Johnson & Johnson executives are now facing a trial that began on Monday. The healthcare giant is embroiled in a legal battle with ChemImage, a small biotech firm. The dispute centers on a 2019 partnership that ultimately failed.
In an attempt to enter the growing field of surgical robotics, Johnson & Johnson signed a significant, multi-billion dollar contract with ChemImage, which is based in Pittsburgh. ChemImage was working on pioneering AI-powered software. This software was designed to allow surgeons to “see” and interpret what a robotic scalpel was doing during surgery. The resulting images would assist surgeons in real-time assessments of damaged or cancerous tissue.
On Monday, the case of the former partners—the small biotech company and the global healthcare giant—began in federal court in Manhattan. ChemImage filed a $1.5 billion breach of contract lawsuit last spring. US District Judge Jesse Furman is presiding over the weeklong bench trial and has trimmed the allowable damages. If ChemImage prevails, they could receive around $180 million in contract-termination penalties and other outstanding payments. In addition, ChemImage has requested that the judge restore all patents and intellectual property developed under its contract with Johnson & Johnson. This would allow the plaintiffs to resume developing and monetizing their imaging software.
“This is a case about J&J’s decision to retreat from its failed play in surgical robotics, breaking the promises it made to ChemImage to develop its life-saving imaging technology,” the ChemImage lawsuit claims. “J&J’s decision ultimately killed this family-founded company and its technology that could have vastly improved surgical outcomes for millions of people.”
What’s not disputed in the case is that ChemImage and the J&J subsidiary Ethicon entered into a 104-page “Research, Development, License, and Commercialization Agreement” on December 27, 2019. The contract established a payment schedule. ChemImage received $7 million upfront and established milestones for future payments, with potential royalties of up to $1.5 billion. Also undisputed is that in April 2023, the contract fell apart because the effort to merge ChemImage’s software and J&J’s robotics was delayed and no viable product resulted.
The judge must now decide whether J&J had a valid reason to pull the contract—”with cause.” If the judge rules in J&J’s favor, ChemImage wouldn’t be entitled to any damages. Alternatively, if J&J pulled the contract without a good reason—without cause—the healthcare company would have been obligated to give ChemImage a 120-day notice and a $40 million termination payment, neither of which occurred. ChemImage also alleges that payment of an extra $140 million in incremental development “milestone” payments is due.
Much of the trial will involve competing accounts of why the collaboration ended after being in place for three years.
J&J will present witnesses who will attempt to show the contract was legitimately terminated, and, as such, ChemImage is not due any damages. In court documents, they allege ChemImage failed to meet multiple development milestones that caused significant cost overruns. “Plaintiff was harmed as a result of its own conduct,” J&J’s lawyers wrote in January.
ChemImage Puts Its Founder on the Stand
On Monday morning, Patrick Treado, the founder of ChemImage (founded in 1994) was the first witness to testify. He said that the imaging company was shocked when reps of J&J subsidiary Ethicon announced the contract’s termination two years ago because development milestones had not been met.
“At no time were there concerns about the study designs that were not addressed,” Treado said. He told the judge that Ethicon had participated as partners every time its hardware was paired with ChemImage’s AI-powered software in research surgeries on animals. Treado then referenced the high cost of treating test animals ethically by conducting “non-survival surgeries.”
“In my remarks, I indicated my opinion that there was no breach of the contract,” he told the judge of a contentious April 7, 2023 meeting, during which J&J executives accused ChemImage of hiding its failures by using poor quality data. ChemImage claims in court filings that development delays resulted from issues with J&J’s own technology, employee turnover, and lack of engagement.
Witness lists from both sides include nine current and former J&J executives, among them Hani Abouhalka, the surgery chairman for the MedTech division; Rocco De Bernardis, the global president of robotic and digital surgery; and Peter Shen, the MedTech division’s former global head of research.
ChemImage is also expected to call many of its own former executives, including former CEO Dr. Jeffrey Cohen. According to court documents, he will be questioned about the imaging company’s frequent requests to J&J for more funding and cash advances. Cohen is expected to testify that J&J “knowingly and maliciously” caused Ethicon to breach the contract, according to ChemImage’s lawyers in January.
