Contract analysis

I. INTRODUCTION AND PURPOSE This Confidential Mediation Statement is submitted on behalf of Defendants Solstice Biomedical Devices Ltd. ("Solstice") and its United States operating subsidiary, Solstice Biomedical, Inc. ("Solstice US" and, together with Solstice, "Defendants" or "Solstice"), in advance of the mediation session scheduled for March 17, 2025, before the Honorable Margaret Forsythe (Ret.) at Amberstone AD

II. PROCEDURAL HISTORY AND STATUS OF THE LITIGATION A. Filing and Pleadings On May 9, 2024, Apex Surgical Innovations, Inc. filed a Complaint in the United States District Court for the District of Delaware, initiating this action under Case No. 1:24-cv-00587-RGA. The Complaint alleged patent infringement of three utility patents — U.S. Patent No. 9,814,237 (the "'237 Patent"), U.S. Patent No. 10,271,884 (the "'884 P

III. THE ASSERTED PATENTS A. Overview of the Patent Portfolio Apex asserts three United States utility patents in this litigation. All three patents name Dr. Raymond Szabo, Apex's Vice President of Engineering, as the sole inventor, and all three are assigned to Apex Surgical Innovations, Inc. The asserted patents are part of a larger family of fourteen issued U.S. patents and six pending continuation applications (c

IV. THE ACCUSED PRODUCTS The accused products are the three product lines within Solstice's PrecisionEdge™ family of laparoscopic trocars:

1. PrecisionEdge™ PE-5000 Series (5 mm trocar assembly) — accused of infringing the '237 Patent and the '884 Patent.

2. PrecisionEdge™ PE-12000 Series (12 mm trocar assembly) — accused of infringing all three asserted patents (the '237, '884, and '105 Patents).

3. PrecisionEdge™ PE-15000 Series (15 mm trocar assembly) — accused of infringing the '884 Patent and the '105 Patent. The PrecisionEdge™ line was developed by Solstice's engineering team in Dublin beginning in 2018, with the first commercial sales in the United States in early 2021. The products have been well-received by surgeons and have achieved meaningful market penetration in a competitive field that includes n

V. SOLSTICE'S NON-INFRINGEMENT DEFENSES A. Impact of the Claim Construction Order The December 6, 2024 Claim Construction Order is the single most important development in this litigation to date. Chief Judge Andrews construed nine disputed claim terms, and five of those nine constructions were consistent with Solstice's proposed constructions. These five favorable constructions are not merely procedural victories —

VI. SOLSTICE'S INVALIDITY DEFENSES A. Prior Art Identified Solstice has conducted an extensive prior art search, both independently and through its retained patent search firm, Kendrick & Lau LLP. Dr. Jonathan Kendrick, a registered patent agent and former senior examiner at the USPTO with over fifteen years of experience in the surgical devices art unit, led the prior art search effort. The search identified numerou

VII. ANALYSIS OF APEX'S DAMAGES CLAIMS A. Apex's Damages Theory Apex's damages expert, Hugh Danaher, CFA, of Keystone Valuation Advisors LLC (Philadelphia, Pennsylvania), asserts in his February 14, 2025 expert report that Apex is entitled to $31.8 million in reasonable royalty damages. Mr. Danaher applies a Georgia-Pacific analysis (based on the fifteen-factor framework established in Georgia-Pacific Corp. v. United

1. Overstated Royalty Base — Failure to Apportion. Mr. Danaher fails to properly apportion the value of the accused products between the patented features and the substantial non-patented features that contribute to the commercial success of the PrecisionEdge™ line. The PrecisionEdge™ products are sophisticated surgical devices that incorporate numerous innovative features beyond the seal, blade, and insufflation tec

2. Inapt Comparable Licenses. Mr. Danaher's comparable license analysis relies on licensing agreements from different technology fields and different market conditions. Specifically, his primary comparable licenses involve (a) an orthopedic implant licensing agreement between two companies that are not parties to this litigation, (b) a cardiovascular device cross-license with terms that bear no resemblance to the sin

3. Selective Application of Georgia-Pacific Factors. Mr. Danaher's application of the Georgia-Pacific factors is one-sided. He emphasizes factors that support a high royalty rate — such as the commercial success of the accused products (Factor 8), the utility and advantages of the patented technology (Factor 9), and the nature of the patent owner's rights (Factor 12) — while giving short shrift to factors that would

4. Improper Use of Gross Margin as a Royalty Proxy. Mr. Danaher repeatedly references the 61.3% weighted average gross margin on the accused products as support for his high royalty rate. However, the gross margin is not a reliable proxy for a reasonable royalty rate. Gross margin does not account for the substantial operating expenses — including sales and marketing, research and development, regulatory compliance,

VIII. LITIGATION RISK ASSESSMENT Solstice's litigation team has conducted a comprehensive risk assessment based on the current state of the evidence, the Claim Construction Order, the expert reports, and the overall trajectory of the case. This assessment is intended to inform the mediator's understanding of the case's settlement value and to demonstrate that Solstice's settlement position is grounded in a realistic

1. Favorable Claim Constructions. Five of nine disputed claim terms were construed in Solstice's favor, including the two most important terms — "locking seal assembly" and "retractable blade deployment mechanism." These constructions narrow Apex's infringement case and strengthen Solstice's defenses.

2. Strong Non-Infringement Position on the PE-5000 Series. The PE-5000 Series is a strong candidate for summary judgment of non-infringement, which would eliminate a significant portion of the accused sales from the case.

3. Solid Invalidity Defenses. Solstice's invalidity case is particularly strong against the '884 Patent, with credible anticipation and obviousness arguments supported by detailed prior art analysis and expert testimony. Even partial success on invalidity would materially reduce Apex's damages.

4. Prosecution History Estoppel. The narrowing amendments made during prosecution of all three patents limit Apex's ability to rely on the doctrine of equivalents to capture the accused products, particularly as to the PE-5000 and PE-15000 Series.

5. Flawed Damages Case. Apex's $31.8 million damages claim is methodologically flawed and unsupported by reliable evidence. Solstice's damages rebuttal, prepared by Dr. Marchetti, is persuasive and demonstrates that the reasonable royalty is a fraction of what Apex claims.

6. Inequitable Conduct Defense. While inequitable conduct is a high bar, the evidence discovered to date is sufficient to pose a meaningful risk to Apex and to provide leverage in settlement discussions. The risk of unenforceability is a factor that Apex must weigh in assessing its own litigation exposure. B. Solstice's Risks Despite its strengths, Solstice is realistic about the risks inherent in continued litigatio

1. PE-12000 Series Infringement Risk. The PE-12000 Series presents the closest infringement question. If the case proceeds to trial, there is a meaningful risk that a jury could find infringement as to the PE-12000, particularly given the four claim constructions that favor Apex and the structural similarities between the PE-12000 and the patented designs.

2. Claim Constructions Favoring Apex. While the majority of claim constructions favor Solstice, the four constructions that favor Apex provide a foundation for Apex's infringement arguments on certain product lines and certain claim elements.

3. Inherent Unpredictability of Patent Jury Trials. Patent litigation is inherently unpredictable, and jury verdicts in patent cases can be difficult to control. Jurors may struggle with the technical complexity of the issues, and there is always a risk that a jury will be persuaded by Apex's narrative of a competitor copying its patented innovations.

4. Potential for Meaningful Damages. Even a partial adverse verdict could result in meaningful damages given the 61.3% gross margin on the accused products and the growing trajectory of PrecisionEdge™ sales. If a jury accepts even a portion of Mr. Danaher's inflated damages theory, the res