The Federal Circuit vacated the jury’s award of $101,196,000 in damages to Warsaw and remanded for a new trial on the amount of a reasonable royalty.  Although Warsaw sought both lost profits and reasonable royalty (Warsaw was not seeking both as to any particular sale), the jury’s verdict was unclear as to which type had been awarded and in what amount.  Nuvasive challenged the verdict on three grounds.  First, it contended that decreases in Warsaw’s sales of “fixations” (non-patented implements used when practicing the invention) was not properly a “lost profit” of Warsaw’s under a convoyed sales theory.  The court held that the fixations were not properly convoyed sales.  There was no proof of a functional relationship of the fixations to the patented product, because there was no proof that the fixations had no independent function (would not work as well when used in other, non-patented surgeries).  Second, Nuvasive challenged the verdict to the extent that it included, as a measure of lost profits to Warsaw, the royalty payments that Warsaw lost from related companies to whom it had licensed the patents.  The court agreed with Nuvasive, because, to be recoverable as lost profits, the lost profits must come from the lost sales of a product that the patentee itself was selling.  Lastly, Nuvasive challenged the damages attributable to “true up” payments to Warsaw from one of its related companies.  True up payments were post-hoc transfers made to ensure that Warsaw receives fair market value.  The court treated the true up payments the same as the royalty payments it denied to Warsaw as lost profits and excluded them as well. 

The court did hold that Warsaw is entitled to a reasonable royalty, but it could not rely on its licenses with its related companies as being “comparable licenses,” since “royalties paid by related parties have little probative value as to the patent’s value.” 

The court also rejected both side’s arguments relating to the district court’s holdings of infringement and validity.

Warsaw Orthopedic, Inc. v. Nuvasive, Inc., Case No. 2013-1576, -1577 (March 2, 2015); Opinion by: Dyk, joined by Lourie and Reyna; Appealed From: District Court for the Southern District of California, Bencivengo, J. Read the full opinion here.

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