Addressing issues of willful infringement, collateral estoppel and the relevance of prior jury verdicts, the U.S. Court of Appeals for the Federal Circuit recently affirmed the findings of the district court. Avoiding willful infringement is not a superficial exercise, a different product for infringement is a different product for damages and hypothetical royalty negotiations conducted in the shadow of a prior jury verdict may make that jury verdict admissible. Applied Medical Resources Corp. v. U.S. Surgical Corp., Case No. 05-1149 (Fed. Cir. Jan. 24, 2006) (Lourie, J.).

Key to this case is the fact that U.S. Surgical had previously lost an infringement case to Applied Medical on the same patents and similar products. During the prior litigation, U.S. Surgical's product (a trocar, which is used as an access port into the body during laparoscopic surgery) was found to infringe Applied Medical’s patent, costing U.S. Surgical a 7 percent royalty rate and a permanent injunction. U.S. Surgical, prior to the issuance of the injunction, had redesigned the product and begun to sell the new product only a month after the injunction was issued. Applied Medical instituted a new case against the redesigned device and won summary judgment of infringement. The trial court held a separate trial to determine damages. In denying U.S. Surgical’s pretrial motions, the trial court held that the jury was not bound by the royalty rate set in the prior litigation (the aforementioned 7 percent) and that evidence from the prior litigation (including the willfulness determination) was relevant to the present case. The jury then found willful infringement and awarded damages in the amount of $64.5 million. U.S. Surgical appealed.

On the issue of collateral estoppel, the Federal Circuit noted U.S. Surgical had "conceded that [the prior product and the current product] were different infringements" because it had previously taken the position that the two products were different. The Federal Circuit found "a separate infringement beginning at a different time requires a separate evaluation of reasonable royalty damages."
U.S. Surgical also argued that the trial court erred in not granting its motion for judgment as a matter of law for no willful infringement. U.S. Surgical cited its well-documented design-around program and the fact it had obtained three opinions of counsel. The trial court and Federal Circuit noted several problems with the opinions, including that one did not go toward infringement and the fact that one arrived after sales of the new product began (in addition to other evidence showing U.S. Surgical’s goal was to minimize the time to develop a new product and avoid the injunction). The Federal Circuit found the jury could have inferred from the evidence that U.S. Surgical sought legal opinions "for their potential evidentiary value on the issue of willful infringement in future litigation" and not as legitimate advice as to whether the new product infringed. In affirming the finding of willful infringement, the Federal Circuit rejected U.S. Surgical’s theory that there is a formula, based on obtaining legal opinions, to avoiding willfulness.

The Federal Circuit also held that the district court had not abused its discretion in allowing evidence of the prior litigation to be introduced to the jury, finding the information was relevant to the reasonable royalty analysis because the hypothetical negotiation would have been conducted in the wake of the prior verdict. The Federal Circuit noted the prior jury’s determination of willfulness was relevant because U.S. Surgical had, in effect, introduced the topic by tying the redesign effort to the desire to avoid another willfulness verdict.

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