Warsaw Orthopedic, Inc. v. Sasso

162 N.E.3d 1

WARSAW ORTHOPEDIC, INC., Medtronic, Inc., and Medtronic Sofamor Danek, Inc., Appellants/Cross-Appellees–Defendants,

v.Rick C. SASSO, M.D., Appellee/Cross-Appellant–Plaintiff.

Court of Appeals Case No. 19A-PL-378

Court of Appeals of Indiana.

Filed December 4, 2020

Publication Ordered December 11, 2020

Rehearing Denied January 26, 2021

Attorneys for Appellants: Myra C. Selby, Adam Arceneaux, Derek R. Molter, Ice Miller, LLP, Indianapolis, Indiana, Timothy M. Curran, Paul E. Harold, LaDue, Curran & Kuehn, LLC, South Bend, Indiana, Derrian A. Smith, Maggie L. Smith, Frost Brown Todd, LLC, Indianapolis, Indiana

Attorneys for Appellee: Frederick D. Emhardt, Emhardt Law, LLC, Carmel, Indiana, Jere L. Humphrey, Wyland, Humphrey, Clevenger & Surrisi, LLP, Plymouth, Indiana, Joseph N. Williams, Riley Williams & Piatt, LLC, Indianapolis, Indiana, John M. Bradshaw, Bradshaw Law, LLC, Indianapolis, Indiana

Mathias, Judge.

[1] Following a fifteen-day jury trial in Marshall Circuit Court, the court entered judgment on the jury's verdicts in favor of Rick C. Sasso, M.D. ("Sasso") in the amount of $112,452,269 on Sasso's complaint for breach of two contracts—the Screw Agreement and the Vertex Agreement—against Medtronic, Inc., Medtronic Sofamor Danek, Inc., and Warsaw Orthopedic, Inc. (collectively "Medtronic"). Medtronic appeals and presents several issues for our review, which we restate and reorder as the following six:

I. Whether the trial court erred by denying Medtronic's motion to dismiss because Sasso's claims arise under patent law, which is within the exclusive jurisdiction of the federal courts;

II. Whether the trial court erred by rejecting Medtronic's argument that it was entitled to judgment as a matter of law on the Screw Agreement;

III. Whether the trial court abused its discretion by excluding evidence that some of the claims under one of the patents at issue were declared invalid;

IV. Whether the trial court erred by rejecting Medtronic's claim that the Screw Agreement terminated after seven years;

V. Whether there is sufficient evidence supporting the jury's award of damages for breach of the Screw Agreement; and

VI. Whether there is sufficient evidence supporting the jury's award of damages for breach of the Vertex Agreement.

[2] Sasso cross-appeals and presents one issue: whether the trial court erred by granting summary judgment in favor of Medtronic on Sasso's claim for punitive damages.

[3] We affirm the judgment of the trial court in all respects.¹

Statement of Facts

A. The Parties

[4] Sasso is a native Hoosier who graduated from the Indiana University School of Medicine in 1986. He has since become a renowned spinal surgeon and is a professor and chief of spinal surgery at the Indiana University School of Medicine.

[5] Medtronic² sells products for use in spinal surgery. In developing such products, Medtronic often collaborates with spinal surgeons. If a physician invents a surgical product, Medtronic typically enters into an agreement in which the physician assigns patent rights to Medtronic in exchange for royalties for the life of the patent. This case involves two such agreements between Medtronic and Sasso: an agreement involving a screw delivery system (the "Screw Agreement") and an agreement involving a posterior cervical fixation system known as Vertex (the "Vertex Agreement").

B. The Screw Agreement

[6] Early in his practice, Sasso devised a new technique for spinal surgery that minimized incisions by using a tube to guide surgical implements and instruments. The innovative aspect of Sasso's technique was the use of a separate outer tube, known as a cannula, to implant the surgical devices. Without using Sasso's cannula technique, surgeons were required to use guidewires, which presented a host of problems such as breakage, piercing of other body parts, and the serial usage of x-rays.

[7] In the mid 1990s, Sasso spoke with Medtronic's president about his minimally invasive surgery technique. In the spring of 1999, the parties signed a non-disclosure agreement to discuss the innovative screw delivery system. And in the fall of that year, Medtronic held a meeting with Sasso to discuss the innovation. On November 1, 1999, the parties entered into a purchase agreement for a Sasso-invented screw delivery system using headless facet³ screws, whereby Medtronic would pay a 5% royalty to Sasso on sales if the medical devices sold were covered by a valid claim of an issued patent.

[8] This agreement was soon superseded by the "Screw Agreement." Section 4(B) of the agreement, which is governed by Tennessee law, provided that Medtronic would pay Sasso for the rights to the Invention⁴ and the Intellectual Property Rights⁵ an amount as follows:

A contingency payment in the amount of two and one-half percent (2-½%) of the worldwide Net Sales of the Medical Device ^{[6 ]}.... The contingency payment is payable to Dr. Sasso until expiration of the last to expire of the patent(s) included in the Intellectual Property Rights, or seven (7) years from the Date of First Sale of the Medical Device, if no patent(s) issue....

Ex. Vol. 14, pp. 19–20. Thus, the royalty rate was lowered from 5% to 2.5%, but it was no longer contingent on the Medical Device being covered by a valid claim of an issued patent.

[9] Section 7, titled "Term of Agreement," described the duration of the agreement as follows:

Unless sooner terminated, this Agreement shall expire upon the last to expire of the patents included in Intellectual Property Rights, or if no patent application(s) issue into a patent having valid claim coverage of the Medical Device , then seven (7) years from the Date of First Sale of the Medical Device. [Medtronic] is free to continue manufacturing, marketing and selling Medical Device(s) after expiration of this Agreement without further payment to Dr. Sasso.

Id. at 21 (emphasis added).

[10] Before the parties executed the Screw Agreement, Sasso prepared a patent application covering his screw delivery system. He then assigned the application to Medtronic upon signing the agreement. On November 23, 1999, Medtronic filed a patent application entitled "Screw Delivery System and Method" naming Sasso as the sole inventor and Medtronic as the assignee.⁷

[11] Based on this application, the United States Patent and Trademark Office ("USPTO") issued Patent No. 6,287,313 ("the '313 Patent") to Medtronic on September 11, 2001. The claims of the '313 Patent, which define the legal scope of the invention subject to the patent, included several numbered claims. For example, claim 26 identified:

A screw delivery system kit for providing a minimally invasive portal to a surgical site comprising:

an outer cannula ;

a trocar ;

means for drilling an opening in a bone at the surgical site;

means for aiming said means of drilling; and

means for screwing a screw into the opening in the bone.

Id. at 146. Claim 34 was derivative of claim 26 and was defined as "[t]he kit of claim 26, further comprising at least one interbody fusion implant." Id.

[12] Days after filing the patent application, Medtronic held a meeting with Sasso to work on commercial application of the screw delivery system. Following this meeting, Medtronic sent Sasso a letter that included next steps for incorporating his "technology into the system" and indicated a desire for "future development of this instrumentation system with you." Ex. Vol. 15, p. 28. Medtronic attached to this letter "Recap Notes" that included five "Primary Applications" for the screw delivery system: (1) Precision-Graft; (2) Anterior Cages (2 level); (3) Anterior Cages (1 level); (4) Far lateral placements (including ELIF); and (5) Revision. Id. at 29. Thus, the applications of Sasso's system went beyond the scope of mere facet screws to also include interbody implants such as anterior cages.

[13] Sasso consistently believed that that interbody implants, such as cages, were included in his system and were therefore royalty bearing. Medtronic's president assured Sasso, in January 2002, that "at the end of the day, your royalty stream is limited only by our collective sales and marketing efforts. With our recent FDA panel recommendation for InFUSE approval, the projections below may be magnified." Id. at 91–92. InFUSE is a bone-growth compound used inside cages implanted inside vertebral bodies. In other words, Medtronic believed that Sasso's royalties included sales based on InFUSE, which did not incorporate facet screws.

[14] In 2003, Medtronic invited Sasso to join a team of experts working on navigated surgery. Medtronic's navigated-surgery team developed leading systems, including two that were first sold to the Indianapolis hospital where Sasso works. The team also worked on a guidewire-less spinal surgery procedure. When Medtronic introduced this system, its presentation included Sasso's screw delivery system. And in 2010, Medtronic's navigation catalog listed instruments used in Sasso's system under items used for navigated spinal surgery.

[15] The Screw Agreement provided that the parties would update Schedule B—which listed the royalty-bearing Medical Devices—from time to time to include the appropriate Medtronic catalog numbers and descriptions of any devices that utilized Sasso's invention. Although the parties never updated Schedule B, Medtronic paid royalties to Sasso for unlisted devices, including payment for "cortical bone screws" from 2003 through 2015. Tr. Vol. 11, pp. 31–32.

[16] In 2008, Sasso complained to Medtronic that he was not being paid royalties on all Medtronic products that used his screw delivery system. In an attempt to rectify the situation, he met with Medtronic's chief medical officer. But in 2010, when Doug King became Medtronic's division president, the parties' relationship soured. And two years later, Medtronic's counsel told Sasso to make no further contact with Medtronic employees.

C. The Vertex Agreement

[17] The parties also entered into an agreement involving a system known as...