A British appeals court upheld a decision finding that Smith & Nephew Group plc (NYSE:SNN) infringes two patents licensed to Kinetic Concepts Inc. (NYSE:KCI) in their long-running war over negative-pressure wound therapy.
The donnybrook between the companies has played out in courts in Europe and the U.S., with each notching victories and setbacks.
The June decision, which upheld some of the claims in the patents and found that some of Smith & Nephew’s NPWT products infringe one of the patents, was stayed pending the appeal before the Court of Appeal of England and Wales.
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 already had been slugging it out in court for several years over the technology, which is touted 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 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 another federal jury convened in Texas in March 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.
Smith and Nephew estimates it currently controls about 16 percent of the global wound management market, producing about $829 million in sales for the company during 2009, but did not specifically break out its NPWT.
Smith & Nephew suffered another legal loss in a separate case in the U.S., a whistleblower suit alleging that it illegally sold foreign goods to the U.S. government. Judge Bernice Donald of the U.S. District Court for Western Tennessee denied the company’s second attempt to block the qui tam suit, according to court documents. SNN’s motion for dismissal, according to court documents. Earlier this month, Donald shot down a first attempt to have the suit dismissed.
Former employee Samuel Adam Cox III sued the British health conglomerate in December 2008, alleging that the company misrepresented the origin of “at least 107” products sold to the Dept. of Veteran’s Affairs and the General Services Administration. Cox was fired from his position as IT global director of enterprise resource planning, allegedly for refusing to participate in and attempting to correct SNN’s alleged illegal conduct. The lawsuit also alleges that CIO Sal Chiovari and vice president of IT Jon Schauber both “recognized the illegality of the company’s sales,” according to court documents.
Under federal procurement laws laid out in the Trade Agreements Act, misrepresenting the country of origin of goods is illegal; the U.S. government is limited to buying products from certain countries. Cox alleges that the products SNN sold to the U.S. government were manufactured by Malaysia-based Straits Orthopaedics, even though Malaysia is not a designated country under the TAA.
