Rex Medical v. Intuitive Surgical clarifies the importance of reliable expert analysis in patent disputes
Key lessons from the CAFC’s patent damages ruling in Rex Medical v. Intuitive Surgical
In a recent precedential decision, the U.S. Court of Appeals for the Federal Circuit upheld a district court’s decision to exclude the damages expert testimony presented by Rex Medical, L.P., a medical device manufacturer. The case, Rex Medical, L.P. v. Intuitive Surgical, Inc., has significant implications for patent litigation, particularly in the areas of damages calculation and expert testimony related to comparable license agreements.
The CAFC’s ruling also resulted in a substantial reduction in the damages awarded to Rex Medical, from an initial $10 million jury award to a nominal $1. This decision highlights the court’s rigorous scrutiny of expert testimony and the critical importance of proving a reliable connection between the damages expert’s methodology and the facts of the case.
Background: The Patent Infringement Allegations
Rex Medical filed a patent infringement lawsuit against Intuitive Surgical, Inc. and its affiliated entities, alleging the infringement of two patents: U.S. Patent Nos. 9,439,650 and 10,136,892, both of which pertain to surgical stapling systems. The ‘892 patent was eventually withdrawn from the case, and an inter partes review proceeding for this patent was terminated upon the joint request of the parties.
Despite the narrowing of the case, the district court proceeded with the infringement claims concerning the ‘650 patent. Rex Medical presented expert testimony from Douglas Kidder, a damages expert, who utilized a $10 million settlement agreement from a separate case between Rex Medical and Covidien as the basis for calculating damages in this case.
The District Court’s Exclusion of Expert Testimony
The district court excluded key portions of Kidder’s damages testimony, finding that his analysis lacked the necessary reliability and relevance required by the Daubert v. Merrell Dow Pharmaceuticals decision. Under Daubert, expert testimony must be both relevant and reliable, and trial judges play a “gatekeeping role” in determining whether expert opinions should be admitted.
Kidder’s damages calculation relied on the Covidien settlement, which covered Rex Medical’s entire portfolio of surgical stapling patents, including patents not at issue in the current case. The agreement included patents that were withdrawn from the lawsuit, as well as foreign patents and pending applications. Kidder opined that the majority of the value in the Covidien license stemmed from either the ‘892 patent or the ‘650 patent. However, he failed to provide a detailed allocation of the lump sum payment between the various patents involved in the settlement.
The district court found this methodology unreliable. Specifically, the court noted that Kidder’s failure to analyse the contribution of other patents in the Covidien portfolio, particularly those not involved in the litigation, rendered his opinion unsupported by the facts of the case.
The CAFC’s Affirmation of the District Court’s Decision
On appeal, the CAFC affirmed the district court’s decision to exclude Kidder’s testimony, agreeing that the expert’s failure to allocate the lump sum payment in the Covidien license was a fatal flaw in his methodology. The CAFC referenced its previous decision in Apple Inc. v. Wi-LAN Inc., where the court excluded expert testimony for similar reasons. In that case, the expert failed to properly apportion the value contributed by other patents covered by the license agreement.
The CAFC also agreed with the district court’s rejection of Rex Medical’s argument that the jury’s $10 million award should not be reduced to nominal damages. The court emphasized that, with the exclusion of Kidder’s testimony, Rex Medical lacked sufficient evidence to justify the $10 million award. The CAFC further noted that testimony from Rex Medical’s president, which discussed the Covidien license in broad terms, could not serve as a substitute for expert analysis in the realm of damages calculations.
The Court’s Ruling on the ‘650 Patent: No Non-Infringement or Invalidity
In addition to its ruling on damages, the CAFC also addressed Intuitive Surgical cross-appeal concerning the claim construction of key phrases in the ‘650 patent and the alleged invalidity of the patent due to a lack of written description.
The CAFC upheld the district court’s construction of the disputed claim terms, finding that Intuitive arguments for non-infringement were without merit. The CAFC also affirmed the district court’s finding that claim 6 of the ‘650 patent was not invalid for lack of written description. According to the district court’s analysis, the critical issue was not whether the specification adequately described the accused products, but whether it sufficiently described the claimed invention itself.
This ruling reinforced the district court’s finding that the patent’s specification provided an adequate written description of the invention, and thus, Rex Medical’s patent remained valid.
Implications for Patent Damages and Expert Testimony
The CAFC’s decision in Rex Medical v. Intuitive Surgical carries important lessons for both patent owners and defendants in patent litigation, particularly regarding the reliability of expert testimony in determining damages.
Expert Testimony Requirements: Expert testimony must be directly tied to the facts of the case, and any reliance on settlements or license agreements from unrelated matters must be properly substantiated with a clear explanation of how the terms of those agreements apply to the case at hand.
Allocation of License Fees: Experts must allocate license fees or settlement amounts among the patents involved in a licensing agreement. Failure to do so can lead to the exclusion of the expert’s opinion and a reduction or elimination of the damages award.
No Substitute for Expert Analysis: General statements or observations about unrelated patent portfolios are insufficient to establish damages in patent cases. Expert testimony is critical to support the calculation of a reasonable royalty, and this cannot be substituted with broad assertions from non-experts.
Judicial Gatekeeping Role: The district court’s role in excluding unreliable expert testimony was validated by the CAFC, underscoring the importance of judges as gatekeepers in ensuring that expert evidence meets the necessary standards for relevance and reliability.
The Rex Medical v. Intuitive Surgical decision highlights the rigorous standards that patent owners must meet in presenting damages calculations, particularly when relying on expert testimony based on comparable license agreements. By excluding unreliable expert testimony and reducing the damages award, the CAFC reinforced the importance of a methodical and well-supported approach to damages in patent litigation. For patent owners, this case serves as a reminder to ensure that expert analyses are tied closely to the facts of the case and supported by sound methodologies that comply with established legal standards.