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United Court of Appeals For The Federal Circuit: States
United Court of Appeals For The Federal Circuit: States
NOV16 2010
Appeal from the United States District Court for the Western District of Tennessee,
in case no. 07-CV-02175, Judge Ion P. McCalla
1. The full name of every party or amicus represented in this appeal is:
2. The names of the real parties in interest represented in this appeal are:
3. The names of all parent corporations and any publicly held companies
that own 10 percent of the party represented are:
Medtronic, Inc.
4. The names of all law firms and the partners and associates that are
expected to appear in this appeal for Defendants-Appellants Medtronic Sofamor
Danek USA, Inc. and Medtronic Sofamor Danek, Inc. are:
ROBINS, KAPLAN, MILLER & CIRESI LLP: Jan M. Conlin, Munir R. Meghjee,
Cyrus A. Morton
The following law firms and counsel formerly appeared for Defendants-
Appellants Medtronic Sofamor Danek USA, Inc. and Medtronic Sofamor Danek,
Inc. in the district court in prior phases of the case:
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McKOOL SMITH, P.C.: Robert A. Auchter*, Dirk D. Thomas*
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TABLE OF CONTENTS
Page
INTRODUCTION ..................................................................................................... 1
ARGUMENT ............................................................................................................. 3
CONCLUSION ........................................................................................................ 15
CERTIFICATE OF SERVICE
°.°
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TABLE OF AUTHORITIES
CASES
Page(s)
Anascape, Ltd. v. Nintendo of America, Inc., 601 F.3d 1333 (Fed. Cir.),
cert. denied, 2010 WL 3417304 (U.S. Nov. 1, 2010) ..................................... 9
Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984) .................... 8
Datascope Corp. v. SMEC, Inc., 962 F.2d 1043 (Fed. Cir. 1992) ............................. 7
Kalman v. Berlyn Corp., 914 F.2d 1473 (Fed. Cir. 1990) ..................................... 6, 7
Mars, Inc. v. Coin Acceptors, Inc., 527 F.3d 1359 (Fed. Cir. 2008) ......................... 3
Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538 (Fed. Cir. 1995) ......................... passim
Steel Co. v. Citizens for a Better Environment, 523 U.S. 83 (1998) ......................... 6
RULES
OTHER AUTHORITIES
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At the Court's request, Defendants-Appellants hereby respond to Plaintiffs-
INTRODUCTION
Plaintiffs' petition for rehearing does not identify any point supposedly
the panel soundly rejected after they were fully aired in briefing_ at oral argument,
and in post-argument letters. The panel's opinion is entirely consistent with the
precedents it cited, many of which Plaintiffs do not even discuss. The supposed
Synthes Spine Company, L.P. had standing to sue as a plaintiff, they were required
to show that Synthes Spine held an exclusive license to the patent. But as the panel
concluded after careful analysis of the evidence, "[n]othing in the record shows
that [patentee] SSI would be prohibited from licensing the '071 patent to a third
party, should it so desire." Op. 23. Rather, SSI's corporate designee stated only
meant that SSI could not license the patent "outside of the corporate web" (id.).
But he did not suggest that SSI was barred from licensing other entities within the
The panel did not announce any new "elevated standard of proof." Pet. for Reh'g
1. Rather, it applied the settled principle that "The grant of a bare license to sell an
patentee, does not provide standing without the grant of a right to exclude others."
Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1553 (Fed. Cir. 1995) (en banc).
opinion. The panel nowhere held, nor did Medtronic argue, that "an award of lost
id. at 11-13. The petition confuses the panel's ruling regarding SSI with its ruling
Synthes, Inc.--lacks standing to sue on the '071 patent at all, regardless of the
and Synthes Spine to bring suit on the '071 patent." (emphasis added)). _ But the
panel never suggested that SS1, the patentee, lacked standing to sue. Rather, SSI's
claim for lost profits failed on the merits because of the "undisputed" fact that it
"does not itself sell any products." Op. 24. SSI's real argument is that the panel
should have ruled that Medtronic waived its objection. But as Medtronic explained
n SSI does not challenge the panel's ruling that Synthes, Inc. lacked standing. Op.
22. Nor does SSI challenge the rulings that the O-May devices do not infringe,
that infringement was not willful, and that SSI is not entitled to attorney's fees.
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in detail to the panel, and explains again here, Medtronic promptly and repeatedly
objected to SSI's claim for lost profits, and the district court and SSI acknowledged
that the matter was preserved--facts that amply distinguish the "stipulat[ion]" in
WMS Gaming lnc. v. International Game Technology, 184 F.3d 1339, 1361 (Fed.
ARGUMENT
law--that "' [o]nly a patent owner or an exclusive licensee can have constitutional
Acceptors, lnc., 527 F.3d 1359, 1367 (Fed. Cir. 2008)). Nor do they deny that, to
claim the right to sue as an exclusive licensee, Synthes Spine bore the burden of
proving not only "'the right to practice the invention within a given territory, but
also the patentee's express or implied promise that others shah be excluded from
practicing the invention within that territory as well.'" Id. (quoting Mars, 527 F.3d
written, between SSI and Synthes Spine with respect to the '071 patent." Op. 22.
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Indeed, SSI's counsel stated that SSI "has not undertaken any licensing efforts on
the '071 patent." A14346. And SSI's Chairman Robert Donohue--in a deposition
that occurred only after Medtronic moved to compel--admitted that he could not
identify "any document or anything in writing that would indicate that [an
agreement] even exists [or] that would refer to it in any way." A13588. Although
(e.g. A13586), he could not explain the terms of the license, who participated in
making it, or any consideration given for it. A13587; A13590. The most he could
say was: "I--I think the way I would characterize it, there's--there's an
was "on the premise of the way the company is organized" (A13587).
Even taking everything Mr. Donohue said as true, he did not testify that SSI
has "promise[d] that others shall be excluded from practicing the invention," which
is what this Court has ruled is required to create an exclusive license. Rite-Hite, 56
F.3d at 1552. On the contrary, when asked whether SS1 retained the right to
license the patent to other entities, Mr. Donohue answered: "I would say outside of
the corporate web, no" (A13591)--thus failing to rule out licenses to other entities
inside the "corporate web." Moreover, Mr. Donohue made clear that his opinions
about what SSI could and could not do were based on "the way we're structured
today." Id. (emphasis added). Accordingly, the most Mr. Donohue's testimony
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could establish was that, as of that moment, SSI had not licensed the patent to any
other entity. That is far different from an exclusive license, which carries with it a
promise that no other licenses will be given in the future and that the licensee has
the right to exclude others from practicing the patent. As the en banc Court ruled,
the only license granted by the patentee, does not provide standing without the
rights it may have licensed to Synthes Spine, Synthes Spine does not have the right
to sue for patent infringement. A14075 ("SSI has retained the right to sue");
A 14104 (same). A company with no right to sue on the patent necessarily lacks
standing to bring an infringement suit. See, e.g., Poly-America, L.P. v. GSE Lining
Tech., Inc., 383 F.3d 1303, 1311 (Fed. Cir. 2004) ("[A] licensee generally may not
sue for damages unless it has exclusive rights under a patent, including the right to
sue." (emphasis added)); Rite-Hite, 56 F.3d at 1553 (dismissing plaintiffs for lack
requirements to prove the existence of an implied license." Pet. for Reh'g 3. Not
so. The panel simply held that the evidence in this case was insufficient to
carry Synthes Spine's burden to show that SSI gave it an exclusive license. See
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Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 104 (1998) ("[T]he party
invoking federal jurisdiction bears the burden of establishing its existence."). The
panel certainly did not rule out the possibility that, in another case, the behavior of
related corporate parties could justify an inference that the patentee had impliedly
licensed the patent exclusively. The mere fact that the parties' structure "today"
results in an "understanding" that there is only one licensee (A1359 l), however,
Contrary to SSI's argument, the panel's opinion does not conflict with
Kalman v. Berlyn Corp., 914 F.2d 1473 (Fed. Cir. 1990). Kalman involved an
he and his brother were the 50% owners and sole directors. Id. at 1475-1476. The
Court ruled that, "when the nexus between the sole licensee and the patentee is so
clearly defined as here, the sole licensee must be recognized as the real party in
interest." Id. at 1482. But the Court has never extended that reasoning, closely
large conglomerate like Synthes, Inc. and its reticulated network of subsidiaries
and affiliates--a structure that SSI's witness called "a very complex organization"
2 SSI asserts, without citation, that there was a "longstanding course of conduct as
to the patent-in-suit." Pet. for Reh'g 8. Such "conduct" might be relevant in cases
where it is proven, but SSI points to no evidence that it existed here.
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that would take "a few hours" to explain. A13586. Rather, this Court has
indicated the exact opposite: companies that "arrange[] their corporate identities
and functions to suit [their] own goals and purposes ... must take the benefits with
the burdens." Poly-America, 383 F.3d at 1311. This case demonstrates the
SSI criticizes the panel for "not say[ing]" how SSI could have proven "an
intra-family implied license." Pet. for Reh'g 5. But this Court has been clear since
contract is the easiest way to prove such a promise, but promises can also be
3 Even ifKalman could be read to adopt a broad rule that a bare license to one
party compelled an inference of an exclusive license, such reasoning cannot
survive the en banc decision in Rite-Hite, which made plain that a "bare license ...,
even if it is the only license granted by the patentee, does not provide standing
without the grant of a right to exclude others." 56 F.3d at 1553. SSI'cites two
cases that "cited Kalman with approval" (Pet. for Reh'g 6), but neither discussion
involved standing. See Rite-Hite, 56 F.3d at 1550 (citing discussion of the entire
market value rule); Datascope Corp. v. SMEC, Inc., 962 F.2d 1043, 1047 (Fed.
Cir. 1992) (affirming denial of leave to add a defendant due to undue delay and
prejudice; distinguishing Kalman on its facts).
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was powerless to license another entity, or internal documents referencing the
support a claim of an implied promise. The panel opinion did not rule out the
that the party seeking to invoke federal jurisdiction must prove that the promise is
"actual," not fictional, and that Synthes Spine failed to carry that burden here. 4
SSI next asserts that the district court made "factual findings" that "credited"
Mr. Donohue's assertion that Synthes Spine had an exclusive license. Pet. for
Reh'g 9. What SSI now calls "findings" are simply sentences in the "Background"
A14403-14404. SS] revealingly did not suggest in its merits brief that that order
4 SSI claims, citing nothing, that "businesses across the nation ... commonly
depend on implied exclusive licenses as a key tool in operating the entities and
managing the patent holdings of the corporate family." Pet. for Reh'g 7. Even if
that is true, SSI offers no reason to believe that those businesses face any hardship
from the settled requirement that, if a non-patentee entity wishes to sue for
infringement, it must prove that it received a "promise" of exclusivity and cannot
simply rely on the fact that it currently holds "the only license granted by the
patentee." Rite-Hire, 56 F.3d at 1552, 1553.
The panel's opinion does not conflict with the general observation that
affiliated companies have a "unity of interest." Copperweld Corp. v. Independence
Tube Corp., 467 U.S. 752, 771 (1984). On the contrary, it is precisely because a
conglomerate like Synthes "has complete power" to reorganize at will (id. at 772)
that an arrangement based on the corporate organization that exists "today" will
not necessarily carry the burden of proving a "promise" not to license others.
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interpretation is belied by the district court's subsequent conduct: the court
that the matter was "re-raised" as part ofMedtronic's pre-verdict JMOL motion
sense had the court already resolved the "merits" of the argument by finding that
Finally, the panel was not required to remand for "limited proceedings" (Pet.
for Reh'g 10)--an outcome SSI never sought, despite discussing Synthes Spine's
Fed. R. Civ. P. 50(e) ("the prevailing party may, as appellee, assert grounds
entitling it to a new trial"). Even in the petition for rehearing, Plaintiffs do not
point to any other evidence or facts that they would submit during such a
Spine, an issue on which Plaintiffs bear the burden of proof. Accordingly, the
panel was well Within its rights in "direct[ing] the entry ofjudgmenf' on this issue.
See id.
5 Moreover, even if the district court had made a "finding" of an exclusive license
based on Mr. Donohue's testimony, the panel would have been justified in
concluding that the testimony was "not supported by any evidence at all" and thus
insufficient to support a finding. Anascape, Ltd. v. Nintendo of Am., Inc., 601 F.3d
1333, 1339 (Fed. Cir.), cert. denied, 2010 WL 3417304 (U.S. Nov. 1, 2010).
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II. THE PANEL PROPERLY REJECTED SSrs LOST PROFITS CLAIM ON THE
MERITS.
With respect to SSI itself, the patentee, the panel ruled that no lost profits
were available because "lilt is undisputed that SSI does not itself sell any products.
Therefore, SSI is not entitled to any lost profits damages." Op. 24 (citing Poly-
America, 383 F.3d at 1311). SSI does not challenge that ruling on the merits;
indeed, it does not even cite, much less take issue with, Poly-Ameriea.
"mischaracteriz[ing] the issue as 'jurisdictional.'" Pet. for Reh'g 3; see also id. at
panel opinion makes clear that the standing issue affects only the two non-patentee
entities that SSI sought to add as co-plaintiffs shortly before trial. Op. 24
("Medtronic is challenging the standing of Synthes, Inc. and Synthes Spine to bring
suit on the '071 patent." (emphasis added)). Contrary to SSI's assertion, the panel
'jurisdictional' and not waivable." Pet. for Reh'g 1 (emphasis added). Indeed,
patentholder[,] clearly has standing to sue," whereas the other two putative
plaintiffs did not. Opening Br. 53. SSI adopted this distinction in its own brief.
SSI Br. 55. Accordingly, SSI's contention that the panel treated the jurisdictional
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issue as affecting SSI, instead of Synthes Spine and Synthes, Inc., is utterly
unsupported. Rather, the decision regarding SSI was a decision on the merits m
recovery of lost profits are non-jurisdictional and are waivable, and the panel never
suggested otherwise. SSI's true complaint is not that the panel made a
jurisdictional ruling regarding the ability of patentees to claim lost profits--it did
no such thingmbut that, in SSI's view, the panel should have ruled that Medtronic
waived its objection to SSI's lost profits claim. Pet. for Reh'g 13-14. But the
case-specific question whether Medtronic preserved its argument here does not
merit en bane review, and SS! identifies nothing in the panel opinion that would
create "uncertainty about the manner in which district courts should evaluate
waiver." Id. at 14. Nor has SSI pointed to any fact bearing on the matter that was
not amply aired in the parties' briefs, oral argument, and post-argument letters.
The matter of SSI's relationship to its affiliates first arose when SSI's expert
claimed, without explanation, that SSI and its parent Synthes, Inc. (but not Synthes
Spine, which was not mentioned) could be treated as one. A27011 (Tollison report
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referring to SSI and Synthes, Inc. as "Synthes"). Medtronic immediately sought to
A5393-5394. At the deposition, SSI instructed its designee not to answer whether
SSI licensed the patent to Synthes, Inc. A5394. After Medtronic moved to compel
(A5381), SSI relented. Mr. Donohue's deposition on May 9, 2008, was the first
time that SSI mentioned Synthes Spine as a purported "exclusive licensee." At that
time, however, SSI was still the only plaintiffbefore the district court.
calculations on behalf of SSI (again, Synthes Spine was not mentioned). A27032;
A27046. Medtronic re-raised its concern the very next week, disputing "whether
Spine Solutions is entitled to lost profits here in this case at all given they don't
make or sell the ProDisc device." A10440. Magistrate Judge Vescovo granted
supplement its expert reports "by the trial date or as extended." A10494. On
supplemental report stating that "It is not at all clear from Mr. Donohue's
testimony or Dr. Tollison's analysis which entity is claiming it would have made
the sales allegedly lost to the accused Maverick product--but it clearly is not
[SS1]." A27086.
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Medtronic also timely moved & limine demonstrating that SSI--still the sole
plaintiff--could not recover lost profits. A 13569- l 3577. 6 The court allowed SSI
Medtronic could preserve its objection via an offer of proof. See Op. 5; A14395.
Medtronic submitted the offer of proof, which included evidence showing that SSI
"does not manufacture, market, or sell any of the ProDisc II products." A 15596.
Medtronic asked to "preserve our objections" on "the issue of lost profits" when it
moved for JMOL before the jury retired; the district court acknowledged that the
This evidence, which was before the panel (Reply Br. 23-27), shows that
preserving it. Interactive Gift Express, Inc. v. Compuserve Inc., 256 F.3d 1323,
1344 (Fed. Cir. 2001) (quoting 19 Moore's Federal Practice §205.05, at 205-255
(3d ed. 1997)). SSI's petition addresses none of that history. Instead, SSI points to
its own advocacy below, which quoted isolated statements made early in the case
6 SSI's petition does not dispute that Medtronic's motion in limine was timely; nor
could it, given that SSI filed its own motion the same day. A14066-14067.
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before discovery revealed that SSI did not make or sell products. A 14075-14078.
Medtronic preserved the issue through the subsequent actions detailed above.
SSI next asserts that Medtronic somehow waived its argument when it
"declined the district court's offer to continue the trial to allow Medtronic
position SSI notably did not take before the panel. See Reply Br. 27 n. 19. The
argument is simply untenable. It is undisputed that SSI sells no products (Op. 24);
Medtronic did not need any "additional discovery" on the subject, and was
certainly not required to delay the trial in order to insist that the district court--and
later, the panel---correctly apply the settled principle that "the patentee needs to have
been selling some item, the profits of which have been lost due to infringing sales, in
order to claim ... lost profits." Poly-America, 383 F.3d at 1311 (quoted at Op. 24).
Finally, SSI's insinuation that Medtronic should have raised the matter at
trial (Pet. for Reh'g 13-14) is utterly disingenuous. It was SSI that objected to
putting the matter to the jury, though Medtronic was prepared to do so. A14391-
14393. SSI instead agreed that Medtronic's offer of proof would "preserve the
record outside the presence of the jury." A14393; see also A14395 (agreeing that
Medtronic could raise its objection "after they make their offer of proof and
preserve the record"). The district court agreed. A14395 ("Okay."). Medtronic
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did not waive its position by following the procedure that all agreed would
International Game Technology, 184 F.3d 1339 (Fed. Cir. 1999), where the
relevant products; later, when the defendant tried to contend that a separate
subsidiary manufactured the products, the Court presumed that the manufacturing
subsidiary had standing to sue and could have been joined as a plaintiff without
manufactures nothing. Op. 24. And unlike the manufacturing subsidiary in WMS,
Synthes Spine lacks standing to sue and so could not have been joined as a plaintiff.
The panel did not directly address this evidence, but it was not required to.
The record gave it ample basis to decide that Medtronic preserved the matter for
appeal, with SSI's contrary arguments resting only on a partial and misleading
misapprehended fact or principle, and its disagreement with the panel's fact-
specific and manifestly correct outcome does not warrant en banc review.
CONCLUSION
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Resp_tfully submitted, _
I hereby certify that on this 16th day of November, 2010, I caused two
Danek USA, Inc. and Medtronic Sofamor Danek, Inc. to Petition for Rehearing
and Rehearing En Banc to be served via overnight courier at the following address:
JEFFREYM. OLSON
PAUL H. MEIER
ROBERT A. HOLLAND
SEAN A. COMMONS
SIDLEY AUSTIN LLP
555 West Fifth Street, 40th Floor
Los Angeles, CA 90013
(213) 896-6000
WILLIAM G. MCELWAIN