Wednesday, January 15, 2014

Stryker Corp. v. Zimmer Inc.: U.S. District Court awards $217 million in trebled lost profits damages

I mentioned last month that I would be blogging about this case, which was decided last August but only recently made available on Westlaw.  The Westlaw citation is Stryker Corp. v. Zimmer Inc., No. 1:10-CV-1223, 2013 WL 6231533 (W.D. Mich. Aug. 7, 2013).   I don’t have any personal knowledge of the underlying facts, but the court’s discussion of the law is quite interesting—particularly on some of the more obscure legal questions, such as those involving patent marking and the standards for awarding and calculating prejudgment interest.  I don’t know whether an appeal is pending.

The plaintiff and the defendant are the two principal competitors in the market for a medical device, known as an orthopedic pulsed lavaged device, used for cleaning wounds and tissue during surgery.   In December 2010, Stryker sued Zimmer for infringing three patents.  Two years later, the jury returned a verdict that the patents were valid and willfully infringed, and awarded Stryker $70 million in lost profits.   In August 2013, the district court denied Zimmer’s post-verdict motions for judgment as a matter of law or for new trial; concluded that the case was exceptional and merited an award of attorneys’ fees, and that Stryker was entitled to $2,351,257.66 in supplemental (post-verdict) damages and $11,167,670.50 in prejudgment interest as well; and ordered judgment for treble the lost profits and supplemental damages, or about $217 million, not including the interest and fees.   I’ll focus here on some of the remedial issues.

First, Zimmer argued that Stryker was not entitled to recover damages for the period preceding the date Stryker filed suit, December 10. 2010, because Stryker did not mark “substantially all” of its products.  (For more on patent marking requirements around the world, including the U.S. patent marking statute, and their relevance to damages awards, see here.)  The court rejected this argument on the ground, among others, that there was evidence from which the jury could conclude that Stryker marked “substantially all” of its products’ labels during the time period for which Stryker sought damages:
The parties largely agree that, during those periods, Stryker marked roughly 99.52% of the relevant products with the 329 patent, 99.78% of the relevant products with the 807 patent, and 83.96% of the relevant products with the 383 patents. Although, as Zimmer argued at trial, a reasonable jury might conclude that those numbers did not amount to “substantially all” of the relevant products, it is equally true that a reasonable jury could conclude that, under the circumstances, each of those percentages rises to the level of “substantially all” products. See, e.g., Funai Elec. Co., Ltd. v. Daewoo Elec. Corp., 616 F.3d 1357, 1374–75 (Fed.Cir.2010) (affirming that marking 88–91% of all the commercial embodiments of a patent sufficed to satisfy the marking statute). Accordingly, Zimmer is not entitled to JMOL on marking.

That leaves Zimmer's motion for a new trial on the issue of marking. Zimmer asserts that the Court erred when it instructed the jury that, in deciding whether Stryker complied with the marking statute, the jury could consider “whether some portion of the Stryker products not marked with a particular patent number were marked with other related patent notices.” ( See Final Draft Jury Instructions, doc. # 377–1, at Instruction # 29.) An erroneous jury instruction warrants a new trial only if the party moving for a new trial establishes, inter alia, that the instructions were legally erroneous and that the instructions had a prejudicial effect on the jury. Bettcher Indus. v. Bunzl USA, Inc., 661 F.3d 629, 638 (Fed.Cir.2011); NTP, Inc. v. Research In Motion, Ltd., 418 F.3d 1282, 1311–12 (Fed.Cir.2005).
In this case, Zimmer has not established that the challenged instruction was erroneous or that it had a prejudicial effect on the jury. As to whether the instruction was erroneous, Zimmer has not pointed to a single case holding that marking a product with a given patent is necessarily not an effective means of notifying other parties that the product is also covered by other, related patents from the same family as the patent with which the product is marked. To the contrary, in at least some circumstances, marking the product with a closely related patent would appear to provide reasonable persons with exactly the sort of constructive notice the patent marking statute is calculated to effect. See, e.g., Ethicon Endo–Surgery, Inc. v. Hologic, Inc., 689 F.Supp.2d 929, 945–46 (S.D.Ohio 2010) (noting “the [Supreme] Court's long-standing focus on the notice effected by the method of marking the patented article rather than on the precise mechanistic compliance with the statute.”). Given the broad, functional reading courts have ascribed to the patent marking statute, the Court's instruction on marking was not so clearly erroneous.

Moreover, even if the Court's instruction was erroneous, Zimmer has not produced any evidence that the challenged instruction was prejudicial. To determine whether an instruction was prejudicial, a court must consider “the entirety of the proceedings, including the jury instructions as a whole.” Delta–X Corp. v. Baker Hughes Prod. Tools, Inc., 984 F.2d 410, 415 (Fed.Cir.1993). Looking at Jury Instruction 29 in its entirety, it is clear the thrust of the instruction was that the jury should consider whether Stryker had shown, by a preponderance of the evidence, that it marked its products in accordance with the patent marking statute. The instruction defined “marking” as “placing the word ‘patent’ or the abbreviation ‘PAT’ with the number of the patent on substantially all of the products it sold that included the patent invention.” (Final Draft Jury Instructions, doc. # 377–1, at 42.) That is, almost verbatim, the language Zimmer insists in its motion the Court should have used. It is telling, moreover, that, at trial, Zimmer argued that the challenged language from Instruction 29 actually helped Zimmer's case. ( See Trial Tr., doc. # 389, at 138 (“So Mr. Vogler's pointing to something he says helps him. It doesn't. It makes it worse.”).) On balance, then, the whole of the instructions, together with Zimmer's own arguments from trial, make clear that the jury was not erroneously instructed in a way that prejudiced Zimmer. Thus, there is no basis for granting a new trial.

2013 WL 6231533, at *10-11.

Second, the court denied Zimmer’s motion for JMOL that the infringement was not willful.  Perhaps the most interesting question here was the relationship between the court’s pretrial denial of Stryker’s motions for summary judgment and the issue of whether Zimmer’s conduct was “objectively reasonable”:
. . . the Court turns to the first prong of the willfulness analysis-whether Zimmer's conduct was objectively reasonable. If an “accused infringer's position is susceptible to a reasonable conclusion of no infringement,” the infringer's conduct cannot be objectively unreasonable. Cohensive Techs., Inc. v. Waters Corp., 543 F.3d 1351, 1374 (Fed. Cir. 2008). Zimmer's central argument on this point is that, because the Court did not grant Stryker's motions for summary judgment on the issues that went to trial, Zimmer's positions on those issues were, necessarily, reasonable. In other words, Zimmer contends that since the Court determined that a reasonable jury might agree with Zimmer's view, Zimmer was not objectively unreasonable in holding that view. The flaw in Zimmer's argument is that there is a difference between an “objectively reasonable” position and a position with which a reasonable jury could agree. The bare fact that some jury, somewhere might adopt Zimmer's position does not mean Zimmer's position is objectively reasonable. See Depuy Spine, Inc. v. Medtronic Sofamor Danek, Inc., 567 F.3d 1314, 1337 (Fed.Cir.2009) (“[T]he fact that an issue was submitted to a jury does not automatically immunize an accused infringer from a finding of willful infringement....”). To the contrary, an action is objectively unreasonable if “the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.” In re Seagate Tech., LLC, 497 F.3d 1360, 1371 (Fed.Cir.2007).

In this case, while it was conceivable that the jury could have accepted one or more of Zimmer's defenses, it was far from likely. . . .
Id. at *13.

Third, the court rejected Zimmer’s arguments that the “jury improperly disregarded Zimmer’s two proposed noninfringing alternatives,” reasoning that there was sufficient evidence for the jury to conclude that the two alternatives were not viable.  See id. at *15-16.

Fourth, the court concluded that, on the basis of the eBay factors, a permanent injunction was appropriate, and that a stay pending appeal was not.  See id. at *23-26.

            Fifth, the court concluded that the case was “exceptional” based on the fact that both court and jury had found, by clear and convincing evidence, that Zimmer willfully infringed.  The court decided that attorneys’ fees would be appropriate:
Having found this case to be “exceptional,” the Court must consider whether to award attorneys' fees. The decision on attorney's fees is left largely to the Court's discretion. Bard Peripheral Vascular, Inc., 670 F.3d at 1191–92. Exercising that discretion, the Court concludes that an award of attorneys' fees is appropriate in this case, based on the principles animating § 285. In particular, § 285 is meant to prevent the waste of judicial resources that comes from willful infringement and the oftentimes unnecessary litigation it engenders. Univ. of Pittsburgh v. Varian Med. Sys., Inc., No. 08–cv–1307, 2012 WL 1436569, at *8–*9 (W.D.Penn. Apr. 25, 2012). By pursuing this action, Zimmer has forced Stryker and this Court to expend considerable resources in the name of a case that, for the most part, was not terribly close.5 That is the essence of the harm that § 285 was designed to remedy. See Brooktree Corp. v. Advanced Micro Devices, Inc., 977 F.2d 1555, 1582 (Fed.Cir.1992) (“The statutory purpose of such award is to reach cases where the interest of justice warrants fee-shifting.”); Central Soya Co., Inc. v. Geo. A. Hormel & Co., 723 F.2d 1573, 1578 (Fed.Cir.1983) (“The purpose of § 285 is, in a proper case and in the discretion of the trial judge, to compensate the prevailing party for its monetary outlays in the prosecution or defense of the suit.”). Accordingly, the Court awards Stryker its reasonable attorneys' fees.
 Id.  at 27.  In footnote 5, the court made clear that the fee award "was in no way a comment on the quality of Zimmer’s counsel’s advocacy through these proceedings.  Counsel for Zimmer has consistently made the best of a bad case . . . .”  (For a more recent Federal Circuit case on fee awards, see Kilopass Technology, Inc. v. Sidense Corp., No. 2013-1193 (Dec. 26, 2013), which I blogged about last week.)   

            Sixth, the court awarded prejudgment interest on all three components, at Stryker’s proposed rate of 3.83%, based on its “Stryker’s weighted-average interest rate,” which is “considerably below the prime rate, which courts routinely use when calculating prejudgment interest.”  Interest will be compounded monthly:
The other remaining question is whether interest will be compounded monthly, as Stryker requests, or quarterly, as Zimmer suggests. Resolution of this question, also, is left largely to the Court's discretion. See Bio–Rad Labs., Inc. v. Nicolet Instrument Corp., 807 F.2d 964, 969 (Fed.Cir.1986) (“The rate of prejudgment interest and whether it should be compounded or uncompounded are matters left largely to the discretion of the district court.”). Zimmer's argument that interest should be compounded quarterly is based on the fact that Davol pays Stryker a royalty for use of a Stryker patent on a quarterly basis. But the damages in this case are for lost profits from infringing sales, not loss of a reasonable royalty, and Stryker accumulates sales revenue for its patented devices on a daily, not quarterly, basis. From that vantage point, then, Stryker's proposal that interest be compounded monthly is conservative. The Court agrees with Stryker, then, that compounding interest on a monthly basis is appropriate in this case. As such, Stryker is entitled to an award of $11,167,670.50 in prejudgment interest on the jury award and supplemental lost profit damages Stryker incurred from December 1, 2012 to February 28, 2013. In addition, for the same reasons the Court found this to be an “exceptional case,” the Court awards Stryker additional prejudgment interest, calculated at a rate of 3.83% and compounded monthly, on its reasonable attorney's fees. See Mathis v. Spears, 857 F.2d 749, 761 (Fed.Cir.1988) (“[A] district court does have authority, in cases of bad faith or other exceptional circumstances, to award prejudgment interest on the unliquidated sum of an award made under Section 285.”).
             Seventh, the court considered whether to enhance damages by applying the Read v. Portec factors:
   . . . In evaluating the egregiousness of the defendant's conduct, courts typically rely on the nine Read factors, which are: (1) whether the infringer deliberately copied the patentee's ideas or design; (2) whether the infringer investigated the scope of the patent and formed a good faith belief that  it was invalid or not infringed; (3) the infringer's conduct during litigation; (4) the infringer's size and financial condition; (5) closeness of the case; (6) duration of the infringing conduct; (7) remedial actions, if any, taken by the infringer; (8) the infringer's motivation for harm; [and] (9) whether the infringer attempted to conceal its misconduct. Id. at 826–27.

In this case, all nine Read factors favor substantial enhancement of the jury's award. . . .

Because the Read factors so overwhelmingly favor enhancement, the real question here is not whether enhancement is warranted, but how much enhancement is appropriate. Given the one-sidedness of the case and the flagrancy and scope of Zimmer's infringement, the Court concludes that treble damages are appropriate here. . .

The last question in this case is whether Stryker is also entitled to treble damages on the Court's award of supplemental damages. The Court answers that question in the affirmative. . . .
Id. at *30-32.

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