Appeal
Lost Profits Must Come from the Lost Sales of a Product or Service the Patentee Itself Sells
Precedential
In Warsaw Orthopedic, Inc. v. NuVasive, Inc., Nos. 13-1576, -1577 (Fed. Cir. Mar. 2, 2015), the Federal Circuit affirmed the district court's finding of invalidity and infringement of the patents-at-issue, vacated the district court's damages award, and remanded for a new trial on damages.
Warsaw Orthopedic, Inc. ("Warsaw") owns U.S. Patent Nos. 5,860,973 ("the '973 patent") and 6,945,933 ("the '933 patent"), and NuVasive, Inc. ("NuVasive") owns U.S. Patent No. 7,470,236 ("the '236 patent"). Warsaw sued NuVasive for infringement of its '973 and '933 patents, and NuVasive counterclaimed for infringement of its '236 patent. At trial, the jury found (1) the asserted claims of the '973 patent were valid, (2) the asserted claims of the '933 patent were infringed under the DOE, and (3) the asserted claims of the '236 patent were infringed. The jury awarded damages for each. After trial, Warsaw filed motions seeking supplemental damages and a permanent injunction with respect to its '973 and '933 patents, and a motion for JMOL or a new trial with respect to the jury's finding of infringement of the '236 patent. NuVasive also moved for JMOL or a new trial with respect to the jury's finding of validity of the '973 patent, infringement of the '933 patent, and Warsaw's entitlement to lost profits. The district court denied the motions for JMOL or a new trial, denied Warsaw's requests for supplemental damages and a permanent injunction, and set ongoing royalty rates. Both parties appealed.
On appeal, the Federal Circuit addressed these issues in turn. On the issue of invalidity of the '973 patent, the Court held that the district court did not err in either the claim construction or the jury instructions. Specifically, with respect to claim 35 of the '973 patent, the Court found no error in the district court's conclusion that the preamble is not limiting. In addition, the Court found no error in the district court's instruction to the jury that "said implant" refers to "a spinal implant capable of being inserted translaterally," and that "capable" should be given its plain meaning. Slip op. at 6 (citation omitted). Finally, the Court held that because Warsaw presented substantial evidence to the jury distinguishing the '973 patent from the prior art references relied upon by NuVasive, the jury was entitled to find that the prior art references did not anticipate or render obvious the asserted claims of the '973 patent.
In response to NuVasive's argument that the asserted claims of the '973 patent were indefinite because of the relative nature of the claim limitation, the Federal Circuit held that the relative nature of the claim does not itself make it indefinite under the standard for determining indefiniteness set forth by the Supreme Court in Nautilus, Inc. v. Biosig Instruments, Inc., 134 S. Ct. 2120 (2014). Noting that both parties stipulated that the average dimensions of human vertebrae are well known, the Court held that NuVasive failed to show that human anatomy varies so significantly that reliance on the well-known dimensions of human vertebrae makes the claims indefinite.
On the issue of infringement of Warsaw's '933 patent, the Federal Circuit held that substantial evidence exists to support the jury's finding of infringement under the DOE. NuVasive argued that its accused product did not literally infringe the claimed two-prong device because the accused product includes three prongs instead of two prongs, and that the third prong of the accused product was not capable of lateral movement or pivoting, whereas both prongs of the claimed device were capable of lateral movement. Noting that NuVasive's own witnesses admitted that two and three prongs are equivalent, the Court held that Warsaw had submitted substantial evidence to show that the difference between the accused device and the patented technology was insubstantial.
On the infringement issue of the '236 patent owned by NuVasive, the Federal Circuit held that substantial evidence exists to support the jury's finding of infringement. The focus of the issue was whether the accused product of Medtronic Sofamor Danek USA, Inc. ("MSD"), a company related to Warsaw, "stop[s] the emission of said stimulus signal immediately after said predetermined neuromuscular response is detected," as required by claim 1 of the '236 patent. Slip op. at 11 (citation omitted). Based on the claim construction presented to the jury, the Court agreed with NuVasive's claim construction that a "restart" is a type of stop. Id. at 12. In addition, noting that MSD was aware of the '236 patent prior to litigation and specifically instructed doctors to use the product during surgical procedures in an infringing manner, the Court held that NuVasive had put forth enough evidence to support a jury's finding of induced infringement. Finally, the Court rejected MSD's argument that interpreting the "stopping" step in such a way was barred by the prosecution history because MSD or Warsaw failed to present to the jury any construction of the "stopping" step beyond its plain and ordinary meaning. The Court explained that "where the parties and the district court elect to provide the jury only with the claim language itself, and do not provide an interpretation of the language in the light of the specification and the prosecution history, it is too late at the JMOL stage to argue for or adopt a new and more detailed interpretation of the claim language and test the jury verdict by that new and more detailed interpretation." Id. at 13 (quoting Hewlett-Packard Co. v. Mustek Sys., Inc., 340 F.3d 1314, 1321 (Fed. Cir. 2003)).
The Federal Circuit then addressed the damages issues relating to the '973 and '933 patents. The Court first noted that under 35 U.S.C. § 284 and SmithKline Diagnostics, Inc. v. Helena Laboratories Corp., 926 F.2d 1161, 1164 (Fed. Cir. 1991), "a patentee is entitled to either a reasonable royalty or lost profits—not both." Slip op. at 15. The Court further noted that a patentee may not claim, as its own damages, the lost profits of a related company. Under these principles, the Court rejected Warsaw's claim of lost profits from sales of fixations to MSD. The Court characterized this claim as based on the theory of convoyed sales, which is a sale of a product that is not patented, but is sufficiently related to the patented product such that the patentee may recover lost profits for lost sales. The Court explained that to be entitled to lost profits for convoyed sales, the related products must be functionally related to the patented product and losses must be reasonably foreseeable. "Being sold together merely for 'convenience or business advantage' is not enough." Id. at 17 (quoting Am. Seating Co. v. USSC Grp., Inc., 514 F.3d 1262, 1268 (Fed. Cir. 2008)). The Court held that Warsaw failed to prove a functional relationship necessary to support an award of lost profits for convoyed sales because including the fixations within a kit is the precise sort of convenience or business strategy excluded by the case law.
The Federal Circuit also held that Warsaw cannot recover as lost profits the lost royalty payments from two companies related to Warsaw. The Court rejected Warsaw's argument that it is not seeking damages that these related companies suffered, but rather the money that it would otherwise have received but for NuVasive's infringement. The Court explained that it is a long recognized principle that the lost profits must come from the lost sales of a product or service the patentee itself was selling. Noting that Warsaw did not sell any product, the Court held that Warsaw failed to prove that its profits from selling a product have been lost due to NuVasive's infringing sales.
The Federal Circuit further held that Warsaw cannot recover the "true-up" payments made by MSD to Warsaw because they were not lost profits. The Court reasoned that Warsaw made no effort to distinguish what percentage of the true-ups was attributable to the royalty payments as opposed to payments on unrelated transactions. The Court also noted that the transfer pricing policies between MSD and Warsaw indicated that "the true-ups are established on a company-by-company, not a technology-by-technology or even a product-by-product, basis." Id. at 20.
On the issue of reasonable royalty for Warsaw's '973 and '933 patents, the Federal Circuit remanded for a new trial to determine a reasonable royalty because it was not entirely clear in the jury's verdict which period the reasonable royalty was determined for or whether the jury impermissibly relied on evidence not probative of the value of the patented technology. In view of the remand for a new trial, the Federal Circuit then declined to resolve the issue of whether the district court erred in not awarding supplemental damages to Warsaw. Finally, because the ongoing royalty set by the district court impermissibly included a lost profits component, the Federal Circuit vacated the district court's award and remanded for the district court to determine an appropriate ongoing royalty rate.
Accordingly, the Federal Circuit affirmed the district court with respect to invalidity and infringement, vacated Warsaw's damages award, and remanded for a new trial on damages.
Summary authored by Hongbiao (Bill) Yu, Esq.
Warsaw Orthopedic, Inc. ("Warsaw") owns U.S. Patent Nos. 5,860,973 ("the '973 patent") and 6,945,933 ("the '933 patent"), and NuVasive, Inc. ("NuVasive") owns U.S. Patent No. 7,470,236 ("the '236 patent"). Warsaw sued NuVasive for infringement of its '973 and '933 patents, and NuVasive counterclaimed for infringement of its '236 patent. At trial, the jury found (1) the asserted claims of the '973 patent were valid, (2) the asserted claims of the '933 patent were infringed under the DOE, and (3) the asserted claims of the '236 patent were infringed. The jury awarded damages for each. After trial, Warsaw filed motions seeking supplemental damages and a permanent injunction with respect to its '973 and '933 patents, and a motion for JMOL or a new trial with respect to the jury's finding of infringement of the '236 patent. NuVasive also moved for JMOL or a new trial with respect to the jury's finding of validity of the '973 patent, infringement of the '933 patent, and Warsaw's entitlement to lost profits. The district court denied the motions for JMOL or a new trial, denied Warsaw's requests for supplemental damages and a permanent injunction, and set ongoing royalty rates. Both parties appealed.
On appeal, the Federal Circuit addressed these issues in turn. On the issue of invalidity of the '973 patent, the Court held that the district court did not err in either the claim construction or the jury instructions. Specifically, with respect to claim 35 of the '973 patent, the Court found no error in the district court's conclusion that the preamble is not limiting. In addition, the Court found no error in the district court's instruction to the jury that "said implant" refers to "a spinal implant capable of being inserted translaterally," and that "capable" should be given its plain meaning. Slip op. at 6 (citation omitted). Finally, the Court held that because Warsaw presented substantial evidence to the jury distinguishing the '973 patent from the prior art references relied upon by NuVasive, the jury was entitled to find that the prior art references did not anticipate or render obvious the asserted claims of the '973 patent.
In response to NuVasive's argument that the asserted claims of the '973 patent were indefinite because of the relative nature of the claim limitation, the Federal Circuit held that the relative nature of the claim does not itself make it indefinite under the standard for determining indefiniteness set forth by the Supreme Court in Nautilus, Inc. v. Biosig Instruments, Inc., 134 S. Ct. 2120 (2014). Noting that both parties stipulated that the average dimensions of human vertebrae are well known, the Court held that NuVasive failed to show that human anatomy varies so significantly that reliance on the well-known dimensions of human vertebrae makes the claims indefinite.
On the issue of infringement of Warsaw's '933 patent, the Federal Circuit held that substantial evidence exists to support the jury's finding of infringement under the DOE. NuVasive argued that its accused product did not literally infringe the claimed two-prong device because the accused product includes three prongs instead of two prongs, and that the third prong of the accused product was not capable of lateral movement or pivoting, whereas both prongs of the claimed device were capable of lateral movement. Noting that NuVasive's own witnesses admitted that two and three prongs are equivalent, the Court held that Warsaw had submitted substantial evidence to show that the difference between the accused device and the patented technology was insubstantial.
On the infringement issue of the '236 patent owned by NuVasive, the Federal Circuit held that substantial evidence exists to support the jury's finding of infringement. The focus of the issue was whether the accused product of Medtronic Sofamor Danek USA, Inc. ("MSD"), a company related to Warsaw, "stop[s] the emission of said stimulus signal immediately after said predetermined neuromuscular response is detected," as required by claim 1 of the '236 patent. Slip op. at 11 (citation omitted). Based on the claim construction presented to the jury, the Court agreed with NuVasive's claim construction that a "restart" is a type of stop. Id. at 12. In addition, noting that MSD was aware of the '236 patent prior to litigation and specifically instructed doctors to use the product during surgical procedures in an infringing manner, the Court held that NuVasive had put forth enough evidence to support a jury's finding of induced infringement. Finally, the Court rejected MSD's argument that interpreting the "stopping" step in such a way was barred by the prosecution history because MSD or Warsaw failed to present to the jury any construction of the "stopping" step beyond its plain and ordinary meaning. The Court explained that "where the parties and the district court elect to provide the jury only with the claim language itself, and do not provide an interpretation of the language in the light of the specification and the prosecution history, it is too late at the JMOL stage to argue for or adopt a new and more detailed interpretation of the claim language and test the jury verdict by that new and more detailed interpretation." Id. at 13 (quoting Hewlett-Packard Co. v. Mustek Sys., Inc., 340 F.3d 1314, 1321 (Fed. Cir. 2003)).
The Federal Circuit then addressed the damages issues relating to the '973 and '933 patents. The Court first noted that under 35 U.S.C. § 284 and SmithKline Diagnostics, Inc. v. Helena Laboratories Corp., 926 F.2d 1161, 1164 (Fed. Cir. 1991), "a patentee is entitled to either a reasonable royalty or lost profits—not both." Slip op. at 15. The Court further noted that a patentee may not claim, as its own damages, the lost profits of a related company. Under these principles, the Court rejected Warsaw's claim of lost profits from sales of fixations to MSD. The Court characterized this claim as based on the theory of convoyed sales, which is a sale of a product that is not patented, but is sufficiently related to the patented product such that the patentee may recover lost profits for lost sales. The Court explained that to be entitled to lost profits for convoyed sales, the related products must be functionally related to the patented product and losses must be reasonably foreseeable. "Being sold together merely for 'convenience or business advantage' is not enough." Id. at 17 (quoting Am. Seating Co. v. USSC Grp., Inc., 514 F.3d 1262, 1268 (Fed. Cir. 2008)). The Court held that Warsaw failed to prove a functional relationship necessary to support an award of lost profits for convoyed sales because including the fixations within a kit is the precise sort of convenience or business strategy excluded by the case law.
The Federal Circuit also held that Warsaw cannot recover as lost profits the lost royalty payments from two companies related to Warsaw. The Court rejected Warsaw's argument that it is not seeking damages that these related companies suffered, but rather the money that it would otherwise have received but for NuVasive's infringement. The Court explained that it is a long recognized principle that the lost profits must come from the lost sales of a product or service the patentee itself was selling. Noting that Warsaw did not sell any product, the Court held that Warsaw failed to prove that its profits from selling a product have been lost due to NuVasive's infringing sales.
The Federal Circuit further held that Warsaw cannot recover the "true-up" payments made by MSD to Warsaw because they were not lost profits. The Court reasoned that Warsaw made no effort to distinguish what percentage of the true-ups was attributable to the royalty payments as opposed to payments on unrelated transactions. The Court also noted that the transfer pricing policies between MSD and Warsaw indicated that "the true-ups are established on a company-by-company, not a technology-by-technology or even a product-by-product, basis." Id. at 20.
On the issue of reasonable royalty for Warsaw's '973 and '933 patents, the Federal Circuit remanded for a new trial to determine a reasonable royalty because it was not entirely clear in the jury's verdict which period the reasonable royalty was determined for or whether the jury impermissibly relied on evidence not probative of the value of the patented technology. In view of the remand for a new trial, the Federal Circuit then declined to resolve the issue of whether the district court erred in not awarding supplemental damages to Warsaw. Finally, because the ongoing royalty set by the district court impermissibly included a lost profits component, the Federal Circuit vacated the district court's award and remanded for the district court to determine an appropriate ongoing royalty rate.
Accordingly, the Federal Circuit affirmed the district court with respect to invalidity and infringement, vacated Warsaw's damages award, and remanded for a new trial on damages.
Summary authored by Hongbiao (Bill) Yu, Esq.