Surgical Instrument Service Company, Inc. v. Intuitive Surgical, Inc.

Background

Intuitive Surgical manufactures da Vinci surgical robots and the EndoWrist instruments used with them. The complaint alleged that da Vinci robots had a 99% market share in the worldwide and domestic markets for robots used in minimally invasive soft-tissue surgery. EndoWrist instruments could be used only with da Vinci robots, and each instrument typically stopped working after about ten uses.

Surgical Instrument Service Company (SIS), which had refurbished and repaired hospital tools for more than 50 years, began offering to repair and refurbish EndoWrist instruments in 2019. Its process included repairing instruments, confirming that they met their original specifications, and resetting their use counters. SIS offered the service for 30–45% less than the cost of replacing an instrument.

SIS alleged that Intuitive Surgical prevented competition by requiring customers not to use third parties to repair or refurbish EndoWrist instruments, threatening consequences for customers that violated those restrictions, and redesigning newer Xi instruments so that third parties could not reset their use counters. SIS also alleged that Intuitive Surgical discouraged customers from using SIS by saying that SIS’s services might conflict with FDA approval and Intuitive Surgical’s intellectual-property rights.

Claims and Arguments

SIS asserted three antitrust theories: a Section 1 Sherman Act claim based on restraints of trade; a Section 2 monopolization claim based on exclusionary conduct, including tying, contractual restrictions, warnings, and product redesign; and a Section 2 attempted-monopolization claim. SIS also asserted two Lanham Act claims based on the alleged statements about FDA approval and intellectual-property rights.

Intuitive Surgical argued that the antitrust claims failed because SIS had not adequately identified a relevant market. It separately argued that the monopolization theory based on the Xi redesign was an improper refusal-to-deal claim. For the Lanham Act claims, Intuitive Surgical argued that the FDA-related claim was barred by the Food, Drug, and Cosmetic Act and that the intellectual-property claim was inadequately pleaded.

Court’s Analysis

The court held that SIS plausibly alleged a separate aftermarket for repairing and replacing EndoWrist instruments. At the pleading stage, SIS’s allegations that health care providers chose to buy refurbishment services from SIS supported an inference of consumer demand separate from demand for surgical robots. The court rejected the argument that instruments could not be a separate market because they were essential components of the robots. It also distinguished cases involving franchise agreements, reasoning that those cases involved restrictions voluntarily accepted in a competitive primary market, while SIS alleged that Intuitive Surgical had monopoly power in the primary market.

The court also rejected Intuitive Surgical’s argument concerning the Xi instruments. It explained that the Xi allegations were part of SIS’s monopolization claim rather than a separate claim. In addition, product-design changes can be challenged under antitrust law when they lack a procompetitive justification and serve to maintain a monopoly. SIS alleged that encryption and other measures were added to prevent third-party repair services and that Intuitive Surgical pushed customers toward the newer instruments. The court therefore concluded that the allegations described a product-redesign theory, not a refusal-to-deal theory requiring a prior course of dealing.

The court allowed the Lanham Act claim concerning statements about FDA approval to proceed. It held that the Food, Drug, and Cosmetic Act does not preclude a Lanham Act claim and concluded that an earlier Ninth Circuit decision adopting a contrary approach had been effectively overruled by later Supreme Court precedent. The court also stated that, in this case, the FDA did not police statements that market participants made about competitors, so there was no concern about duplicate enforcement.

The court dismissed the Lanham Act claim concerning statements about intellectual-property rights. SIS relied on an allegation that Intuitive Surgical sent a letter referring to unspecified intellectual-property rights in the da Vinci systems and instruments. The court held that merely referring to unspecified intellectual-property rights was not enough to plausibly allege a false or misleading statement of fact. The dismissal was with leave to amend.

Disposition

The court granted in part and denied in part Intuitive Surgical’s motion to dismiss. The antitrust claims and the Lanham Act claim concerning FDA approval were not dismissed. The Lanham Act claim concerning intellectual-property rights was dismissed with leave to amend, and any amended complaint was due within 21 days if SIS chose to file one. The court stated that discovery could proceed immediately. SIS’s separate motion for leave to begin discovery was denied as moot.