Bianco MD vs Globus Medical Inc
MEMORANDUM OPINION AND ORDER - Signed by Judge William C. Bryson on 7/1/2014. (ch, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
SABATINO BIANCO, M.D.,
GLOBUS MEDICAL, INC.,
Case No. 2:12-CV-00147-WCB
MEMORANDUM OPINION AND ORDER
Following the trial in this case, the jury found that defendant Globus Medical, Inc., had
misappropriated trade secrets belonging to the plaintiff, Sabatino Bianco, M.D. The trade secrets
in question consisted of ideas for the design of a medical device known as an adjustable
intervertebral spacer or implant. Intervertebral spacers are used in spinal surgery to replace
damaged discs in patients’ spines. In assessing damages, the jury rejected Dr. Bianco’s request
for disgorgement of Globus’s profits on the devices that allegedly embodied the misappropriated
trade secrets, but awarded him reasonable royalty damages in the amount of $4,295,760. That
sum constituted 5% of the total “net sales” that Globus had earned prior to trial on the three
intervertebral spacers that were the subjects of the litigation, the Caliber, Caliber-L, and Rise
The evidence at trial showed that Globus used the term “net sales” to refer to total sales
minus several categories of variable costs, including the cost of the goods, sales commissions,
taxes, transportation and related charges, rebates, discounts, and license fees.
In response to post-trial motions, the Court denied Dr. Bianco’s request for a permanent
injunction but granted his request that the Court consider an ongoing royalty on the Caliber,
Caliber-L, and Rise products in lieu of an injunction (Dkt. No. 269). The Court gave the parties
30 days within which to attempt to agree on an appropriate ongoing royalty rate. When that 30day period expired, the parties notified the Court that they had reached impasse. The Court then
held an evidentiary hearing on the issue of the ongoing royalty sought by Dr. Bianco. After
analyzing the evidence at trial and at the evidentiary hearing, and after reviewing post-hearing
briefs submitted by the parties, the Court now grants Dr. Bianco an ongoing royalty of 5% on
Globus’s future sales of its Caliber, Caliber-L, and Rise products for a maximum period of 15
years from July 1, 2007.
In patent cases in which a permanent injunction is sought, the Federal Circuit has held
that a district court may impose a reasonable royalty on the defendant for future use of the
patented invention in lieu of an injunction. Paice LLC v. Toyota Motor Corp., 504 F.3d 1293,
1315 (Fed. Cir. 2007); see also Telcordia Techs., Inc. v. Cisco Sys., Inc., 612 F.3d 1365, 1378-79
(Fed. Cir. 2010). Before setting an ongoing royalty rate for future infringement, however, the
district courts have been instructed to allow the parties time to negotiate an ongoing royalty
amongst themselves. See Paice, 504 F.3d at 1315 & n.15; id. at 1316-17 (Rader, J., concurring);
see also Telcordia, 612 F.3d at 1379. If those negotiations fail, the district court is permitted, in
the exercise of its discretion and in light of its equitable powers, to assess a reasonable royalty in
lieu of an injunction. Paice, 504 F.3d at 1315; see also Presidio Components, Inc. v. Am.
Technical Ceramics Corp., 702 F.3d 1351, 1363 (Fed. Cir. 2012); Whitserve, LLC v. Computer
Packages, Inc., 694 F.3d 10, 35 (Fed. Cir. 2012). Although this case involves trade secret
misappropriation rather than patent infringement, the two torts are sufficiently analogous that the
Federal Circuit’s decision in Paice, as supplemented by cases from the Federal Circuit and from
this district that have applied Paice, provide an appropriate starting point for this Court in
deciding whether to grant an ongoing royalty and what the amount of that royalty should be.
The Federal Circuit in Paice stated that calculating a reasonable royalty would be a matter
for the sound discretion of the district court, but the circuit court has not had occasion to address
in detail how a district court should go about exercising that discretion in setting an ongoing
royalty. In Amado v. Microsoft Corp., 517 F.3d 1353 (Fed. Cir. 2008), the district court had set
a reasonable royalty to be paid by an adjudged infringer during the period that a permanent
injunction was stayed pending appeal. The district court in Amado had trebled the royalty found
by the jury because, in the district court’s view, any postjudgment infringing conduct would be
willful. The Federal Circuit rejected that analysis, however, holding that “willfulness . . . is not
the inquiry when the infringement is permitted by a court-ordered stay.” Id. at 1362. The court
of appeals also rejected the defendant’s argument that the royalty rate set for the period of the
stay should be the same royalty rate that the jury found for past damages. Id. at 1361-62. Citing
Judge Rader’s concurrence in Paice, the court stated that “[t]here is a fundamental difference . . .
between a reasonable royalty for pre-verdict infringement and damages for post-verdict
infringement.” Id. at 1361. The court noted that once a judgment of patent validity and
infringement has been entered against a defendant, the nature of the hypothetical negotiation
between the parties is different because much of the uncertainty regarding infringement and
patent validity has been resolved. See id. at 1362.
Amado was an unusual case, as it involved an injunction that was issued but was stayed
pending appeal. However, in ActiveVideo Networks, Inc. v. Verizon Communications, Inc., 694
F.3d 1312 (Fed. Cir. 2012), the court of appeals applied the principles discussed in Amado in a
more conventional setting.
In that case, the court ruled that Amado’s holding “that an
assessment of prospective damages for ongoing infringement should take into account the
change in the parties’ bargaining positions, and the resulting change in economic circumstances,
resulting from the determination of liability. . . . applies with equal force in the ongoing royalty
context.” Id. at 1343 (internal quotation marks omitted). The ActiveVideo court, however, did
not offer guidance as to the factors a district court should consider when setting an ongoing
royalty or the factors that should lead a district court to depart from the ongoing royalty set by a
jury for past damages.
Courts in the Eastern District of Texas have applied the Paice approach to setting ongoing
royalty rates in several patent cases. They have consistently looked to the jury’s verdict as the
“starting point” for determining postjudgment damages. See, e.g., VirnetX Inc. v. Apple Inc.,
No. 6:13-cv-211, slip op. at 5 (E.D. Tex. Feb. 25, 2014), ECF No. 53; Internet Machs. LLC v.
Alienware Corp., No. 6:10-cv-23, 2013 WL 4056282, at *19 (June 19, 2013); Mondis Tech. Ltd.
v. Chimei InnoLux Corp., 822 F. Supp. 2d 639, 645-46 (E.D. Tex. 2011); Affinity Labs of
Texas, LLC v. BMW N. Am., 783 F. Supp. 2d 891, 900 (E.D. Tex. 2011). They have then
addressed how the changed circumstances would affect the royalty rate selected for purposes of
calculating future damages. In so doing, the courts have often used the so-called Georgia-Pacific
factors in assessing how the changed circumstances would produce a royalty rate in a
hypothetical post-verdict licensing negotiation that was different from the royalty rate the jury
selected based on a hypothetical licensing negotiation at the outset of infringement. 2 See, e.g.,
VirnetX Inc., slip op. at 5-9 (considering changed circumstances with respect to plaintiff’s
increased commercial success and defendant’s noninfringing alternatives); Internet Machs., 2013
WL 4056282, at *19-20 (considering new evidence of a shareholder letter dated 13 days after
trial that the plaintiff argued was probative of the value of the patented invention); Mondis Tech.
Ltd., 822 F. Supp. 2d at 647 (“[T]he Court focuses on any new evidence that was not before the
jury and additionally any changed circumstances . . . between a hypothetical negotiation that
occurred in 2005 (which the jury determined) and a hypothetical negotiation that would occur in
2011 after the judgment . . . .”). In addition, courts in this district typically consider whether
continued infringement would be willful and thereby call for enhanced damages. See, e.g.,
Internet Machs., 2013 WL 4056282, at *19; Mondis, 822 F. Supp. 2d at 646.
Based on the Paice decision and the cases that have followed it, Dr. Bianco argues that he
is entitled to an ongoing royalty of 6% of net sales on the three products in dispute. He contends
that the proper way to calculate the ongoing royalty under the Paice precedents is to begin with
the jury’s royalty rate for past damages as a floor and then to determine how much of an increase
in that level would result from a hypothetical negotiation taking place after the jury’s verdict.
The increase in the royalty rate directed by the Paice line of cases, he argues, is based on the fact
that the jury’s verdict has eliminated much of the uncertainty about the likelihood of liability that
would have accompanied a pre-verdict negotiation. Moreover, he argues that an increase in the
royalty rate is justified by analogy to patent cases, in which post-verdict infringement is regarded
The “Georgia-Pacific factors,” taken from the decision in Georgia-Pacific Corp. v. U.S.
Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970), are the factors frequently considered
in determining the royalty rate that would likely have been agreed upon at the conclusion of a
hypothetical negotiation between the parties.
as willful and thus subjects the defendant to enhanced damages for willfulness based on the
defendant’s continuing acts of infringement.
Globus argues that because this case is a trade secret case and not a patent case, the Paice
decision and its progeny do not apply, either directly or by analogy. Globus further contends that
Dr. Bianco is not entitled to any future damages because the amount the jury has awarded him is
more than sufficient to compensate him for the misappropriation, if any, of his trade secrets. The
Court will first address Globus’s argument that Dr. Bianco is not entitled to any further damages
at all and will then turn to the question whether, and in what way, the Paice analysis applies to
this case and what royalty rate should be adopted for post-trial sales of the disputed products.
The jury’s finding that a reasonable royalty rate is the proper method of measuring Dr.
Bianco’s damages provides the starting point for the Court’s determination of how future
damages should be calculated. Absent a showing to the contrary, the clear implication of the
jury’s verdict is that the royalty rate the jury selected for the entire period up to trial would
continue into the period following trial.
Globus argues that the jury’s assessment of a 5% royalty rate for past sales of the accused
products should not apply to future sales. Its principal argument is that the evidence at trial and
at the post-trial hearing showed that Globus’s misappropriation of Dr. Bianco’s trade secrets at
most gave Globus a “head start” in its effort to produce an adjustable intervertebral spacer.
However, according to Globus, any such “head start” did not last into the period after the trial.
Therefore, Globus contends, because the effects of the trade secret misappropriation had
dissipated by the time of the trial, the Court should not assess any damages for the post-verdict
Because the award of an ongoing royalty is a form of equitable relief, Texas case law
pertaining to injunctive relief in trade secret cases is relevant to the issue of future damages in
this case. Under Texas law, a court may impose perpetual injunctive relief that continues even
past the time when a trade secret is publicly disclosed. See Hyde Corp. v. Huffines, 314 S.W.2d
763, 772-76 (Tex. 1958). Such perpetual relief, however, is not mandated. A court is free to
award equitable relief for a limited term if the circumstances warrant such relief. See Bryan v.
Kershaw, 366 F.2d 497, 499, 501-02 (5th Cir. 1966) (affirming the grant of a limited-duration
injunction that was based on the amount of time “necessary to remove the competitive advantage
gained through the illegally used trade secrets,” id. at 499). It is Globus’s burden, however, “to
show by competent evidence that an order of less duration than a permanent order will afford the
injured party adequate protection.” Hyde, 314 S.W.2d at 776.
Additionally, the Fifth Circuit has affirmed an award of reasonably royalty damages that
extended beyond the head start period gained by the defendant. In Sikes v. McGraw-Edison, 665
F.2d 731 (5th Cir. 1962), the defendant agreed to a two-year period of confidentiality and the
defendant’s own product was two years away from being finalized when the plaintiff disclosed
his idea. Id. at 732-33. The court affirmed an award of reasonable royalty damages extending
beyond two years, however. The court reasoned that if the parties had agreed to a royalty, it was
“exceedingly unlikely that any such per-unit royalty . . . would have been so arranged as to
terminate after two years or have been payable for any term other than the life of” the offending
products. Id. at 737. Therefore, it is appropriate under Texas law for the court to consider a
reasonably ongoing royalty “by reference to the most likely period for which it would have been
paid,” id., had Dr. Bianco and Globus come to an agreement when Dr. Bianco first disclosed his
ideas to Globus at the end of June 2007 or at some point thereafter.
Globus’s “head start” theory suffers from several flaws. First, at trial Globus did not
present evidence regarding that theory. Nor did it ask for a jury instruction embodying that
theory. Instead, Globus’s principal argument at trial was that there was no misappropriation at
all. The jury, however, rejected the “no misappropriation” argument. In the event that the jury
found that Globus had misappropriated Dr. Bianco’s trade secrets, Globus argued that the
remedy should be in the form of a royalty for past damages up to the date of trial, but only in the
amount of 0.5% of Globus’s net sales of the three products at issue. Globus did not offer
evidence or argue that the damages, whether in the form of a royalty or otherwise, should have
been terminated at some earlier point because any advantage Globus obtained from the
misappropriation of Dr. Bianco’s trade secrets had ended by the time of trial. Thus, Globus did
not present at trial the argument that all it obtained from the misappropriation, if anything, was a
“head start” in developing the Caliber and Rise line of products.
In particular, the “head start” theory was not set forth in any of Globus’s experts’ reports,
even with respect to the issue of post-trial damages. To the contrary, at trial Globus’s damages
expert testified that if Dr. Bianco was entitled to damages, it should be in the form of a royalty.
Although he argued that the royalty rate should be much lower than the rate awarded by the jury,
at no point did he suggest that the royalty payment should terminate because any “head start”
gained by Globus would have come to an end at some point.
Globus cannot claim that it has been unfairly deprived of an opportunity to put forward a
“head start” theory despite its failure to present that theory to the jury. That might have been the
case, for example, if Globus had withheld its head-start theory from the jury because the facts
only supported a head-start advantage that ceased to exist on or after the date of trial and Globus
had no reason to present a defense against future damages at trial. Globus, however, was
prepared to try future damages to the jury. The only reason future damages was not tried to the
jury was because the Court determined shortly before trial that Dr. Bianco’s damages expert had
used an unreliable method for calculating the total amount of Dr. Bianco’s future damages.
Because Globus was prepared to try future damages as part of its case and never pursued a headstart theory to limit damages—at trial or in its expert reports—it is appropriate for the Court to
consider Globus’s failure to pursue that theory in determining the ongoing royalty rate.
Globus sought to make up for the absence of evidence as to the “head start” issue through
evidence offered at the hearing on future damages, but its effort in that regard was unavailing.
The evidence Globus introduced at the hearing consisted largely of testimony from the engineers
who were principally responsible for designing the Caliber and Rise line of products for Globus.
They testified, as they had at trial, that they developed those products independently, without any
direct or indirect influence from Dr. Bianco’s trade secrets (as embodied in the drawings he gave
to Globus in June 2007). At the hearing, the engineers added that even if they had been exposed
to Dr. Bianco’s drawings, the drawings would not have had any effect on the progress of their
development of those products.
The problem with that evidence is that it is at odds with the jury’s verdict. The jury
found that Globus misappropriated Dr. Bianco’s trade secrets and that Globus’s use of those
trade secrets entitled him to an award of a 5% royalty on the net sales of those products. Under
the principles of Beacon Theatres, Inc. v. Westover, 359 U.S. 500 (1959), and Dairy Queen, Inc.
v. Wood, 369 U.S. 469 (1962), those findings are binding on this Court as a starting point in
making the equitable determination of what ongoing royalty rate should be adopted in lieu of an
injunction. Indeed many of Globus’s arguments are, in effect, challenges to the jury’s finding of
trade secret misappropriation and its choice of a royalty rate. Those arguments are proper
subjects for a motion for judgment as a matter of law, but they are not appropriate in a
proceeding directed at setting an ongoing royalty rate, in which the Court is bound by the jury’s
Significantly, the report and testimony of Globus’s damages expert, Keith R. Ugone, was
inconsistent with the “head start” theory that Globus raised in the course of the ongoing royalty
proceedings. Dr. Ugone stated in his report, and acknowledged on cross-examination at the
evidentiary hearing, that the proper approach to calculating an ongoing royalty for trade secret
misappropriation would be to continue the rate found applicable in measuring past damages.
He stated that “the royalty rate, if any, decided by the trier of fact at trial would also be
the ongoing royalty rate for claimed future damages.” (Dkt. No. 296, at 115, 117). To be sure,
he proposed a much lower rate for past damages than the jury awarded.
But as to the
relationship between the rate for past damages and the rate for future damages, his testimony was
that they should be the same. That evidence further underscores the point that Globus committed
itself to a royalty-based theory of damages at trial. Its effort to raise a “head start” theory during
the ongoing royalty proceedings thus was not supported by its own evidence at either trial or at
the post-trial evidentiary hearing.
By separate motion (Dkt. No. 289), Dr. Bianco challenged portions of the evidentiary
hearing testimony of one of the Globus engineers, Chad Glerum, on the ground that it constituted
opinion testimony that was barred by a pretrial stipulation entered into by the parties. The Court
granted the motion to exclude opinion testimony from Mr. Glerum at the evidentiary hearing,
subject to the issue being re-raised in the briefs. The Court then allowed Globus to offer the
challenged testimony as a proffer. The Court now reaffirms its decision that Mr. Glerum’s
opinion testimony is barred by the stipulation.
At the evidentiary hearing, the parties disputed the meaning of the stipulation, in which
the parties agreed that Globus “will not offer opinions” from seven identified “non-retained
experts . . . outside of what the witnesses testified to in their depositions.” (Dkt. No. 138). The
Court concluded at the time of the hearing, and reaffirms now, that the stipulation barred Mr.
Glerum from giving any opinion testimony other than testimony that he gave in his deposition.
Accordingly, the Court has excluded Mr. Glerum’s testimony that prior knowledge of Dr.
Bianco’s trade secrets would not have assisted him in designing the Caliber devices. Even if that
testimony had been admitted, however, it would not have changed the Court’s judgment on this
issue for the reasons set forth above.
Mark Weiman, a Globus engineer who was principally responsible for the Rise project,
testified to the same effect as Mr. Glerum with regard to the Rise device. His testimony was not
subject to the stipulation and therefore was not excludable on that ground. Dr. Bianco argues
that Mr. Weiman’s testimony should have been precluded because it is expert testimony, and that
Globus did not give Dr. Bianco advance notice of that testimony under Fed. R. Civ. P.
26(a)(2)(C). The Court concludes, however, that Mr. Weiman’s testimony to which Dr. Bianco
objected at the evidentiary hearing was not excludable, because it did not constitute expert
opinion testimony under Fed. R. Evid. 702, 703, or 705, and therefore was not subject to Rule
26(a)(2). See Fed. R. Civ. P. 26(a)(2)(A). In any event, as in the case of Mr. Glerum’s
testimony, Mr. Weiman’s testimony did not affect the Court’s decision that Globus failed to
support its “head start” theory for rejecting Dr. Bianco’s request for future royalty damages. For
the foregoing reasons, the Court agrees with Dr. Bianco that the evidence does not support a
ruling limiting the post-verdict damages to some “head start” period enjoyed by Globus, and that
instead the calculation of future damages must be conducted by determining an appropriate
ongoing royalty rate, starting with the rate embodied in the jury’s verdict.
The Fifth Circuit has noted that it is generally accepted that the proper measure of
damages in cases of trade secret misappropriation is determined by reference to the analogous
line of cases involving patent infringement. Univ. Computing Co. v. Lykes-Youngstown Corp.,
504 F.2d 518, 535 (5th Cir. 1974). Nonetheless, the Court recognizes that there are differences
between Texas trade secret law and patent law that require distinctions to be drawn between the
method to be used in calculating an ongoing royalty in patent cases and the method to be used in
trade secret cases.
First, Texas trade secret law, unlike patent law, does not provide for an award of
enhanced damages based on a finding of willfulness. Instead, in order to be entitled to an
enhancement in the form of punitive damages, Texas law requires a plaintiff to prove, by clear
and convincing evidence, that the defendant acted with malice, i.e., with specific intent “to cause
substantial injury [or harm] to the claimant.” See Wellogix, Inc. v. Accenture, L.L.P., 716 F.3d
867, 883 (5th Cir. 2013), quoting Bennett v. Reynolds, 315 S.W.3d 867, 872 (Tex. 2010).
The Court need not determine whether malice can take the place of willfulness when
setting an ongoing royalty, because during trial the Court granted judgment as a matter of law in
favor of Globus on the issue of exemplary damages. The Court concluded that Dr. Bianco did
not introduce sufficient evidence to support a finding of malice. See Dkt. No. 235, at 126:10-18.
Nor is there any evidentiary basis from which to conclude that Globus’s post-verdict conduct
would justify enhanced damages. Dr. Bianco has not made any effort to show that Globus’s
conduct in continuing to market the subject products following the trial has been animated by a
specific intent to harm Dr. Bianco.
A second difference between patent cases and trade secret cases that bears on the ongoing
royalty analysis is that trade secret misappropriation under Texas law is not a continuing tort.
Tex. Civ. Prac. & Rem. Code § 16.010(b).
Instead, the tort of misappropriation, as viewed
under Texas law, occurs at the moment of misappropriation. See Gen. Universal Sys., Inc. v.
HAL, Inc., 500 F.3d 444, 451-52 (5th Cir. 2007). Thus, while a patent infringer commits a new
tort of infringement each time it makes, uses or sells the patented product, a trade secret
misappropriator commits only a single tort at the time of misappropriation. For that reason, it
makes more sense to view the royalty-based damages model by looking to a single hypothetical
negotiation occurring at the time of the initial misappropriation, rather than, as in the Paice line
of cases, determining the ongoing royalty rate based on a second hypothetical negotiation
occurring immediately after the verdict. See University Computing Co., 504 F.2d at 537,
quoting Egry Register Co. v. Standard Register Co., 23 F.2d 438 (6th Cir. 1928) (reasonable
royalty is calculated by determining what the price would be for a license “granted at the time of
beginning the infringement”).
A single hypothetical negotiation, taking place at the time of the misappropriation, would
provide the best model for determining what the parties would have agreed to as a royalty at the
time of the misappropriation if the parties had reached an agreement after good faith negotiations
at that time. That model also comports with the evidence at trial and at the hearing on future
damages as to Globus’s typical practices for negotiating royalties with surgeons and other third
parties who contribute to the development of Globus products. That evidence showed that
Globus’s royalty agreements are typically set to last for 15 year from the date of agreement; they
do not contemplate re-negotiation of the royalty rate at a future time in order for the parties to
take into account changed market and economic circumstances, or changes in the relative
bargaining positions of the parties to the agreement. See Sikes v. McGraw-Edison Co., 665 F.2d
731, 737 (5th Cir. 1962) (affirming reasonable royalty damages spanning a period of time that
the evidence suggested the parties would have agreed to).
Although Dr. Bianco suggests that the Court should enhance the royalty rate in order to
deter trade secret misappropriation in general, the Court is not persuaded that deterrence of such
conduct is a valid justification for enhancement of the ongoing royalty rate. Texas trade secret
law already provides adequate remedies to deter trade secret misappropriation in the first
instance. A defendant who misappropriates a trade secret under Texas law not only faces the
potential for liability calculated as a reasonable royalty, but also faces the risk of a judgment
requiring disgorgement of up to all the profits gained as a result of that misappropriation. See
Univ. Computing Co., 504 F.2d at 536. Indeed, the jury in this case was given the opportunity to
award Dr. Bianco disgorgement of some or all of Globus’s profits resulting from its
misappropriation of Dr. Bianco’s trade secrets, but it declined to do so.
In seeking to determine the proper rate for ongoing royalties, the Court begins its inquiry
with the jury’s verdict. The verdict of $4,295,760 in past damages represents a royalty rate of
5% of the past net sales of the Caliber, Caliber-L, and Rise products.
The evidence at trial showed that a royalty arrangement was exactly what Dr. Bianco
hoped to obtain in exchange for disclosing his ideas to Globus in 2007. There was no evidence
that either party contemplated that Globus would be forced to re-negotiate any license granted by
Dr. Bianco in order to continue selling its Caliber and Rise products.
The jury found that the most equitable result in this case was to award Dr. Bianco exactly
what he expected in the first place—a reasonably royalty, and not disgorgement of Globus’s
profits. While the jury’s selection of a 5% royalty rate on net sales is near the high end of the
royalty rates Globus has historically negotiated for use of an idea, it is within the range of those
royalty rates. Put simply, the jury found that the proper measure of damages was what Dr.
Bianco lost as a result of Globus’s misappropriation of his trade secrets. The jury accordingly
awarded Dr. Bianco a reasonable royalty that put him in the position he would have been in had
Globus negotiated a licensing agreement with him, as Dr. Bianco originally wanted.
on the evidence at trial and the royalty structure that Globus has employed in the past, the Court
finds that there is no reason to award a royalty rate for post-verdict sales of the disputed products
that is different from the royalty rate used by the jury in determining past damages.
The Court recognizes that in patent cases, the Federal Circuit has directed courts
considering an award of ongoing royalties to “take into account the change in the parties’
bargaining positions, and the resulting change in economic circumstances, resulting from the
determination of liability.” ActiveVideo, 694 F.3d at 1343 (internal quotation marks omitted).
Accordingly, in the event that the Federal Circuit regards that principle as extending to trade
secret cases such as this one, the Court will undertake an analysis of whether the parties’
bargaining positions have changed and how those changes might affect a post-verdict
hypothetical negotiation directed to setting an ongoing royalty rate for the future sales of the
products at issue.
Pursuant to the line of cases applying Paice and its progeny, the Court will use the 5%
royalty rate found by the jury as the starting point. The Court will then analyze the specific
circumstances of this case to determine whether that royalty rate should be modified.
individual considerations may weigh in favor of decreasing the ongoing royalty rate relative to
that awarded by the jury, the Court notes that pursuant to Amado the ultimate ongoing royalty
rate should not be lower than the rate awarded by the jury for pre-verdict damages. See Amado,
517 F.3d at 1362 n.2.
A primary difference between a hypothetical post-verdict negotiation between Dr. Bianco
and Globus and a hypothetical negotiation in July 2007 after Globus received Dr. Bianco’s
drawings, is that the verdict eliminated most of the legal uncertainty about whether Dr. Bianco’s
idea constituted a trade secret along with most of the legal uncertainty about whether Globus
used that idea by pursuing the development and commercial sale of the Caliber and Rise
products. Although the resolution of those uncertainties might suggest that Dr. Bianco would
have obtained a higher royalty rate in a post-verdict hypothetical negotiation compared to what
he would have obtained prior to the verdict, the Court finds that no such increase is warranted in
this case given the evidence and argument presented at trial.
Neither party presented evidence or offered argument that would have allowed the jury to
determine how the parties in a hypothetical negotiation would have initially discounted the value
of Dr. Bianco’s ideas based on legal uncertainty over whether those ideas were entitled to tradesecret status or whether commercialization of the Caliber and Rise line of products would
amount to use of Dr. Bianco’s ideas. Instead, the parties focused on the significance of Dr.
Bianco’s ideas relative to the products that Globus ultimately developed.
evidence and argument about how Dr. Bianco’s contribution to the development of those
products compared to the contributions of other surgeons or companies with whom Globus
entered into consulting or licensing agreements with royalty rates ranging from 0.5% to 6% of
net sales. The jury was instructed that in setting a reasonable royalty it could consider “any other
factors that might affect the rate that the parties would choose,” Final Jury Instructions, Dkt. No.
226, at 7. However, the jury was not explicitly instructed to assume that the parties in the
hypothetical negotiation would have assumed that Dr. Bianco’s idea was a trade secret that
Globus would use in the legal sense if it pursued the development and commercial sale of the
Caliber and Rise products. Under these circumstances, the Court concludes that it is highly
unlikely that the jury discounted its royalty determination based on legal uncertainties, without
evidence or argument about how the hypothetical negotiation would have been affected by such
To the extent that the resolution of legal uncertainties might bear on the amount of the
ongoing royalty, some of the uncertainties have been resolved in Globus’s favor. Thus, prior to
trial, Globus faced the risk of disgorgement of some or all of its profits and the risk of a
permanent injunction if it proceeded to build the Caliber and Rise line of products without an
agreement with Dr. Bianco. The jury, however, determined that disgorgement was not the
appropriate remedy, and the Court ruled that Dr. Bianco was not entitled to exemplary damages
and that a permanent injunction against the sale of the disputed Globus devices was not
warranted (Dkt. No. 269). Those circumstances offset the potential improvement in Dr. Bianco’s
post-verdict negotiating position attributable to the portion of the jury’s verdict that was in his
That is, the jury’s verdict resolved some of the legal uncertainties in a way that
strengthened Dr. Bianco’s negotiating position from what it would have been in July 2007 (such
as the risk that Dr. Bianco’s idea would not be found to constitute a trade secret or would not be
found to have been be used in the Caliber and Rise devices). The verdict, however, resolved
other uncertainties in a way that strengthened Globus’s negotiating position (such as the
elimination of the risk of an order of disgorgement of profits, an award of exemplary damages,
an injunction, and a judgment declaring Dr. Bianco to be a co-inventor on several of Globus’s
patents). The Court finds that with respect to the issue of the effect of the legal uncertainty that
existed in 2007 on the royalty rate, the changed legal positions of the parties post-verdict roughly
offset each other.
The Georgia-Pacific factors also do not support a royalty rate in excess of 5% for the
invention. The Georgia-Pacific factors that the Court regards as pertinent to this case are: (1)
royalty rates paid by the defendant or others in the industry for similar inventions (here, trade
secrets) under similar circumstances; (2) the profitability of the products; (3) the extent to which
the products use or embody the invention or trade secret; and (4) the extent to which the
profitability of the products is attributable to the invention or trade secret.
One of those factors, the profitability of the products, may cut in favor of an enhanced
royalty rate, as the evidence shows that the Caliber and Rise products have been highly
profitable. Other factors, however, suggest an ongoing royalty rate at the lower end of the 5% to
6% range. First, on only one other occasion has Globus paid a royalty rate in excess of 5%, and
on that occasion, Globus points out, the payment was for more than an idea: it was for a product
that had already been patented and prototyped. Second, while the products in dispute in this case
embody the general idea of Dr. Bianco’s trade secrets, the designs of those products differ in
significant ways from the design depicted in the drawings that Dr. Bianco provided to Globus.
Third, and relatedly, as to the extent to which the profitability of the products is attributable to
Dr. Bianco’s contribution, the evidence shows that the engineering of the products, including the
use of a ramp-based expansion mechanism, involved substantial departures from the mechanisms
depicted in the relatively crude drawings supplied by Dr. Bianco, which included a scissor-jack
expansion mechanism. In particular, the combination of features that made it possible for the
Caliber and Rise products to be both small and robust were contributed by Globus’s engineers,
and were not part of any specific suggestions contributed by Dr. Bianco. That factor cuts against
selecting a royalty rate at the high end of the range under consideration. Weighing those factors
together, the Court concludes that a rate at the lower end of the range between 5% and 6% is the
appropriate ongoing royalty rate in this case.
A further component of the ongoing royalty award is the length of time for which royalty
payments will be due. The evidence at trial showed that Globus’s consulting and licensing
agreements with physicians and others for product ideas and suggestions typically have a
maximum term of 15 years. Dr. Bianco’s damages expert, Stephen L. Becker, testified at the
post-trial evidentiary hearing that, consistent with other royalty agreements entered into by
Globus, the length of the period of ongoing royalties for Dr. Bianco should be 15 years. In his
brief on the ongoing royalties issue, Dr. Bianco stated that he “does not make any claim to
royalties accruing beyond that [15-year] period.” (Dkt. No. 301, at 11 n.4).
Based on Dr. Becker’s testimony, the other licensing agreements entered into by Globus,
and Dr. Bianco’s concession limiting his claim, the Court adopts 15 years as the maximum
period for which Globus will be required to pay royalties to Dr. Bianco. Although Dr. Becker
took the position that the 15-year period should run from the date of the post-verdict hypothetical
negotiation, the Court has rejected Globus’s argument that the ongoing royalty rate should be
determined by reference to a second hypothetical negotiation. Accordingly, the Court considers
the proper model for the beginning of the 15-year period to be the consulting agreements entered
into by Globus with surgeons, a number of which are in the record. In those agreements, which
typically run for 15 years, the 15-year period begins when the agreement is executed, not when
the products begin to be sold. Since the agreements are designed to obtain input from the
physicians as to the design of the devices in question, they are typically entered well before the
instrument or device at issue is produced or sold.
Applying the same principle to the
hypothetical agreement with Dr. Bianco suggests that the 15-year period for which Globus is
liable for royalty payments to Dr. Bianco should run from July 1, 2007, immediately after Dr.
Bianco provided his drawings to Globus, not the date of the verdict in or the judgment in this
The evidence at trial provides further support for that conclusion. Dr. Bianco testified
that when he gave his drawings to Globus he expected to enter into a compensation agreement if
Globus decided to produce an adjustable intervertebral spacer based on his design. The evidence
shows that shortly thereafter Globus began exploring the possibility of making an adjustable
intervertebral spacer, although the actual engineering work on the Caliber device did not begin
until early 2009. Under these circumstances, it was reasonable for Dr. Bianco to expect—and
the evidence at trial shows that he did expect—that Globus would act fairly promptly on his
suggestion and reach an agreement with him on compensation. For those reasons, the Court
holds that July 1, 2007, is the appropriate starting date for the 15-year royalty period.
As a further component of the ongoing royalty award, Dr. Bianco requests that the
Court’s order regarding royalty payments be made applicable not only to the Caliber, Caliber-L,
Prior to trial, Globus successfully moved to exclude Dr. Becker’s testimony about
future damages because Dr. Becker sought to quantify the future damages by estimating future
sales of the accused products and extending that projection over a period of 15 years. Globus
now objects to Dr. Becker’s testimony at the evidentiary hearing about the 15-year period for the
license on the ground that Dr. Bianco is attempting to use that period in order to obtain “damages
in the form of a lump sum projected to compensate for sales 15 years from the date [of] a
hypothetical re-negotiation.” (Dkt. No. 302, at 10). At this point, however, Dr. Bianco is no
longer requesting a lump sum award as future damages, but instead is seeking an ongoing
royalty. Therefore, evidence that such a royalty award should last a maximum of 15 years is not
objectionable, because it was not based on an unreliable projection of future sales of the accused
products. As for Globus’s argument that striking the evidence regarding the 15-year period
would “leave Dr. Becker with no opinion as to a time frame for future damages,” that argument
again misses the point. Dr. Becker’s evidence introduced at the evidentiary hearing was directed
to establishing a royalty rate on the ongoing sales of the Caliber and Rise products. Because Dr.
Bianco’s proof at the evidentiary hearing was directed only at the appropriate royalty rate to be
used with regard to future sales, there was no need for him to establish a fixed “time frame” for
the award of damages.
and Rise products, but also to products not colorably different from those products. Globus
disagrees and contends that there is no justification for including such a provision in the Court’s
An order basing ongoing royalty payments on future sales of those three products
implicitly extends to any products that are not colorably different from those products. See
Soverain Software LLC v. Newegg Inc., 836 F. Supp. 2d 462, 484 (E. D. Tex. 2010); Creative
Internet Adver. Corp. v. Yahoo! Inc., 674 F. Supp. 2d 847, 853-55 (E.D. Tex. 2009). Globus
cannot avoid its royalty obligations simply by renaming its products or making some trivial and
immaterial change in the products. In order to avoid any possible misunderstanding of the scope
of the judgment in that respect, the Court will make it explicit that the royalty obligation applies
to products that are not colorably different from the Caliber, Caliber-L, and Rise products that
were the subjects of the jury’s finding of misappropriation.
Dr. Bianco further requests that the ongoing royalty payments be made on a quarterly
basis with a right to periodic accounting of the royalty-bearing sales. Globus has not responded
to that request, and as the Court regards the request as reasonable, it will be made part of the
Court’s judgment when the final judgment is entered.
In conclusion, the Court finds that Dr. Bianco is entitled to an ongoing royalty rate equal
to that determined by the jury for past damages. In the final judgment, to be entered separately,
the Court will therefore order that Globus pay Dr. Bianco 5% of the future “net sales” (as defined
in the exemplary Globus royalty agreements considered by the damages experts in this case) of
Globus’s Caliber, Caliber-L, and Rise products, or products not colorably different from those
products, with the royalty payment period terminating 15 years after July 1, 2007.
Before entering final judgment in this case, the Court must determine whether Dr. Bianco
should be awarded prejudgment interest and the amount of costs that should be taxed under Fed.
R. Civ. P. 54(d) and 28 U.S.C. § 1920. Accordingly, the Court orders the parties to file a joint
notice setting out their positions as to (1) whether the judgment should contain an award of
prejudgment interest; (2) if so, how prejudgment interest should be calculated and what the
amount of the prejudgment interest award should be; (3) the amount of taxable costs; (4) how
those costs should be allocated, given that neither party prevailed on all of the issues in this case;
and (5) the definition of “net sales” that the Court should incorporate in the ongoing royalties
portion of the judgment. The parties’ joint notice should contain legal analysis explaining their
respective positions, but should be no more than 15 pages in length. The joint notice shall be
filed on or before July 15, 2014.
IT IS SO ORDERED.
SIGNED this 1st day of July, 2014.
WILLIAM C. BRYSON
UNITED STATES CIRCUIT JUDGE
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