Spectralytics Inc. wants a federal appeals court to remand its $22 million win over Johnson & Johnson‘s (NYSE:JNJ) Cordis Corp. in a laser stent-cutting patent infringement suit so that a lower court judge can add on more damages.
Spectralytics sued Cordis and Norman Noble Inc. in July 2005, alleging infringement of a patent for a "Laser Cutting Tool for Cutting Elongated Hollow Workpieces."In February 2009, a jury decided for Spectralytics, ruling that Cordis owed it $22.5 million (representing a 5 percent royalty on sales by Noble to Cordis of stents cut with the infringing devices).
All but one facet of the Cordis and Noble appeal was denied: The U.S. Court of Appeals for the Federal Circuit sent the case back to U.S. District Court for Minnesota Judge Patrick Schiltz to reconsider his decision not to award enhanced damages and attorney’s fees to Spectralytics. Schiltz then tacked on an extra $500,000 in enhanced damages.
Saying it was a close call (Schiltz had indicated in court filings that he’d likely have gone then other way had the case been up to him and that he was troubled by the size of the jury award) and that both sides’ conduct "incredibly nasty," the judge found that 2 of the 9 criteria – called "Read factors" – for enhanced damages were met.
"Because the record contains no other evidence to show that Cordis ‘investigated the scope of the patent and formed a good-faith belief that it was invalid or that it was not infringed,’ the court finds that this second Read factor weighs in favor of awarding enhanced damages," Schiltz wrote, according to court documents. "The court finds that Cordis is a very large corporation and can afford to pay substantial enhanced damages. The fourth Read factor thus weighs in favor of enhanced damages.
"Although this amount is small compared to both Cordis’s revenues and the amount of compensatory damages, the court finds that it adequately penalizes Cordis for its willful infringement," he wrote. "Further, the court notes that the disparity between this award and the jury’s compensatory-damages award reflects not just that the court’s enhanced-damages award is relatively small, but also that the compensatory-damages award was extremely generous."
In oral arguments before the appeals court last week, Spectralytics lawyer Alan Carlson argued that the enhanced damages award is too small to deter large players from stealing smaller companies’ patents.
"That amount of money does not punish Cordis, and that amount of money will not deter Cordis from doing anything at all," Carlson said. "The problem with what the district court judge has done, and the effect of that, is that it will encourage defendants like Cordis to recklessly disregard the rights of others, because they know 2 things: One, if they do that, a lot of these people will go away. Spectralytics was a $2-million-a-year in sales company. Cordis was a $50-billion-a-year in sales company. When Cordis said to Spectralytics, ‘No problem here, guys,’ and they totally ignored the patent most companies like Spectralytics would have walked away and Cordis would have ended up stealing their intellectual property.
"The 2nd thing that they know, based upon what the judge has done here, is that if they are ever sued by the Spectralytics of the world, if they’re tagged with willful infringement, they can escape enhanced damages by showing that they’re putting together a close case on the merits. I’ll guar you that a $50-billion-a-year company can do that. They can make a case look close," Carlson said.
Eugene Gelernter, a lawyer for Cordis, countered that Schiltz was correct in his decision on the enhanced damages.
"The district court did exactly what this court said it should do," Gelernter said. "The district court considered the egregiousness in light of all the facts and circumstances."