Applied Medical Resources Corp. v. United States Surgical Corp.January 25, 2006

Applied Medical Resources Corp. v. United States Surgical Corp.Collateral estoppel did not bar re-evaluation of reasonable royalty even though the same issue, parties, patent, and type of product are involved. In Applied Medical Resources Corp. v. United States Surgical Corp., the Federal Circuit affirmed the award of damages, enhanced damages, attorney fees, and prejudgment interest totaling $64.5 million. Additionally, the Court concluded the District Court for the Central District of California did not err in not applying collateral estoppel to the reasonable royalty rate, did not err in denying U.S. Surgical’s motion for judgment as a matter of law of no willfulness, and did not abuse its discretion in admitting evidence regarding Applied I, a previous patent infringement case involving the same parties.The patent at issue is directed to surgical devices called trocars, which are used as access ports into the abdomen during laparoscopic surgery. Applied first sued U.S. Surgical in 1996 (‘Applied I’), alleging that U.S. Surgical’s sale of its Versaport trocar (‘Versaport I’) infringed Applied’s ‘553 patent, as well as two other Applied patents. In 1997, a jury found that U.S. Surgical willfully infringed claims 4 and 18 of the ‘553 patent as well as two other Applied patents, and awarded damages in the form of a 7% reasonable royalty. The court granted judgment for $20.5 million and entered a permanent injunction enjoining further infringing sales. The Federal Circuit affirmed that judgment in 1998. During the Applied I litigation, U.S. Surgical began redesigning its Versaport trocar (‘Versaport II’), finishing the redesign shortly after the Applied I verdict. Sale of the Versaport II commenced in 1997. In 1999, Applied filed a second complaint against U.S. Surgical alleging that Versaport II infringed the ‘553 patent (‘Applied II’). The district court granted Applied’s motion for summary judgment of infringement of claim 3 and entered a permanent injunction. U.S. Surgical appealed to the Federal Circuit. The Federal Circuit upheld the court’s judgment and injunction.The district court then held a trial to determine the damages owed to Applied by U.S. Surgical’s infringing sales of Versaport II, and to determine whether infringement was willful. Before trial, U.S. Surgical moved to establish as a matter of law that the reasonable royalty for infringing sales of Versaport II was 7%, arguing that the reasonable royalty established in Applied I was binding under principles of collateral estoppel. U.S. Surgical also sought to preclude introduction of evidence related to the jury’s finding of willful infringement in Applied I. The district court denied both motions holding that the jury would make ‘its own ‘independent’ determination of the reasonable royalty rate in 1997′ and was thus not bound by the royalty rate in Applied I. The court also concluded that evidence regarding Applied I was relevant to willful infringement and damages because the ‘fact that U.S. Surgical had infringed the ‘553 patent once before in its actions in response thereto is probative of its intent to infringe the ‘553 patent a second time.’In 2004, a jury found that U.S. Surgical’s infringement was willful and awarded Applied damages of approximately $43.5 million. U.S. Surgical renewed its motions for judgment as a matter of law on the grounds of collateral estoppel and lack of willful infringement. At the same time, Applied filed a motion for enhanced damages. The court denied both U.S. Surgical’s motions. Ultimately, the district court entered final judgment in favor of Applied in the amount of $64.5 million for damages, enhanced compensatory damages (by 25%), attorney fees, prejudgment interest and post-judgment interest. U.S. Surgical appealed.The Federal Circuit concluded that where issues regarding reasonable royalty damages are not identical, even though the same issue, parties, patent, and type of product are involved, collateral estoppel did not bar a reevaluation of a reasonable royalty. Factors taken into account by the Federal Circuit included the time of the infringement; date when sales began; dissimilarity of products even though the same type of product; continuous in time versus continuous infringement in law; and market conditions. Additionally, the Federal Circuit upheld the denial of U.S. Surgical’s judgment as a matter of law finding Applied presented substantial evidence in support of the jury’s verdict of willful infringement. Finally, the Federal Circuit did not find the district court abused its discretion in admitting evidence regarding Applied I finding that U.S. Surgical initiated the design of Versaport II in 1996 because Applied commenced the Applied I litigation. Additionally, U.S. Surgical admitted that the Applied I verdict caused U.S. Surgical to double its efforts to avoid willful infringement. Both were relevant to U.S. Surgical’s state of mind. To read the full text of the decision, log on to r.gov/opinions/05-1149.pdf