Hollister Inc. v. Zassi Holdings, Inc.

HOLLISTER INCORPORATED, an Illinois corporation, Plaintiff, v. ZASSI HOLDINGS, INC., a Florida corporation and PETER VON DYCK, an individual, Defendants.

Case No. 3:13-cv-132-J-32PDB

UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF FLORIDA JACKSONVILLE DIVISION

March 30, 2016

FINDINGS OF FACT AND CONCLUSIONS OF LAW

In this bifurcated action, a jury previously ruled that Defendants Zassi Holdings, Inc. and Peter von Dyck committed breach of contract and fraud in the course of selling business technology to Plaintiff Hollister Incorporated. Now in the non-jury damages phase, Hollister attempted to prove that but for these transgressions, it would have prevailed in a patent infringement suit against its main competitor, ConvaTec, Inc., and thus seeks to collect from Zassi and von Dyck the patent damages it would have won from ConvaTec.

I. BACKGROUND AND PROCEDURAL HISTORY

Hollister is an independently-owned global company that develops, manufactures, and markets health care products, including ostomy, continence, critical care (including bowel management), and wound care products. Zassi is a privately-held company that designs, develops, manufactures, and commercializes medical devices.

In 2006, Hollister purchased the technology and intellectual property rights related to a bowel management system ("BMS") developed by Zassi and von Dyck, Zassi's founder and chief executive officer. Under the Asset Purchase Agreement (Pl. Ex. 38), Hollister paid Zassi $35 million to acquire certain assets, including Zassi's interest in the patent applications that resulted in U.S. Patent Nos. 7,147,627 ("'627 patent"), which issued on December 12, 2006 (Pl. Ex. 53), and 7,722,583 ("'583 patent"), which issued on May 25, 2010 (Pl. Ex. 54).¹ The patents involve a BMS used principally in hospitals to contain and divert fecal matter for bedridden, incontinent patients.

Shortly thereafter, Hollister began manufacturing, marketing, and selling Zassi's BMS device and rebranded it the ActiFlo device. During this time, Hollister competed in the BMS marketplace with ConvaTec, a global company in the business of making and selling health care products, including ostomy devices and BMSs. Like Hollister, ConvaTec sold fecal management systems ("FMS"), including its Flexi-Seal device and its subsequently released Flexi-Seal Signal device ("Signal") (referenced in combination as the "ConvaTec products").

On October 7, 2010, shortly after the '583 patent had been issued, Hollister sued C.R. Bard, Inc. and ConvaTec, its two main competitors in the BMS space, allegingthat their products infringed at least one of the claims of the '583 patent.² (Pl. Ex. 39). On June 8, 2011, Hollister and Bard entered into a Settlement and Patent License Agreement (the "Bard agreement"), in which Bard paid Hollister $6.65 million which included a one-time, lump-sum payment for a fully-paid, worldwide license to use certain claimed inventions of the '583 patent in Bard's products. (Pl. Ex. 57).

ConvaTec, however, asserted that Hollister's claim was barred by a settlement agreement executed between ConvaTec and Zassi in 2005 (before Hollister acquired the patent rights from Zassi), which released ConvaTec from present and future claims for infringement as to the Flexi-Seal device.³ (Pl. Ex. 6). As Zassi's assignee, Hollister could not assert rights Zassi had released. Thus, ConvaTec moved for summary judgment on Hollister's claims based on the release in the settlement agreement, and the court granted the motion, concluding that "Zassi and ConvaTec intended to release ConvaTec from patent infringement claims relating to its Flexi-Seal® and Flexi-Seal® Signal™ products." Hollister Inc. v. ConvaTec Inc., No. 10 C 6431, 2011 WL2473662, at *4 (N.D. Ill. June 21, 2011), aff'd, Hollister Inc. v. ConvaTec Inc., 470 F. App'x 904 (Fed. Cir. 2012).

In Hollister's estimation, but for the release in the agreement between ConvaTec and Zassi, which Hollister only learned of in 2010 after it sued ConvaTec for patent infringement, Hollister would have obtained a substantial damages award against ConvaTec. Therefore, following its unsuccessful suit against ConvaTec, Hollister sued Zassi and von Dyck, claiming that Zassi breached the warranty of good and marketable title contained in the Asset Purchase Agreement (Doc. 1 ¶¶ 42-49), and that Zassi and von Dyck committed fraud by failing to disclose that Zassi had released claims against ConvaTec that would make it impossible for Hollister to enforce the patent rights it acquired from Zassi. (Id. ¶¶ 50-57).

The Court bifurcated the liability issues from damages for trial purposes. (Doc. 26). The measure of Hollister's damages was more distinct from the liability issues than in the usual case because Hollister's damages involved complex proof of patent infringement by ConvaTec, a non-party, and the amount of any resultant patent damages.

The liability issues were tried to a jury on February 4 through February 7, 2014 before the Honorable Paul A. Magnuson.⁴ (Docs. 57, 60, 64, 72). On February 10, 2014, the jury reached a verdict for Hollister on liability on both counts, finding, among other things, that Zassi and von Dyck had defrauded Hollister by failing to disclose in thesale negotiations that they had released certain patent claims against ConvaTec. (Doc. 77).

Shortly after the completion of the liability trial, Zassi and von Dyck's attorneys withdrew. (Doc. 84). New counsel appeared for Zassi and von Dyck, and after unsuccessfully moving for a retrial, also withdrew. (Docs. 89, 138, 139, 144). After no new counsel appeared, Hollister filed a Motion for Default Against Zassi Holdings, Inc. (Doc. 147), and a clerk's default was entered against Zassi on September 4, 2015 (Docs. 149, 150). New counsel later appeared on October 2, 2015 on behalf of von Dyck only to contest damages. (Doc. 153).

Before the trial on damages, the Court issued its Markman Order construing terms found in the patent in suit.⁵ (Doc. 110; Pl. Ex. 56). The Court then conducted a three day non-jury damages trial from December 7 through December 9, 2015, the record of which is incorporated herein.⁶ (Docs. 177-79). The parties submitted post-trial proposed findings of fact and conclusions of law (Docs. 186, 189), and Hollister filed a post-trial brief and a reply (Docs. 187, 196).⁷ Von Dyck elected not to submit apost-trial brief. In addition, at the Court's direction at the conclusion of the trial, Hollister filed a Proposed Default Judgment Order Against Zassi Holdings, Inc.⁸ (Tr. III, 95:13-17; Doc. 188).

The Court has reviewed the extensive record, examined the evidence presented at trial, ⁹ observed the witnesses, read the parties' post-trial submissions, and considered the arguments. The Court now makes the following findings of fact and conclusions of law as required by Federal Rule of Civil Procedure 52(a).

II. INFRINGEMENT¹⁰

A. Hollister's Infringement Contentions

Hollister asserts five claims from the patent in suit: claims 1, 2, 3, 4, and 6 of the '583 patent. (Tr. I, 105:1-3). The asserted claims relate to a BMS used to contain and divert fecal matter for bedridden, incontinent patients. (Pl. Ex. 54). The device is composed of a rectal catheter with various sections, each with different elasticity and durometer hardness, and may be used to facilitate the collection of fecal matter for patients requiring stool management, provide access for colonic irrigation, and provide a conduit through which medications may be administered. (Id.). Claim 1 is anindependent claim.¹¹ (Tr. II, 159:13-15; Pl. Ex. 54, Column 11). Claims 2, 3, 4, and 6 are dependent claims and further limit the independent claim. (Tr. II, 159:16-24; Pl. Ex. 54, Column 11). "Of course, infringement of a dependent claim also entails infringement of its associated independent claim." Honeywell Int'l Inc. v. Universal Avionics Sys. Corp., 488 F.3d 982, 995 (Fed. Cir. 2007).

Hollister contends that the evidence establishes that the ConvaTec products meet every limitation in the five asserted claims. (Doc. 186 at 8-13; Tr. I, 137-61). Russell Genet, a patent lawyer and partner in the law firm of Nixon Peabody, testifiedon Hollister's behalf as its expert witness on both patent infringement and damages. (Tr. I, 75:2-3).

Von Dyck asserts that the ConvaTec products do not meet the claim limitations, arguing that claim 1 requires a rectal catheter with at least two distinct sections and varying durometer hardness. (Doc. 189 at 11). Von Dyck contends that the ConvaTec products do not have a rectal catheter with a first and second section as required by claim 1; instead, they have a single catheter tube, and as a result do not infringe claim 1. He relies primarily on the '583 patent's specifications, claim differentiation, and prosecution history to support this theory. Von Dyck declined to retain an expert witness to testify on his behalf, instead using the cross-examination of Genet to elicit testimony to support his non-infringement arguments.¹²

Infringement analysis involves two steps: (1) claim construction, and (2) comparison of the properly construed claims to the accused devices. Cook Biotech Inc. v. Acell, Inc., 460 F.3d 1365, 1372 (Fed. Cir. 2006). The Court accomplished the first step in its Markman Order. (Doc. 110). "To establish infringement, every limitation set forth in a patent claim must be found in an accused product or process exactly or by a substantial equivalent." Laitram Corp. v. Rexnord, Inc., 939 F.2d 1533, 1535 (Fed. Cir. 1991); see also Dynacore Holdings Corp. v. U.S. Philips Corp., 363 F.3d 1263, 1273(Fed. Cir. 2004). "Literal infringement requires that each and every claim limitation be present in the accused product." Abraxis Bioscience, Inc. v. Mayne Pharm. (USA) Inc., 467 F.3d 1370, 1378 (Fed. Cir. 2006). Hollister, as patentee, has the burden of proving infringement by a preponderance of the evidence. Warner-Lambert Co. v. Teva Pharm. USA, Inc., 418 F.3d 1326, 1341 n.15 ...