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Case Studies

Red Lion Medical Safety, Inc. et al vs. General Electric Company

Antitrust, liability, and damages analysis
U.S. District Court for the Eastern District of Texas

Seventeen companies sued General Electric (“GE”), alleging that GE engaged in anticompetitive conduct in the sale of refurbished anesthesia machines and the servicing of all GE anesthesia machines. Following a seven-day trial, a unanimous jury awarded plaintiffs damages of $43,083,344, finding that GE violated Sections 1 and 2 of the Sherman Act and Sections 3 and 7 of the Clayton Act. Under federal antitrust law, the plaintiffs are entitled to treble damages, bringing the award up to $131.4 million. applEcon was instrumental in securing this award, supporting plaintiffs’ counsel and their economic expert, Dr. Donald R. House, Sr., and his firm, RRC, Inc. Leading the applEcon team were senior economists John Metzler and Rick Pfau, who drew on their experience providing liability support for the 1995 trial of Image Technical Services, Inc. v. Eastman Kodak Co., a case also involving harm to competition in an aftermarket for maintenance services.

GE is the United States’ largest supplier of anesthesia machines—expensive, durable equipment used by hospitals and ambulatory surgery centers to deliver anesthesia to patients. With a market share of roughly 70%, GE machines, sold under the Datex-Ohmeda brand since 2003, are commonplace in operating rooms across the country. Each machine requires annual preventative maintenance on top of any unplanned repairs, creating a demand for technicians certified in servicing GE anesthesia machines. GE, in addition to selling the equipment, offers customers the option of hiring GE technicians to handle the maintenance. Customers seeking lower-cost alternatives may hire asset managers, such as Aramark and Sodexo, to service their clinical equipment, including anesthesia machines, or independent service organizations (“ISOs”) specializing in anesthesia machines. The plaintiffs in this case were all anesthesia ISOs.

Plaintiffs alleged that GE spent years trying to force ISOs out of the servicing market, leveraging its monopolies in GE anesthesia machine training and replacement parts. Most notably, in a series of efforts to deny ISO technicians factory training, which hospitals require their anesthesia servicers to have, GE forced ISO training applicants to restrict their services to a single customer. Furthermore, beginning in 2011, GE stopped selling replacement anesthesia parts directly to ISOs, forcing them instead to go through a distributor, Alpha Source, Inc. This policy led to higher part prices and slower delivery times, which plaintiffs alleged was GE’s goal.

Refurbished anesthesia machines, which are retired machines that have been reconditioned for further use, are sold by several of the plaintiffs as a cheaper alternative to new machines. Refurbished GE machines, like new GE machines, require GE parts and GE-certified labor, thus making the sale of these machines susceptible to the same anti-competitive practices that hurt the servicing side of the ISOs’ businesses.

This case was especially complex, requiring a thorough understanding of two product markets that suffered damages—anesthesia machines and anesthesia servicing—and two closely-related markets—anesthesia training and anesthesia parts. applEcon was hired to assist with the demanding economic research and analysis, and its team made numerous contributions to the case. One initial step was to use GE part sales and time and materials (“T&M”) data to create a list of anesthesia parts for identification in the distributor and plaintiff data. Using this part list, applEcon analyzed the distributor sales data and confirmed that GE’s distributor policy hurt ISOs. applEcon also examined GE’s training data to quantify the negative effect of GE’s foreclosure attempts on ISO registrations. After developing a deep understanding of market characteristics and defendant discovery, applEcon was able to categorize GE’s and its distributor’s part customers into ISOs, end-customers, and asset managers. applEcon was then able to use data on part sales, GE service contracts, GE T&M charges, and the installed base of GE anesthesia machines to calculate the anesthesia service market shares of GE, asset managers, and ISOs. Dr. House used this actual ISO market share and an estimate of the but-for ISO market share to calculate plaintiffs’ lost sales, which were fed into his damages calculations.

applEcon provided extensive assistance to plaintiffs’ counsel, ranging from document interpretation to on-site consultation throughout the trial. The applEcon team also helped plaintiffs’ counsel successfully respond to Daubert and Summary Judgment motions. Additionally, applEcon aided in rebutting the expert report written by the defendants’ economist, identifying advanced statistical tests that supported Dr. House’s model and rebutted an ad hoc attack raised by GE’s expert. For further information on the verdict, see: