CAFC limits Warsaw Orthopedic to "reasonable royalty"

From Warsaw v. Nuvasive

As to outcome:

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We affirm the district court with respect to invalidity and infringement for the ’973, ’933, and ’236 patents. We vacate Warsaw’s damages award and remand for a new trial on damages consistent with this opinion. At the new trial, Warsaw will be limited to a reasonable royalty and cannot recover lost profits.

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Nautilus is invoked:


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NuVasive also argues that the asserted claims of the ’973 patent are indefinite because, given the relative nature of the claim limitations, one cannot know whether an implant infringes until it is selected for a particular patient. Under the Supreme Court’s decision in Nautilus, Inc. v. Biosig Instruments, Inc., 134 S. Ct. 2120 (2014), a claim is indefinite if “viewed in light of the specification and prosecution history,” it does not “inform those skilled in the art about the scope of the invention with reasona- ble clarity.” Id. at 2129. The relative nature of the claim does not itself make it indefinite, and NuVasive failed to establish, by clear and convincing evidence, that human anatomy varies so significantly that reliance on the well- known dimensions of human vertebrae makes the claims indefinite. See Howmedicia Osteonics Corp. v. Tranquil Prospects, Ltd., 401 F.3d 1367, 1371–73 (Fed. Cir. 2005). Indeed, the parties stipulated that “[t]he average dimen- sions of the human vertebrae are well-known, easily ascertainable, and well-documented in the literature.” J.A. 2882.

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As to vitiation:

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NuVasive argues that application of the doctrine of equivalents would result in claim vitiation. As we recently explained, vitiation is not a separate argument from insubstantiality. See Brilliant Instruments, Inc. v. GuideTech, LLC, 707 F.3d 1342, 1347 (Fed. Cir. 2013) (“‘Vitiation’ is not an exception to the doctrine of equiva- lents, but instead a legal determination that the evidence is such that no reasonable jury could determine two elements to be equivalent.” (quoting Deere & Co. v. Bush Hog, LLC, 703 F.3d 1349, 1356 (Fed. Cir. 2012))).

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As to a non-practising patentee [PAE?]:

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Although Warsaw owns the ’933 and ’973 patents, it does not practice the patented technologies. Rather, it (1) licenses the technologies to related companies Medtronic Sofamor Danek Deggendorf, GmBH (“Deggendorf”) and Medtronic Puerto Rico Operations Co. (“M Proc”), which manufacture and sell the patented products to MSD and pay royalties to Warsaw on those sales and (2) manufac- tures “fixations,”4 which it sells to MSD for profit. MSD packages the fixations and the patented products together into medical kits, which it sells to hospitals and surgeons.

Warsaw asserts it has three sources of income related to the patented technologies. First, it receives revenue from the sale of fixations to MSD, which it argues should be treated as convoyed sales; second, it receives royalty payments from M Proc and Deggendorf; third, it receives payments from MSD resulting from an inter-company transfer pricing agreement, which are characterized by Warsaw as “true-up” payments.


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The CAFC gets into a lengthy discussion of damages:

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Lost profits and reasonable royalties measure damag- es differently. Lost profits as a measure of damages is intended to make the party whole—to compensate the patent holder for profits lost as a result of the infringe- ment. It is not solely a “but for” test. Rite-Hite Corp. v. Kelley Co., Inc., 56 F.3d 1538, 1546 (Fed. Cir. 1995) (en banc).
A reasonable royalty, on the other hand, is intended to compensate the patentee for the value of what was taken from him—the patented technology. See Aqua Shield v. Inter Pool Cover Team, 774 F.3d 766, 770 (Fed. Cir. 2014) (“The ‘value of what was taken’—the value of
the use of the patented technology—measures the royal- ty.” (quoting Dowagiac Mfg. Co. v Minn. Moline Plow Co., 235 U.S. 641, 648 (1915))).

Under our case law a patentee may not claim, as its own damages, the lost profits of a related company. See Poly-America, L.P. v. GSE Lining Tech., Inc., 383 F.3d 1303, 1311 (Fed. Cir. 2004) (explaining that related companies “may not enjoy the advantages of their sepa- rate corporate structure and, at the same time, avoid the consequential limitations of that structure—in this case, the inability of the patent holder to claim the lost profits of its non-exclusive licensee”); see also Mars, Inc. v. Coin Acceptors, Inc., 527 F.3d 1359, 1365 (Fed. Cir. 2008) (refusing to award “lost profits” to the patent holder when its subsidiary corporation lost sales due to infringement), mandate recalled and amended on other grounds, 557 F.3d 1377 (Fed. Cir. 2009). Indeed, Warsaw admits it is not entitled to the lost profits of Deggendorf, M Proc, or MSD.

(...)

To be entitled to lost profits for convoyed sales, the re- lated products (e.g., the fixations) must be functionally related to the patented product and losses must be rea- sonably foreseeable. See Rite-Hite, 56 F.3d at 1546–50. Being sold together merely for “convenience or business advantage” is not enough. Am. Seating, 514 F.3d at 1268. If the convoyed sale has a use independent of the patent- ed device, that suggests a non-functional relationship. See, e.g., DePuy Spine, Inc. v. Medtronic Sofamor Danek, Inc., 567 F.3d 1314, 1333 (Fed. Cir. 2009).

(...)

This is the precise sort of conven- ience or business strategy excluded by American Seating. See Am. Seating, 514 F.3d at 1268 (“Our precedent has not extended liability to include items that have essential- ly no functional relationship to the patented invention and that may have been sold with an infringing device only as a matter of convenience or business advantage.” (quoting Rite-Hite, 56 F.3d at 1538)). Warsaw never presented testimony that the fixations it sold to MSD had no independent function—that is, that they would not work as well in other surgeries not involving the patented technologies. Therefore, the district court erred in deny- ing NuVasive’s JMOL motion on this issue.

(...)

To be entitled to lost profits, we have long recognized that the lost profits must come from the lost sales of a product or service the patentee itself was selling. As we explained in Rite-Hite, “[n]ormally, if the patentee is not selling a product, by definition there can be no lost prof- its.” 56 F.3d at 1548. Similarly, in Poly-America we noted, “the patentee needs to have been selling some item, the profits of which have been lost due to infringing sales, in order to claim damages consisting of lost profits.” 383 F.3d at 1311. Here, there is a failure of proof and as a result the revenue stream is not recoverable.

(...)

It is not immediately clear from Warsaw’s accounting witness’ testimony what the underlying transactions were that made the 95% true-up payments necessary. The true-up payments from MSD to Warsaw appear to result from a variety of transactions. Some are for royalty payments, suggesting an implied licensing agreement between MSD and Warsaw for the sale of various patent- ed technologies. Others, as suggested by spreadsheets in the record, are for other transactions—for example, management fees or implied licenses on other patents. See J.A. 23556–637; see also Medtronic Sofamor Danek USA, Inc. v. Globus Med., Inc., 637 F. Supp. 2d 290, 309 (E.D. Pa. 2009).

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On standards of review:
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We review denials of motions for judgment as a matter of law de novo. See Revolution Eyewear, Inc. v. Aspex Eye- wear, Inc., 563 F.3d 1358, 1370 (Fed. Cir. 2009); Janes v. Wal-Mart Stores, Inc., 279 F.3d 883, 886 (9th Cir. 2002). We review the district court’s claim construction under the standard set forth in Teva Pharm. USA, Inc. v. Sandoz, Inc., No. 13-854, slip op. at 13 (Jan. 20, 2015). We review underlying factual determinations concerning extrinsic evidence for clear error. Id. at 12. We review intrinsic evidence and the ultimate construction of the claim de novo. Id. Infringement is a question of fact, DePuy Spine, Inc. v. Medtronic Sofamor Danek, Inc., 469 F.3d 1005, 1013 (Fed. Cir. 2006), reviewed for substantial evidence. Transocean Offshore Deepwater Drilling, Inc. v. Maersk Drilling USA, Inc., 699 F.3d 1340, 1356–57 (Fed. Cir. 2012). We review damages determinations by the court for “an erroneous conclusion of law, clearly errone- ous factual findings, or a clear error of judgment amount- ing to an abuse of discretion.” Micro Chem., Inc. v. Lextron, Inc., 318 F.3d 1119, 1122 (Fed. Cir. 2003) (inter- nal quotation marks, citation omitted).

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link: http://www.cafc.uscourts.gov/images/stories/opinions-orders/13-1576.Opinion.2-26-2015.1.PDF