No Lost Profits on Patented Products the Patentee Did Not Make or on Unpatented Products that Could Be Used Independently

Warsaw Orthopedic, Inc. v. NuVasive, Inc., __ F.3d ___ (Mar. 2, 2015) (Lourie, DYK, Reyna) (S.D. Cal.: Bencivengo/Anello) (2 of 5 stars)

Federal Circuit affirms liability findings on both parties' patents, but it reverses the entirety of Warsaw's lost profits award and vacates its pre-and post-verdict royalties.

Invalidity: One Warsaw patent was directed to an oversized spinal implant. Substantial evidence supported the finding of no anticipation or obviousness because a claim element was absent from the prior art. Moreover, the claims were not indefinite even though they recited the implant's size relative to a patient's vertebral dimensions because the average dimensions "are well-known, easily ascertainable, and well-documented in the literature." Slip op. at 7.

Infringement: With respect to another Warsaw patent, substantial evidence supported infringement by equivalents where the defendant's witnesses agreed its products were insubstantially different. Vitiation did not preclude an equivalency finding: "vitiation is not a separate argument from insubstantiality." Slip op. at 9 n.3. With respect to the NuVasive patent, substantial evidence infringement under the construction presented to the jury. Warsaw's post-trial arguments that one element should be narrowly interpreted based on prosecution history were untimely because it did not seek a construction including them until JMOL.

Lost Profits: Warsaw could not recover any of the lost profits awarded by the jury. First, it failed to prove that any "convoyed sales" of unpatented fixation rods and screws were functionally related to the patented implants. "If the convoyed sale has a use independent of the patented device, that suggests a non-functional relationship." Slip op. at 17. Warsaw never presented evidence that fixation "had no independent function," and marketing materials encouraging use of fixation with the patented implants simply suggested they were sold together for convenience. Second, Warsaw could not recover as "lost profits" the royalty payments on patented products it would have received from related corporate entities because Warsaw did not make those items itself. Third, Warsaw could not recover "true up" payments from a related entity as lost profits where it "makes no effort to distinguish what percentage of the true-up[] was attributable to payments [on the patented items] as opposed to payments on unrelated transactions" and the payments "are established on a company-by-company, not a technology-by-technology or even a product-by-product, basis." Id. at 20.

Other Damages Issues: Federal Circuit vacated the pre-verdict royalty award where it was unclear what period it covered or "whether the jury impermissibly relied on evidence not probative of the value of the patented technology." Slip op. at 21. Although it did not decide if Warsaw could use the licenses with its related companies on remand, the Federal Circuit cautioned that "royalties paid by related parties have little probative value as to the patent's value." Id. Federal Circuit declined to resolve an issue about what period the now-vacated damages award covered, because, on remand, the jury could award royalties for that period. Federal Circuit also vacated the ongoing royalty award because it "impermissibly includes a lost profits component." Id. at 24.