UPDATE August 13, 3:50 p.m. EDT with comment from Smith & Nephew.
A federal judge in Texas erred when he failed to give enough weight to a jury’s finding in a patent infringement case between Smith & Nephew (FTSE:SN, NYSE:SNN) and Kinetic Concepts Inc., according to the U.S. Court of Appeals for the Federal Circuit, which sent the case back to Judge Royal Furgeson for reconsideration.
In October 2010, Furgeson ruled portions of 2 KCI patents invalid in the U.S. District Court for Western Texas, despite the jury’s ruling in March 2010 that Smith & Nephew’s Renasys F negative-pressure wound therapy device violates a pair of patents owned by Wake Forest University and licensed to KCI.
But the Federal Circuit found that SNN failed to prove that the KCI patents were invalid on obviousness grounds, according to court documents.
"S&N has not proven by clear and convincing evidence that the asserted claims are obvious. The district court committed error by failing to defer to the jury’s factual findings," according to the documents. "We reverse and remand, so the district court can consider those arguments in the first instance."
"We are disappointed by the decision of the U.S. Court of Appeals for the Federal Circuit and are considering our options, including seeking rehearing before the appellate court," Smith & Nephew said in an email to MassDevice.com. "All of our NPWT products remain on the market and continue to be readily available to our customers. We are determined to defend the right of customers to access a full range of negative pressure wound therapy products from Smith & Nephew."
KCI and Smith & Nephew – through its Hull, England-based Advanced Wound Care unit – have been trading claims and counter-claims since May 2007, when Smith & Nephew acquired Blue Sky Medical Group Inc., a California-based device manufacturer that had developed its own NPWT business line. KCI and Blue Sky had already been slugging it out in court for several years over the technology, which is designed to promote healing by gently removing fluids and infectious material from wounds using vacuum devices and tubes in the wound covering.
At the time, Smith & Nephew said it believed Blue Sky had not infringed on KCI-licensed patents, citing a recent court decision siding with the company. The British device conglomerate acknowledged KCI had filed appeals, but said the acquisition provided immediate entry into the NPWT market and "significantly improves the long-term growth prospects" of its wound care unit.
Both sides have claimed their share of victories in the dispute. A different Texas jury found that KCI’s patents were valid but also found that a gauze product sold by Smith & Nephew did not infringe on those patents. But the other jury ruled against the firm, finding a foam covering also used with the Renasys system did infringe on a KCI-held patent, which if upheld on appeal, would keep Smith & Nephew from selling the foam covering in the United States through 2014 when the patent expires. Similar cases are pending in Germany and Australia as well as before the U.S. Patent and Trademark Office.
The financial stakes for both companies likewise are high. In its 2010 annual report, KCI said NPWT products generated about $1.25 billion in worldwide sales during each of the past two years – or more than 60 percent of the company’s overall business.
But in October 2011, KCI said it planned to exit any patent infringement cases involving intellectual property it licensed from Wake Forest University, after Furgeson ruled the patents invalid.
The San Antonio, Texas-based company also said it’s halted royalty payments to Wake Forest for the two patents, which are related to negative pressure wound therapy technology. KCI hasn’t made any payments at all to the school this year; last year it paid out $86 million to license the IP, according to a regulatory filing.
KCI has also pulled out of a case against rival Smith & Nephew (NYSE:SNN), according to the filing with the federal Securities & Exchange Commission, and "will not join Wake Forest in the continued enforcement of the patents in suit against alleged infringers. We intend to withdraw from each of the cases that involve the patents in suit, and have withdrawn from the appeal of the Smith & Nephew litigation."