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Medtronic Sofamor Danek USA, Inc. v. Globus Medical

July 16, 2009

MEDTRONIC SOFAMOR DANEK USA, INC., WARSAW ORTHOPEDIC, INC., MEDTRONIC PUERTO RICO OPERATIONS CO., AND MEDTRONIC SOFAMOR DANEK DEGGENDORF, GMBH
v.
GLOBUS MEDICAL, INC.



The opinion of the court was delivered by: Norma L. Shapiro, J.

OPINION

This patent infringement action was filed by Medtronic Sofamor Danek USA, Inc. ("Medtronic USA"), Warsaw Orthopedic, Inc. ("Warsaw"), Medtronic Puerto Rico Operations Co. ("MPRO") and Medtronic Sofamor Danek Deggendorf, GmbH ("Deggendorf") against Globus Medical, Inc. ("Globus") under 35 U.S.C. § 1, et seq. A jury found Globus liable for infringement; the parties stipulated to a bench trial on damages and injunctive relief. At the bench trial, plaintiffs presented evidence of injuries suffered by Medtronic USA, but not Warsaw, MPRO or Deggendorf. After the close of evidence, Globus filed a Post-Trial Brief arguing that Medtronic USA, MPRO and Deggendorf lacked constitutional standing to recover for infringement of the patents at issue. Medtronic USA, MPRO and Deggendorf contend they have standing, but in the alternative, request that the court re-open the evidentiary record on damages. This opinion will address: (1) plaintiffs' request to re-open the evidentiary record; (2) constitutional standing of Warsaw, Medtronic USA, MPRO and Deggendorf; and (3) plaintiffs' entitlement to damages and injunctive relief.

I. BACKGROUND

The United States Patent and Trademark Office issued United States Patent Numbers 6,530,929 ("the '929 patent") and 7,008,422 ("the '422 patent") to three inventors named on the patent applications: Kevin Foley, Michael Sherman and Jeff Justice. PX 1 (copy of '929 patent, issued March 11, 2003); PX 2 (copy of '422 patent, issued March 7, 2006). Foley, Sherman and Justice assigned title to SDGI Holdings, Inc.*fn1 PX 1; PX 2. Warsaw, created by the merger of SDGI Holdings, Inc. and Sofamor Danek Holdings, Inc., acquired title as SDGI Holdings, Inc.'s successor in interest. PX 17 (certificate of merger). Warsaw granted licenses to MPRO, Deggendorf and Medtronic USA to practice certain aspects of the '929 and '422 patents. Warsaw, MPRO, Deggendorf and Medtronic USA filed this action for infringement.*fn2

The '929 and '422 patents pertain to devices and methods used by spinal surgeons to stabilize bony structures. PX 1; PX 2. Plaintiffs manufacture and market a commercial embodiment of the patented inventions called the Sextant System. Plaintiffs claimed Globus infringed by manufacturing, marketing and demonstrating a product called the Pivot System. After a 14-day trial on liability, a jury found the '929 and '422 patents valid and infringed by the Pivot System. See Interrogatories to the Jury with Answers Thereof (paper no. 235). Following unsuccessful settlement discussions, plaintiffs' claims for damages and injunctive relief were presented to the court without a jury by agreement of the parties. At the bench trial, plaintiffs sought: (1) an award of $2,866,405 for lost profits to compensate for Medtronic USA's sales of the Sextant System lost because of the infringement; (2) an award of $1,327,866 for statutory royalties on sales of the Pivot System for which Medtronic USA did not claim lost profits; and (3) entry of a permanent injunction prohibiting Globus from selling the Pivot System. Plaintiffs' claims for lost profits and injunctive relief were based entirely on injuries to Medtronic USA; Warsaw, MPRO and Deggendorf did not present evidence of lost profits or irreparable harm.

II. DISCUSSION

A. Plaintiffs' Request to Re-Open the Evidentiary Record

Plaintiffs, having obtained a verdict of infringement, sought recovery of damages and injunctive relief. In an action for patent infringement, a patentee may recover damages "adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court." 35 U.S.C. § 284. A patentee may also be entitled to injunctive relief. 35 U.S.C. § 283 ("The several courts having jurisdiction of cases under this title may grant injunctions in accordance with the principles of equity to prevent the violation of any right secured by patent, on such terms as the court deems reasonable.").

At trial, plaintiffs based their claims for lost profits and injunctive relief solely on evidence of injuries suffered by Medtronic USA. After the close of evidence, Globus submitted a Post-Trial Brief arguing that Warsaw was the only party with constitutional standing to recover for patent infringement.*fn3 Plaintiffs contend the evidence of record demonstrates Medtronic USA, MPRO and Deggendorf have constitutional standing, but in the alternative, argue the evidentiary record should be re-opened to admit additional documents and testimony supporting their claim for damages.*fn4 Plaintiffs argue they are entitled to present additional evidence because Globus untimely repudiated the parties' trial stipulation regarding ownership of the patents:*fn5

Globus's new argument that Medtronic USA lacks standing to recover damages for its lost Sextant sales reflects a basic misunderstanding of the way in which the '929 and '422 patents have been licensed. This misunderstanding is not entirely surprising: Globus took no discovery on this issue and, in fact, represented to the Court that it would not challenge Medtronic USA's standing to assert the '929 '422 patents in its pretrial brief. If there were truly any question as to the plaintiffs' standing to bring this lawsuit, one might have expected Globus to raise this issue sometime before the Court empanelled [sic] a jury for a three-week trial on liability.

Pls.' Post-Trial Reply Br. at 3.

Plaintiffs claim Globus "had never before mentioned, argued, or briefed this defense during two years of litigation,"*fn6 but it is clear that plaintiffs recognized the standing problem earlier in the proceedings. Plaintiffs considered the standing implications of Warsaw's licensure of the patents in their pleadings:

Plaintiff Warsaw is the owner, by assignment, of the '422 patent [and '929 patent]. Plaintiffs Medtronic USA, Medtronic Puerto Rico, and Medtronic Deggendorf are coexclusive licensees of the '422 patent [and '929 patent] and, together with Plaintiff Warsaw, share the exclusive right to bring suit for infringement of the patent[s].

Fourth Am. Compl. ¶¶ 18, 24 (paper no. 139). Globus denied plaintiffs' standing allegations in its answer, see Am. Ans. ¶¶ 18, 24 (paper no. 122),*fn7 but did not further assert the defense before trial. At the liability trial, plaintiffs remained sufficiently uncertain about their right to recover that they had Globus stipulate, word-for-word, to the standing allegations asserted in the Fourth Amended Complaint. Compare Stipulation (paper no. 211) with Fourth Am. Compl. ¶¶ 18, 24 (paper no. 132). Despite valid concern about their right to obtain relief, plaintiffs did not seek adjudication of constitutional standing before the close of evidence or present evidence preserving Warsaw's claim for damages. Instead, plaintiffs avoided the issue by procuring a stipulation on standing. Plaintiffs, under the mistaken assumption the standing issue would not resurface, then pursued relief solely on behalf of Medtronic USA, the party likely to have suffered the largest quantum of monetary damages and capable of presenting the most compelling case for injunctive relief.

But plaintiffs' reliance on the stipulation was unjustified because constitutional standing cannot be conferred by stipulation. See Part II.B. Each plaintiff could have presented evidence supporting its claims at trial or requested a ruling from the court. During the course of these proceedings, plaintiffs repeatedly sought rulings on matters of far less importance than constitutional standing; plaintiffs filed more than 20 motions concerning discovery, evidentiary and other matters. Given plaintiffs' willingness to approach the court for relief, their decision not to seek a ruling or present evidence supporting their right to recover suggests an attempt to avoid or delay adjudication of the issue.

Even if plaintiffs initially failed to appreciate the inherent risk of their strategy, they had notice of Globus' intent to challenge standing and an opportunity to preserve Warsaw's claims for lost profits and injunctive relief before the close of evidence. On October 28, 2008, before plaintiffs presented evidence of lost profits and irreparable harm in their case in chief, Globus deposed the vice president of Medtronic Corporate Development. Dep. of Shawn McCormick, Tr., p. 7 (Oct. 28, 2008). At the deposition, counsel for Globus referred the witness to PX 20, PX 21 and PX 22 (the documents proffered by plaintiffs as evidence of constitutional standing), and inquired extensively into the written license and distribution agreements between Warsaw, MPRO, Deggendorf and Medtronic USA. Id. at pp. 117 -26. This line of questioning placed plaintiffs on notice that Globus might assert a standing defense.

At the bench trial, counsel for Globus inquired into matters concerning ownership of the patents before plaintiffs presented evidence of Medtronic USA's lost profits and irreparable harm. Trial Tr., Oct. 30, 2008, p. 130 (cross-examination of plaintiffs' corporate designee during plaintiffs' case in chief). Plaintiffs' counsel objected to this inquiry and argued that Globus could not cross-examine the witness on matters pertaining to patent ownership because Globus had stipulated to plaintiffs' standing.*fn8 Having been alerted that standing might become an issue, plaintiffs still proceeded by presenting evidence of lost profits and the need for injunctive relief of Medtronic USA, but not Warsaw, MPRO or Deggendorf.

A valid stipulation entered into freely and fairly by the parties if approved by the court will not be set aside unless manifest injustice would result. See Waldorf v. Shuta, 142 F.3d 601, 617 (3d Cir. 1998). But the stipulation on which plaintiffs rely is not valid because it relates to constitutional standing, a jurisdictional requirement that cannot be conferred by stipulation of the parties. See, e.g., Pandrol USA, LP v. Airboss Ry. Prods., 320 F.3d 1354, 1367 (Fed. Cir. 2003) ("any party, and even the court sua sponte, can raise the issue of standing for the first time at any stage of the litigation"). Plaintiffs concede the stipulation is unenforceable. See Trial Tr., May 11, 2009, p. 107 (paper no. 314).

Plaintiffs' argument that Globus failed to challenge constitutional standing until after the close of evidence incorrectly suggests that plaintiffs lacked notice or opportunity to preserve Warsaw's claims for lost profits and injunctive relief at trial. Globus might have asserted the standing issue earlier in the proceedings,*fn9 but it is plaintiffs' burden to establish standing. See Winer Family Trust v. Queen, 503 F.3d 319, 325 (3d Cir. 2007). The interest of justice is served when parties resolve disputes concerning standing at the beginning of civil litigation. While Globus was dilatory in bringing the issue to the court's attention, denial of plaintiffs' standing allegations in the pleadings was sufficient to notify plaintiffs the matter was in dispute.

When a party chooses not to present evidence at trial for strategic or tactical reasons, it is not an abuse of discretion to deny the party's request to re-open the record before entry of judgment. See Simon v. Shearson Lehman Bros., 895 F.2d 1304, 1323 (11th Cir. 1990). Another district court confronted by a similar motion to re-open the record explained:

[A] party which has litigated the case under one legal theory generally should not be permitted to reopen in order to introduce evidence in support of another legal theory, or in support of issues not raised by that party at trial. If the party had an opportunity to litigate those issues, but chose not to, it should not be permitted to prolong the litigation any further. See Zenith Corp. v. Hazeltine Research Corp., 401 U.S. 321, 332, 91 S.Ct. 795, 28 L.Ed. 2d 77 (1971). Otherwise, no litigation would end, so long as a creative attorney could develop alternative theories of relief.

Bell Tel. Laboratories, Inc. v. Hughes Aircraft Co., 73 F.R.D. 16, 20 (D. Del. 1976) (denying a motion to re-open the record in a non-jury patent action prior to entry of judgment). See, e.g., Ball v. Interoceanica Corp., 71 F.3d 73, 76 (2d Cir. 1995) ("A trial court should not grant a new trial merely because the losing party can probably present a better case on another trial.").

Plaintiffs avoided the court's preliminary consideration of constitutional standing by asserting an unenforceable stipulation at the liability trial. Plaintiffs made further attempts to preclude consideration of standing by objecting to Globus' inquiry during the bench trial. Alerted to a likely challenge to constitutional standing before the close of evidence, plaintiffs failed to present evidence of lost profits and irreparable harm for plaintiffs other than Medtronic USA. No evidence of damages to other plaintiffs was offered but rejected. Plaintiffs' attempt to avoid adjudication of constitutional standing militates against re-opening the record for evidence that could have been presented at trial.

1. Plaintiffs' Proffer

After Globus asserted Medtronic USA, MPRO and Deggendorf lacked standing, the court ordered plaintiffs to file a brief stating, with specificity, the nature and relevance of evidence they would present if the record were re-opened; Globus was given an opportunity to respond. Order of April 16, 2009 (paper no. 308). Plaintiffs proffered three categories of evidence: (1) documents and testimony purporting to confirm that Medtronic USA holds the exclusive right to distribute the patented products; (2) testimony purporting to confirm that all parties with an interest in the '929 and '422 patents have been named as plaintiffs; and (3) testimony purporting to confirm that all lost profits were suffered by Warsaw as well as Medtronic USA. Pl.'s Br. (paper no. 309). The court will re-open the record to admit evidence of patent ownership, but not evidence of Warsaw's lost profits.

a. Evidence of Patent Ownership and Licensure

The first category of plaintiffs' proffer is granted in part. The court will re-open the record to admit into evidence: (1) PX 17, Warsaw's certificate of merger, as evidence of Warsaw's ownership of the '929 and '422 patents; and (2) PX 20, PX 21 and PX 22, the written license and distribution agreements granting patent rights to MPRO, Deggendorf and Medtronic USA. Since the written license and distribution agreements are clear, unambiguous, and fully integrated, extrinsic evidence concerning their interpretation, including the proffered testimony, is inadmissible under the parol evidence rule. Because PX 18 and PX 19, Medtronic USA's distribution agreements with MPRO and Deggendorf, are not evidence of exclusionary rights granted by Warsaw, they are inadmissible for lack of relevance.

b. Evidence Concerning Participation of Necessary Parties

The second category of plaintiffs' proffer is denied. Evidence concerning joinder of necessary parties relates to prudential standing, not constitutional standing. Determination that MPRO, Deggendorf and Medtronic USA lack constitutional standing moots the question of prudential standing.

c. Evidence of Warsaw's Lost Profits

The third category of plaintiffs' proffer is denied. Plaintiffs seek to call witnesses who would testify that Warsaw suffered lost profits because it sold fewer components of the Sextant System to Medtronic USA as a result of the infringement. This testimony would be necessary for Warsaw to recover lost profits because the only evidence of record concerning lost profits relates to Medtronic USA; Warsaw cannot obtain relief for injuries suffered by Medtronic USA if Medtronic USA lacks constitutional standing.*fn10 Evidence of Warsaw's lost profits will not be admitted because it could have been presented at trial as plaintiffs now concede. At oral argument, Warsaw withdrew its claim for lost profits. Plaintiffs' counsel stated, "[W]e would not seek lost profits if Warsaw is the only party." Trial Tr. May 11, 2009, p. 39 (paper no. 314).

B. Constitutional Standing

Article III of the United States Constitution limits the judicial power of federal courts to resolution of actual "cases" and "controversies." U.S. Const. art. III, § 2. Constitutional standing requires that a plaintiff adequately establish:

(1) an injury in fact (i.e., a concrete and particularized invasion of a legally protected interest); (2) causation (i.e., a fairly traceable connection between the alleged injury in fact and the alleged conduct of the defendant); and (3) redressability (i.e., it is likely and not merely speculative that the plaintiff's injury will be remedied by the relief plaintiff seeks in bringing suit).

Sprint Communs. Co., L.P. v. APCC Servs., 128 S.Ct. 2531, 2535 (2008) (internal quotations omitted). The instant dispute concerns only the injury in fact element of standing. A party's stake in litigation is sufficient to establish an injury in fact when "the constitutional or statutory provision on which the claim rests properly can be understood as granting persons in the plaintiff's position a right to judicial relief." Warth v. Seldin, 422 U.S. 490, 500 (1975).

Constitutional standing is jurisdictional and cannot be waived by a party to suit. See United States v. Hays, 515 U.S. 737, 742 (1995) ("The question of standing is not subject to waiver. . .."); Evident Corp. v. Church & Dwight Co., 399 F.3d 1310, 1313 (Fed. Cir. 2005) (reviewing plaintiff's standing for the first time on appeal because "the issue whether an exclusive [patent] licensee lacked standing is jurisdictional and is not waived by a party's failure to raise the issue in the district court"); Mentor H/S, Inc. v. Medical Device Alliance, Inc., 240 F.3d 1016, 1018-19 (Fed. Cir. 2001). At the liability trial, the parties executed a stipulation concerning plaintiffs' standing to recover for infringement,*fn11 but the court must independently determine there is subject matter jurisdiction without regard to the parties' stipulation. See, e.g., Evident Corp., 399 F.3d at 1313.

1. Constitutional Standing to Sue for Patent Infringement

Congress has power "[t]o promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries." U.S. Const. art. I, § 8. The Patent Act authorizes the grant of a patent for inventions "not before known or used." Act of April 10, 1790, § 1, 1 Stat. 109. See Electric Storage Battery Co. v. Shimadzu, 307 U.S. 5, 11 (1939). As amended, the Patent Act now provides, "Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title." 35 U.S.C. § 101. The rights bestowed by patent entitle the holder to exclude others from practicing the invention:

[The inventor] receives nothing from the law that he did not have before, and . . . the only effect of the patent is to restrain others from manufacturing and using that which he has invented . . .. [T]he inventor could have kept his discovery to himself, but to induce a disclosure of it Congress has, by its legislation, made in pursuance of the Constitution, guaranteed to him an exclusive right to it for a limited time, and the purpose of the patent is to protect him in this monopoly - not to give him a use which he did not have before, but only to separate to him an exclusive use.

Continental Paper Bag Co. v. Eastern Paper Bag Co., 210 U.S. 405, 425 (1908). A patentee may enforce this right through a civil action for patent infringement. 35 U.S.C. § 271(a) ("Except as otherwise provided in this title, whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent."); 35 U.S.C. § 281 ("A patentee shall have remedy by civil action for infringement of his patent."). A federal district court has subject matter jurisdiction over actions for patent infringement under 28 U.S.C. §§ 1331 and 1338(a).

Constitutional standing to sue for patent infringement is established by ownership of and injury to the exclusionary rights bestowed by the patent grant. "Th[e] right to exclude is the legal interest created by statute. Constitutional injury in fact occurs when a party performs at least one prohibited action with respect to the patented invention that violates these exclusionary rights. The party holding the exclusionary rights to the patent suffers legal injury in fact under the statute." Morrow v. Microsoft Corp., 499 F.3d 1332, 1339 (Fed. Cir. 2007). The Federal Circuit Court of Appeals*fn12 recently explained:

There are three general categories of plaintiffs encountered when analyzing the constitutional standing issue in patent infringement suits: those that can sue in their own name alone; those that can sue as long as the patent owner is joined in the suit; and those that cannot even participate as a party to an infringement suit.

The first category includes plaintiffs that hold all legal rights to the patent as the patentee or assignee of all patent rights - the entire bundle of sticks. Unquestionably, a patentee who holds all the exclusionary rights and suffers constitutional injury in fact from infringement is one entitled to sue for infringement in its own name. Additionally, if a patentee transfers all substantial rights to the patent, this amounts to an assignment or a transfer of title, which confers constitutional standing on the assignee to sue for infringement in its own name alone. When a party holds all rights or all substantial rights, it alone has standing to sue for infringement.

The second category of plaintiffs hold exclusionary rights and interests created by the patent statutes, but not all substantial rights to the patent. As the grantee of exclusionary rights, this plaintiff is injured by any party that makes, uses, sells, offers to sell, or imports the patented invention. Parties that hold the exclusionary rights are often identified as exclusive licensees, because the grant of an exclusive license to make, use, or sell the patented invention carries with it the right to prevent others from practicing the invention. However, these exclusionary rights must be enforced through or in the name of the owner of the patent, and the patentee who transferred these exclusionary interests is usually joined to satisfy prudential standing concerns.*fn13 The patentee is joined for the purpose of avoiding the potential for multiple litigations and multiple liabilities and recoveries against the same alleged infringer . . ..

The third category of plaintiffs includes those that hold less than all substantial rights to the patent and lack exclusionary rights under the patent statutes to meet the injury in fact requirement. They are not injured by a party that makes, uses, or sells the patented invention because they do not hold the necessary exclusionary rights. Plaintiffs in this category lack constitutional standing. This standing deficiency cannot be cured by adding the patent title owner to the suit. Morrow, 499 F.3d at 1339-41 (footnotes, quotations and citations omitted).

An exclusive license is one in which the patentee transfers its entire right to exclude others from practicing a specific aspect of the patented invention. "To be an exclusive licensee for standing purposes, a party must have received, not only the right to practice the invention within a given territory, but also the patentee's express or implied promise that others shall be excluded from practicing the invention within that territory as well." Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1552 (Fed. Cir. 1995). The patentee's promise of exclusivity is essential. "Thus, if a patentee-licensor is free to grant licenses to others, licensees under that patent are not exclusive licensees." Textile Prods. v. Mead Corp., 134 F.3d 1481, 1484 (Fed. Cir. 1998) (internal quotation omitted). In Textile Products, the licensee lacked constitutional standing because the patentee had "retained for itself important rights to license the invention to others." Textile Prods., 134 F.3d at 1484. Absent a promise of exclusivity from the patentee, a licensee does not have standing merely because it holds the only license granted by the patentee. Bicon, Inc. v. Straumann Co., 441 F.3d 945, 956 (Fed. Cir. 2006) (licensee lacked standing because its "right to practice the patent was 'exclusive' only in the sense that [it] was the only licensee of the . . . patent at the time "). An exclusive licensee must have ultimate authority to decide whether others may practice the invention. See, e.g., Propat International Corp. v. RPost US, Inc., 473 F.3d 1187, 1194 (Fed. Cir. 2007) (licensee lacked standing because the patentee had retained the right to veto the licensee's grant of sub-licenses); Morrow, 499 F.3d at 1342 (licensee lacked standing because it did "not have the right to license or sublicense or otherwise forgive activities that would normally be prohibited under the patent statutes").

A patentee's reservation of exclusionary rights can render a license agreement non-exclusive. In Purdue Pharma Prods. L.P. v. Par Pharm., Inc., Civil Action No. 07-255, 2008 U.S. Dist. LEXIS 98178 (D. Del. Dec. 3, 2008), the patentee granted two licenses to practice the patent, but reserved the right to grant further licenses. The patentee, joined by one of the licensees, sued for infringement. Circuit Judge Jordan, sitting by designation in the District of Delaware, held the patentee's reservation of the right to grant additional licenses was "sufficient to undermine [the licensee's] claim of standing, since the Federal Circuit has held that a licensee lacks standing to sue when even one other entity has the patentee's permission to practice the patent in the applicable territory, irrespective of whether others might be excluded." Purdue Pharma, 2008 U.S. Dist. LEXIS 98178 at *7 (citing Mars, Inc. v. Coin Acceptors, Inc., 52 ...


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