Lenox Maclaren Surgical Corp. v. Medtronic, Inc.

• Decision Date: 05 August 2014
• Docket Number: No. 13–1307.,13–1307.
• Parties: LENOX MacLAREN SURGICAL CORPORATION, Plaintiff–Appellant, v. MEDTRONIC, INCORPORATED, a Minnesota corporation; Medtronic Sofamor Danek, Incorporated, an Indiana corporation; Medtronic PS Medical, Incorporated, d/b/a Medtronic Neurologic Technologies, a California corporation; Medtronic Sofamor Danek Co., Ltd, Defendants–Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

762 F.3d 1114

LENOX MacLAREN SURGICAL CORPORATION, Plaintiff–Appellant,

v.MEDTRONIC, INCORPORATED, a Minnesota corporation; Medtronic Sofamor Danek, Incorporated, an Indiana corporation; Medtronic PS Medical, Incorporated, d/b/a Medtronic Neurologic Technologies, a California corporation; Medtronic Sofamor Danek Co., Ltd, Defendants–Appellees.

No. 13–1307.

United States Court of Appeals,Tenth Circuit.

Aug. 5, 2014.

Henk Brands, Washington, DC (G. Stephen Long and Nicole A. Westbrook, Jones & Keller, Denver, CO, on the briefs), for Plaintiff–Appellant.

Pratik Shah (Z.W. Julius Chen and C. Fairley Spillman, Washington, DC; Michael Simons and David C. Lawrence, Austin, TX, on the briefs), Akin Gump Strauss Hauer & Feld LLP, for Defendants–Appellees.

Before HOLMES, McKAY, and BACHARACH, Circuit Judges.

BACHARACH, Circuit Judge.

Lenox MacLaren Surgical Corporation manufactures bone mills, which are medical devices used in spinal-fusion surgery. In 2000, Lenox began to sell some of its bone mills through a Medtronic entity, Medtronic Sofamor Danek USA. The arrangement ended badly: Medtronic Sofamor Danek USA initiated a recall of Lenox's bone mills, and another Medtronic entity began to manufacture and sell its own bone mill. The result, according to Lenox, was that four Medtronic entities acquired an unfair competitive advantage; thus, Lenox sued these entities ¹ for monopolization and attempted monopolization from 2007 to 2010. See15 U.S.C. § 2 (2012). The district court granted the defendants' motion for summary judgment on both claims.

Lenox appeals, and we must address five issues:

• Res Judicata. The first issue is one that was not raised in Medtronic's summary judgment motion. But on appeal, Medtronic argues that even if the district court erred on the merits, res judicata would foreclose the monopolization and attempted monopolization claims because Lenox could have raised them in an earlier arbitration. But we will not entertain this argument. Res judicata requires privity of the parties in the first and second suit, and this element involves a disputed issue of fact. Because Medtronic did not raise summary judgment based on res judicata, Lenox had no reason to present evidence disputing privity with the entity sued in the arbitration. Thus, we decline to entertain Medtronic's effort to salvage the summary judgment ruling based on res judicata.

• Product Market. The second issue involves definition of the product market, which is based on cross-elasticity of demand. If price increases for one product would not affect demand for the other product, the products would involve separate markets.

Lenox defines the product market as surgical bone mills. Medtronic argues that the product market should include hand tools because they (like bone mills) are used in spinal-fusion surgeries. Lenox defends its definition of the product market based on evidence that large price increases for a hand tool or bone mill would not affect demand for the other item. We conclude that this issue involves a fact-issue for the jury to resolve.

• Monopoly Power. With this conclusion, we must confront a third question: Does a triable fact-issue exist regarding Medtronic's monopoly power from 2007 to 2010 in a market consisting solely of bone mills? We conclude that a triable fact-issue exists.

Monopoly power involves two factors: market-share and barriers to entry. Lenox presented evidence that: (1) Medtronic's market share was 97–98% in 2007 and decreased over the next three years, but remained as high as 62% in 2010, and (2) new competitors faced substantial barriers to entry, including the need to avoid infringing existing patents, obtain significant capital in a market with relatively small revenues, and overcome entrenched buyer preferences among spinal surgeons. We conclude that Lenox's evidence of market-share and entry barriers creates a jury question on monopoly power.

• Exclusionary Conduct. The second and third issues lead to a fourth: If Medtronic acquired monopoly power from 2007 to 2010, did it acquire this power innocently or through exclusionary conduct? We conclude that the fact-finder could reasonably infer exclusionary conduct.

Lenox points to the recall, presenting evidence that it constituted a ruse and that the various Medtronic entities contrived the alleged defects because one of them was planning to manufacture its own bone mill and wanted to eliminate competition by Lenox. This evidence creates a jury issue on exclusionary conduct.

• Harm to Competition. The second, third, and fourth issues lead to a fifth: harm to competition. Medtronic argues that Lenox has shown injury only to itself, not to competition in the marketplace. Lenox responds with evidence that the product recall served to concentrate power between Medtronic and another firm (Stryker), which inhibited competition by other smaller firms. This evidence creates a jury question on harm to competition.

With these conclusions, we hold that genuine issues of material fact exist regarding market definition, monopoly power, exclusionary conduct, and harm to competition. Thus, we reverse the district court's grant of summary judgment to Medtronic on the claims involving monopolization and attempted monopolization.

I. Lenox's Business

Because this appeal involves the grant of summary judgment to Medtronic, we view the evidence in the light most favorable to Lenox. See Adler v. Wal–Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir.1998).

Spinal-fusion surgery constitutes a form of orthopedic surgery in which two adjacent vertebrae are fused with the help of small particles of bone. To obtain these small bone particles, technicians traditionally used hand tools such as scalpels, scissors, forceps, and rongeurs to grind bone during the surgery.

Lenox was one of the first manufacturers to design a tool specifically for spinal-fusion surgery: the bone mill. Lenox's bone mill uses a hand-cranked design that helps ensure a more consistent output than one might get from hand tools.

II. The Arbitration

Lenox claimed that Medtronic Sofamor Danek USA interfered with prospective business relations. The claim was decided through a binding arbitration. There a panel found that Medtronic Sofamor Danek USA had insufficient proof to justify the recall and that the company had taken action to clear the Lenox bone mill from the market. With these findings, the panel awarded damages to Lenox.

III. Standard of Review

We engage in de novo review of the district court's grant of summary judgment. Sports Racing Servs., Inc. v. Sports Car Club of Am., Inc., 131 F.3d 874, 882 (10th Cir.1997). Summary judgment is appropriate “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The party seeking summary judgment must identify portions of the record that demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

IV. Res Judicata

Medtronic moved for dismissal based on res judicata, arguing that Lenox could have asserted its claims in the arbitration. The district court denied the motion, and Medtronic did not renew the res judicata argument in its motion for summary judgment.

On appeal, Medtronic argues that we can affirm the grant of summary judgment based on the alternative ground of res judicata. But, Medtronic did not seek summary judgment based on res judicata, and we decline to address the issue in the first instance.²

In the absence of notice to the plaintiff, our cases ordinarily disfavor an award of a summary judgment based on a ground omitted from the defendants' summary judgment motion. See Evers v. Regents of the Univ. of Colo., 509 F.3d 1304, 1309–10 (10th Cir.2007); Tavery v. United States, 32 F.3d 1423, 1427 n. 5 (10th Cir.1994). In oral argument, Medtronic tried to avoid this line of cases by characterizing res judicata as a “purely legal argument.” Oral Arg. 17:19–20:22.

For the sake of argument, we can assume that res judicata generally involves a purely legal argument. But we must consider the specifics of the issue as it is invoked here.

Res judicata involves multiple elements, including identity or privity of the parties in the two suits. Pelt v. Utah, 539 F.3d 1271, 1281 (10th Cir.2008). When the facts are undisputed, the application of res judicata involves a question of law. King v. Union Oil of Cal., 117 F.3d 443, 445 (10th Cir.1997). But Lenox contests privity, and this element involves a question of fact. See Pelt, 539 F.3d at 1280–81 (“[T]he issue of whether privity exists is a question of fact.”); Lowell Staats Min. Co. v. Phila. Elec. Co., 878 F.2d 1271, 1276 (10th Cir.1989) (“The ‘determination of identity between litigants for the purpose of establishing privity is a factual question.’ ” (quoting Astron Indus. Assocs. v. Chrysler Motors Corp., 405 F.2d 958, 961 (5th Cir.1968))). At a minimum, privity requires a showing that the parties in the two actions are “ ‘really and substantially in interest the same.’ ” Pelt, 539 F.3d at 1281 (quoting Lowell Staats Min. Co. v. Phila. Elec. Co., 878 F.2d 1271, 1275 (10th Cir.1989)).

This showing might have been made if Lenox had notice of a dispute regarding privity. But because Medtronic did not raise res judicata in the summary judgment motion, Lenox had no reason to present evidence disputing privity. In these circumstances, we decline to decide the issue of res judicata in the first instance. See Schramm v. Oakes, 352 F.2d 143, 150 (10th Cir.1965) (per curiam) (order on pet. for reh'g) (stating that application of res judicata should be left to the district court to decide in the first instance); see also Hatch v. Boulder Town Council, 471 F.3d 1142, 1151 (10th Cir.2006) (leaving res judicata for the district court to decide in the first instance).

V. The Merits of the Monopolization Claim

On the...