Our comment today is about a press release from Medtronic that highlights a win over Deltec related to intellectual property. The body of the press release is below and our comments follow.
MINNEAPOLIS, July 1, 2005 -Medtronic, Inc. announced today that it has reached a settlement with Smiths Medical MD, Inc. Medtronic's lawsuit against Smiths Medical alleged that Smiths Medical willfully infringed Medtronic patents related to its insulin pumps. The U.S. District Court for the District of Delaware had made several rulings favorable to Medtronic, finding that Smiths Medical's Deltec CozMo insulin pump infringed Medtronic patents and dismissed Smiths Medical's counterclaim. Terms of the settlement were not released but the settlement will not have a material impact on Medtronic's financial results.
"We were pleased with the court's prior rulings and this settlement, which is positive for Medtronic as well as our patients," said Robert Guezuraga, president of Medtronic Diabetes. "This settlement provides an initial payment to Medtronic along with an ongoing revenue stream in the form of royalty payments."
The press release is low-key but this is meaningful from an industry perspective. We've been trying to stay informed about this litigation for a while, and found it helpful to read the judge's decision at http://www.ded.uscourts.gov/KAJ/Opinions/Jun2005/03-776a.PDF for the whole story. The decision was rendered on June 14, 2005. A good summary of the case is at a legal blog we saw - see http://www.antitrustlawblog.com/.
As background, there were five motions in the case, four filed by Medtronic against Smiths and one counterclaim filed by Smiths against Medtronic. The motions filed by Medtronic focused on Medtronic's perception that Smiths Medical had infringed its patents. Two of those motions were granted (one in part) and two were denied as moot. Smiths alleged that Medtronic had infringed two of its patents. Smiths saw one aspect of its motion denied and judgment in the other aspect was reserved until further briefing.
Ultimately, the two companies settled, which seems smart from Medtronic's perspective, since they will stir up less attention this way. There is risk of being accused of limiting patient choice, making business costlier (unfairly) for competitors, etc - better just to get the settlement and royalgies and run.
As a result of the judge's decision, Medtronic will receive ~ $25 million from Smiths and a royalty on all pumps in question. Although we aren't sure of the magnitude of the royalty per pump, this isn't an unsubstantial settlement by any definition - even if a big company like Smiths won't have a problem paying it.
Importantly, Smith’s has been found guilty of “willful” infringement, which justifies triple damages. “Willful” means they knew they were infringing, and triple damages means lost revenue times three. It isn't clear how the courts determine lost revenue. To us, the fact that the judge found summary judgment (this means without need of a trial) suggests that the Medtronics arguments were ultimately perceived as sound or that Smith's were perceived as weak, or both. Finally, Smith’s withdrawal of its countersuit also suggests that they saw “the writing on the wall”.
From other law experts we've spoken to, things appeared pretty clear cut in this case - it also appears to us Medtronic must have very good lawyers and we might not say the same for Smiths. Ultimately, although there are a variety of components to this story, what matters most to us is that Medtronic said that Smiths had infringed Medtronic's patents for the bolus estimator ("Bolus Wizard"). Smiths argued that its technology was different enough from the Medtronic technology for the patents not to be infringed, but the court found in Medtronic's favor because the bolus estimate is performed by a processor within both pumps and the suggested bolus is displayed on the screen of each make of pump. We were ourselves not aware that division could be patented, but alas...