Jang v. Boston Scientific (Third Circuit 2013)
Dr. Jang is an inventor on BSC’s stent patent no. 5,922,021. Jang’s contract requires BSC share 10% of royalty revenue with Jang, including “any recovery of damages” from infringers with a $60 million cap. The question in this case was whether a prior settlement with Cordis involved such a recover of damages.
In that prior 2003 case, Cordis and BSC countersued one another. A jury found that Cordis infringed the Jang patent and that BSC infringed Cordis patents. However, the parties settled before the court calculated or awarded damages. The settlement involved a payment of $1.725 billion from BSC to Cordis. BSC admitted that the settlement agreement represented the net difference between its expected damages and those it owed Cordis. In essence, the fact that Cordis infringed the BSC/Jang patent reduced the amount that BSC owed to Cordis. However, BSC argued that it did not owe Jang anything because BSC did not receive any damages or revenues in the deal. The district court sided with BSC on the pleadings on appeal, however, the Third Circuit reversed – finding that Jang’s case should move forward. In particular, the appellate panel held that (1) the cash-offset qualifies as a “recovery of damages” and (2) that “BSC violated the implied covenant of good faith and fair dealing by structuring a settlement to thwart the agreed purpose of [the contract provision].”
A cash offset is the functional equivalent of a cash payment. . . . Courts have long recognized the equivalence of a debt offset and a cash payment through the common-law “right of setoff.” . . . In this case, BSC made money on the Jang patent. It lost money on Cordis’ separate claim. That its gain and loss were consolidated to produce one net payment does not change the fact that the Jang patent produced a monetary gain for BSC.
The real question is whether that gain qualifies as a “recovery.” We see no reason why it should not; it makes no difference to BSC’s bottom line whether it receives a check for the Jang infringement claim or reduces its debt by the same amount.
Writing in dissent, Judge Barry argued that the language of the contract was clear and contemplated damage recovery, not offsetting claims.
Although the case involves patent law it is at heart a contract dispute. Thus, the appeal was heard by the regional circuit court rather than the Federal Circuit. In a prior dispute over the same contract, the Federal Circuit claimed appellate jurisdiction apparently based upon the fact that a quasi-infringement analysis was required to settle the dispute. Under Gunn v. Minton, that case (if heard today) would not likely be heard by the Federal Circuit.
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A large number of patent assignment deals similarly involve substantial “upside.” If one of the parties to the deal is a litigation expert then the the other party may well assume that full enforcement of the deal will also require litigation.
Cross-licensing and offset are such an obvious uses of the licensed patent, how can a judge conclude that cross-licensing and offset thwarts the agreed purpose of the provision.
This was just a contractual oversight on the inventors part. Can’t blame him: I have seen a few patent attorneys take contingent fee cases that generated no fees for similar reasons: deep in the litigation, it becomes apparent that a cross-license is in the best interest of the client, so there are no damages paid.
“Writing in dissent, Judge Barry argued that the language of the contract was clear and contemplated damage recovery, not offsetting claims.”
How can any competent Judge come to a dissenting conclusion in this case?
Under what rational is the inventor to be punished because the company happen to infringe someone’s patent? Were it not for that infringement an actual recovery payment would have been made. The fact that it was structured so that only one check was cut clearly has no bearing on whether the inventor should be paid.
SO if I have a stent in any state except a non-expanded state, I do not infringe?
Gee – nice to know,
Hey production department, make all the stents come out in slightly expanded states.
In the future we’ll all be bringing our attorneys to the job interview so we can be sure that the right questions are asked.
Fyi, claim 23 from the underlying patent:
23. A stent in a non-expanded state, comprising:
a first expansion column formed of a plurality of first expansion column strut pairs, a first expansion strut pair including a first expansion strut adjacent to a second expansion strut and a first joining strut that couples the first and second expansion struts at a proximal end of the first expansion strut pair, a second expansion strut pair including a third expansion strut adjacent to the second expansion strut and a second joining strut that couples the second and third expansion struts at a distal end of the second expansion strut pair, a third expansion strut pair including a fourth expansion strut adjacent to the third expansion strut and a third joining strut that couples the third and fourth expansion struts at a proximal end of the third expansion strut pair, a fourth expansion strut pair including a fifth expansion strut adjacent to the fourth expansion strut and a fourth joining strut that couples the fourth and fifth expansion struts at a distal end of the fourth expansion strut pair, a first expansion strut pair first corner formed where the first joining strut is coupled to the first expansion strut, and a first expansion strut pair second corner formed where the first joining strut is coupled to the second expansion strut, and a second expansion strut pair first corner formed where the second joining strut is coupled to the second expansion strut, and a second expansion strut pair second corner formed where the second joining strut is coupled to the third expansion strut, and a third expansion strut pair first corner formed where the third joining strut is coupled to the third expansion strut, and a third expansion strut pair second corner formed where the third joining strut is coupled to the fourth expansion strut, and a fourth expansion strut pair first corner formed where the fourth joining strut is coupled to the fourth expansion strut, and a fourth expansion strut pair second corner formed where the fourth joining strut is coupled to the fifth expansion strut;
a second expansion column formed of a plurality of second expansion column strut pairs, a first expansion strut pair including a first expansion strut adjacent to a second expansion strut and a first joining strut that couples the first and second expansion struts at a proximal end of the first expansion strut pair, a second expansion strut pair including a third expansion strut adjacent to the second expansion strut and a second joining strut that couples the second and third expansion struts at a distal end of the second expansion strut pair, a third expansion strut pair including a fourth expansion strut adjacent to the third expansion strut and a third joining strut that couples the third and fourth expansion struts at a proximal end of the third expansion strut pair, a fourth expansion strut pair including a fifth expansion strut adjacent to the fourth expansion strut and a fourth joining strut that couples the fourth and fifth expansion struts at a distal end of the fourth expansion strut pair, a first expansion strut pair first corner formed where the first joining strut is coupled to the first expansion strut, and a first expansion strut pair second corner formed where the first joining strut is coupled to the second expansion strut, and a second expansion strut pair first corner formed where the second joining strut is coupled to the second expansion strut, and a second expansion strut pair second corner formed where the second joining strut is coupled to the third expansion strut, and a third expansion strut pair first corner formed where the third joining strut is coupled to the third expansion strut, and a third expansion strut pair second corner formed where the third joining strut is coupled to the fourth expansion strut, and a fourth expansion strut pair first corner formed where the fourth joining strut is coupled to the fourth expansion strut, and a fourth expansion strut pair second corner formed where the fourth joining strut is coupled to the fifth expansion strut; and
a first connecting strut column formed of a plurality of first connecting struts, each connecting strut of the first connecting strut column including a connecting strut proximal section, a connecting strut distal section and a connecting strut intermediate section, a first connecting strut proximal section is coupled to the joining strut of the second expansion strut pair of the first expansion strut column, and a first connecting strut distal section is coupled to the joining strut of the first expansion strut pair of the second expansion strut column, and a second connecting strut proximal section is coupled to the joining strut of the fourth expansion strut pair of the first expansion strut column, and a second connecting strut distal section is coupled to the joining strut of the third expansion strut pair of the second expansion strut column, the first connecting strut intermediate section being non-parallel to the first connecting strut proximal and distal sections wherein the first expansion strut of the first expansion strut pair in the first expansion column has a longitudinal axis offset from a longitudinal axis of the first expansion strut of the second expansion strut pair in the second expansion column.
I’m sure Apple or Google is working on an improved stent where one of the struts comprises “copyrighted content.”
Major cautionary flag here to all patent-holding inventors contemplating making “we’ll split/share the settlements with you” deals with patent-buying/partnering entities.
To negotiate with these folks on your own is a dangerous risk you don’t want to take.
The question presented is … missing.
The question in this case was whether a prior settlement with Cordis …??????
Section 7.3 has only one purpose: to “reimburse Jang for payments due in respect of lost sales … ” when Scimed recovers “ordinary damages” based on infringement. Such reimbursement is limited by Scimed’s right to deduct “unreimbursed expenses and legal fees.”
By giving force to this provision and allowing the intention of the contracting parties to control how “damages” is construed under Section 7.3, rather than focusing excessively on the abstract meaning of the term, it is hard to see how BSC can argue that there are no “payments due in respect of lost sales” after a multi billion dollar deal that includes a set-off of monetary patent-infringement judgments and cross-licensing. This case should have survived SJ.
So, going forward, how will you “rewrite” this contract? What about replacing “ordinary damages” with “damages” consistently throughout Section 7.3, then “lost sales” with “lost compensation,” or otherwise defining “lost sales” to explicitly include financial benefits from law suit settlements?
Interesting case. Thanks Dennis.
I guess BSC was a bit limited on their ability to be their own lexicographer when it came to contract terms…
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