Hollister Incorporated v. Zassi Holdings, Inc. et al
FINDINGS OF FACT AND CONCLUSIONS OF LAW. Signed by Judge Timothy J. Corrigan on 3/30/2016. (SEJ)
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
HOLLISTER INCORPORATED, an
Case No. 3:13-cv-132-J-32PDB
ZASSI HOLDINGS, INC., a Florida
corporation and PETER VON DYCK,
FINDINGS OF FACT AND CONCLUSIONS OF LAW
In this bifurcated action, a jury previously ruled that Defendants Zassi
Holdings, Inc. and Peter von Dyck committed breach of contract and fraud in the
course of selling business technology to Plaintiff Hollister Incorporated. Now in the
non-jury damages phase, Hollister attempted to prove that but for these
transgressions, it would have prevailed in a patent infringement suit against its main
competitor, ConvaTec, Inc., and thus seeks to collect from Zassi and von Dyck the
patent damages it would have won from ConvaTec.
BACKGROUND AND PROCEDURAL HISTORY
manufactures, and markets health care products, including ostomy, continence,
critical care (including bowel management), and wound care products. Zassi is a
privately-held company that designs, develops, manufactures, and commercializes
In 2006, Hollister purchased the technology and intellectual property rights
related to a bowel management system (“BMS”) developed by Zassi and von Dyck,
Zassi’s founder and chief executive officer. Under the Asset Purchase Agreement (Pl.
Ex. 38), Hollister paid Zassi $35 million to acquire certain assets, including Zassi’s
interest in the patent applications that resulted in U.S. Patent Nos. 7,147,627 (“‘627
patent”), which issued on December 12, 2006 (Pl. Ex. 53), and 7,722,583 (“‘583 patent”),
which issued on May 25, 2010 (Pl. Ex. 54). 1 The patents involve a BMS used
principally in hospitals to contain and divert fecal matter for bedridden, incontinent
Shortly thereafter, Hollister began manufacturing, marketing, and selling
Zassi’s BMS device and rebranded it the ActiFlo device. During this time, Hollister
competed in the BMS marketplace with ConvaTec, a global company in the business
of making and selling health care products, including ostomy devices and BMSs. Like
Hollister, ConvaTec sold fecal management systems (“FMS”), including its Flexi-Seal
device and its subsequently released Flexi-Seal Signal device (“Signal”) (referenced in
combination as the “ConvaTec products”).
On October 7, 2010, shortly after the ‘583 patent had been issued, Hollister sued
C.R. Bard, Inc. and ConvaTec, its two main competitors in the BMS space, alleging
Court filings are identified by their document number on the docket, trial
testimony by “Tr.” followed by the volume of the transcript and cited pages, and the
parties’ trial exhibits by “Pl. Ex.” and “Def. Ex.” followed by the exhibit number.
that their products infringed at least one of the claims of the ‘583 patent.2 (Pl. Ex. 39).
On June 8, 2011, Hollister and Bard entered into a Settlement and Patent License
Agreement (the “Bard agreement”), in which Bard paid Hollister $6.65 million which
included a one-time, lump-sum payment for a fully-paid, worldwide license to use
certain claimed inventions of the ‘583 patent in Bard’s products. (Pl. Ex. 57).
ConvaTec, however, asserted that Hollister’s claim was barred by a settlement
agreement executed between ConvaTec and Zassi in 2005 (before Hollister acquired
the patent rights from Zassi), which released ConvaTec from present and future claims
for infringement as to the Flexi-Seal device.3 (Pl. Ex. 6). As Zassi’s assignee, Hollister
could not assert rights Zassi had released. Thus, ConvaTec moved for summary
judgment on Hollister’s claims based on the release in the settlement agreement, and
the court granted the motion, concluding that “Zassi and ConvaTec intended to release
ConvaTec from patent infringement claims relating to its Flexi–Seal® and Flexi–
Seal® Signal™ products.” Hollister Inc. v. ConvaTec Inc., No. 10 C 6431, 2011 WL
Bard’s accused product was the DigniCare Stool Management System. (Tr. I,
In October 1999, ConvaTec and Zassi entered into a Development and License
Agreement for the development and distribution of certain ostomy care products,
including a continent ostomy port. Under the agreement, the two companies shared
information about the continent ostomy port and related technology.
In 2001, ConvaTec and Zassi executed a Supply Agreement pertaining to the
manufacturing and supply of products consistent with their Development and License
Agreement. Disagreements arose between ConvaTec and Zassi, and in late 2005, they
resolved their disputes and executed a settlement agreement. That agreement
contained a provision at paragraph 10 in which Zassi forever released ConvaTec from
any past, present, or future claims, including claims for patent infringement, related
to ConvaTec’s FMS design, marketed as the Flexi-Seal FMS product. (Pl. Ex. 6).
2473662, at *4 (N.D. Ill. June 21, 2011), aff’d, Hollister Inc. v. ConvaTec Inc., 470 F.
App’x 904 (Fed. Cir. 2012).
In Hollister’s estimation, but for the release in the agreement between
ConvaTec and Zassi, which Hollister only learned of in 2010 after it sued ConvaTec
for patent infringement, Hollister would have obtained a substantial damages award
against ConvaTec. Therefore, following its unsuccessful suit against ConvaTec,
Hollister sued Zassi and von Dyck, claiming that Zassi breached the warranty of good
and marketable title contained in the Asset Purchase Agreement (Doc. 1 ¶¶ 42-49),
and that Zassi and von Dyck committed fraud by failing to disclose that Zassi had
released claims against ConvaTec that would make it impossible for Hollister to
enforce the patent rights it acquired from Zassi. (Id. ¶¶ 50-57).
The Court bifurcated the liability issues from damages for trial purposes. (Doc.
26). The measure of Hollister’s damages was more distinct from the liability issues
than in the usual case because Hollister’s damages involved complex proof of patent
infringement by ConvaTec, a non-party, and the amount of any resultant patent
The liability issues were tried to a jury on February 4 through February 7, 2014
before the Honorable Paul A. Magnuson.4 (Docs. 57, 60, 64, 72). On February 10, 2014,
the jury reached a verdict for Hollister on liability on both counts, finding, among other
things, that Zassi and von Dyck had defrauded Hollister by failing to disclose in the
Judge Magnuson is a Senior United States District Judge of the District of
Minnesota, who was sitting by designation in the Middle District of Florida during the
sale negotiations that they had released certain patent claims against ConvaTec. (Doc.
Shortly after the completion of the liability trial, Zassi and von Dyck’s attorneys
withdrew. (Doc. 84). New counsel appeared for Zassi and von Dyck, and after
unsuccessfully moving for a retrial, also withdrew. (Docs. 89, 138, 139, 144). After no
new counsel appeared, Hollister filed a Motion for Default Against Zassi Holdings, Inc.
(Doc. 147), and a clerk’s default was entered against Zassi on September 4, 2015 (Docs.
149, 150). New counsel later appeared on October 2, 2015 on behalf of von Dyck only
to contest damages. (Doc. 153).
Before the trial on damages, the Court issued its Markman Order construing
terms found in the patent in suit.5 (Doc. 110; Pl. Ex. 56). The Court then conducted a
three day non-jury damages trial from December 7 through December 9, 2015, the
record of which is incorporated herein.6 (Docs. 177-79). The parties submitted posttrial proposed findings of fact and conclusions of law (Docs. 186, 189), and Hollister
filed a post-trial brief and a reply (Docs. 187, 196).7 Von Dyck elected not to submit a
Zassi and von Dyck withdrew their request for claim construction (Doc. 105),
and therefore Hollister’s claim constructions (Doc. 106) were unopposed.
Pursuant to Federal Rule of Civil Procedure 38(d), the parties waived their
right to a jury trial on the damages phase and agreed to a non-jury trial before the
undersigned. (Doc. 164).
Because von Dyck submitted his Post-Trial Proposed Findings of Fact and
Conclusions of Law four days late, the Court struck without prejudice the submission
as untimely and provided von Dyck with an opportunity to explain the untimely filing.
(Doc. 190, 192). Von Dyck complied with the Court’s Orders (Docs. 191, 193), following
which the Court vacated its Order striking von Dyck’s filing, but the Court allowed
Hollister an opportunity to reply to von Dyck’s Post-Trial Proposed Findings of Fact
and Conclusions of Law (Doc. 195).
post-trial brief. In addition, at the Court’s direction at the conclusion of the trial,
Hollister filed a Proposed Default Judgment Order Against Zassi Holdings, Inc.8 (Tr.
III, 95:13-17; Doc. 188).
The Court has reviewed the extensive record, examined the evidence presented
at trial, 9 observed the witnesses, read the parties’ post-trial submissions, and
considered the arguments. The Court now makes the following findings of fact and
conclusions of law as required by Federal Rule of Civil Procedure 52(a).
Hollister’s Infringement Contentions
Hollister asserts five claims from the patent in suit: claims 1, 2, 3, 4, and 6 of
the ‘583 patent. (Tr. I, 105:1-3). The asserted claims relate to a BMS used to contain
and divert fecal matter for bedridden, incontinent patients. (Pl. Ex. 54). The device is
composed of a rectal catheter with various sections, each with different elasticity and
durometer hardness, and may be used to facilitate the collection of fecal matter for
patients requiring stool management, provide access for colonic irrigation, and provide
a conduit through which medications may be administered. (Id.). Claim 1 is an
The Court construes the proposed default judgment order as a motion for
default judgment against Zassi.
The Court has considered all of the evidence admitted at trial. The Court does
not include any evidence that it has rejected as unreliable or that it finds irrelevant.
To prove its damages case at trial, Hollister had to show by a preponderance
of the evidence that it would have obtained a verdict finding that the ConvaTec
products infringed its ‘583 patent and the resultant patent damages. Under this
standard, where the evidence to support a relevant finding was in dispute, the
undersigned has weighed the evidence on both sides to determine what facts “are more
likely true than not true.” Eleventh Circuit Pattern Jury Instructions (Civil Cases)
2013, Basic Instruction 3.7.1.
independent claim.11 (Tr. II, 159:13-15; Pl. Ex. 54, Column 11). Claims 2, 3, 4, and 6
are dependent claims and further limit the independent claim. (Tr. II, 159:16-24; Pl.
Ex. 54, Column 11). “Of course, infringement of a dependent claim also entails
infringement of its associated independent claim.” Honeywell Int’l Inc. v. Universal
Avionics Sys. Corp., 488 F.3d 982, 995 (Fed. Cir. 2007).
Hollister contends that the evidence establishes that the ConvaTec products
meet every limitation in the five asserted claims. (Doc. 186 at 8-13; Tr. I, 137-61).
Russell Genet, a patent lawyer and partner in the law firm of Nixon Peabody, testified
Claim 1 of the ‘583 patent covers:
1. A bowel management system comprising:
a rectally inserted catheter having a first catheter section having a patient
proximal opening that, when in position for normal use, is in a patient’s
rectum to receive bowel waste, and a second catheter section located distal
to the first section that, when in position for normal use, can be collapsed by
a patient’s anal sphincter muscles;
the first catheter section being sufficiently pliable to permit folding for insertion
into a patient’s rectum but following insertion permits flow of bowel waste
through the patient proximal opening;
the second catheter section permitting passage of bowel waste from the patient
and being sufficiently soft to permit retention within a patient’s anal canal
for extended periods of time; and
a balloon coaxial with, and extending radially outward relative to, the patient
proximal opening of the first catheter section for retaining the patient
proximal opening in a position for normal use where it opens into the rectum
of the patient, and the balloon having a proximal-most end coincident to a
proximal-most first end of the first catheter section, the balloon having an
inflated size sufficiently large so as to prevent migration of the first catheter
section out of the patient’s rectum through the patient’s anal canal without
being so large as to trigger a defecatory response in the patient.
(Pl. Ex. 54).
on Hollister’s behalf as its expert witness on both patent infringement and damages.
(Tr. I, 75:2-3).
Von Dyck asserts that the ConvaTec products do not meet the claim limitations,
arguing that claim 1 requires a rectal catheter with at least two distinct sections and
varying durometer hardness. (Doc. 189 at 11). Von Dyck contends that the ConvaTec
products do not have a rectal catheter with a first and second section as required by
claim 1; instead, they have a single catheter tube, and as a result do not infringe claim
1. He relies primarily on the ‘583 patent’s specifications, claim differentiation, and
prosecution history to support this theory. Von Dyck declined to retain an expert
witness to testify on his behalf, instead using the cross-examination of Genet to elicit
testimony to support his non-infringement arguments.12
Infringement analysis involves two steps: (1) claim construction, and (2)
comparison of the properly construed claims to the accused devices. Cook Biotech Inc.
v. Acell, Inc., 460 F.3d 1365, 1372 (Fed. Cir. 2006). The Court accomplished the first
step in its Markman Order. (Doc. 110). “To establish infringement, every limitation
set forth in a patent claim must be found in an accused product or process exactly or
by a substantial equivalent.” Laitram Corp. v. Rexnord, Inc., 939 F.2d 1533, 1535 (Fed.
Cir. 1991); see also Dynacore Holdings Corp. v. U.S. Philips Corp., 363 F.3d 1263, 1273
Although von Dyck, an inventor of the Zassi BMS, testified at trial, he was
not identified as an expert witness in accordance with Federal Rule of Civil Procedure
26(a)(2) and was precluded from providing expert testimony as to patent infringement.
See Centricut, LLC v. Esab Grp., Inc., 390 F.3d 1361, 1368 (Fed. Cir. 2004) (inventor
not qualified to testify as expert on infringement simply by virtue of being the
inventor). As a result, the only contrary evidence regarding infringement was the
cross-examination of Genet.
(Fed. Cir. 2004). “Literal infringement requires that each and every claim limitation
be present in the accused product.” Abraxis Bioscience, Inc. v. Mayne Pharm. (USA)
Inc., 467 F.3d 1370, 1378 (Fed. Cir. 2006). Hollister, as patentee, has the burden of
proving infringement by a preponderance of the evidence. Warner-Lambert Co. v. Teva
Pharm. USA, Inc., 418 F.3d 1326, 1341 n.15 (Fed. Cir. 2005). Based on the essentially
uncontradicted testimony of Genet, the Court finds that Hollister has proved that the
ConvaTec products meet all of the limitations of the asserted claims.13 (Tr. I, 13761).
Von Dyck’s Non-Infringement Positions
The core of von Dyck’s theory of non-infringement is that the ConvaTec products
contain a single catheter tube, while the asserted claims of the ‘583 patent require a
catheter tube with at least two distinct sections. Although von Dyck attempted to elicit
testimony supporting his non-infringement arguments through the cross-examination
of Genet, he failed to do so.
The differences between the Flexi-Seal and Signal products are
inconsequential to the infringement analysis because the features that were claimed
in the infringed claims of the ‘583 patent are present in both products. (Tr. I, 132:1020).
differentiation15—specifically, a comparison between certain non-asserted claims from
the ‘583 patent and claim 1 of the ‘627 patent—to underpin the argument that claim
1 of the ‘583 patent requires a catheter tube with two sections. To the extent that von
Dyck has implicitly asked the Court to reexamine its Markman ruling by introducing
new claim construction theories at trial, the Court declines.16
A person of ordinary skill in the art is “deemed to read the claim term not
only in the context of the particular claim in which [it] appears, but in the context of
the entire patent, including the specification.” Serverside Grp. Ltd. v. Tactical 8
Techs., L.L.C., 927 F. Supp. 2d 623, 647 (N.D. Iowa 2013) (quoting Deere & Co. v. Bush
Hog, L.L.C., 703 F.3d 1349, 1354 (Fed. Cir. 2012) (quotations marks and citations
omitted)). “While claim terms are understood in light of the specification, a claim
construction must not import limitations from the specification into the claims.” Id. To
put it another way, “although the specification often describes very specific
embodiments of the invention, [the Federal Circuit Court of Appeals has] repeatedly
warned against confining the claims to those embodiments.” Id. (citations omitted).
“In the most specific sense, ‘claim differentiation’ refers to the presumption
that an independent claim should not be construed as requiring a limitation added by
a dependent claim.” Curtiss-Wright Flow Control Corp. v. Velan, Inc., 438 F.3d 1374,
1380 (Fed. Cir. 2006) (citing Nazomi Commc’ns, Inc. v. Arm Holdings, PLC, 403 F.3d
1364, 1370 (Fed. Cir. 2005) (“[C]laim differentiation normally means that limitations
stated in dependent claims are not to be read into the independent claim from which
they depend.”)). “Thus, the claim differentiation tool works best in the relationship
between independent and dependent claims.” Id. (citing Liebel–Flarsheim Co. v.
Medrad, Inc., 358 F.3d 898, 910 (Fed. Cir. 2004) (citations omitted)). Indeed, the
statute stresses that a dependent claim must add a limitation to those recited in the
independent claim. See 35 U.S.C. § 112(d) (2012) (“[A] claim in dependent form shall
contain a reference to a claim previously set forth and then specify a further limitation
of the subject matter claimed.”).
Genet’s testimony bolsters the Court’s conclusion that von Dyck attempted
to engage in claim construction on cross-examination. For instance, Genet notes that
“this is claim construction . . . you look at the file history and look to the specification
to see if that makes any sense.” (Tr. II, 172:11-14). In addition, in response to a
question comparing ConvaTec and Hollister’s BMS products, Genet stated, “It doesn’t
make a difference from the patent standpoint, because . . . it becomes a claim
It is true that a district court may engage in claim construction during various
phases of litigation, not just in a Markman order. Conoco, Inc. v. Energy & Envtl. Int’l,
L.C., 460 F.3d 1349, 1359 (Fed. Cir. 2006). The Federal Circuit has recognized that
district courts may engage in “rolling claim construction, in which the court revisits
and alters its interpretation of the claim terms as its understanding of the technology
evolves.” Id. (quoting Guttman, Inc. v. Kopykake Enters., Inc., 302 F.3d 1352, 1361
(Fed. Cir. 2002)). Here, however, von Dyck had ample opportunity to engage in
thorough discovery and argument regarding claim construction. Instead, he withdrew
his request for claim construction (Doc. 105) and did not respond to Hollister’s claim
construction brief (Doc. 106), allowing the Court to rule on it unopposed (Doc. 110). At
no point prior to the damages trial did von Dyck request that the Court revisit
Markman issues. In any event, Genet’s expert testimony regarding the specifications
and the patent claims was unopposed at trial due to von Dyck’s decision not to retain
his own infringement expert, and von Dyck’s efforts to elicit testimony on cross
supporting non-infringement at trial were ultimately unsuccessful.
Claim Specifications and Limitations
In his Post-Trial Proposed Findings of Fact and Conclusions of Law, von Dyck
notes that the ‘583 patent contains several references to sections of the rectal catheter
as being distinct, each having a first and second end, connected to other sections of the
rectal catheter, and having varying durometer hardness. (Doc. 189 at 7). Specifically,
construction issue. . . . You have to find something in the patent specification that
limits it to that . . . and I don’t think it exists.” (Tr. II, 175-76).
he references the abstract, the summary of the invention, and the detailed description.
(Id. at 7-8; Tr. II, 160, 163-64). He also points out that certain non-asserted claims in
the ‘583 patent reference separate sections, and claim 1 of the ‘627 patent contains the
word “distinct,” referring to sections. (Doc. 189 at 6, 9-10).
Although von Dyck attempted to present evidence through cross-examination
that claim 1 of the ‘583 patent requires two distinct sections, Genet’s testimony belies
these efforts. He stated that “the specification in the file history, I don’t think requires
this type of design, the [two-section] design in the [Hollister] ActiFlo . . . where you
actually have . . . different materials that are glued together as very separate pieces.
I don’t think that that’s required by the patent.” (Tr. II, 170:14-19). Further, he
testified that “there’s no language that would say – in the spec [specification] that
would say that you have to make this device with two very different sections of
different material of different durometers.” (Tr. II, 173:9-12).
In fact, the Hollister ActiFlo’s two-section catheter tube is simply a “preferred
embodiment.” (Tr. II, 173:12). In other words, under the limitations of claim 1, a party
may make a catheter tube with one section of one durometer hardness and infringe
that claim, even though the preferred embodiment, such as the ActiFlo device,
comprises two sections. ConvaTec did so with the Flexi-Seal. Genet explained the way
in which ConvaTec’s Flexi-Seal has distinct sections, even though it is made of one
silicone tube and has the same material from start to end: “[T]here is a distinct section
of [the ConvaTec] catheter that is within the patient’s rectal vault” and “there’s also a
distinct section of this catheter that transverses the . . . sphincter region.” (Tr. II,
170:3-7). Thus, he opined that there are “distinct sections . . . of the ConvaTec product
when you look at how it is used in a patient.” (Tr. II, 170:10-11). Upon further
questioning by the Court, Genet explained that while the preferred embodiment sold
by Hollister contains multiple sections, “the claims don’t require it to be made that
way.” (Tr. II, 171).
The claims of the patent define the invention, and it is improper for the Court
to read into those claims limitations that simply are not there. 35 U.S.C. § 112; Envtl.
Designs, Ltd. v. Union Oil Co. of California, 713 F.2d 693, 699 (Fed. Cir. 1983), cert.
denied, 464 U.S. 1043 (1984). Despite von Dyck’s numerous comparisons of claim 1
with the specifications and other non-asserted claims’ language, claim 1 does not
contain language requiring “distinct” sections of the catheter tube or separate
materials. (Tr. II, 171).
While ConvaTec has succeeded in constructing a catheter tube that is different
from Hollister’s commercial embodiment of its invention, or even the embodiments
described in the patent specifications, ConvaTec’s invention nevertheless falls within
the scope of Hollister’s claim, which defines the scope of Hollister’s right to exclude.
The accused devices—here, the ConvaTec products—must be compared to the claim
language as interpreted. Amgen Inc. v. Hoechst Marion Roussel, Inc., 314 F.3d 1313,
1324 (Fed. Cir. 2003). “It is the claims that measure the invention,” id. at 1325 (citation
and quotation marks omitted), and the claims are not to be limited to the embodiments
disclosed in the specification. Id. at 1328. “[T]he scope of the asserted claims may be
ascertained from the plain language of the claims.” Prima Tek II, L.L.C. v. Polypap,
S.A.R.L., 318 F.3d 1143, 1151 (Fed. Cir. 2003). The broad language of claim 1 reaches
the ConvaTec products and affords Hollister the right to exclude the ConvaTec FlexiSeal products.
Von Dyck also argues that the infringement position Hollister took in this case
regarding claim 1 is inconsistent with the position it was required to take to get the
‘583 patent issued, and thus Hollister should be estopped from asserting infringement
of claim 1. (Tr. II, 156:19-23). At trial, von Dyck guided Genet through amendments
in the file wrapper17 of the ‘583 patent18 in an apparent effort to demonstrate that at
the time Hollister assumed responsibility for prosecuting the application for what
would eventually become the ‘583 patent, there were certain specifications that were
removed before the final claims were issued. (Tr. II, 140-43).
According to the United States Patent and Trademark Office’s Manual of
Patent Examining Procedure, “[t]he electronic file record in which the U.S. Patent and
Trademark Office maintains the application papers is referred to as an image file
wrapper. The electronic file record is the official record of the application.” MPEP
Hollister’s post-trial brief states that von Dyck cross-examined Genet
extensively about the ‘627 file wrapper. (Doc. 187 at 5 n.3). The Court has reviewed
the transcript and, while the record is not a model of clarity, believes von Dyck in fact
cross-examined Genet about the ‘583 file wrapper. (Tr. II, 121:22-24).
Von Dyck mistakenly had the ‘627 file wrapper on the projector and substituted
the ‘583 file wrapper after realizing the error. Regardless, Hollister correctly notes
that von Dyck never provided Hollister, or the Court for that matter, a copy of the file
wrappers, and he never formally offered either file wrapper as evidence. (Doc. 175). As
a result, the Court only has Genet’s cross-examination testimony to consider in
evaluating the strength of von Dyck’s prosecution argument.
To the extent that von Dyck contends that Hollister is barred by prosecution
history estoppel from asserting that claim 1 does not require distinct sections, this
theory is inapplicable because Hollister does not assert a theory of infringement under
the doctrine of equivalents.19 “Prosecution history estoppel ensures that the doctrine
of equivalents remains tied to its underlying purpose” by requiring that where an
amendment narrows the scope of the claims and that amendment is adopted for a
substantial reason related to patentability, the amendment gives rise to a
presumption of surrender for all equivalents that reside in “the territory between the
original claim and the amended claim.” Envtl. Mfg. Sols., LLC v. Peach State Labs,
Inc., No. 6:09-CV-395-ORL, 2011 WL 1262659, at *15 (M.D. Fla. Mar. 31, 2011)
(quoting Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., 535 U.S. 722, 734,
740 (2002)). “Whether prosecution history estoppel applies to a particular argument,
and thus whether the doctrine of equivalents is available for a particular claim
limitation, is a question of law.” Intervet Inc. v. Merial Ltd., 617 F.3d 1282, 1290–91
(Fed. Cir. 2010). Here, Hollister does not assert that the ConvaTec products infringe
the ‘583 patent under the doctrine of equivalents. Rather, Hollister contends that the
ConvaTec products literally infringe the ‘583 patent. (Tr. II, 230:21-231:3).
Accordingly, the doctrine of prosecution history estoppel is inapplicable to Hollister’s
Hollister construed von Dyck’s cross-examination of Genet regarding the file
wrapper as geared toward a prosecution history estoppel argument. (Tr. II, 202).
Similarly, to the extent von Dyck construes his argument as one of prosecution
disclaimer, there is insufficient proof that Hollister (or its predecessors) made an
unambiguous disavowal of “one section” during prosecution. The doctrine of
prosecution disclaimer precludes patentees from recapturing through claim
interpretation specific meanings disclaimed during prosecution. Omega Eng’g, Inc. v.
Raytek Corp., 334 F.3d 1314, 1323 (Fed. Cir. 2003) (quotations omitted) (citing
Schriber–Schroth Co. v. Cleveland Trust Co., 311 U.S. 211, 220–21, (1940) (“It is a rule
of patent construction consistently observed that a claim in a patent as allowed must
be read and interpreted with reference to claims that have been cancelled or rejected,
and the claims allowed cannot by construction be read to cover what was thus
eliminated from the patent.”)). The Federal Circuit, however, declines to apply the
doctrine of prosecution disclaimer where the alleged disavowal of claim scope is
ambiguous. Id. at 1324. Consequently, for prosecution disclaimer to attach, Federal
Circuit precedent requires that the alleged disavowing actions or statements made
during prosecution be both clear and unmistakable. Id. at 1325-26.
As an initial matter, Genet testified that he was “not involved . . . in patent
prosecution work” on the ‘583 patent and that he would “not have any personal
knowledge outside of what was actually filed on behalf of Hollister by the previous
attorneys of record.” (Tr. II, 148:7-17). As such, the Court accords his testimony
regarding the patent prosecution history considerably less weight than his opinions
regarding literal infringement of the ‘583 patent. While von Dyck succeeded in eliciting
testimony from Genet that certain language appeared in the file wrapper and that the
patentee indeed amended the application, the Court’s review of the record reveals no
“clear and unmistakable” evidence of the patentee’s disavowal of one catheter
section.20 In fact, when asked “would you agree that within . . . those arguments there
was an argument that there were two distinct sections of the catheter that were
embodied in the ‘583 claims and there were not two distinct sections in the catheter
that was involved in [the prior art],” (Tr. II, 147:11-15), Genet responded, “[N]o, I don’t
remember that being one of the arguments” (Tr. II, 147:16-17).
Moreover, on redirect examination, Genet pointed out that the inventor did not
distinguish the cited prior art reference by arguing that the presence of two distinct
catheter sections was the difference. (Tr. II, 202-03).
Q: And what you reviewed in the argument to the examiner
that ultimately led to the allowance of the ‘583 patent, did
Hollister’s counsel ever argue that the claim should be
allowed because they do not—they require different
material and different sections of a catheter, whereas [the
prior art] did not?
A: No. That—that argument was not made. They did not
argue you required different materials of different
(Tr. II, 203:6-13).
Therefore, in light of the evidence, the Court does not find prosecution disclaimer.
Accordingly, having rejected von Dyck’s arguments, the Court concludes that
Hollister has proven that the ConvaTec products literally infringe the ‘583 patent.21
Neither party offered the file wrapper of the ‘627 or ‘583 patent as evidence.
The Court makes this finding on this record in this breach of contract and
fraud action. This finding is not intended to serve as precedent in any future patent
infringement action involving these patents.
Having found infringement, the Court determines that Hollister has been
damaged as a proximate result of Zassi’s breach of contract and Zassi and von Dyck’s
misrepresentations regarding Zassi’s release of patent claims against ConvaTec. The
measure of damages is the amount of money that would put Hollister in as good a
position as it would have been in if the Defendants had not breached the contract or
made the misrepresentations and omissions at issue. See Florida Standard Jury
Instructions (Contract and Business), 504.1 and 504.2; Nordyne, Inc. v. Florida Mobile
Home Supply, Inc., 625 So. 2d 1283, 1287 (Fla. Dist. Ct. App. 1993) (benefit of the
bargain rule is appropriate damages measure in fraud case). Applying this measure,
Hollister’s damages constitute the amount it could have recovered against ConvaTec
in patent damages if the release that Zassi gave to ConvaTec in the settlement
agreement had not precluded a patent claim. Thus, Hollister is entitled to damages as
prescribed by patent law.
Assessing and computing damages under the patent statute, 35 U.S.C. § 284, is
a matter within the sound discretion of the district court. Yarway Corp. v. Eur–Control
USA, Inc., 775 F.2d 268, 275 (Fed. Cir. 1985); King Instrument Corp. v. Otari Corp.,
767 F.2d 853, 863 (Fed. Cir. 1985), cert. denied, 475 U.S. 1016 (1986). Patent damages
attempt to assess the difference between the patentee’s pecuniary condition after the
infringement and what his condition would have been if the infringement had not
occurred. Yale Lock Mfg. Co. v. Sargent, 117 U.S. 536, 552 (1886). The burden of
proving damages falls on the patentee, Hollister. Dow Chem. Co. v. Mee Indus., Inc.,
341 F.3d 1370, 1381 (Fed. Cir. 2003). To properly carry this burden, Hollister must
sufficiently tie the expert testimony on damages to the facts of the case. Uniloc USA,
Inc. v. Microsoft Corp., 632 F.3d 1292, 1315 (Fed. Cir. 2011) (citation and quotation
marks omitted). Damages can be proven using two alternative methods: lost profits
and the reasonable royalty.22
Hollister’s Damages Framework
Hollister’s benchmark for a reasonable royalty is based on the Bard settlement
agreement, executed after Hollister had filed a patent infringement case against Bard
for infringing the ‘583 patent. (Tr. I, 166-67; Pl. Ex. 57). The agreement required
Hollister to dismiss the case and provided Bard with a fully paid-up non-exclusive
license to the ‘583 patent, its parent patent, the ‘627 patent, as well as any children of
the ‘583 or ‘627 patents. (Tr. I, 167:7-10). The license also covered the patents’ foreign
counterparts to provide “world peace on the patent family.” (Tr. I, 167-68). As part of
the settlement agreement, Bard paid Hollister $6.65 million, a one-time, lump-sum,
non-refundable payment. (Tr. I, 168:21-169:1). However, the method of calculating the
$6.65 million payment is not specified in the agreement. The Bard agreement
characterizes the $6.65 million payment as “consideration of the release set forth in
Article 3.1, the license set forth in Article 3.2, and the covenant set forth in Article
3.3,” but does not break out the amount allocated for the license or characterize the
payment as a royalty. (Pl. Ex. 57 at 3 ¶ 2.1).
Hollister submits that it would have offered ConvaTec a license identical in
scope to the Bard agreement to settle the infringement suit, with adjustments to the
Hollister does not seek damages based on its lost profits.
dollar amount based on ConvaTec’s market share. (Tr. I, 170:10-25). To determine
market share, Hollister obtained data from the Global Health Exchange (“GHX”), an
industry organization that collects United States market data of medical device
companies and reports on their sales. (Tr. I, 171-72; Pl. Ex. 58). Seamus Kavanagh,
Hollister’s Vice President of Business Development, testified that many health care
companies subscribe to GHX and rely on GHX’s market reports. (Tr. I, 29-30). The
data presented at trial represented ConvaTec, Bard, and Hollister’s sales in the
number of BMS kits per quarter, beginning in 2007. 23 (Tr. I, 171-72). Using this
information, Hollister determined the market share by calculating what percentage of
the total sales was sold by each company.
To calculate its reasonable royalty, Hollister used the date on which the Bard
agreement was signed (June 2011 or Q2 2011) and looked at the total sales in the
marketplace in that quarter. (Tr. I, 175-76; Pl. Ex. 60). The total kits sold in Q2 2011
were 93,400 units, ConvaTec’s total kits sold were 68,984, and Bard’s total kits sold
were 18,034. (Tr. I, 176). By dividing ConvaTec’s share by the total number of kits
sold, Genet calculated that ConvaTec had a 74 percent market share. (Tr. I, 177:21).
Bard’s market share was 19 percent. (Tr. I, 178:2). Genet then determined that
ConvaTec’s market share is 3.89 times larger than Bard’s by dividing ConvaTec’s 74
percent market share by Bard’s 19 percent market share. (Tr. I, 178:16-20). Genet
calculated Hollister’s damages by multiplying the amount Bard paid Hollister in the
Genet testified that Hollister’s team used 2007 because it was the date
available to them. (Tr. I, 172:4-6).
Bard agreement ($6.65 million) times ConvaTec’s market share (3.89) to arrive at a
reasonable royalty of $25,868,500. (Tr. I, 178:21-25). Hollister also seeks $5,756,449.98
in prejudgment interest for a total damages award of $31,624,949.98, plus
postjudgment interest and costs.24 (Doc. 186 at 17-18).
To justify this calculation as a reasonable royalty, Genet explained that the
existence of the Bard agreement presented a “unique situation” in which to calculate
Hollister’s damages. (Tr. I, 180:20). Although comparable licenses offered as evidence
of patent damages typically contain “all kinds of variables,” such as “differences
between the license[d] technology and what the parties are providing and the scope in
terms of the license,” Genet opined that this case is “unique” because the marketplace
consists of only three competitors selling very similar products. (Tr. I, 180:19-181:24).
According to Genet, the terms that Hollister would have offered to ConvaTec are
exactly the same terms that were offered to Bard, including identical patents. (Tr. I,
181:6-18). Moreover, the Bard agreement contains the only license that Hollister has
for its patents. (Tr. I, 183:11-12).
The Bard agreement, the numerical extrapolations from GHX data, and Genet’s
testimony constitute the only evidence of a reasonable royalty offered by Hollister. Von
Dyck did not (nor was he required to) retain his own damages expert or provide an
alternative method for calculating damages. 25 With only its damages model in
Hollister made a typographical error at paragraph 79, where it wrote
$5,756,559.98 instead of $5,756,449.98. The error does not affect Hollister’s total
damages request of $31,624,949.98. (Doc. 186 at 17-18).
At trial and in his Post-Trial Proposed Findings of Fact and Conclusions of
Law, von Dyck raised several arguments in an attempt to “poke holes” in Hollister’s
evidence, Hollister frames the Court’s damages analysis as “a Hobson’s choice of either
awarding Hollister the entirety of what it claims (as established by competent
evidence) or nothing.” (Doc. 187 at 18).
In its Post-Trial Proposed Findings of Fact and Conclusions of Law, Hollister
characterizes the benchmark it used for its calculation of a reasonable royalty for
ConvaTec as an “established royalty” insomuch as it is based on Hollister’s settlement
with Bard. (Doc. 186 at 14).
A reasonable royalty is the floor below which patent damages shall not fall.
Bandag, Inc. v. Gerrard Tire Co., 704 F.2d 1578, 1583 (Fed. Cir. 1983). To calculate
the reasonable royalty, patentees generally consider a hypothetical negotiation in
which the asserted patent claims are assumed valid, enforceable, and infringed, and
attempt “to ascertain the royalty upon which the parties would have agreed had they
successfully negotiated an agreement just before infringement began.” Multimedia
theory of damages, including arguing that Hollister may not obtain a judgment for
fraud against Zassi and von Dyck due to certain allegedly exculpatory provisions in
the Hollister/Zassi Asset Purchase Agreement, Hollister’s failure to mitigate damages,
and the independent tort doctrine. (Doc. 189 at 28-30).
As Hollister suggested at trial and in several of its briefs, although the Court
gave von Dyck significant leeway at the damages trial to present these arguments,
they were more appropriate for the liability phase and cannot now serve to reduce or
eliminate Hollister’s damages. Moreover, even if these arguments were properly before
the Court, von Dyck has provided no basis for the Court to apply them to the damages
calculation. Instead, he merely suggests that these theories demonstrate that Hollister
has not sufficiently proven its damages. (Tr. II, 107). Because the Court does not rely
on these arguments in analyzing Hollister’s damages request, it need not address
Patent Trust v. Apple Inc., No. 10-CV-2618-H KSC, 2012 WL 5873711, at *2 (S.D. Cal.
Nov. 20, 2012) (quoting Lucent Tech., Inc. v. Gateway, Inc., 580 F.3d 1301, 1324-25
(Fed. Cir. 2009)). This hypothetical negotiation “necessarily involves an element of
approximation and uncertainty.” Lucent, 580 F.3d at 1325; see also Fromson v. W.
Litho Plate & Supply Co., 853 F.2d 1568, 1574 (Fed. Cir. 1988), overruled by KnorrBremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp., 383 F.3d 1337 (Fed. Cir.
2004) (overruled on other grounds) (“Determining a fair and reasonable royalty is often
. . . a difficult judicial chore, seeming often to involve more the talents of a conjurer
than those of a judge.”). “Still, a reasonable royalty analysis requires a court to
hypothesize, not to speculate.” ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860, 869
(Fed. Cir. 2010). “A damages theory must be based on ‘sound economic and factual
predicates.’” LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51, 67 (Fed. Cir.
2012) (quoting Riles v. Shell Exploration & Prod. Co., 298 F.3d 1302, 1311 (Fed. Cir.
A hypothetical negotiation can result in either a lump-sum license or a running
royalty license. See Lucent, 580 F.3d at 1326. Here, we are dealing with a lump-sum
license which is an up-front payment in full for the invention that involves uncertainty
about “whether the technology is commercially successful or even used.” Id.
In determining the reasonable royalty that would have been agreed to at the
hypothetical negotiation, parties in patent cases frequently utilize the fifteen factors
enunciated in Georgia–Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116, 1120
(S.D.N.Y. 1970). 26 The Federal Circuit has expressly “sanctioned the use of the
Georgia–Pacific factors to frame the reasonable royalty inquiry,” Uniloc, 632 F.3d at
1317, and courts use the Georgia–Pacific framework to calculate lump-sum royalty
figures. Lucent Techs., Inc. v. Microsoft Corp., No. 07-CV-2000 H CAB, 2011 WL
7664416, at *4 (S.D. Cal. June 16, 2011). Accordingly, the Court now considers
Hollister’s proffered evidence under Georgia–Pacific.
Established or Reasonable Royalty
Georgia–Pacific factor 1 concerns “the royalties received by the patentee for the
licensing of the patent in suit, proving or tending to prove an established royalty.”
Georgia–Pacific, 318 F. Supp. at 1120. The Court first looks to see whether Hollister
has offered proof of an established royalty.
These are the factors: (1) royalties the patentee has received for licensing the
patent to others; (2) rates paid by the licensee for the use of comparable patents; (3)
the nature and scope of the license (exclusive or nonexclusive, restricted or
nonrestricted by territory or product type); (4) any established policies or marketing
programs by the licensor to maintain its patent monopoly by not licensing others to
use the invention or granting licenses under special conditions to maintain the
monopoly; (5) the commercial relationship between the licensor and licensee, such as
whether they are competitors; (6) the effect of selling the patented specialty in
promoting sales of other products of the licensee; (7) the duration of the patent and
license term; (8) the established profitability of the product made under the patent,
including its commercial success and current popularity; (9) the utility and advantages
of the patent property over old modes or devices; (10) the nature of the patented
invention and the benefits to those who have used the invention; (11) the extent to
which the infringer has used the invention and the value of that use; (12) the portion
of profit or of the selling price that may be customary in that particular business to
allow for use of the invention or analogous inventions; (13) the portion of the realizable
profit that should be credited to the invention as opposed to its non-patented elements;
(14) the opinion testimony of qualified experts; and (15) the results of a hypothetical
negotiation between the licensor and licensee. Georgia–Pacific, 318 F. Supp. at 1120.
“Keeping in mind that section 284 commands that damages should be no less
than a reasonable royalty, the Court notes that the Federal Circuit has held that a
reasonable royalty ‘may be based upon an established royalty, if there is one, or if not
upon a hypothetical royalty resulting from arm’s length negotiations between a willing
licensor and a willing licensee.’” Mobil Oil Corp. v. Amoco Chems. Corp., 915 F. Supp.
1333, 1342 (D. Del. 1994) (quoting Hanson v. Alpine Valley Ski Area, Inc., 718 F.2d
1075, 1078 (Fed. Cir. 1983)); see also Rude v. Westcott, 130 U.S. 152, 165 (1889) (“It is
undoubtedly true that where there has been such a number of sales by a patentee of
licenses to make, use and sell his patents, as to establish a regular price for a license,
that price may be taken as the measure of damages against infringers.”).
If an established royalty is found, it is generally deemed the best measure of
damages for infringement. Mobil, 915 F. Supp. at 1342 (citing Hanson, 718 F.2d at
1078) (“‘Where an established royalty rate for the patented inventions is shown to
exist, the rate will usually be adopted as the best measure of reasonable and entire
compensation.’”). For a patentee’s negotiated royalties to constitute an “established”
royalty they must meet five criteria: (1) they must be paid or secured before the
infringement began; (2) they must be paid by a sufficient number of persons to indicate
the reasonableness of the rate; (3) they must be uniform in amount; (4) they must not
have been paid under threat of suit or in settlement of litigation; and (5) they must be
for comparable rights or activity under the patent. Id. (citing Studiengesellschaft
Kohle m.b.H. v. Dart Indus., Inc., 666 F. Supp. 674, 680 n.6 (D. Del. 1987)). Because
of these stringent criteria, few courts have actually found an established royalty. Id.
(citing Julien v. Gomez & Andre Tractor Repairs, Inc., 512 F. Supp. 955 (M.D. La.
To the extent that Hollister offers the Bard agreement as proof of an established
royalty, it does not meet at least two of the criteria outlined in Mobil. The agreement
was executed on June 8, 2011, over one year after the infringement allegedly began on
May 25, 2010. (Pl. Ex. 54, 57). In addition, it was paid in settlement of litigation.
Because all five criteria must be met to constitute an established royalty, the Bard
settlement agreement does not constitute an established royalty. See Trell v. Marlee
Elecs. Corp., 912 F.2d 1443, 1446 (Fed. Cir. 1990) (“A single licensing agreement,
without more, is insufficient proof of an established royalty.”).
Nevertheless, the Court will consider whether, in relying solely on the Bard
agreement, Hollister has provided sufficient evidence of a reasonable royalty under
the Georgia–Pacific hypothetical negotiation framework. See Multimedia, 2012 WL
5873711, at *9 (because damages expert did not contend there was an established
royalty, there was no need to show that the five-part test from Rude was satisfied, and
the court could consider the license under Georgia–Pacific); Caluori v. One World
Techs., Inc., No. CV 07–2035, 2012 WL 630246, at *4 (C.D. Cal. Feb. 27, 2012)
(explaining that an expert may rely on evidence to show a reasonable royalty even if
it does not constitute proof of an established royalty).
“[L]icenses relied on by the patentee in proving damages [must be] sufficiently
comparable to the hypothetical license at issue in suit.” Multimedia, 2012 WL
5873711, at *7 (quoting Lucent, 580 F.3d at 1325). A patentee may not rely on license
agreements that are “‘radically different from the hypothetical agreement under
consideration’ to determine a reasonable royalty.” Id. (quoting Uniloc, 632 F.3d at
1316). At one time, it was the rule that settlement agreements in litigation simply
could not be considered at all in the reasonable royalty calculus. ePlus, Inc. v. Lawson
Software, Inc., 764 F. Supp. 2d 807, 813 (E.D. Va. 2011). However, it is now established
that such settlement agreements may be considered (along with other evidence), but
that they may have minimal probative value respecting the calculation of reasonable
royalties. See ResQNet.com, 594 F.3d at 872. Settlement agreements in patent
litigation are often not probative “because in the usual course they do not provide an
accurate reflection of what a willing licensor would do in an arm’s length transaction.”
Uniloc USA, Inc. v. Microsoft Corp., 632 F. Supp. 2d 147, 159 (D.R.I. 2009) (citations
omitted). “The notion that license fees that are tainted by the coercive environment of
patent litigation are unsuitable to prove a reasonable royalty is a logical extension of
Georgia–Pacific, the premise of which assumes a voluntary agreement will be reached
between a willing licensor and a willing licensee, with validity and infringement of the
patent not being disputed.”27 LaserDynamics, 694 F.3d at 77.
In AstraZeneca AB v. Apotex Corp., the Federal Circuit rejected the
proposition that settlement offers that “occurred in the midst of litigation makes them
irrelevant for purposes of determining a reasonable royalty rate,” concluding that
contention “goes too far.” 782 F.3d 1324, 1336 (Fed. Cir. 2015). Although the fact that
a settlement or settlement offer comes during litigation may affect the relevance of the
settlement or offer, “there is no per se rule barring reference to settlements simply
because they arise from litigation.” Id. (citing ResQNet.com, 594 F.3d at 872). In fact,
in AstraZeneca, the district court had held the patents valid and had made a finding
of infringement as to both defendants, making the setting in which those events took
place similar to that of a hypothetical negotiation in which infringement and patent
validity are assumed. Id. In that procedural context, the Federal Circuit found that
Nevertheless, Hollister argues that the Bard agreement is the best, most
comparable, most reliable evidence because it is the only license to the patent in suit.
The Bard agreement is purportedly identical in every way to what Hollister would
have offered ConvaTec to settle its infringement suit: it concerns the same patent, its
family, and its foreign counterparts. It constitutes a one-time, lump-sum payment for
a fully paid-up, non-exclusive worldwide license. Moreover, Hollister, Bard, and
ConvaTec are the only three competitors in the relevant market. This leads Hollister
to argue in its post-trial reply that “Hollister’s license to Bard necessarily must be
deemed sufficient evidence because it is the only possible license that exists for the
‘583 patent.” (Doc. 196 at 12) (emphasis in original).
To support this position, Genet testified that because the Bard agreement was
a settlement license, that made it an even better measure of damages than one not
reached through litigation. He noted that the license agreement that Bard entered
into was to settle the litigation and for a license of the technology, as would have been
the situation with ConvaTec before Hollister learned of the release from Zassi. (Tr. I,
the licenses negotiated after the onset of litigation constituted persuasive evidence
that a royalty rate for a similarly situated party would be reasonable. Id. at 1336-37
(citing John M. Skenyon et al., Patent Damages Law and Practice § 1:15, at 25 (2013
ed.) (“[L]icenses negotiated to settle a case after a court has established validity and
infringement of the patent are very probative of reasonable royalty. Such licenses
duplicate the analytical process undertaken by the court in setting reasonable royalty
damages in the ‘willing licensor-willing licensee’ fictional negotiation.”)).
Hollister’s suit against Bard is distinguishable from AstraZeneca, as the district
court had yet to make any findings regarding infringement or Bard’s invalidity and
non-infringement defenses when the parties reached their settlement. (Tr. II, 233-34).
The case settled a couple of days before the preliminary injunction hearing. (Tr. II,
233); see Hollister Inc. v. C.R. Bard, Inc., Case No. 1:10-cv-6427 (N.D. Ill. 2010).
182-83). Genet explained some of the background of the Bard case, in which Hollister
had filed a motion for a preliminary injunction, the parties conducted extensive
discovery on invalidity issues, took depositions on both sides, and in light of the
information at hand, decided to settle the case. (Tr. II, 233-34). As such, Genet opined
that the Bard agreement was “even more relevant than . . . a license agreement that
was entered into without any litigation . . . These facts line up.” (Tr. I, 183:1-5).
While this argument has initial appeal, the Bard agreement has a glaring flaw
as a comparator: its settlement amount of $6.65 million exists in a vacuum. In Uniloc,
the Federal Circuit emphasized that “there must be a basis in fact to associate the
royalty rates used in prior licenses to the particular hypothetical negotiation at issue
in the case.” 632 F.3d at 1317. “Beginning from a fundamentally flawed premise and
adjusting it based on legitimate considerations specific to the facts of the case
nevertheless results in a fundamentally flawed conclusion.” Id.
The Bard agreement’s base number of $6.65 million represents the type of
“fundamentally flawed premise” that the Federal Circuit cautioned against in Uniloc
because there was no evidence to show that this amount was actually intended to
represent a license based on the reasonable royalty rate. At trial, Genet, who was
Hollister’s counsel in the Bard litigation and its only damages witness in the case,
testified as follows regarding how Bard and Hollister reached a settlement amount of
Q: Okay. Would the 10 percent royalty rate be higher or
lower than the royalty rate that you’ve used in your
calculation for the determination of damages which the
plaintiff has put forward in this case?
A: I don’t know.
A: Because it’s . . . the Bard settlement agreement, the one
that we based our damages calculation on, is based on a
fully paid-up license.
A: So there was no particular rate that was applied, or . . .
we based it on that. So I don’t know what Bard’s lawyers
and what Bard’s in-house lawyers or their business people
valued the . . . if they used a royalty rate or not in calculating
what they agreed to pay Hollister.
(Tr. II, 70:23-71:12) (emphasis added).
Q: But to the best of your knowledge, nobody at Hollister
actually took that number, that lump-sum number, and
tried to figure out which portion of that would relate to any
of the years of the life of the patent that this fully paid-up
license was being issued for, correct?
A: [T]hat number is not broken out on a year-by-year or
product-by-product or quarter-by-quarter or unit-by-unit
basis anyway. It’s a lump-sum payment.
Q: Okay. But that lump-sum payment—if you were trying
to calculate it—if you were on either side of the
transaction—so Bard, theoretically, should have gone
through their analysis as to what they believe their sales
would have been, correct?
A: I would assume that they did do that. I don’t know if they
Q: Okay. And they’re projected sales. They [Bard] would
look at it and they would also probably try and project what
were their costs of goods sold related to that line or that
A: Well, what you’re saying makes sense. I don’t know what
they did. . . . In the lawsuit [Bard was] represented by
Kirkland & Ellis, which is . . . a very large, very good law
firm. I know the lawyers in the case were very smart. So I
assume they did an analysis to figure out . . . what is this
license worth to us based on their wealth of experience and
licensing patented technology? So I don’t know what they
particularly did. I know that . . . we ended up at the $6.65
Q: Okay. Did anybody at Hollister on the side of the
transaction that you were on—did you guys actually do any
kind of valuation or projected sales that Bard would have
over a period of time and then try and discount that down
to see if that lump-sum number that was proposed was
higher than or lower than any percentage on—based on
A: So I know that when we were doing our due diligence
process, part of that process was to come up with an
estimate of what we thought the potential reasonable
royalty damages would have been. I don’t—I don’t know
what anyone else within Hollister did when they decided to
agree to the settlement number.
(Tr. II, 72:13-74:7) (emphasis added).
Q: So 6.65 million. Did you do anything to try and break that
6.65 million dollars down into any category or cash flow of
category for each of those roughly 14 years—14 years?
A: No, we didn’t break it down, because, again, the
agreement was for a fully paid-up lump-sum royalty, so . . .
A: You know, that would—that fully paid-up lump sum
royalty covered anything—it covered—you know, it covered
all the patents. And it covered this entire time period, and
you know, the whole thing.
(Tr. II, 92:9-22).
The Court: Okay. Was the—was any factor in that
settlement or the amount thereof, at least from Hollister’s
perspective, an attempt to set a floor or an attempt to
predict what the damages would be in the companion case
against ConvaTec? Or was it just you settled that case and
then you decide to use that over here?
The Witness: So how the number was arrived at in the Bard
case, I can’t tell you, because it was handled internal to
Hollister. I just received the phone call and said, [w]e’re
settling the case and here’s a number, let’s work up the
(Tr. II, 242:2-12) (emphasis added).
At the conclusion of Genet’s testimony, the undersigned expressed concern that
Genet had “no idea” why Bard settled for $6.65 million, noting that “people settle for
all kinds of reasons for all kinds of amounts” and that “$6.65 million, there’s nothing
sacrosanct about it.” (Tr. II, 242:19 – 243:3). See Fenner Invs., Ltd. v. Hewlett-Packard
Co., No. CIVA6:08-CV-273, 2010 WL 1727916, at *3 (E.D. Tex. Apr. 28, 2010) (“These
reasons [prompting settlement] include not only cost of additional litigation or the
relative financial positions of the parties, but also the risk of a sizeable verdict against
a defendant or a finding of invalidity or uneforceability [sic] against a plaintiff, which
would end not only that action but future actions against other alleged infringers.
Thus, admission of these agreements would invite a mini-trial on similarities and
differences in the facts between this case and the settled claims.”) (quotation marks
and citations omitted). Accordingly, the Court asked “how do I know that’s the
reasonable royalty rate?” 28 (Tr. II, 243:4-5). Genet responded, acknowledging that
there were some differences in the Bard and ConvaTec cases, saying:
The only thing I can say, you know, is why it’s a reasonable
place to start is kind of—we just kind of go back again.
Following trial, the Court also gave Hollister an opportunity to file a reply
addressing the Court’s concern regarding the proof of damages. (Docs. 195, 196).
When you’re determining a reasonable royalty, you’re kind
of trying to look at what would reasonable parties agree to.
And here we had two sophisticated companies with
sophisticated lawyers with, you know, the—sophisticated in
the area. And they came to an agreement—a meeting of the
minds. Right. That’s what we have.
(Tr. II, 243:21-244:5). Of course, this did not answer the Court’s question as to why the
$6.65 million represented a reasonable royalty.
The Court is mindful of the Federal Circuit’s rejection of lump-sum licenses in
Wordtech Sytems v. Integrated Networks Solutions, Inc., where “neither license
describe[d] how the parties calculated each lump sum, the licensees’ intended
products, or how many products each licensee expected to produce.” 609 F.3d 1308,
1320 (Fed. Cir. 2010). Hollister’s failure to explain how the parties calculated the
lump-sum in the Bard agreement or to prove that the $6.65 million amount
represented a reasonable royalty, upon which its damages theory in this case depends,
is a failure of proof.29
That the Bard agreement is not perfectly analogous generally goes to the
weight of the evidence, not its admissibility. Ericsson, Inc. v. D-Link Sys., Inc., 773
F.3d 1201, 1227 (Fed. Cir. 2014) (citations omitted). Thus, while the Bard agreement
is admissible, the minimal probative value generally attributable to settlement
agreements in patent litigation is even less where, as here, the settlement agreement
occurred over a year after the hypothetical negotiation called for by the Georgia–
Pacific analysis would have occurred. See ePlus, 764 F. Supp. 2d at 813. Other
differences between Hollister’s suits against Bard and ConvaTec that undermine the
probative value of the Bard agreement include the fact that although both Bard and
ConvaTec asserted defenses of non-infringement and invalidity, ConvaTec had
additional counterclaims of false marketing and false advertising that would have
been considered during settlement. (Tr. II, 243). In addition, von Dyck showed on
cross-examination that the Bard license included the ‘583 patent’s foreign
counterparts and that, had ConvaTec proceeded to a verdict, the court would not have
Hollister could have provided the Court with key information required to
evaluate the Bard agreement as a benchmark of a reasonable royalty. See In re MSTG,
Inc., 675 F.3d 1337, 1348 (Fed. Cir. 2012) (holding that settlement negotiations related
to reasonable royalties and damage calculations are not protected by a settlement
negotiation privilege and thus the district judge did not abuse his discretion by
ordering the production of negotiation documents underlying settlement agreements).
While the Bard agreement itself does not address the royalty issue, see supra Part
III.A, as one of only two parties to the Bard agreement, Hollister presumably had this
information at its disposal and could have asked Bard to consent to its use in this
lawsuit or, if necessary, asked the Court to allow its disclosure. At the very least,
Hollister could have called its own legal or corporate representative who negotiated
the Bard settlement to testify and explain, even in non-privileged terms, the
considerations that went into the final settlement number.30 However, Hollister did
not to do so, presenting only the testimony of Genet, who admitted he had no idea how
the $6.65 million figure was reached. Hollister also decided not to provide any
alternative theories of damages for the Court to consider.31
ordered ConvaTec to pay damages based on foreign counterparts because they are
outside the United States’ jurisdiction. (Tr. II, 101:11-20). Accordingly, he argued,
whatever portion of the $6.65 million accounts for the ‘583 patent’s foreign
counterparts might have been inapplicable to a hypothetical negotiation between
ConvaTec and Hollister. These concerns further diminish the weight the Court gives
to Genet’s opinion that the Bard agreement is a reasonable floor for Hollister’s
reasonable royalty here.
Ronald F. Geimer, Vice President Law, signed the Bard agreement on
Hollister’s behalf. (Pl. Ex. 57 at 13, 15).
In its post-trial reply to the Court’s questions regarding how it arrived at its
damages number, Hollister belatedly invites the Court to award, at a minimum, $6.65
Courts cannot award patent damages without supporting evidence or on the
basis of speculation or conjecture. See, e.g., Whitserve LLC v. Comput. Packages, Inc.,
694 F.3d 10, 29-33 (Fed. Cir. 2012). It is true that a district court must determine a
million if the Court cannot find sufficient evidence to support its total request of
$25,868,500 (before prejudgment interest). (Doc. 196 at 8). See SmithKline
Diagnostics, Inc. v. Helena Labs. Corp., 926 F.2d 1161, 1168 (Fed. Cir. 1991) (“A
district court is not limited to selecting one or the other of the specific royalty figures
urged by counsel as reasonable.”) (emphasis in original).
Hollister argues that “other benchmarks . . . support such an award including
the . . . $5.9 million that ConvaTec paid to Zassi for a license and a full release of any
future claims related to the BMS technology that resulted in the ‘583 patent. (Pl. Ex.
6).” (Doc. 196 at 8 n.5). Additionally, Hollister contends that “although [the Houlihan
Lokey report was] not admitted into evidence, Defendant [von Dyck] elicited testimony
from Genet that Hollister’s investment brokers had valued the acquired Zassi
intellectual property at $8.7 million. (Tr. II, 68:16-25).” (Doc. 196 at 8 n.5).
Neither at trial nor in its post-trial papers does Hollister seek either the $5.9
million or $8.7 million figure as its damages or explain how they relate to its $6.65
million alternative request. In fact, Genet testified that the information contained in
the Houlihan Lokey report was irrelevant to the analysis of Hollister’s hypothetical
royalty. The report was a valuation done by outside investment brokers in June 2007
to value the intellectual property assets Hollister acquired from Zassi for tax purposes.
(Tr. II, 60-61). The brokers assigned a fair value of $8.7 million to the technology. (Tr.
II, 68:18-19). Genet explained that the report “was based on the current sales of Zassi
and projected sales of Zassi of its product.” (Tr. II, 63:4-11). “[W]hen you calculate that
reasonable royalty, you’re looking at the sales of the infringers.” (Tr. II, 63:1-3). The
“reasonable royalty analysis has nothing to do with Zassi’s product or Hollister’s
product. It has everything to do with the ConvaTec product. So for that reason—those
two reasons [different time periods and products], I think that’s why this report isn’t
relevant or useful in a reasonable royalty analysis.” (Tr. II, 63:6-11). Based on this
evidence, the Court disagrees that $8.7 million represents a benchmark supporting an
award of $6.65 million. Likewise, Hollister has not pointed to any evidence explaining
why the $5.9 million amount ConvaTec paid to Zassi to settle business disputes in
2005 represents a reasonable benchmark to support the $6.65 million figure.
The Federal Circuit has instructed that the determination of a reasonable
royalty must be based upon the entirety of the evidence, and courts are free to—
indeed, must—reject the royalty figures proffered by the litigants where the record as
a whole leads the court to a different figure. SmithKline, 926 F.2d at 1168. Here, to
award Hollister its proposed alternative amount of $6.65 million would be as just
speculative as awarding Hollister the full amount requested.
reasonable royalty based on whatever evidence is in the record, Dow, 341 F.3d at 1382,
but Hollister did not present record evidence from which the amount of damages could
be determined. See Unicom Monitoring, LLC v. Cencom, Inc., No. CIV.A. 06-1166
MLC, 2013 WL 1704300, at *8 (D.N.J. Apr. 19, 2013) (“Although there are many
Georgia–Pacific factors which the Court can consider, the failure to present competent
evidence regarding how the factfinder should perform the reasonable royalty
calculation is fatal to Unicom’s claim for reasonable royalty damages. A factfinder
cannot be asked to speculate from numbers unsupported by law and divorced from
expert guidance, but rather the factfinder needs either clear guidance from an expert
about how to apply complex calculations or simple factual proofs about what this
patentee has previously accepted in factually analogous licensing situations.”).
Rather, the evidence highlights Genet’s admitted ignorance of the basis of the $6.65
million figure, which renders the Court unable to evaluate whether the Bard
agreement is an accurate benchmark from which to determine a reasonable royalty.
Courts are reluctant to give great weight to licenses awarded to settle patent litigation.
See supra p. 27. To find that the Bard agreement had any probative value, without
more information, would mean the Court was relying solely on Genet, who testified at
several points that he lacked any knowledge of the origin of the very value he opines
is a reasonable one.32
Because the Court finds the amount in the Bard agreement too speculative
and conclusory to rely on in calculating a reasonable royalty, it need not reach the
issue of whether the GHX data extrapolation was a reasonable way for Hollister to
calculate ConvaTec’s market share.
Given no other tools to arrive at a reasonable royalty, the Court cannot invent
one out of thin air, particularly given that the Federal Circuit requires “sound
economic proof of the nature of the market and likely outcomes” in order “to prevent
the hypothetical from lapsing into pure speculation[.]” Info-Hold, Inc. v. Muzak LLC,
No. 1:11-CV-283, 2013 WL 6008619, at *2 (S.D. Ohio Nov. 13, 2013) (quoting Riles,
298 F.3d at 1311). Accordingly, the Court, as factfinder, finds that Hollister has failed
to prove by a preponderance of the evidence the amount of reasonable royalty
damages.33 The Court will therefore award zero dollars in damages. See Boston Sci.
Corp. v. Johnson & Johnson, 550 F. Supp. 2d 1102, 1120 (N.D. Cal. 2008) (quoting
Lindemann Maschinenfabrik GmbH v. Am. Hoist & Derrick Co., Harris Press & Shear
Div., 895 F.2d 1403, 1407 (Fed. Cir. 1990) (“Where little or no satisfactory evidence of
a reasonable royalty is presented, the court should award such reasonable royalties as
the record evidence will support. Where the record lacks any evidence of a reasonable
royalty rate, the Federal Circuit has approved of awarding zero damages because the
statute [35 U.S.C. § 284] requires the award of a reasonable royalty, but to argue that
this requirement exists even in the absence of any evidence from which a court may
derive a reasonable royalty goes beyond the possible meaning of the statute.”) (internal
quotation marks and citations omitted)).
To the extent required, the Court has incorporated the other Georgia-Pacific
factors in its analysis.
Accordingly, it is hereby
To the extent consistent with the Jury Verdict and these Findings of Fact
and Conclusions of Law, the Court GRANTS Hollister’s Motion for Default Judgment
Against Zassi Holdings, Inc. (Doc. 188).
The Court will enter final judgment consistent with the Jury Verdict and
these Findings of Fact and Conclusions of Law.
The Clerk shall then terminate all pending motions and close the file.
DONE AND ORDERED in Jacksonville, Florida the 30th day of March, 2016.
Counsel of record
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