Medical Device Lawsuit Watch - June 2009

This summary of key lawsuits affecting medical device companies is provided by the Health Care Law Group of Crowell & Moring LLP, in collaboration with the firm's Torts, Antitrust, Commercial Litigation, and Intellectual Property Groups.

Cases in this issue:

• Erbe Elektromedizin GmbH v. International Trade Commission
• Mason v. Medline Industries, Inc., et al.
• Medtronic MiniMed, Inc., et al. v. Nova Biomedical Corp., et al.
• United States v. Garcia, et al.
• DePuy Spine, Inc., et al. v. Medtronic Sofamore Danek, Inc.
• Synergetics USA, Inc. v. Alcon Laboratories, Inc.

 

Erbe Elektromedizin GmbH v. International Trade Commission No. 2008-1358 (Fed. Cir. May 19, 2009)

The Federal Circuit affirmed the finding of the International Trade Commission ("ITC") that ERBE Elektromedizin GmbH and ERBE USA, Inc. (collectively "ERBE") presented no evidence of direct infringement of certain claims of U.S. Patent No. 5,720,745 ("the '745 patent") by the customers of Canady Technology, LLC and Canady Technology Germany GmbH (collectively "Canady"). Thus, Canady could not have engaged in contributory or induced infringement of the asserted claims.

ERBE commenced proceedings before the ITC under § 337 of the Tariff Act of 1930 alleging that Canady engaged in contributory and induced infringement of claims 1, 3, 4, 11, 13, 35, 37, 38, 39, and 41 of the '745 patent. These claims were drawn to an electrosurgical device and method of coagulating tissue using an endoscope with a plurality of "working channels."

The accused devices were probes imported and sold by Canady. ERBE essentially asserted that Canady imported and sold its probes to hospitals knowing that these hospitals combined the probes with endoscopes, and that the use of the combined probes and endoscopes directly infringed the asserted claims of the '745 Patent.

The ITC Administrative Law Judge ("ALJ") found no evidence of direct infringement because she found the accused devices only had a single "working channel," as that term was construed by the ALJ. On appeal, ERBE argued that the ALJ had erroneously construed the term "working channel," and thus had erroneously found that the accused devices only had one "working channel."

On appeal, the parties agreed that the claims required more than one "working channel" (a "plurality"), but disagreed as to whether the accused devices only had a single "working channel." ERBE argued that a fixed optics installation on the accused devices constituted another "working channel," satisfying the plurality requirement of the asserted claims. The parties agreed that if the Federal Circuit affirmed the ITC's construction of "working channel," then the ITC's non-infringement determination was correct, and the Federal Circuit need not reach the other issues raised on appeal.

The Federal Circuit affirmed the ITC's claim construction and its construction of "working channel." In affirming the ITC ALJ's construction of the term "working channel," the Court found that any construction that a fixed optics installation constituted a "working channel" was inconsistent with the figures in the specification that showed a fixed optics installation, but did not label that installation as constituting a "working channel." The Court also relied on the dictionary definitions of "work" and "working" in concluding that the fixed optics installation at issue was not a "working channel."

In affirming the ITC's finding, the Court agreed that ERBE presented no evidence that Canady's customers infringed on the asserted claims of the '745 patent. The accused probes had never been used with a multiple "working channel" endoscope, as that term was construed by the ALJ. None of the accused probes were found to have an electrode which satisfied the "predetermined minimum safety distance" limitation. In addition, there was no evidence that the accused probes were used sidewardly, or that they were used at all.

Since there was no evidence of direct infringement of any of the asserted claims, the Federal Circuit agreed with the ALJ's finding that there was no evidence of contributory infringement or induced infringement. The Court also upheld the ALJ's other findings. Based on testimony, the ALJ had found that (even assuming direct infringement) there was no contributory infringement as to the accused probes because coagulating tissue in a non-sidewardly manner was a substantial noninfringing use. The ALJ also found that there was no domestic industry as required by 19 U.S.C. § 1337(a)(2) because ERBE presented no evidence that "any user of its APC system uses an endoscope with a plurality of working channels."

 

Mason v. Medline Industries, Inc., et al. No. 07 C 5615 (N.D. Ill. May 22, 2009)

The U.S. District Court for the Northern District of Illinois dismissed a qui tam suit against Medline Industries, Inc. ("Medline") by a former employee for failure to plead the claims with the particularity required by Federal Rule of Civil Procedure 9(b). The court held that the plaintiff failed to link the alleged fraud to specific acts and claims for reimbursement.

Medline sells medical-surgical supplies and equipment to healthcare providers and enters into sales and distribution contracts directly with the federal government. From 1998 through 2005, Relator Sean Mason was employed by Medline in positions concerning customer contracts and account management. Mason alleged that he observed Medline engaging in extensive acts of fraud, including submission of false claims to the government.

In October 2007, Mason filed a qui tam action on behalf of the United States and the State of Illinois, asserting violations of the federal False Claims Act, and the Illinois Whistleblower Reward and Protection Act. Mason alleged that Medline paid bribes and kickbacks to gain business from healthcare providers and knowingly caused providers to submit false cost reports to the federal government.

Mason further alleged that Medline fraudulently induced the government into accepting inappropriate healthcare providers as pricing benchmarks, and alleged that Medline also engaged in deceitful acts to avoid providing the federal government with lower prices offered to private healthcare providers. Finally, Mason alleged that Medline fraudulently overbilled the federal government by exaggerating its actual costs in its claims for payment.

In accordance with the False Claim Act's qui tam provision, the complaint remained under seal while the federal government and Illinois determined whether they would intervene. However, both government entities declined intervention, and Medline was served with the complaint shortly thereafter. Medline sought dismissal of Mason's amended complaint pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6).

With regard to Mason's assertions that Medline knowingly caused providers to submit false claims, the court held that Mason merely speculated and failed to provide enough examples and facts to meet Rule 9(b)'s particularity requirements for pleadings. Regarding the assertion that Medline fraudulently induced the government into accepting false benchmarks, the court held that Mason failed to tie the alleged fraud he witnessed during his employment to claims and failed to explain what was false about the claims. Regarding the assertion that Medline overbilled the government, the court again held that Mason failed to specifically tie any fraudulent action to any specific claims. Finally, the court noted that Mason's failure to plead fraud with particularity and to identify specific false claims was also fatal to the Illinois state law claim. Accordingly, the court granted Medline's motion to dismiss, dismissing the complaint without prejudice.

 

Medtronic MiniMed, Inc., et al. v. Nova Biomedical Corp., et al. No. 08-00788 (C.D. Cal. May 22, 2009)

The U.S. District Court for the Central District of California denied Nova Biomedical Corporation's ("Nova's") motion for partial summary judgment of Medtronic MiniMed, Inc.'s ("Medtronic's") claims for trade secret misappropriation, breach of contract and conversion.

In the summer or fall of 2002, Medtronic partnered with Becton, Dickinson & Company ("BD") to develop a blood glucose meter that would communicate wirelessly with Medtronic's insulin pumps. BD subcontracted with Nova to manufacture the blood glucose meter. In forming this partnership, BD and Medtronic entered into a Confidential Disclosure Agreement, and BD and Nova entered into a Manufacturing Agreement. Both agreements prohibited disclosure of confidential information.

In 2006, BD exited the blood glucose monitoring market by selling its diabetes care business. At the time, BD and Medtronic entered into an agreement terminating the manufacturing partnership for the blood glucose meter, but keeping the confidentiality provisions in place. In January 2008, Nova publicly launched the Nova Max Link™ meter, which defendants described as a "re-branded version of the [meter developed by Medtronic and BD]."

Refusing to dismiss Medtronic's trade secret claim, the court found that Medtronic's disclosure of proprietary information to Nova was not sufficient to demonstrate that Medtronic failed to take reasonable measures to keep secret material related to the blood glucose meter. The court also found that Medtronic did not fail to make "reasonable efforts at secrecy" simply because the confidentiality provisions were set to expire within five years of the agreements.

The court also denied Nova's argument that the breach of contract claim should be dismissed. Although the court admitted the confidentiality provision had expired, it focused on language limiting beneficial use of the confidential information by Nova and found that a jury could determine the beneficial use provision had no expiration.

Finally, the court denied summary judgment on Medtronic's conversion claim holding that even intangible goods such as trade secrets can satisfy "the minimal tangible object requirement" for conversion.

 

United States v. Garcia, et al. No. 2:09-cr-00236 (S.D. Tex. May 26, 2009)

The U.S. District Court for the Southern District of Texas upheld indictments against an owner and an employee of a durable medical equipment company and an orthotist charged with conspiracy and participation in a scheme to defraud Medicare and Medicaid. The government claimed that the defendants entered into a scheme to sell therapeutic shoes from a facility that had no on-site practitioner as required by Texas law.

Defendant Marguerite Garcia owned Orthopedic Specialists D.M.E., Inc. ("Orthopedic Specialists"). Ms. Garcia's husband, Defendant Eli Garcia, was an employee of Orthopedic Specialists but was not a licensed practitioner of any kind. Defendant John Martinez and his brother were both licensed orthotists.

From 1996 to September 1, 1999, Orthopedic Specialists legally provided orthotics and prosthetic goods to customers and billed Medicare and Medicaid for those supplies and services, because Texas law did not require a licensed podiatrist, orthotist or prosthetist to be on-site. After September 1, 1999, however, Texas law was amended to require that any facility practicing orthotics or prosthetics was required to be accredited by having an on-site orthotist or prosthetist licensed by the State of Texas.

The government alleged that after Texas law changed on September 1, 1999, the defendants entered into a scheme whereby the Martinez brothers agreed to lend their names to Orthopedic Specialists so that it could obtain state accreditation and continue to submit claims for payment to Medicare and Medicaid. The government alleged that the billings of Orthopedic Specialists were fraudulent because the Martinez brothers spent limited time on-site. As a result, the government asserted that Eli Garcia, and not either of the Martinez brothers, served as the on-site "practitioner" for Orthopedic Specialists.

The defendants moved to dismiss the indictment contending that the government failed to sufficiently allege a penal offense. The district court denied the motion to dismiss the indictments. The court found that the government had successfully alleged a scheme to defraud Medicare and Medicaid since the "crux of the government's fraud claim is that defendants were able to bill Medicare/Medicaid for services rendered by an unlicensed individual because they represented [that Orthopedic Specialists] had an on-site licensed orthotist."

In addition to their motion to dismiss the indictment, the Garcias moved for a bill of particulars in which they sought greater specificity from the government as to the false and fraudulent representations it was alleging. The court held that a bill of particulars was not warranted, finding that the thirty-one-page indictment plus discovery voluntarily provided by the government was adequate to put the Garcias on notice of the crimes the government charged. The government had voluntarily provided the Garcias and the Martinez brothers with discovery materials, including the reports of interviews of government witnesses.

 

DePuy Spine, Inc., et al. v. Medtronic Sofamore Danek, Inc. Nos. 08-1240, 2008-1253 and 2008-1401 (Fed. Cir. June 1, 2009)

Holding that the district court correctly denied the ensnarement defense of Medtronic Sofamor Danek, Inc. and Medtronic Sofamor Danek USA, Inc. (collectively "Medtronic") and also correctly denied Medtronic's motion for judgment as a matter of law ("JMOL") on lost profits of patented pedicle screws, the Federal Circuit affirmed the damages award as to those products. However, the Federal Circuit reduced the damages award insofar as the lost profits were based partly on lost sales of unpatented "pull-through" products, which neither compete nor function with the patented invention. The Federal Circuit also reversed the award of attorneys' fees and the imposition of sanctions, which the court found to be predicated on a legal error involving the application of the reverse doctrine of equivalents.

DePuy Spine, Inc. and Biedermann Motech GmbH (collectively "DePuy") sued Medtronic alleging that Medtronic's Vertex® model of polyaxial pedicle screws used in spinal surgeries infringed Lexion's U.S. Patent No. 5,207,678 ("the '678 patent"). In a prior appeal, the Federal Circuit affirmed the district court's grant of summary judgment of no literal infringement of the '678 patent by the Vertex® model, but reversed the grant of summary judgment of noninfringement under the doctrine of equivalents.

On appeal, Medtronic challenged the district court's denial of its ensnarement defense on the merits. Alternatively, Medtronic argued that it was entitled to present its defense to a jury rather than to the district court. The Federal Circuit first held that ensnarement, like prosecution history estoppel, is a legal limitation on the doctrine of equivalents to be decided by the court, not a jury. The Federal Circuit then concluded that Medtronic's ensnarement defense was properly denied on the merits.

Medtronic challenged the jury's award of $149.1 million in lost profits on patented pedicle screws and $77.2 million in lost profits on unpatented, so-called "pull-through" products. The Federal Circuit affirmed the award of $149.1 million in lost-profits damages as to the patented pedicle screws, but reversed the award of $77.2 million in lost-profit damages on unpatented pull-through products.

Medtronic also challenged the district court's imposition of $425,375 in attorneys' fees under 35 U.S.C. § 285 and a further $10 million sanction, based on what the court perceived to be Medtronic's litigation misconduct. The Federal Circuit held that because the district court's exceptionality finding was based on Medtronic's mere assertion of the reverse doctrine of equivalents, rather than the way in which Medtronic litigated it, the finding of exceptionality was erroneous. The Federal Circuit therefore reversed the district court's imposition of $425,375 in attorneys' fees. The Federal Circuit also reversed the court's sua sponte imposition of a $10 million sanction, which was premised on the same alleged misconduct.

On cross-appeal, DePuy challenged the district court's denial of a motion for new trial on the issue of reasonable-royalty damages. The Federal Circuit concluded that the district court correctly determined that Medtronic was entitled to JMOL of no willfulness, and that it did not abuse its discretion in denying DePuy's motion for a new trial on royalty damages.

The Federal Circuit held that DePuy was entitled to post-judgment interest at the applicable statutory rate under 28 U.S.C. § 1961 running from December 11, 2007—the date the district court denied Medtronic's ensnarement defense and entered judgment on the jury verdict. The Federal Circuit remanded for calculation of post-judgment interest.

 

Synergetics USA, Inc. v. Alcon Laboratories, Inc. No. 08-3669 (S.D.N.Y. June 4, 2009)

The U.S. District Court for the Southern District of New York granted Alcon Laboratories, Inc.'s ("Alcon's") motion to dismiss a predatory pricing claim by Synergetics USA, Inc. ("Synergetics") but permitted Synergetics to move forward with its tying claim.

Synergetics' lawsuit involves various products used in vitreoretinal surgery, surgery on the inside of the eye. In its complaint, Synergetics alleged that Alcon refused to separately sell its vitreoretinal surgery cassette and light pipe and thereby improperly tied sales of the cassette to sales of the light pipe. Synergetics further alleged that Alcon engaged in predatory pricing of its vitreoretinal surgery light source.

The district court granted Alcon's motion to dismiss, finding that Synergetics had failed to properly plead a predatory pricing claim. The district court noted that to sufficiently plead such a claim, a plaintiff must allege that the defendant has a "reasonable expectation of recovering, in the form of later monopoly profits, more than the losses suffered." The plaintiff must also allege that these profits will arise in the product market in which the defendant purportedly engaged in predatory pricing. The district court found that Synergetics' complaint asserted that Alcon would recover monopoly profits not in the vitreoretinal surgery light source market, but in other product markets. Consequently, the district court held that Synergetics failed to sufficiently plead its predatory pricing claim and granted Alcon's motion to dismiss on that basis.

As to Synergetics' tying claim, Alcon argued that Synergetics failed to adequately plead that the alleged tying would affect a "substantial volume of commerce." The district court disagreed, explaining that to sufficiently plead a tying claim, a plaintiff "need not specify a dollar amount of foreclosed commerce." The district court found that Synergetics sufficiently pleaded a claim of tying because its complaint asserted that Alcon tied sales of the cassette to sales of the light pipe with two customers. The district court accordingly denied Alcon's motion to dismiss Synergetics' tying claim.

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This material was prepared by Crowell & Moring LLP attorneys Asaf Batelman, Matthew Fornataro, Rogelyn McLean, Nicole S. Thompson, Carlos Uriarte, Deborah Yellin, and Angela Yu. It is made available on the Crowell & Moring website for information purposes only, and should not be relied upon to resolve specific legal questions. If you have questions or want additional information, please call your regular Crowell & Moring contact or you may contact the editor of Medical Device Lawsuit Watch.