Royalties dispute over Indiana surgeon’s inventions returning to state court

Editor’s note: This story has been updated. 

An ongoing royalties dispute between Indiana spine surgeon Rick Sasso and medical-device giant Medtronic will continue in state court despite Medtronic’s efforts to remove the matter to a federal judge.

Indiana Northern District Court Judge Jon DeGuilio remanded the case of Rick C. Sasso, M.D. v. Warsaw Orthopedic, Inc., et al., 3:19-cv-298, to the Kosciusko Superior Court in a Wednesday order.

Sasso, founder of Carmel-based Indiana Spine Group, filed the instant lawsuit in March 2019 in state court, seeking to compel an audit to recover royalties he says Medtronic owes him under two agreements – one related to a screw delivery system, and one for a product known as the “Vertex” system. Both products were invented by Sasso to facilitate spine surgeries and were licensed to Medtronic in 1999 and 2001, respectively.

Sasso first sued Medtronic for breach of those agreements in 2013, ultimately receiving a $112 million verdict in his favor in November 2018. He then filed the current case and “requested an audit to determine if Medtronic was continuing to make sales of products subject to the agreements and if it was paying royalties on those sales as required,” DeGuilio wrote Wednesday.

Medtronic filed counterclaims for declaratory judgment, asserting Sasso is not entitled to the audits or further royalties. It also filed a notice of removal to federal court, claiming the case turned on “the exclusive patent jurisdiction of the federal courts.”

But determining the claims turn on contract interpretation and do not necessarily raise a question of patent law, DeGuilio granted Sasso’s request for a state-court remand.

“… (I)f, on the face of a well-pleaded complaint, ‘there are reasons completely unrelated to the provision and purposes of the patent laws why the plaintiff may or may not be entitled to the relief it seeks,’ the patent issue is not necessarily raised,” DeGuilio wrote, citing Christianson v. Colt Indus. Operating Corp., 486 U.S. 809 (1988). “The fact that Dr. Sasso asserted a non-patent theory as the basis for his claim is thus enough to defeat this element, even though he may or may not ultimately be entitled to relief on that theory.”

Specifically as to the 1999 agreement, the federal judge rejected Medtronic’s argument that, under Section 7 of the agreement, the duration of royalties payment depends on whether a patent “having valid claim coverage” of the device was issued. That provision invokes patent jurisdiction, the company argued, because it requires “resolving both the validity and construction of the patent claims and determining whether the products in question fall within the scope of those clams … .”

Instead, DeGuilio agreed with Sasso’s reliance on Section 4 of the agreement, where “the only relevant factors are the fact that a patent issues and the date it expires; unlike Section 7, it does not refer to whether a patent has ‘valid claim coverage.’”

“Here, Dr. Sasso is pursuing a theory that does not depend on the resolution of a federal issue – that the term of royalty payments is governed by Section 4 of the agreement, which looks only to the fact that a patent issued and the date it expires – so the patent issue is not necessarily raised,” the judge wrote.

Turning to the 2001 Vertex agreement, DeGuilio said there is no dispute that those royalties depend on coverage “by a valid claims of an issued U.S. patent,” and that the device is covered by a valid patent, the ‘621 patent.

“The dispute, rather, is whether the ‘621 patent is encompassed by the Agreement,” he wrote. “… Regardless of which side prevails on this issue, resolving this dispute does not require resolving any disputed patent issues; it depends entirely on the interpretation of a contract and its application to a particular set of facts.”

But DeGuilio declined to award attorney fees to Sasso, finding that while Medtronic did not prevail in its bid to remove the case to federal court, its claims were not objectively unreasonable.

“The Court declines to rule on the pending motion to stay or motion to dismiss as to Medtronic plc, as those matter(s) are more appropriately addressed by the state court on remand,” he wrote.

In a footnote, DeGuilio said Medtronic has filed a federal appeal from the Northern District’s decision not to entertain a previous declaratory judgment action, which argued that Sasso was not entitled to damages on the 1999 agreement because the medical devices were not covered by a valid patent claim. He noted in his discussion of the 1999 agreement that Medtronic has successfully petitioned for the invalidation of the relevant claims of its own patents.

“To the extent Dr. Sasso’s claims require the patent claims to be valid, the patent office has already decided they are not. … Medtronic is not going to file infringement suits on patent claims it asked to invalidate, so a decision in this case would not control any other cases, and allowing this suit to proceed in state court would not create any risk of inconsistent judgments.”

“For that reason, the Court declines to wait further on the Federal Circuit’s decision in the related declaratory judgment case, as Medtronic proposes in part in its motion to stay. If the Federal Circuit were to hold in that case that patent jurisdiction is not present, that would further support this outcome,” DeGuilio wrote in a second footnote. “But even a holding to the contrary would not necessarily control in this case. The patents were invalidated after the suit underlying that appeal was filed, and thus would not affect the existence of jurisdiction in that case, but would still be relevant in this case.”