Johnson & Johnson told the Delaware Supreme Court on Wednesday that a lower court overreached its authority by “rewriting” its $3.4 billion merger deal for the acquisition of Auris Health, wrongly using an implied covenant of good faith to force a billion-dollar payout the company says it never agreed to.
J&J and its subsidiary Ethicon Inc. are pushing back against a Chancery Court order requiring the company to pay $1 billion to Auris’ former shareholders, represented by Fortis Advisors LLC, after Vice Chancellor Lori W. Will ruled the healthcare giant violated its milestone payment obligations.
At the center of the J&J merger deal suit is whether the company’s shift from the FDA’s 510(k) clearance process to a tougher de novo review for Auris’ iPlatform surgical robot breached the merger contract or was a legitimate business adaptation to changing regulatory conditions.
J&J Says Court Ignored Contract’s “Explicit Terms”
“This contract is far from silent,” argued E. Joshua Rosenkranz of Orrick Herrington & Sutcliffe LLP, representing J&J. “The phrase 510(k) appears more than any other. A contract that explicitly imposes a condition on performance is not silent on performance.”
Rosenkranz insisted the Chancery Court distorted the parties’ negotiated risk allocation, claiming the implied covenant was used to impose new obligations after the fact. The de novo pathway, he said, doubled regulatory risk and would have altered the original deal price and payout structure.
He added that J&J “devoted more people and resources to iPlatform than to any other device in its history,” investing $1.25 billion into development — evidence, he said, that the company acted with commercially reasonable efforts, as required by the contract.
Rosenkranz further accused the lower court of unfairly comparing Auris’ iPlatform to J&J’s Velys system, despite the merger agreement allowing J&J flexibility to prioritize projects based on profitability and commercialization risk.
