Earn-Outs After Auris: an $811m Delaware Judgment and What "Commercially Reasonable Efforts" Now Costs
bIAnk AI Research · September 2026 · 7 min
The Delaware Supreme Court affirmed most of a roughly $1bn judgment against Johnson & Johnson — around $811m — over unmet Auris Health milestones. With earn-out use down to 22% of non-life-sciences deals and net-working-capital disputes rising, the drafting cost of a vague efforts clause has never been more visible.
In January 2026 the Delaware Supreme Court affirmed the bulk of a Court of Chancery judgment of roughly $1bn against Johnson & Johnson in Fortis Advisors LLC litigation over the Auris Health acquisition — approximately $811m in damages — arising from regulatory milestone payments under the 2019 $3.4bn deal that the court found were not earned because the buyer had not met its efforts obligations.
The specific holding matters less than the price signal. A "commercially reasonable efforts" covenant that is not tied to named activities, budgets and timelines is an option written by the buyer and priced by a judge years later. Post-Auris, the drafting practice moving through the market is to define efforts by reference to a specific development or commercial plan attached as a schedule, with agreed reporting and a dispute mechanism that runs during the earn-out rather than after it.
Usage data show sellers and buyers already pulling back. SRS Acquiom data cited in late 2025 put earn-out provisions in 22% of non-life-sciences deals, down from a 2023 peak of 33%. BRG's seventh annual M&A Disputes Report, released in March 2026 from a survey of more than 200 practitioners across APAC, Europe and the Middle East, found dealmakers expect earn-out disputes to increase in both frequency and cost through 2026.
Closing mechanics are the second front. Lincoln International's May 2026 survey of more than 500 transaction professionals found roughly 60% of respondents believe buyers build value-maximising bias into closing statements, and about 64% of sellers report the equivalent pressure from the other direction — a mutual expectation of gamesmanship that makes a tightly specified net-working-capital definition and a locked-box alternative worth real money.
Insurance pricing, by contrast, has stabilised. Representation and warranty insurance for middle-market deals settled into a 2.6%-3.4% range of policy limit during 2026 per Shulman Goodwin, and The Baldwin Group's mid-year report put rates-on-line at 3.25%-3.50% for the first 10% of enterprise value after 18-24 months of increases. Kennedys notes RWI is now being scoped at the letter-of-intent stage, where it directly shapes escrow size, indemnity caps, baskets and survival periods.
Taken together, the structuring advice for a mid-market seller is straightforward: prefer a smaller, cleanly-defined earn-out over a large vague one; attach the plan the efforts clause refers to; specify the accounting policies of the closing statement rather than relying on "consistent with past practice"; and price RWI early, because it is the cheapest way to reduce the escrow that sits between signing and cash.
Key takeaways
- Delaware Supreme Court affirmed ~$811m against J&J over Auris Health earn-out milestones (January 2026)
- Earn-out usage fell to 22% of non-life-sciences deals from a 33% peak in 2023 (SRS Acquiom)
- Closing-statement gamesmanship is mutual: ~60% of buyers and ~64% of sellers perceive bias (Lincoln, May 2026)
- RWI pricing stabilised at 2.6%-3.4% of limit; rates-on-line 3.25%-3.50% for the first 10% of enterprise value