De Puy Inc. v. Biomedical Engineering Trust

Decision Date18 April 2001
Docket NumberNo. CIV.A. 97-CV-3450 (AJL).,CIV.A. 97-CV-3450 (AJL).
PartiesDe PUY INC., Plaintiffs, v. BIOMEDICAL ENGINEERING TRUST, Defendant.
CourtU.S. District Court — District of New Jersey

James H. Keale, McCarter & English, Newark, NJ, Donald E. Knebel, Barnes & Thornburg, Indianapolis, IN, for Plaintiff/Counterclaim Defendant.

David N. Ellenhorn, Solomon, Zauderer, Ellenhorn, Frischer & Sharp, New York, NY, Joel D. Siegal, Hellring Lindeman Goldstein, & Siegal LLP, Newark, NJ, for Defendants/Counterclaim Plaintiffs.

OPINION

LECHNER, District Judge.

This action was brought by plaintiff/counterclaim defendant DePuy Orthopaedics, Inc. ("DePuy") against defendants/ counterclaim plaintiffs Biomedical Engineering Trust, Frederick F. Buechel, M.D. and Michael J. Pappas, Ph.D., PE (as trustees of certain trusts entitled Biomedical Engineering Trust and Biomedical Engineering Trust II) (collectively, "BET"). BET sought damages for an alleged breach by DePuy of its obligation to pay royalties to BET on sales of orthopedic products outside the United States. The instant matter was tried to a jury, and DePuy was awarded $25 million in damages. On 28 September 2000, judgment (the "Judgment") was entered against DePuy in the amount of "twenty-five million dollars ($25,000,000.00), plus preand, or, post-judgment interest, as permitted by the court, to be determined at a latter date." Judgment at 2.

Currently before the court is the motion by DePuy for judgment as a matter of law (the "Motion for Judgment as a Matter of Law"), pursuant to Rule 50(b) of the Federal Rules of Civil Procedure ("Rule 50(b)"), or, in the alternative, for a new trial (the "Motion for a New Trial") or remittitur (the "Motion for Remittitur") (collectively, the "DePuy Post Trial Motions").1 Also before the court is the motion of BET to amend the Judgment to include prejudgment and, or, post-judgment interest (the "BET Motion to Amend the Judgment"),2 pursuant to Rule 59(e) of the Federal Rules of Civil Procedure ("Rule 59(e)"). Oral argument was conducted on 25 January 2001, at which time supplemental briefing was requested. Such supplemental briefs were received on 9 February 2001.

For the reasons set forth below, the DePuy Post Trial Motions are denied and the BET Motion to Amend the Judgment is granted.

Facts
A. Parties

DePuy, formally known as DePuy Incorporated, is an Indiana corporation with its principal place of business in Warsaw, Indiana. DePuy manufactures and distributes orthopedic products.

Frederick F. Buechel, M.D. ("Buechel") and Michael J. Pappas, Ph.D., PE ("Pappas") are residents of New Jersey. Buechel and Pappas are the trustees of Biomedical Engineering Trust ("Trust I").3 Buechel and Pappas are also the trustees of Biomedical Engineering Trust II.

Buechel is an orthopedic surgeon. Buechel is also a Clinical Professor of Orthopedic Surgery and a Chief of Total Reconstructive and Arthritis Surgery Services at the University of Medicine and Dentistry, New Jersey Medical School.

Pappas has a doctorate in mechanical engineering and is a professional engineer. In addition, Pappas is a Professor Emeritus at the New Jersey Institute of Technology and an adjunct professor of surgery at the University of Medicine and Dentistry, New Jersey Medical School.

B. Licensing Agreements
1. First License Agreement

On 25 April 1977, DePuy, through its corporate predecessor DePuy, a Division of BioDynamics, Inc. ("BIO"), entered into a license agreement (the "First License Agreement") with BEC.

Under the First License Agreement, BEC, as licensor, owned "all right, title and interest in and on a new and useful orthopaedic device called Floating Center Shoulder Prosthesis [(the "FCSP")] covered by U.S. Patent # 3916451, and a certain new and useful orthopaedic device called NJ Knee [(the "NJ Knee")], [collectively, the "Devices"]...." First License Agreement at 1.

Pursuant to the terms of the First License Agreement, BEC granted BIO, as licensee, an exclusive license to manufacture, sell and distribute the Devices, and to sub-license others to sell and distribute the Devices. Id. at ¶ 1. The term "licensee" under the First License Agreement encompassed BIO and "its parent, affiliate, and/or subsidiary companies whenever the context permits or requires." Id. (clause 1).

The First License Agreement also stated BIO "agree[d] to pay to [BEC] a royalty at the rate of ten per cent (10%) of the list price of [the FCSP] and fifteen per cent (15%) of the list price of the said NJ Knee on each of [the Devices] made and sold by [BIO] or by any sub-licensee of [BIO], said list price to be the current list price on the date of the execution of this contract." Id. at ¶ 2. Pursuant to the First License Agreement, "the list price of each of [the Devices] shall be fixed by [BIO] and [BIO] shall have full power and authority to change the same from time to time by either raising or lowering the same as it shall see fit." Id. at ¶ 5.

In addition, pursuant to the First License Agreement, BIO was required to "render calendar quarterly statements to [BEC] on the 30th day of each calendar month following a calendar quarterly showing the number of [the Devices] made and sold by it during the preceding calendar quarterly." Id. at ¶ 4. The Devices, moreover, were deemed sold under the First License Agreement when payment was received by BIO, either from a purchaser, or from a sub-licensee. Id. at ¶ 6.

2. Amendment to the First License Agreement

BEC and BIO subsequently entered into an amendment to the First License Agreement, effective 9 December 1977, (the "Amendment to the First License Agreement"). Amendment to the First License Agreement at 1. The Amendment to the First License Agreement replaced a mistaken reference to "licensor" with "licensee" in paragraph 2 of the First License Agreement. Id. The Amendment to the First License Agreement also changed the "current list price" definition for calculating royalties due under the First License Agreement.4 Id. In light of the Amendment to the First License Agreement, royalties due under the First License Agreement were no longer based on the current list price of the Devices as of the date of the First License Agreement. Id. Instead, under the Amendment to the First License Agreement, royalty calculations were based on "the list price currently in effect at the time royalties are paid to [BEC] and shall be based on the current list price of either [BIO] or any sub-licensee whichever is higher." Id.

3. Second License Agreement

On 24 July 1979, BEC and BIO entered into a second license agreement (the "Second License Agreement"). Second License Agreement at 1. The Second License Agreement cancelled the First License Agreement. Id. (clause 2). In contrast to the First License Agreement, the Second License Agreement was between "[BEC] ... (hereinafter referred to as Licensor) and [BIO] ... (hereinafter referred to as Licensee)." Id. (clause 1).

In addition to the licensing of the FCSP and the NJ Knee, the Second License Agreement encompassed additional devices including the "surface replacement shoulder (the "SRS"), trunion ankle (the "Trunion Ankle") and sliding bearing ankle (the "Sliding Bearing Ankle"), and a set of instruments for implanting the NJ Knee (the "Set of Instruments")" (collectively, the "New Devices"). Id. (clause 3).

Under the terms of the Second License Agreement, BIO agreed to pay a royalty to BEC at the rate of ten percent of the list price of the SRS, the Trunion Ankle, the Sliding Bearing Ankle and any modifications of the New Devices. Id. at ¶ 2. BIO further agreed to pay a royalty to BEC at the rate of fifteen percent of the list price of the Set of Instruments and any modifications of such instruments. Id. Pursuant to the terms of the Second License Agreement, the fifteen percent royalty due on the list price of the NJ Knee remained unchanged. Id.

Notwithstanding the refined designation of the parties to the Second License Agreement and the New Devices, the Second License Agreement incorporated the terms of the First License Agreement, as amended by the 9 December 1977 Amendment. Id.

4. Amendment to the Second License Agreement

Trust I, successor in interest to BEC,5 entered into an amendment to the Second License Agreement with DePuy, a Division of Boehringer Mannheim Corporation ("BMC"),6 corporate successor in interest to BIO, effective 25 March 1985, (the "Amendment to the Second License Agreement"). Amendment to the Second License Agreement at 1. The terms of the Amendment to the Second License Agreement define Trust I as the licensor and BMC as the sole licensee. Id. (clause 1).

Trust I and BMC entered into the Amendment to the Second License Agreement to clarify and define certain aspects of their relationship. Id. (clause 3). The Amendment to the Second License Agreement changed the base figure on which royalties were to be calculated. Pursuant to the terms of the Amendment to the Second License Agreement, all royalties were to be calculated on a sales price ("Sales Price") figure rather than the "list price" figure set forth in the First License Agreement and later modified in the Amendment to the Fist License Agreement. Id. at ¶ 2(a). While the base figure on which royalties were to be calculated changed to the Sales Price figure, the percentage paid on royalties for each device did not change from the Second License Agreement. Id.

Pursuant to the terms of the Amendment to the Second License Agreement, royalties due on sales of porous-coated components of the NJ Knee (the "Porous Coated Component"), occurring in the United States prior to 1 January 1986, were to be discounted to a rate of fifteen percent of two-thirds of the Sales Price of each Porous-Coated Component. Id.

In addition, the Amendment to the Second License Agreement set forth specific definitions for the Sales Price for sales within the United...

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