McDonald v. Johnson & Johnson

Citation537 F. Supp. 1282
Decision Date14 April 1982
Docket NumberCiv. No. 4-79-189.
PartiesStanley McDONALD, Norman R. Hagfors and Clayton Jensen, Plaintiffs, v. JOHNSON & JOHNSON, Defendants.
CourtUnited States District Courts. 8th Circuit. United States District Court of Minnesota

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Gray, Plant, Mooty, Mooty & Bennett by Daniel R. Shulman and John Q. McShane, Minneapolis, Minn., and Alioto & Alioto by Joseph M. Alioto, San Francisco, Cal., for plaintiffs.

Maslon, Edelman, Borman, Brand & McNulty by Charles Quaintance, Jr., Minneapolis, Minn., Patterson, Belknap, Webb & Tyler by David F. Dobbins and Theodore B. Van Itallie, Jr., New York City, and James E. Farrell, Jr., Johnson & Johnson, New Brunswick, N. J., for defendants.

TABLE OF CONTENTS

I. INTRODUCTION

II. EVIDENCE

III. THE DEFENDANT'S CLAIMED BASES OF RELIEF

IV. DISCUSSION

A. PLAINTIFFS' STANDING TO RECOVER FOR ANTITRUST VIOLATIONS
B. THE UNCONSTITUTIONAL APPLICATION OF THE SHERMAN ACT
C. THE SHERMAN ACT CLAIMS
1. Section 1
(a) Sufficiency of the Evidence to Establish a Suppression of the TENS Industry
(b) Concerted Action
(c) Sherman Act § 1 Per Se Charge to the Jury
2. Section 2
(a) Specific Intent
(b) Dangerous Probability of Success
D. THE CLAIM OF INCONSISTENT VERDICTS
E. THE CONTRACT CLAIM
F. THE FRAUD CLAIM
G. EVIDENTIARY RULINGS
H. DAMAGES
1. TENS Sales for Acute Pain in U. S. and Canada
2. TENS Sales for Acute Pain in U. K. and Europe
3. TENS Sales for Chronic pain
4. TENS Sales for Japan
5. TENS Sales for Post-Operative Pain
6. Sales of Chronic Pain Electrodes
7. Sales of Acute Pain Electrodes
8. Sales of Post-Operative Electrodes

V. CONCLUSION

APPENDIX

MEMORANDUM OPINION AND ORDER

MILES W. LORD, Chief Judge.

I INTRODUCTION

On May 2, 1979, Norman R. Hagfors, Clayton Jensen, and Stanley McDonald, hereinafter plaintiffs, filed this suit against Johnson & Johnson, a health care corporation headquartered in New Brunswick, New Jersey, alleging breach of contract, fraud, and conduct designed to foreclose competition in violation of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2, and Section 7 of the Clayton Act, 15 U.S.C. § 18. This Court's jurisdiction is based on §§ 1332 and 1337 of 28 U.S.C.

Following a five and one-half month trial in which the jury awarded the plaintiffs $56,800,000.00 (before trebling) on the Sherman Act claims, $6,275,000.00 as actual and compensatory damages and $25,000,000.00 as punitive and exemplary damages on the fraud claim, and $5,700,000.00 on the contract claim, the defendant Johnson & Johnson moves this Court, pursuant to Rule 50(b), F.R.Civ.P. for judgment notwithstanding the verdict or, in the alternative, for a new trial. For the reasons stated below, the motion is denied.

The essential elements of the plaintiffs' contentions are as follows:

1) Johnson & Johnson induced the plaintiffs to enter into stock purchase and employment agreements on September 20, 1974, on the basis of numerous promises and representations of Johnson & Johnson's intention to foster the rapid and successful development of StimTech, a corporation owned by the plaintiffs which manufactured and sold heart pacemakers and electronic nerve stimulators for the control of pain;

2) From the time of StimTech's acquisition by Johnson & Johnson until the present, Johnson & Johnson intentionally caused StimTech to languish close to the point of extinction;

3) During the same period of time, Johnson & Johnson placed tremendous resources and support at the disposal of its pain control drug business, which enjoyed phenomenal growth and profitability in the sale of drugs used to treat the same pain conditions that the transcutaneous electronic nerve stimulators (TENS), manufactured by StimTech, could have effectively treated; and

4) All of the aforementioned activity, designed to foreclose competition between TENS devices and pain control drugs, occurred with the full knowledge and participation of the top executives of Johnson & Johnson.

II THE EVIDENCE

This Court considered the evidence in the light most favorable to the non-moving parties, the plaintiffs, and because of the magnitude of the 13,000 page transcript generated in the course of the five and one-half month trial, summarized only that evidence which is relevant to the plaintiffs' claims, together with the inferences which may properly be drawn therefrom. Even so, this summary by no means purports to be complete and exhaustive. The transcript itself should be referred to as the ultimate source of the evidence; therefore, where helpful, cites to the record (Tr. ...) are included in parentheses.

In 1970, plaintiff Norman Hagfors set up an office and workshop in the basement of his home and began making plans to start a new business. Mr. Hagfors, until the time of his new venture, had been employed for 13 years at Medtronic Inc., most recently as head of New Product Research. While at Medtronic, Mr. Hagfors did extensive work in the area of nerve stimulation for the treatment of pain, in addition to his earlier work in the heart pacemaker field.

In August of 1970, Mr. Hagfors incorporated Stimulation Technology, Inc. (StimTech) and began looking for a foreign heart pacemaker company willing to enter into a licensing arrangement with him for the manufacture and distribution of pacemakers in the United States.

During that same time period, Dr. Donlin Long, a neurosurgeon at the University of Minnesota, discussed with Mr. Hagfors the possibility of designing a transcutaneous (non-implantable) electronic nerve stimulator (TENS). Dr. Long and Mr. Hagfors, along with several other experts in the pain control field, had, in the late 1960's, developed a surgically implantable device known as a dorsal column nerve stimulator for use in the treatment of certain types of pain. The interest in these devices had grown out of a theory proposed in a paper published by two medical doctors in 1965. The paper, entitled "The Gate Theory of Pain," described a mechanism by which nerve fibers transmit pain signals to the brain. The success of the surgically implanted devices, developed as a result of clinical applications of the gate theory, led Dr. Long to consider the development of an external stimulator which would achieve the same results as the implantable stimulator. After joining Dr. Long in work at the University, Mr. Hagfors designed the first modern solid state TENS device. The device, consisting of an electronic package in a metal box, provided electrical stimulation to nerve fibers on the skin, thereby blocking the transmission of pain sensations along the nerve fibers deeper in the body and reducing pain in the patient. This use of stimulation, with the resultant effect of controlling pain in the patient, represented the most sophisticated application of the gate theory of pain. The electrical impulses were transmitted along wires to pads (electrodes) which were attached to the patient's skin at the pain site. The first StimTech TENS device was constructed by Mr. Hagfors in his basement from parts purchased from electronics supply stores.

In September of 1971, a short time before StimTech built its first TENS unit, Mr. Hagfors was joined in his new corporation by Mr. Stanley McDonald. From 1967 until 1971, Mr. McDonald had been with Medtronic in a marketing position, and prior to that he had worked in sales for the E. R. Squibb Company, where he won a number of sales awards. Together the two men continued the search for a foreign heart pacemaker manufacturer interested in a licensing arrangement with StimTech. It was Mr. Hagfors' plan to use the sale of heart pacemakers as a financial base to support the development and marketing of TENS devices, which had not attained the same level of acceptance among the medical profession as that of the pacemaker. This lack of acceptance of TENS among doctors was due in large part to the doctors' lack of awareness of the device and to the fact that studies showed doctors were more drug-oriented than device-oriented. Mr. Hagfors believed, however, that once the medical profession could be sold the concept of stimulation, the potential market for the TENS device far exceeded the potential for the already substantial pacemaker market. The evidence revealed that in introducing a new drug or medical device, the patient's confidence in the device is much greater if it is prescribed for him by a physician. As a consequence, many drugs and devices are marketed through the prescription method. This is not necessarily a result of the need to use them under the supervision of a physician but rather because the physician's prescription constitutes an endorsement of the product, and it is simpler and less expensive to educate the physicians than the population generally.

It appears from the evidence that after the drug or device is established and used, it is frequently taken off the prescription list, or the so-called "ethical" prescription list, and sold over the counter (OTC). Since a great deal of the physician's education depends on the advice given him by the drug company "detail" men in whom he has confidence, the best available way to put a new drug or medical device into the market is to have the detail men contact the doctor, endorse the product, and convince the doctor that the medicine or the device should be purchased. In the course of educating the doctor, it is most helpful to have available for presentation to the physician research articles, experiments, and surveys made by other reputable physicians who endorse the new drug or device. Thus, the usual way in which to proceed is to have the promoter of the drug "fund" the research by prominent practitioners or researchers, and also to have these researchers present learned treatises to the various segments of the medical professions and publish the work in the medical journals. These requirements for...

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