Applied Medical Resources v. U.S. Surgical

Citation435 F.3d 1356
Decision Date24 January 2006
Docket NumberNo. 05-1149.,05-1149.
PartiesAPPLIED MEDICAL RESOURCES CORPORATION, Plaintiff-Appellee, v. UNITED STATES SURGICAL CORPORATION, Defendant-Appellant.
CourtUnited States Courts of Appeals. United States Court of Appeals for the Federal Circuit

Joseph R. Re, Knobbe, Martens, Olson & Bear, LLP, of Irvine, California, argued for plaintiff-appellee. With him on the brief were Karen Vogel Weil, Joseph F. Jennings, Joseph S. Cianfrani, and Christy Green Lea. Of counsel was Brian C. Horne, of Los Angeles, California.

Glen E. Summers, Bartlit Beck Herman Palenchar & Scott LLP, of Denver, Colorado, argued for defendant-appellant. Of counsel on the brief was Donald L. Morrow, Paul Hastings Janofsky & Walker LLP, of Costa Mesa, California. Of counsel was Fred H. Bartlit, Jr., Bartlit Beck Herman Palenchar & Scott LLP, of Denver, Colorado.

Before LOURIE, RADER, and LINN, Circuit Judges.

LOURIE, Circuit Judge.

United States Surgical Corporation ("U.S.Surgical") appeals from the decision of the United States District Court for the Central District of California granting judgment of willful infringement of U.S. Patent 5,385,553 in favor of Applied Medical Resources Corporation ("Applied"), and awarding damages, enhanced damages, attorney fees, and prejudgment interest totaling $64.5 million. Applied Med. Res. Corp. v. U.S. Surgical Corp., Civ. No. 99-CV-625 (C.D.Cal. Jan. 27, 2005). Because the district court did not err in not applying collateral estoppel to the reasonable royalty rate, substantial evidence supports the jury's verdict of willful infringement, and the court did not abuse its discretion in admitting evidence regarding a prior litigation, we affirm.

BACKGROUND

The '553 patent is entitled "Trocar With Floating Septum Seal" and was issued to Applied as assignee. The invention relates to surgical devices called trocars, which are used as access ports into the abdomen during laparoscopic surgery. Laparoscopic surgery is performed by inflating the abdomen and inserting instruments through trocars. It is important for the trocar to maintain a seal with the instrument; otherwise, the insufflation gas used to inflate the abdomen would leak and potentially cause serious complications.

Early trocars did not accommodate instruments of different diameters. For example, inserting a relatively small instrument through a large seal would produce a gap between the instrument and the seal, allowing the insufflation gas to leak out from the abdomen. As a result, surgeons were required to either use multiple trocars with differently sized seals or "flip top" adapters to accommodate differently sized instruments. The invention of the '553 patent eliminates the need for adapters, describing a trocar which maintains a seal around instruments of various sizes, using a "floating seal." Specifically, claim 3 recites a trocar whose seal includes excess material at its outer portions, which permits the seal orifice to move without allowing gas to leak. '553 patent, col. 11, ll. 57-62. Claim 4, which depends from claim 3, further requires that the excess material be configured in a bellows shape. Id., col. 11, ll. 63-64.

The parties to this appeal are no strangers to each other and to this court. Applied first sued U.S. Surgical in the United States District Court for the Eastern District of Virginia in 1996 ("Applied I"), alleging that U.S. Surgical's sale of its Versaport trocars ("Versaport I") infringed the '553 patent, as well as two other Applied patents. In 1997, a jury found that U.S. Surgical willfully infringed claims 4 and 18 of the '553 patent as well as two other Applied patents, and awarded damages in the form of a 7% reasonable royalty. The court granted judgment for $20.5 million and entered a permanent injunction enjoining further infringing sales effective May 20, 1997. Applied Med. Res. Corp. v. U.S. Surgical Corp., 967 F.Supp. 861 (E.D.Va.1997). We affirmed that judgment on June 30, 1998. Applied Med. Res. Corp. v. U.S. Surgical Corp., 147 F.3d 1374 (Fed.Cir.1998).

During the Applied I litigation, U.S. Surgical began redesigning its Versaport trocar. U.S. Surgical completed its redesign shortly after the Applied I verdict and began selling the redesigned Versaport ("Versaport II") by June 2, 1997.1 On April 16, 1999, Applied filed a second complaint against U.S. Surgical in the United States District Court for the Central District of California, alleging that Versaport II infringed the '553 patent ("Applied II"). The parties filed competing motions for summary judgment: Applied, for infringement of claim 3 of the '553 patent, and U.S. Surgical, for noninfringement and invalidity of claim 3. On February 28, 2002, the district court granted Applied's motion for summary judgment of infringement of claim 3, and entered a permanent injunction effective November 1, 2002. U.S. Surgical appealed to this court, and we affirmed the court's judgment and injunction on September 11, 2003. Applied Med. Res. Corp. v. U.S. Surgical Corp., 75 Fed. Appx. 765 (Fed.Cir.2003).

Having resolved liability and validity issues, the district court then held a trial to determine the damages owed to Applied for U.S. Surgical's infringing sales of Versaport II, and to determine whether U.S. Surgical's infringement was willful. Before trial, U.S. Surgical moved to establish as a matter of law that the reasonable royalty for infringing sales of Versaport II was 7%, arguing that the reasonable royalty established in Applied I for infringing sales of Versaport I was binding under principles of collateral estoppel. U.S. Surgical also sought to preclude introduction of evidence related to the jury's finding of willful infringement in Applied I. The court denied both motions. The court first held that the jury would make "its own `independent' determination of the reasonable royalty rate in 1997" and was thus not bound by the royalty rate in Applied I. (emphasis in original). The court also concluded that evidence regarding Applied I was relevant to willful infringement and damages because the "fact that U.S. Surgical had infringed the '553 patent once before in its actions in response thereto is probative of its intent to infringe the '553 patent a second time."

The trial commenced on July 14, 2004. At the close of Applied's case-in-chief, U.S. Surgical again moved for judgment as a matter of law that the 7% reasonable royalty from Applied I for infringing sales of Versaport I estopped Applied from asserting that a different damages determination should apply in Applied II. The court denied the motion, stating that it had "already ruled on that." U.S. Surgical also moved for judgment as a matter of law of no willful infringement. The court deferred that ruling under Federal Rule of Civil Procedure 50(b) until after the jury rendered its verdict.

On July 27, 2004, the jury found that U.S. Surgical's infringement was willful and awarded Applied damages of $43,575,907. U.S. Surgical renewed its motions for judgment as a matter of law on the grounds of collateral estoppel and lack of willful infringement. At the same time, Applied filed a motion for enhanced damages. The court denied both of U.S. Surgical's motions for judgment as a matter of law on October 4, 2004. On the same day, the court granted Applied's post-trial motion and enhanced compensatory damages by 25%. Applied then moved for attorney fees, prejudgment interest, and post-judgment interest. The court granted that motion on January 12, 2005.

On January 27, 2005, the court entered final judgment in favor of Applied in the amount of $64.5 million. U.S. Surgical timely appealed, and we have jurisdiction pursuant to 28 U.S.C. § 1295(a)(1).

DISCUSSION
I. Collateral Estoppel

We review a trial court's application of collateral estoppel by applying the law of the regional circuit. See Bayer AG. v. Biovail Corp., 279 F.3d 1340, 1345 (Fed. Cir.2002) ("Because the application of collateral estoppel is not a matter within the exclusive jurisdiction of this court, this court applies the law of the circuit in which the district court sits."). The Ninth Circuit has reviewed the application and nonapplication of collateral estoppel by trial courts under varying standards, either without deference or for abuse of discretion. Compare McQuillion v. Schwarzenegger, 369 F.3d 1091, 1096 (9th Cir.2004) ("We review de novo the application of collateral estoppel."); United States v. Real Prop. Located at 22 Santa Barbara Drive, 264 F.3d 860, 868 (9th Cir.2001) ("Application of collateral estoppel is reviewed de novo."), with Bates v. Union Oil Co. of Cal., 944 F.2d 647, 651 (9th Cir. 1991) ("We review a district court's decision to apply collateral estoppel for abuse of discretion."); Garrett v. City & County of San Francisco, 818 F.2d 1515, 1520 (9th Cir.1987) ("The availability of collateral estoppel is subject to de novo review, but application of the doctrine, if available, is reviewed for abuse of discretion."). We need not resolve which standard should apply to the collateral estoppel analysis because even under a more exacting plenary review, the result in this case would be the same.

On appeal, U.S. Surgical argues that the district court erred in refusing to give collateral estoppel effect to the 7% reasonable royalty rate found by the jury in Applied I. U.S. Surgical contends that all of the requirements for application of collateral estoppel are satisfied because the reasonable royalty rate was actually litigated in Applied I, it was decided by a jury, and the jury's determination was essential to the district court's final judgment in Applied II. U.S. Surgical maintains that the issue that the Applied I jury decided is the same issue presented in Applied II, and points out that both cases involved the same parties, the same patent, and the same type of product. In addition, according to U.S. Surgical, the infringement in Applied II is an uninterrupted continuation of the infringement in Applied I, and...

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