Biotronik A.G. v. Conor Medsystems Ireland, Ltd.
22 N.Y.3d 799
NY2014Background
- Biotronik (distributor) and Conor (manufacturer) entered an exclusive worldwide (excl. US and others) distribution agreement for the CoStar stent; agreement governed by New York law and ran through Dec 31, 2007 with automatic one-year renewal absent notice.
- Agreement made Biotronik the exclusive reseller in specified territories, required commercially reasonable marketing efforts, forecasts, minimum quarterly orders, and tied Conor’s transfer price to Biotronik’s net resale prices (61% direct, 75% indirect) with quarterly reconciliation and a negotiated minimum transfer price.
- Conor retained marketing control (approval of literature, training, samples) and could terminate on a change of Biotronik’s control that would materially affect distribution.
- After FDA trial failures and a corporate acquisition, Conor recalled CoStar in May 2007, paid Biotronik inventory/recall sums, and declined to extend the contract; Biotronik sued for lost resale profits through the contract term and renewal period.
- The contract included a mutual damages-limitation clause excluding indirect, special, consequential, incidental, or punitive damages; Biotronik argued its lost profits were general (direct) damages and thus recoverable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are lost resale profits general or consequential damages under the agreement? | Biotronik: lost profits are the natural and probable consequence of Conor’s breach because the contract contemplated resale and priced transfers off Biotronik’s resale prices. | Conor: lost profits are consequential (profits from collateral third-party resale contracts), barred by the consequential-damages limitation; UCC principles support exclusion. | Lost profits are general damages here: they flowed directly from the pricing/reconciliation scheme and the parties’ joint reliance on resale, so the limitation does not bar recovery. |
| Does the contract’s pricing mechanism make Biotronik’s resale profits moneys “the breaching party agreed to pay”? | Biotronik: pricing formula ties Conor’s receipts to Biotronik’s resale prices, so the contract effectively contemplates those resale profits. | Conor: pricing only sets what Biotronik pays Conor (not what Conor pays Biotronik); profits depended on Biotronik’s separate resale contracts. | Court: substance over form — the agreement was a quasi-joint venture tied to resale; lost profits flowed naturally from the contract despite payment direction. |
| Is UCC 2-715(2)(a) fatal to Biotronik’s claim? | Biotronik: UCC comment does not create a categorical bar; modern authorities do not fix a bright-line rule. | Conor: UCC treats resale losses as consequential when seller could anticipate buyer’s resale needs. | Court: UCC provision and comments do not resolve classification; analysis remains contract-specific — UCC does not mandate exclusion here. |
| Should Orester and American List control classification? | Biotronik: Orester and American List support treating lost resale profits as general where the distribution agreement contemplates building resale business and payments flow from resale. | Conor: those cases are distinct or superseded by UCC analysis; Orester addresses measure when no market exists and thus aligns with consequential-damage analysis. | Court: American List and Orester support treating lost resale profits as direct where contract contemplates and depends on resale; those precedents apply to classify the damages as general. |
Key Cases Cited
- American List Corp. v. U.S. News & World Report, 75 N.Y.2d 38 (N.Y. 1989) (lost profits payable under contract are general damages)
- Tractebel Energy Mktg., Inc. v. AEP Power Mktg., Inc., 487 F.3d 89 (2d Cir. 2007) (distinguishes general damages paid under contract from consequential profits on collateral transactions)
- Orester v. Dayton Rubber Mfg. Co., 228 N.Y. 134 (N.Y. 1920) (exclusive distribution lost profits can be direct damages where resale is the essence of the contract)
- Compania Embotelladora Del Pacifico, S.A. v. Pepsi Cola Co., 650 F. Supp. 2d 314 (S.D.N.Y. 2009) (exclusive distributorship lost resale profits may be consequential when they derive from collateral third-party sales)
- Kenford Co. v. County of Erie, 73 N.Y.2d 312 (N.Y. 1989) (standards for recovering consequential future profits: causation, reasonable certainty, and contemplation)