Opinion ID: 208638
Heading Depth: 3
Heading Rank: 1

Heading: Pedicle Screws

Text: At trial, DePuy argued that Medtronic's infringing sales of Vertex® pedicle screws caused DePuy to lose $149.1 million in profits that DePuy would have made by selling its own pedicle screw system, marketed as SummitTM and MountaineerTM. DePuy advanced a lost-profits theory under the four-factor Panduit test, which requires a showing of (1) demand for the patented product, (2) absence of acceptable noninfringing substitutes, (3) manufacturing and marketing capability to exploit the demand, and (4) the amount of profit that would have been made. Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152, 1156 (6th Cir.1978). The district court instructed the jury on each of these four factors, and the jury found in favor of DePuy. On appeal, Medtronic challenges the sufficiency of the first two Panduit factors.
Medtronic argues that the verdict cannot be upheld because DePuy failed to show, under the first Panduit factor, that the demand for DePuy's SummitTM and MountaineerTM pedicle screws was driven by the screws' top-loading feature. It is this top-loading feature, in Medtronic's view, that distinguishes DePuy's patented screws and Medtronic's infringing Vertex® screws from Medtronic's bottom-loading screws, which do not infringe the '678 patent and which are not at issue in the present appeal. See DePuy Spine I, 469 F.3d at 1022 (holding that Medtronic's bottom-loading screws, unlike its top-loading Vertex® screws, do not possess claim 1's opening limitation). Accordingly, Medtronic asks us to hold 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. We decline Medtronic's request. Medtronic's argument unnecessarily conflates the first and second Panduit factors. All that the first factor states, and thus requires, is demand for the patented product. Panduit, 575 F.2d at 1156. This factor does not require any allocation of consumer demand among the various limitations recited in a patent claim. Instead, 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. Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1548-49 (Fed.Cir.1995) (en banc). In this case, Medtronic does not dispute that demand generally existed for the SummitTM and MountaineerTM pedicle screws and that those screws are covered by the '678 patent. Medtronic also concedes that demand for those screws was driven primarily by their polyaxial capability, a feature inherent in both Medtronic's accused Vertex® screws and DePuy's SummitTM and MountaineerTM screws. Because the jury heard testimony as to this fact, an evidentiary basis was thus presented from which the jury could have found demand for the patented product under the first Panduit factor. Medtronic argues that our prior decisions in Grain Processing, Slimfold, and Ferguson compel a different result. We disagree. In Grain Processing, the district court found that certain claim limitations could easily be omitted from the accused product in a manner that was perfectly acceptable to consumers. In particular, the court found that there was no specific demand for the features corresponding to the omitted claim limitations and that an acceptable noninfringing substitute was readily available. Grain Processing Corp. v. Am. Maize-Products Co., 979 F.Supp. 1233, 1237 (N.D.Ind.1997) (Easterbrook, J.), aff'd 185 F.3d 1341 (Fed.Cir.1999). On appeal, we affirmed the denial of lost profits, not because demand was absent under the first Panduit factor, but because acceptable noninfringing substitutes were available under the second Panduit factor. 185 F.3d at 1354-55 (holding that a noninfringing substitute was both available and acceptable during the accounting period, thus failing Panduit's second factor). Like our decision in Grain Processing, our decision in Slimfold affirmed a denial of lost profits, not because demand was lacking under the first Panduit factor, but because acceptable noninfringing substitutes were available under the second. Slimfold Mfg. Co., Inc. v. Kinkead Indus., Inc., 932 F.2d 1453, 1458 (Fed.Cir.1991). In that case, [w]ith respect to the availability of acceptable non-infringing substitutes i.e., the second Panduit factor the district court found that certain old hardware, previously used by the accused infringer, did not infringe the patent-in-suit and was both available and acceptable to consumers. Id. On appeal, the patentee argued that the old hardware was not acceptable to customers because it lacked features corresponding to claim limitations that were supposed advantages of the patented product. Id. We rejected that argument because the evidence showed that the supposed advantages of the patented product were not at all important to consumers, thus indicating that the old hardware was an acceptable noninfringing substitute under the second Panduit factor. Medtronic's reliance on Ferguson fares no better. Ferguson dealt with lost profits under the entire market value rule, which permits a patentee to recover the entire value of an apparatus that contains both patented and unpatented components, so long as the patented component is the basis for customer demand. Ferguson Beauregard/Logic Controls, Div. of Dover Res., Inc. v. Mega Sys., LLC, 350 F.3d 1327, 1346 (Fed.Cir.2003) (vacating and remanding lost profits award for entire value of a device containing a first component embodying a first patent, found infringed, as well as a second component embodying a second patent, found not infringed, where profits could fairly be allocated to customer demand for second component); see Rite-Hite, 56 F.3d at 1549 ([T]he entire market value rule permits recovery of damages based on the value of a patentee's entire apparatus containing several features when the patent-related feature is the `basis for customer demand.') (quoting State Indus., Inc. v. MorFlo Indus., Inc., 883 F.2d 1573, 1580 (Fed.Cir.1989)). In the present case, Medtronic challenges the lost-profits award for SummitTM and MountaineerTM pedicle screws under the Panduit factors, not under the entire market value rule. Ferguson is also factually distinguishable. As previously noted, the polyaxial capability of the patented pedicle screwsthe capability that Medtronic admits drove sales of SummitTM and MountaineerTM pedicle screwsis itself an inherent feature of the patented screws, not a feature of some other, unpatented device that may also be used in the surgery. As we have held, 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. Rather, the elimination or substitution of particular features corresponding to one or more claim limitations goes to the availability of acceptable noninfringing substitutes under the second Panduit factor, to which we now turn.
Medtronic asserts 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). [3] However, because Medtronic did not actually have a noninfringing substitute on the market during the relevant accounting period, it was Medtronic that bore the burden of overcoming the inference of unavailability. Grain Processing, 185 F.3d at 1353 (When an alleged alternative is not on the market during the accounting period, a trial court may reasonably infer that it was not available as a noninfringing substitute at that time.). Medtronic had to show that the substitute was available during this period based on alternative actions that Medtronic reasonably could have taken to avoid infringement. Id. In this regard, Medtronic asserts that it could have made a noninfringing, bottom-loading version of Vertex® screws in 2000-2003 and that it did in fact provide such screws for use in a surgery in 2007. Alternatively, Medtronic argues that it was unfairly precluded from introducing into evidence the district court's 2004 summary judgment ruling that the top-loading Vertex® model did not infringe the '678 patent. Medtronic believes that this evidence would have helped the jury to understand why Medtronic did not switch to a noninfringing, bottom-loading design until 2007. We address these arguments in turn. First, substantial evidence supports the jury's factual finding under the second Panduit factor that no acceptable noninfringing alternative was available between 2000 and 2003. DePuy presented evidence of Medtronic's three unsuccessful attempts (in 2000, 2003-2004, and 2006-2007) to develop a noninfringing, bottom-loading design. For example, the jury heard testimony that Medtronic's various bottom-loading prototypes were deemed too large by surgeons, were substantially weaker in pull-out strength than the infringing, top-loading Vertex® model, and had never been submitted to the Food & Drug Administration for the necessary marketing approval. J.A. 5214. Based on this evidence, 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. Second, we discern no abuse of discretion in the district court's exclusion of its 2004 summary judgment ruling that the top-loading Vertex® model did not infringe, which we reversed in 2006 as to equivalents, and which Medtronic contends is the reason why it did not switch to a bottom-loading design until 2007. See Proveris Scientific Corp. v. Innovasystems, Inc., 536 F.3d 1256, 1267 (Fed.Cir. 2008) (applying First Circuit's abuse of discretion standard to review of evidentiary rulings) (citing Cavallaro v. United States, 284 F.3d 236, 245 (1st Cir.2002)). In excluding this evidence, the district court stated that the relevance of its prior ruling was almost insignificant in view of the plethora of evidence that's gone in and that the substance of the ruling was erroneous in view of our subsequent reversal. J.A. 5253. We agree that the probative value of this evidence was low compared to the risk of jury confusion. Although the district court's favorable 2004 ruling might have been the reason that Medtronic felt content to wait until after our 2006 decision to actually develop a noninfringing, bottom-loading version of Vertex®, the theory of available substitutes that Medtronic pressed at trial assumed a hypothetical but-for world in which Medtronic focused exclusively on developing a bottom-loading design. In this but-for world, a legal ruling in 2004 would have had little bearing on the technical feasibility of Medtronic's redesign efforts in the critical timeframe of 2000-2003. The summary judgment ruling would not have addressed why Medtronic had failed three times prior to 2007 to overcome the various technical and regulatory hurdles in achieving a noninfringing design. If the district court had admitted the 2004 ruling into evidence, however, it would have had to explain to the jury that the court had previously decided the infringement issue, that the decision was overruled in part with regard to equivalence but not literal infringement, and that the jury must ignore this evidence when deciding equivalence for itself but may later consider it when assessing damages. The risk of jury confusion is apparent. The decision to exclude this evidence was not an abuse of discretion. For the foregoing reasons, we affirm the award of lost-profits damages as to the patented pedicle screws.