine or other tissue through the abdominal wall. Partial nephrectomy involves remoting a portion of the kidney to treat disease or injury. A hysterectomy is a procedure to remove the uterus. A lobectomy is a procedure to remove a lobe of the lung, including to treat cancer. See Stanford Medicine, General Surgery

– Common Surgical Procedures , Stanford Health Care, https://stanfordhealthcare .org/medical

- treatments/g/general

- surgery/procedures.html) (last visited Aug. 31, 2024); Roux

- en - Y Gastric Bypass Weight

- Loss Surgery , Johns Hopkins Medicine, https://www.hopkinsmedicine.org/health/treatment

- tests

- and

- therapies/rouxeny

- gastric

bypass

- weightloss

- surgery (last visited Aug. 31, 2024); Timothy J. Ridolfi, MD et al, Low Anterior Resection Syndrome: Current Management and Future Directions , 29 Clinics in Colon and Rectal Surgery 239, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC49919 69/; Nephrectomy (kidney removal) , Mayo Clinic, https://www.mayoclinic.org/tests

procedures/nephrectomy/about/pac

- 20385165 (last visited Aug. 31, 2024); Lobectomy , Johns Hopkins Medicine, https://www.hopkinsmedicine.org/health/treatment

- tests

- and

therapies/lobectomy (last visited Aug. 31, 2024). 251 Mint z Tr. 594

- 95

. 252 Id. at 592

- 98; JX 2125; JX 1878. 253 JX 2131. 254 Id. at 26

- 28.45

The hysterectomy lab was a breakthrough for the iPlatform team, since it marked the first time a surgeon was able to perfor m a procedure using all six robotic arms

. 255 Overall, the KOLs “were confident that both systems w[ould] be clinically capable.” 256 Although they raised problems with iPlatform (and Verb) , the Auris team left Project Manhattan feeling encouraged with iPlatform’s performance

. 257
The first iPlatform milestone (the General Surgery Milestone) was still 2.5 years

a way , with subsequent milestones to be completed in 4.5 years.
M. iPlatform “Wins” the Bake
- Off On June 16, 2019, Martin reporte d to McEvoy and other J&J leaders that iPlatform “performed well and managed to complete” all KOL procedures. 258 B y this point, Martin and Shen had agreed that parallel pathing both robots would be an unsuccessful strategy. 259 They believed that only one system sh ould be brought to market. After considering KOL feedback, along with the vision and unique features of iPlatform , Shen and Martin recommended to McEvoy that J&J prioritize iPlatform. 260

255 Mintz Tr. 596

- 98; see Pl

. ’s Trial Demonstrative (“P l.’s Dem.”) 8 (video of the lab being performed)

. 256 JX 2131 at 18. 257 Moll Tr. 80; Mintz Tr. 598

- 600

. 258 JX 2103. 259 JX 2144. 260 JX 2164; JX 2236.46

But “g o[ing] with iPlatform” did not mean abandoning Verb. 261 Consistent with J&J’s goals and budget, Shen, Martin, and others discussed combining the systems instead. 262 Shen thought that “[c]ombining 2 programs into 1 ma[de] all the sense from [ a ] traditional development standpoint

– focus, budget, priority” to compete with Intuitive. 263
The J&J team prepared a recommendation to Gorsky, which projected iPlatform 2019, 2020, and 2021 launch dates and a Verb launch date sometime after
2021. 264 A slide showing the technical synergies between iPlatform and Verb identified where iPlatform parts could be “plan B option[s]” should Verb ’s development stall. 265 Gorsky asked that more elements of Verb be add ed to iPlatform. 266
I n late September, Martin recommended to Gorsky that J&J pursue a combination system of iPlatform “augmented by incremental [V]erb capabilities

261 JX 2164. 262 JX 2180. 263 Id.
264 JX 2275 at 32. 265 Id. at 45. 266 DeFonzo Tr. 408

- 09 (“Celine informed me sometime in mid

- July that Alex had asked the team to go back and find more elements of Verb to include in the iPlatform.”). Martin could not remember this discussion, or m ost of the other deliberations from this period

. See Martin Tr. 1684

- 1689. DeFonzo’s testimony was overall credible , supported by Gorsky’s hope of meshing the robots, and the subsequent events.47

incl [ uding ] the Verb surgeon console.” 267 Gorsky questioned why the financial valuations for Verb and iPlatform were higher separately than when the systems were combined and noted that the combination would “lead[] to some delay

. ” 268 When McEvoy asked for clarification, J&J Chief Financial Officer Flavia Pease explained that the lower valuation “still assumes all Auris milestones being paid in full” and offered to “discuss further live.” 269 McEvoy subsequently told Gorsky that the combined Verb/iPlatform valuation improved “when you consider what will also happen with contingent payment”

— meaning the earnout. 270 Gorsky gave the team the “green light” to proceed with next steps. 271
N. The FDA’s New Pathway Guidance Despite the challenges of Project Manhattan, Auris strove to get iPlatform back on track for regulatory approval

. On June 28, Auris sent the FDA a pre submission for iPlatform with RYGB and inguinal hernia repair indications

. 272

267 JX 2594 at 20; Martin Tr. 1683

- 84. 268 JX 2599

. 269 Id.
270 JX 2606; McEvoy Tr. 2637; McEvoy Dep. Day 2 207

- 08; see also JX 2584 at 26

. 271 Martin Tr. 1693.
272 JX 2328 at 43. A laparoscopic inguinal hernia procedure repairs a hernia in the groin area through small incisions. See Inguinal hernia , Mayo Clinic, https://www.mayoclinic. org/diseases

- conditions/inguinal

- hernia/diagnosis

- treatment/drc

- 20351553 (last visited Aug. 31, 2024).48

Auris also selected a different d a Vinci predicate device than the one it had listed in its prior submission to address the FDA ’s initial feedback

. 273
In a Verb

- related meeting with the FDA on August 5, J&J learned that “going forward,” the agency believed that the 510(k) pathway would be closed f or any new RASD

. 274 The FDA reached this decision due to the systems’ “complexity” and difficulties “mak[ing] a substantial equivalence determination” for a predicate device. 275 The FDA “indicated” that the “De Novo pathway [wa]s still a potential option” versus the more complex PMA pathway. 276 In assessing the effect of this pathway change on Verb’s launch schedule, J&J’s regulatory team concluded that De Novo review would yield “[n]o significant timeline differences compared to a 510(k)” review. 277
The next month , t he FDA notified J&J that the 510(k) pathway was likewise
closed to iPlatform. 278 On January 6, 2020 , the FDA confirmed that iPlatform could seek approval through the De Novo pathway instead of PMA

. 279 This was seen as a

273 JX 2328 at 46 ; see supra notes 70

- 72 and accompanying text

. 274 JX 2512 at 5. 275 Id.
276 Id.
277 JX 2396 at 12

- 13

. 278 JX 6116 at 4 ; see also JX 2620; JX 6117. 279 JX 2951 at 6; Shen Tr. 1174; see also JX 2396 at 2; Bryant Tr. 2514

- 16.49

positive outcome

. 280 It was still within the five

- month buffer built into iPlatform’s
timeline to achieve its 2021 General Surgery Milestone , not to mention the longer timelines for the 2023 milestones. 281 And once iPlatform obtained De Novo approval, it could use the 510(k) pathway for future indications by serving as its own predicate device. 282
O. Manhattan On December 5, 2019, J&J management recommended to the J&J Board that the company proceed with “a combined platform where Auris’ iPlatform is augmented by Verb assets including the open surgeon console, intra

- procedure data capabilities and the surgeon portal.” 283 The combination robot , called “ iPlatform+, ”

was described as a “[n]ext generation robotic platform designed with more flexibility, more control , and more information to elevate [the] surgeon experience [and] improve patient care.” 284 As part of the combination plan, the J&J Board approve d a full acquisition of Verb by buying out residual assets from Verily

. 285 On December 19, J&J “signed

280 See Shen Tr. 1174. 281 JX 1689 at 13

. 282 JX 2396 at 12

. 283 JX 2732 at 4; see Martin Tr. 1693.
284 JX 2800 at 4. 285 JX 2732 at 4.50

the Manhattan (Verb) option agreement.” 286 J&J “execute[d] Manhattan” on February 19, 2020 for a purchase price of approximately $155 million. 287
Afterward , J &J worked to integrate Verb’s resources into Auris. The Auris leadership team was largely sidelined. A “[f]ull [s]peed [m]igration” of more than “200 [Verb] employees” to the iPlatform team commenced. 288 A calamity of excess and redundancy resulted

. 289 Hostility abounded between the two factions , which had just faced off in Project Manhattan for the survival of their respective projects

. 290
J&J soon announced layoffs on both teams. 291 Within a year of the integration, every engineer from legacy Auris’ s iPlatform clinical engineering team left the company

— a “devastating” loss for the program. 292 Meanwhile, Verb software engineers insisted on re

- writing iPlatform’s code

. 293 Significant attrition of legacy Auris software engineer s followed

. 294

286 JX 2833 (“Manhattan signed!”)

. 287 JX 3407; JX 2656 at 1. 288 JX 2743 at 11; see Mintz Tr. 609

- 11. 289 JX 3094

. 290 JX 2743 at 11; DeFonzo Tr. 425

- 427; see also JX 2991 at 4

. 291 JX 3272 at 12; JX 3280. 292 Mintz Tr. 616

- 17. 293 Id. at 613

- 14; JX 3194. 294 Pl.’s Dem. 7; Mintz Tr. 612

- 61 5

.51

P. The Milestone Write
- d own In April 2020 , J&J internally wrote down the value of the iPlatform and GI regulatory milestones to zero. 295 J&J also wrote down the net sales milestones

. 296
These write

- downs created an on

- the

- books profit of $983.6 million for J&J

. 297 An internal memo stated that the write

- down was prompted by the FDA’s shift from the 510(k) to the De Novo pathway for iPlatform. 298 J&J publicly announced the write

- down on April 14

. 299 Auris leadership learned about the write

- downs a round that time

. 300 McEvoy and Shen told Moll that change was a result of the FDA’s pathway change. 301 Fortis sent J&J an information request, and J&J issued a litigation hold on April 24

. 302
With the milestones written off and litigation looming , J&J instituted a “new reality” for Auris

. 303 Martin and her team rolled out an employee incentive plan that

295 JX 3139; Shen Tr. 1171; Lenard Tr. 1827

- 28. Internal communications suggest that J&J finance leaders had been considering the potential effect s of writing down the milestones since October 2019. See JX 2675. 296 JX 3139. 297 Id. ; see also JX 5149 at 26

. 298 JX 3139. Draft talking points for a first quarter earnings call referred to the milestone

related profit as a “material” amount of money to the company. JX 3112 at 9.
299 JX 3168; PTO ¶ 161. 300 Moll Tr. 95

- 96; Mintz Tr. 617. DeFonzo learned about the milestones from Martin a day before the announcement. DeFonzo Tr. 428. 301 JX 3193; Moll Tr. 95

- 96, 195, 198; see also JX 3253; Lenard Tr. 1830; JX 3392 at 1 5. 302 JX 5015; Shen Tr. 1174

- 75; JX 4490 at 9

- 10. 303 Moll Tr. 95.52

had been first discussed in late 2019. 304 The revised employee “milestones” included bonuses upon iPlatform receiving FDA approval for “general surgery,” which was different from the first iPlatform regulatory milestone in the M erger A greement. 305 The new incentive plan lacked any incentives for umbrella procedures and all GI

related incentives were removed. 306
Two months after the write

- down of the iPlatform regulatory and GI milestones, J&J announced the formation of a “Tiger Team” to simplify iPlatform’s reporting structure. 307 T he iPlatform operational team was to report to Steve Joachim, who effectively replaced Mintz. 308 Joachim was a leader o f the Ethicon instrument development group that s upport ed J&J’s robotics program. 309 A systems engineer by training, he lacked prior experience with RASDs

. 310
J&J also invested significant financial resources into the iPlatform /Verb
program. 311 By the end of November, McEvoy had requested $200 million to

304 JX 2675 at 1 ; Moll Tr. 95

- 97; Mintz Tr. 617

- 18. 305 JX 3641 at 3

- 4 ; DeFonzo Tr. 430

- 32; Pl.’s Dem. 6.
306 See Pl.’s Dem. 6.
307 JX 3363 at 5; JX 3391 at 9. 308 JX 3391 at 10. 309 JX 2233 at 2 ; Joachim Tr. 2156

- 57. 310 Joachim Tr. 2157, 2241 ; Mintz Tr. 618

- 19

. 311 JX 3417 at 6, 8

- 9; JX 3465 at 13; Lenard Tr. 1858

- 62.53

develop the combined system

. 312 J&J’s allocation of resources to iPlatform 16 months post

- merger proved too little, too late. Q. This Litigation On October 12, 2020, Fortis Advisors LLC filed a Verified Complaint against J&J, Ethicon, Gorsky, McEvoy, Shen, and Morano. 313 Fortis brought the suit in its capacity as the representative of former Auris stockholders. It advance d 12 causes of action , including equitable fraud, common law fraud, breach of the Merger Agreement, reformation, mutual mistake, civil conspiracy, breach of the implied covenant of good faith and fair dealing , and specific performance

. R. J&J ’ s New Narrative The iPlatform b eta prototype

— the second iteration of the full system

— came online at the end of 2020. 314 Auris had planned to go to clinical trials with, obtain
FDA clearance for, and launch the beta version of iPlatform. 315 The system experienced technical complications , including thermal , stability, and workspace issues. 316 These were issues Auris had been aware of during the alpha iteration and viewed as “imminently solvable” until progress was derailed by Project

312 JX 5231 at 20. 313 Dkt. 1

. 314 JX 4181. 315 Mintz Tr. 66 2

- 63

. 316 Id. at 619

- 20; Khan Tr. 3021 ; JX 3764 at 10

- 11, 21, 66, 83.54

Manhattan

. 317 The integration of the Verb system created a n added layer of stability complications for iPlatform

. 318
A new account of the Auris acquisition began to emerge at J&J. In March
2021 , Shen sent Joachim an email titled “Very important thinking” that attached a “narrative document” outlining Shen’s own “reflection” on iPlatform. 319 Shen wrote that the “original plan was to launch the Verb system first, giving [iPlatform] [a] 3

- year time [line] to fully prove concept feasibility.” 320 Shen noted that J&J’s “current challenge” with iPlatform was due to “design problems,” including “Work Space (Reach, Access and Collision Prevention, etc.).” 321 In early May, Joachim circulated a deck to J&J leadership citing technical issues as the reason for iPlatform program delays. 322 Joaquin Duato, who replaced
G o rsky as CEO in early 2022, asked why Shen had been unaware of iPlatform workspace issues sooner. 323 Joachim began searching old due diligence files ,

317 Mintz Tr. 619

- 22. 318 Id. at 686

. 319 JX 3814 at 1. The presentation referred to iPlatform a s “Ottava,” which was the robot’s name at this point.
320 Id. at 5. 321 JX 3814 at 5. 322 JX 5036. 323 JX 5247 at 1

.55

focusing on reports a bout arm design. 324 T he pre

- merger design choice Auris engineers made between so - called “Silverton” and “Superton” style robotic arms
was cast as evidence of Auris’ s deceit during due diligence

. 325 By the end of 2021, iPlatform was shelved. 326 J&J pivoted to a system utilizing Verb ’s bed

- based architecture combined with certain iPlatform components
and accessories. 327
S. Litigation Continue s While iPlatform sat idle , Fortis’s litigation proceeded apace. On December 13, 202 1 , Fortis’s equitable fraud, reformation, and civil conspiracy claims were dismissed

. 328 Individual defendants Gorsky, McEvoy, Shen, and Morano were also dismiss ed for lack of personal jurisdiction. 329

324 JX 3960. 325 JX 6149; Shen Tr. 1289

- 90; McEwen Dep. 161

- 62; Joachim Tr. 2 2 1 8

- 19 ; Mintz Tr. 718. 326 JX 4322 at 2. 327 Id.
328 Dkt. 102. 329 Id.56

A ten

- day trial began on January 16, 2024. 330 Just before trial began, Fortis voluntarily dismissed its mutual mistake and unjust enrichment claim s . 331 Post

- trial briefing and argument w ere completed on May 22, 2024. 332
II. ANALYSIS Fortis advances both contract and fraud claims against J&J. Its contract

- based contentions include that J&J repudiated and breached the Merger Agreement and breached the implied covenant of good faith and fair dealing. As to fraud, Fortis argues that J&J deceived Auris into merging and accepting a contingent payment for the Monarch Soft Tissue Ablation M ilestone. I begin with the contract theories. Fortis proved that J&J breached its efforts obligation and the implied covenant regarding the iPlatform regulatory milestones but not the Monarch

- related or net sales milestones. It did not prove that J&J repudiated the Merger Agreement. As to its fraud theories, Fortis met its burden regarding J&J’s statements about the Monarch Soft Tissue Ablation Milestone. It did not prove that J&J’s more general statements about future intentions for Auris amount to fraud.

330 Dkt. 539.
331 Dkt s . 527

- 28

. 332 Fortis Advisors LLC’s Opening Post

- trial Br. (Dkt. 561) (“Pl.’s Opening Post

- trial Br.”); Defs.’ Answering Post

- trial Br. (Dkt. 562); Fortis Advisors LLC’s Reply Post

- trial Br. (Dkt. 566); see also Dkts. 571

- 72.57

Fortis is entitled to damages for the breach of contract, implied covenant, and fraud claims on which it prevail s . Damages total $1,011,271,2 1.00 9 , inclusive of
pre - judgment interest for milestones that expired before trial and ex clusive of pre judgment interest owed since then. A. Breach of Contract “Under Delaware law, the elements of a breach of contract claim are: 1) a contractual obligation; 2) a breach of that obligation by the defendant; and 3) resulting damage to the plaintiff.” 333 Fortis has the burden to prove each element by a preponderance of the evidence. 334 “Proof by a preponderance of the evidence means proof that something is more likely than not.” 335 “A contract’s express terms provide the starting point in approaching a contract dispute.” 336 “Delaware law adhere s to the objective theory of contracts, ” meaning that “ a contract’s construction should be that which would be understood by an objective, reasonable third party.” 337 “When interpreting a contract, [the]

333 H

- M Wexford LLC v. Encorp, Inc. , 832 A.2d 129, 140 (Del. Ch. 2003). 334 Narayanan v. Sutherland Global Hldgs. Inc. , 2016 WL 3682617, at *8 (Del. Ch. July 5, 2016) (citing Agilent Techs., Inc. v. Kirkland , 2010 WL 610725, at *13 (Del. Ch. Feb. 18, 2010)). 335 inTEAM Assoc

. , LLC v. Heartland Payment Sys., Inc ., 2016 WL 5660282, at *13 (Del. Ch. Sept. 30, 2016) ), aff’d in part, rev’d in part on other grounds sub nom. Heartland Payment Sys., LLC v. Inteam Assocs., LLC , 171 A.3d 544 (Del. 2017).
336 Ostroff v. Quality Servs. Labs., Inc. , 2007 WL 121404, at *11 (Del. Ch. Jan. 5, 2007). 337 Osborn ex rel. Osborn v. Kemp , 991 A.2d 1153, 1159 (Del. 2010) (citation omitted).58

Court ‘will give priority to the parties’ intentions as reflected in the four corners of the agreement.’” 338 “Absent some ambiguity, Delaware courts will not distort or twist contract language under the guise of construing it.” 339 These principles guide my review of the Merger Agreement.

1. The Earnout Structure Fortis, on behalf of Auris’s former stockholders, seeks recovery of the contingent consideration memorialized in the Merger Agreement. Auris received $3.4 billion in cash at closing. 340 Its stockholders stood to gain another $2.35 billion in earnout payments, $1.15 billion of which was conditioned on iPlatform obtaining regulatory approval for increasingly complex procedures by staged deadlines. 341
“An earn

- out is a provision in an acquisition agreement that makes a portion of the purchase price payable to the seller if/when certain post

- closing performance targets are achieved.” 342 It is a popular means to bridge price gaps between buyers

338 Salamone v. Gorman , 106 A.3d 354, 368 (Del. 2014) (quoting GMG Cap. Inv., LLC v. Athenian Venture P’rs I, L.P ., 36 A.3d 776, 779 (Del. 2012)). 339 Allied Cap. Corp. v. GC

- Sun Hldgs., L.P. , 910 A.2d 1020, 1030 (Del. Ch. 2006). Neither party argues that the relevant provisions of the Merger Agreement are ambiguous, and I find no ambiguity.
340 Merger Agreement §§ 2.03(a)(ii), 10.03(l), 10.03(w). 341 Id. § 2.07(a). 342 Richard De Rose, The Ins and Outs of Earn

- Outs: A Delaware Perspective , ABA Business Law Today (Mar. 2022), https://www.americanbar.org/groups/business_law/res ources/business

- law

- today/2022

- march/the

- ins

- and

- outs

- of

- earn - outs

- a - delaware

perspective/.59

and sellers, with different considerations for each. 343 Buyers can mitigate valuation risk since the contingent payment is based on the seller’s actual future performance
rather than it s projections. Sellers give up guaranteed cash but stand to gain a greater payment overall than they might otherwise receive upfront if defined milestones are
met. A key point of tension in negotiating an earnout structure is allocating post

closing operational control. 344 The buyer prefers to freely manage the post

- closing activities of the business and to minimize earnout payments. For the buyer, a favorable approach grants it the right to operate the business in its sole discretion, limited only by good faith. 345 The seller, by contrast, would rather retain a say in the acquired business and to maximize earnout payments. It may bargain for a contractual assurance that the buyer will devote certain “efforts” toward meeting the
milestones. 346

343 JX 3955 at 4 (Leonidas G. Barbopoulos & Jo Danbolt, The Real Effects of Earnout Contracts in M&As , 44 J. Fin. Rsch., 607, 610 (2010) (citation omitted ) ). 344 See JX 4046 at 3

- 4 (Richard Harroch, Understanding Earnouts in Mergers and Acquisitions , Forbes (June 26, 2021), https://forbes.com/sites/allbusiness/2021/06/26/und erstandingearnoutsin

- mergers - and

- acquisitions/). 345 See, e.g. , LaPoint v. AmerisourceBergen Corp. , 2007 WL 2565709, at *10 (Del. Ch. Sept. 4, 2007) (considering a provision requiring that the buyer “act in good faith during the Earnout Period” and not “undertake any actions during the Earnout Period any purpose of which is to impede the ability of the [seller’s] [s] tockholders to earn the Earnout Payments”).
346 See Himawan v. Cephalon, Inc. , 2024 WL 1885560, at *7 (Del. Ch. Apr. 30, 2024) (discussing a buyer

- friendly efforts standard where the buyer was given “complete discretion with respect to all decisions” related to purchased asset, limited only by an60

“ Variations on the ‘ efforts ’ concept include commitments to make: ‘ good faith efforts, ’ ‘ commercially reasonable efforts, ’ ‘ reasonable efforts, ’ ‘ reasonable
best efforts ’ and ‘ best efforts. ’ ” 347 From a transactional standpoint, these variations reflect “a hierarchy from lowest (good faith efforts) to highest (best efforts) level of commitment.” 348 This is logical as a matter of plain English since the words used have different meanings. 349 But there is no agreement in case law over whether they create different standards. Delaware courts have viewed variations of efforts

obligation to use commercially reasonable efforts to earnout milestones); see also Neurvana Medical, LLC v. Balt USA, LLC , 2020 WL 949917, at *15

- 16 (Del. Ch. Feb. 27, 2020) (interpreting an asset purchase agreement that gave the buyer “sole discretion and authority post

- closing” to make decisions about a product, which discretion was limited by an “outward facing” commercia lly reasonable efforts requirement). 347 Peter Atkins & Edward Micheletti, “‘Reasonable Efforts’ Clauses in Delaware: One Size Fits All, Unless . . . ,” Harvard Law School Forum on Corporate Governance (Nov. 22, 2018), https://corpgov.law.harvard.edu/2018/11/22/reasonable

- efforts

- clauses

- in

dela ware - one - size

- fits

- all

- unless/ (last visited Aug. 30, 2024). 348 Id. ; see also 1 ABA Mergers and Acquisitions Committee, Model Stock Purchase Agreement with Commentary 212 (2d ed. 2010) (describing a “general sense of hierarchy of various types of efforts clauses”); 2 Lou R. Kling et al., Negotiated Acquisitions of Companies, Subsidiaries and Divisions § 13.06 (2024) (“[M]ost practitioners treat ‘reasonable efforts,’ ‘commercially reasonable efforts’ and ‘reasonable best efforts’ as all different from , and as imposing less of an obligation than, ‘best’ efforts. There is no universal agreement, however, as to whether these three standards are, as a practical matter, any different from each other; notwithstanding the fact that ‘reasonable best efforts’ sounds as if it imposes more of an obligation than ‘commercially reasonable efforts.’”). 349 E.g. , Best , Merriam

- Webster, https://www.merriam

- webster.com/dictionary/best (last visited Aug. 31, 2024) (defining “best” as “excelling all others” or “most productive of good; offering or producing the greatest advantage, utility, or satisfaction”); Reasonable , Merriam

- Webster, https://www.merriam

- webster.com/dictionary/reasonable (last visited Aug. 31, 2024) (defining “reasonable” as “being in accord with reason” or “moderate, fair”).61

clauses

— particularly those using the term “reasonable”

— as largely interchangeable. 350 More important, then, is carefully drafting language that d elineates the efforts expected of the buyer relative to the achievement of the milestones. The parties can set an outward facing efforts definition that looks to an industry standard or other industry participants as a yardstick. 351 This is generally seller friendly because the seller can cite external standards by which to measure the buyer’s efforts. Alternatively, the parties can set an inward facing definition, which applies the

350 See Williams Cos., Inc. v. Energy Transfer Equity, L.P. , 159 A.3d 264, 272 (Del. 2017) (holding that “commercially reasonable efforts” and “reasonable best efforts” both “impose obligations to take all reasonable steps to solve problems and consummate the transaction”); Akorn, Inc. v. Fresenius Kabi AG , 2018 WL 4719347, at *87 (Del. Ch. Oct. 1, 2018) (observing the lack of support in case law “for the distinctions that transactional lawyers draw” between the various efforts clauses), aff’d , 198 A.3d 724 (Del. 2018) (TABLE); Channel MedSystems, Inc. v. Boston Sci. Corp ., 2019 WL 6896462, at *37 n.410 (Del. Ch. Dec. 18, 2019) (noting that a “commercially reasonable efforts” provision is functionally the same under Delaware law as a “reasonable best efforts provision” (citing Akorn , 2018 WL 4719347, at *87 & n.796)); 1 ABA Mergers and Acquisitions Committee, Model Stock Purchase Agreement with Commentary 213 (“[C]ase law offers little support for the position that ‘reasonable best efforts,’ ‘reasonable efforts,’ or ‘commercially reasonable efforts’ will be interpreted as separate standards less demanding than ‘best efforts.’”).
351 See Kristian A. Werling & Richard B. Smith, “Commercially Reasonable Efforts” Diligence Obligations in Life Science M&A, 18 The M&A Lawyer (June 2014); e.g. , H i mawan , 2024 WL 1885560, at *11 (evaluating a merger agreement defining “commercially reasonable efforts” as “the exercise of such efforts and commitment of such resources by a company with substantially the same resources and expertise as [ the buyer ], with due regard to the nature of efforts and cost required for the undertaking at stake”); Neurvana , 2020 WL 949917, at *16

- 17 (dismissing a claim for breaching a commercially reasonable efforts provision that imposed an “outward facing definition” that applied “an industry

- standard requirement . . . to define the diligence obligations of the buyer” whe re the complaint failed to identify comparators).62

buyer’s own diligence standard s . 352 This is often more buyer friendly since the buyer

can c ompare its past practices in similar situation s to its present efforts

. As the Merger Agreement here demonstrates, however, these generalizations are subject to exception given the highly customized nature of earnout structures. J&J and Auris agreed to an inward facing provision to measure J&J’s “commercially reasonable efforts” in advancing Auris’s products. But Auris bargai ned for three crucial protections. First, J&J’s efforts were to be in furtherance of “ achiev [ing] each of the Regulatory Milestones ”

— not J&J’s other corporate goals. 353 Second, J&J was required to devote efforts consistent with its “usual practice” for a “priority medical device.” 354 This was doubly advantageous to Auris. Efforts to achieve the regulatory milestones must be at the high level J&J

— a top company in the industry

— set for itself, and for “priority” devices within J&J. 355 Third, J&J was

352 See Werling, supra note 351 ; e.g. , FMLS Holding Co. v. Integris BioServices, LLC , 2023 WL 7297238, at *7 (Del. Ch. Oct. 30, 2023) (considering a claim based on an inward

looking definition of commercially reasonable efforts, which looked to how the business was operating pre

- merger); Banas v. Volcano Corp. , 47 F. Supp. 3d 941, 946 (N.D. Cal. 2014) (reviewing an inward facing “commercially reasonable efforts” clause requiring the buyer to use “efforts, sales terms, expertise and resources normally used by [Volcano] for other products, which, as compared with [products developed from the plaintiffs’ assets]; are of similar market potential at a similar stage in its development or product life, t aking into account all reasonable relevant factors affecting the cost, risk and timing of development and the total potential of the applicable [developed products], all as measured by the facts and circumstances at the time such efforts are due”).
353 Merger Agreement § 2.07(e)(i). 354 Id. § 2.07(e)(ii). 355 See DeFonzo Tr. 381

- 82 (recalling that Morano encouraged Auris to accept an inward facing standard b y assuring it that J&J’s standard exceeded industry standards); id. at 382

-63

prohibited from acting “ based on taking into account the cost of making any Earnout Payment(s) .” 356 This limitation is more restrictive than the typical requirement that a buyer not affirmatively act (or fail to act) for the purpose of thwarting an earnout payment. 357 T he Merger Agreement also lacks language granting J&J complete discretion over decisions relating to Auris’s business. 358 With these assurances, Auris agreed to a deal with an earnout component

. 359 That is, it forewent guaranteed cash in exchange for assurances that J&J would promote

—

not impair

— its ability to reach the regulatory milestones. For J&J, this

83 (discussing the choice of “priority medical device” language as a “residual assurance” that iPlatform would be prioritized within J&J). J&J put forth the expert opinion of Peter Hinchliffe on whether J&J’s conduct was commercially reasonable. The Fort is expert he was rebutting

— Dr. Paul Gompers

— did not opine on this matter. To the extent that Hinchliffe offered any proper rebuttal testimony, much of it verged on legal opinions that I decline to accept. But even Hinchliffe acknowledged that the inward facing efforts standard in the Merger Agreement favored Auris. Hinchliffe Tr. 3145

- 46 (agreeing that the “inward

- facing standard in the contract” favored Auris due to J&J’s “high standards relative to the rest of the industry”).
356 Merger Agreement § 2.07(e)(iii). 357 See S’holder Rep. Servs. LLC v. Albertsons Cos. , 2021 WL 2311455, at *1 (Del. Ch. June 7, 2021) (discussing a “typical” provision in which the buyer “bargained for the right to operate [the seller] post

- closing in its discretion limited only by its express commitment not to operate [the seller] in a m anner intended to avoid the obligation to pay the earnout ”) ; see also infra note 391 (citing precedent)

. 358 See supra note 346 and accompanying text ( discussing precedent). 359 See JX 278 at 6

- 7 (Luca Viarengo et al., Enforcement Quality and the Use of Earnouts in M&A Transactions: International Evidence , 45 J. Bus. Fin. & Acct., 437, 442

- 43 (2018) (observing that a seller may agree to an earnout clause if the contractual protections are “strong,” making the seller “more confident that it will obtain what it is due”).64

meant that it paid less upfront but lost the ability to exercise unchecked discretion over the Auris products. As discussed below, Auris’s expectations went unmet. J&J did not devote commercially reasonable efforts to achieve the milestones consistent with those given to a priority device. Instead, it repeatedly impeded and impaired the development of Auris’s products . J&J’s efforts might have been beneficial to its broader robotics program, its profit margins, or its commercialization strategy. But they were wholly inconsistent with J&J’s promises to Auris.

2. Whether J&J Breached the Efforts Provision The Merger Agreement includes a bespoke “[e]fforts” clause. 360 Section 2.07(e)(i) imposes on J&J an affirmative obligation to use “commercially reasonable efforts” to advance the achievement of the iPlatform and Monarch regulatory
milestones. From and after the Closing Date until the earlier to occur of the

latest Earnout Period End Date with respect to the Regulatory Milestones or the date on which each of the Regulatory Milestones have been achieved in accordance with this Agreement, Parent s hall, and shall cause its Affiliates (including the Surviving Corporation) to, use commercially reasonable efforts to achieve each of the Regulatory Milestones (excluding, once achieved, any such Regulatory Milestones that may have been achieved). 361

360 Merger Agreement § 2.07(e) (“Efforts; Certain Transfers”).
361 Id. § 2.07(e)(i).65

The express requirement that J&J’s objective be “to achieve each of the Regulatory Milestones” stands in stark contrast to J&J’s understanding that it could “make whatever decisions needed to be made” about the Auris products “in the context of the rest of [J&J’s] business.” 362 Delaware courts have interpreted “commercially reasonable efforts” clauses as requiring a party “to take all reasonable steps” toward an end. 363 Here, the parties bargained for a meaning. Section 2.07(e)(ii) of the Merger Agreement defines “commercially reasonable efforts” as:

the expenditure of efforts and resources in connection with research and development and obtaining and furnishing of information to and communications with applicable Governmental Entities in connection with obtaining the applicable 510(k) premarket notifi cation with respect to the applicable Robotics Products consistent with the usual practice of Parent and its Affiliates with respect to priority medical device products of similar commercial potential at a similar stage in product lifecycle to the applicab le Robotics Products [.] 364

362 Morano Tr. 1532

- 34 (“[I]f we were spending $3.4 billion on [Auris], we were going to own the company, and we wanted and needed the right to be able to make whatever decisions needed to be made appropriately moving forward in the context of the rest of our business.”); e.g. , JX 2339 (Martin to DeFonzo: “As a general note, we will manage the milestones to do what is the right for the business. They are meant to be collective incentives to drive the business in the right direction in service of maximizing value.”); Martin Day 2 Dep. 564

- 65 (testifying that the goal was to “develop a system to delight the customers” because the “marketplace [] was waiting for a system from Johnson & Johnson”); see also JX 1663; JX 6206. 363 Williams Cos. , 159 A.3d at 273; see also Akorn , 2018 WL 4719347, at *86

- 88; Himawan v. Cephalon, Inc. , 2018 WL 6822708, at *7 (Del. Ch. Dec. 28, 2018) (citation omitted). 364 Merger Agreement § 2.07(e)(ii); see also id. § 10.03(eee) (defining “Robotics Products ” ).66

The definition goes on to list ten factors J&J may “take into account” in setting its
level of efforts for a “priority medical device”:

(A) issues of efficacy and safety, (B) the risks inherent in the development and commercialization of such products, (C) the expected and actual competitiveness of alternative products sold or licensed by third parties in the marketplace, (D) the expected and actual patent and other proprietary position of the product, (E) the likeliho od and difficulty of obtaining FDA and other regulatory approval given the nature of the product and the regulatory structure involved, (F) the regulatory status of the product and scope of any marketing approval, (G) pending or actual legal proceedings wi th respect to the applicable Robotics Product, (H) whether the product is subject to a clinical hold, recall or market withdrawal, (I) input from regulatory experts and any guidance or developments from the FDA or similar Governmental Entity, including as it may affect the data required to obtain premarket approval from the FDA or any similar approval from another Governmental Entity and (J) the expected and actual profitability and return on investment of the product, taking into consideration, among other factors, the expected and actual (1) third party costs and expenses, (2) royalty and other payments and (3) pricing and reimbursement relating to the product(s). 365 Section 2.07(e)(iii) prohibits J&J from making decisions to avoid, or based on, the milestones: Parent shall not, and shall cause its Affiliates (including the

Surviving Corporation) not to, take any actions, or refrain from taking any actions, concerning the business or operations of Parent or any of its Affiliates (including the Surviving Corporati on) (A) with the intention of avoiding any of Parent’s obligations to pay any Earnout Payment or (B) based on taking into account the cost of making any Earnout Payment(s) made,

365 Id. § 2.07(e)(ii).67 or actually or potentially to be made, pursuant to this Agreement. 366 Together, these provisions provide several layers of protection for Auris. Although the ten factors J&J could consider in expending efforts and resources gave it some measure of discretion, the mandate that J&J follow its “usual practice” for “priority medical device[s]” cabined it. 367 The phrase “priority medical device” is undefined in the Merger Agreement. Based on its usual meaning, a “priority” device is one given “superiority in rank, position, or privilege.” 368 J&J identified a single comparator “priority medical device at a similar stage in product lifecycle” to iPlatform and Monarch: an orthopedic RASD called Velys. 369 Velys was developed through an MVP strategy starting with simple, buildable functionality and a single indication. 370 It lacked perfect performance statistics before receiving its first FDA clearance in January 2021 and was not superior (or

366 Id. § 2.07(e)(iii). 367 Id. § 2.07(e)(ii). 368 Priority , Merriam

- Webster, https://www.merriam

- webster.com/dictionary/priority (last visited Aug. 30, 2024); Lorillard Tobacco Co. v. Am. Legacy Found. , 903 A.2d 728, 738 (Del. 2006) (“Under well

- settled case law, Delaware courts look to dictionaries for assistance in determining the plain meaning of terms which are not defined in a contract.”). 369 See Heda 30(b)(6) Dep. 29

- 32; PTO ¶ 164; cf. Banas , 47 F. Supp. 3d at 947 (applying Delaware law; discussing the importance of considering a relevant comparator device by which to measure commercially reasonable efforts where no adequate comparator was identified). 370 See PTO ¶ 164; JX 4246 at 3; Waterson Dep. 98

- 99; Shen Tr. 1227

- 28.68

even equivalent ) to its market

- leading rival upon launch in August 2021

. 371 Velys employees were given cash incen tive s to achieve rapid FDA clearance. 372 iPlatform received starkly different treatment than Velys. Instead of being prioritized, J&J subjected iPlatform to efforts that impaired its development and ability to secure planned clearances. J&J’s efforts benefitted another device

— Verb

— at iPlatform’ s expense . It is obvious from the record that J&J’s efforts toward the iPlatform regulatory milestones were not commercially reasonable , as defined in the Merger Agreement. J&J’s breaches are , instead, reasonably certain to have caused iPlatform to miss its regulatory milestones. I reach a different conclusion regarding Monarch. J&J diminished aspects of the Monarch program while prioritizing others . Fortis did not prove that these actions reflect a breach of J&J’s efforts obligation.

a. Efforts Towards the iPlatform and GI Milestones The Merger Agreement required J&J to use “commercially reasonable efforts,” as defined in Section 2.07(e)(ii), to achieve the regulatory milestones. 373 Six regulatory milestones are tied to FDA clearance of iPlatform for increasingly

371 See Waterson Dep. 180

- 81; JX 3717; JX 3963; JX 4481 at 19

- 20; see also PTO ¶¶ 165

- 66. 372 Waterson Dep. 103

- 106. 373 Merger Agreement § 2.07(e)(ii); see Shen Tr. 1150

- 51 (confirming his understanding that J&J had an obligation to “exercise priority efforts to achieve the regulatory milestones in the merger agreement”).69

complex laparoscopic procedures. 374 A seventh

— the GI Milestone

— concerned clearance for an endoluminal procedure and could be satisfied with either iPlatform
or Monarch. 375 J&J did not bestow on iPlatform the efforts and resources to achieve these milestones that would befit a “priority” device. 376 Instead, J&J thrust iPlatform into a showdown with Verb. The fallout from Project Manhattan grew when the iPlatform robot and team were forced to merge with Verb. Compounding iPlatform’s challenges, the iPlatform and GI regulatory milestones were deprior itized when they were written off and different incentives were imposed. This is the antithesis of the commercially reasonable efforts expected for a “priority” device.
i. Project Manhattan Within weeks of closing, iPlatform was pitted against the Verb robot for the Project Manhattan competitive assessment. 377 To prevail, Auris had to prepare for
a series of in

- house surgical challenges rather than progress iPlatform’s development. Auris’s engineering team scrambled to gain functional system stability so that the fledgling iPlatform alpha robot could face the post

- beta Verb

—

374 Merger Agreement § 2.07(a)(iii)

- (vii). 375 Id. § 2.07(a)(viii). 376 Id. § 2.07(e)(ii). 377 See supra Section I.L; see also JX 1702 (“Plan to Technically Assess Verb Platform and iPlatform”).70

taking on extensive “technical debt” in the process. 378 The legacy Auris team saw no alternative, since both iPlatform and Verb were “fighting for their lives.” 379 Over 80 Auris personnel were diverted to “support a 25

- day lab period.” 380 Many of the Project Manhattan procedures assigned to iPlatform were more advanced than those Auris intended to use to satisfy Regulatory Milestones. J&J insists that imposing Project Manhattan on iPlatform did not breach its efforts obligation because the exercise was meant to “identify synergies in order to accelerate the development of the robots.” 381 But Project Manhattan had no upside for Auris. It did not advance iPlatform’s development, provide it with resources, or bring it closer to regulatory approval. Quite the opposite. For iPlatform, Project Manhattan caused needless setbacks and resource drains. To make matters worse, J&J delayed making resource decisions for Auris

378 See Mintz Tr. 589

- 91 (describing how the workarounds to prepare for Project Manhattan eliminated any “firm foundation” to fix problems in a “measured, controlled way” necessary for a complex robot and created problems to solve later); Moll Tr. 254 (explaining that Shen did not understand “all of the work that needed to be done just to get ready for any sort of technical assessment” and the “technical debt” Auris incurred “just to show up for this evaluation”); see also JX 4207. 379 DeFonzo Tr. 406 (“[W]e were in a fight for our lives. . . . Verb us, and us Verb.”); see also Moll Tr. 72 (“So we quickly characterized this as a bakeoff because the pitting of two systems against each other was

– couldn’t have been more different than the description of a technology audit that had nothing to do with Verb, that had everything to do with iPlatform and Monarch and how it could be

– progress could be accelerated by resources from J&J.”).
380 JX 2389 at 9; see also JX 2444 at 8; JX 2330. 381 Defs.’ Answering Post

- trial Br. 6 (emphasis removed).71

until the assessment was complete. 382 For Verb, though, it was a boon. Through the assessment, J&J identified synergies between the robots so that iPlatform could optimize Verb. 383 Doing so gave J&J something to show the market and its Board for years of substantial investment s in Verb while staying within the Ashley Management Decision budget. This result might be appropriate if I were considering whether J&J had used commercially reasonable efforts to develop Verb as a priority device. But J&J agreed to devote such efforts t o iPlatform in pursuing t he regulatory milestones. The iPlatform milestones were sacrificed to aid the Verb program

. 384

382 See JX 2103 (“July is a critical month with Manhattan project concluding. Auris’s future needs to be assessed against the outcome of these strategic decisions.”); Moll Tr. 86; see also JX 2403; JX 2019. 383 E.g. , JX 6206 (Shen: “My original thought is to get Verb to market asap, and then iPlatform. Leverage as much as possible behind the scene. The overall consolidation of both platforms will take 5

- 10 years. The Tech Assessment will take us to the final decision .”); Lenard Day 2 Dep. 23

- 24 (“If there are ways for us to take those two

– and combine them to optimize what would eventually be our value

– I never heard about [Project Manhattan] as a comparison between the two.”). Lenard was J&J’s Vice President of Financ e for J&J’s Robotics and Digital Solutions Group from 2019 until October 2022. Lenard Tr. 1785

- 1786. 384 JX 1630 (Shen to McEvoy: “[i]Platform is exciting, but there is so much we do not know. Verb has challenges, but we already have a working prototype which can perform preclinical surgeries. Instrument is also developed. We need to be all in for Verb. Verb + iPlatform is our bullet proof strategy to compete.”); see also JX 1820 (Shen: “The Tech Assessment is the No. 1 priority at this point for all of us.”); JX 1703.72

Project Manhattan alone is sufficient to find that J&J breached its efforts obligation in Section 2.07(e) of the Merger Agreement. A “priority” device would
not have to endure a costly battle merely to remain operative

. 385 But there is more.

ii. The Verb Combination and Integration iPlatform’s success in Project Manhattan came at a crippling cost. It led to
t he iPlatform system being meshed with Verb components, including certain hardware. 386 The complete integration of Verb into Auris followed. Combining the RASDs hampered iPlatform’s launch and milestone
achievement. 387 Contemporaneous documents reflect that J&J knew pursuing the “[s]ingle, [o]ptimizied [p]latform” would negatively affect iPlatform’s development
schedule. 388 Worse, J&J anticipated that the delay would frustrate the iPlatform

385 Nothing of the sort was required of Velys. See supra notes 370

- 72 and accompanying text. 386 JX 2594 at 20 (recommending “[g]o to market with Combination platform defined as ‘iPlatform’+ (6

- arm robotic architecture) augmented by incremental Verb capabilities incl. Open Console, Verily scope, Digital Assets at launch, followed by further iteration s including UID integration”).
387 See Mintz Tr. 686 (discussing the difficulties faced by iPlatform’s beta version due to “integration challenges”); see also Gardiner Tr. 822 (recounting that beta’s software “crashed” when it was brought online).
388 See JX 2566 at 10 (Sept. 2019 Manhattan Financials Update: “Single, Optimized Platform launching in 2024 (+1 Year Delay to Combine)”); McEvoy Tr. 2635 (acknowledging that combining the systems would mean a longer time to market for Auris); Lenard Tr. 1802

- 04; JX 2584 at 26 (draft investor presentation discussing “[l]onger time to market for Auris impacting retention” and “[m]ilestone [r]evisions for Auris employees” as considerations for combining Verb and iPlatform); see also JX 2554 at 23 (J&J Sept. 2019 deck suggesting two year delay for combination); JX 5122 at 19

- 20 (J&J employee texts expressing concern that a deck indicating delay from the combination could73

re gulatory milestones. 389 Gorsky endorsed the combined system after understanding that J&J had a “good overall value case” from a fair market value perspective considering “what [w]ould also happen with the contingent payment.” 390 This was not only inconsistent with J&J’s obligation to use commercially reasonable efforts to achieve the milestones. It was also contrary to J&J’s promise not to act “based on taking into account the cost of making any Earnout Payment(s).” 391

be “used against us in litigation”); compare Dougherty Dep. 400

- 02, 404

- 05 (testifying that he was concerned Auris would learn about “scenario planning” to form a single platform) , with Dougherty Tr. 3170

- 72 (attempting to walk back his deposition testimony). 389 Unfortunately, Gorsky declined to attend trial and shed light on this exchange. Other potentially relevant evidence was lost because Gorsky failed to turn off auto

- delete on his cell phone after receiving a litigation hold notice (in this and other litigation). Fortis moved for sanctions in October 2022. See Pl.’s Mot. to Compel Discovery and for Sanctions (Dkt. 214). I reserved judgment on the motion until trial. With the benefit of a full record, I conclude that Gorsky’s failure to retain text messages is far from ideal, but it was neither reckless nor int entional. See Seibold v. Camulos P’rs LP , 2012 WL 4076182, at * (Del. Ch. Sept. 17, 2012) (explaining that “dispositive sanctions are “only appropriate where a party acts to intentionally or recklessly destroy evidence” (citation omitted)). Upon receiving the hold memo, Gorsky asked his assista nt to ensure that he complied. Aff. of Alex Gorsky in Supp. of Defs.’ Opp’n to Pl.’s Mot. to Compel Discovery and for Sanctions (Dkt. 226) Ex. A. This instruction shows an intention to comply. He also testified during his deposition that he had enabled auto

- delete on his phone years ago and simply forgot. Gorsky Dep. 323

- 24. Gorsky was negligent. He did not, however, spoliate evidence. 390 JX 2606 at 1

- 2 (Oct. 1, 2019 email from McEvoy to Gorsky, in response to his inquiry about why the combined system had a lower valuation); see also JX 2599 at 2 (CFO Pease explaining, before McEvoy emailed Gorsky, that the lower valuation was based on assuming that the iPlatform milestones were paid); McEvoy Tr. 2636

- 37 “Q: [T]he contingent payment you wrote about there included the milestones that yo u were contemplating writing down; correct? A: I presume so.”). 391 Merger Agreement § 2.07(e)(iii). This provision lacks an intent requirement. Cf. Lazard Tech. P’rs, LLC v. Qinetiq N. Am. Operations LLC , 114 A.3d 193, 194 (Del. 2015) (discussing a provision in a merger agreement prohibiting a buyer from “taking any action to divert or defer [revenue] with the intent of reducing or limiting the Earn

- Out Payment”); id. at 195 (explaining that the Court of Chancery “properly held that [a] buyer’s action had74

The detrimental effects of the combination on iPlatform intensified when the entire Verb group was thrust upon Auris, which was trying to regain its footing after Project Manhattan. 392 In J&J’s view, the integration is indicative of commercially reasonable efforts because Verb’s resources were being devoted to iPlatform. 393 In reality, it was “highly disruptive , ” as J&J had predicted. 394 The Verb team , which
had just learned it lost Project Manhattan , suddenly had to support a competitor robot. The iPlatform team went from nimble and focused to redundant and divided. 395 The “devastating” departure of the entire legacy iPlatform clinical
to be motivated at least in part by [an] intention” to avoid an earnout and was not required to find that avoidance was the buyer’s sole purpose).
392 I do not necessarily view the integration as a separate breach. It was a continuation of the injury from Project Manhattan and the robot combination . iPlatform could no longer pursue its development and commercialization strategy. It, instead, had to battle, merge, and integrate with a competitor device. 393 See Defs.’ Answering Post

- t rial Br. 98

- 99. 394 JX 2743 at 11 (J&J presentation describing the integration strategy as a “[o]ne time, highly

- disruptive change”); see DeFonzo Tr. 425

- 27 (describing the integration as a “horrible experience” for both Auris and Verb since they had been “pitted against one another,” which created a “toxic culture where, essentially, one program wins and the other program loses . . . [a]nd now, all of a sudden, it’s, like, let’s integrate these things”); JX 2921 at 1 (DeFonzo expressing his concern to J&J that the directive to “integrate as quickly as possible” is “unreasonable if we expect it not to disrupt development activities and core b usiness unit objectives”). 395 See JX 3094 (J&J’s Lenard: “After the Verb acquisition, I REALLY need to initiate layoffs

– not just for my budget . . . but also for the good of the business. We have so many people now that we don’t know what do to with everyone and it’s slowing down our p rogress.”); Mintz Tr. 613 (“Verb’s software team at this point was almost twice the size. So now we have a situation where the team that sort of lost their baby was brought in to join this team, and they outnumbered them two to one. There’s a dynamic the re, even in the best of times.”); see also JX 4495 (“Gompers Rep.”) ¶ 69 (describing the importance of “firm

- specific” human capital for entrepreneurial endeavors).75

engineering team, and a number of Auris software engineers, resulted. 396 With Verb tethered to iPlatform, the swift pace Auris had once achieved was disrupted. 397 J&J also argues that the combination and integration of Verb with iPlatform was a “commercially reasonable business decision[]” falling “well within J&J’s discretion under the contract.” 398 This reflects a fundamental misreading of the Merger Agreement. J&J could consider various factors in assessing the level of efforts to devote. But the end goal of those efforts was to achieve the iPlatform regulatory milestones

—

not to further J&J’s ro botics program. 399 A “priority” device would not have its system, technology, and team diluted to fix another device’s problems. 400
iii. Thwarting of iPlatform’s MVP Strategy The milestone structure that J&J and Auris agreed upon reflected an MVP strategy , albeit not explicitly . The first iPlatform regulatory milestone

— the General Surgery Milestone

— could be satisfied by any upper and any lower abdominal

396 See Mintz Tr. 612, 614

- 15 (explaining the “step back” to engineering and system stability caused by the integration and “significant” attrition that resulted); JX 3194. 397 See JX 2991 at 4 (Feb. 2020 internal J&J presentation stating “[w]e can’t underestimate the impact the ‘non bake

- off bake

- off’ has had on both companies”); Gompers Rep. ¶ 112 (opining that by “impos[ing] integration burdens on Auris management,” J&J “impeded A uris’ ability to achieve the Acquisition milestones”).
398 Defs.’ Answering Post

- trial Br. 103. 399 Merger Agreement § 2.07(e)(i). 400 Velys was never forcibly combined with another program. See Thomson Dep. 85

- 87; Waterson Dep. 328

- 39.76

procedures. 401 From there, iPlatform would build towards more specialized procedures to achieve the 2023 umbrella and GI regulatory milestones J&J had allowed iPlatform to select

. 402 The milestones proceeded iteratively from relatively simple to complex, without regard to architecture (e.g., number of arms used). 403 At first, Auris considered pursuing either five

- arm Nissen fundoplication or RYGB for the upper abdominal procedure and inguinal hernia repair for the lower abdominal procedure to satisfy the General Surgery Milestone. 404 Choosing RYGB for the upper indication was ambitious yet ideal, since Auris would have met two milestones at once (the General Surgery and Upper Abdominal Milestones). 405 But after Project Manhattan caused delay, Auris worried that RYGB was out of reach for 2021. It sought to simplify iPlatform’s initial indications and features for regulatory approval purposes. 406

401 Merger Agreement § 2.07(a)(iii).
402 Id. § 2.07(a)(iv)

- (viii) ; see supra note 186 and accompanying text; supra note 194. 403 See Khan Tr. 3039

- 40. 404 JX 1729 at 21

- 22; Mintz Tr. 691

- 93 (explaining that Moll initially preferred to work towards five

- arm procedures); JX 824 at 29; see supra notes 74, 250, 270. 405 Sheehy Dep. 110

- 11 (Auris clinical engineer testifying: “If we could get two milestones at the same time with the same set of activities, that would have been more efficient than sequentially going from milestone 1 to milestone 2.”). Auris was confident at the time, based on its lab results, that iPlatform could perform RYGBs. See infra notes 541

- 43 and accompanying text

. 406 JX 2199 (Moll suggesting to Shen and Martin that iPlatform “go with [the] smallest and most efficient clinical effort to achieve desired regulatory clearances

– > ie work to and only to FDA defined clinical activities” to “accelerate [ its ] momentum”); Moll Tr. 86

- 90; see also JX 6206.77

Moll’s requests to pursue an MVP version of iPlatform for its initial regulatory clearance, using simplified procedures that iPlatform was “very capable” of performing, were rebuffed by J&J. 407 J&J continued to insist that iPlatform focus
on RYGB

— a procedure that would promote Ethicon instrument sales and broad commercialization while putting achievement of the General Surgery Milestone in peril. 408 When Shen learned in May 2019 that Mintz planned to make “instrument
trade

- offs” to pursue 510(k) with a simplified indication, he asked a colleague to “intervene.” 409 J&J believes that the ten factors listed in the Merger Agreement’s definition of commercially reasonable efforts allowed it to drive iPlatform towards the more complex procedure. 410 For example, “expected and actual profitability” would be furthered by an RYGB indication using high margin Ethicon instruments. 411

407 Moll Tr. 88 (“RYGB is a more complex procedure. There are more questions with regard to port placement. There was more questions with regard to arm movement. We had lots of success in the lab with the single

- quadrant procedures of gallbladders and Nissens and hernias and hysterectomies. We knew that we were very capable in those procedures.”); id. at 89

- 91. 408 Id. at 89

- 90. 409 JX 6206 at 1 (Shen: “We cannot do the wrong things for the sake of [the] timeline.”); see also JX 2172 at 1 (June 2019 email from Shen to Martin: “Another thing that bothers me is our milestone incentives. That may not drive the right behaviors.”); Shen Tr. 1164

- 65. 410 E.g. , Shen Tr. 1170

- 71 (stating that he believed the Auris team was too focused on the milestones as “opposed to a great product” with commercial viability); see also Defs.’ Answering Post

- trial Br. 44 (“Pursuing RYGB made commercial sense.”).
411 Merger Agreement § 2.07(e)(ii)(J); see Moll Tr. 89

- 91.78

iPlatform’s “expected and actual competitiveness” versus da Vinci could also improve using a five or six

- arm architecture. 412 Still, J&J’s insistence that iPlatform’s foray into regulatory approval involve a complex five

- arm procedure impede d the achievement of the 2021 milestone . It did n ot provide “efforts and

resources . . . in connection with obtaining the applicable 510(k) premarket
notification .

. . consistent with the usual practice of [J&J] with respect to [a] priority medical device.” 413 Although J&J was entitled to consider certain factors in devoting efforts and resources to iPlatform, its discretion was not free floating. J&J was not, for example, permitted to prioritize commercialization, product differentiation, or short

- term profita bility at the expense of achieving the milestones. Even if it could, those considerations were promoted through an MVP approach for regulatory approval. Auris proved that :

• “ [I]ssues of efficacy and safety ” counsel in favor of starting with a basic device and simple procedures before adding complexity in later iterations. 414

412 Merger Agreement § 2.07(e)(ii)(C).
413 Id. § 2.07(e)(ii).
414 Id. § 2.07(e)(ii)(A); see Shen Tr. 1168

- 69; Moll Tr. 16.79

• “ [T]he risks inherent in [] development ” are lower with an MVP strategy

. It simplifies the system to ensure speed, flexibility, and reliability, which reduces development risk. 415

• “ [T]he likelihood and difficulty of obtaining FDA and other regulatory approval ” favors starting with a narrow indication before seeking to expand the device’s approval. 416

• Commercial considerations

— including “ profitability and return on investment, ” the “ competitiveness of alternative products , ” and the “risks inherent in

. . . commercialization ”

— support an MVP strategy

. 417 An MVP approach would have allowed J&J to assess the valuable aspects of iPlatform before investing in the development of a fully featured product. 418 Even a minimally viable version of iPlatform using fewer arms would have “plenty of differentiation” from da Vinci to drive adoption. 419 Numerous witnesses at trial confirmed that it is industry standard to follow an MVP strategy for the development and regulatory approval of complex medical

415 Merger Agreement § 2.07(e)(ii)(B); see Khan Tr. 3042 (J&J’s technical expert confirming that an MVP strategy promotes system speed, flexibility, and reliability); see also Khan Day 1 Dep. 214 (“The simpler the system at the initial stages, the easier it is to ensure system stability and solve other problems.”); Grennan Dep. 112

- 14 (J&J’s rebuttal economics expert testifying about MVP); Gompers Rep. ¶ 62 (“[T]he MVP approach accelerates time to market relative to the product

- development model used by established companies to enter known markets.”).
416 Merger Agreement § 2.07(e)(ii)(E); see Tillman Tr. 2825

- 27 (J&J’s regulatory expert acknowledging that it is a common regulatory practice to seek clearance of an early device with limited functionality, which can be a predicate for future iterations); accord Wittwer Tr. 1959; see also Shen Tr. 1166

- 67; Moll Tr. 293

- 94; Khan Day 1 Dep. 209.
417 Merger Agreement § 2.07(e)(ii)(B), (C), (J); see Gompers Tr. 1935

- 36; Grennan Dep. 112

- 14. 418 E.g. , Shen Tr. 1169; Grennan Tr. 2545; Gompers Tr. 1916

- 18, 1935

- 36; Khan Tr. 3041

- 42; Lopes Tr. 2444. 419 Moll Tr. 90; id. at 294

- 95; see also Shen Tr. 1167; Grennan Dep. 58.80

devices. 420 For RASDs in particular, the approach is highly efficient. 421 In terms of priority devices, J&J’s own practice for Velys was to follow an MVP strategy. 422 Gorsky also had asked that an MVP approach be used for Verb. 423 Thus, J&J’s
insistence that iPlatform focus on a complex umbrella procedure to satisfy the General Surgery Milestone was not commercially reasonable in view of J&J’s obligation to devote efforts befitting a priority medical device.

iv. The New Incentives In April 2020, J&J wrote down the iPlatform and GI regulatory milesto nes to $0. 424 This was an accounting measure; it did not eliminate J&J’s contractual obligation to fund earnout payments if Auris timely met milestones. 425 But the write

420 See Shen Tr. 1164, 1169; Khan Tr. 3041

- 42; Khan Day 1 Dep. 207, 209; Moll Tr. 15

- 16.
421 See supra notes 19

- 22 and accompanying text.
422 See JX 4246 at 3 (“As part of the deal model, it was agreed that we would do a true MVP with the objective to enter the US market as quickly as possible.”); Waterson Dep. 98

- 99; Shen Tr. 1227

- 28. 423 See JX 255 at 1 (“Alex has asked us to . . . make sure we hit the goals and deliver the first general ‘minimally viable product’”); JX 711 at 3 (targeting “1 indication” for a “[r]educed program scope” to accelerate launch); Shen Tr. 1167.
424 JX 3139 at 2; PTO ¶ 161. 425 Defs.’ Answering Post

- trial Br. 111

- 12.81

down was accompanied by an employee incentive program with targets different from the milestones in the Merger Agreement. 426 In contrast to the General Surgery Milestone that Auris had bargained for, the new regulatory approval incentive was based on FDA approval of iPlatform for a “general surgery” indication (like RYGB). 427 The program set a target date for iPlatform’s initial FDA approval at the end of 2023

— two years later than the deadline in the M erger A greement. 428 All other regulatory milestones for iPlatform and GI

- related incentives were absent from the program

. 429 These different inducements, coupled with J&J’s communications to Auris that the milestones were “canceled,” 430 negatively affected employees’ motivation to work towards the iPlatform and GI regulatory m ilestones in the Merger Agreement

. 431 J&J was not using “commercially reasonable efforts” toward meeting

426 JX 2675 at 1 (discussing, in October 2021, the potential need to “construct an employee specific plan to ‘restore’ milestone achievability through creating a new separate retention program”); Moll Tr. 95

- 97; Mintz Tr. 617

- 18.
427 Compare JX 3641 at 5, with Merger Agreement § 2.07(a)(iii); see also supra note 193 and accompanying text.
428 Compare JX 3641 at 5, with Merger Agreement § 2.07(a)(iii). 429 Compare JX 3641 at 5, with Merger Agreement § 2.07(a)(iv)

- (viii). It also replaced gross revenue - based sales milestones with incentives based on profitability and overseas expansion. Compare JX 3641 at 5 , with Merger Agreement §§ 2.07(a)(ix)

- (x). 430 See Moll Tr. 95

- 96, 195, 198; see also JX 3193. 431 See Gompers Rep. ¶ 117.82

the r egulatory m ilestones “consistent with [J&J]’s usual practice” for a “priority”
device. 432 It was redirecting efforts toward different goals. This is not to say that J&J had to pursue the milestones without any regard to commercial reasonableness. But though J&J could reasonably calibrate its efforts, it could not try to re - write or deprioritize the milestones themselves. Velys never received similar treatment. 433

* * * J&J was required to utilize commercially reasonable efforts to meet the iPlatform and GI regulatory milestones, consistent with those given to a priority medical device. Its actions beginning with Project Manhattan we re anything but. A priority device benefitting from such efforts by J&J would not be embattled, derailed, and enmeshed with another. Velys was not. Regardless , J&J insists that the efforts devoted to iPlatform were commercially reasonable because iPlatform’s funding vastly exceed that of Velys (or any other medical device program at J&J )

. 434 J&J invested over $2.25 billion in the Auris program (broadly speaking) from 2019 to 2022. 435 It also purchased a

432 Merger Agreement § 2.07(e)(ii). 433 See supra notes 370

- 72 and accompanying text. 434 Defs.’ Answering Post

- trial Br. 102. J&J makes similar arguments about staffing, which fail for the same reasons as its financing arguments and those discussed above regarding the post

- integration debacle. 435 See JX 4516 (“Malackowski Rep.”) 283

- 84; Defs.’ Answering Post

- trial Br. 102.83

company called Vytronus for $20 million to buttress Auris’s capabilities, at Moll’s request. 436
I t is an oversimplification to view these funds as furthering the achievement of the iPlatform regulatory milestones. For example, $112 million of the funds J&J claims were for iPlatform were spent on the Verb robot and instrument R&D, $89 million was spent on Ethicon legal fees (including this litigation), and $90 million was spent to acquire the remaining interest in Verb. 437 Much of the investment came post

- write

- down, and one

- third of the cited total was spent after J&J abandoned iPlatform in 2022. 438 An obligation to use commercially reasonable efforts in pursuit
of the iPlatform regulatory milestones is not equivalent to spending large sums on J&J’s robotics program. J&J fell short of the promise it made in Section 2.07(e) of the Merger Agreement.

b. J&J Efforts Towards the Monarch Milestones The Merger Agreement includes two regulatory milestones for Monarch: one focused on soft tissue ablation and the other on endourology. J&J’s contractual

436 JX 2825 at 1; Martin Tr. 1767

- 68; Leparmentier Dep. 210

- 12. 437 See Malackowski Rep. 283

- 84; see also Defs.’ Trial Demonstrative (“Defs.’ Dem.”) 10. Other expenditures included $214 million for additional instruments R&D, $60 million for marketing products other than iPlatform and Monarch, and $75 million for standalone “Digital Solutions” software products. See Malackowski Rep. 283

- 84; Kilroy Dep. 263

- 64; see also Defs.’ Dem. 10.
438 See Malackowski Rep. 283

- 84; see also Defs.’ Dem. 10.84

obligations extended to these milestones. 439 Fortis contends that J&J failed to use commercially reasonable efforts to achieve them. Monarch’s story is distinct from iPlatform’s. Monarch was not subjected to Project Manhattan. Its system was not joined with another robot . It was largely permitted to follow an MVP strategy. And its regulatory milestones were not written down until September 2020. 440 Fortis’s arguments regarding the Monarch milestones are, at bottom, disagreements with how J&J engaged with the FDA and prioritized aspects of the Monarch program. Funding was allocated towards some Monarch indications instead of others, there were hiring gaps, and J&J’s actions towards solving the NeuWave FLEX problem were bungled. These actions, or lack thereof, were flawed and may prompted unintended delays, but they are not commercially unreasonable under Section 2.07(e). i. Soft Tissue Ablation The Monarch Soft Tissue Ablation Milestone contemplated 510(k) approval for a “specific indication for robotically driven (or controlled) soft tissue ablation,”

439 Merger Agreement § 2.07(e)(i); id. § 10.03(zz) (defining “Regulatory Milestones” to include “the Monarch Endourology Milestone” and the “Monarch Soft Tissue Ablation Milestone”).
440 JX 3504 at 3. The new employee incentive plan did, however, prioritize reusable bronchoscopes rather than the Soft Tissue Ablation Milestone and lacked any endourology incentives. See JX 3641 at 5.85

including “instruments and accessories required to perform such ablation” by the
end of 2022. 441 To meet the milestone, Monarch would need to use the NeuWave
FLEX catheter. 442 But FLEX was in regulatory limbo after the patient death during its lung tissue study. 443 A “microwave pole” being developed by another company, which could have replaced FLEX to perform the ablation procedure, became unavailable after its developer was acquired. 444 Fortis argues that J&J’s efforts obligation required it to promptly conduct a new clinical study on FLEX. 445 It disagrees with J&J’s initial strategy of advocating to the FDA that an IDE was unnecessary. 446 Fortis

— with the benefit of hindsight

— may be correct that J&J’s strategy flopped. That does not mean, however, that J&J’s attempts were commercially unreasonable in real time. J&J engaged in multiple discussions with the FDA to find the shortest path to regulatory clearance for FLEX, consistent with the Soft Tissue Ablation Milestone. 447 That the FDA continued to insist J&J conduct clinical trials and seek

441 Merger Agreement § 2.07(a)(ii).
442 Moll Tr. 51.
443 See supra notes 172

- 74 and accompanying text.
444 Leparmentier Tr. 995. 445 Pl.’s Opening Post

- trial Br. 122 (citing Wittwer Tr. 1968

- 69). 446 Id. at 80 (arguing that “J&J squandered a meeting with the FDA”); see JX 2313 at 8

- 10; JX 2648 at 35

- 36.
447 See Bryant Tr. 2500

- 01.86

an IDE for FLEX related to lung tissue ablation is no fault of J&J. In 2020, at the FDA’s encouragement, J&J obtained a Breakthrough Device Designation for
FLEX. 448 The Breakthrough Device Program is a priority FDA program for devices offering a public health benefit with “significant regulatory advantages.” 449 By the end of 2020, the FLEX team made several regulatory submissions, held multiple meetings with the FDA, and completed pre

- clinical animal studies. 450 As a result of those efforts, in November 2021, the FDA conditionally approved an IDE for FLEX in lung treatment. 451 Despite that, the remaining clinical data and regulatory submissions for final approval meant that Monarch could not meet the 2022
milestone. Setting aside whether J&J should have told Auris about the patient death

sooner, 452 J&J’s efforts were commercially reasonable. The delay caused by the patient death and the resulting requirements imposed by the FDA were not in J&J’s control. Although Velys never faced a similar regulatory hurdle, J&J’s iterative and consistent engagem ent with the FDA for Monarch reflects the sort of efforts one

448 JX 3294; see also JX 2313 at 10. 449 Tillman Rep. ¶ 29. 450 See JX 3657 at 11. 451 See Tillman Rep. ¶ 288. 452 As discussed below, Auris is entitled to recover for this milestone due to fraud. See infra Section II.B.4.87

would expect it to undertake for a priority device. In setting the level of its efforts, J&J was entitled to consider “the regulatory status of the product and scope of any marketing approval, . . . whether the product is subject to a clinical hold, recall or market withdrawal, [and] input from regulatory experts and any guidance or developments from the FDA.” 453 Had J&J succeeded in persuading the FDA tha t an IDE was not needed for FLEX, it would have saved time for Monarch to meet the Soft Tissue Ablation Milestone.

ii. Endourology The Endourology Milestone required Monarch to obtain 510(k) approval “for endourology procedure(s)” by the end of 2020. 454 Auris had solved major scientific problems with the procedure and planned to satisfy the milestone with an MVP approach. 455 Fortis argues that J&J failed to provide adequate resources to do so. 456 Instead, to address a “known budget gap” in 2020, J&J decided that the “[p]rimary Monarch focus” would be bronchoscopy rather than endourology

. 457

453 Merger Agreement § 2.07(e)(ii)(F), (H)

- (I). 454 Id. § 2.07(a)(i). 455 Leparmentier Tr. 983

- 84, 1017

- 18. 456 Pl.’s Opening Post

- trial Br. 81. 457 JX 3091 at 3.88

Velys received requested funding, space, and personnel. 458 By comparison,

e ndourology was 15% understaffed and partially underfunded. 459 But even if Monarch’s endourology team had proportionately less resources than Velys, it is not apparent that J&J’s efforts deviated from its usual practice in supporting research, development, and regulatory interactions for a priority device. J&J logica lly prioritized a staged approach to Monarch’s development. Monarch Uro’s planned 510(k) submission depended upon the to

- be

approved Monarch Bronch 2.0 three

- arm cart first receiving 510(k) clearance

. 460
Monarch could not seek approval for Uro until after Bronch 2.0 obtained it in April
2020. 461 J&J’s efforts and resources in furtherance of bronchoscopy necessarily advanced Monarch’s chance of achieving the Endourology Milestone . The Merger Agreement permitted J&J to consider “the likelihood and difficulty of obtaining FDA and other regulatory approval ” in setting the level of its efforts, which would reasonably include focusing on an indication necessary for a subsequent clearance. 462

458 See JX 356; Thomson Dep. 55; Waterson Dep. 130

- 31, 341. 459 See Leparmentier Tr. 1019

- 21; JX 3195; JX 3091 at 3. 460 See JX 975 at 4 (communicating this plan to the FDA); see also JX 637 at 9

- 12; JX 673 at 5. Bronch 1.0, which already had 510(k) clearance, only had two arms. Monarch Uro required the Bronch 2.0 three

- arm version to be cleared.
461 Tillman Rep. ¶¶ 223

- 25. 462 Merger Agreement § 2.07(e)(ii)(E).89 3. Whether Fortis W as Damaged Fortis must next prove with “reasonable certainty” that J&J’s breaches of the Merger Agreement caused it injury. 463 Fortis contends that J&J’s failure to use commercially reasonable efforts prevented Auris from achieving the iPlatform regulatory, GI, and net sales milestones. 464 J&J, for its part, asserts that Fortis cannot prove that its injury “flowed from [J&J’s] violation of the contract” rather than “other intervening causes.” 465 I consider these arguments for iPlatform milestone by
milestone

. 466

a. iPlatform Regulatory Milestones The Merger Agreement outlines six regulatory milestones for iPlatform: the General Surgery Milestone, four umbrella procedure milestones (the Upper Abdominal Milestone, the Lower Abdominal Milestone, the Urologic Milestone,

463 Siga Techs., Inc. v. PharmAthene, Inc. (“ Siga II ”), 132 A.3d 1108, 1111 (Del. 2015) (“[W]hen a contract is breached, expectation damages can be established as long as the plaintiff can prove the fact of damages with reasonable certainty.” (emphasis removed)); see also Cura Fin. Servs. N.V. v. Elec. Payment Exch., Inc. , 2001 WL 1334188, at *19

- 20 (Del. Ch. Oct. 22, 2001) (“[R]easonable certainty is not equivalent to absolute certainty; rather, the requirement that plaintiff show defendant’s breach to be the cause of his injury with ‘reasonable certainty’ merely means th at the fact of damages must be taken out of the realm of speculation.” (quoting Tanner v. Exxon Corp ., 1981 WL 191389 (Del. Super. July 23, 1981))). 464 See Pl.’s Opening Post

- trial Br. 121

- 26. 465 Defs.’ Answering Post

- trial Br. 112 (quoting LaPoint , 2007 WL 2565709, at *9). 466 Because Fortis did not prove a breach of contract as to J&J’s Monarch

- focused efforts, I do not consider whether Fortis suffered damages related to Monarch.90

and the Gynecologic Milestone), and the GI Milestone. 467 Pre

- merger, J&J estimated an 85% probability of meeting the General Surgery Milestone and an 75% probability of meeting the umbrella and GI milestones. 468 J&J insists that its predictions were misguided for two overarching reasons: technical issues and regulatory challenges

. 469 On the technical front, J&J points to evidence of “problems with workspace, thermal issues, system stability, emergency patient access, and instrument performance.” 470 To be sure, these were challenges that the iPlatform team would need to solve. J&J obstructed Auris’s ability to do so by imposing Project Manhattan shortly after closing, and then combining iPlatform with Verb. Beyond that, I view J&J’s insistence that technical deficiencies led to the failed milestones with skepticism

. J&J engaged in multiple rounds of due diligence, involving experienced Verb engineers and outside robotics experts at Sagentia. 471 J&J gained direct insight through its Auris board observer seat. 472 J&J knew about iPlatform’s strengths and weaknesses before projecting that the milestones would

467 Merger Agreement § 2.07(a)(iii)

- (viii).
468 JX 3139. 469 Defs.’ Answering Post

- trial Br. 112

- 13. 470 Id.
471 E.g. , JX 447; JX 1076; Mintz Tr. 575

- 78; see also DeFonzo Tr. 354

- 57.
472 See PTO ¶ 107; Morano Tr. 1445

- 47; Mintz Tr. 575

- 78; McEwen Dep. 71; supra note 103 and accompanying text.91

likely be achieved and acquiring Auris

. 473 When J&J wrote down the milestones in April 2020, it cited the FDA pathway change to De Novo

— not technical issues

— as the basis. 474 It was only after Fortis sued in October 2020 that J&J began searching for diligence files suggesting technical flaws in iPlatform’s system. 475 This appears to be tactical backfilling. 476 One frequently cited example is Auris’s selection of the
Silverton

- style arm for iPlatform rather than the redesigned Superton arm , which J&J calls a hasty choice detrimental to iPlatform’s success that was hidden from
J&J. 477 As Mintz explained, though, iPlatform’s choice was neither rash nor

473 E.g. , JX 1284.
474 JX 3139 at 2; see Lenard Tr. 1830. 475 JX 3814 (Shen telling Joachim to be “THE leader to own the [Auris acquisition] narrative”); see supra notes 319

- 21 and accompanying text. 476 For instance, J&J argues that “DeFonzo provided J&J with a version of the iPlatform team’s January 2019 quarterly program review that had been doctored to remove references to significant problems with workspace, thermal issues, and instrument performance ” and that “Auris similarly altered other technical materials shared with J&J.” Defs.’ Answering Post

- trial Br. 41. The internal version and external version are of the quarterly update are different. Compare JX 1130, with JX 1113 at 8, 29

- 34, 35, 37. But there is no credible evidence suggesting that Auris set out to hoodwink J&J or “doctor” documents. Instead, Auris’s internal documents were simply cleaned up and revised before being sent to a potential outside investor/acquiror. See DeFonzo Tr. 510

- 14.
477 Defs.’ Post

- trial Answering Br. 62; see Defs.’ Dem. 22 at 53

- 60. J&J relied on the expert opinion of Dr. Moiz Khan to support its argument that iPlatform’s design and system suffered from fatal flaws. Khan’s critiques of iPlatform were based on his review of a subset of documents and videos. He never operated the robot and saw the robot just once in passing. Khan Tr. 2971

- 73. Because of his limited exposure to the robot, I give his testimony about specific challenges facing iPlatform little weight.92

nefarious; it was strategic and evident

. 478 Nevertheless, I weigh specific arguments in the context of each milestone despite my overarching cynicism that technical problems are to blame for the missed milestones

. On the regulatory front, t he primary matter raised by J&J is the FDA’s pivot from the 510(k) to the De Novo pathway for RASDs. This change, in J&J’s estimation, “doomed any hope of meeting the milestones.” 479 The milestone most directly affected by the pathway change is the General Surgery Milestone. If iPlatform had timely obtained De Novo approval for one upper and one lower abdominal surgical procedure, it could follow the 510(k) pathway for the subsequen t regulatory milestones. 480 As such, I mainly consider the effects of the FDA’s

478 Mintz Tr. 718 (“So this balance of reach, access, stiffness, bandwidth, you have to get all of those right. And having gotten the stiffness and bandwidth we did in a long, skinny arm was not something to give up lightly. And we were completing procedure s.”); id. at 711 (“None of these risks were hidden.”). Mintz was a compelling witness. He had extensive experience developing successful RASDs, including at Intuitive. He was vital to iPlatform’s development and has unmatched knowledge of the design and developm ent process from its infancy in 2016 through the selection of the beta design in early 2021. Id. at 711

- 12. Mintz testified candidly about iPlatform’s technical challenges and what it took to solve them. See, e.g. , id. at 619

- 22. Despite Mintz’s passion for the iPlatform system and his financial incentives, his testimony was highly credible relative to that of Khan.

. 479 Defs.’ Answering Post

- trial Br. 111. 480 See Wittwer Rep. ¶ 22 (“If iPlatform had obtained De Novo approval for its general surgery application, J&J could have used iPlatform itself as a predicate device allowing use of the 510(k) pathway for pre

- market clearance of further indications contemplated u nder subsequent ‘umbrella’ regulatory milestones for iPlatform. This would have reduced the regulatory approval timelines for these later applications.”); see also Wittwer Tr. 1959.93

position change in the context of the General Surgery Milestone. It is with that milestone that I begin.
i. General Surgery Milestone The General Surgery Milestone required iPlatform to receive 510(k) clearance “for one upper abdominal surgical procedure” and “one lower abdominal surgical procedure” by the end of 2021. 481 iPlatform was on track to meet this milestone at the time of the merger. Before closing, iPlatform’s pre

- alpha prototype had completed procedures that would have satisfied it. 482 iPlatform’s program timeline gave it five months to secure an initial 510(k) approval. 483 This was “ambitious.” 484 To reduce risk, Auris built in a “healthy” buffer of five additional months, ending on the last day of 2021. 485 Based on iPlatform’s progress and optionality over which upper and lower clinical indications to pursue, the Auris team believed that the iPlatform General Surgery Milestone would likely be met. 486

481 Merger Agreement § 2.07(a)(iii).
482 See JX 5012 at 1; JX 699 at 9; JX 2610; Mintz Tr. 579

- 80; Gardiner Tr. 743

- 51. 483 JX 1689 at 13

- 14; Mintz Tr. 579

- 80. 484 DeFonzo Tr. 505

- 06. 485 Id. ; see also Mintz Tr. 659

- 60 (explaining that the timelines reflected “when we could reasonably, aggressively expect things to go” plus a buffer).
486 JX 1413 at 2 (estimating a 65% probability of success for the first milestone); Mintz Tr. 580.94

The record supports Auris ’ s assessment. After the merger, iPlatform continued to receive high marks from surgeons. 487 It performed well in Project
Manhattan. 488 It went on to successfully complete 40 cadaver labs from mid

- 2019 to early 2020 in which all milestone procedures were performed

— including the most complex LAR and RYGB procedures. 489 The labs were, at times, imperfect and some physicians disliked the iPlatform system. 490 But regulatory approval is measured by clinical safety and effectiveness

— not commercial readiness. 491 It is

487 See generally Pl.’s Dem. 13 (lab results).
488 See supra notes 252

- 56 and accompanying text; see Wittwer Tr. 1957 (testifying that, in her opinion as a regulatory expert, iPlatform’s results in Project Manhattan would be “sufficient to . . . proceed to the next stages of product development for certain procedures”). 489 Pl.’s Dem. 13, lines 12

- 51 (showing that iPlatform completed cadaver lab procedures including 14 LARS, 10 RYGBs, 6 ventral hernias, 1 inguinal hernia, 2 partial nephrectomies, and 1 hysterectomy); Gardiner Tr. 752

- 53, 772, 800

- 03. Gardiner completed over 30,000 surgeries in his decade s - spanning career, with about 30% being performed with a RASD. Id. at 722

- 23. He also instructed other surgeons on how to perform robotic surgeries and worked with Moll at Intuitive in developing the da Vinci robot. Id. at 724. Despite his financial incentives as an Auris stockholder, his testimony was highly credible. 490 E.g. , JX 699 at 37; JX 3047; JX 3550. iPlatform was not for everyone. Hagen, one of the Project Manhattan KOPs involved with developing Verb , strongly disliked the architecture of iPlatform. She preferred a live assistant rather than the fifth robotic arm. Gardiner Tr. 768

- 71; Hagen Tr. 2344

- 45. 491 See Wittwer Rep. ¶ 179 (“Medical devices do not need to be fully ready to enter large

scale commercial distribution before a company seeks regulatory clearance for them.”); Wittwer Tr. 1954; Grennan Tr. 2547 (acknowledging the difference between regulatory maturity and commercial readiness for a complex medical device); see also Gardiner Tr. 726

- 28.95

often desirable to obtain regulatory clearance for a prototype without the full functionality of a planned commercial device. 492 In September 2021, J&J acknowledged that iPlatform would be capable of the Nissen fundoplication procedure that would satisfy an upper abdominal surgery indication. 493 For the lower abdominal indication, inguinal hernia labs from 2019 through 2020 show iPlatform’s capacity to successfully perform the procedure. 494 Surgeons performing those labs rated iPlatform’s performance as “superior to” or “competitive with” da Vinci.” 495 In September of 2021, J&J again acknowledged that iPlatform would be capable of inguinal hernia and appendectomy

— both lower abdominal procedures that would satisfy the first milestone. 496 If the results were replicated through the verification and validation phases, there would be sufficient

492 See Wittwer Tr. 1955

- 56 (“[I]t’s actually desirable to submit your first application with fewer features and focusing on a select procedure or two to obtain that first De Novo clearance.”); Wittwer Rep. ¶¶ 179

- 81. Auris’s ARES robot is one such example. See Leparmentier Tr. 977 (explaining that ARES received FDA clearance using an MVP strategy and was never intended to be commercially launched); Moll Tr. 293

- 94. 493 JX 4129 at 27 (“Based on experience with primary procedures, system should [] be capable of: . . . Nissen Fundoplication”). As discussed above, Auris initially considered pursuing either Nissen fundoplication or RYGB for its first upper abdominal procedu re. See supra note 404 and accompanying text; JX 1729 at 21

- 22. 494 See Pl.’s Dem. 13; JX 1541. 495 JX 2622 at 15 (four 2019 iPlatform inguinal hernia labs completed with “high confidence” with ratings of “[b]est in class” and “superior to Da Vinci”); JX 3610 at 2 (Gardiner in 2020 reporting to Joachim that iPlatform’s inguinal hernia procedure was “lar gely cooked” and “already competitive to the predicate”). 496 JX 4129 at 16 (“Beta will be capable in Inguinal Hernia [.] ”); id. at 17 (“Beta system should be capable based on experience with primary procedure(s): Appendectomy [.] ”).96

data for the FDA to assess iPlatform’s safety and effectiveness for the proposed
indication. 497 iPlatform could obtain approval for a single successful procedure. 498 Overall, the record supports a finding that iPlatform would likely have met the General Surgery Milestone had J&J fulfilled its promises to Auris. iPlatform was on track to achieve the milestone before Project Manhattan and the Verb integration . J&J’s insistence that iPlatform pursue a five

- arm RYGB , instead of simpler procedures using a minimally viable device, made matters worse. J&J’s adoption of new employee incentives in 2020 that conditioned the first payment on achieving a complex general surgery indication further re - directed resources away from the General Surgery Milestone. It is reasonably certain that J&J’s breach of its efforts obligation (and, as discussed below, an implied term regarding the De Novo pathway ) damaged Auris by pre venting it from timely securing regulatory approval.
Technical Problems

. J&J contends that, regardless of its conduct, iPlatform could never have met the General Surgery Milestone because of “fundamental technical challenges” with the system’s workspace. 499 Workspace relates to the architecture of the robot, such as whether the arms experience collisions during procedures. 500 The record provides little support for J&J’s assertion . Although

497 Wittwer Tr. 1958. 498 Id. at 1959. 499 Defs.’ Post

- trial Answering Br. 59. 500 Moll Tr. 270

- 71.97

workspace issues arose, numerous lab reports show that iPlatform had the capability
to safely and effectively complete procedures to satisfy the milestone. 501
The other technical issues J&J cites were “surmountable.” 502 They were similar to ones Auris leadership had tackled at Intuitive 20 years earlier. 503 Thermal issues made the robot hot to the touch. 504 iPlatform ’s system was sometimes
unstable. 505 And a worst

- case scenario persisted since the robot’s arm setup meant that a very large patient could not be transported from the operating table to a gurney if a hospital lost power mid

- procedure. 506 Such engineering challenges are expected while developing a highly complex medical device. 507

501 E.g. , Pl.’s Dem. 13; JX 3685 at 7 ( reporting “ [a] dequate approach and workspace for 4

- arm RYGB to move forward with US IDE” as of November 2020); JX 4129 at 15

- 19 ( stating that iPlatform would be “capable” in Nissen fundoplication , inguinal hernia, small ventral hernia, appendectomy, prostatectomy, and hysterectomy, among other procedures); see also Khan Tr. 3004 (testifying that “capable” means safe, effective, and able to complete the procedure). 502 Kilroy Tr. 2136

- 37 (“Other engineering challenges, I saw them as more surmountable

. . . [T]he real showstoppers for the system were workspace and collisions.”); Khan Day 1 Dep. 543 (“I didn’t state many issues being fundamental and existential. I only s aid that to the workspace . . . .”).
503 Mintz Tr. 561. 504 This was known to J&J during diligence. See JX 1284 at 12; Mintz Tr. 716 (Mintz recalling J&J’s engineer touching an iPlatform arm during diligence and commenting on the temperature). 505 Mintz Tr. 572

- 73. 506 Joachim Tr. 2233, 2236

- 38. J&J cites iPlatform’s poor instrument performance as another flaw

. A s Joachim admitted, however, instrument performance would not prevent iPlatform from meeting regulatory milestones. Id. at 2173

- 77. 507 Mintz Tr. 572

- 73.98

Many of these issues would not inhibit straightforward procedures that could satisfy the General Sur gery Milestone , such as Nissen fundoplication and inguinal
hernia , which the pre

- alpha robot had successfully performed . Advanced capabilities, like using five or six arms, were not necessary to perform these procedures safety and effectively for regulatory purposes

. 508 Despite that , the iPlatform team had been working to address various technical problems. 509 It was derailed when iPlatform was forced to participate in Project Manhattan and then combine with a separate system. These complications

— all imposed by J&J

— not only delayed iPlatform’s progress but also imposed months of technical debt and unanticipated roadblocks. Regulatory Problems . J&J also argues that the iPlatform General Surgery Milestone was unmet due to the FDA’s pathway change . The General Surgery Milestone (like all iPlatform regulatory milestones) require d iPlatform to obtain “510(k) clearance.” 510 But in August 2019, the FDA said that the 510(k) pathway was unavailable to RASDs. 511 iPlatform unexpectedly had to follow the De Novo pathway.

508 Id. at 580

- 81. 509 Moll Tr. 80

- 82; Mintz Tr. 550, 582, 620

- 22. 510 Merger Agreement § 2.07(a)(iii). 511 JX 2512 at 4

- 5.99

J&J suggests that this position change mean t it was off the hook for the General Surgery Milestone. Not so. The obvious goal of the General Surgery Milestone was for iPlatform to obtain FDA approval. In contrast to other provisions of the Merger Agreement, there is no evidence that 510(k) (versus another pathway) was specifically negotiated. 512 That is because at the time of the Merger Agreement, a “510(k) process” was the “only logical pathway for a robotic device.” 513 When that understanding changed four month after the merger , J&J viewed the availability of De Novo (rather than PMA) as a victory. 514 Yet, the iPlatform General Surgery Milestone expressly contemplates “510(k) premarket notification[],” which was no longer an option for iPlatform post

- pathway shift. 515 To address this wrinkle in its breach of contract claim, Fortis presents an implied covenant theory. 516 It asserts that after the FDA’s pathway change, the

512 DeFonzo Tr. 363

- 64 (testifying that the parties “never even discussed” a non

- 510(k) pathway); Moll Tr. 58

- 59. J&J originally argued that this term was “highly negotiated.” Defs.’ Pre

- trial Br. (Dkt. 504) 2. It did not press that argument after trial. 513 Moll Tr. 58

- 59. 514 Shen Tr. 1174; Wittwer Tr. 1953. 515 Merger Agreement § 2.07(a)(iii). As noted above, the subsequent umbrella milestones could be obtained through 510(k) if iPlatform received De Novo clearance. See supra note 282 and accompanying text ; Wittwer Tr. 1949. 516 PTO ¶ 5. Fortis also advanced a mutual mistake claim that was also premised on the change in FDA policy regarding the availability of the 510(k) pathway for iPlatform. Id. Because documents Fortis sought through a FOIA request were not produced in time for trial, Fortis withdrew its mutual mistake claim. See Dkts. 525, 527.100

implied covenant of good faith and fair dealing required J&J to pursue De Novo approval instead. 517 I agree. 518 Implied Covenant . “The implied covenant [of good faith and fair dealing] is inherent in all contracts.” 519 It “embodies the law’s expectation that ‘each party to a contract will act with good faith toward the other with respect to the subject matter of the contract.’” 520 The implied covenant “ensures that parties do not ‘frustrat[e] the fruits of the bargain’ by acting ‘arbitrarily or unreasonably.’” 521 “The reasonable expectations of the contracting parties are assessed at the time of contracting.” 522 At the time the Merger Agreement was signed, all parties assumed that 510(k) would be an available pathway for iPlatform. 523 The FDA had indicated in October 2018 that iPlatform could receive 510(k) clearance with the appropriate clinical data

517 Pl.’s Opening Post

- trial Br. 130

- 31. 518 In my decision denying J&J’s motion to dismiss the implied covenant claim, I noted that this is precisely the sort of situation where the “implied covenant comes into play.” Mem. Op. Regarding the Defs.’ Mot. to Dismiss (Dkt. 44) (“MTD Mem. Op.”) 38. Th at observation remains true after trial. 519 Baldwin v. New Wood Res. LLC , 283 A.3d 1099, 1116 (Del. 2022) (citation omitted). 520 Sheehan v. Assured P’rs, Inc. , 2020 WL 2838575, at *11 (Del. Ch. May 2020) (quoting Allied Cap. , 910 A.2d at 1032). 521 Baldwin , 283 A.2d at 1116 (quoting Dieckman v. Regency GP LP , 155 A.3d 358, 367 (Del. 2017)). 522 Dieckman , 155 A.3d at 367. 523 See JX 3253 at 1 (contemporaneous notes of meeting about regulatory affairs from a May 14, 2020 call where Kozak says: “During acquisition [we] had assumed 510k was appropriate.”).101

and predicate device. 524 It warned only that 510(k) might be unavailable because the proposed predicate device (a da Vinci robot) lacked a bronchoscope and Auris had listed a bronchoscopy indication for iPlatform. 525 Auris resolved this mismatch in its subsequent submission by withdrawing bronchoscopy from iPlatform’s planned indication and selecting a more apt da Vinci predicate. 526 Neither Auris nor J&J had reason to believe that a more onerous pathway would be required. 527 In

524 JX 743 at 3 (“While our review of your pre

- submission does not imply that your future submission will necessarily be approved or cleared, FDA intends that this feedback will not change, provided that the information submitted in a future IDE or marketing application is consistent with that provided in this pre

- submission and that the data in the future submission do not raise any important new issues materially affecting safety or effectiveness.”); id. at 5

- 6. 525 Id. at 4 (“You propose the da Vinci Xi K131861 as the predicate device

. While the Indications for Use IFU statements of your subject device and your predicate appear to be similar the intended use of your subject device does not appear to be the same as your proposed predicate device[.] For example your proposed predicate is not intended to provide bronchoscopic visualization of and access to patient airways for diagnostic and therapeutic procedures and does not contain a bronchoscope.”); id. at 1; see supra notes 70

- 71 and accompanying text. 526 JX 2468 at 5 (“[G]iven FDA’s concern of using a predicate not indicated for bronchoscopic procedures, Auris has decided to remove the use of a bronchoscope from the initial submission.”); Mintz Tr. 604

- 06 (“Question: ‘Was [] the FDA telling Auris it would not approve iPlatform under the 510(k) pathway?’ Mintz: ‘It was not . . . They’re pointing out that the da Vinci Xi does not have bronchoscopic capability . . . so we removed that from our indications for use. . . . . There’s another da Vinci 510(k) that uses a robotic bed in conjunction with the system, and that was a more appropriate predicate. So we adjusted our submission to use that more appropriate predicate.’”).
527 See In re El Paso Pipeline P’rs, L.P. Deriv. Litig ., 2014 WL 2768782, at *18 (Del. Ch. June 12, 2014) (observing that the implied covenant of good faith and fair dealing is properly invoked where “the parties simply failed to foresee the need for the term and, therefore, never considered to include it”); see also Nemec v. Shrader , 991 A.2d 1120, 1128 (Del. 2010)

.102

fact, J&J was surprised in August 2019 when it learned that Verb had to follow the De Novo pathway instead of 510(k). 528 J&J argues that requiring 510(k) approval was a material term to the Merger Agreement because the specific pathway affects the time to market, the resources required, and the deal value. 529 But there is no evidence that the parties bargained for 510(k) instead of De Novo. 530 J&J knew pre

- merger that the FDA required extensive clinical testing for iPlatform to secure 510(k) approval. 531 Though De Novo approval is generally more onerous, the primary difference for iPlatform was FDA review time, which J&J predicted would only add two months of delay. 532 The FDA required iPlatform to submit clinical testing data under either the 510(k) or De Novo pathway. 533

528 See JX 2512 at 4

- 5. 529 Defs.’ Answering Post

- trial Br. 51

- 53. 530 See supra note 512; c f. Aspen Advisors LLC v. United Artists Theatre Co ., 843 A.2d 697, 707 (Del. Ch. 2004) (explaining that the implied covenant will not fill a gap if the parties discussed and rejected it), aff’d , 861 A.2d 1251 (Del. 2004). 531 See JX 1284 at 4, 12; JX 1504 at 5. 532 JX 2396 at 15 (predicting a De Novo review would change Verb’s launch from April 2022 to June 2022); see also Wittwer Tr. 1949

- 50 (“Per FDA regulation, a 510(k) is a 90

- day review clock. And a De Novo application is a 150

- day review time.”); Wittwer Rep. ¶¶ 158

- 60 (opining that the shift to De Novo review caused an approximately 60 day delay). Wittwer’s opinion was reliable. In addition to her educational and professional background, she has submitted and received FDA clearance on over fifty 510(k) applications and three De Novo applications. Wittwer Rep. ¶ 10. 533 See JX 2396 at 12 (J&J concluding there was “[n]o significant timeline differences” for Verb to achieve De Novo “as compared to a 510(k)”); Tillman Tr. 2823

- 24 (acknowledging103

Had the parties known that 510(k) would become unavailable for RASDs, they logically would not have listed 510(k) as the method of obtaining regulatory approval in the Merger Agreement. 534 The Merger Agreement lacked a term to address what would occur if the 510(k) pathway were closed to iPlatform. When this change arose, however, J&J had an implied obligation

— at least for the iPlatform General Surgery Milestone

— to use commercially reason able efforts to achieve De Novo clearance. Doing so would facilitate 510(k) approval for the subsequent milestones, which I address next. 535 But J&J failed to utilize such diligence

. 536 It cannot avoid liability by scapegoating an unforeseen policy change that had an immaterial effect on the time and cost for iPlatform to gain FDA clearance. 537

that iPlatform’s 510(k) process would be in the “minority of 510(k) submissions that require clinical data”).
534 See Oxbow Carbon & Mins. Hldgs., Inc. v. Crestview

- Oxbow Acq., LLC , 202 A.3d 482, 506

- 07 (Del. 2019) (explaining that the implied covenant exists to address “unanticipated developments”); Blaustein v. Lord Balt. Cap. Corp ., 84 A.3d 954, 959 (Del. 2014) (“[T]he implied covenant is used in limited circumstances to include what the parties would have agreed to themselves had they considered the issue in their original bargaining positions at the time of contracting.” (citatio n omitted)). 535 JX 2396 at 12 (“Once De Novo classification is granted, the device can be used as predicate for future 510(k) submissions.”); Wittwer Tr. 1946, 1959.
536 See supra Section II.A.2.a

. 537 Because I find that Fortis has prevailed on its implied covenant claim, I need not address its alternate theory that J&J should be ordered to “negotiate in good faith” to modify the Merger Agreement from 510(k) to De Novo to “effect the original intent of the parties.” Merger Agreement § 10.11; see also id. § 8.04(b); Pl.’s Opening Post

- trial Br. 132

- 33.104 ii. Umbrella Milestones Auris also proved that J&J’s breaches of the Merger Agreement were reasonably certain to have led Auris to miss four 2023 iPlatform regulatory milestones: the Upper Abdominal Milestone, the Lower Abdominal Milestone, the Urologic Milestone, and the Gynecol ogic Milestone. Had J&J used commercially reasonable efforts in furtherance of the iPlatform General Surgery Milestone, the 510(k) pathway would have been open . The delays caused by Project Manhattan
and d y sfunction from the Verb combination/integration , among other breaches, led to compounding delays that put the milestones in peril

. The evidence demonstrates that each of these umbrella milestones were likely to be met had J&J provided commercially reasonable efforts and resources to iPlatform as a priority device. 538 Upper Abdominal Milestone

. The Upper Abdominal Milestone required iPlatform to receive 510(k) approval for an “ upper abdominal Umbrella
Procedure []” by the end of 2023. 539 The RYGB procedure would have satisfied this milestone. 540 iPlatform was on track to achieve it.

538 See JX 2683 at 3, 26

- 27 (Accelerando and Cambridge November 2019 projection that iPlatform could achieve the 2023 milestones). 539 Merger Agreement § 2.07(a)(iv); see id. § 10.03(uuu) (defining “Umbrella Procedure” as “any procedure or procedure category within a specialty, which represents higher complexity or risk and when cleared by the FDA includes covered procedures of less complexity or lower risk within that special ty”).
540 See JX 1729.105

Surgeons using iPlatform successfully completed RYGBs in 12 labs between June 2019 and the first quarter of 2020

— both during and after Project Manhattan. 541 Surgeons performed 21 four

- arm RYGB cadaver labs from August to November 2020 with iPlatform. Four different surgeons gave iPlatform all A and B grades during t he final six “repeatability” labs performed in November , which were designed to test surgical techniques refined during earlier “procedure development”
labs. 542 iPlatform continued to demonstrate capability in RYGB with at least 11 cadaver labs completed in 2021. Although two surgeons gave iPlatform lower (but still adequate) ratings in these labs, three other s rated iPlatform A+, A, and B in all categories

. 543 To the extent J&J argues that technical issues caused iPlatform to miss the milestone, the trial record suggests otherwise. For example, after successful cadaver labs in November 2020, Joachim (who led the iPlatform team at the time) determined there was “[a]dequate approach workspace for 4

- arm [RYGB] to move forward” to
clinical trials. 544 Put differently, workspace issues did not prevent iPlatform from

541 See e.g. , JX 2131 at 26

- 27 (June 2019 five

- arm RYGB rated by physician as “nearly ready for clinical use”); JX 3047 at 57 (Nov. 2019 five

- arm RYGB rated by same physician as on par with da Vinci); see also Pl.’s Dem. 13.
542 JX 3603 at 7. 543 See e.g. , JX 3948 at 1 (May 2021 five

- arm RYGB by surgeon performing his first lab on iPlatform, rating iPlatform’s performance either A or A+ across the board); see also Pl.’s Dem. 13.
544 JX 3685 at 7.106

proceeding to clinical trials for the four

- arm procedure. This assessment was three years before the milestone deadline

. 545
Lower Abdominal Milestone

. The Lower Abdominal Milestone required iPlatform to obtain 510(k) approval for a “ colorectal / lower abdominal Umbrella Procedure []” by the end of 2023. 546 The LAR procedure could satisfy the milestone. During Project Manhattan, a KOL successfully completed it using iPlatform. 547 Between July 2019 and January 2020, surgeons performed 14 additional LAR cadaver labs using the iPlatform. 548 J&J only produced written reports for five of these labs, but all show successful
results. 549 From April to June 2021, surgeons performed 15 more LAR cadaver labs

545 J&J’s insistence on a full

- featured iPlatform beta that could perform RYGB for the first regulatory approval effectively forced iPlatform to meet the Upper Abdominal Milestone two years early . See supra Section II.A.2.a.iii

. 546 Merger Agreement § 2.07(a)(v). 547 JX 2125 at 21

- 22; see also JX 1541 (March 2019 report of iPlatform “[s]uccessful access of relevant workspaces for LAR”).
548 See Pl.’s Dem. 13. 549 See id. Records for hundreds of iPlatform labs were not produced by J&J. Fortis asks me to conclude that this amounts to spoliation, and that I should infer that the withheld or destroyed lab materials confirm iPlatform’s capabilities. See Pl.’s Opening Post

- trial Br. 119

- 120; see also Pl.’s Mot. in Limine for an Adverse Inference Due to Spoliation and/or Withholding of Evidence of iPlatform Lab Procedures (Dkt. 465). Though there are gaps in the record where information has been lost, J&J also produced a substantial amount of materials from a d esign h istory f ile and other records. I lack grounds to find that J&J’s non - production rises to the level of reckless or intentional spoliation of evidence and decline to draw an adverse inference. See Sears, Roebuck & Co. v. Midcap , 893 A.2d 542, 552 (Del. 2006). At the same time, it would be inequitable to infer that iPlatform did not successfully perform these labs based upon J&J’s failure to produce the underlying data. I107

on iPlatform. Based on the 11 procedures for which J&J produced lab data, iPlatform performed well. For all but one of these 11 labs, iPlatform was rated above, equivalent to, or near da Vinci on all metrics. 550 In February 2022, a five

arm LAR was performed that overall met or exceeded da Vinci’s performance. 551 Urologic Milestone

. The Urologic Milestone required iPlatform to obtain 510(k) approval for a “ urological Umbrella Procedure []” by the end of 2023. 552 Lab records show that iPlatform could perform prostatectomy and partial nephrectomy

— two procedures that Auris could have used to satisfy the milestone. 553 iPlatform demonstrated its capability to perform a prostatectomy as early as
2018. 554 Post

- merger, surgeons completed 19 prostatectomy cadaver labs on iPlatform, rating iPlatform’s performance as above or equivalent to da Vinci on most

view the missing information as neutral . Even without it, Fortis proved by a preponderance of the evidence that iPlatform was on track to meet the milestones before J&J’s breaches.
550 See e.g. , JX 3992 at 2 (rating iPlatform A+ or A across all metrics, with “[n]o workspace/collision issues” and instrument trajectories superior to da Vinci); see also Pl.’s Dem. 13; Pl.’s Dem. 20 (five

- arm LAR lab on iPlatform in June 2021; surgeon reporting “high[] satis[faction”).
551 Gardiner Tr. 825

- 27. J&J produced no records for labs after June 2021. See Pl.’s Dem. 13 at rows 204

- 35. Gardiner, however, credibly testified to his personal experience with the iPlatform system performing this procedure. 552 Merger Agreement § 2.07(a)(vi). 553 See, e.g. , JX 2610 at 3, 10 (partial nephrectomy performed with “high confidence”); JX 4013 at 3, 10 (reporting 17 prostatectomy labs “with almost all A ratings, and a good range of patients”); see supra notes 73, 255 (explaining these procedures). 554 Moll Tr. 87

- 88; Mintz. Tr. 552

- 53; Gardiner Tr. 746

- 49 (“It worked perfectly.”).108

metrics

. 555 In 2021, J&J concluded that iPlatform would be capable in prostatectomy. 556
iPlatform was also successfu l l y performing partial nephrectomies. During Project Manhattan, a KOP completed a partial nephrectomy on iPlatform and rated it “nearly ready for clinical use.” 557 Two more partial nephrectomy cadaver labs were completed in 2019 with strong results. 558 From July to December 2021, surgeons completed 12 more partial nephrectomy cadaver labs on iPlatform. Based on the subset of lab results J&J produced, these procedures were also successful and the iPlatform system was rated equivalent to da Vinci on most metrics. 559 Gynecologic Milestone . The Gynecologic Milestone required iPlatform to obtain 510(k) clearance for a “ gynecological Umbrella Procedure []” by the end of
2023. 560 Auris intended to satisfy the milestone with a hysterectomy indication.

555 See JX 4013 at 10 (17 surgeons giving almost all A ratings and a few Bs); Gardiner Tr. 812

- 13; see also Pl.’s Dem. 13; Pl.’s Dem. 20 at 4 (two surgeons rating iPlatform with A+s, As, and a few Bs across relevant metrics during five prostatectomies each on iPlatform, with three other surgeons giving similar ratings during one prostatectomy each). 556 JX 4129 at 18 (“Beta system will be capable in Prostatectomy [.] ”).
557 JX 2131 at 21

- 22. 558 See JX 2610 at 10 (surgeon writing: “Everything feels like you could go to market today, the motion of tools feels good and the workspace is great.”); Gardiner Tr. 797

- 98 (recalling watching this procedure); see also Pl.’s Dem. 13. 559 Pl.’s Dem. 13; see also Gardiner Tr. 821

- 22 (describing his performance of these procedures). 560 Merger Agreement § 2.07(a)(vii).109

During Project Manhattan, a KOP successfully completed a hysterectomy with iPlatform’s alpha version. 561 This procedure was especially notable because it was the first using iPlatform’s sixth arm

. 562 In total, iPlatform completed at least five successful hysterectomy cadaver labs. 563 If replicated, these procedures would show that iPlatform was safe and effective in hysterectomy from a regulatory standpoint. 564 J&J concluded in September 2021 that iPlatform was expected to be capable in hysterecto my . 565

iii. GI Milestone The GI Milestone required either iPlatform or Monarch to secure 510(k) clearance for “ Endoscopic Submucosal Dissection ( ESD )” by the end of 2023. 566 At the time of the merger, it was expected that the milestone could be met by the deadline with iPlatform

. 567

561 JX 2131 at 27

- 28. 562 Id. at 8

- 9, 27

- 28; see also Mintz Tr. 596

- 98; Pl.’s Dem. 8 (video of the procedure).
563 JX 2131 at 27

- 28; JX 2610 at 11 (surgeon: “This is so much easier than what I currently do.”); Pl.’s Dem. 13.
564 Wittwer Tr. 1958. 565 JX 4129 at 19 (“Beta system expected to be capable in Hyster[e]ctomy [.] ”).
566 Merger Agreement § 2.07(a)(viii). ESD is a procedure using an endoscope to remove precancerous and cancerous areas in the GI tract. See Endoscopic Submucosal Dissection , Johns Hopkins Medicine, https://www.hopkinsmedicine.org/health/treatment

- tests

- and

therapies/endoscopic

- submucosal

- dissection (last visited August 31, 2024). 567 JX 1729 at 16 (projecting Q2 2023 for iPlatform GI indication clearance and adding in a buffer time period ); JX 3139 at 1 (J&J predicting a 75% chance of achieving the eighth regulatory milestone (GI) with iPlatform).110

In the year after the merger, a small research team reporting to Leparmentier demonstrated the feasibility of performing ESD on either system. 568 In December

— four years before the milestone deadline

— the Monarch team completed a “very successful” ESD on a live pig with Auris

- designed instruments that could be used on iPlatform. 569 Lepartmentier was confident at that point that the GI milestone would be met, provided that the GI team was given resources to move toward product development. 570 But J& J deprioritized GI

. 571 In a presentation to J&J leadership on April 6, 2020, the GI team recommended that ESD clearance be pursued on iPlatform first and Monarch
later. 572 Lepartmentier supported this strategy, understanding that J&J intended to launch iPlatform in the near term. 573 The plan never came to fruition because of Project Manhattan and the Verb integration.

568 Leparmentier Tr. 1003

- 04. 569 JX 2867 at 12 (report of “completed” colon ESD procedure “in a live porcine model” on Dec. 18, 2019); Leparmentier Tr. 1004

- 06. 570 Leparmentier Tr. 1006. 571 See JX 3091 at 3; Leparmentier Tr. 1008; see also JX 3451 (Shen directing the GI team to limit its efforts to “skunk R&D work”

— exploratory research with minimal resources). 572 JX 3148 at 38

- 40; Leparmentier Tr. 1010, 1085

- 86 (describing how pursuing the GI indication on iPlatform made commercial sense for customers and insurers); Lopes Tr. 2441

- 42 (discussing t hat GI capability was a “better fit” for iPlatform).
573 Leparmentier Tr. 1010.111

The ESD indication is perhaps the one for which iPlatform was least prepared to seek clearance. But J&J’s failure to use commercially reasonable efforts derailed iPlatform’s plan to build towards endoluminal capability. As iPlatform’s MVP approach was lo st, so too was its readiness to perform GI procedures. Having failed iPlatform, one would expect that J&J would redirect its GI
Milestone

- related efforts to Monarch. Monarch had made strides in ESD during 2019 and 2020. 574 There is no evidence, though, that J&J tried to use Monarch for the achievement of the GI Milestone. At trial, J&J spent little time defending its approach to the GI Milestone except to highlight iPlatform’s purported technical defects. This is not compelling

. 575 T he record supports a finding that J&J’s breach of the Merger Agreement is reasonably certain to have harm ed to Fortis. Failed efforts and resulting delays snowballed, leaving iPlatform unable to timely meet the GI M ilestone.

b. Net Sales Milestone The Merger Agreement includes two net sales milestones. The first would have been met if J&J’s “Robotics Net Sales” reached “$575 million in the aggregate”

574 See JX 2867 at 12: Lepar mentier Tr. 1004

- 06; JX 3075 at 17 (physician in February 2020 praising Monarch GI as an “[i]mmense improvement over traditional ESD” after completing a lab on a porcine colon). 575 See supra notes 475

- 78 and accompanying text.112

during 2022 or sooner. 576 The second could be met if “Robotics Net Sales” reached “$1,650 million in the aggregate” during 2024 or sooner. 577 By its terms, the efforts provision in Section 2.07(e) does not apply to the net sales milestones. 578 The sole constraint for J&J with respect to the net sales milestones is in Section 2.07(e)(iii), which bars J&J from taking, or refraining from taking, actions “with the intention of avoiding . . . any Earnout Payment” or “based on taking into account th e cost of making any Earnout Payment(s).” 579 Fortis proved that J&J breach ed this provision when J&J considered the loss of the contingent payments as a factor when directing that iPlatform combine with Verb

. 580 Fortis did not, however, prove that this breach was a reasonably certain cause of the missed net sales milestones. J&J’s prioritization of Verb over iPlatform would have supported the net sales milestones since Verb sales are included. As Fortis concedes, “it often takes years for an innovative device to become profitable.” 581

576 Merger Agreement § 2.07(a)(ix); see id. § 10.03(ddd) (defining “Robotics Net Sales”).
577 Id. § 2.07(a)(x). 578 Id. § 2.07(e)(i) (requiring J&J to use “commercially reasonable efforts to achieve each of the Regulatory Milestones”).
579 Id. § 2.07(e)(iii)(A)

- (B). 580 See supra notes 389

- 91 and accompanying text. 581 Pl.’s Opening Post

- trial Br. 110 (citing Grennan Tr. 2552

- 53; Shen Tr. 1169; JX 4495 ¶¶ 61, 65).113

The fact that iPlatform was on the cusp of regulatory approval is not equivalent to it becoming commercially viable, much less profitable for J&J. 582

4. Whether J&J Repudiated the Merger Agreement Fortis also avers that J&J is liable for repudiating the Merger Agreement. 583 “Under Delaware law, repudiation is an outright refusal by a party to perform a contract or its conditions entitling ‘the other contracting party to treat the contract as rescinded.’” 584 “Repudiation must be ‘positive and unconditional.’” 585 The purported “repudiation” Fortis complains of does not meet this standard. According to Fortis, J&J’s cancelation of the iPlatform and GI regulatory milestones and the net sales milestones in April 2020 amounts to repudiation. But the write

down was no t an “outright refusal” to perform. 586
The write

- down was an accounting exercise by which J&J released reserves; it was not a cancelation of the milestones. If iPlatform (or Monarch) reached any milestone in the Merger Agreement, J&J retained a contractual obligation to make a corresponding ea rnout payment. In addition, J&J continued to perform in the sense

582 See supra note 491 and accompanying text.
583 See Pl.’s Opening Post

- trial Br. 102

- 04. 584 CitiSteel USA, Inc. v. Connell Ltd. P’ship , 758 A.2d 928, 931 (Del. 2000) (quoting Sheehan v. Hepburn , 138 A.2d 810, 812 (Del. Ch. 1958)). 585 W

. Willow

- Bay Court, LLC v. Robino

- Bay Court Plaza, LLC , 2009 WL 458779, at *5 (Del. Ch. Feb. 23, 2009) (quoting Carteret Bancorp., Inc. v. Home Grp, Inc. , 1998 WL 3010, at *6 (Del. Ch. Jan. 13, 1988)). 586 CitiSteel USA , 758 A.2d at 931.114

that it provided some resources to the Auris robots post

- write

- down. J&J may have fallen short of its efforts promise, but that is different from an outright refusal to perform. 587
B. Fraud Fortis contends that J&J fraudulently induced Auris to merge. 588 The elements of common law fraud are:

(1) a false representation, usually one of fact, made by the defendant; (2) the defendant ’ s knowledge or belief that the representation was false, or was made with reckless indifference to the truth; (3) an intent to induce the plaintiff to act or to refrain from acting; (4) the plaintiff ’ s action or inaction taken in justifiable reliance upon the representation; and (5) damage to the plaintiff as a result of such reliance. 589

587 Fortis also claims that J&J failed to provide Fortis with quarterly disclosures, in breach of Section 2.07(d)(i) of the Merger Agreement. Section 2.07(d)(i) provides that J&J must, each quarter, provide “to the Stockholder Representative

. . . a reasonable written update on the status of achieving each of the Milestones, including with respect to the Regulatory Milestones, a reasonable update on the actions undertaken by [J&J] . . . pursuant to Section 2.07(e).” Fortis relegated its argument o n this claim to a footnote in its opening post

- trial brief. Pl.’s Opening Post

- trial Br. 133 n.43. To the extent it continues to press the claim, Fortis did not prove a breach of Section 2.07(d)(i). The record reflects that Fortis was given reasonable q uarterly disclosures. See JX 2528; JX 2530; JX 2665; JX 2978; JX 3218. Even if J&J had breached the provision, Fortis did not prove resulting damage. Moll and DeFonzo also provided information to Fortis’s Advisory Board directly. See Salehizadeh Dep. 78

- 79, 86

- 90; see also Royan Tr. 428

- 29. 588 PTO ¶ 3. 589 Stephenson v. Capano Dev., Inc. , 462 A.2d 1069, 1074 (Del. 1983); see Maverick Therapeutics, Inc. v. Harpoon Therapeutics, Inc. , 2020 WL 1655948, at *26 (Del. Ch. 2020) (“The elements of fraud and fraudulent inducement are the same.”).115

The fraud must be “ material ” and “ concern a n essential part of the transaction. ” 590
Fraud may arise through misrepresentations, concealment of material facts, or silence under a duty to speak. 591 Fortis advances three fraud theories. First, it claims that J&J’s statements about developing iPlatform and Verb in parallel were false. 592 Second, it claims that J&J misled Auris by promising a “light touch” integration into J&J. 593 And third, it claims that the Soft Tissue Ablation Milestone was not “highly certain” to be met,
as J&J assured Auris. 594 Before addressing the merits, I first resolve J&J’s argument that the Merger Agreement’s integration clause is a barrier to the first and second fraud theories.

1. The Integration Clause J&J argues that Fortis’s fraud claims based on parallel development and “light touch” integration are barred by the Merger Agreement’s integration clause. 595 The Merger Agreement’s integration clause is standard. 596 The Merger Agreement

590 Maverick , 2020 WL 1655948, at *31 (quoting Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP , 2018 WL 6311829, at *33 (Del. Ch. Dec. 3, 2018)). 591 Stephenson , 462 A.2d at 1074. 592 Pl.’s Opening Post

- trial Br. 88

- 89. 593 Id. at 89

- 90 (quoting JX 2755). 594 Id. at 90

- 91. 595 Defs.’ Answering Post

- trial Br. 130

- 32. 596 Merger Agreement § 10.07 (“This Agreement, the Escrow Agreement and the Confidentiality Agreement [] constitute the entire agreement, and supersede all prior116

contains only an asymmetric anti

- reliance provision in which J&J disclaimed reliance on extra

- contractual representations. 597 Auris did not make a similar
disclaimer. In resolving J&J’s motion to dismiss, I explained that “a standard integration clause, without anti

- reliance language, cannot disclaim reliance of representations outside of the written contract .” 598 I also observed that the one

- way anti

- reliance clause in the Merger Agreement means “Auris was permitted to rely on the defendants’ assurances .” 599 J&J avers that I left open the effect of the integration clause on “alleged extra

- contractual promises of future intent.” 600 I see no basis to deviate from my prior ruling. 601 To the extent that J&J is not bound by it or has presented different considerations, J&J’s argument fails on the merits.

agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof or thereof . . . .”). 597 Id. § 4.08 (“Except for the representations and warranties contained in Article III [of the Merger Agreement], [J&J] and Merger Sub acknowledge that none of [Auris] or any person on behalf of [Auris] makes, and neither [J&J] nor Merger Sub have relied upon, a ny other express or implied representation or warranty with respect to [Auris] or any of its Subsidiaries or with respect to any other information provided or made available to [ J&J ] or Merger Sub in connection with the transactions contemplated by this Agreement . . . . Each of [J&J] and Merger Sub disclaims any representations and warranties other than those that are expressly set forth in Article III.”).
598 MTD Mem. Op. 22. 599 Id. at 29. 600 Defs.’ Answering Post

- trial Br. 130; see also Defs.’ Pre

- trial Br. 78. 601 See Advanced Litig., LLC v. Herzka , 2006 WL 2338044, at *5 (Del. Ch. Aug. 10, 2006).117

J&J asserts that “an integration clause alone is sufficient to bar a fraud claim based on expressions of future intent or future promises.” 602 It cites two decisions in support : Shareholder Representative Services LLC v. Albertsons Companies, Inc. and Black Horse Capital, LP v. Xstelos Holdings, Inc. 603 Nevertheless, t he general rule in Delaware is that “integration clauses do not operate to bar fraud claims based on factual statements not made in the written agreement.” 604 “I f parties fail to include unambiguous anti

- reliance language, they will not be able to escape responsibility for their own fraudulent representations made outside of the agreement ’ s four corners.” 605 There is n either a recognized exception to these principles nor a reason to deviate from them here

. 606

602 Defs.’ Answering Post

- trial Br. 130 (quoting Albertsons , 2021 WL 2311455, at *12). 603 Albertsons , 2021 WL 2311455, at *2; see also Black Horse Cap. L.P. v. Xstelos Hldgs

. , Inc. , 2014 WL 5025926, at *24

- 25 (Del. Ch. Sept. 30, 2014) (holding that an integration clause barred a fraud claim because the statements allegedly relied upon “were not misrepresentations of material fact

. . . but rather prior parole evidence that would vary the extant terms in the subsequent in tegrated writings”).
604 Kronenberg v. Katz , 872 A.2d 568, 592 (Del. Ch. 200 4); see also 11 Williston on Contracts § 33:24 (4th ed.), Westlaw (May 2024 update). 605 Abry P’rs V, L.P. v. F & W Acq. LLC , 891 A.2d 1032, 1059 (Del. Ch. 2006). 606 See Trifecta Multimedia Hldgs., Inc. v. WCG Clinical Servs. LLC , 318 A.3d 450, 466

- 67 (Del. Ch. 2024) (rejecting a similar argument).118

On top of that, Albertsons and Xstelos are inapposite. Neither case involved a contract with a one

- sided anti

- reliance clause. And unlike here, the purported oral misrepresentations in those cases conflicted with the terms of the contracts. 607

2. Parallel Pathing and Prioritization Fortis avers that J&J’s senior leadership made various false statements promising to prioritize iPlatform and develop it in parallel with Verb

. 608 Most are the sort of “classically vague statements that a commercial party routinely makes during deal

- making courtship.” 609 They include:

• that iPlatform and Verb were “complementary”; 610

• that Auris had J&J’s “resources at [its] sails” to develop iPlatform; 611

• that J&J would spend “multiples” of what Auris alone could devote to its technology; 612

• that iPlatform was a “priority”; 613 and

607 Albertsons , 2021 WL 2311455, at *2; Xstelos , 2014 WL 5025926, at *22. 608 Pl.’s Opening Post

- trial Br. 88. 609 Airborne Health, Inc. v. Squid Soap, LP , 2010 WL 2836391, at *8 (Del. Ch. July 20, 2010). 610 Pl.’s Opening Post

- trial Br. 25 (quoting JX 838).
611 Id. at 24 (quoting DeFonzo Tr. 330

- 31). 612 Id. (quoting JX 1004). 613 Id. (quoting McEvoy Tr. 2598). This is, of course, different from whether J&J treated iPlatform as a priority device in fulfilling its efforts obligation.119

• that Auris could access J&J’s “global candy store” of resources. 614 Statements like these, praising one’s “skills, experience, and resources,” are “mere puffery and cannot form the basis for a fraud claim.” 615 Further, it is not apparent that these statements are false or were made with
scienter. 616 The evidence suggests that J&J intended to provide the Auris robots with more resources than Auris had as a standalone company. 617 Auris ’s products were given, among other things, substantial funding, access to J&J’s “global candy store,”

614 Id. (quoting JX 920). 615 Solow v. Aspect Res., LLC , 2004 WL 2694916, at *3 (Del. Ch. Oct. 19, 2004) (citing Kronenberg , 872 A.2d at 580

- 81); see also Trenwick Am. Litig. Trust v. Ernst & Young, L.L.P. , 906 A.2d 168, 209 (Del. Ch. 2006) (explaining that “statements of expectation or opinion about the future of the company and the hoped for results of business strategies” are “generally not actionable” for fraud claims under Delaware law); Winner Acceptance Corp. v. Return on Cap. Corp ., 2008 WL 5352063, at *8 (Del. Ch. Dec. 23, 2008) (describing statements that one’s expertise would help expand the business as “mere pun and puffery”); Trifecta , 318 A.3d at 463

- 64 (holding that statements about a party being “the best partner to accelerate growth” or that the counter

- party would benefit from “collaboration, coordination and shared relationship” across thousands of clients were “non

- actionable pu ffery”); Earth Pride Organics, LLC v. Corona

- Orange Foods Intermediate Hldgs., LLC , 2024 WL 1905384, at *9 (Del. Ch. Apr. 17, 2024) (concluding that statements about resources to “support growth,” company capabilities, and expertise “to execute against new opportunities” were the sort of pre

- transaction puffery that could not support a fraud claim). 616 See Metro Commc’n Corp. BVI v. Advanced Mobilecomm Techs. Inc ., 854 A.2d 121, 143 (Del. Ch. 2004); see also Arwood v. AW Site Servs., LLC , 2022 WL 705841, at *20 (Del. Ch. Mar. 9, 2022) (explaining that a plaintiff must show that false statements were made “knowingly, intentionally, or with reckless indifference to the truth” and that the speaker “intended to induce [the plaintiff’s] relian ce” on the alleged misrepresentation (citation omitted)). 617 E.g. , JX 1150; JX 2873; McEvoy Tr. 2664

- 65; McEvoy Dep. 281

- 82; see also Shen Tr. 1462

- 63.120

a dedicated “ Tiger Team, ” and many of Verb’s assets. These resources mostly came too late to support iPlatform’s achievement of the regulatory milestones, or even impaired iPlatform’s success. That does not, however, mean that J&J’s statements
were untrue. J&J’s statements about parallel pathing Verb and iPlatform are relatively less vague. They include:

• that iPlatform and Verb would be developed in “parallel”; 618 and

• that J&J planned to launch both iPlatform and Verb, meaning that it had the funds to develop both. 619 Fortis contends that J&J “never intended” to develop the two systems in parallel, as evidenced by Project Manhattan and the Ashley Management Decision. 620 These are statements of future intent rather than present fact. 621 The record demonstrates that pre

- merger, J&J was considering different options for the

618 Pl.’s Opening Post

- trial Br. 24 (quoting Moll Tr. 40). 619 Id. (citing Morano Tr. 1474).
620 Id. at 25. 621 See Great Lakes Chem. Corp. v. Pharmacia Corp ., 788 A.2d 544, 554 (Del. Ch. 2001) (“Predictions about the future cannot give rise to actionable common law fraud. Nor can expression of opinion.” (citation omitted)); MicroStrategy Inc. v. Acacia Rsch. Corp ., 2010 WL 5550455, at *15 (Del. Ch. Dec. 30, 2010) (“Generally, prior oral promises or statements of future intent do not constitute ‘false representation[s] of fact’ that would satisfy the first element of fraudulent misrepresentation.”); Winner Acceptance , 2008 WL 5352063, at *10 (“This Court looks with particular disfavor at allegations of fraud when the underlying utterances take the form of unfulfilled promises of future performance.”); Carrow v. Arnold , 2006 WL 3289582, at *9 (Del. Ch. Oct. 31, 2006) (“Generally, prior oral promises or statements of future intent do not constitute ‘false representation[s] of121

respective programs. J&J viewed iPlatform as a potential a backup for Verb

— Shen’s so

- called “bullet proof strategy.” 622 Before closing, J&J evaluated developing both systems and launching them as complementary offerings focused on different indications or markets. 623 I cannot conclude that J&J’s statements about parallel pathing were made without any intention of performing. 624 Project Manhattan was contrary to J&J’s promise to devote commercially reasonable efforts to iPlatform. But the contours of Project Manhattan as a direct comparison between iPlatform and Verb were set after closing. J&J had the funds to develop and launc h both robots, even if the Ashley Management Decision made

fact’ that would satisfy the first element of fraudulent misrepresentation.”), aff’d , 933 A.2d 1249 (Del. 2007).
622 JX 1630; see supra note 218 and accompanying text. 623 E.g. , JX 1363 at 9 (J&J in February 2019 projecting launches for iPlatform and Verb); JX 664 at 4 (Shen in September 2018 describing “a potential segmentation play” of Verb and iPlatform, stating that the programs “can be complementary,” and that having both w ould be a “‘Fail Safe’ plan for [J&J’s] robotic[s] strategy”); see also JX 1557 at 2 (J&J telling the FTC post

- closing that the systems were “complementary” because “Verb will pursue laparoscopic procedures with a focus on those that benefit from advanced instrumentation, and iPlatform will pursue complex procedures that benef it from concomitant endoscopic and laparoscopic techniques”).
624 See Grunstein v. Silva , 2009 WL 4698541, at *13 (Del. Ch. Dec. 8, 2009) (“Courts . . . will convert an unfulfilled promise of future performance into a fraud claim if particularized facts are alleged that collectively allow the inference that, at the time the promise was made, the speaker had no intention of performing.”); see also Stevanov v. O’Connor , 2009 WL 1059640, at *12 (Del. Ch. Apr. 21, 2009)

.122

this a less likely outcome. 625 Parallel pathing was one of the three outcomes of Project Manhattan contemplated by Shen. 626 J&J ultimately chose to use iPlatform to prop up Verb. Some J&J officers, like Gorsky, may have viewed “meshing” the robots as an upside of the merger. As of closing, though, it was just a scenario under consideration . The final decision to merge iPlatform with Verb was made only after Project Manhattan when the J&J Board approved it. Although J&J’s conduct regarding iPlatform fell short of its contractual efforts obligations, Fortis did not prove that J&J’s pre

- clos ing statements about parallel pathing constitute fraud.

3. “Light Touch” Integration Fortis also avers that J&J defrauded it by making representations about Auris’s anticipated place within the overall J&J organization. These statements
include:

• that J&J would “[p]reserve [Auris’s] entrepreneurial innovation culture”; 627

625 See Shen Tr. 1247

- 48 (explaining that despite the budget challenge by McEvoy, J&J was financially able to develop both systems in parallel if the business decision was made to do so)

. 626 JX 1702 at 3 (“Develop both systems in parallel and the[n] make the final commercialization decision.”).
627 Pl.’s Opening Post

- trial Br. 31 (quoting JX 838 at 6); see also id. (quoting Moll. Tr. 38).123

• that J&J would “retain [Auris’s] leadership / team by creating a semi

- autonomous model”; 628

• that J&J would be “deferential” to Moll; 629 and

• that, unlike in prior mergers, it was going to “do[] Silicon Valley well . . . this time.” 630 Fortis did not prove that these statements were fraudulent. Several are the sort of fluffy platitudes made during negotiations that “no rational prospective investor . . . would find material.” 631 J&J’s integration of Auris might not have had the “light touch” Auris anticipated, but it seems that Auris had a different subjective view of lightness than J&J. 632
Other statements are not false. Auris personnel were kept in some key leadership positions and maintained a measure of control over certain functions, as J&J intended. 633 In many other ways, Auris’s autonomy was understandably lost.

628 Id. (quoting JX 838 at 6). 629 Id. (quoting DeFonzo Tr. 328).
630 Id. 631 Lazard Debt Recovery GP, LLC. v. Weinstock , 864 A.2d 955, 971 (Del. Ch. 2004) (finding that statements touting an “ideal work environment” and “unique resources” were “at best enthusiastic puffery”); Squid Soap , 2010 WL 2836391, at *8 (explaining that statements of “corporate optimism” cannot support a fraud claim); see supra note 615 and accompanying text. 632 E.g. , JX 1299 at 8 (J&J talking points explaining to Auris “some aspects that will need to be integrated into J&J post

- close such as financial reporting, and HR”).
633 E.g. , McEvoy Tr. 2597; Pl.’s Dem. 7; cf. Trifecta , 318 A.3d at 458, 464

- 65 (holding that it was reasonably conceivable an explicit promise that a target c ould “operate independently (including all local corporate functions)” was fraud where the acquirer124

Auris could not justifiably expect that it would retain the same culture and independence it enjoyed as a start up after being acquired by a multi

- billion

- dollar global company like J&J. Nor did J&J represent as much.

4. Certainty of the Soft Tissue Ablation Milestone Fortis’s third fraud theory is markedly different than the others . On January 24, 2019, while working to convince Auris to s e l l , Gorsky (with the guidance of Morano and Kozak) offered the $100 million Soft Tissue Ablation Milestone to
Moll. Gorsky told Moll that there was such a “high certainty” of achieving the milestone that J&J viewed it as an “‘effective’ up front” payment. 634 This representation was false because the milestone was not remotely certain to be met

. 635

prevented the target’s personnel from speaking with potential customers immediately after closing). 634 JX 1228 at 5 (Gorsky talking points delivered to Moll on January 24, 2019, referencing the milestone as part of the total up front consideration); id. at 6 (explaining that J&J had included the milestone “to be responsive to [Auris’s] request” and that J&J thought Auris would “view [it] as relatively certain and near

- term”); see also Kozak Tr. 1572

- 73; Moll Tr. 51 (testifying that Gorsky described “a highly likely target for achievement by the team because it was a very simple integration” between Monarch and the FLEX device).
635 Kozak testified that J&J viewed the milestone as “achievable.” Kozak Tr. 1618; see also JX 1239 at 3 (discussing the achievability of the milestone by end of July 2022). That is very different from being “‘effective’ up

- front consideration.” JX 1228 at 5.125

Whether Gorsky’s statement is an “overt misrepresentation” is borderline. 636
But it is undoubtedly “active concealment of material facts.” 637 When J&J’s representation about the milestone’s certainty was made, J&J knew that a patient in its NeuWave clinical study had recently died

. 638 A for

- cause, on - site investigation had been launched by the FDA. 639 On January 24

— two weeks before Gorsky and Moll spoke

— J&J’s point of contact for the study “briefed” J&J’s Auris deal team (including Kozak) on the “patient death that [wa]s currently under investigation.” 640 The investigation risked substantial delay. 641 Yet J&J waited until after closing to tell Auris.
G orsky’s statement w as intended to induce Auris to agree to a contingent payment and Auris justifiably relied on it

. 642 Auris was damaged as a result of its

636 In re Am. Int’l Grp., Inc., Consol. Deriv. Litig. , 965 A.2d 763, 804 (Del. Ch. 2009), aff’d sub nom. Teachers.’ Ret. Sys. Of La. v. PricewaterhouseCoopers LLP , 11 A.3d 228 (Del. 2011) (TABLE). 637 Id.
638 See JX 1901 at 30

. 639 See JX 1673; Bryant Tr. 2519

- 20; supra note 172 and accompanying text. 640 JX 1182 (Kozak updating Morano in January 2019, discussing that “a sensitivity [analysis] will be run to understand impact to valuation” from the patient death under investigation); see also JX 1171; JX 1673. 641 See Wittwer Rep. ¶¶ 95

- 101; Wittwer Tr. 1966

- 68; see also JX 1213. 642 See Hebert Tr. 1400

- 01; Kerrey Tr. 1428

- 29; Royan Tr. 1378

- 79; see also JX 1249 at 3 (Moll on Jan. 24, 2019 calling the Monarch milestone a “chip shot”). J&J argues that “[t]here is no document that corroborates” the Auris directors’ testimony that they relied on J&J’s representations. Defs.’ Answering Post

- trial Br. 121 n.9 . It is unclear why J&J feels that the directors ’ credible testimony is insufficient. The parties’ negotiating history126

reliance. 643 Destroying the value of the milestone was a direct and proximate result of J&J’s fraud. 644 Auris never would have agreed to this milestone had it known about the patient death, since uncertainty persisted over the safety of FLEX and the timeline to clear regulatory hurdles. 645 I t would have demanded a higher upfront payment instead

. 646
III. REMEDY Fortis is entitled to damages for J&J’s breaches of the efforts provision in the Merger Agreement as they relate to the iPlatform regulatory milestones and GI Milestone. It is also entitled to damages for J&J’s fraud as it relates to the Soft

further supports that the $100 million milestone as “up front” consideration was important in Auris’s decision to merge. See Moll Tr. 51

- 52; DeFonzo Tr. 390

- 392. J&J has asked for adverse inferences on the Auris board’s reliance since two members (Salehizadeh and Hebert) failed to preserve text messages. Defs.’ Mot. for Spoliation Sanctions (Dkt. 328). On June 5, 2023, I ordered the directors’ remaining responsive texts to be produced and reserved decision on whether they recklessly spoliated evidence. After reviewing the trial record, I decline to issue sanctions. I see no basis to conclude that either individual recklessly (much less intentionally) spoliated evidence. 643 At some point, the fact of the patient death became public. See JX 976. A report dated December 3, 2018 is on the FDA’s website. Id. at 3. This does not excuse J&J’s fraud. It is unknown when the report was posted. Even if it were made public pre

- merger, Auris would have had no reason to search the FDA’s website for information about problems with the NeuWave study. 644 See Maverick , 2021 WL 1592473, at *9. 645 See DeFonzo Tr. 391

- 92 ( “ [I]f we were aware of that, I don’t think we would have accepted that milestone.”); Moll Tr. 177 (testifying the FLEX complications put in doubt whether the “milestone was even relevant”); see also JX 2339; Leparmentier Tr. 996

- 97. 646 See Moll Tr. 51

- 52; DeFonzo Tr. 391

- 92; see also supra note 64 2

.127

Tissue Ablation Milestone. Once liability is established, “this court has broad discretion to tailor a remedy to suit the situation as it exists.” 647 Under Delaware law, t he standard remedy for breach of contract “is based upon the reasonable expectations of the parties ex ante .” 648 Damages for fraud are similar. “[T ]he recipient of a fraudulent misrepresentation is entitled to recover as damages

. . . the pecuniary loss to [it] of which the misrepresentation is a legal

cause .” 649 “ Such expectation

— or benefit

- of

- the

- bargain

— damages are measured by the amount of money that would put the plaintiff in the position it would have held if the defendant’s representations were true” or if the defendant had performed as promised. 650
A. Contract Damages J&J must indemnify Fortis for losses “arising from or relating to” any “breach of or failure to perform” under the Merger Agreement. 651 Fortis proved that J&J

647 Gilliland v. Motorola, Inc ., 873 A.2d 305, 312 (Del. Ch. 2005) (citation omitted). 648 Siga II , 132 A.3d at 1111 (quoting Duncan v. Theratx, Inc ., 775 A.2d 1019, 1022 (Del. 2001)). 649 NetApp, Inc. v. Cinelli , 2023 WL 4925910, at *17 (Del. Ch. Aug. 2, 2023) (quoting Restatement (Second) of Torts § 549(1)). 650 Id. at *17 (citing Siga II , 132 A.3d at 1130); see also Comrie v. Enterasys Networks, Inc. , 837 A.2d 1, 17 (Del. Ch. 2003) (“Th[e] principle of expectation damages is measured by the amount of money that would put the promisee in the same position as if the promisor had performed the contract.” ( citing Duncan , 775 A.2d at 1022)). 651 Merger Agreement § 8.02. Although Section 8.02(c) caps damages at $170,000,000 except for intra

- contractual fraud, Section 8.05(b) carves out the “right to Earnout129

what Auris expected to gain using the probability

- weighted milestone values assigned by the parties. 654 Auris’s estimated probabilities of success are from a February 2019 valuation prepared by its financial advisor Centerview Partners, which reflects input from Auris management. 655 J&J’s estimates are from a January
2019 valuation model prepared by J&J and presented to its Board. 656 Manning also calculated a blended approach by averaging the parties’ probability assignments. 657 Manning’s alternative approach is warranted here. Contract damages should “put the promisee in the same position as if the promisor had performed the contract.” 658 At the time of the merger, neither party anticipated that the milestone payments were a certainty. They separately assigned each iPlatform regulatory milestone a probability of achievement. The risk

- adjusted probabilities assessed by the parties and their advisors reasonably reflect the likelihood that the milestones would have been achieved if J&J complied with its efforts obligation.

valuation, competition economics and antitrust, intellectual property, business strategy, and public policy. See JX 4493 (“Manning Rep.”) 11.
654 Manning Tr. 2051

- 52; Manning Rep. ¶ 115; see Pl.’s Dem. 15 at 14.
655 Manning Rep. ¶¶ 115(a), 177; JX 1413 (Centerview Feb. 12, 2019 presentation). 656 Manning Rep. ¶¶ 115(b), 173

- 74; JX 2873 (J&J Jan. 2019 “BoD model” with native Excel attachment). 657 Manning Rep. ¶ 115(c); see Pl.’s Dem. 15 at 14.
658 Comrie , 837 A.2d at 17 (citation omitted).131

criticized Manning’s approach. 663 Malackowski opined that Manning’s analysis used an outdated pre

- diligence model created by J&J, which relied on inaccurate projections from Auris and did not account for “undisclosed risks” negatively affecting Auris’s value. 664 None of these points are persuasive. J&J’s own communications state that the differences between the pre

- diligence model presented to its Board (that Manning relied on) and a updated post

- diligence updated model (that Malackowski addressed) are “slight.” 665 The changes have no meaningful effect on Fortis’s damages. 666 The probabilities of success J&J assigned to the relevant milestones remained the

same. 667 J&J ’ s projections were based on extensive due diligence and reliance on

an outside advisor . These estimates supported an essential part of the deal

. 668 And

663 Malackowski is the co

- founder and senior managing director of Ocean Tomo, LLC, which provides financial expert, management consulting, and advisory services. He is an experienced testifying expert on subjects including valuation, lost profits, and ventur e financing including expected risk / return. He has a bachelor’s degree in accounting from the University of Notre Dame and is a r egistered Certified Public Accountant. Malackowski Rep. 5

- 6. 664 Id. at 37

- 58. 665 JX 2873 (“The overall EBIT differences are slight

– only about $200MM cumulative.”).
666 Compare Malackowski Rep. Figure 12 , with id. at Figure 13.
667 Compare id. at Figure 13 , with Pl.’s Dem. 15 at 14.
668 See Manning Tr. 2061

- 62 (opining that it was reasonable to conclude that the parties ’ estimates of success were reliable since they were “an essential part of the transaction they were engaged in”).133

B. Fraud Damages Fortis proved that J&J committed fraud with respect to the Soft Tissue
Ablation Milestone. 671 Fortis has the burden to present a reasonable method to calculate fraud damages. 672 Fortis offers two measures of damages for its fraud claim: (1) rescissory damages or (2) benefit of the bargain (i.e., expectation) damages. 673 Rescissory damages are “ the monetary equivalent of rescission ” and intended to restore parties to the economic positions they would have held had the challenged transaction not occurred. 674 Benefit of the bargain damages “ are equal to ‘the difference between the actual and the represented values of the object of the transaction .’” 675 Since
J&J ’s fraud concern s a single milestone, I believe that the benefit of the bargain approach is more suitable to compensate Fortis than the “exceptional” remedy of rescissory damages. 676

671 See JX 1215 at 5; supra Section II.B.4. 672 See, e.g. , Maverick , 2021 WL 1592473, at *9. 673 Pl.’s Opening Post

- trial Br. 97. 674 Lynch v. Vickers Energy Corp. , 429 A.2d 497, 501 (Del. 1981), overruled in part on other grounds , Weinberger v. UOP, Inc. , 457 A.2d 701, 714 (Del. 1983). 675 LCT Cap., LLC v. NGL Energy P’rs LP , 249 A.3d 77, 91 (Del. 2021) (quoting Stephenson , 462 A.2d at 1076).
676 See Universal Enters. Grp., L.P. v. Duncan Petroleum Corp. , 2013 WL 3353743, at *15

- 16 (Del. Ch. July 1, 2013) (explaining that Delaware courts are reluctant to award rescissory damages , particularly for transactions occurring years prior where intervening events have occurred ) (citations omitted).134

The purpose of expectation damages is to put Fortis “in the position it would have held if [J&J’s representations] were true.” 677 Unlike rescissory damages, which are based on undoing a fraudulent transaction, expectation damages remit to Fortis the value of the object it was fraudulently promised. 678 Damages are equal to the difference between the actual and represented values of the object of the fraudulent
transaction

—

here, the Soft Tissue Ablation Milestone. The actual value of the milestone is the reduced probability of reaching it due to the material information J&J kept from Fortis. Manning treated the actual value as $0, on the assumption that J&J’s misrepresentation made the earnout payment
associated wi th the milestone unattainable. I adopt this value. Fortis has proven that the milestone became unattainable due to the cumulative effect of J&J’s fraud. The represented value of the milestone is based on Auris’s reasonable expectation of its value at the time of the breach

— i.e. , the risk

- adjusted probability of reaching the milestone. Manning calculated this figure using the expected net present value (eNPV) of the milestone at the time of the merger. 679 He considered

677 NetApp , 2023 WL 4925910, at *17 (citing Siga II , 132 A.3d at 1130) ; Strassburger v. Earley , 752 A.2d 557 , 579 (Del. Ch. 2000) (explaining that expectations are measured at the time of the transaction). 678 See Maverick , 2021 WL 1592473, at *9 (“Benefit of the bargain damages are equal to the difference between the actual and represented values of the object of the fraudulent transaction. This method should put the plaintiff in the same position that the plaintiff would have been in if the defendant’s representations had been true.” (citation omitted)).
679 Manning Rep. ¶¶ 181

- 85.135

three valuation scenarios representing Auris’s reasonable expectation of the contingent payment. First, he assessed an eNPV for the milestone using Centerview’s February 2019 valuation. 680 Second, he assessed an eNPV for the milestone using J&J’s January 2019 model as presented to its Board. 681 Finally, he calculated an eNPV for the milestone using a blended average of Centerview and J&J’s risk

- adjusted values. 682 Centerview derived a present value of the contingent payments based on an estimated probability of success for each milestone. 683 The estimated probability of

success ful results multiplied by the contingent payment amount results in an expected payment for each milestone. To calculate the present value of each milestone, Centerview discounted each expected payment back to March 31, 2019 using a 10.5% discount rate. 684 Centerview’s risk

- adjusted eNPV for the Soft Tissue Ablation Milestone is $58,000,000 using an 85% probability of achievement. 685

680 Id. ¶ 183; see id. ¶¶ 161, 177; JX 1413. 681 Manning Rep. ¶ 184; see id. ¶¶ 173

- 74; JX 2873. 682 Manning Rep. ¶ 182.
683 JX 1413; see Manning Rep. ¶¶ 177

- 79. 684 JX 1413 (“Valuation as of 3/31/19 based on 10.5% discount rate using mid

- year convention.”); Manning Rep. ¶ 177.
685 Manning Rep. Attachment D

- 2; see JX 1413.136

Like Centerview, J&J assessed the present value of the contingent payments using an estimated probability of success for each milestone. 686 The expected payment amount was calculated by multiplying the estimated probability of success by the contingent payment amount. J&J discounted each expected payment back to April 1, 2019 using a 9.5% discount rate. 687 The risk

- adjusted eNPV for the Soft Tissue Ablation Milestone using J&J’s model is $63,731,495 based on an 85% probability of achievement. 688 Manning’s blended average of the Centerview and J&J risk

- adjusted eNPVs is $60,865,748. 689 The difference between the represented value of the Monarch Soft Tissue Ablation Milestone and the actual value ($0) is $60,865,748. I adopt this figure as the most responsible estimate of Auris’s reasonable expectation of the
Monarch Soft Tissue Ablati on Milestone’s value at the time of the merger. Consistent with my approach to contract damages, the blended value strikes a responsible balance.

686 JX 2873 (Tab: “Contingent Consideration”); Manning Rep. ¶¶ 174

- 75. 687 Manning Rep. ¶ 174; JX 2873 (Tab: “Corporate Model (Stock)”).
688 Manning Rep. ¶ 192; id. at Attachment D

- 3; JX 2873 (Tabs: “Input,” “Contingent Consideration”). 689 Manning Rep. ¶ 190; id. at Attachment D

- 1.137

C. Pre
-

judgment Interest “In Delaware, pre

-

judgment interest is awarded as a matter of right.” 690 “Prejudgment interest serves two purposes: first, it compensates the plaintiff for the
loss of the use of [its] money; and second, it forces the defendant to relinquish any benefit that it has received by retaining the plaintiff ’ s money in the interim. ” 691

1. Contract Damages The Merger Agreement states that, for any earnout payment not paid within 10 days of J&J delivering notice of a milestone’s achievement: interest shall accrue on such unpaid amount at a rate per annum equal to the prime rate of interest reported from time to time in The Wall Street Journal , calculated on the basis of the actual number of days elapsed over three hundred sixty (360), from the date such amount should have been paid pursuant to the terms of this Agreement

. . . to the date of actual payment in full of such amount. 692 The Merger Agreement also states that J&J will “notify the Stockholders’ Representative in writing within fifteen (15) days after the achievement” of any regulatory milestone. 693 J&J “shall, or shall cause the Surviving Corporation or the Paying Agent to, pay the applicable Earnout Payment

. . . within ten (10) days after such notice is delivered.” 694

690 Citadel Hldg. Corp. v. Roven , 603 A.2d 818, 826 (Del. 1992). 691 Brandywine Smyrna, Inc. v. Millennium Builders, LLC , 34 A.3d 482, 486 (Del. 2011). 692 Merger Agreement § 2.07(d)(vii). 693 Id. § 2.07(c). 694 Id. § 2.07(c).138

Guided by these provisions, Manning calculated pre

- judgment interest on Fortis’s breach of contract damages using per

- quarter averages of daily prime rates as reported in The Wall Street Journal, adjusted to reflect one quarter of a 360

- day
year. 695 He conservatively assumed that the milestone payments would have been received 25 business days after the last day of the milestone period. 696 He calculated
pre - judgment interest through May 18, 2023 (the date through which he was asked to calculate damages), applying a floating interest rate that compounds quarterly. 697 I adopt Manning’s approach as both fair and consistent with the Merger Agreement. The prime rate was not only agreed upon by the parties, but also considered the best measure of the commercial lending rate used by banks for loans to creditworthy customers

. 698 Using a variable rate accounts for the economic realities during the relevant period, which saw significant swings in interest rates. 699 Whether to award compound or simple interest is a discretionary matter for this

695 Manning Rep. ¶ 87.
696 Id.
697 Id. 698 Id. ¶ 87 n. 202 (citing Federal Reserve Website, FAQs , “What is the Prime Rate, and Does the Federal Reserve Set the Prime Rate?” https://www.federalreserve.gov/ faqs/credit_12846.htm).
699 See Gentile v. Rossette , 2010 WL 3582453, at *2 (Del. Ch. Sept. 10, 2010) (“In departing from a legal rate of interest fixed at the time of the wrongdoing, our courts have considered concepts such as ‘the realities of the relationship’ between the parties, whether a particular p arty was the primary cause for a delay in the litigation, as well as general ‘fundamental economic realit[ies].’” (citation omitted)).139

court. 700 J&J’s sophistication , plus the years that it benefitted from non - payment of the earnout , support compound rather than simple interest. 701 The only applicable milestones that expired before May 18, 2023 are the General Surgery Milestone and the Soft Tissue Ablation Milestone. A further interest calculation from May 19, 2023 through the date of judgment will be needed for these milestones, as well as the four iPlatform umbrella milestones for which Fortis proved its entitlement to damages. For the General Surgery Milestone, Manning computed pre

- judgment interest from (1) the milestone end date plus 25 business days through (2) May 18, 2023. For the first quarter of this period, for each milestone, he multiplied the damages by the quarterly average prime rate and by the number of days in the quarter divided by 360 to determine interest. For each of the remaining quarters, for each milestone, he multiplied the sum of the expected payment and cumulative interest by the number of days in the qu arter divided by 360 and by the quarter’s average prime

rate. 702 The resulting calculation is: 703

700 NGL Energy P’rs LP v. LCT Cap., LLC , --- A.3d

--- , 2024 WL 2716005, at *4 (Del. May 28, 2024). 701 See Valeant Pharm s . Int ’l v. Jerney , 2007 WL 2813789, at *8 (Del. Ch. Mar, 1, 2007).
702 Manning Rep. ¶ 93. 703 Id. at Attachment B

- 20 (calculating interest for the General Surgery Milestone by quarter beginning in Q1 2022 based upon the average prime rate assuming a cumulative payment of $300,000,000).142

states that J&J will indemnify Auris for “any and all Losses suffered or incurred by any such Seller Indemnified Party arising from or relating to

. . . any breach of or failure to perform any covenant, agreement or obligation

. . . contained in this Agreement.” 709 “Losses” are defined as: any and all debts , obligations , losses , liabilities , damages , [t] axes , costs of investigation and other third party costs and expenses , in each case , whether known or unknown , absolute or contingent , liquidated or unliquidated , direct or indirect , due or to become due , accrued or not accrued , asserted or unasserted , related or not related to a Third Party Claim or otherwise ( in each case excluding ( x ) incidental consequential and lost profits ( in each case to the extent not reasonably foreseeable ) and ( y ) p unitive damages or damages based upon a financial metric multiple ( except , in each case , to the extent awarded in a final non

appealable judgment and actually paid to a third party as part of a Third Party Claim)). 710 There is no language in this provision, or elsewhere in the Merger Agreement, contemplating an award of attorneys’ fees for litigation. Granting Fortis’s request would force me to “ interpret the provision in an expansive way that would be inconsistent with the American Rule ,” which requires each party to bear its own attorneys’ fees. 711 I decline Fortis’s invitation to do so.

709 Merger Agreement § 8.02(ii). 710 Id. § 8.01.
711 Senior Housing Cap., LLC v. SHP Senior Housing Fund, LLC , 2013 WL 1955012, at *45 (Del. Ch. May 13, 2012).144

General Surgery, Upper Abdominal, Lower A bdominal, Urologic, Gynecologic, and GI Milestones. J&J also committed fraud relating to the Soft Tissue Ablation
Milestone

. Fortis is entitled to damages, plus pre

- and po st

- judgment interest , as outlined above. Within 14 days , Fortis is asked to file an updated interest calculation consistent with the methodology adopted above

. The parties are asked to confer o n and file a proposed final order within 10 days of Fortis ’ s interest submission.