United States Court of Appeals
`for the Federal Circuit
`______________________
`
`WARSAW ORTHOPEDIC, INC.,
`Plaintiff/Counterclaim Defendant-Appellant
`
`MEDTRONIC SOFAMOR DANEK USA, INC.,
`Counterclaim Defendant-Appellant
`
`MEDTRONIC PUERTO RICO OPERATIONS CO.,
`MEDTRONIC SOFAMOR DANEK DEGGENDORF,
`GMBH,
`Counterclaim Defendants
`
`v.
`
`NUVASIVE, INC.,
`Defendant/Counterclaimant-Cross Appellant
`______________________
`
`2013-1576, 2013-1577
`______________________
`
`Appeals from the United States District Court for the
`Southern District of California in No. 08-CV-1512, Judge
`Cathy Ann Bencivengo.
`______________________
`
`Decided: March 2, 2015
`______________________
`
`LUKE DAUCHOT, Kirkland & Ellis LLP, Los Angeles,
`CA,
`argued
`for
`plaintiff/counterclaim
`defendant-
`
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`
`for the Federal Circuit
`______________________
`
`WARSAW ORTHOPEDIC, INC.,
`Plaintiff/Counterclaim Defendant-Appellant
`
`MEDTRONIC SOFAMOR DANEK USA, INC.,
`Counterclaim Defendant-Appellant
`
`MEDTRONIC PUERTO RICO OPERATIONS CO.,
`MEDTRONIC SOFAMOR DANEK DEGGENDORF,
`GMBH,
`Counterclaim Defendants
`
`v.
`
`NUVASIVE, INC.,
`Defendant/Counterclaimant-Cross Appellant
`______________________
`
`2013-1576, 2013-1577
`______________________
`
`Appeals from the United States District Court for the
`Southern District of California in No. 08-CV-1512, Judge
`Cathy Ann Bencivengo.
`______________________
`
`Decided: March 2, 2015
`______________________
`
`LUKE DAUCHOT, Kirkland & Ellis LLP, Los Angeles,
`CA,
`argued
`for
`plaintiff/counterclaim
`defendant-
`
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` WARSAW ORTHOPEDIC, INC. v. NUVASIVE, INC.
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`appellant, counterclaim defendant-appellant. Also repre-
`sented by ALEXANDER FRASER MACKINNON, NIMALKA R.
`WICKRAMASEKERA, SHARRE LOTFOLLAHI; JOHN C. O’QUINN,
`LIAM PATRICK HARDY, Washington, DC.
`
`DEANNE MAYNARD, Morrison & Foerster LLP, Wash-
`ington, DC, argued for defendant/counterclaimant-cross-
`appellant. Also represented by BRIAN ROBERT MATSUI;
`RYAN MALLOY, Los Angeles, CA; FRANK SCHERKENBACH,
`Fish & Richardson, P.C., Boston, MA; CRAIG EARL
`COUNTRYMAN, MICHAEL ARI AMON, TODD GLEN MILLER,
`San Diego, CA; MICHAEL J. KANE, Minneapolis, MN.
`______________________
`
`Before LOURIE, DYK, and REYNA, Circuit Judges.
`DYK, Circuit Judge.
` Warsaw Orthopedic (“Warsaw”) brought suit against
`NuVasive, Inc. (“NuVasive”) for infringement of U.S.
`Patent Nos. 5,860,973 (“the ’973 patent”) and 6,945,933
`(“the ’933 patent”). NuVasive counterclaimed for in-
`fringement of U.S. Patent No. 7,470,236 (“the ’236 pa-
`tent”) against Warsaw and
`its related company,
`Medtronic Sofamor Danek USA, Inc. (“MSD”). For each of
`the three patents, the district court sustained jury find-
`ings of infringement, awarded damages for past infringe-
`ment, and awarded an ongoing royalty rate. Both parties
`appealed. We affirm the district court with respect to
`invalidity and infringement of all three patents, but we
`remand for a new trial on damages with respect to
`the ’973 and ’933 patents.
`BACKGROUND
`We limit our discussion to the patents relevant to this
`appeal: the ’973 patent, the ’933 patent, and the ’236
`patent. Warsaw owns the ’973 patent and the ’933 pa-
`
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`3
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`tent. The ’973 patent claims oversized spinal implants.
`The ’933 patent claims methods and devices for retracting
`tissue to create a working channel for minimally invasive
`spinal surgery. NuVasive owns the ’236 patent, which
`relates to neuromonitoring during surgery.
` On October 6, 2008, Warsaw and MSD filed a com-
`plaint against NuVasive, alleging infringement of the ’973
`and ’933 patents. NuVasive counterclaimed, asserting
`infringement of the ’236 patent. At trial, Warsaw assert-
`ed claims 24, 41, 42, 57, and 61 of the ’973 patent and
`claims 21, 57, and 66 of the ’933 patent. NuVasive as-
`serted claims 1, 5, and 9 of the ’236 patent. On Septem-
`ber 20, 2011, the jury found that the asserted claims of
`the ’973 patent were not invalid (infringement was not in
`dispute), that the asserted claims of the ’933 patent were
`infringed under the doctrine of equivalents (validity was
`not in dispute), and that the asserted claims of the ’236
`patent were infringed (validity was not in dispute). The
`jury awarded damages for each.
`
`After trial, Warsaw filed motions seeking supple-
`mental damages and a permanent injunction with respect
`to the ’973 and ’933 patents, and a motion for judgment as
`a matter of law (“JMOL”) or a new trial with respect to
`the jury’s finding of infringement of the asserted claims of
`the ’236 patent. NuVasive also moved for JMOL or a new
`trial, challenging the jury’s finding of no invalidity of the
`asserted claims of the ’973 patent, infringement of the
`asserted claims of the ’933 patent, and Warsaw’s entitle-
`ment to lost profits. The district court denied the motions
`for JMOL or a new trial and denied Warsaw’s requests for
`supplemental damages and a permanent injunction for
`infringement of the ’973 and ’933 patents. The court set
`ongoing royalty rates.
`
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` Warsaw appealed, arguing that the district court
`erred in denying supplemental damages to compensate for
`NuVasive’s infringement between the close of discovery
`and trial and in declining to award a higher ongoing
`royalty rate. Warsaw also argues that the district court
`erred in determining that MSD infringed the ’236 patent.
`NuVasive cross-appealed, challenging the determinations
`that the asserted claims of the ’973 patent were not
`invalid, the determination that NuVasive infringed the
`asserted claims of the ’933 patent, and the damages
`calculation for infringement of the asserted claims of
`the ’973 and ’933 patents.
` We have jurisdiction pursuant to 28 U.S.C. § 1295.
`We review denials of motions for judgment as a matter of
`law de novo. See Revolution Eyewear, Inc. v. Aspex Eye-
`wear, Inc., 563 F.3d 1358, 1370 (Fed. Cir. 2009); Janes v.
`Wal-Mart Stores, Inc., 279 F.3d 883, 886 (9th Cir. 2002).
`We review the district court’s claim construction under
`the standard set forth in Teva Pharm. USA, Inc. v.
`Sandoz, Inc., No. 13-854, slip op. at 13 (Jan. 20, 2015).
`We review underlying factual determinations concerning
`extrinsic evidence for clear error. Id. at 12. We review
`intrinsic evidence and the ultimate construction of the
`claim de novo. Id. Infringement is a question of fact,
`DePuy Spine, Inc. v. Medtronic Sofamor Danek, Inc., 469
`F.3d 1005, 1013 (Fed. Cir. 2006), reviewed for substantial
`evidence. Transocean Offshore Deepwater Drilling, Inc. v.
`Maersk Drilling USA, Inc., 699 F.3d 1340, 1356–57 (Fed.
`Cir. 2012). We review damages determinations by the
`court for “an erroneous conclusion of law, clearly errone-
`ous factual findings, or a clear error of judgment amount-
`ing to an abuse of discretion.” Micro Chem., Inc. v.
`Lextron, Inc., 318 F.3d 1119, 1122 (Fed. Cir. 2003) (inter-
`nal quotation marks, citation omitted).
`
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`DISCUSSION
`I. Invalidity and Infringement
`We address first the arguments with respect to the
`district court’s liability determinations as to the asserted
`claims of the ’973, ’933, and ’236 patents.
`A. ’973 Patent Invalidity
`The ’973 patent claims are directed to oversized spinal
`
`implants capable of lateral insertion. The human spine
`has a series of stacked vertebrae. In between each verte-
`brae is a disk, which is composed of spongy material and
`provides flexibility to the spine. Prior to the invention,
`implants were typically smaller than the size of the
`corresponding vertebrae and were inserted either anteri-
`orly or posteriorly, i.e., from the front or back, rather than
`the side. The claims of the ’973 patent disclosed an over-
`sized spinal implant capable of lateral insertion. The
`oversized implant arguably provided more stability than
`the smaller implants, and the lateral directionality of the
`insertion arguably made the surgery safer. Although
`claim 35 is not asserted, most of the asserted claims
`depend from claim 35,1 and NuVasive appears to argue
`that the invalidity of the asserted claims turns on the
`invalidity of claim 35. Claim 35 covers:
`A translateral spinal implant for insertion from
`the lateral aspect of the spine in the disc space be-
`tween two adjacent vertebrae, said implant hav-
`ing
`
`
`1 Claim 24 depends from independent claim 1;
`claims 41, 42, and 57 depend from independent claim 35;
`and claim 61 is an independent claim.
`
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`a length that is greater than one half the trans-
`verse width of the vertebrae,
`said length being substantially greater than the
`depth of the vertebrae,
`a height for contacting each of the two adjacent
`vertebrae, and
`a width that is at least as great as the height.
`’973 patent, col. 13 ll. 1–7 (line breaks added). NuVasive
`argues that the claim is anticipated and obvious in light
`of two prior art references: spinal implants used by sur-
`geon Dr. John Brantigan before the critical date and U.S.
`Patent No. 5,192,327 to Brantigan (collectively, the
`“Brantigan references”).
`
`The district court construed the preamble of claim 35
`not to be limiting, but nonetheless instructed the jury
`that “said implant” refers to “a spinal implant capable of
`being inserted translaterally,” and that “capable” should
`be given its plain meaning. See J.A. 206. We see no error
`in the court’s determination that the claims require
`lateral insertion, and NuVasive therefore fails to show its
`entitlement to a new trial on that issue.
` Warsaw also presented substantial evidence to the
`jury distinguishing the ’973 patent from the Brantigan
`references. Warsaw argued that the Brantigan references
`were not “capable” of lateral insertion because (1) the
`FDA had not approved the implant for lateral insertion,
`(2) the ridges, grooves, and tool holes of the Brantigan
`references suggested they were intended for anterior or
`posterior insertion, not lateral insertion, and (3) the lack
`of tapering or rounding on the Brantigan implant made it
`ill-suited for lateral insertion. Because there was sub-
`stantial evidence for the jury to conclude that the Branti-
`gan references did not teach an implant capable of lateral
`
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`7
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`insertion, the jury was entitled to find that the Brantigan
`references did not anticipate or render obvious the assert-
`ed claims of the ’973 patent.
` NuVasive also argues that the asserted claims of
`the ’973 patent are indefinite because, given the relative
`nature of the claim limitations, one cannot know whether
`an implant infringes until it is selected for a particular
`patient. Under the Supreme Court’s decision in Nautilus,
`Inc. v. Biosig Instruments, Inc., 134 S. Ct. 2120 (2014), a
`claim is indefinite if “viewed in light of the specification
`and prosecution history,” it does not “inform those skilled
`in the art about the scope of the invention with reasona-
`ble clarity.” Id. at 2129. The relative nature of the claim
`does not itself make it indefinite, and NuVasive failed to
`establish, by clear and convincing evidence, that human
`anatomy varies so significantly that reliance on the well-
`known dimensions of human vertebrae makes the claims
`indefinite. See Howmedicia Osteonics Corp. v. Tranquil
`Prospects, Ltd., 401 F.3d 1367, 1371–73 (Fed. Cir. 2005).
`Indeed, the parties stipulated that “[t]he average dimen-
`sions of the human vertebrae are well-known, easily
`ascertainable, and well-documented in the literature.”
`J.A. 2882.
`
`B. ’933 Patent Infringement
`The ’933 patent is directed to instruments and meth-
`
`ods for minimally invasive tissue retraction during sur-
`gery. It discloses a two-pronged device in which each
`prong forms one-half of a hollow cylinder. In combination,
`the two prongs form a working channel through the
`cylinder, through which the surgeon can pass instruments
`for spinal surgery. Neither prong is fixed—both can be
`moved away from each other and pivoted to adjust the
`
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` WARSAW ORTHOPEDIC, INC. v. NUVASIVE, INC.
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`size of the channel. Although claim 1 is not asserted, one
`of the asserted claims depends from claim 1,2 and NuVa-
`sive appears to argue that the infringement of the assert-
`ed claims turns on the infringement of claim 1. Claim 1
`provides:
`A tissue retractor for percutaneous surgery in a
`patient, comprising:
`a first portion having a proximal end and a distal
`end; and
`a second portion having a proximal end and a dis-
`tal end, said second portion forming with said first
`portion a working channel in communication with
`an exterior of said first and second portions at
`said proximal ends and said distal ends with said
`working channel being enclosed by said first por-
`tion and said second portion between said distal
`and proximal ends, wherein said working channel
`is enlargeable by laterally moving each of said
`first and second portions away from one another
`and pivoting each of said distal ends of said first
`and second portions away from one another such
`that only a portion of said working channel is en-
`closed by said first and second portions.
`’933 patent, col. 13 ll 32–48.
`
`As NuVasive identifies, the accused product has
`three, not two, portions. Moreover, one of the portions is
`fixed—incapable of lateral movement or pivoting. Thus,
`although NuVasive does not dispute that the other claim
`limitations are met, NuVasive argues that the accused
`
`
`2 Claim 21 depends from independent claim 1,
`claim 57 depends from independent claim 56, and claim
`61 depends from independent claim 63.
`
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`9
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`device does not literally infringe the asserted claims of
`the ’933 patent because there are three, not two, prongs,
`and the third prong is not capable of lateral movement or
`pivoting. Warsaw argues that the jury did not err in
`finding infringement under the doctrine of equivalents.
`NuVasive disagrees.
`Warsaw submitted substantial evidence that the dif-
`ferences between the accused device and the patented
`technology are insubstantial. For example, there are
`admissions by NuVasive’s own witnesses that a working
`channel enclosed by three prongs “i[s] the same working
`channel as with only two [prongs]” and that “when the
`working channel is in the closed position, two and three
`[prongs] are equivalent.” J.A. 10735, 11755–56. Thus,
`substantial evidence exists to support a finding of in-
`fringement under the doctrine of equivalents because a
`jury could find that two enclosing prongs capable of
`lateral movement and pivoting was equivalent to three
`enclosing prongs, two of which were capable of lateral
`movement and pivoting.3
`C. ’236 Patent Infringement
`The ’236 patent is directed to a method for detecting
`
`the presence of and measuring the distance to a nerve
`
`3 NuVasive argues that application of the doctrine
`of equivalents would result in claim vitiation. As we
`recently explained, vitiation is not a separate argument
`from insubstantiality. See Brilliant Instruments, Inc. v.
`GuideTech, LLC, 707 F.3d 1342, 1347 (Fed. Cir. 2013)
`(“‘Vitiation’ is not an exception to the doctrine of equiva-
`lents, but instead a legal determination that the evidence
`is such that no reasonable jury could determine two
`elements to be equivalent.” (quoting Deere & Co. v. Bush
`Hog, LLC, 703 F.3d 1349, 1356 (Fed. Cir. 2012))).
`
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`during surgery. During surgery, surgeons want to avoid
`contact with or damage to any nerves, as doing so could
`result in patient paralysis. The patented monitoring
`device sends a series of signals in increasing strength.
`When a nerve fires after receiving a signal, the device can
`predict its proximity to the nearest nerve based on the
`signal strength most recently sent by the device. The
`farther away it is from a nerve, the stronger the signal
`must be to trigger a response. Claim 1 is representative.
`It provides:
`A method for assessing the proximity of a spinal
`nerve relative to a distal end of at least one probe
`or surgical tool being introduced towards at least
`one of a lumbar region and thoracic region of a pa-
`tient's spine, said lumbar region and said thoracic
`region of said spine having a ventral column and a
`dorsal column, said ventral column including a
`plurality of vertebral bodies and a plurality of in-
`tervertebral discs disposed in between said verte-
`bral
`bodies,
`said
`vertebral
`bodies
`and
`intervertebral discs each having an anterior as-
`pect, a posterior aspect opposite from said anterior
`aspect, and a lateral aspect extending between
`said anterior and posterior aspects, said dorsal
`column including a plurality of bone elements ex-
`tending from said vertebral bodies to form a spi-
`nal canal that contains and protects the spinal
`chord, said spinal nerve exiting from said spinal
`canal and disposed generally parallel to a longitu-
`dinal axis of said spine along said lateral aspect,
`the method comprising:
`(a) emitting a stimulus signal from an electrode
`disposed on a probe or surgical tool as said probe
`or tool is introduced towards a lateral aspect of at
`least one of a vertebral body and an intervertebral
`
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`disc of at least one of a lumbar region and thoracic
`region of a patient's spine;
`(b) electromyographically monitoring muscles
`coupled to said spinal nerve to determine if a pre-
`determined neuromuscular response is elicited by
`the stimulus signal;
`(c) increasing the intensity level of said stimulus
`signal until said predetermined neuro-muscular
`response is elicited by said stimulus pulse and
`stopping the emission of said stimulus signal im-
`mediately after
`said predetermined neuro-
`muscular response is detected; and
`(d) communicating to an operator said intensity
`level of said stimulus signal required to elicit said
`predetermined neuro-muscular response, wherein
`said intensity level required to elicit said prede-
`termined neuro-muscular response represents the
`proximity of said spinal nerve to said probe or
`surgical tool.
`’236 patent, col. 17 l. 47–col. 18 l. 6. The court construed
`“stimulus signal” to mean “an electrical signal for eliciting
`a neuromuscular response.” J.A. 208.
` MSD argues that its product, the NIM-Eclipse, does
`not infringe because, contrary to step (c), the NIM-Eclipse
`does not “stop[] the emission of said stimulus signal
`immediately after said predetermined neuromuscular
`response is detected.” ’236 patent, col. 17 ll. 58–60.
`According to MSD, “stopping” requires the termination of
`subsequent pulses, whereas the accused product contin-
`ues to emit pulses, just at a lower level of power. MSD
`also argues that there is insufficient evidence to prove
`induced infringement.
`
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` NuVasive urges that the NIM-Eclipse signal does
`“stop.” According to NuVasive, a “signal” is a series of
`increasing pulses. Signal strength decreases when a
`neuromuscular response is elicited. By decreasing the
`signal strength, the old signal terminates and a new one
`begins. This understanding is consistent with the claim
`construction presented to the jury. The district court
`defined “stimulus signal” in functional terms, to mean “an
`electrical signal for eliciting a neuromuscular response.”
`J.A. 208. Thus, according to NuVasive and consistent
`with the claim construction, the old signal successfully
`elicited a response, and the decreased pulse is not part of
`the previous series of increasing pulses. Instead, it is the
`first pulse of a new signal. This “restart” involves a stop
`followed by a start.
`There was substantial evidence to support a finding of
`
`infringement. Treating a “restart” as a type of stop was
`clearly envisioned by the claims. For example, dependent
`claims 4, 5, 6, 8, 9, and 10 all claim methods in which the
`method of claim 1 is repeated. And, NuVasive’s expert
`testified that a “stimulus signal,” which he interpreted to
`be a series of continually increasing pulses, stopped after
`eliciting a response because the pulse strength dropped
`and the gradual increase in pulse strength started over.
`Additionally, NuVasive put forth enough evidence to
`support a jury finding of induced infringement. There
`was evidence that MSD was aware of the patent prior to
`the litigation and that MSD specifically taught doctors to
`use the product during the surgical procedures in an
`infringing manner.
`In rebuttal, MSD argues that interpreting the stop-
`ping step in such a way is barred by the prosecution
`history, in which “stop” was added to overcome a prior art
`reference. But, no construction of the “stopping” step was
`
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`presented to the jury, nor did Warsaw request a construc-
`tion beyond its plain and ordinary meaning. We have
`previously explained that, “where the parties and the
`district court elect to provide the jury only with the claim
`language itself, and do not provide an interpretation of
`the language in the light of the specification and the
`prosecution history, it is too late at the JMOL stage to
`argue for or adopt a new and more detailed interpretation
`of the claim language and test the jury verdict by that
`new and more detailed interpretation.” Hewlett-Packard
`Co. v. Mustek Sys., Inc., 340 F.3d 1314, 1321 (Fed. Cir.
`2003).
`
`II. ’973 and ’933 Damages Issues
` Having sustained the district court’s determinations
`with respect to liability under the three asserted patents,
`we consider Warsaw’s and NuVasive’s appeals from the
`damages awards for the ’973 and ’933 patents. Warsaw
`does not appeal the denial of injunctive relief.
`Although Warsaw owns the ’933 and ’973 patents, it
`does not practice the patented technologies. Rather, it (1)
`licenses the technologies to related companies Medtronic
`Sofamor Danek Deggendorf, GmBH (“Deggendorf”) and
`Medtronic Puerto Rico Operations Co. (“M Proc”), which
`manufacture and sell the patented products to MSD and
`pay royalties to Warsaw on those sales and (2) manufac-
`tures “fixations,”4 which it sells to MSD for profit. MSD
`packages the fixations and the patented products together
`into medical kits, which it sells to hospitals and surgeons.
`
`
`4
`“Fixations” are medical products such as surgical
`rods and screws that are used in connection with the
`patented devices during surgery.
`
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`Warsaw asserts it has three sources of income related
`to the patented technologies. First, it receives revenue
`from the sale of fixations to MSD, which it argues should
`be treated as convoyed sales; second, it receives royalty
`payments from M Proc and Deggendorf; third, it receives
`payments from MSD resulting from an inter-company
`transfer pricing agreement, which are characterized by
`Warsaw as “true-up” payments.
`At trial, Warsaw characterized all three sources of in-
`come as representing potential lost profits to Warsaw and
`sought to recover revenue declines allegedly the result of
`infringement by NuVasive. Warsaw also sought to recov-
`er a reasonable royalty. The jury awarded Warsaw
`$101,196,000 in total damages. The verdict form indicat-
`ed that the $101 million award was for “Lost Profit Dam-
`ages (with royalty remainder)” and provided royalty rates
`for each patent. It is impossible to determine from the
`verdict form what portion of the verdict is attributable to
`lost profits and what portion is attributable to a reasona-
`ble royalty, much less how much of the lost profits portion
`is attributable to each of the three different revenue
`streams.
`After trial, the district court denied Warsaw’s request
`for supplemental damages, and it set the ongoing royalty
`rate for the ’973 patent at 13.75% of sales of infringing
`implants and set the ongoing royalty rate for the ’933
`patent at 8.25% of sales of infringing retractors. NuVa-
`sive challenges the award of lost profits. Warsaw chal-
`lenges the district court’s refusal to award supplemental
`damages and the ongoing royalty rate.
`Our treatment of damages is guided by the statute,
`which provides in part: “the court shall award the claim-
`ant damages adequate to compensate for infringement,
`but in no event less than a reasonable royalty for the use
`
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`WARSAW ORTHOPEDIC, INC. v. NUVASIVE, INC.
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`15
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`made of the invention by the infringer.” 35 U.S.C. § 284.
`Our case law recognizes two measures of damages: lost
`profits and reasonable royalties. As we have previously
`explained:
`Through section 284, Congress sought to ensure
`that the patent owner would in fact receive full
`compensation for any damages he suffered as a
`result of the infringement. Damages is the
`amount of loss to a patentee. A patentee may
`seek to recover actual damages, usually, the
`amounts of profits actually lost, or if unable to
`prove actual damages, the patentee is entitled to a
`reasonable royalty.
`SmithKline Diagnostics, Inc. v. Helena Labs. Corp., 926
`F.2d 1161, 1164 (Fed. Cir. 1991) (internal quotation
`marks, citations omitted).
`
`At least with respect to any particular sale, a patentee
`is entitled to either a reasonable royalty or lost profits—
`not both. See id. at 1164. At oral argument, counsel for
`Warsaw admitted it was not entitled to both a reasonable
`royalty and lost profits on a single sale, nor was it seeking
`both.
`Lost profits and reasonable royalties measure damag-
`es differently. Lost profits as a measure of damages is
`intended to make the party whole—to compensate the
`patent holder for profits lost as a result of the infringe-
`ment. It is not solely a “but for” test. Rite-Hite Corp. v.
`Kelley Co., Inc., 56 F.3d 1538, 1546 (Fed. Cir. 1995) (en
`banc).
`A reasonable royalty, on the other hand, is intended
`to compensate the patentee for the value of what was
`taken from him—the patented technology. See Aqua
`Shield v. Inter Pool Cover Team, 774 F.3d 766, 770 (Fed.
`Cir. 2014) (“The ‘value of what was taken’—the value of
`
`ALPHATEC HOLDINGS, INC., ALPHATEC SPINE INC. - IPR2019-00362, Ex. 1046, p. 15 of 24
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` WARSAW ORTHOPEDIC, INC. v. NUVASIVE, INC.
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`the use of the patented technology—measures the royal-
`ty.” (quoting Dowagiac Mfg. Co. v Minn. Moline Plow Co.,
`235 U.S. 641, 648 (1915))).
` Under our case law a patentee may not claim, as its
`own damages, the lost profits of a related company. See
`Poly-America, L.P. v. GSE Lining Tech., Inc., 383 F.3d
`1303, 1311 (Fed. Cir. 2004) (explaining that related
`companies “may not enjoy the advantages of their sepa-
`rate corporate structure and, at the same time, avoid the
`consequential limitations of that structure—in this case,
`the inability of the patent holder to claim the lost profits
`of its non-exclusive licensee”); see also Mars, Inc. v. Coin
`Acceptors, Inc., 527 F.3d 1359, 1365 (Fed. Cir. 2008)
`(refusing to award “lost profits” to the patent holder when
`its subsidiary corporation lost sales due to infringement),
`mandate recalled and amended on other grounds, 557
`F.3d 1377 (Fed. Cir. 2009). Indeed, Warsaw admits it is
`not entitled to the lost profits of Deggendorf, M Proc, or
`MSD.
`
`A. Convoyed Sales
`NuVasive challenges treating decreases in revenue
`from the sale of fixations (e.g., rods and screws for holding
`the implant and vertebrae in place) as “lost profits.” At
`trial, Warsaw’s damages expert testified that NuVasive’s
`infringement of the patented technologies resulted in
`Warsaw’s making fewer sales of fixations to MSD, be-
`cause MSD itself lost sales of the patented medical kits as
`a result of NuVasive’s infringement. The expert calculat-
`ed that Warsaw lost $27.8 million in lost sales, $24.5
`million of which was lost profits (the remaining $3.3
`million was recouped in cost savings). Such a claim is
`based on the theory that the sales were convoyed sales. A
`convoyed sale is a sale of a product that is not patented,
`but is sufficiently related to the patented product such
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`WARSAW ORTHOPEDIC, INC. v. NUVASIVE, INC.
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`that the patentee may recover lost profits for lost sales.
`See Am. Seating Co. v. USSC Grp., Inc., 514 F.3d 1262,
`1268 (Fed. Cir. 2008).
`To be entitled to lost profits for convoyed sales, the re-
`lated products (e.g., the fixations) must be functionally
`related to the patented product and losses must be rea-
`sonably foreseeable. See Rite-Hite, 56 F.3d at 1546–50.
`Being sold together merely for “convenience or business
`advantage” is not enough. Am. Seating, 514 F.3d at 1268.
`If the convoyed sale has a use independent of the patent-
`ed device, that suggests a non-functional relationship.
`See, e.g., DePuy Spine, Inc. v. Medtronic Sofamor Danek,
`Inc., 567 F.3d 1314, 1333 (Fed. Cir. 2009).
`On appeal, NuVasive argues that the sale of fixations
`to MSD are not recoverable as “convoyed sales” because
`there is no functional relationship between the alleged
`convoyed sales and the patented products. That is, ac-
`cording to NuVasive, the unpatented components “can be
`and are frequently used independently of the patented
`implants and retractors.” NuVasive’s Opening Br. 48. In
`rebuttal, Warsaw argues that these sales are recoverable
`as convoyed sales because the unpatented components are
`part of comprehensive medical kits that “contain every-
`thing necessary for a fusion procedure.” Warsaw’s Reply
`Br. 48.
`The fixations here are not convoyed sales recoverable
`as lost profits. Warsaw failed to prove a functional rela-
`tionship necessary to support a jury verdict awarding lost
`profits for convoyed sales. Warsaw points to its market-
`ing material, in which it touted the kits’ “comprehensive
`set of instruments and implants including fully integrated
`neuromonitoring, streamlined access instrumentation,
`anatomically designed implants and percutaneous fixa-
`tion systems.” J.A. 20587. This does not establish a
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` WARSAW ORTHOPEDIC, INC. v. NUVASIVE, INC.
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`functional relationship. This is the precise sort of conven-
`ience or business strategy excluded by American Seating.
`See Am. Seating, 514 F.3d at 1268 (“Our precedent has
`not extended liability to include items that have essential-
`ly no functional relationship to the patented invention
`and that may have been sold with an infringing device
`only as a matter of convenience or business advantage.”
`(quoting Rite-Hite, 56 F.3d at 1538)). Warsaw never
`presented testimony that the fixations it sold to MSD had
`no independent function—that is, that they would not
`work as well in other surgeries not involving the patented
`technologies. Therefore, the district court erred in deny-
`ing NuVasive’s JMOL motion on this issue.
`B. Royalty Payments from M Proc and Deggendorf
`NuVasive next challenges the inclusion of lost royalty
`payments from M Proc and Deggendorf in the lost profits
`award. At trial, Warsaw explained that, under its busi-
`ness model, it would license the patented technologies to
`related companies such as Deggendorf and M Proc, who
`would manufacture the patented devices. NuVasive’s
`infringement detrimentally affected those manufacturers’
`sales, which in turn negatively affected the royalty pay-
`ments they made to Warsaw.
`On appeal, NuVasive argues that Warsaw is effective-
`ly claiming as “lost profits” the lost profits of its related
`companies. That is, that Deggendorf and M Proc are the
`companies actually harmed by NuVasive, and that by
`claiming “lost profits,” Warsaw is seeking to recover the
`lost profits of those companies. Warsaw recognizes that
`Poly-America prohibits it from claiming its related com-
`panies’ lost profits as its own, b
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