Applied Medical Resources Corp. v. United States Surgical Corp.

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

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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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