Masimo Corporation v. Philips Electronics North America Corporation et al
MEMORANDUM OPINION regarding patent misuse. Signed by Judge Leonard P. Stark on 5/18/2015. (rpg)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
C.A. No. 09-80-LPS
PHILIPS ELECTRONIC NORTH
AMERICA CORPORATION and
PHILIPS MEDIZIN SYSTEME
Julia Heaney, Jack B. Blumenfeld, MORRIS, NICHOLS, ARSHT & TUNNELL, LLP,
Joseph R. Re, Karen Vogel Weil, Jon W. Gurka, PerryD. Oldham, KNOBBE, MARTENS,
OLSON & BEAR, LLP, Irvine, CA
Attorneys for Plaintiff.
Richard L. Horwitz, David E. Moore, Bindu A. Palapura, POTTER, ANDERSON &
CORROON, LLP, Wilmington, DE
Brian A. Rosenthal, Alan M. Grimaldi, Ann Marie Duffy, Brian K. Andrea, Cody I. Gillians
MAYER BROWN, LLP, Washington, DC
Steven Yovits, MAYER BROWN, LLP, Chicago, IL
William Rooklidge, GIBSON DUNN, Irvine, CA
Gregory A. Castanias, JONES DAY, Washington, DC
Sasha Mayergoyz, JONES DAY, Chicago, IL
Attorneys for Defendants.
May 18, 2015
STARK, U.S. District Judge:
Pending before the Court is Plaintiffs Motion for Judgment on the Pleadings Pursuant to
Fed. R. Civ. P. 12(c). (D.l. 972) Plaintiff contends that Defendants cannot prevail on their
Tenth Defense of patent misuse regarding Masimo's '222 and '984 patents. For the reasons
below, Plaintiff's motion is denied.
'222 and '984 Patent Infringement
On February 3, 2009, Plaintiff Masimo Corporation ("Masimo" or "Plaintiff'') filed this
patent infringement action, alleging that Defendants Philips Electronic North American
Corporation and Philips Medizin Systeme Boblingen GMBH (collectively, "Philips'' or
"Defendants") infringed fourteen patents. (D.I. 1) In its initial answer, Philips contended that
Masimo's patents are invalid and that Philips did not infringe. (See D.l. 15) In addition, Philips
asserted patent misuse as an affirmative defense and brought antitrust counterclaims against
Masimo for alleged violation..-; of the Sherman and Clayton Acts. (Id.
iii! 105-06; see also D.I.
884 ~~ l 05-06) On April 19, 2010, Philips' patent misuse defense was bifurcated from issues
related to patent validity, and discovery related to patent misuse was stayed. (D.l. 86 at 10-11;
D.l. 118) Philips' antitrust counterclaims have also been bifurcated and stayed. (See D.I. 67 at
6, 10; D.I. 118)
A jury trial was held in September 2014 involving two ofMasimo' s patent-;-in-suit: U.S.
Patent Nos. 6,263,222 (the "'222 patent") and 7,215,984 (the '"984 patent"). The '222 and '984
patents are both entitled "Signal Processing Apparatus:' (D.l. 1, Exs. 4 ('222 patent) & 10 ('984
patent)) Claim 17 of the '222 patent, for example, recites ''[a] physiological monitor that
computes arterial oxygen saturation in tissue material having arterial and venous blood." ('222
patent at col. 7411. 57-59) According to claim 17, the monitoring apparatus comprises:
a light emitter which emits light of at least first and second
a light detector responsive to light from said light emitter
which has passed through body tissue having arterial and venous
blood, said light detector providing at least first and second
intensity signals associated with said at least first and second
wavelengths, each of said first and second intensity signals having,
during motion of the tissue, at least a first signal portion indicative
of arterial blood and a second signal portion indicative of motion
and a signal processor responsive to the first and second
intensity signals to calculate arterial oxygen saturation without
significant interference in the calculation from the motion induced
noise portion of the first and second intensity signals.
(Id. at col. 74 l. 60-col. 75 1. 8) Likewise, the system and method claims of the '984 patent
discuss ''an optical probe" and "a signal processing device.'' ('984 patent at col. 66 11. 17-20)
The asserted claim<> of the '222 and '984 patents do not mention cables for connecting the
sensor to the physiological monitor. (See generally '222 patent; '984 patent)
Philips' Stipulations of Infringement
In the Pretrial Order for the jury trial filed on August 18, 2014, Philips admitted
infringement ofMasirno's '222 and '984 patents as follows:
Philips concedes that it has directly and indirectly infringed
Claims 17 and 18 of the '222 Patent and Claims 1-5, 15-16, 19-20,
22 and 52-54 of the '984 Patent under the Court's claim
construction and summary judgment orders.
Specifically, this concession includes that Philips'
infringement has occurred literally for all the asserted clai1rn. In
addition, Philips' concession of indirect infringement includes
induced infringement and contributory infringement, as set forth
in 35 U.S.C. ~ 271(b) and (c). The infringing acts include the
making, using, selling, offering for sale, and importing of all
products containing the FAST algorithm (and sensors used
therewith). Philips concedes these infringing acts have been
occurring continuously since the issuance of the two asserted
(D.I. 834 at 4-5)
Trial on Validity and Damages
In September 2014, the Court held a ten-day trial in which the parties tried issues related
to validity and damages concerning Masimo's '222 and '984 patents. 1 At trial, Masimo sought
damages in the form oflost profits, which included "convoyed sales.'' (Trial Tr. at 2382-83)
Masimo also presented testimony that the sensors were part of the claimed system (Id. at 1091,
1094-95, 1128) Masimo sought damages that included a reasonable royalty related to pulse
oximeters, cables, and sensors fomring the claimed system. (Id. at 1123-24, 1162-64) On
October 1, 2014, the jury returned a verdict upholding the validity of the '222 and '984 patents
and awarding damages to Masimo of$466,774,783 for lost profits based on pulse oximeter
boards, cables, and sensors as compensation for Philips' infringement of the '222 and '984
patents. (D.I. 912 at 1-5)
Philips' Patent Misuse Defense
During post-trial proceedings, the parties infonned the Court that Philips' patent misuse
defense to Masimo's '222 and '984 patents remains to be litigated. (DJ. 966, 967) After the
parties sought the Court's guidance on how to proceed with respect to this defense. the Court
authorized Masimo to file a motion for judgment on the pleadings and ordered briefing. (D.I.
All citations to the trial transcript are in the fonnat "Trial Tr." followed by the page number.
985 (Post-trial Motions Hearing Transcript) at 220) On February 21, 2015, Masimo filed its
motion. (D.l. 972) The parties initially completed briefing on March 4, 2015. (D.I. 973, 978,
981) Philips then filed a motion for leave to file a sur-reply brief in opposition to Masimo's
reply brief (D.L 986). attaching its proposed sur-reply brief and in turn Masimo filed an
answering brief in opposition to the motion (D.I. 987), attaching its proposed response to the surreplybrief2
In its briefing. Philips summarizes its patent misuse defense as follows:
[Philips'] detailed allegations. if proven, show that Masimo has
engaged in unlawful licensing activities by tying its patented
articles to sales of commodity cables and sensors: that it has
employed an anticompetitive technology tie: and that it has
improperly bundled together sales of commodity products with
sales of products that practice the patent<;-in-suit.
(D.I. 978 at 1) In essence, through various alleged mechanisms, Masimo is accused of
"foreclos[ing] competition from non-infringing cables and sensors." (Id. at 2)
Judgment on the Pleadings
Failure to state a legal defense to a claim maybe raised by a motion under Rule 12(c).
See Fed. R. Civ. P. 12(h)(2)(B). Under Rule 12(c), "[a]fter the pleadings are closed- but early
enough not to delay trial - a party may move for judgment on the pleadings." Such a motion is
analyzed under the same standards that apply to a Rule 12(b)(6) motion. See Turhe v. Gov 't of
VI., 938 F.2d 427, 428 (3d Cir. 1991).
A majority of the district courts within the Third Circuit that have addressed the issue
Philips' motion for leave to file a sur-reply brief (D.I. 986) will be granted, as will Masimo's
alternative request for leave to file a response to that brief (D.l. 987).
have determined that the pleading requirements of Bell Atlantic Corp. v. Twomb(v, 550 U.S. 544
(2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), do not apply to the pleading of affirmative
defenses. See Bayer CropSci. AG v. Dmv AgroScis. LLC, 2011 WL 6934557, at *1 (D. Del. Dec.
30, 2011) ("While the Third Circuit has not yet opined as to whether Twombly/ Iqbal is
applicable to affirmative defenses, this Court agrees with those courts that have found
Twombly/Iqbal inapplicable to affirmative defenses."); see also Internet Media Corp. v. Hearst
Newspapers, LLC, 2012 WL 3867165, at *3 (D. Del. Sept. 6, 2012) ("In light of the differences
between Rules 8(a) and 8(c) in text and purpose, ... Twombly and Iqbal do not apply to
affirmative defenses, which need not be plausible to survive. [An affirmative defense] must
merely provide fair notice of the issue involved.") (internal quotation marks omitted);
XpertUniverse. Inc. v. Cisco
S:ys., Inc., 868 F. Supp. 2d 376, 386 n.3 (D. Del. 2012) Uoining "the
majority of the District Courts in the Third Circuit [that] have rejected the application of
Twombly and Iqbal" to affirmative defenses).
"Patent misuse is an affirmative defense to an accusation of patent infringement, the
successful assertion of which requires that the alleged infringer show that the patentee has
impermissibly broadened the physical or teniporal scope of the patent grant with anticompetitive
effect." Va. Panel Corp. v. MAC Panel Co., 133 F.3d 860, 868 (Fed. Cir. 1997) (internal
quotation marks omitted). "The key inquiry is whether, by iniposing conditions that derive their
force from the patent, the patentee has irnpermissibly broadened the scope of the patent grant
with anticonipetitive effect." C.R. Bard. Inc. v. M3
S:vs., Inc., 157 F.3d 1340, 1372 (Fed. Cir.
The courts have identified certain specific practices as constituting
per se patent misuse. including so-called "tying" arrangements in
which a patentee conditions a license under the patent on the
purchase of a separable, staple good and arrangements in which a
patentee effectively extends the term of its patent by requiring
post-expiration royalties ....
Va. Panel, 133 F.3d at 869 (internal citation omitted).
When a practice is not per se patent misuse, the practice may still constitute patent
misuse if it "has the effect of extending the patentee's statutory rights and does so with an
anticompetitive effect." Id. In those circumstances. the practice must be analyzed in accordance
with the "rule ofreason." Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700, 706 (Fed. Cir.
Under the rule of reason, the finder of fact must decide whether the
questioned practice imposes an unreasonable restraint on
competition. taking into account a variety of factors, including
specific information about the relevant business. its condition
before and after the restraint was imposed, and the restraint's
history, nature, and effect.
Va. Panel, 133 F.3d at 869 (internal quotation marks omitted).
Pursuantto 35 U.S.C. § 271 ( d), certain practices are exempt from the affirmative defense
of patent misuse (and are therefore permissible). These practices include:
condition[ing] the license of any rights to the patent or the sale of
the patented product on the acquisition of a license to rights in
another patent or purchase of a separate product, unless, in view of
the circunistances. the patent owner has market power in the
relevant market for the patent or patented product on which the
license or sale is conditioned.
35 U.S.C. § 27l(d)(5). Thus, under§ 27l(d), "in the absence of market power, even a tying
arrangement does not constitute patent misuse." Va. Panel, 133 F.3d at 869.
Masimo contends that Philips' affirmative defense is inadequately pled and also that it is
barred by the law of the case. (D.I. 973 at 2) Philips responds that its patent misuse affirmative
defense - which was stayed five years ago and upon which Philips has not had the opportunity to
take any discovery - satisfies the low pleading standard required for affirmative defenses.
Philips further argues that no prior ruling by this Court or any aspect of the jury's verdict bars it
from advancing its patent misuse defense, and also that its theory of misuse is consistent with
existing law. The Court agrees with Philips.
Sufficiency of Philips' Pleadings
Federal Rule of Civil Procedure 8( c) requires only that a defendant "affirmatively state
any ... affirmative defense.'' It does not require a statement "showing that the [defendant] is
entitled to" judgment on the defense. See also Fed. R. Civ. P. 8(a) (requiring "[a] pleading that
states a claim for relief' contain "a short and plain statement of the claim showing that the
pleader is entitled to relief'). Masimo improperly suggest'\ that to overcome a Rule 12(c)
motion, Philips was required to plead its affirmative defense with "particularity.'' (See D.I. 973
at 7) (citing Novo Nordisk A/Sv. Caraco Pharm. Labs., Ltd., 601F.3d1359, 1367 (Fed. Cir.
2010), rev 'd, 132 S. Ct. 1670 (2012)) 4
Naturally, some facts relevant to Philips' patent misuse defense have come to light during
discovery, motion practice, and trial that have occurred.
Novo Nordisk AIS, which said nothing about the pleading stage, does not impose any such
heightened pleading requirement. See 601 F.3d at 1363, 1367 (reviewing district court's grant of
injunction entered pursuant to grant of summary judgment on defendant's counterclaim).
Moreover, the Federal Circuit in Novo Nordisk AIS declined to adjudicate patent misuse. See id.
(rejecting appellee' s attempt to affirm injunction on independent basis of patent misuse where
district court declined to reach issue and no factual findings had been made).
Although Masimo has not formally moved to strike Philips' affirmative defense, it cites a
host of case law under Federal Rule of Civil Procedure 12(f). (D.l. 973 at 7-8) (citing, e.g.,
Takeda Pharn1. Co. v. Zydus Phann. USA Inc., 2011WL2115819, at *9 (D.N.J. May 25, 2011)
("[B]ald and conclusory assertions simply fail to state a claim under the appropriate standard.")).
Neither party has addressed whether Masimo' s motion should be treated as a motion to strike.
However, whether analyzed under Rule 12( c) or 12( f), the Court reaches the same conclusion.
Federal Rule of Civil Procedure 12(f) provides that a court "may strike from a pleading
any insufficient defense or any redundant, immaterial. impertinent, or scandalous matter." "A
court is not required to accept affirmative defenses that are mere 'bare bones conclusory
allegations,' and may strike such inadequately pleaded defenses." Sun Microsys .. Inc. v. Versata
Enters .. Inc., 630 F. Supp. 2d 395, 408 (D. Del. 2009). "Motions to strike are generally
disfavored and ordinarily are denied unless the allegations have no possible relation to the
controversy and may cause prejudice to one of the parties," id. at 400 (internal quotation marks
omitted), "or ifthe allegation..;; confuse the issues." Cadence Phann., Inc. v. Paddock Labs .. Inc.,
2012 WL 4565013, at *l (D. Del. Oct. 1, 2012). "A motion to strike will not be granted where
the sufficiency of the defense depends on disputed issues of facts or where it is used to determine
disputed and substantial questions oflaw." Id. (internal quotation marks omitted).
Masimo contends Philips' pleadings (taken as true) establish only antitrust violations
(which indisputably have been and remain bifurcated and stayed) that cannot sustain a claim for
patent misuse. "While proof of an antitrust violation shows that the patentee has committed
wrongful conduct having anticompetitive effects, that does not establish misuse of the patent in
suit unless the conduct in question restricts the use of that patent and does so in one of the
specific ways that have been held to be outside the otherwise broad scope of the patent grant."
Princo Corp. v. lnt'l Trade Comm 'n, 616 F.3d 1318, 1329 (Fed. Cir. 2010) (en bane). Given its
narrow scope, '·the defense of patent misuse is not available to a presumptive infringer simply
because a patentee engages in some kind of wrongful commercial conduct, even conduct that
may have anticompetitive effects." Id. Rather, patent misuse turns on whether the patentee has
leveraged its patent beyond the rights granted. See id. at 1328 ("Where the patentee has not
leveraged its patent beyond the scope of rights granted by the Patent Act, misuse has not been
Masimo goes to great lengths to characterize Philips' pleadings as stating, at best, an
antitrust claim having nothing to do with the patents-in-suit. (D.I. 973 at 8) This argmnent is
unavailing, as Philips' Amended Answer plainly alleges patent misuse. (D.I. 884 iJ 106
("Masimo has engaged in a systematic campaign to broaden the scope of its patent rights with
anticompetitive effect. As a result, Masimo has misused the ... '222 [and] '984 ... patents, and
is barred from asserting them against Philips under the equitable doctrine of patent misuse."),
105 (incorporating iii! 110-445 by reference)) On the basis of the pleadings in it<; Tenth Defense,
including the paragraphs incorporated by reference, Philips has provided adequate notice of its
affirmative defense at the pleading stage. Even in the context of a Rule 12( f) motion to strike,
the cases cited by Masimo make clear that notice of the existence of the defense is sufficient
under Rule 8(c). See Tyco Fire Prods. LP v. Victaulic Co., 777 F. Supp. 2d 893, 901 (E.D. Pa.
2011) ("Providing knowledge that the issue exists, not precisely how the issue is implicated
under the facts of a given case, is the purpose of requiring avennents of affirmative defenses.");
Malibu Media, LLC v. Doe I, 2013 WL 1702549, at *3 (E.D. Pa. Mar. 6, 2013) (same). 5
Philips has adequately pled its affirmative defense of patent misuse. Accordingly,
Masimo is not entitled to judgment on the pleadings based on purported inadequacies in how
Philips has stated its affirmative defense.
Philips' Theory of Patent Misuse
The Amended Answer contains factual allegations regarding the technology relevant to
Philips' theory of patent misuse. These allegations must, at this point, be taken as true.
Masimo' s contention that Philips will be unable to sustain its evidentiary burden is not a basis
for the relief Masimo seeks at this time.
In particular. the Amended Answer alleges that pulse oximetry is a non-invasive method
for measuring oxygen levels in the blood of a patient. (D.I. 884 ii 117) Pulse oximetry
measurements are produced by the combination of three distinct products: monitors, cables, and
sensors. (Id.) A sensor detects the amount oflight that is not absorbed through a patient's
tissue. (Id.) This information is transmitted from the sensor through a cable into a monitor.
(Id.) Via one or more algorithm<>, the monitor converts the information from tl1e sensor into a
measurement of a patient's blood oxygen level. (Id.) Pulse oximetry using sensors, cables. and
monitors was invented in the 1970s and introduced into the United States in the early 1980s, well
before Masimo was founded. (Id.) Monitors can function for up to ten years before needing to
be replaced. (Id.
ii 118) Cables and sensors, by contrast. are "consumables;" that is, staple
Philips' incorporation by reference oflater paragraphs in its Answer- some of which involve
allegations also supporting its separate counterclaims for violations of the Sherman Act and
Clayton Act, along with those supporting its claims of non-infringement, invalidity, and
inequitable conduct - does not establish Philips intends improperly to rely solely on its antitrust
claims unrelated to the patent<> in trying to prove its patent misuse defense.
commodity products that need to be replaced frequently over that same ten-year period. (Id.
Philips asserts that Masimo improperly expanded the scope of its patent rights over the
claimed pulse oximetry system by tying the sales of its patented monitors (and by tying licenses
it offered to the '222 and '984 patents) to sales of staple goods- i.e., the cables and sensors that
could also be produced by competitors. (D.I. 978 at 2) Philips asserts Masimo did this by using
(1) patent licensing and distribution agreements, (2) a technological lock-out, and (3) bundled
discounts, all of which foreclose competition from non-infringing rival cables and sensors. (Id.)
Contrary to Masimo's arguments, and as further explained below, at least the first of these
theories adequately states a claim of patent misuse on which Philips may ultimately prevail.
Per se patent misuse
Courts have recognized specific practices that constitute "per se patent misuse,"
including "so-called 'tying' arrangements in which a patentee conditions a license under the
patent on the purchase of a separable, staple good." Va. Panel, 133 F.3d at 869 (discussing
Morton Salt Co. v. G. S. Suppiger Co., 314 U.S. 488, 491 (1942). abrogated on other grounds by
Ill. Tool Works Inc. v. Indep. Ink, Inc., 547 U.S. 28 (2006)).
Philips' first basis for tying adequately alleges per se patent misuse. In Virginia Panel,
the Federal Circuit cited as an example of per se patent misuse the Supreme Court's holding in
Morton Salt. Va. Panel, 133 F.3d at 869. In Morton Salt, the Supreme Court held that a district
court rightly dismissed the patentee's complaint for want of equity where the patentee leased its
patented machines to commercial canners under licenses that allowed the use of the machines
"'upon condition and with the agreement of the licensees that only the subsidiary's salt tablets be
used with the leased machines." 314 U.S. at 491. The Court stated:
[i]t is the established rule that a patentee who has granted a license
on condition that the patented invention be used by the licensee
only with unpatented materials furnished by the licensor, 1nay not
restrain as a contributory infringer one who sells to the licensee
like 1naterials for like use.
Id. (citing Carbice Corp. of Am. v. Am. Patents Dev. Corp., 283 U.S. 27 (1931 )).
In turn, the Federal Circuit sitting en bane in Princo Corp. v. International Trade
Commission, 616 F.3d 1318 (Fed. Cir. 2010), restated as follows the holding in Carbice (which
had been discussed in Morton Salt) while reviewing the line of Supreme Court cases that gave
rise to the doctrine of patent misuse: a "patentee may exploit his patent but inay not 'use it to
acquire a monopoly not embraced in the patent."' Id. at 1327 (quoting Transparent-Wrap Mach.
Corp. v. Stokes & Smith Co., 329 U.S. 637, 643 (1947)). Carbice held it was improper for the
holder of a patent on "refrigerating transportation packages" for transporting and storing dry ice
to require licensees to purchase their dry ice - a single element recited in the claim ("frozen
carbon dioxide") - from the patent owner or its affiliates. Carhice, 283 U.S. at 29. 6
Philips alleges that Masimo conditioned sales of itc;; patented monitors on customers'
agreements to purchase Masimo sensors and cables, and by conditioning licenses of its
monitor-related patents (in litigation settlement agreements) on the licensees' agreement to
require customers to purchase Masimo sensors and cables. The Masimo sensors and cables are
alleged by Philips to be unpatented commodity products like those found in Morton Salt and
Morton Salt and Carhice were decided before the 1988 amendment to § 271 ( d), which "was
designed to confine patent misuse, with respect to certain licensing practices. to conduct having
anticompetitive effects." Princo, 616 F.3d at 1330. However, Carbice remains good law
governing patent misuse to the extent a patentee stretches the patent right beyond §§ 271 ( c) or
(d) or any other use properly within its grant.
Carbice; they are products with respect to which Masimo would otherwise face competition
from a variety of others. (D.I. 978 at4-5) (citingD.I. 884ilil 132, 137) Thus. again, Philips has
adequately stated a claim for per se patent misuse with respect to at least this first alleged tying
Section 27l(d) Exemptions
In narrowing the doctrine of patent misuse,~ 27l(d) provides five specific categories of
conduct that do not constitute patent misuse. See Va. Panel, 133 F.3d at 869 ("Congress,
however. has established that other specific practices may not support a finding of patent
misuse."). Masimo contends several of these exemptions entitle Masimo to judgment on the
pleadings. The Court disagrees.
Section 271 (d)( l) provides it is not misuse where a patentee "derived revenue from acts
which if performed by another without his consent would constitute contributory infringement of
Philips' second basis for alleging tying contends that Masirno' s ''ProCal" system functions as a
technological tie that expands the scope of Masi mo· s patented monitor and signal processing
products by excluding competing, non-infringing sensors and cables. (D.l. 978 at 5-6) (citing
D.I. 884 il~ 138-48) Philips' third basis is a bundled discounts theory alleging that Masimo
offers patented monitors to hospitals at no cost or substantially below production cost in
exchange for a comnitrnent that the hospital will enter into a long-term purchase agreement to
buy a minimum number of sensors and cables from Masimo over the course of a long-term
contract. (Id. at 6) (citing D.l. 884 ilil 149-55) As the Court has concluded that Philips may
proceed at least on its first basis for alleging tying, the Court does not at this time address the
legal sufficiency of Philips' additional two theories.
However, the Court does note that it rejects Masimo's contention- evidently based
solely on its reading (and not the only reasonable reading) of one sentence in one paragraph of
Philips' 84-page Amended Answer- that Philips alleges "Masirno's cables and sensors are
'patented."' (D.I. 981 at 2) (emphasis added) (citing D.I. 884 ~ 138 ("Masimo pulse oximeters
and pulse oximetry sensors employ a proprietary interface called 'ProCal.' The ProCal interface
is comprised of a patented resistor resident in MasinX>' s sensor, together with a software
program in the pulse oximeter that detects the presence of the resistor once upon insertion of the
cable and again prior to rendering a measurement."))
the patent.'' As such, Masimo may show the revenue it derived from sales ofMasimo sensors
and cables were properly within the scope of its rights by proving, for instance, that its
competitors in the pulse oxirretry market would have contributorily infringed the '222 and '984
patents by selling their own such sensors or cables. At this point, Masimo has not proven this is
so and has, at most, raised a factual dispute.
Similarly, pursuant to § 271( d)(5), Masimo's actions would not constitute patent misuse
ifMasimo "conditioned the license of any rights to the patent or the sale of the patented product
on the acquisition of a license to rights in another patent or purchase of a separate product
unless, in view of the circurru;tances, the patent owner has market power in the relevant market
for the patent or patented product on which the license or sale is conditioned." Philips has
adequately alleged Masimo has the requisite market power. (See D.I. 884 iii! 123, 124, 126)
(alleging Masimo, Philips, Nellcor, and Nonin are competitors in United States market for
monitors and Masimo controls at least 80% of such market) As this allegation must, at this
point, be taken as true, the Court cannot conclude that Masimo' s actioru; fall within the scope of
the statutory exemption from patent misuse.
Rule of reason
"When a practice alleged to coru;titute patent misuse is neither per se patent misuse nor
specifically excluded from a misuse analysis by§ 27l(d), a court must determine if that practice
is 'reasonably within the patent grant, i.e., that it relates to subject matter within the scope of the
patent claims."' Va. Panel, 133 F.3d at 869 (quoting Mallinckrodt, 976 F.2d at 708). "lfso. the
practice does not have the effect of broadening the scope of the patent claims and thus cannot
constitute patent misuse." Id. "If, on the other hand, the practice has the effect of extending the
patentee's statutory rights and does so with an anti-competitive effect, that practice must then be
analyzed in accordance with the 'rule ofreason, '" involving a factually intensive inquiry. Id.
Under the rule of reason, '"the finder of fact must decide whether
the questioned practice imposes an unreasonable restraint on
competition, taking into account a variety of factors, including
specific information about the relevant business, its condition
before and after the restraint was imposed, and the restraint's
history, nature, and effect."
Id. at 869 (internal citation omitted).
To the extent Philips has not stated a claim for per se patent misuse, it has at minimum
provided notice of a patent misuse claim that, taken as true, states patent misuse when evaluated
under the rule of reason. At most, Masimo has shown that there are factual disputes which will
need to be resolved through discovery and further proceedings. Again, Masimo has failed to
show that judgment on the pleadings is warranted.
Law of patent misuse
At various points, Masimo contends that Philips' theory of patent misuse contradicts
settled law. The Court has considered these arguments and concludes that they do not justify
granting Masimo judgment on the pleadings.
For instance, Masin10 places great emphasis on Philips' request to Judge Thynge, early in
this case, to certify the following question to the Federal Circuit for interlocutory review:
"Whether, a patent holder, wielding economic monopoly power over a patented article, may rely
on a 'system claim' to exclude aftermarket competition from commodity components of the
claimed system." (D.l. 72 at 10; see also D.I. 973 at 13 ("Philips' request for certification is
recognition that it lacks any viable legal basis to assert a defense of patent misuse.")) The Com1
finds nothing in Philips' request that supports Masin10's position that Philips' theory of patent
misuse is affirmatively barred as a matter of existing law. Rather, any lack of clarity in the law
(which is at least arguably implicit in Philips' request) counsels further against granting
judgment at this stage of the proceedings. See generally Cadence, 2012 WL 4565013, at *1
(stating motion to strike defense will not be granted "where it is used to detennine disputed and
substantial questions oflaw").
Elsewhere, Masimo contends that Philips' claim must fail because Philips has not alleged
that staple cables and sensors are "entirely separate products." Masimo bases this argument on
Senza-Gel Corp. v.
803 F.2d 66L 670 (Fed. Cir. 1986), which Masimo appears to
interpret as holding that if the patented invention expressly mentions a staple component as an
element, a patentee cannot be found to have irnpermissibly tied a license on the claimed method
or system to the patentee's own staple component because the component is a "necessary
concomitant of the invention." Again, the Court disagrees.
As an initial matter, Philips persuasively explains that ifMasimo's contention were
correct, it would follow that patentees could exercise control over a market well beyond the
scope of their invention - and innnunize the1rnelves against misuse claims - merely by drafting
system clai1rn that include every non-patented article that might possibly interact with the
patented article. (See D.I. 978 at 12-13) This is not the law. Furthermore, Philips expressly
alleged that staple sensors and cables are each separate products, each of which compete in
separate product market<; from monitors. (See D.I. 986-1 at 2) (citing D.I. 884 i!il 120-22)
Moreover, in Senza-Gel, the Federal Circuit affirmed summary judgment that the
patentee engaged in patent misuse under these very circumstances. See 803 F.2d at 669. The
evidence there established that the patentee never licensed its process patent without leasing its
"Macerator" machine which was "useable in carrying out a step of the patented process," and the
Court found the machine was a staple article of commerce. Id. at 667-68 (finding no clear error
in district court's conclusion that "the 1nachine as leased was suitable for substantial
non-infringing use and therefore a staple article of commerce"); see also Dawson Chem. Co. v.
Rohm & Haas Co., 448 U.S. 176, 213 (1980) ("[B]y enacting§§ 271(c) and (d), Congress
granted to patent holders a statutory right to control nonstaple goods that are capable only of
infringing use in a patented invention. and that are essential to that invention's advance over
prior art."). Interpreting the product separability analysis in Sen:::.a-Gel as Masimo does here
would contravene the case's holding affinning the patent misuse defense. See Senza-Gel, 803
F.2d at 667-68.
Finally, the language Masimo quotes fromSenza-Ge/ addressed a different proposition:
the distinction between what a court must look to in the "separate products'' analysis for tying in
the context of antitrust as compared to patent 1nisuse. A'> the Federal Circuit explained:
The law of patent misuse in licensing need not look to consumer
demand (which may be non-existent) but need look only to the
nature of the claimed invention as the basis for determining
whether a product is a necessary concomitant of the invention or
an entirely separate product. The law of antitrust violation,
tailored for situations that may or 1nay not involve a patent, looks
to a consumer demand test for determining product separability.
Id. at 670 n.14. Based on the nature of the invention as claimed here, Masimo's arguments are
unavailing. Cables are never recited in the asserted claim'> of the '984 or '222 patents.
Likewise, the claimed invention is not over an individual sensor. Nor is it over Masimo's
particular sensors, nor any aftennarket replacement sensor. The claimed invention of each of the
asserted claims is over a pulse oximetry system as a whole, which involves multiple components,
including a sensor alleged to be a staple article that on its own is capable of non-infringing use.
To the extent there remains a factual dispute over whether Philips can make the required
separability showing, Masimo has presented no argument as to why unpatented cables and
sensors are not "entirely separate products'' from the full read-through motion oximetry systems
claimed in the patents-in-suit based on "the nature of the claimed invention." Sen::a-Gel, 803
F.2d at 670. 8
Law of the Case
Masimo further contends that Philips' affirmative defense is barred by law of the case.
"The law of the case rules have developed to maintain consistency and avoid reconsideration of
matters once decided during the course of a single continuing lawsuit." Jn re Pharm. Benefit
Managers Antitrust Litig., 582 F.3d 432, 439 (3d Cir. 2009) (internal quotation marks omitted).
"[W]hen a court decides upon a rule oflaw, that decision should continue to govern the same
issues in subsequent stages in the same case. Law of the case directs a court's discretion, it does
not limit a tribunal's power." Arizona r.
460 U.S. 605, 618 (1983) (internal citation
omitted). For several reasons, Masimo's argument fails.
First, Masimo' s reliance on law of the case doctrine assumes that the Court could
broaden the scope ofMasimo's patent rights, but this is not correct. Essentially, Masimo argues
Masimo also points to Ricoh Co. v. Nashua Corp., 1999 WL 88969 at *6 (Fed. Cir. 1999),
which found the district court did not err in ruling that a tying claim failed because the accused
infringer failed to show that unpatented bulk toner and patented cartridges "could be sold
separately," where the toner was not only explicitly contemplated in the patent claims but also
was "a practical necessity in selling toner cartridges." In contrast to the Ricoh Court's reasoning
that a toner cartridge cannot practically be sold without toner in it, the record here makes clear
that at the very least, the claimed pulse oximeter system can be sold without cables or
replacement sensors. Indeed, both parties' damages analyses of the claimed systems suggest as
much. Moreover, any uncertainty or factual disputes on these points only illustrate again that
judgment on the pleadings is unwarranted.
that, having prevailed at trial on its asserted system claims - over a series of elements that
together make up an invention - it has proven that it also has patent rights over any individual
element of that system sufficient to defeat any claim of patent misuse involving such an element
(i.e., sensors or cables). However, the scope ofMasimo's rights are defined by the patent claims.
The Court cannot broaden those rights.
It is undisputed that Masimo has not patented a cable alone. Nor does Masimo have a
patent claim over a sensor alone. Masimo has claims over a systern. 9 In that system, sensors and
monitors (cables are not recited) are only components used by the claimed invention - they are
not the claimed system itself. (See, e.g., '222 patent at col. 741. 77 - col. 75 1. 8) (claiming
physiological monitor for computing arterial oxygen saturation in tissue material having arterial
and venous blood, comprising three elements: (i) "a light emitter" and (ii) "light detector''
(together, a sensor) as well as (iii) a "signal processor" that reads signals "without significant
interference" from "motion induced noise") Masin10 has a broad range ofrights in the '222 and
'984 patents, including the right to exclude direct infringement, inducement, and contributory
infringement. However, those rights are defined (by statute and the patent claims) and the Court
cannot broaden them.
Second, Masimo's contentions regarding law of the case rely on an overly broad
misinterpretation of Philips' pre-trial stipulations of infringement. In Masimo's view, Philips'
admissions of (i) direct infringement, (ii)
and (iii) contributory infringement, as well
as (iv) the damages analysis at trial, each establish that cables and sensors are "patented" and
The asserted claims consist of claim.<> 17 and 18 ofthe '222 patent and claims 1-5, 15, 19, 20,
22, 52, and 53 of the '984 patent. All of the asserted claims in the present action are method,
apparatus, or system claims relating to the recited pulse oximetry system
"within the scope" ofMasimo's system claims. The Court disagrees. Instead, Philips has not
conceded that Masi mo' s patent rights extend to all sensors and cables in the pulse oximetry
market. The Court agrees with Philips that it "did not concede that aftennarket sales of sensors
outside the complete system are infringing." (D.I. 978 at 19)
The core exclusionary right of a patent is the negative right of a patentee to "exclude
others from making, using, offering for sale, or selling the invention throughout the United
States or importing the invention into the United States.'' 35 U.S.C. § 154(a)(2). A patent, in
effect, provides a patentee with a btmdle ofrights that flow from the right to exclude. See
Vaupel Textilmaschinen KG v. Meccanica Euro Italia SPA, 944 F.2d 870, 875 (Fed. Cir. 1991 ).
"It is a bedrock principle of patent law that the claims of a patent define the invention to which
the patentee is entitled the right to exclude." Phillips v. AWH Corp., 415 F.3d 1303, 1312 (Fed.
Cir. 2005) (internal quotation marks omitted). The Patent Act provides a patentee with causes of
action for direct infringement pursuant to 35 U.S.C. § 271(a), as well as indirect infringement for
inducement under 35 U.S.C. § 27l(b), and contributory infringement under 35 U.S.C. § 271(c).
For direct infringement under§ 271(a), it is "well settled that each element of a claim is
material and essential, and that in order for a court to find infringement, the plaintiff must show
the presence of every element or its substantial equivalent in the accused device.'' Lemelson v.
United States, 752 F.2d 1538, 1551 (Fed. Cir. 1985) (emphasis added); see also Limelight
Network<;, Inc. v. Akamai Techs .. Inc., 134 S. Ct. 2111 (2014) ("A method patent claims a
number of steps ... [and] the patent is not infringed unless all the steps are carried out."). The
"all elements" rule is an important requirement, applying equally to literal infringement and
infringement by the doctrine of equivalents. See. e.g., Warner-Jenkinson Co. v. Hilton Davis
Chem. Co., 520 U.S. 17, 29 ( 1997) ("Each element contained in a patent claim is deemed
material to defining the scope of the patented invention, and thus the doctrine of equivalents
must be applied to individual elements of the claim not to the invention as a whole.").
In keeping with these principles, Philips conceded that the sales of (i) Philips monitors
with the FAST algorithm together with (ii) Philips sensors sold "therewith" constitute direct
infringement as they together form the complete system claimed by the '222 and '984 patents.
(D.I. 834 at 4-5) (emphasis added) As Philips' stipulation makes plain, however, Philips did not
concede that sales of aftennarket replacement sensors without a monitor containing the FAST
algorithm also constitute direct infringement. Hence, through its stipulation, Philips neither
expressly nor implicitly conceded that all competitor sensors (or cables) sold individually
without practicing the rest of the claimed system are "within the scope" of the '222 and '984
patents claims pursuant to§ 271(a). Accordingly, the law of the case on direct infringement
does not establish Masimo has separate rights over rival cables and sensors sold without the
For the same reasons, Masimo's stipulations of induced infringement and contributory
infringement do not establish law of the case warranting granting Masimo judgment on tl1e
pleadings on Philips' allegations of patent misuse. See 35 U.S.C. § 27l(b)-(c). "To prove
induced infringement, the patentee must show direct infringement and that the alleged infringer
knowingly induced infringement and possessed specific intent to encourage another's
infringement." Toshiba Corp. v. Jmation Corp., 681 F.3d 1358, 1363 (Fed. Cir. 2012) (internal
quotations omitted). "[I]nduced infringement under § 271 (b) requires knowledge that the
induced acts constitute patent infringement." Global-Tech Appliances, Inc. r. SEB SA., 131 S.
Ct. 2060 (2011 ). Thus, far from an exclusive right over the sale of all cables and sensors,
Masimo has the right to exclude an inducer's cables or sensors only where Masimo can establish
that direct infringement actually occurred and that the inducer (i) acted with the requisite intent
to cause acts by another that constituted direct infringement, (ii) knew of the patent (or exhibited
willful blindness), and (iii) knew or should have known its act would result in infringement of
the patent. Hence, the claimed system must be practiced, not just an individual element of it.
See Lemelson, 752 F.2d at 1551. Here, Philips' stipulation established only that through the
sales of monitors with the FAST algorithm and the sensors sold "therewitQ'' Philips acted as an
inducer and thus had infringed Masimo's right to exclude under those requisite circrnnstances.
(D.I. 834 at 4-5) Nothing about this stipulation established law of the case giving rise to the
rights now asserted by Masimo.
Under the doctrine of contributory infringement, a patentee has the right to exclude
components "especially made or especially adapted for use in an infringement of such patent,
and not a staple article or commodity of commerce suitable for substantial noninfringing m;e."
35 U.S.C. § 271 (c ). Thus, the right to prevent contributory infringement does not extend to all
rival sensors and cables. Here, Philips conceded that monitors containing the Philips FAST
algorithm contribute to infringement because an oximeter monitor that contains the FAST
algorithm would be a component especially adapted for an infringing ll<;e that cannot be used in a
non-infringing way. (See D.l. 834 at 4-5) Nothing in this stipulation creates law of the case that
gives Masin10 the broad rights it asserts in seeking judgment on the pleadings.
Finally, Masimo argues that the parties' damages theories, and the jury's damages
verdict. give rise to law of the case that warrants granting it judgment on the pleadings relating
to patent misuse. Masimo asserts that at trial both sides calculated damages based on Philips'
sale of pulse-oximetry boards with sensors and cables, and the jury awarded damages on this
basis. However, it is tmdear whether the jury awarded damages on the basis ofMasimo's
alternative theory of damages, based on its sales of cables and sensors along with the oximeter
monitors, under the doctrine of"convoyed sales.'' (Trial Tr. at 2382-83) See also DePuy Spine,
Inc. v. Medtronic Sofamor Danek, 567 F.3d 1314, 1333 (''A patentee may recover lost profits on
unpatented components sold with a patented item, a convoyed sale .... "). In any event, the
parties' damages calculations or the jury's award of damages owed on cables and sensors
involved in the infringing FAST pulse oximetry !tl:vstem do not create in Masimo a separate
patent right over the staple articles of cables and sensors, which were known in the prior art.
In sum, the law of the case doctrine does not provide a basis for granting Masimo
judgment on the pleadings on Philips' patent misuse defense.
Accordingly, for the reasons above, the Court will deny Masimo's motion for judgment
on the pleadings. An appropriate Order follows.
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