Error: Bad annotation destination
United States Court of Appeals for the Federal Circuit
05-1149
APPLIED MEDICAL RESOURCES CORPORATION,
Plaintiff-Appellee,
v.
UNITED STATES SURGICAL CORPORATION,
Defendant-Appellant.
Joseph R. Re, Knobbe, Martens, Olson & Bear, LLP, of Irvine, California, argued
for plaintiff-appellee. With him on the brief were Karen Vogel Weil, Joseph F. Jennings,
Joseph S. Cianfrani, and Christy Green Lea. Of counsel was Brian C. Horne, of Los
Angeles, California.
Glen E. Summers, Bartlit Beck Herman Palenchar & Scott LLP, of Denver,
Colorado, argued for defendant-appellant. Of counsel on the brief was Donald L.
Morrow, Paul Hastings Janofsky & Walker LLP, of Costa Mesa, California. Of counsel
was Fred H. Bartlit, Jr., Bartlit Beck Herman Palenchar & Scott LLP, of Denver,
Colorado.
Appealed from: United States District Court for the Central District of California
Judge Cormac J. Carney
United States Court of Appeals for the Federal Circuit
05-1149
APPLIED MEDICAL RESOURCES CORPORATION,
Plaintiff-Appellee,
v.
UNITED STATES SURGICAL CORPORATION,
Defendant-Appellant.
_____________________
DECIDED: January 24, 2006
_____________________
Before LOURIE, RADER, and LINN, Circuit Judges.
LOURIE, Circuit Judge.
United States Surgical Corporation (“U.S. Surgical”) appeals from the decision of
the United States District Court for the Central District of California granting judgment of
willful infringement of U.S. Patent 5,385,553 in favor of Applied Medical Resources
Corporation (“Applied”), and awarding damages, enhanced damages, attorney fees,
and prejudgment interest totaling $64.5 million. Applied Med. Res. Corp. v. U.S.
Surgical Corp., Civ. No. 99-CV-625 (C.D. Cal. Jan. 27, 2005). Because the district court
did not err in not applying collateral estoppel to the reasonable royalty rate, substantial
evidence supports the jury’s verdict of willful infringement, and the court did not abuse
its discretion in admitting evidence regarding a prior litigation, we affirm.
BACKGROUND
The ’553 patent is entitled “Trocar With Floating Septum Seal” and was issued to
Applied as assignee. The invention relates to surgical devices called trocars, which are
used as access ports into the abdomen during laparoscopic surgery. Laparoscopic
surgery is performed by inflating the abdomen and inserting instruments through
trocars. It is important for the trocar to maintain a seal with the instrument; otherwise,
the insufflation gas used to inflate the abdomen would leak and potentially cause
serious complications.
Early trocars did not accommodate instruments of different diameters. For
example, inserting a relatively small instrument through a large seal would produce a
gap between the instrument and the seal, allowing the insufflation gas to leak out from
the abdomen. As a result, surgeons were required to either use multiple trocars with
differently sized seals or “flip top” adapters to accommodate differently sized
instruments. The invention of the ’553 patent eliminates the need for adapters,
describing a trocar which maintains a seal around instruments of various sizes, using a
“floating seal.” Specifically, claim 3 recites a trocar whose seal includes excess material
at its outer portions, which permits the seal orifice to move without allowing gas to leak.
’553 patent, col. 11, ll. 57-62. Claim 4, which depends from claim 3, further requires
that the excess material be configured in a bellows shape. Id., col. 11, ll. 63-64.
The parties to this appeal are no strangers to each other and to this court.
Applied first sued U.S. Surgical in the United States District Court for the Eastern
District of Virginia in 1996 (“Applied I”), alleging that U.S. Surgical’s sale of its Versaport
trocars (“Versaport I”) infringed the ’553 patent, as well as two other Applied patents. In
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1997, a jury found that U.S. Surgical willfully infringed claims 4 and 18 of the ’553 patent
as well as two other Applied patents, and awarded damages in the form of a 7%
reasonable royalty. The court granted judgment for $20.5 million and entered a
permanent injunction enjoining further infringing sales effective May 20, 1997. Applied
Med. Res. Corp. v. U.S. Surgical Corp., 967 F. Supp. 861 (E.D. Va. 1997). We affirmed
that judgment on June 30, 1998. Applied Med. Res. Corp. v. U.S. Surgical Corp., 147
F.3d 1373 (Fed. Cir. 1998).
During the Applied I litigation, U.S. Surgical began redesigning its Versaport
trocar. U.S. Surgical completed its redesign shortly after the Applied I verdict and
began selling the redesigned Versaport (“Versaport II”) by June 2, 1997.1 On April 16,
1999, Applied filed a second complaint against U.S. Surgical in the United States
District Court for the Central District of California, alleging that Versaport II infringed the
’553 patent (“Applied II”). The parties filed competing motions for summary judgment:
Applied, for infringement of claim 3 of the ’553 patent, and U.S. Surgical, for
noninfringement and invalidity of claim 3. On February 28, 2002, the district court
granted Applied’s motion for summary judgment of infringement of claim 3, and entered
a permanent injunction effective November 1, 2002. U.S. Surgical appealed to this
court, and we affirmed the court’s judgment and injunction on September 11, 2003.
Applied Med. Res. Corp. v. U.S. Surgical Corp., 75 Fed. Appx. 765 (Fed. Cir. 2003).
Having resolved liability and validity issues, the district court then held a trial to
determine the damages owed to Applied for U.S. Surgical’s infringing sales of Versaport
1
The redesigned Versaport continued to be sold under the same name and the
same model number as the original Versaport. To avoid confusion, however, we will
refer to the original trocar as Versaport I and the redesigned trocar as Versaport II.
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II, and to determine whether U.S. Surgical’s infringement was willful. Before trial, U.S.
Surgical moved to establish as a matter of law that the reasonable royalty for infringing
sales of Versaport II was 7%, arguing that the reasonable royalty established in
Applied I for infringing sales of Versaport I was binding under principles of collateral
estoppel. U.S. Surgical also sought to preclude introduction of evidence related to the
jury’s finding of willful infringement in Applied I. The court denied both motions. The
court first held that the jury would make “its own ‘independent’ determination of the
reasonable royalty rate in 1997” and was thus not bound by the royalty rate in Applied I.
(emphasis in original). The court also concluded that evidence regarding Applied I was
relevant to willful infringement and damages because the “fact that U.S. Surgical had
infringed the ’553 patent once before in its actions in response thereto is probative of its
intent to infringe the ’553 patent a second time.”
The trial commenced on July 14, 2004. At the close of Applied’s case-in-chief,
U.S. Surgical again moved for judgment as a matter of law that the 7% reasonable
royalty from Applied I for infringing sales of Versaport I estopped Applied from asserting
that a different damages determination should apply in Applied II. The court denied the
motion, stating that it had “already ruled on that.” U.S. Surgical also moved for
judgment as a matter of law of no willful infringement. The court deferred that ruling
under Federal Rule of Civil Procedure 50(b) until after the jury rendered its verdict.
On July 27, 2004, the jury found that U.S. Surgical’s infringement was willful and
awarded Applied damages of $43,575,907. U.S. Surgical renewed its motions for
judgment as a matter of law on the grounds of collateral estoppel and lack of willful
infringement. At the same time, Applied filed a motion for enhanced damages. The
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court denied both of U.S. Surgical’s motions for judgment as a matter of law on
October 4, 2004. On the same day, the court granted Applied’s post-trial motion and
enhanced compensatory damages by 25%. Applied then moved for attorney fees,
prejudgment interest, and post-judgment interest. The court granted that motion on
January 12, 2005.
On January 27, 2005, the court entered final judgment in favor of Applied in the
amount of $64.5 million. U.S. Surgical timely appealed, and we have jurisdiction
pursuant to 28 U.S.C. § 1295(a)(1).
DISCUSSION
I. Collateral Estoppel
We review a trial court’s application of collateral estoppel by applying the law of
the regional circuit. See Bayer AG. v. Biovail Corp., 279 F.3d 1340, 1345 (Fed. Cir.
2002) (“Because the application of collateral estoppel is not a matter within the
exclusive jurisdiction of this court, this court applies the law of the circuit in which the
district court sits.”). The Ninth Circuit has reviewed the application and non-application
of collateral estoppel by trial courts under varying standards, either without deference or
for abuse of discretion. Compare McQuillion v. Schwarzenegger, 369 F.3d 1091, 1096
(9th Cir. 2004) (“We review de novo the application of collateral estoppel.”); United
States v. Real Prop. Located at 22 Santa Barbara Drive, 264 F.3d 860, 868 (9th Cir.
2001) (“Application of collateral estoppel is reviewed de novo.”), with Bates v. Union Oil
Co. of Cal., 944 F.2d 647, 651 (9th Cir. 1991) (“We review a district court's decision to
apply collateral estoppel for abuse of discretion.”); Garrett v. City & County of San
Francisco, 818 F.2d 1515, 1520 (9th Cir. 1987) (“The availability of collateral estoppel is
05-1149 -5-
subject to de novo review, but application of the doctrine, if available, is reviewed for
abuse of discretion.”). We need not resolve which standard should apply to the
collateral estoppel analysis because even under a more exacting plenary review, the
result in this case would be the same.
On appeal, U.S. Surgical argues that the district court erred in refusing to give
collateral estoppel effect to the 7% reasonable royalty rate found by the jury in Applied I.
U.S. Surgical contends that all of the requirements for application of collateral estoppel
are satisfied because the reasonable royalty rate was actually litigated in Applied I, it
was decided by a jury, and the jury’s determination was essential to the district court’s
final judgment in Applied II. U.S. Surgical maintains that the issue that the Applied I jury
decided is the same issue presented in Applied II, and points out that both cases
involved the same parties, the same patent, and the same type of product. In addition,
according to U.S. Surgical, the infringement in Applied II is an uninterrupted
continuation of the infringement in Applied I, and therefore the correct date of a
hypothetical negotiation in Applied II is the 1994 time period used in Applied I, rather
than 1997.
Applied responds that the court properly denied collateral estoppel effect to the
7% reasonable royalty rate found by the jury in Applied I because that determination
was for infringing sales of Versaport I, and should not limit U.S. Surgical’s liability for
later infringing sales of Versaport II. Applied contends that because the parties
independently litigated infringement, willfulness, and damages for Versaport I and
Versaport II, the products constitute separate infringements and require separate
hypothetical negotiations to determine damages. According to Applied, the hypothetical
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negotiation relating to Versaport II involved market conditions that did not exist at the
time of the 1994 hypothetical negotiation in Applied I, viz., increased demand for the
patented product and decreased supply resulting from U.S. Surgical’s enjoinment from
making Versaport I.
We agree with Applied that the district court properly denied collateral estoppel
effect to the 7% reasonable royalty rate found by the jury in Applied I. “Under collateral
estoppel, once a court has decided an issue of fact or law necessary to its judgment,
that decision may preclude relitigation of the issue in a suit on a different cause of action
involving a party to the first case.” Allen v. McCurry, 449 U.S. 90, 94 (1980) (citing
Montana v. United States, 440 U.S. 147, 153 (1979)); see also San Remo Hotel, L.P. v.
City and County of San Francisco, Cal., 125 S. Ct. 2491, 2500-01 (2005). As we
explained in Arkla, Inc. v. United States, 37 F.3d 621 (Fed. Cir. 1994):
Collateral estoppel is appropriate only if: (1) the issue to be decided is identical to
one decided in the first action; (2) the issue was actually litigated in the first
action; (3) resolution of the issue was essential to a final judgment in the first
action; and (4) the parties had a full and fair opportunity to litigate the issue in the
first action.
Id. at 624 (citation omitted). Here, collateral estoppel is not appropriate because the
necessary reasonable royalty determination in Applied II is not identical to that decided
in Applied I.
As an initial matter, the juries in both Applied I and Applied II employed a
reasonable royalty calculation because actual damages could not be adequately
proved. Wang Labs., Inc. v. Toshiba Corp., 993 F.2d 858, 870 (Fed. Cir. 1993) (citing
Fromson v. Western Litho Plate & Supply Co., 853 F.2d 1568, 1574 (Fed. Cir. 1988)).
“A reasonable royalty is the amount that ‘a person, desiring to manufacture [, use, or]
sell a patented article, as a business proposition, would be willing to pay as a royalty
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and yet be able to make [, use, or] sell the patented article, in the market, at a
reasonable profit.’” Trans-World Mfg. Corp. v. Al Nyman & Sons, Inc., 750 F.2d 1552,
1568 (Fed. Cir. 1984) (citations omitted). “The objective of [a] reasonable royalty
calculation is to determine the amount necessary to adequately compensate for an
infringement.” Maxwell v. J. Baker, Inc., 86 F.3d 1098, 1109 (Fed. Cir. 1996).
When an established royalty does not exist, a court may determine a reasonable
royalty based on “hypothetical negotiations between willing licensor and willing
licensee.” Fromson, 853 F.2d at 1574. We have held that a reasonable royalty
determination for purposes of making a damages evaluation must relate to the time
infringement occurred. Hanson v. Alpine Valley Ski Area, Inc., 718 F.2d 1075, 1079
(Fed. Cir. 1983) (“The key element in setting a reasonable royalty . . . is the necessity
for return to the date when the infringement began.”) (quoting Panduit Corp. v. Stahlin
Bros. Fibre Works, Inc., 575 F.2d 1152, 1158 (6th Cir. 1978)); see also Fromson, 853
F.2d at 1575 (holding that hypothetical royalty negotiations methodology “speaks of
negotiations as of the time infringement began”).
Consistent with our precedent, reasonable royalty damages are not calculated in
a vacuum without consideration of the infringement being redressed. Id. We are
required to identify the infringement requiring compensation, and evaluate damages
based on a hypothetical negotiation at the time that infringement began, not an earlier
one. Id. Here, the issue of reasonable royalty damages in Applied II is not identical to
the issue of reasonable royalty damages in Applied I because the infringements
requiring compensation began at separate and distinct times. The infringement in
Applied II was caused by sales of Versaport II, which began in 1997, whereas the
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infringement in Applied I was caused by sales of Versaport I, which began in 1994.
Because Versaport I and Versaport II caused two separate infringements, and each
infringement commenced on a different date, it follows that the reasonable royalties may
well be different from each other. Reasonable royalty damages for the infringement
caused by Versaport II are tied to sales of Versaport II beginning in 1997. We cannot
relate reasonable royalty damages for Versaport II sales back to a separate and past
infringement caused by Versaport I sales beginning in 1994. Indeed, the issue of
reasonable royalty damages for Versaport II sales could not have been and was not
considered, much less decided, in Applied I because that product had not yet been
determined to infringe. We conclude that the damages issues in Applied I and
Applied II are not identical, and therefore the jury’s award of reasonable royalty
damages for infringing sales of Versaport I in Applied I does not preclude another jury’s
evaluation of reasonable royalty damages for infringing sales of Versaport II at a
different time in Applied II.
Further, there is no legal or factual basis for viewing the separate infringements
caused by sales of Versaport I and Versaport II as the same infringement. U.S.
Surgical has asserted that Versaport II is a different product from the Versaport I trocar:
the “product that was at issue in Applied I is vastly different than the new [Versaport II]
at issue in this case.” (emphasis added). U.S. Surgical has also agreed that Versaport
II involved different infringement issues than Versaport I because the seals were
different: “[f]rom this thorough and careful re-design process emerged an entirely
different, non-infringing trocar, with a completely new and improved seal system.”
(emphases added). Having conceded that Versaport I and Versaport II were different
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infringements, U.S. Surgical’s attempt to conflate the two products for purposes of
damages fails. Because the determination of reasonable royalty damages is tied to the
infringement being redressed, a separate infringement beginning at a different time
requires a separate evaluation of reasonable royalty damages. To argue otherwise,
U.S. Surgical would have to concede that it has willfully violated the permanent
injunction in Applied I.
U.S. Surgical argues that its infringement of the ’553 patent has been continuous
and uninterrupted since 1995, and therefore that the damages issue in Applied II was
decided in Applied I. U.S. Surgical also contends that there can be no genuine dispute
that the issues in Applied I and Applied II were the same because the final judgment in
Applied I had stated that “Applied is entitled to a seven percent royalty on the sales of
each Surgical product which infringed . . . the ’553 patent.” We disagree. That the
infringement activity caused by Versaport I and Versaport II may appear to be
continuous in time does not mean that it is a continuous infringement in law. The sales
of Versaport II constituted a separate and distinct infringement from sales of Versaport I,
and Applied is entitled to prosecute and recover damages for each infringement under
the statute. 28 U.S.C. § 271 (2000). Indeed, simply because the same company sold
two different products which infringed a patent does not prevent the patentee from
litigating and collecting separate damages for each infringement. Further, we reject
U.S. Surgical’s contention that the district court’s denial of collateral estoppel for
purposes of damages is inconsistent with its grant of collateral estoppel for purposes of
validity. A conclusion in Applied I that the patent is not invalid properly estops U.S.
Surgical from making the same arguments in Applied II. The issue is the same. That
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the validity of the ’553 patent was adjudicated in Applied I does not mean, however, that
the reasonable royalty rate for infringing sales of Versaport II was also decided in
Applied I. The damages issues are not the same.
U.S. Surgical asserts that even if there were a lack of “total identity” of issues
between Applied I and Applied II, the issues must be deemed identical for collateral
estoppel purposes because, in both litigations, there was substantial overlap in the
evidence, application of the same rule of law, similar matters embraced in pre-trial
preparation, and closely related claims involving the same patent, the same parties, and
the same type of product. That argument misses the point. We recognize that there
may be instances, which we do not address here, in which two products, even if not
identical, may present the same damages analysis. That is not the case here. The two
infringements caused by Versaport I and Versaport II sales began at different times, and
require two different hypothetical negotiation dates. Indeed, the evidence supporting
damages in Applied II was entirely different from the evidence offered in Applied I. For
example, the Applied II jury heard evidence regarding the market conditions in 1997 for
Versaport II, the license agreements entered into by Applied in 1998 and 1999, and the
ability of Versaport II to compete with Applied’s products in 1997, none of which was
available to the Applied I jury. Because the determination of reasonable royalty
damages is tied to the infringement being compensated for, reasonable royalties for a
different infringement beginning at a different time may well be different from each
other.
U.S. Surgical also argues that the district court confused the start of the
infringement with the start of the damages period, relying on Integra Lifesciences I, Ltd.
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v. Merck KGaA, 331 F.3d 860 (Fed. Cir. 2003), vacated and remanded, 125 S. Ct. 2372
(2005) and Wang Labs., Inc. v. Toshiba Corp., 993 F.2d 858 (Fed. Cir. 1993). These
cases do not provide the necessary support for its argument. Both cases involved one
initial infringement, not two separate infringements. In Wang, the parties agreed that
the single infringement at issue began in 1987. 993 F.2d at 869. However, the district
court in Wang chose January 1990, the date the patentee gave notice of the
infringement, rather than April 1987 as the date of hypothetical negotiation. Id. We
reversed, holding that the hypothetical negotiation occurred “when the infringement
began” in April 1987. Id. at 870. We observed that that was the case even though the
damages period did not begin until six years prior to the filing of the infringement action
under 35 U.S.C. § 286.
Similarly, the alleged infringement in Integra was a single infringement consisting
of a series of experiments that took place between 1994 and 1998. 331 F.3d at 870.
The district court held that some of the 1994 experiments were not infringing acts due to
experimental use, but the record showed that at least one of the 1994 experiments was
not considered exempted from infringement. Id. We remanded for the district court to
determine whether the 1994 experiments were infringing acts, and to clarify whether the
hypothetical negotiation would have occurred in 1994 or 1995. Id. We explained, “If
indeed the record shows that the first infringement occurred in 1994, then the
hypothetical negotiation should be regarded as having occurred at least before that
earlier date. On remand, the trial court will have the opportunity to clarify the proper
timing of the reasonable royalty calculus.” Id.
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Our holdings in Wang and Integra reiterate the rule that the hypothetical
negotiation relates to the date of first infringement. There is nothing to suggest that we
should tie a hypothetical negotiation to a prior infringement no longer at issue. Here,
the hypothetical negotiation date for infringing sales of Versaport II relates to the
infringement caused by Versaport II sales beginning in 1997, not the past infringement
caused by Versaport I sales beginning in 1994. Moreover, while a hypothetical
negotiation may occur on a different date than the beginning of the damages period in
certain circumstances, as in Wang, that outcome results from the statute limiting the
damages period. 35 U.S.C. § 286 (2000). No such limitation operates here. In this
case, the complaint was filed less than six years after the infringement began, and
therefore damages first began to accrue at the same time that the infringement began.
Accordingly, the proper hypothetical negotiation date for calculation of reasonable
royalty damages in Applied II is 1997.
II. Denial of Judgment as a Matter of Law
The denial of a motion for judgment as a matter of law “is a procedural issue not
unique to patent law, which we review under the law of the regional circuit where the
appeal from the district court normally would lie.” Riverwood Int’l Corp. v. R.A. Jones &
Co., 324 F.3d 1346, 1352 (Fed. Cir. 2003). In the Ninth Circuit, the denial of a motion
for judgment as a matter of law is reviewed de novo. Lytle v. Carl, 382 F.3d 978, 982
(9th Cir. 2004). Judgment as a matter of law requires that “we view the evidence in the
light most favorable to the nonmoving party, and draw all reasonable inferences in favor
of that party.” Id. (citation omitted). The Ninth Circuit upholds any jury verdict
supported by substantial evidence. Id. “Substantial evidence is such relevant evidence
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as a reasonable mind might accept as adequate to support a conclusion.”
Confederated Tribes of Siletz Indians of Or. v. Weyerhaeuser Co., 411 F.3d 1030, 1040
(9th Cir. 2005) (citation omitted). The Ninth Circuit has explained that when reviewing
the record as a whole, we must keep in mind that “credibility determinations, the
weighing of the evidence, and the drawing of legitimate inferences from the facts are
jury functions, not those of a judge.” Id. at 1040-41.
U.S. Surgical argues that the court erred in not granting its motion for judgment
as a matter of law of no willful infringement because the evidence established at every
stage of the development process for Versaport II, U.S. Surgical acted with due care
and a good faith belief of noninfringement. U.S. Surgical points out that the district court
found no evidence that U.S. Surgical deliberately copied Applied’s patent, and that the
court concluded that U.S. Surgical engaged in an intense and deliberate program to
design around the ’553 patent. U.S. Surgical also asserts that uncontroverted evidence
established that U.S. Surgical regularly consulted with its in-house patent counsel
during the redesign process, requested the advice of outside law firms, and did not
make a single sale until after U.S. Surgical received a written second opinion from a
patent attorney at another law firm. According to U.S. Surgical, Applied did not
introduce “clear and convincing” evidence that U.S. Surgical lacked a good faith belief
that its Versaport II trocar did not infringe.
Applied responds that U.S. Surgical does not rebut the evidence cited by the
court as supporting the jury’s verdict of willful infringement, which showed that U.S.
Surgical (1) desperately needed a trocar with a floating seal to satisfy its customer
demands, (2) began its redesign efforts only in response to the threat of an injunction in
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Applied I, (3) did not give its engineers sufficient time to avoid an infringing design, (4)
did not rely upon any opinions of counsel in good faith, and (5) continued selling its
infringing trocars for eight months after the ruling of infringement.
We agree with Applied that substantial evidence supports the jury’s verdict of
willful infringement. As the district court correctly noted, Applied presented evidence
from which a jury could reasonably infer that U.S. Surgical desperately needed a
universal seal trocar to remain competitive in the surgical business, that U.S. Surgical’s
management did not properly oversee or adequately participate in the development of
Versaport II, and that U.S. Surgical’s management placed intense time pressure on their
engineers to create a new product.
At trial, U.S. Surgical produced three written opinions from outside counsel dated
May 29, 1997, May 30, 1997, and June 30, 1997, in an attempt to show that it relied on
legal advice to make and sell the infringing trocars. However, the first letter was simply
“ship[ped] off in the mail,” the second letter did not address infringement of the claims of
the ’553 patent and was limited to the issue of contempt, and the third letter arrived after
U.S. Surgical began selling Versaport II. Based on this evidence, a jury could have
reasonably concluded that U.S. Surgical paid little if any attention to the opinion letters.
Other evidence also undermines U.S. Surgical’s alleged good faith reliance on the legal
opinions. Thomas Bremer, U.S. Surgical’s former Senior Vice President and General
Counsel, testified that U.S. Surgical wanted “no gap” in the supply of Versaport trocars
once the Applied I injunction took effect on May 20, 1997. A reasonable jury could have
believed that U.S. Surgical was not concerned about infringement and would have
proceeded to manufacture Versaport II despite receiving outside legal opinions. Mr.
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Bremer also offered additional testimony from which a jury could have inferred that he
did not rely on the legal opinions as legitimate advice as to whether Versaport II
infringed, but rather sought legal opinions for their potential evidentiary value on the
issue of willful infringement in future litigation. This could have suggested to the jury
that U.S. Surgical did not rely on any opinions of counsel in good faith.
We conclude that the jury’s finding of willfulness was supported by substantial
evidence, and therefore that the district court did not err in denying U.S. Surgical’s
motion for judgment as a matter of law of no willful infringement.
III. Evidentiary Rulings
We review evidentiary rulings of the district court applying the law of the regional
circuit. Sulzer Textil A.G. v. Picanol N.V., 358 F.3d 1356, 1363 (Fed. Cir. 2004). The
Ninth Circuit reviews evidentiary rulings for abuse of discretion; to reverse, we must
conclude both that the district court abused its discretion and that the error was
prejudicial so that it more probably than not tainted the verdict. McEuin v. Crown Equip.
Corp., 328 F.3d 1028, 1032 (9th Cir. 2003).
U.S. Surgical challenges the district court’s evidentiary ruling allowing Applied to
introduce evidence regarding the Applied I litigation, including the jury’s finding that U.S.
Surgical’s infringement was willful. Applied responds that the Applied I litigation was
highly relevant to the 1997 hypothetical negotiation, and was probative of U.S.
Surgical’s state of mind when it decided to make the infringing Versaport II products.
Applied also maintains that U.S. Surgical failed to allege, much less show, that the
admission of evidence regarding Applied I would potentially lead to unfair prejudice,
substantially outweighing its probative value.
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We agree with Applied that the Applied I litigation was relevant to the reasonable
royalty analysis because the hypothetical negotiation in 1997 took place on the heels of
the Applied I jury verdict. We also agree that Applied I was relevant to the jury’s
willfulness determination. Basam Nabulsi, an in-house patent lawyer at U.S. Surgical,
testified at trial that U.S. Surgical initiated the design of Versaport II in December 1996
because Applied had commenced the Applied I litigation by filing suit in the Eastern
District of Virginia. U.S. Surgical also admitted that the Applied I verdict caused U.S.
Surgical to redouble its efforts to avoid willful infringement. Thus, Applied I was clearly
relevant to U.S. Surgical’s state of mind, and U.S. Surgical has not shown that its
probative value was outweighed by the danger of unfair prejudice. We therefore
conclude that the court acted within its discretion.
CONCLUSION
We conclude that the district court did not err in not applying collateral estoppel
to the reasonable royalty rate, did not err in denying U.S. Surgical’s motion for judgment
as a matter of law of no willfulness, and did not abuse its discretion in admitting
evidence regarding Applied I. The decision of the court granting judgment of willful
infringement of the ’553 patent in favor of Applied, and awarding damages, enhanced
damages, attorney fees, and prejudgment interest totaling $64.5 million, is
AFFIRMED.
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