Lost Profits Not Awarded Where the Patentee Corporation Did Not Sell Any Patented Products and Patentee’s Parent and Sister Companies Were Not Owners or Exclusive Licensees of the Patent
September 09, 2010
Last Month at the Federal Circuit - October 2010
Judges: Dyk, Friedman, Moore (author)
[Appealed from: W.D. Tenn., Judge McCalla]
In Spine Solutions, Inc. v. Medtronic Sofamor Danek USA, Inc., No. 09-1538 (Fed. Cir. Sept. 9, 2010), the Federal Circuit affirmed the district court’s denial of Medtronic Sofamor Danek USA, Inc. and Medtronic Sofamor Danek, Inc.’s (collectively “Medtronic”) motion for JMOL on obviousness, its denial of Medtronic’s motion for SJ of invalidity for failure to satisfy the written description requirement, and its grant of Spine Solutions, Inc.’s (“SSI”) motion for partial SJ dismissing Medtronic’s 35 U.S.C. § 112 defenses. The Federal Circuit affirmed the district court’s construction of the term “operative engagement” as used in the asserted claims. Reversing the district court’s grant of SJ of infringement with respect to Medtronic’s O-Maverick product, the Federal Circuit remanded to the district court to enter judgment of noninfringement with respect to O-Maverick. The Court also reversed denial of Medtronic’s motion for JMOL of no lost profits and of no willfulness, vacating the enhanced damages and attorney fee awards. Finally, the Court remanded to allow modification in the terms of the permanent injunction by deleting the extraterritorial portion.
SSI is the assignee of U.S. Patent No. 6,936,071 (“the ’071 patent”), which relates to artificial intervertebral implants that are used to replace degenerated or diseased discs between vertebrae in the spinal column. The ’071 patent discloses an implant having an upper part and a lower part, each with a single anchor, that is centrally positioned on a support face for an adjacent vertebra. The anchors affix the upper and lower parts into the adjacent vertebrae. In a preferred embodiment, a pivot insert is placed between the upper and lower parts to allow certain pivotability of the two parts relative to one another, attaining a pivotability of the adjacent vertebra.
SSI sued Medtronic, alleging that Medtronic’s Maverick, A-Maverick, and O-Maverick implants infringed certain claims of the ’071 patent. Medtronic raised several defenses, including noninfringement and invalidity for obviousness and failure to comply with the written description requirement. After claim construction, Medtronic filed a motion for SJ of noninfringement with respect to the O-Maverick. The district court denied Medtronic’s SJ motion, granted SSI’s motion for partial SJ that O-Maverick infringed the ’071 patent, and granted SSI’s cross-motion to dismiss all of Medtronic’s 35 U.S.C. § 112 defenses.
Before trial, Medtronic filed a motion in limine precluding SSI from offering evidence relating to lost profits because SSI, although the assignee of the ’071 patent, did not make or sell any device covered by the product. The district court allowed SSI to amend its complaint to add its sister company Synthes Spine Co., L.P. (“Synthes Spine”), which made and sold a commercial embodiment of the ’071 patent, and SSI’s parent company, Synthes, Inc., as coplaintiffs.
At trial, the jury considered Medtronic’s obviousness defense, SSI’s willful infringement claim, and damages award. The jury found that Medtronic did not prove that the ’071 patent was invalid for obviousness and also found that Medtronic’s infringement was willful, awarding SSI lost profits for the 2005-2007 timeframe and an 18% reasonable royalty on the remaining $9.1 million in revenue from infringing sales of the accused products. The district court denied Medtronic’s motions for JMOL of obviousness, no willfulness, and no entitlement to lost profits. After doubling the damages award and awarding attorney fees, the district court entered a permanent injunction forbidding Medtronic from using or selling any accused devices that were already outside the United States.
On appeal, Medtronic first argued that the district court erred in denying its JMOL of obviousness. It was undisputed that U.S. Patent No. 5,314,477 (“the ’477 patent”) disclosed every element of claim 1 of the ’071 patent except for the “single anchor” limitation. Although the ’477 patent utilized a dual-anchor design, the inventor of the ’071 patent testified that he knew the possibility of using a single anchor as early as ten years before the priority of the ’071 patent. The Court agreed with Medtronic that the prior art reference disclosed the “single anchor” design. However, the Court found substantial evidence in the record to support the jury’s finding that it would not have been obvious to use the single anchor design in the implant claimed in the ’071 patent. First, a person of ordinary skill in the art would not have viewed a single anchor as being stable enough for a disc replacement device. Second, the inventor performed extensive testing of the single anchor design prior to filing the ’071 patent. And finally, Medtronic’s own engineers were unsure whether a single anchor would provide sufficient fixation.
Medtronic then asserted that the district court erred in granting SJ that the ’071 patent contains adequate written description to support the limitation “single anchor . . . adapted to enter a groove.” Slip op. at 11 (emphasis added). Finding adequate written description support, the Federal Circuit found the failure to mention the word “groove” in the specification insufficient to create a genuine dispute of material fact. Rather, the Court concluded that the disclosure of the shape of the anchor in combination with its placement adequately described an anchor adapted to enter a groove.
Medtronic also appealed the district court’s construction of the term “operative engagement” as used in claim 1 of the ’071 patent, which recites “a lower part having a lower surface for engaging a vertebrae and an upper surface portion in operative engagement with the rounded portion of the upper part.” Id. at 14. Medtronic proposed construing “operative engagement” to mean “the interaction between the pivot insert and the rounded portion of the upper part.” Id. The district court, however, adopted SSI’s proposed construction, construing “operative engagement” as “permitting movement (for example pivotability).” Id. Medtronic asserted that the district court erred in construing “operative engagement” as not incorporating a pivot insert. Agreeing with SSI, the Federal Circuit found that the language of the limitation made it clear that the lower part of the implant engages “operatively” with the rounded portion of the upper part, allowing the upper and lower parts of the implant to move relative to each other, whether or not a pivot insert is used.
With respect to infringement, Medtronic appealed from the district court’s grant of SJ that the O-Maverick implant infringed the ’071 patent. Finding that O-Maverick did not literally infringe the ’071 patent, the Federal Circuit noted that O-Maverick had two anchors on each of the upper and lower pieces, whereas the claim recites a single anchor. The Court also found no infringement under the DOE on the basis that the applicants made a clear surrender of any design containing more than one anchor during prosecution of the ’071 patent. In light of the disclaimer of claim scope contained in the prosecution history, the Federal Circuit barred SSI from arguing that a two-anchor device was equivalent to the claimed implant.
Medtronic also challenged the district court’s discretion in allowing SSI to amend its complaint to add Synthes Spine and Synthes, Inc. as coplaintiffs. The sole owner of the ’071 patent is SSI. SSI did not show that Synthes, Inc., SSI’s parent company, had standing to bring suit because the record did not indicate that Synthes, Inc. was an owner or exclusive licensee of the ’071 patent. As for SSI’s sister corporation, Synthes Spine, the Court found no evidence of an exclusive license between Synthes Spine and SSI, even though Synthes Spine was the only entity to make and sell products practicing the ’701 patent. Because SSI itself did not sell any products and neither Synthes Spine nor Synthes, Inc. had standing to sue on the ’071 patent, SSI could not recover for any lost profits. The Federal Circuit remanded to determine the proper reasonable royalty based on infringing sales of Medtronic’s Maverick and A-Maverick products.
Regarding Medtronic’s motion for JMOL of no willfulness, the Court found Medtronic was not objectively reckless in relying on its obviousness defense, which the district court noted was “reasonable.”
Id. at 26. Accordingly, the Court found substantial evidence did not support the jury’s finding that Medtronic willfully infringed and reversed the district court’s denial of JMOL of no willfulness. The Court therefore vacated the award of enhanced damages and attorney fees.
Lastly, the Federal Circuit remanded to allow the district court to remove the extraterritorial portion of the permanent injunction for Medtronic devices that were already outside of the United States because overseas sales of Maverick products would not have infringed any U.S. patent, especially when there was no risk that the infringing devices would be imported into the United States.
Summary authored by Mukta Jhalani, Esq.