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Howmedica Osteonics Corp. v. Zimmer, Inc.

United States District Court, D. New Jersey

April 20, 2018

HOWMEDICA OSTEONICS CORP., Plaintiff,
v.
ZIMMER, INC., CENTERPULSE ORTHOPEDICS, INC. Defendants. Material Gel Content Swell Ratio Year Timekeeper Rate Charged to Zimmer AMLAW 50 Average Year Name Hours Rate Modified Charge Amount Reduced

          OPINION

          WILLIAM H. WALLS SENIOR UNITED STATES DISTRICT COURT JUDGE.

         This motion arises out of a patent dispute between Plaintiff Howmedica Osteonics ("Howmedica") and Defendant Zimmer and Centerpulse Orthopedics ("Zimmer"). After eleven years of litigation, all four of Plaintiff s patents have been invalidated. Defendant Zimmer now moves for attorney fees and costs, expert costs, and prejudgment interest under 35 U.S.C. § 2S5. Zimmer seeks to recover SI3, 496, 086.86 in fees, $513, 258.38 in costs, SI, 016, 599.29 in expert costs, and S5, 821, 225.69 in prejudgment interest. Defendant's motion for fees and costs is granted in part.

         FACTUAL AND PROCEDURAL BACKGROUND

         The long and complicated facts of this case have been fully recounted in the Court's previous opinions on Defendant's motions for summary judgment, ECF Nos. 176, 247. In short, this case arises out of a patent dispute over a series of related patents filed by Plaintiff Howmedica. These patents disclose processes for irradiating and heating polymers used in medical implants which are intended to increase the usable life of the implants. Irradiating and heating polymer is commonly used to sterilize and strengthen polyethylene, but this process creates atoms and molecules with unpaired electrons in their outermost electron shell known as "free radicals." These free radicals can cause oxidation and accelerated wear of the polymer if exposed to oxygen. However, if the polymer is irradiated in an inert atmosphere, the free radicals will become "crosslinked" and the polymer will exhibit superior wear characteristics. The patents at issue teach a process for heating and irradiating ultra-high-molecular-weight polyethylene (UHMWPE) in an inert atmosphere using specific time and temperature combinations to maximize crosslinking and decrease oxidation and wear.

         Defendant Zimmer is a manufacturer and marketer of medical implant products. In 2005, Plaintiff brought this action against Defendant for the alleged infringement of four of Howmedica's patents: U.S. Patent No. 6, 174, 934 ("the '934 patent), U.S. Patent No. 6, 372, 814 ("the '814 patent"), U.S. Patent No. 6, 664, 308 ("the '308 patent) and U.S. Patent No. 6, 818, 020 ("the '020 patent"). Compl., ECF No. 1.

         On June 13, 2007, this Court granted Defendant's motion for partial summary judgment, finding the '934, '814, and '308 patents invalid for indefiniteness because of their failure to properly define a critical claim limitation, the "Arrhenius limitation." ECF No. 176. On August 19, 2008, this Court granted Defendant's motion for partial summary judgment, finding that Zimmer's products did not infringe claims 7, 10, 11 and 12 of the '020 patent. ECF No. 247. Upon Zimmer's request, the U.S. Patent and Trademark Office ("PTO") conducted an inter partes reexamination of the '020 patent and rejected all of the '020 patent claims over prior art. The Patent Trial and Appeal Board ("PTAB") affirmed in part and reversed as to claims 7-12. Both Howmedica and Zimmer appealed this decision to the Federal Circuit, which held that all of the '020 claims were invalid due to prior art. Final judgment was entered on July 27, 2016. Order, ECF No. 424. Defendant Zimmer now moves for an award of fees, costs, expert costs and prejudgment interest associated with its eleven-year defense of this action.

         LEGAL STANDARD

         35 U.S.C. § 285 authorizes the Court to award reasonable attorney fees to the party prevailing in patent litigation in an "exceptional case." To satisfy the statute, Defendants must establish: (1) they are the prevailing party; (2) the case is exceptional; and (3) the fees are reasonable. Machinery Corp. of America v. Gullfiber AB, 774 F.2d 467, 471 (Fed. Cir. 1985). Defendants bear the burden to establish the exceptional nature of the case by a preponderance of the evidence. Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S.Ct. 1749, 1758 (2014).

         "[A]n 'exceptional' case is simply one that stands out from others with respect to the substantive strength of a party's litigating positions (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated." Id. at 1756. Exceptionality is determined by courts "in the case-by-case exercise of their discretion, considering the totality of the circumstance." Id. An award of fees may be justified where a case "present[s] either subjective bad faith or exceptionally meritless claims, " or where a party has engaged in misconduct, whether or not that conduct is independently sanctionable. Id. at 1757. In assessing the totality of the circumstances, courts can consider "nonexclusive factors, " including "frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence." Id. at 1756 n.6 (citing Fogerty v. Fantasy, Inc., 510 U.S. 517, 534 n.19. (1994)). While "there is no precise rule or formula" for determining if a case is exceptional, Octane Fitness, 134 S.Ct. at 1756, "fee awards are not to be used 'as a penalty for failure to win a patent infringement suit.'" Gaymar Indus., Inc. v. Cincinnati Sub-Zero Prods., Inc., 790 F.3d 1369, 1373 (Fed. Civ. 2015) (citations omitted). Even if a district court determines that a case is exceptional, it remains within the court's discretion to deny a fee award based on its familiarity with the matter and the interest of justice. Icon Health & Fitness, Inc. v. Octane Fitness, LLC, 576 Fed.Appx. 1002, 1005 (Fed Cir. 2014).

         The parties dispute the appropriate standard to assess Plaintiffs conduct before the PTO. Defendants claim that the case may be exceptional even if inequitable conduct is not proved by clear and convincing evidence. Def.'s Br. at 19, n.5, ECF No. 436. Plaintiffs argue that because inequitable conduct must be proven by clear and convincing evidence to invalidate a patent, the same standard applies when determining whether a party's conduct before the PTO renders a case "exceptional." Pl.'s Opp. at 6, ECF No. 445.

         To find inequitable conduct before the PTO, the Court must find by clear and convincing evidence that (1) the undisclosed reference was material and (2) the party acted with the specific intent to deceive the PTO. Therasense, Inc. v. Becton, Dickinson, and Co., 649 F.3d 1276, 1290. To satisfy the materiality standard, defendant must show that the PTO would not have allowed the claim had it been aware of the undisclosed reference. Id. at 1291. To satisfy the intentionality prong, the moving party must demonstrate that the applicant knew of the reference, knew it was material, and made a deliberate decision to withhold it from the PTO. Id. The intent to deceive may be inferred from conduct, but only if it is "the single most reasonable inference" that can be drawn from the evidence. Id.

         While the Federal Circuit has not addressed the standard to apply when considering conduct before the PTO for purposes of a fee award, the Supreme Court in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S.Ct. 1749, 1758 (2014) unequivocally held that the "preponderance of the evidence" standard applies in motions for attorneys' fees under section 285. The Court will apply the "preponderance of the evidence" standard to the Plaintiffs conduct before the PTO. See Diet Goal Innovations LLC v. Chipotle Mexican Grill, Inc., No. 2;12-cv-00764, 2015 WL 1284669, at *5 (E.D. Tex. Mar. 20, 2015) (Bryson, J., sitting by designation) ("[T]he Court will consider [evidence of inequitable conduct] as part of the 'totality of the circumstances' inquiry required by Octane, and the totality of the evidence .. . will be weighed using the preponderance of the evidence standard."); see also Novartis Corp. v. Webyention Holdings LLC, No. CCB-11-3620, 2015 WL 6669158, at *4, n. 5 (D. Md. Oct. 28, 2015) ("Regardless of whether [the prevailing party] could establish that [the patent owner] engaged in inequitable conduct before the PTO, this court finds that [the patent owner's] actions at least justify an inference of improper motivation or subjective bad faith, both of which can be include a district court's totality of the circumstances inquiry upon a showing of a preponderance of the evidence."). But see Robbins Co. v. Herrenhiect Tunneling Sys. USA, Inc., No. 5;13-cv-2113, 2015 WL 3454946, at *4 (N.D. Ohio May 29, 2015) (applying clear and convincing standard to inequitable conduct allegations in motion for attorneys' fees).

         The Court will use the inequitable conduct framework of materiality and intent as a guide in considering Plaintiffs conduct before the PTO, but the relevant inquiry in this motion is only whether the case "stands out from others with respect to the substantive strength of a party's litigating positions (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated." Octane Fitness, 134 S.Ct. at 1756; see Novartis Corp., 2015 WL 6669158, at *4, n. 5.

         DISCUSSION

         I. Defendant is the prevailing party.

         The parties do not dispute that Defendant is the prevailing party, as all of the patents in suit have been invalidated, and judgment accordingly entered. Order, ECF No. 424.

         II. The case is exceptional.

         Defendant argues that this case is exceptional because (1) Plaintiff engaged in inequitable conduct before the PTO, (2) Plaintiff engaged in litigation misconduct, and (3) Plaintiff breached its disclosure duties before the PTO during reexamination.

         a. Conduct Before the PTO during patent prosecution

         Defendant argues that this case is exceptional because Plaintiff engaged in inequitable conduct before the PTO. Def.s' Br. at 18. Defendant claims that Plaintiff withheld test data produced by their employee Dr. Wang, three publications by Dr. Wang ("Wang Papers"), and Dr. Wang's affiliation with Plaintiff at the time of his declaration. Defendant also argues that a declaration by Dr. Deh-Chuan Sun that Plaintiff submitted during the prosecution of an earlier patent in the patent family constituted inequitable conduct as "affirmatively egregious misconduct." Id. at 21.

         In response, Plaintiff contends that it did not engage in inequitable conduct. Pl.'s Opp. at 5. Plaintiff maintains that it had no duty to disclose the omitted data because it was inaccurate and inconclusive. Howmedica further argues that Defendant cannot prove that any of Howmcdica's agents acted with the specific intent to deceive the PTO. Id.

         i. Solubility and Swell Ratio Test Data During '934 Patent

         During the prosecution of the '934 patent, the PTO initially rejected Howmedica's claims on the basis of a prior reference, the Streicher reference. Two claims in the '934 patent contained a limitation for "a solubility of less than 74.7%." Rutsch Decl. Ex. 1, U.S. Patent No. 6, 174, 934 Bl (filed Jan. 23, 1998), ECF No. 429-1. Solubility relates inversely to crosslinking; polyethylene with high crosslinking will have correspondingly low solubility. These claims were rejected by the examiner as inherently disclosed by Streicher. Rutsch Decl. Ex. 18, 7/27/99 PTO Office Action Summary at 3, ECF No. 429-18.

         After the rejection, Howmedica employee Dr. Wang performed tests in an attempt to demonstrate that the '934 material met the "less than 74.7%" solubility limitation, and that the Streicher reference did not. Wang's testing compared the Streicher material, the patented '934 material, and a control sample that was nitrogen-irradiated but not otherwise treated. Rutsch Decl. Ex. 19, Ash Chopra, Interoffice Memorandum, ECF No. 429-19; Rutsch Decl. Ex. 20, Swell Ratio/ Gel Content Data, ECF No. 433-1. The test provided two relevant sets of data; a direct measure of the materials' solubility, and a measure of the materials* "swell ratio." Rutsch Decl. Ex. 20, Swell Ratio/ Gel Content Data. Like solubility, "swell ratio" is inversely related to crosslinking; highly crosslinked material will have a low swell ratio. The test provided two results for both gel content and swell ratio. The relevant results of the tests are:

Material
Gel Content
Swell Ratio

N2 Only

99.02 98.89
4.20 4.31

Duration I

XXXXX
3.76 3.81

R.S. Material*

99.70 99.79
4.20 3.11

         *Streicher material Id.

         The solubility test showed gel content for all materials, including Streicher, above__. Tins equates to approximately__, solubility, far less than the 74.7% claimed in the patent. The solubility data indicated that the patented material was not measurably better than Streicher, and that Streicher anticipated the claimed invention.

         The swell ratio data also indicated that the Streicher material was highly crosslinked. The swell ratio measurements of the patented invention were 3.76 and 3.81, averaging 3.785. Id. The Streicher material had measurements of 4.20 and 3.11, averaging 3.655. Id. This indicated that the Streicher material had a lower swell ratio, and therefore higher crosslinking, than the claimed invention. The results were therefore consistent with the examiner's finding that Streicher inherently disclosed the '934 patent.

         Howmedica and Dr. Wang did not disclose the unfavorable data relating to Streicher. Dr. Wang did not disclose any of the solubility test results (labeled "Gel Content" above), or the 3.11 Swell Ratio test result. Deni Cert. Ex. I, Decl. of Dr. Aiguo Wang ¶ 32, ECF No. 445-3. Instead, Dr. Wang provided the average of the two swell ratio test results for the patented material, 3.785, and then ran an additional swell ratio test on the Streicher material. This additional test produced a more favorable result of 3.96, which Wang averaged with the original 4.20 result and presented this new total-4.08- to the Examiner. Id. at¶ 18; Rutsch Decl. Ex. 23, Aff. of Aiguo Wang, ECF No. 430-2. Contrary to the initial test results, the results presented to the examiner indicated that the patented material was, instead of less, more crosslinked than the Streicher material.

         The Examiner responded that it did not find this attempt to overcome Streicher to be persuasive. Rutsch Decl. Ex. 25, 2/15/00 PTO Office Action Summary at 2, ECF No. 430-4. The Examiner stated that from the swell ratio testing it was not clear (1) "whether the difference in average swell ratio is a significant improvement (3.785 comparted to 4.08);" or (2) whether the "difference results from the [patented process] or from the difference in form of the material." Id. at 3. Dr. Wang then submitted a supplemental affidavit. He clarified that there was no difference in the form of the materials. Rutsch Decl. Ex. 26, Supp. Aff. of Aiguo Wang ¶ 1, ECF No. 430-5. He then stated that the Streicher swell ratio (4.08) was "not statistically different" from the average swell ratio of the nitrogen-irradiated control sample (4.255.) Id. ¶ 7. Dr. Wang did not address the comparison of 3.785 to 4.08 that concerned the Examiner. The Examiner granted the patent on the basis of Dr. Wang's representations. Rutsch Decl. Ex. 28, Notice of Allowability at 2, ECF No. 430-7.

         Defendant argues that Plaintiff committed inequitable conduct by failing to disclose the solubility test data and the 3.11 swell ratio test result.

         1. Solubility Data

         Defendant argues that nondisclosure of the solubility test data constitutes inequitable conduct. Defendant claims that the data is material because it "directly contradicted Applicant's and Dr. Wang's arguments to distinguish the Streicher. . . prior art references." Def.s' Br. at 19. Defendant argues that the indistinguishable, __ results for all materials reflect that all of the tested materials were so highly crosslinked that they could not dissolve. Def.'s Reply, ECF No. 449 at 5. Defendant argues that the intent to deceive is demonstrated because Plaintiff was in possession of this data that it knew was consistent with the examiner's concerns regarding Streicher, and also demonstrated by Dr. Wang's failure to respond to the examiner's concerns that the .295 improvement over Streicher was not "statistically significant." Def.'s Br. at 19-20.

         Plaintiff responds that the solubility data was inconclusive, and did not need to be disclosed. Plaintiff argues that the test, which measured the materials' solubility in xylene, was an inappropriate method for measuring differences in solubility. Pl.'s Opp. at 14. Plaintiff contends that inaccuracy of the test is demonstrated by the reported gel contents of-99% for the control sample, which is known to have a lower gel content. Id.

         The Court cannot, on the basis of the evidence before it, determine whether the results showing__gal demonstrated a high level of crosslinking of all tested materials, or merely reflected a poorly-designed test method. As the Defendants have not demonstrated that the patent would have been denied but-for the omission of the solubility data, the "materiality" prong is not satisfied. See Therasence, Inc., 649 F.3d at 1291.

         2. Swell Ratio Data

         Defendant argues that the omission of the 3.11 swell ratio data point also constitutes inequitable conduct. Def.s' Br. at 20. Defendant argues that the initial test confirmed that Streicher was superior to the patented material, but that Plaintiff discarded the test. Id.

         Plaintiff answers that the 3.11 data point was discarded not to manipulate the results, but merely because it was inaccurate. Pl.'s Opp. at 8. Plaintiff submits Dr. Wang's Declaration which says that the large variation between the two data points-4.20 to 3.11-shows that one result was inaccurate. Deni Cert. Ex. I, Wang Decl. ¶ 17. Dr. Wang believed that the 3.11 value was inaccurate because it was low as compared to the results of the other swell tests. Id. at ¶ 18. He stated that he discarded the 3.11 test result because the third swell test showing 3.96 confirmed his belief that 3.11 was inaccurate. Id. at ¶ 19.

         Again, with the record before it, the Court finds that the Defendant has not proved that the patents would not have issued but for the withheld data. Consequently, the Defendant has not demonstrated that the omission was material. See Therasence, Inc., 649 F.3d at 1291.

         However, the Court does take note of the withheld data for purposes of the totality-of-the-circumstances inquiry. Octane Fitness, 134 S.Ct. at 1756; Novartis Corp., 2015 WL 6669157, at *4-5 & n.5 (analyzing conduct before the PTO under totality of the circumstances inquiry and finding case exceptional "[r]egardless of whether [the prevailing party] could establish that [the patent owner] engaged in inequitable conduct"). When faced with the Examiner's observation that Streicher anticipated the patent, Plaintiff ran tests producing four Streicher data points; two solubility tests, and two swell ratio tests. Rutsch Decl. Ex. 20, Swell Ratio/ Gel Content Data. When these results were unfavorable, Plaintiff used the single favorable data point, conducted another swell ratio test, and presented the combined results to the examiner. Deni Cert. Ex. I, Wang Decl. ¶¶ 17, 32. Even if some of Dr. Wang's data were unusual, the decision to only present the single favorable Streicher data point appears disingenuous. It was also likely a violation of Plaintiff's broad disclosure requirements before the PTO. See 37 C.F.R. § 1.56(b)(2); Notice of Proposed Rulemaking, 56 Fed. Reg. 37321, 37324 (Aug. 6, 1991).[1] That Wang's declaration convinced the examiner to issue the patents indicates that the data were highly relevant to the ultimate patentability of the claims at issue, even if not but-for material. See Rutsch Decl. Ex. 28, Notice of Allowability at 2.

         There is also evidence of intent to deceive the PTO. Dr. Wang failed to answer the examiner's questions about the swell ratio data in his supplemental affidavit. See Rutsch Decl. Ex. 26, Wang Supp. Aff. The Court rejects Plaintiffs argument that Dr. Wang did not provide a comparison between Streicher and the patented material because he was not asked. The examiner had two concerns; the shape of the samples, and whether the difference between Streicher and the patented material was statistically significant. Rutsch Decl. Ex. 25, 2/15/00 PTO Office Action Summary at 3. In allowing the claims, the examiner again focused on these two issues; the shape of the samples, and the statistical difference between the swell ratio tests. Rutsch Decl. Ex. 28, Notice of Allowability at 2. Dr. Wang's supplemental affidavit directly responded to the first concern but did not answer the second, and instead provided a different statistical comparison. Rutsch Decl. Ex. 26. Wang Supp. Aff.

         Even if this did not constitute inequitable conduct, the Court finds that the selective disclosure of data and evasive responses provided to the Examiner are evidence of bad faith leading to a finding that this is an exceptional case. See Novartis Corp., 2015 WL 6669158, at 4 n.5 ("Regardless of whether [the prevailing party] could establish that [the patent owner] engaged in inequitable conduct before the PTO, this court finds that [the patent owner's] actions at least justify an inference of improper motivation or subjective bad faith, both of which can be included in the district court's totality of the circumstances inquiry upon a showing of a preponderance of the evidence. Octane Fitness, 134 S.Ct. at 1756 n.6, 1757.").

         ii. Dr. Wang's Employment

         Dr. Wang had a critical role in obtaining Plaintiffs patents, submitting numerous declarations to the PTO during the initial patent application process. At the time of the patent application, Dr. Wang was employed by Stryker Technologies Corporation ("Stryker"). Howmedica Osteonics Corporation was, and is, a subdivision of Stryker, and Stryker owned the patent applications at issue. However, Dr. Wang's declarations to the PTO only said that he ...


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