Medtronic’s Sisyphean Legal Battles

The courtroom is not a warm and fuzzy place for Medtronic. Since its acquisition of Sofamor Danek, Medtronic has had probably more than its share of misery at the bench. Certainly the billion-dollar losses to Gary Michelson for patent infringement are Exhibit A.

But in the last 10 months, a string of courtroom setbacks has Medtronic looking like the subject of some Camus treatise on the futile search for meaning.

On September 22, 2006, Medtronic filed a lawsuit against Globus Medical alleging that the company had infringed six patents. This past week, the Honorable Norma L. Shapiro of the U.S. District Court (Eastern Pennsylvania) ruled on the final two patents in question—the two having to do with Medtronic’s Sextant System, which was invented by Dr. Kevin Foley (Professor of Neurosurgery, University of Tennessee), Michael Sherman (at the time an engineering executive with Sofamor Danek and now partner with MB Ventures Fund), and Jeff Justis (an engineering executive). The other four disputed patents mentioned in the original lawsuit have been settled.

Medtronic was asking the court for three forms of relief:

• An award of $2, 866, 405 to compensate for Medtronic USA’s lost sales of the Sextant System because of the infringement;
• An award of $1, 327, 866 for statutory royalties on Globus’s sales of its Pivot System for which Medtronic USA did not claim lost profits; and
• Entry of a permanent injunction prohibiting Globus from selling the Pivot System.

Medtronic's Sextant SystemThe court ruled, however, that Medtronic was NOT entitled to recover damages for infringement. Instead, it ruled that a Medtronic subsidiary (Warsaw Inc.—a legal entity created from the merger of SDGI Holdings and Sofamor Danek Holdings) was the only party entitled to recover for infringement. While Medtronic tried to move the damages, in effect, upstream to the parent, the court said "no."

Judge Shapiro held that the licensing agreements between Warsaw and the other Medtronic subsidiaries FAILED to transfer exclusionary rights that would grant the subsidiaries standing to sue for patent infringement.

Globus' s Pivot SystemMedtronic's Warsaw unit was awarded $2.1 million from Globus (an amount equal to 15% of Globus's gross revenues from the sales of Pivot). But because Warsaw is a manufacturer and not a distributor, the court concluded that Warsaw was unlikely to suffer irreparable harm.

Bottom line: no permanent injunction and no award for Medtronic's lost profits.

Globus has now weathered two major intellectual property lawsuits—one from Synthes and this one from Medtronic. Last quarter, Globus booked $64 million in revenue and appears well on its way to record 2009 annual sales of about $250 million.

Medtronic, on the other hand, has not had very good fortune with its litigation initiatives this past year.

The Search for Meaning in Court

Less than one month ago, DePuy Spine won a whopping $179 million judgment against Medtronic regarding its patent infringement suit over spinal screws. Medtronic has since announced that it plans to appeal. The stipulation was filed June 29, 2009, in the U.S. District Court for the District of Massachusetts.

Then, nine months ago Medtronic was ordered to pay BrainLAB $4.38 million in yet another patent infringement suit. This time it was the District Court of Colorado and the order was for Medtronic to pay attorney fees, costs and expenses to BrainLAB. This was a case of a patent suit brought by Medtronic. The suit was filed in 1998 only to be dismissed by the U.S. District Court in Denver in February 2006. Medtronic appealed the ruling and lost again.

Then there is the December 9, 2008, ruling from the home town court (U.S. District Court in Memphis) ordering Medtronic to pay Synthes the equivalent of lost profits for approximately half of the infringing sales of Medtronic’s Maverick disc PLUS a royalty of 18% on the remaining sales. The Memphis court ruled that Medtronic has willfully violated the intellectual property supporting Synthes's ProDisc-L product.

Nostalgic for the Pedicle Screw Litigation Days?

There was a time, not so long ago, when Philadelphia lawyers cowered before the pit bull known as Sofamor Danek and, more specifically, its leader, Ron Pickard. In the mid-1990s all manufacturers of stainless steel bone screws for internal fixation of the spine were hit with literally thousands of lawsuits. When the pedicle screw lawsuits hit, these implants had been used in more than 30, 000 surgeries and had become the standard of care for certain fusions. As of December 17, 1993, there were no pedicle screw lawsuits against Sofamor Danek.

That December night the ABC Television Network broadcast a “20/20” program entitled, “The Secret of the Bone Screw.” The next day an avalanche of lawsuits started. Not only were the major manufacturers sued (like Acromed and Sofamor Danek), but also so were more than 200 physicians, hospitals and even the North American Spine Society (NASS), the American Academy of Neurologic Surgeons (AANS) and other surgeon societies.

The thousands of lawsuits claimed that the manufacturers illegally marketed their bone screw products.

In less than a year, with Pickard and his executives like Alex Lukianov in the lead, all the federal lawsuits were consolidated for pretrial purposes and transferred to the United States District Court for the Eastern District of Pennsylvania under the supervision of the Hon. Louis C. Bechtle.

US. District Court,
Eastern District in PennsylvaniaThe Philadelphia lawyers thought they had the hicks from Memphis on the run, particularly since the cases were being heard in Philadelphia.  Little did they know that Ron, et al. had them surrounded.

Under focused attack from Sofamor Danek, the plaintiffs’ cases began to unravel. The judge failed to certify the cases as a class. Not one expert was found who would say that the screws were poorly made or flawed.

As rulings piled up against the plaintiffs, the lawyers switched tactics and, in addition to suing surgeons and their societies, began advertising for clients. “If you have had back surgery, call 1-800....” was a typical advertisement. They then expanded the claims against Sofamor Danek (breach of warranty, strict liability, negligence, and misrepresentation). All of those attempts ultimately failed.

Over the course of the ensuing five years Sofamor Danek won more than 6, 000 cases.

What's Next

In the late 1990s, the FDA recommended down-classifying bone screws for surgery in the pedicle.

Ironically, not only was last week’s ruling in the Medtronic v. Globus case also from the legendary U.S. District Court in Philadelphia, the location of Sofamor Danek's greatest victories, but next up is the patent litigation fight against Alex Lukianov and his company NuVasive. Lukianov was part of Ron Pickard's inner circle during the pedicle screw fights. Now his old firm is suing him.

Like Sisyphus, the figure of Greek mythology, the Medtronic legal team will throw themselves into the task of pushing their legal arguments up a mountain. This time it is Alex Lukianov (CEO of NuVasive) pushing on the other side. How can Medtronic’s lawyers be feeling? As Camus himself said at the end of his essay on Sisyphus, "The struggle itself...is enough to fill a man's heart. One must imagine Sisyphus happy."