Contract analysis

I. Purpose and Executive Summary This memorandum analyzes the United States antitrust implications of the proposed license-and-dismissal settlement between Solstice Biomedical Devices Ltd. (a United Kingdom corporation) and its wholly owned U.S. subsidiary, Solstice Biomedical, Inc. (collectively, "Solstice"), on the one hand, and Apex Surgical Innovations, Inc. ("Apex"), on the other, in connection with the resoluti

II.A. General Principles — Patent Rights and the Antitrust Interface A United States patent confers upon its holder a lawful monopoly — specifically, "the right to exclude others from making, using, offering for sale, or selling" the patented invention within the United States, and from importing the patented invention into the United States, for the term of the patent. 35 U.S.C. § 154(a)(1). This exclusionary right

3. The agencies apply the rule of reason to most licensing restraints. Except for restraints that are facially anticompetitive with no plausible efficiency justification, the agencies evaluate licensing restraints under the rule of reason, considering whether the restraint is likely to have anticompetitive effects and, if so, whether those effects are outweighed by procompetitive benefits. Patent settlement agreement

II.B. *Actavis* Framework — Applicability to Non-Pharmaceutical Patent Settlements In FTC v. Actavis, Inc., 570 U.S. 136 (2013), the Supreme Court addressed the antitrust implications of "reverse payment" settlements in the Hatch-Waxman pharmaceutical patent context. In a reverse payment settlement, the brand-name drug manufacturer (the patent holder) pays the generic drug manufacturer (the alleged infringer) a subst

II.C. DOJ/FTC Antitrust Guidelines for IP Licensing The IP Licensing Guidelines provide additional analytical structure for evaluating the specific licensing provisions of the proposed settlement. Of particular relevance is the "safety zone" articulated in the Guidelines: absent extraordinary circumstances, the agencies will not challenge a licensing restraint in an intellectual property licensing arrangement if the

II.D. Section 1 Analysis — Agreements in Restraint of Trade The proposed settlement agreement constitutes a horizontal agreement between competitors. While it is primarily a patent license — and patent licenses are generally procompetitive — the agreement does contain certain restraints that warrant analysis under Section 1 of the Sherman Act. These include the field-of-use limitation (which limits the scope of Solst

II.E. Section 2 Analysis — Monopolization / Attempted Monopolization A brief analysis under Section 2 of the Sherman Act is warranted. Section 2 requires proof of (1) possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power, as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident. Harborview Holdi

III. Analysis of Specific Settlement Provisions We turn now to a provision-by-provision analysis of the settlement terms that are most relevant from an antitrust perspective. For each provision, we identify the relevant legal principles, assess the level of antitrust risk, and note any drafting considerations.

III.A. Lump-Sum Payment ($8,750,000) and Running Royalty (3.75% of Net Sales) Payment Directionality. As discussed in Section II.B, the lump-sum payment and running royalty flow from the alleged infringer (Solstice) to the patent holder (Apex). This is the natural and expected direction of consideration in a patent license and does not raise the "reverse payment" concerns identified in Actavis. There is no payment fr

III.B. Non-Exclusive License Grant The proposed license is non-exclusive. Apex retains the unrestricted right to license the same Licensed Patents to other parties, to practice the Licensed Patents itself, and to enforce the Licensed Patents against unlicensed parties. The non-exclusive character of the license is central to the antitrust analysis because it means that the settlement does not confer exclusive rights

III.C. Field-of-Use Restriction — Laparoscopic Surgical Access Devices The proposed license is limited to the "field of use" of laparoscopic surgical access devices. Solstice may practice the Licensed Patents only in connection with the manufacture, use, sale, offer for sale, and importation of laparoscopic surgical access devices. The license does not authorize Solstice to practice the Licensed Patents in other fiel

III.D. Sublicense Right — Limited to Contract Manufacturers Under the proposed settlement, Solstice may sublicense the Licensed Patents only to contract manufacturers producing Licensed Products on Solstice's behalf. Solstice may not sublicense the Licensed Patents to other device companies, distributors, or any other third party for independent use. This restriction is reasonable and procompetitive. It permits Solst

III.E. Covenant Not to Sue — Apex Trocar Patent Family Apex will covenant not to assert any patent in its Trocar Patent Family — which consists of 14 issued U.S. patents and 6 pending U.S. patent applications — against Solstice or its subsidiaries for products within the licensed field of laparoscopic surgical access devices during the term of the license. This covenant is broader than the affirmative license grant,

III.F. Most-Favored Licensee (MFL) Clause The Term Sheet provides that if Apex licenses the Licensed Patents to any third party at a running royalty rate lower than 3.75% of Net Sales, Solstice's royalty rate will be adjusted prospectively to match the lower rate. This is commonly referred to as a most-favored licensee or most-favored nation clause in the licensing context. Legal Standard. MFL clauses in patent licen

III.G. Mutual Release and Dismissal with Prejudice The proposed settlement includes a full mutual release of all claims, counterclaims, and defenses asserted by either party in Case No. 1:24-cv-00587-RGA (D. Del.), together with a stipulation of dismissal with prejudice, with each party bearing its own costs and attorneys' fees. These are standard litigation settlement terms that are uniformly recognized as procompet

III.H. Confidentiality Provisions The settlement terms are subject to mutual confidentiality obligations. The parties have agreed that any public statement regarding the resolution of the Litigation will be limited to a joint statement indicating that "the matter has been resolved on mutually agreeable terms," without disclosure of the financial terms, licensing terms, or other details of the settlement. Confidential

IV. Market Analysis Considerations A thorough antitrust analysis requires consideration of the competitive dynamics of the relevant market. We summarize below the key market analysis considerations relevant to the proposed settlement. Relevant Product Market. As noted above, the relevant product market is the U.S. market for laparoscopic surgical access devices, including trocars, surgical ports, obturators, and rela

V. Regulatory Filing and Notification Requirements We have assessed whether the proposed settlement triggers any regulatory filing or notification requirements under federal or state antitrust laws. Hart-Scott-Rodino ("HSR") Act. The HSR Act, 15 U.S.C. § 18a, requires pre-merger notification filings with the FTC and DOJ for certain acquisitions of voting securities, assets, or non-corporate interests that exceed spec

VI. Risk Mitigation Recommendations Based on the foregoing analysis, we recommend the following measures to minimize antitrust exposure in connection with the Definitive Settlement Agreement and ancillary documents:

1. Field-of-Use Definition. The "Licensed Field" definition in the Patent License Agreement (Exhibit A to the Definitive Settlement Agreement) should be drafted narrowly to correspond to the claim scope of the Licensed Patents. The term "laparoscopic surgical access devices" should be specifically defined with reference to trocar assemblies, surgical access ports, obturators, seals, stabilizers, and directly related

2. MFL Notification Protocol. The Side Letter governing the MFL provision should require Apex to notify Solstice only that a third-party license has been granted at a running royalty rate lower than 3.75% of Net Sales and to identify the adjusted royalty rate applicable to Solstice going forward. The Side Letter should expressly prohibit Apex from disclosing the identity of the third-party licensee, the lump-sum or o

3. No "No-Challenge" Clause. The Definitive Settlement Agreement should be reviewed to confirm that it does not include any provision that would prevent Solstice from challenging the validity, enforceability, or scope of the Licensed Patents or any other patent in the Apex Trocar Patent Family in future administrative, judicial, or other proceedings. The current Term Sheet does not include such a provision, and this

4. No Output or Pricing Restrictions. The settlement documentation should be reviewed to confirm that it does not impose any restriction on the quantity of Licensed Products that Solstice may manufacture, sell, or offer for sale, or the prices at which Solstice may sell Licensed Products to any customer. The royalty floor ($500,000 per calendar year) and royalty cap ($1,800,000 per calendar year) are financial terms

5. Confidentiality Carve-Out for Regulators. The confidentiality provisions of the Definitive Settlement Agreement should include an express carve-out permitting either party to disclose the terms of the settlement to government regulators — including the FTC, DOJ, SEC, and IRS — upon lawful request, subpoena, civil investigative demand, or as otherwise required by applicable law, regulation, or judicial order. This

6. Document Retention. Solstice and Calderwood & Harkness should maintain complete files of all settlement negotiation correspondence, economic analyses (including the Georgia-Pacific factor analysis conducted by Dr. Arthur Gaines of Ridgeline IP Analytics LLC), expert reports (including Hugh Danaher's damages report and any rebuttal reports), licensing comparables, market data, and other materials reflecting the arm

VII. Conclusion Based on our analysis, we conclude that the proposed license-and-dismissal settlement between Solstice and Apex presents no material antitrust risk under current U.S. law. The settlement is a conventional patent license arrangement in which the alleged infringer compensates the patent holder for a license to practice the patented technology — the expected directionality of consideration in a patent di