Stryker Corporation and Osteonics Corporation v. Intermedics Orthopedics, Inc., and Marli Medical Supplies, Inc.
Docket: 96-1082
Court: Court of Appeals for the Federal Circuit; December 5, 1996; Federal Appellate Court
Intermedics Orthopedics, Inc. and Marli Medical Supplies, Inc. appeal a ruling from the United States District Court for the Eastern District of New York, which found them liable for infringing claims 8, 10, and 12 of U.S. Patent No. 4,888,023, assigned to Osteonics, a subsidiary of Stryker Corporation. The district court's decision, following a bench trial, determined that the patent was valid, that the defendants had infringed it both literally and under the doctrine of equivalents, and that the infringement was willful. As a result, the court awarded Stryker and Osteonics over $72 million in damages, attorneys' fees, and interest, along with injunctive relief. The defendants’ appeal focuses solely on the findings of willful infringement and the associated damages. The Federal Circuit Court affirmed the lower court's decision. The '023 patent pertains specifically to a femoral prosthesis used in total hip replacements, which includes a ball, stem, and affixation wedge designed to fit into the femur. The patent emphasizes the features of the stem component, which is critical for the proper functioning of the artificial hip joint.
Key features of the '023 patent include a distal tip designed for engagement with a prosthesis's stem via complementary tapers. The patent's abstract indicates that the distal tip is selectively removable and replaceable, allowing for various size combinations between the stem and distal tip of the prosthesis. It describes a femoral prosthesis as being composed of a joined stem (proximal portion) and distal tip (distal portion), rather than a single piece.
Stryker and Osteonics filed a lawsuit against Intermedics and Marli for infringing claims 8, 10, and 12 of the '023 patent, all of which depend on the independent claim 1. Claim 1 outlines a stem-type femoral prosthesis intended for implantation in a resected femur, highlighting aspects such as the integration of the distal tip with the stem, axial spacing to ensure proper seating, and specific design features that allow for flexing and axial movement during use.
The patent is not restricted to a two-piece design; it mentions that while the distal tip could be made unitary with the stem, it is preferable for it to be removable. The attachment method uses complementary tapers, and the invention allows for a range of distal tip diameters for customized surgical application. The district court recognized this feature as 'modularity' in the hip-implant sector.
Osteonics has been producing the Omniflex femoral prosthesis since 1988, which represents the commercial embodiment of the '023 patent. Intermedics has been supplying the APR II femoral prosthesis since January 1990, which also employs a distal sleeve that engages the stem via complementary taper but can be installed with or without it.
Between January 1990 and August 1995, Intermedics sold 20,966 APR II stems but only 4,718 APR II distal sleeves, indicating that over 16,000 stem sales did not involve the distal sleeve. In a patent infringement lawsuit, Stryker and Osteonics accused Intermedics and its distributor Marli of both literal infringement and infringement under the doctrine of equivalents, alleging willful infringement and seeking treble damages, injunctive relief, and attorneys' fees under 35 U.S.C. §§ 284 and 285. Intermedics and Marli countered by denying infringement and claiming the '023 patent was invalid and unenforceable.
The district court determined that the distal sleeve of the APR II was integral with the stem as claimed in the '023 patent, ruling that infringement occurred both literally and under the doctrine of equivalents. The court found the infringement was willful, noting that Intermedics either copied the patent's design or the Omniflex commercial embodiment. Consequently, Stryker and Osteonics were awarded lost profits damages, which were doubled due to the willful nature of the infringement, along with attorneys' fees and injunctive relief. The court's damage award was not restricted to instances involving the distal sleeve.
Moreover, the court rejected arguments by Intermedics and Marli regarding the invalidity and unenforceability of the '023 patent. On appeal, the only issues pertained to the district court's findings of willful infringement and the corresponding damages award. The appellate review will focus on whether the district court's determination of willfulness was clearly erroneous, with the burden on Stryker and Osteonics to prove willfulness by clear and convincing evidence. The district court’s finding was based on the conclusion that Intermedics deliberately copied the '023 patent and failed to conduct a proper investigation into its scope or to form a good-faith belief regarding its validity or non-infringement. Appellants are contesting these findings.
Intermedics and Marli contest the district court's ruling on copying, arguing that the court erred by finding copying without evidence of 'slavish copying,' which they define as creating a product that is virtually identical to the patented invention. They reference State Industries, Inc. v. A.O. Smith Corp. to support their claim that 'slavish copying' has traditionally been a prerequisite for willfulness determinations. However, the court clarifies that established precedent does not require this standard; rather, it suffices to show that the infringer intentionally copied the ideas or designs of the patent holder, as stated in In re Hayes Microcomputer Products, Inc. and Bott v. Four Star Corp.
Intermedics’ reliance on State Industries is deemed misplaced, as that case merely distinguished its facts from those in Milgo Electronic Corp., which involved detailed copying. The court asserts that the totality of the circumstances should be considered when determining willfulness and confirms there was no clear error in the district court's detailed findings on Intermedics’ copying of Osteonics' invention.
Additionally, the district court found that Intermedics was aware of the '023 patent as of January 1990 but failed to adequately investigate its scope or seek competent legal counsel, which is necessary for forming a good-faith belief regarding the patent's validity or non-infringement. The court emphasizes the legal duty of due care imposed on infringers, which includes obtaining legal advice before engaging in potentially infringing activities. Evidence was presented showing Intermedics had notice of Osteonics' patent as early as January 23, 1989, based on correspondence from Intermedics’ Manager of Product Development to their patent counsel.
An Osteonics brochure indicating a femoral stem with a 'U.S. Patent Pending' label was attached to a letter relevant to the case. The court established that Intermedics had actual notice of the '023 patent by January 5, 1990, when their patent attorney, John Merkling, encountered it in the Official Gazette, alongside a drawing. Despite this awareness, Merkling did not investigate potential infringement by Intermedics' new product, the APR II, which featured a distal sleeve. The appellants contended that the district court erred by not recognizing unchallenged evidence that Merkling did not perceive an infringement issue regarding the '023 patent. They argued that actual notice necessitates both awareness of the patent and knowledge of an infringement situation, and since Merkling lacked the latter, Intermedics did not meet the standard for actual notice. They referenced the Shatterproof case, where a similar argument was made about willful infringement; however, the court emphasized that willfulness is fact-specific and affirmed the lower court's decision based on the record rather than a mere technical notice argument. The court affirmed that Merkling was aware of both the '023 patent and its relevance to the APR II, rejecting the appellants' claims that Merkling's testimony negated the actual notice finding.
Merkling claimed ignorance of Intermedics' sale of the APR II in January 1990, despite evidence suggesting otherwise. As a patent attorney responsible for intellectual property at Intermedics, he acknowledged ordering the '023 patent but could not recall receiving it. Intermedics' president testified that the APR II was frequently discussed in staff meetings. During questioning, Merkling's responses about his awareness of the APR II were evasive, indicating he may have known about it despite his claims. The district court found no clear error in concluding Merkling had knowledge of the APR II and its distal sleeve during the relevant period, thereby supporting the finding of willful infringement.
Regarding damages, appellants argued that the district court incorrectly awarded damages for APR II stems sold without distal sleeves, asserting that infringement only occurred when a distal sleeve was used. However, the court upheld its decision to award damages for all APR II stems, citing 35 U.S.C. § 271(a), which defines infringement broadly. The court determined that Intermedics infringed by manufacturing, using, and selling the APR II, noting that the company always produced the stems with a sleeve option.
The APR II system was marketed as a complete unit, including distal sleeves, with sales agents ensuring availability in operating rooms for surgeons. Decisions on whether to use the distal sleeve typically occurred during surgery, leading to a reliance on having the full system on hand. Testimonies indicated that although a portion of surgeons did not use the sleeve, it was a key feature that supported the system's claims of fitting and filling the bone cavity. The district court found that Intermedics’ arguments against the importance of the sleeve were contradicted by its own marketing practices. It ruled that Osteonics could recover lost profits from all APR II sales, as it demonstrated a reasonable probability that these sales would have occurred but for the infringement. The court established that damages should reflect a foreseeable injury to the market, not limited to instances where the sleeve was specifically used. Stryker and Osteonics contended that Intermedics' claims about limited sales losses ignored the broader impact of supplying the infringing systems. The court concluded that Intermedics was liable for infringing manufacture, use, and sale of the APR II systems.
The district court's decision to award damages for all APR II sales was upheld, determining that each supply of an APR II system to a surgeon constituted a loss of opportunity for Osteonics to sell its Omniflex system, regardless of whether the distal sleeve was installed. The court applied the four-factor test for lost profits from Panduit Corp. v. Stahlin Bros. Fibre Works, confirming that Stryker and Osteonics met all but one factor. Appellants contested the court's finding on the second factor concerning the absence of acceptable non-infringing substitutes, claiming the court's definition was overly restrictive. They argued that a broader range of alternatives existed, supported by surgeon testimonies and internal documents naming competitors like Zimmer, Depuy, and Howmedica. However, the district court found these claims unconvincing, noting that the identified competitors' products lacked the modular distal tip or sleeve of the patented invention. The court concluded that Intermedics recognized only a few competitors and acknowledged Osteonics's market share growth linked to the trend in distal modularity, thus reinforcing its findings on the absence of suitable non-infringing alternatives.
The court referenced its prior ruling in Standard Havens Prods. Inc. v. Gencor Indus. Inc., emphasizing that merely having competing devices does not equate to them being acceptable substitutes, particularly if they lack the advantages of the patented product. The district court concluded that documents from Intermedics demonstrated that the Howmedica, Zimmer, and Depuy devices lacked distal modularity, disqualifying them as acceptable substitutes. The appellants did not contest this finding; instead, they claimed the parties recognized these companies as competitors. However, the court clarified that the key issue was whether these competitors were acceptable substitutes, a point the appellants failed to challenge effectively. The court upheld the district court's findings on willful infringement and damages, declaring them free from clear or legal error. Each party will bear its own costs. The court also noted that the successor to the APR II prosthesis, the APR II-T, introduced in 1992, did not present material changes relevant to the appeal. Arguments for acceptable non-infringing substitutes were weakened by the determination of willful infringement, as established in the Panduit case, which highlighted the limited influence of substitutes when the infringer knowingly sold the patented product.
