GGU – Intellectual Property Class

Final
Your final is to present your opinions on damages based on the facts below. Your opinions must be
supportable. Determine what methods of calculating damages you will use. Feel free to make
assumptions, but document those assumptions. For purposes of this analysis, assume that the damage
claims of patent infringement and trade secrets are separate causes (in other words, don’t worry if
damages appear duplicative. Perform two calculations: one for patent infringement and one for trade
secret infringement).
Background: This is based on a real case (but the names and numbers have been altered). Dr. Jager
invented some technology while working for Medi. His contract stated that he was entitled to a royalty
on his inventions. Medi canceled the contract, but proceeded to make and sell Dr. Jager’s invention. Dr.
Jager was unhappy, so he entered into a new contract with Medi’s competitor, Racer, and sold all his
rights to the technology to Racer. Racer and Dr. Jager then filed lawsuits against Medi. For simplicity
purposes, think of it as two cases: (1) Racer’s patent infringement case against Medi and (2) Dr. Jager’s
trade secret case against Medi.
Patent Infringement
1. You have been hired by counsel for the Plaintiff, Racer, a medical device company.
2. Defendant, Medi, is a medical device company competing with Racer in the field of spinal
compression.
3. Racer claims that Defendant infringed Racer’s 0,000,001 (“the ‘001 patent”), the 000,000,002 patent
(“the ‘002 patent”), the 000,000,003 patent (“the ‘003 patent”), and the 000,000,004 patent (“the
‘004 patent”). Complaint was filed on July 15, 2008.
4. Patents generally relate to a new and non-invasive method for repairing deterioration in the spine,
common with osteoporosis. Racer has referred to this method as Racerplasty, and is the heart of the
Company, its products and its sales. Dr. Mathus, Racer’s technical expert in the case, confirmed the
nature and importance of the technology.
5. ‘001 patent was filed on February 1, 1994 issued November 4, 1995.
6. ‘002 patent was filed on August 15, 1995 and issued on April 21, 1997.
7. ‘003 patent was filed on January 23, 2002 and issued on May 22, 2006.
8. ‘004 patent was filed on July 15, 2007 and issued on March 5, 2010.
9. Racerplasty is a treatment for vertebral compression fractures that offers numerous benefits over
traditional treatments for such fractures such as conventional spine surgery, pain management
therapies, and vertebroplasty.
10. Racer developed an innovative balloon device that is safer than prior techniques due to its noninvasive nature and method of repairing fractured bone, quickly reduces pain, and restores height
and posture.
11. Based on its history in Racerplasty, Racer considers spinal fracture management and repair to be its
core business. The patents-at-issue are a key component to Racer’s Racerplasty business.
12. Medi’s Archie XP products are accused of infringing the patents-in-suit and Medi first began selling
the Archie XP products in September 2008. 13. Racer sells products that incorporate the patented technology that are used in the treatment of
vertebral compression fractures.
14. Vertebral compression fractures are forecasted to grow with the aging baby boomers by 20% per
year over the next 10 years.
15. Racer’s treatment of vertebral compression fractures has been in high demand, growing to 310,000
procedures performed by 2010.
16. Medi’s five-year forecast for its accused Archie XP products was $175 million. Total worldwide
forecasted revenue for Medi was $900 million. The present value of the expected profits on the
Archie products (after using an appropriate discount rate) was $100 million at the expected date of
trial.
17. The Archie XP products compete directly with Racer’s products incorporating the patented
technology. In fact, Green Hospital switched to Archie XP products after previously using Racer’s
products for the treatment of vertebral compression fractures. Medi has received $200,000 from
Green Hospital from its sales of Archie XP.
18. Racer was the only provider of products in the Racerplasty market until the introduction of the
Dizzie’s product. Throughout the infringement period, Dizzie had 5% of the market, Racer had 80%
of the market, and Medi had the remaining 15% of the market.
19. Medi believed that there was “only one competitor in this market and there is huge potential for
Medi if Medi choses to compete.”
20. Medi believe that it could capture 40% of the market away from Racer in 5 years.
21. Racer had the marketing, manufacturing and financial capacity to make the additional Medi sales.
22. Besides Dizzie’s product, there are no commercially acceptable alternatives to the patented
technology in the Racerplasty market.
23. Racer’s average selling price for its product containing the patented technology was $3,500.
24. In the United States, Medi sold 10,000 units of the accused products during the infringement period.
Medi’s total U.S. sales on the accused product was $40,000,000.
25. Racer’s cost of goods sold on products containing the patented technology was 12% of revenue.
26. Other Racer company costs include commissions and bonuses of its sales force (17% of revenue),
employee costs such as salaries and benefits (20%), R&D (18%) and fixed costs (10%).
27. Racer believes that it would be able to sell the accused 10,000 units with its current workforce and
current infrastructure.
28. Racer also sells its bone cement in 95% of procedures using its products. When purchased by the
hospital, average revenue from sales of bone cement was $300 per treatment. Incremental margin
on bone cement was 50%.
29. Medi sold the accused product at an average price of $4,000 per treatment. It experienced similar
results with its sale of bone cement as that of Racer.
30. In 2001, Medi entered into an agreement with 2 doctors on any inventions they made in the field of
endoscopic spinal surgery. Medi agreed to pay the doctors a combined amount of 7% of net sales
for products incorporating their inventions.
31. Medi agreed to pay Dr. Fitz a royalty of 2% for inventions in in the field of vertebral body
compression fractures in the spine.
32. Medi agreed to pay Dr. Henry a royalty of 1% for inventions in in the field of vertebral body
compression fractures in the spine. 33. Medi believed that they would need to pay a combined 8% royalty to the Dr. Jager, Dr. Fitz, and Dr.
Henry for sales of the accused products. At that time, none of the doctors owned patents it the area
of vertebral compression fracture treatment (although Medi had intended to file for patents).
34. Racer has not licensed its patents and does not intend to do so. In fact, it is Racer’s policy to never
license its patents.
35. Medi’s gross profit on the accused products was 85%. Incremental costs on those sales account for
25% of net sales of the accused products.
36. Racer’s revenue on sales of products incorporating the accused products increased from $30 million
in 2005 to $400 million in 2010.
37. The patented technology is a safer method, less invasive, and more successful that prior inventions
to treat vertebral compression fractures.
38. The non-patented features of the accused products are the same features found in the prior
inventions. However, none of those features drive the demand or sales of the accused products.
The patented technology drives the demand of accused products.
39. Racer entered into a license agreement in 2009 with Dr. Bing for five patents related to orthopedics,
including spinal applications. Racer paid Dr. Bing $1 million and 3% of net sales on products
incorporating the patented technology.
What are the patent damages? Misappropriation of Trade Secrets
1. You have been hired by counsel for the Plaintiff, Dr. Jager, a doctor and inventor.
2. In March 2003, Dr. Jager entered into a consulting agreement with Medi relating to work he might
perform and possible inventions he might conceive.
3. Dr. Jager claims that Medi stole his trade secrets and inventions of Dr. Jager.
4. In late 2003, pursuant to the consulting agreement, Dr. Jager approached Medi regarding inventions
which used an expandable, directional bone tamp to treat vertebral compression fractures by
compacting bone inside a vertebra and reducing the fracture (“the Jager inventions”).
5. Shortly thereafter, in March 2004, Dr. Jager and Medi executed a “Mutual Confidentiality
Agreement” before Dr. Jager disclosed the Jager inventions to Medi. Pursuant to the confidentiality
agreement, Dr. Jager provided Medi with a disclosure document describing the Jager inventions.
Medi agreed to pay Dr. Jager 5% of net sales from products incorporating his inventions. Dr. Jager
never received a payment from Medi and Medi terminated its consulting agreement with Dr. Jager in
May 2006.
6. Dr. Jager alleges that after Dr. Jager disclosed the Jager inventions to Medi, Medi filed United States
and foreign patent applications which cover the Jager inventions without notifying Dr. Jager and
without naming Dr. Jager as inventor. 1
7. Medi received the 000,000,100 patent (the ‘100 patent) on January 10, 2009 allegedly covering Dr.
Jager’s inventions.
1 First Amended Complaint. 8. Dr. Jager alleges that the inventions covered by Medi’s patent and patent applications were made by
Dr. Jager and that Medi, after learning in confidence of Dr. Jager’s inventions, submitted United
States and foreign patent applications that cover Dr. Jager’s inventions without authorization from
Dr. Jager and without naming Dr. Jager as inventor.
9. Dr. Jager alleges that the Archie XP products incorporate the Jager inventions.
10. Medi’s gross profit on the accused products was 85%. Incremental costs on those sales account for
25% of net sales of the accused products.
11. Medi’s five-year forecast for its accused Archie XP products was $175 million (including actual past
sales). Total worldwide forecasted revenue for Medi was $900 million. The present value of the
expected profits on the Archie products (after using an appropriate discount rate) was $100 million
at the expected date of trial.
12. In the United States, Medi sold 10,000 units of the accused products during the infringement period.
Medi’s total U.S. sales on the accused product was $40,000,000.
What are the trade secret damages?