CAFC Affirms Exclusion of Damages Testimony, Reduction of $10 Million Jury Award to $1

The U.S. Court of Appeals for the Federal Circuit (CAFC) on Thursday issued a precedential decision in Rex Medical, L.P. v. Intuitive Surgical, Inc., affirming a district court’s exclusion of a patent owner’s damages expert and reduction of a $10 million jury award to nominal damages of $1.

The decision, authored by Circuit Judge Stoll and joined by Circuit Judges Dyk and Prost, held that the United States District Court for the District of Delaware properly considered the requirements for expert testimony based on comparable license agreements to establish reasonable royalty damages. The CAFC also affirmed the district court’s denial of Intuitive’s request for judgment as a matter of law (JMOL) of non-infringement and agreed with the district court’s finding that claim 6 of the ‘650 patent is not invalid for lack of written description.

Rex Medical, L.P. filed a lawsuit against Intuitive Surgical, Inc. and related entities for infringement of U.S. Patent Nos. 9,439,650 and 10,136,892, both generally directed to surgical stapling systems. The ‘892 patent was later withdrawn from the case and an inter partes review (IPR) proceeding on that patent was terminated by the Patent Trial and Appeal Board upon joint request of the parties.

The district court ultimately excluded key portions of Rex Medical’s damages expert testimony, and the jury awarded $10 million based on testimony from Rex Medical’s president. The court subsequently granted JMOL to Intuitive by reducing the damages award to $1 due to Rex’s failure to prove damages and denied a new trial on damages.

The CAFC reviewed the district court’s exclusion of damages expert Douglas Kidder’s testimony for abuse of discretion. The court stated that trial judges play a “gatekeeping role” under Daubert v. Merrell Dow Pharmaceuticals, to ensure that expert testimony is both relevant and reliable. The opinion noted that “expert testimony should be excluded when it fails to allocate license fees among the licensed patents covered by an agreement.”

Kidder’s damages opinion relied on a $10 million settlement agreement between Rex Medical and Covidien from a separate litigation as most comparable to the license in this case. That license covered Rex Medical’s entire portfolio of surgical stapling patents, including those that Rex Medical had withdrawn from the case, as well as eight other U.S. patents, 19 foreign patents, and seven applications. The district court found Kidder’s methodology unreliable because he “failed to adequately address the extent to which the ‘892 and the other patents contributed to the lump sum payment in the Covidien license.”

The CAFC cited its decision in Apple Inc. v. Wi-LAN Inc., where the court excluded an expert’s testimony because the expert failed to address the value contributed by other patents in license agreements and could not justify his apportionment methodology.

In this case, Kidder opined that “nearly all the value of the Covidien license derives from either the ‘892 patent or the ‘650 patent,” but failed to allocate the lump sum payment between these patents or account for the numerous other patents and applications included in the license.

“Mr. Kidder’s opinion that nearly all the value of the Covidien license derives from either the ’892 patent or the ’650 patent is untethered to the facts of this case,” said the CAFC.

Kidder also failed to analyze Rex Medical’s licensed foreign patents or address their contribution to the royalty rate, according to the opinion. The court explained that in the Apple case, none of the three licenses identified the ‘757 patent as one of the asserted patents, and it concluded that Kennedy’s failure to address similarly situated patents was problematic and undermined the reliability of his opinion.

The court found that because Kidder’s opinion ‘“fail[ed] to allocate license fees among the licensed patents covered by [the Covidien] agreement,’ we hold that the district court did not err in excluding his expert testimony.”

Regarding the reduction of the damages award, the CAFC rejected Rex Medical’s argument that the district court had effectively awarded zero damages. The court viewed the decision as a grant of JMOL for no damages rather than a remittitur and therefore was not required to grant a new trial on damages. With Kidder’s expert testimony excluded, Rex Medical was left without evidence to support the jury’s $10 million award.

The court stated that testimony from Rex Medical’s president about the Covidien license could not substitute for expert analysis. The CAFC noted that “Mr. Kidder’s reliance on general observations about other unrelated patent portfolios is equally unreliable and untethered to the facts of this case.”

Turning to the cross-appeal, the CAFC agreed with the district court’s constructions of key phrases in the ‘650 patent, which doomed Intuitive’s argument that it is entitled to judgment of non-infringement, and also affirmed the district court’s written description analysis. In upholding the jury’s finding that “Intuitive failed to prove by clear and convincing evidence that claim 6 of the ’650 patent is invalid for lack of written description,” the district court explained that “[t]he question[] . . . is not whether the specification provides an adequate description of the Accused Products, but whether the specification provides an adequate description of the claimed invention.”

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