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Evidence of Copying in a Case of Direct Infringement Is Relevant Only to Seagate’s Second Prong, as It May Show What the Accused Infringer Knew or Should Have Known About the Likelihood of Its Infringement

June 01, 2009

Decision icon Decision

Last Month at the Federal Circuit - July 2009

Judges: Newman, Bryson, Linn (author)

[Appealed from: D. Mass., Senior Judge]

In DePuy Spine, Inc. v. Medtronic Sofamor Danek, Inc., Nos. 08-1240, -1253, -1401 (Fed. Cir. June 1, 2009), the Federal Circuit affirmed the district court’s decision awarding damages to DePuy Spine, Inc. and Biedermann Motech GmbH (collectively “DePuy”) relating to the sale of Vertex® pedicle screws by Medtronic Sofamor Danek, Inc. and Medtronic Sofamor Danek USA, Inc. (collectively “Medtronic”). The Federal Circuit reduced the damages award, however, insofar as the lost profits analysis was based partly on lost sales of unpatented “pull-through” products, which neither compete nor function with the patented invention. The Federal Circuit also reversed the award of attorneys’ fees and the imposition of sanctions, which were predicated on a legal error involving the application of the reverse DOE. Finally, the Federal Circuit concluded that the district court correctly determined that Medtronic was entitled to JMOL of no willfulness, and that the district court did not abuse its discretion in denying DePuy’s motion for new trial on royalty damages.

After a prior appeal and remand, the district court held a jury trial to address the issues of infringement, willfulness, and damages. At the close of evidence, the district court granted Medtronic’s motion for JMOL of no willfulness. The case then went to the jury on infringement and damages. The jury found that the Vertex® model infringed U.S. Patent No. 5,207,678 (“the ’678 patent”) under the DOE and awarded DePuy a total of $226.3 million in damages consisting of $149.1 million in lost profits on pedicle screws and $77.2 million in lost profits on “pull-through” products. Slip op. at 5.

Following the jury trial, the district court then held a separate bench trial to address Medtronic’s “ensnarement” defense against the DOE, which claimed that the asserted scope of equivalency of the ’678 patent would encompass, or “ensnare,” the prior art. Id. at 4. Specifically, Medtronic argued that the combination of U.S. Patent Nos. 5,474,555 (“Puno”) and 2,346,346 (“Anderson”) would have rendered obvious a “hypothetical” version of claim 1 of the ’678 patent, in which the phrase “conically-shaped” is substituted for the actual claim term “spherically-shaped.” Id. The district court denied Medtronic’s ensnarement defense.

On appeal, the Federal Circuit first rejected Medtronic’s argument that ensnarement, like infringement, must be tried to a jury when requested by a defendant. The Federal Circuit noted that ensnarement, like prosecution history estoppel, is a legal limitation on the DOE to be decided by the court, not a jury. Id. at 7. The Federal Circuit also held that “[e]nsnarement, like prosecution history estoppel, limits the scope of equivalency that a patentee is allowed to assert,” and that this limitation would be imposed even if a jury has found equivalence as to each claim element. Id. at 8. The Court added that “[t]he ensnarement inquiry is separate and distinct from the jury’s element-by-element equivalence analysis, and it has no bearing on the validity of the actual claims.” Id. at 8-9. Thus, there is no reason why ensnarement should be treated differently, for procedural purposes, than prosecution history estoppel. Accordingly, the Federal Circuit held that ensnarement, like prosecution history estoppel, is “to be determined by the court, either on a pretrial motion for partial summary judgment or on a motion for judgment as a matter of law at the close of the evidence and after the jury verdict.” Id. at 9 (quoting Warner-Jenkinson Co. v. Hilton Davis Chem. Co., 520 U.S. 17, 39 n.8 (1997)).

The Court next analyzed whether the district court erred by the finding that Puno taught away from the proposed combination of Puno and Anderson, and that various “secondary considerations” support a conclusion of nonobviousness. The Federal Circuit concluded that “the district court correctly found that Puno, viewed against the backdrop of the collective teachings of the prior art, teaches away from a rigid pedicle screw encompassed by the hypothetical claim, such that a person of ordinary skill would have been deterred from combining Puno and Anderson in the manner that Medtronic proposes.” Id. at 17. Further, the Federal Circuit concluded that a “hypothetical claim would not have been obvious in view of Puno and Anderson and, therefore, the district court properly denied Medtronic’s ensnarement defense.” Id. at 19.

The Court next considered Medtronic’s challenge to the jury’s award of $149.1 million in lost profits on patented pedicle screws (“Summit™” and “Mountaineer™”) and $77.2 million in lost profits on unpatented “pull-through” products. With respect to the jury’s award of $149.1 million in lost profits, Medtronic challenged the sufficiency of two of the four Panduit factors, namely: (1) demand for the patented product, and (2) absence of acceptable noninfringing substitutes. Id. at 19-20 (citing Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152, 1156 (6th Cir. 1978)).

First, the Court rejected Medtronic’s argument that the requisite “demand” under the first Panduit factor is demand for the specific feature (i.e., claim limitation) that distinguishes the patented product from a noninfringing substitute, not simply demand for the patented product. Id. at 20. In rejecting Medtronic’s argument, the Federal Circuit noted that Medtronic’s argument “unnecessarily conflates the first and second Panduit factors.” Id. Rather, the first Panduit factor simply asks whether demand existed for the “patented product,” i.e., a product that is “covered by the patent in suit” or that “directly competes with the infringing device.” Id. at 21 (citing Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1548-49 (Fed. Cir. 1995) (en banc)). The focus on particular features corresponding to individual claim limitations is unnecessary when considering whether demand exists for a patented product under the first Panduit factor. Id. at 23.

Second, the Court rejected Medtronic’s argument that “DePuy failed to establish the second Panduit factor because it contends that noninfringing, bottom-loading pedicle screws were available during the relevant accounting period (2000-2003).” Id. at 23-24. The Federal Circuit concluded that, based on evidence presented by DePuy, a reasonable jury could have concluded, as it apparently did, that “even if Medtronic had pursued a bottom-loading design rather than the infringing, top-loading Vertex® model, the bottom-loading design would not have been available or acceptable to consumers before the end of 2003.” Id. at 25.

The Federal Circuit then reversed the jury’s decision to award DePuy $77.2 million in profits DePuy believed it would have made from selling the pull-through products. The Federal Circuit reasoned, “Because it is undisputed that DePuy’s unpatented pull-through products neither compete nor function with its patented Summit™ and Mountaineer™ devices and were sold (i.e., ‘pulled-through’) only by virtue of DePuy’s business relationship with surgeons, DePuy was not legally entitled to recover lost profits on those unpatented products.” Id. at 27-28. “[T]he jury had no legal basis to award lost profits on DePuy’s unpatented pull-through products, which neither compete nor function with its patented pedicle screws.” Id. at 28.

The Court next affirmed the denial of DePuy’s motion for new trial on reasonable royalty damages. At trial, the jury was instructed to chose a royalty rate between 6% and 15%. Although the jury verdict of a 0% royalty rate was inconsistent, DePuy failed to timely object.

The Federal Circuit next addressed the issue of whether the district court erred in finding that Medtronic’s Vertex® model infringed the ’678 patent under the DOE. Agreeing with Medtronic, the Federal Circuit held that there was no legally sufficient evidentiary basis to find an objectively high likelihood under Seagate’s first prong that the Vertex® model (which contains a conically shaped portion) infringed the ’678 patent (whose claims recite a “spherically-shaped portion”). Id. at 33 (referring to In re Seagate Tech., LLC, 497 F.3d 1360 (Fed. Cir. 2007) (en banc)). Accordingly, the Court held that DePuy failed as a matter of law to satisfy Seagate’s first prong, and DePuy’s arguments concerning “copying” and Medtronic’s rebuttal evidence concerning “designing around” did not need to be addressed. Id. at 35.

The Court next reversed the district court’s imposition of $425,375 in attorneys’ fees under 35 U.S.C. § 285 and a $10 million sanction based on litigation misconduct. The Court stated that there was no finding that Medtronic had litigated the reverse DOE defense in bad faith, nor was there any indication, much less a finding, that Medtronic’s arguments were baseless, frivolous, or intended primarily to mislead the jury. Ultimately, the Court held that because the district court’s exceptionality finding was based on Medtronic’s mere assertion of the reverse DOE rather than the way in which Medtronic litigated it, the finding of exceptionality in this case was erroneous. Id. at 39. Further, the Court also reversed the $10 million sanction premised on the same alleged misconduct, which could not be sustained. Id.

Finally, the Federal Circuit considered whether to hold that DePuy was entitled to postjudgment interest. Id. Because the Federal Circuit reduced the amount of the district court’s damages award by reversing the lost profits award on pull-through products while affirming the lost profits award on pedicle screws, the Court held that DePuy was entitled to postjudgment interest from the date the district court denied Medtronic’s ensnarement defense and entered judgment on the jury verdict. Thus, the Court remanded for calculation of postjudgment interest. Id. at 40.

Summary authored by Ceyda Azakli Maisami, student associate at Finnegan.