When Johnson & Johnson bought Auris Health for $3.4 billion in 2019, both sides believed they had written a clean deal. Seven years later, an earnout dispute between J&J and the former Auris shareholders has produced the largest damages award ever entered in a post-closing milestone fight — roughly $811 million — and a brand-new roadmap from the Delaware Supreme Court that every business owner selling a company should read before signing anything.
The January 2026 ruling in Johnson & Johnson v. Fortis Advisors LLC is already reshaping how corporate lawyers draft milestone payments, “commercially reasonable efforts” clauses, and buyer post-closing obligations. If you are planning to sell your business this year — or if you are a founder sitting on a partially unpaid earnout — the lessons below are the difference between collecting your deferred consideration and writing checks to your litigators.
What the J&J/Auris Earnout Dispute Was Really About
J&J acquired Auris, a surgical-robotics company, in 2019. Because the technology had not yet cleared the FDA, the parties structured the deal with up-front cash plus contingent payments tied to specific regulatory milestones. That is a classic M&A earnout structure: bridge a valuation gap by letting the seller prove the technology after closing.
The merger agreement required J&J to use “commercially reasonable efforts” to hit those milestones, consistent with how J&J handled its own “priority medical device products.” After closing, J&J shifted resources toward a competing product it already owned and did not pursue the FDA pathway the Auris shareholders were counting on. The earnout payments never came, the shareholders sued, and the Delaware Court of Chancery found J&J had breached the agreement.
On appeal, the Delaware Supreme Court affirmed most of the $1 billion judgment, leaving J&J on the hook for $811 million. That number is not a typo. It is the current high-water mark for an earnout dispute, and it tells sellers exactly how much leverage a well-drafted efforts clause can create.
Why This Earnout Dispute Ruling Matters for Every Seller
Roughly one in five private-company M&A deals now includes an earnout, according to recent American Bar Association deal-point studies. And a growing share of those earnouts end up in court. The J&J/Auris opinion gives sellers three practical wins worth understanding.
1. “Commercially Reasonable Efforts” Has Real Teeth
Buyers have argued for years that “commercially reasonable efforts” is a squishy, unenforceable standard. The Delaware Supreme Court disagreed. When the contract tied the effort standard to a defined benchmark — in this case, how J&J treated its own priority products — the court had an objective yardstick. The buyer could not simply claim its business judgment was commercially reasonable after the fact.
2. Buyers Cannot Strip a Product of Resources and Hide Behind the Contract
J&J argued it had discretion to redeploy resources however it wished after the deal closed. The court rejected that reading, holding that the efforts obligation meant J&J had to actually work toward the milestones, not cannibalize them to benefit a competing internal program. That is a huge signal for sellers worried about being swallowed by a strategic buyer with a conflicting product line.
3. The Implied Covenant Still Has Limits
The Supreme Court also reversed part of the lower court’s ruling, narrowing the reach of the implied covenant of good faith and fair dealing. Sellers cannot rely on the implied covenant to fill every gap a contract leaves open. If you want protection, put it in writing. That is the single most important takeaway from the entire opinion.
Five Earnout Dispute Traps Business Owners Should Fix Before Closing
Howard East represents founders and closely held businesses across the East Coast on sale-side M&A, and we see the same earnout-dispute traps in deal after deal. Before you sign a letter of intent, make sure your advisors have stress-tested each of these.
Trap #1: Vague Efforts Language
Do not accept “reasonable efforts” in isolation. Tie the standard to something measurable: the buyer’s own priority products, a specific budget, a named team, or an agreed workplan. Without a benchmark, you will litigate for years about what “reasonable” even meant.
Trap #2: No Operating Covenants
Operating covenants tell the buyer what it must keep doing after closing — maintain staffing, fund R&D at a defined level, keep the sales team intact, preserve key customer relationships. Without them, the buyer can hollow out the business, miss the milestone, and argue the revenue targets were unrealistic.
Trap #3: Acceleration Triggers That Do Not Actually Trigger
Acceleration clauses are supposed to protect sellers when the buyer does something that makes hitting the earnout impossible — a sale, a major restructuring, a discontinuation. We regularly see acceleration clauses so narrowly drafted that the buyer can drive the company into the ground without ever tripping the trigger. Negotiate broader language.
Trap #4: Information Rights That Expire Too Soon
If you cannot see the financial performance or regulatory progress of the acquired business during the earnout period, you cannot enforce your rights. Demand quarterly reports, audit rights, and access to personnel responsible for milestone delivery.
Trap #5: Arbitration Carve-Outs That Bite Back
Many merger agreements route accounting disputes to a neutral expert and everything else to arbitration or court. The line between an “accounting” question and a “breach” question is fuzzy, and buyers weaponize that ambiguity. Your deal lawyer should map every plausible dispute to the right forum before closing.
How Delaware Courts Will Handle the Next Earnout Dispute
Delaware remains the dominant forum for M&A litigation. The J&J/Auris decision signals several things about how future disputes will play out. First, the court will enforce the exact words of the efforts clause — so every adjective matters. Second, the court will look at the buyer’s conduct toward comparable assets, which means sellers should build the comparison standard into the contract itself. Third, the implied covenant is a backstop, not a rescue boat. If you did not bargain for it, you will not get it.
Trade-association analysis from the American Bar Association’s Business Law Section suggests that earnout litigation filings in Delaware have more than doubled over the past four years. Expect that curve to keep bending upward as the deals struck during the 2021-2022 boom hit the end of their measurement periods.
What an Earnout Dispute Teaches Buyers Too
This ruling is not just a seller’s manual. Buyers who want to use earnouts as a valuation bridge should take three lessons from J&J’s $811 million check. First, do not agree to an efforts benchmark you are not prepared to honor in practice; the court will hold you to whatever comparison you put in the contract. Second, document the business reasons behind every post-closing operational decision so the record reflects good-faith execution, not resource starvation. Third, when regulatory or market conditions genuinely shift, renegotiate the milestones in writing rather than quietly letting them lapse and hoping nobody sues. A short amendment is cheaper than a decade of earnout dispute litigation.
What Sellers Should Do Right Now
If you are currently inside an earnout period, pull the agreement out and re-read the efforts clause, the operating covenants, the acceleration triggers, and the information rights. If the buyer’s behavior looks anything like J&J’s — reallocating resources, favoring an internal competitor, missing reporting obligations — document it in writing, preserve the record, and talk to counsel about whether a claim is ripening.
If you are about to sign a deal, do not let the earnout be the afterthought at the end of the term sheet. Treat it as the second-most-important economic term after the headline purchase price. A weak earnout dispute posture can erase half of the value you negotiated at the top of the page.
For a deeper look at post-closing protections, see our guide on corporate law services at Howard East, or schedule a consultation to pressure-test your own deal documents before the ink dries.
Frequently Asked Questions About Earnout Disputes
What is an earnout dispute?
An earnout dispute is a legal disagreement between the buyer and seller of a business over whether post-closing milestone payments are owed. These disputes typically center on whether the buyer operated the acquired business in good faith and used the required level of effort to achieve the milestones that trigger payment.
How long does an earnout dispute usually last?
Most earnout dispute cases that reach litigation take two to four years to resolve. The J&J/Auris matter, for example, took more than five years from the alleged breach to a final Delaware Supreme Court ruling. That is why clean contract drafting up front saves enormous time and expense.
Can a seller sue the buyer for missing an earnout target?
Yes — if the buyer failed to meet a specific contractual obligation, such as a “commercially reasonable efforts” standard or an operating covenant. Sellers cannot usually sue simply because the milestone was missed. They have to show the buyer’s conduct caused the miss.
How can sellers protect themselves from an earnout dispute?
Sellers protect themselves by negotiating a clearly defined efforts standard tied to a measurable benchmark, adding operating covenants that lock in staffing and funding, writing broad acceleration triggers, and keeping robust information and audit rights throughout the earnout period.
Attorney Advertising. This article is for general informational purposes only and does not constitute legal advice or create an attorney-client relationship. Every M&A transaction is different, and the outcome of any earnout dispute depends on the specific facts and contract language at issue. If you have questions about a specific deal or dispute, contact a qualified attorney licensed in your jurisdiction.
