Patents Continue to Play a Key Role in the Medical Device Marketplace

By Orion Armon

PricewaterhouseCoopers (PwC) recently released its annual “Patent Litigation Study,” which reports statistics about patent litigation in the United States through 2012. The study shows that since 1995 medical device manufacturers have obtained more favorable judgments and collected significantly higher median damage awards than other types of patent owners.

Key takeaways from the PwC study and my additional research include the following:

Medical Device Companies Win More Often than All Other Companies

PwC reports that from 1995–2012 medical device makers’ overall patent infringement win rate (including summary judgment and trial) was 42%, or 10% higher than the win rate for all industries (Figure 1). The more favorable medical device company win rate parallels my findings, which noted that medical device companies tend to obtain permanent injunctions after winning at trial about 10% more often than other types of patent owners (i.e., 80% win rate versus a 70% win rate).

Median Damage Awards are Much Higher for Medical Device Companies

PwC also reports that from 1995–2012 the median damage award for patent infringement judgments involving medical device patents was approximately $16 million, versus approximately $6 million for all industries combined (Figure 2). This data confirms that, on an industry-wide basis over the past 17 years patents covering medical device technologies have been more valuable than patents in other technology areas.

Median Damage Awards Between 2010 and the First Half of 2013 Declined Significantly

PwC’s median damage award data for the medical device industry obscures a contradictory short-term trend: My analysis of medical device patent infringement judgments between 2010 and the first half of 2013 indicates that the median medical device damage award was only $5.2 million (Figure 3). In other words, over the past three and a half years the median damage award in medical device cases was approximately the same as the historical median award for all patent cases and far lower than the $16 million median award that PwC reports for medical device cases since 1995.

The decrease in the median damage award is likely attributable to three factors: First, medical device manufacturers appear to be responding to the difficult economic and competitive environment by suing more often using less-valuable patents. Enforcing patents on incremental improvements in technology can force competitors to differentiate their products and increase barriers to entry for new market participants—but it rarely results in a large damage award. Second, federal courts have been scrutinizing patent damages calculations much more carefully, and that scrutiny is likely resulting in smaller judgments. Third, some of the variability between my data and PwC’s is likely caused by the difference in sample size between my three-and-a-half year analysis involving 27 judgments and PwC’s longer-term analysis covering 17 years.

Patents on Pioneer Inventions Remain Critical For Medical Device Companies

Over the past three and a half years the median damage award in medical device patent cases is nearly $11 million lower than the median award since 1995. It is too early to predict whether median damages in medical device patent litigation are trending downward for the long term. But even if the trend is toward lower median damage awards, there is no reason to conclude that patents are becoming irrelevant to the medical device industry. My analysis of judgments since 2010 shows that the average damage award in medical device cases was more than $112 million, and the average recovery for the middle third of judgments was more than $10 million (Figure 4). These statistics are a reminder that massive patent infringement judgments are still being collected by medical device manufacturers and, indeed, Boston Scientific’s historic 2010 agreement to pay $1.725 billion to Cordis to end patent litigation over stent technologies may be the largest consent judgment for patent infringement in history. Similarly, since 2010 there were eight judgments arising out of medical device patent litigation that ranged between $36 million and $593 million each. In other words, patents continue to shape the competitive landscape in the medical device industry and remain a potent tool for protecting the profitability of new and innovative medical technologies.

Conclusion

Increased litigation over lower-value patents and changes in patent law appear to be dragging down the size of median patent litigation judgments involving medical devices. But it is too early to tell whether medical device manufacturers’ historically high overall win rates and median damage awards have begun a long-term downward trend. At least for now, there is no reason to conclude that patents are less important to medical device manufacturers than in the past, and developing and executing on a comprehensive patent strategy should continue to be a core component of each medical device manufacturer’s business plan.

Orion Armon is a partner in the intellectual property litigation practice group and a member of the litigation department at Cooley LLP, an international law firm with 700 attorneys throughout the United States and in Shanghai. He joined the firm in 2003 and is resident in the Colorado office. The firm’s business and litigation practices reach across a broad array of industry sectors, including technology, life sciences, clean tech, real estate, financial services, retail, and energy.

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