1037-00004 · Solstice Biomedical Devices Ltd · Engagement & Client Administration

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CALDERWOOD & HARKNESS LLP INTERNAL MEMORANDUM

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT

June 3, 2024

TO: Marcus Delgado, Responsible Partner, intellectual Property Practice Group

FROM: Peter Vassiliev, Working Associate, intellectual Property Practice Group

RE: Summary of Halcyon Specialty Insurance Co. Coverage Acknowledgment and Reservation of Rights — Solstice Biomedical Devices Ltd. v. Apex Surgical Innovations, Inc., Case No. 1:24-cv-00587-RGA (D. Del.)

MATTER NO.: 10294.0017

CC: Catherine Bloom (Billing Partner); Christy Bauer (Lead Associate)

This memorandum is protected by the attorney-client privilege and constitutes attorney work product prepared in anticipation of litigation. It is intended solely for the use of the attorneys and staff of Calderwood & Harkness LLP working on the above-referenced matter. This memorandum should not be disclosed to any person outside the firm without the express authorization of the Responsible Partner. Any inadvertent disclosure does not constitute a waiver of any applicable privilege.

I. PURPOSE AND EXECUTIVE SUMMARY

The purpose of this memorandum is to summarize the coverage acknowledgment and reservation-of-rights letter received from Halcyon Specialty Insurance Co. ("Halcyon" or the "Insurer"), dated approximately late May 2024, in response to the insurance coverage notification letter that this firm transmitted on behalf of our client, Solstice Biomedical Devices Ltd. ("Solstice" or "SBD"), on May 13, 2024. The Halcyon correspondence was received by this office on or about May 30, 2024, and is attached hereto as Attachment B.

In its letter, Halcyon has acknowledged coverage for the defense of the patent infringement action brought by Apex Surgical Innovations, Inc. ("Apex") against Solstice under intellectual Property Litigation Insurance Policy No. HSI-IP-2023-04891 (the "Policy"). Specifically, Halcyon has agreed to reimburse defense fees and costs incurred by Calderwood & Harkness LLP and other defense-side professionals in connection with the litigation captioned Solstice Biomedical Devices Ltd. v. Apex Surgical Innovations, Inc., Case No. 1:24-cv-00587-RGA, pending before Chief Judge Richard G. Andrews in the United States District Court for the District of Delaware. This reimbursement obligation is subject to Solstice first satisfying the self-insured retention ("SIR") of $250,000 and is further subject to the per-occurrence limit of $5,000,000 and the aggregate limit of $10,000,000.

However, Halcyon has also reserved certain rights under the Policy. Most significantly, Halcyon has expressly reserved its position that the Policy does not cover settlement payments, including any lump-sum payment, running royalties, licensing fees, or other monetary consideration that may be paid to Apex as part of any settlement or resolution of the litigation. Halcyon has additionally reserved rights with respect to counterclaim prosecution costs, consent-to-settlement requirements, cooperation and notice obligations, expert and vendor cost review, related or prior claims investigations, and the potential for willful infringement allegations and enhanced damages.

Key Takeaway: The $8,750,000 lump-sum settlement payment and any running royalties that may result from a negotiated settlement of this matter are NOT covered by the Halcyon Policy. Only defense fees and costs are covered, and such coverage is subject to the SIR, policy limits, and the various reservations described in detail below. The litigation team and the client must operate with a clear understanding that Solstice bears full financial responsibility for any settlement consideration, regardless of its form or characterization.

II. BACKGROUND

A. The Underlying Litigation

On May 9, 2024, Apex Surgical Innovations, Inc. ("Apex"), a Delaware corporation (EIN: 51-0483762) with its principal office located at 1220 North Market Street, Suite 550, Wilmington, Delaware 19801, filed a civil complaint in the United States District Court for the District of Delaware. The case has been assigned to Chief Judge Richard G. Andrews and docketed as Case No. 1:24-cv-00587-RGA.

In its complaint, Apex alleges that Solstice's PrecisionEdge™ line of laparoscopic trocar assemblies — specifically, the PE-5000 Series, the PE-12000 Series, and the PE-15000 Series — infringes three Apex utility patents. The asserted patents and specific claims at issue are as follows:

1. U.S. Patent No. 9,814,237 (the "'237 Patent"), entitled "Locking Seal Assembly for Minimally Invasive Surgical Access Device," issued November 14, 2017, with an expiration date of June 22, 2035. Apex asserts infringement of Claims 1, 3, 7, and 12 of the '237 Patent.

2. U.S. Patent No. 10,271,884 (the "'884 Patent"), entitled "Retractable Blade Deployment Mechanism for Trocar Systems," issued April 30, 2019, with an expiration date of September 15, 2036. Apex asserts infringement of Claims 1, 2, 5, 9, and 14 of the '884 Patent.

3. U.S. Patent No. 10,932,105 (the "'105 Patent"), entitled "Integrated Insufflation Valve and Seal for Laparoscopic Trocar," issued March 2, 2021, with an expiration date of January 10, 2038. Apex asserts infringement of Claims 1, 4, and 8 of the '105 Patent.

The named inventor on all three asserted patents is Dr. Raymond Szabo, who currently serves as Vice President of Engineering at Apex. The complaint asserts both literal infringement and infringement under the doctrine of equivalents with respect to each of the asserted claims. As of the date of this memorandum, Apex's complaint does not include a claim for willful infringement, although such an amendment remains a possibility as the litigation progresses.

Solstice was served with the complaint and summons on May 23, 2024, through its registered agent, Pemberton Industries, located in Wilmington, Delaware. The deadline for Solstice to file a responsive pleading was calculated at twenty-one (21) days from service, or June 13, 2024, subject to any agreed extension.

Calderwood & Harkness LLP was engaged by Solstice on May 10, 2024, pursuant to an Engagement Letter addressed to Eamon Rourke, General Counsel of Solstice Biomedical Devices Ltd. The engagement covers the defense of Solstice in this patent infringement action, including the filing of any appropriate affirmative defenses and counterclaims.

On June 14, 2024, Calderwood & Harkness filed Solstice's Answer, Affirmative Defenses, and Counterclaims on behalf of Solstice. The responsive pleading asserts, among other things, affirmative defenses of non-infringement as to all asserted claims of the three patents-in-suit, invalidity of the asserted claims under 35 U.S.C. §§ 102, 103, and 112, and inequitable conduct during prosecution of the asserted patents. The counterclaims seek declaratory judgments of non-infringement and invalidity with respect to each of the three patents.

Apex is represented in this litigation by the law firm of Hargrove, Tate & Bennington LLP, with offices at 900 North King Street, Suite 1200, Wilmington, Delaware 19801. Lead counsel for Apex is Victoria Stanton, Partner, with Derek Loomis, Associate, serving as additional trial counsel.

B. Insurance Coverage Notification

On May 13, 2024, Marcus Delgado, as Responsible Partner on this matter, transmitted a coverage notification letter on behalf of Solstice to Sandra Keene, Claims Adjuster, Halcyon Specialty Insurance Co., 185 Asylum Street, Hartford, Connecticut 06103. The notification letter provided formal written notice of the claim under Policy No. HSI-IP-2023-04891, as required by the Policy's notice provisions.

The coverage notification letter identified the matter by caption and docket number, described the parties to the litigation, identified the three asserted Apex patents and the specific claims at issue, and summarized the nature of Apex's infringement allegations with respect to Solstice's PrecisionEdge™ product line. The letter further requested that Halcyon acknowledge coverage for the defense of Solstice in this action and provide written confirmation of the applicable policy terms, including the per-occurrence and aggregate limits, the SIR, and any applicable exclusions or conditions. A copy of Apex's complaint was enclosed with the notification letter. A copy of Calderwood & Harkness's coverage notification letter is attached hereto as Attachment A.

C. The Halcyon Policy

The relevant insurance policy is summarized as follows:

• Insured: Solstice Biomedical Devices Ltd.

• Policy Number: HSI-IP-2023-04891

• Insurer: Halcyon Specialty Insurance Co.

• Coverage Type: Patent Infringement Defense — Intellectual Property Litigation Insurance

• Per-Occurrence Limit: $5,000,000

• Aggregate Limit: $10,000,000

• Self-Insured Retention (SIR): $250,000

• Coverage Scope: Defense fees and costs incurred in connection with covered patent infringement claims brought against the Insured

A copy of the Policy Declarations Page and the relevant policy provisions is attached hereto as Attachment C. The Policy is a defense-cost policy, meaning that it is designed to cover the costs of defending against patent infringement claims, rather than to indemnify the insured against judgments or settlement payments. This distinction is central to several of the reservations discussed in Section IV below.

III. SUMMARY OF HALCYON'S COVERAGE ACKNOWLEDGMENT

A. Acknowledgment of Coverage

In its letter, Halcyon has acknowledged that the lawsuit filed by Apex Surgical Innovations, Inc. against Solstice constitutes a covered "Claim" as that term is defined in the Policy. Halcyon's acknowledgment confirms that the filing of the complaint in Case No. 1:24-cv-00587-RGA satisfies the Policy's triggering conditions for the commencement of coverage, including the requirement that the Claim arise from an allegation of patent infringement directed at the Insured's products or services.

Halcyon has further confirmed that defense fees and costs incurred by Calderwood & Harkness LLP, and by other defense-side professionals retained in connection with this litigation, are covered under the Policy, subject to the self-insured retention, the per-occurrence limit, and the aggregate limit. Coverage extends to the following categories of reasonable and necessary defense expenditures:

• Attorney fees for work performed in the defense of the Claim;

• Expert witness fees and related costs;

• E-discovery vendor costs, including costs for document collection, processing, review, and production;

• Court reporter fees for depositions and other proceedings;

• Travel expenses reasonably incurred in connection with the defense;

• Filing fees, service of process costs, and other court costs; and

• Other litigation-related disbursements that are reasonable and necessary for the defense of the Claim.

This acknowledgment is significant and favorable to Solstice, as it provides assurance that the substantial defense costs anticipated in this multi-patent infringement case will be reimbursed by Halcyon once the SIR is exhausted, thereby limiting Solstice's out-of-pocket exposure for defense costs to $250,000 (the SIR) plus any costs that may be allocated to non-covered activities, as discussed below.

B. Self-Insured Retention

The Policy provides for a self-insured retention of $250,000. This means that Solstice is responsible for paying the first $250,000 in defense fees and costs out of its own funds before Halcyon's indemnity obligation attaches. The SIR operates as a threshold, not a deductible — once cumulative defense expenditures exceed $250,000, Halcyon will begin reimbursing defense fees and costs going forward, rather than retroactively covering the first $250,000.

As of the date of this memorandum (June 3, 2024), defense fees and costs billed to date have not yet exceeded the SIR. However, given the pace of early-stage litigation activity — including the preparation and filing of the Answer, Affirmative Defenses, and Counterclaims, initial discovery preparations, preliminary prior art research, and client consultations — the SIR is expected to be exhausted in the near term, likely within the next thirty to sixty days. Once the SIR has been reached, Halcyon's reimbursement obligation will be triggered, and Calderwood & Harkness should begin submitting invoices directly to Halcyon for payment.

C. Policy Limits

The per-occurrence limit of $5,000,000 applies to this litigation as a single "occurrence" under the Policy. This is the maximum amount that Halcyon will pay in defense fees and costs for this particular Claim, regardless of the number of asserted patents, the number of accused products, or the duration of the litigation.

The aggregate limit of $10,000,000 applies across all claims made during the Policy period. As of the date of this memorandum, no other pending claims are known to be drawing upon the aggregate limit. This should be confirmed with Eamon Rourke and Brendan Molloy at Solstice, as Solstice may have other matters or potential claims that could implicate the aggregate. Absent any other pending claims, the full $10,000,000 aggregate remains available, of which this matter may consume up to the $5,000,000 per-occurrence limit.

Given the complexity of this three-patent infringement case, involving claim construction proceedings (Markman hearing), extensive fact and expert discovery, and potential trial, defense costs could be substantial. The litigation team should monitor the pace of expenditures against the per-occurrence limit and advise the client if it appears that the limit may be approached.

D. Approved Defense Counsel

Halcyon has acknowledged Calderwood & Harkness LLP as approved defense counsel for this matter. This is an important confirmation, as certain IP litigation insurance policies require the insured to select counsel from a pre-approved panel or to obtain insurer consent before retaining outside counsel.

Halcyon has accepted the firm's standard billing rates for this matter, which are as follows:

• Partners: $1,250 per hour

• Senior Associates: $875 per hour

• Associates: $725 per hour

These rates are within the range that Halcyon has indicated it considers reasonable for patent infringement defense matters in the District of Delaware. Halcyon has not imposed any rate reductions or limitations beyond its general reservation of the right to review invoices for reasonableness.

Halcyon requires that Calderwood & Harkness submit detailed invoices on a monthly basis for review and reimbursement. Invoices must include sufficient task-level detail to enable Halcyon to assess the nature and reasonableness of the charges. Block billing is discouraged, and entries should clearly describe the task performed, the time expended, the billing professional, and the applicable rate.

Importantly, Halcyon has reserved the right to audit fee invoices submitted by the firm and to object to charges that it deems unreasonable, duplicative, or outside the scope of the defense. This is a standard reservation that is common in the insurance defense context, and it underscores the importance of maintaining detailed, well-organized time records and ensuring that all entries are defensible as reasonable and necessary defense costs.

IV. SUMMARY OF HALCYON'S RESERVATION OF RIGHTS

Halcyon's coverage acknowledgment letter also sets forth a number of specific reservations of rights. These reservations do not constitute a denial of coverage; rather, they identify specific areas where Halcyon has preserved its right to limit, allocate, or potentially deny coverage based on the future development of the litigation or the application of specific policy provisions. Each reservation is summarized below.

A. Settlement Payments Exclusion

This is the most significant reservation in Halcyon's letter. Halcyon has expressly reserved its position that the Policy does not cover settlement payments of any kind, including but not limited to:

• Any lump-sum monetary payment to Apex as part of a settlement;

• Any running royalty payments, whether based on a percentage of sales or a per-unit rate;

• Any licensing fees or other monetary consideration paid to Apex in connection with a settlement agreement or license;

• Any other form of monetary transfer to Apex as consideration for the resolution of the litigation.

This reservation is consistent with the structure of the Policy as a defense-cost policy. As noted above, the Policy is designed to cover the costs of defending against patent infringement claims — that is, attorney fees, expert fees, and other litigation expenditures — rather than to indemnify the insured against damages, judgments, or settlement payments. Accordingly, this exclusion means that any settlement consideration negotiated by Solstice, regardless of how it may be characterized (as "damages," "a license fee," "a royalty," or otherwise), will be the sole financial responsibility of Solstice.

The practical significance of this reservation cannot be overstated. As the litigation team is aware, the parties have had preliminary informal discussions regarding potential settlement terms, and early indications suggest that Apex may seek a lump-sum settlement payment in the range of $8,750,000, potentially supplemented by a running royalty on future sales of the PrecisionEdge™ product line. Neither the lump-sum payment nor any running royalty obligation would be covered by the Halcyon Policy. The client must be advised of this exclusion clearly and promptly, so that Solstice's financial planning and settlement decision-making take into account the full, uninsured cost of any settlement.

B. Consent to Settlement

Halcyon has reserved its right to withhold consent to any settlement that would trigger the Insurer's obligation to pay or reimburse any amount under the Policy. While the settlement payment exclusion described above means that Halcyon is unlikely to be directly financially implicated by a settlement — since settlement payments are excluded from coverage — this consent reservation serves as an additional layer of control.

Halcyon has stated in its letter that it expects to be kept informed of settlement discussions and any proposed resolution of the litigation. This expectation is consistent with the cooperation and notice obligations discussed in Section IV.C below. Although Halcyon's practical leverage over settlement is limited (given the settlement payment exclusion), the firm should nonetheless ensure that Halcyon is kept apprised of settlement developments, both as a matter of policy compliance and as a matter of maintaining a constructive relationship with the Insurer throughout the life of this claim.

Calderwood & Harkness should continue to provide periodic litigation status updates to Sandra Keene, including reports on any settlement conferences, mediations, or other resolution-related activities.

C. Cooperation and Notice Obligations

Halcyon has reminded Solstice of its ongoing obligations under the Policy to cooperate fully with the Insurer in the investigation and defense of the Claim. The cooperation and notice obligations identified in Halcyon's letter include the following:

(a) Full Cooperation. Solstice must cooperate fully with Halcyon in the investigation, defense, and resolution of the Claim. This includes making personnel and documents available to Halcyon as reasonably requested and responding promptly to Halcyon's inquiries.

(b) Prompt Written Notice of Material Developments. Solstice (through its counsel) must provide prompt written notice to Halcyon of any material developments in the litigation. Material developments include, without limitation, the filing or receipt of dispositive motions, the scheduling of settlement conferences or mediation, the entry of scheduling orders or trial dates, the issuance of significant court rulings (including claim construction rulings), and any amendment of the pleadings.

(c) No Admission of Liability. Solstice must not admit liability or make any voluntary payment to Apex without Halcyon's prior written consent. Any unauthorized admission of liability or voluntary payment could jeopardize coverage under the Policy.

(d) Monthly Invoice Submission. Defense invoices must be submitted to Halcyon on a monthly basis with sufficient detail to enable Halcyon's review and assessment of the charges. Failure to submit invoices in a timely manner may delay reimbursement or create coverage disputes.

These obligations are standard in the insurance defense context, but they require diligent compliance by both Solstice and its defense counsel. Calderwood & Harkness should ensure that all material developments are communicated to Sandra Keene promptly and that the firm's billing procedures are aligned with Halcyon's monthly submission requirements.

D. Reservation Regarding Counterclaims

Halcyon has noted that costs incurred in prosecuting affirmative counterclaims — as distinguished from defending against Apex's infringement claims — may not be covered under the Policy. This reservation is consistent with the Policy's structure as a defense-cost policy; the Policy covers the costs of defending against covered claims, not the costs of bringing offensive actions against third parties.

In the responsive pleading filed on June 14, 2024, Calderwood & Harkness asserted counterclaims for declaratory judgments of non-infringement and invalidity with respect to each of the three asserted patents. While these counterclaims are closely related to the defensive positions asserted in the Answer and Affirmative Defenses — and could be characterized as defensive in nature, insofar as they seek judicial determinations that support Solstice's defense — Halcyon has reserved the right to allocate fees between:

(a) Covered defense activities — responding to Apex's infringement claims, preparing and presenting non-infringement and invalidity defenses, claim construction work, defensive discovery, and other work directly related to defending against the Claim; and

(b) Non-covered counterclaim prosecution activities — work specifically directed at prosecuting the affirmative declaratory judgment counterclaims, to the extent such work is not duplicative of or coextensive with the defensive work.

In practice, the line between defense work and counterclaim prosecution work is often blurred, as much of the legal analysis and factual investigation underlying the defensive positions (non-infringement, invalidity, inequitable conduct) also supports the affirmative counterclaims. Nevertheless, Halcyon has preserved its right to challenge the characterization of specific time entries and to allocate a portion of the defense costs to non-covered counterclaim prosecution.

To mitigate the risk of allocation disputes, Calderwood & Harkness should take care to clearly distinguish between defensive and offensive work in its time records. Defensive invalidity and non-infringement contentions — which form the core of the defense — should be coded and described as defense-side work. Time entries specifically directed at the prosecution of the declaratory judgment counterclaims (e.g., drafting counterclaim-specific briefing, pursuing counterclaim-specific discovery) should be coded separately.

E. Reservation Regarding Experts and Vendors

Halcyon has acknowledged coverage for reasonable expert and vendor costs but has reserved the right to review the selection and hourly rates of retained experts and vendors. This reservation gives Halcyon the ability to challenge specific expert retentions or rates if it considers them unreasonable or excessive.

The following experts and vendors have been retained or are expected to be retained for Solstice's defense:

1. Dr. Miriam Ostrowski (Professor of Mechanical Engineering, Halford University) — retained as an invalidity and claim construction expert. Dr. Ostrowski's hourly rate is $750 per hour. She has been engaged to provide expert analysis on the prior art landscape, claim construction of the disputed claim terms, and invalidity opinions with respect to the asserted claims of the '237, '884, and '105 Patents.

2. Dr. Elena Marchetti / Pinnacle Economics Group LLC — anticipated to be retained as a damages expert later in the case, likely in connection with Daubert challenges to Apex's damages theories and the preparation of Solstice's responsive damages analysis. Dr. Marchetti's anticipated hourly rate is $850 per hour. Formal retention has not yet occurred but is expected as the case progresses toward expert discovery.

3. DataVault Litigation Solutions, LLC (Philadelphia, Pennsylvania) — engaged as the e-discovery vendor for this matter, responsible for document collection, processing, review platform hosting, and production management. DataVault's fees are billed on a per-gigabyte basis for processing and a monthly hosting fee for the review platform.

Halcyon may require advance notification before Solstice or its counsel retains additional experts or vendors whose anticipated costs exceed a specified threshold. The precise threshold is not stated in Halcyon's letter but is likely defined in the Policy provisions. The litigation team should review the relevant Policy language (Attachment C) and ensure compliance with any pre-approval requirements before engaging additional experts or vendors.

F. Reservation Regarding Related or Prior Claims

Halcyon has reserved the right to investigate whether any prior claim, circumstance, or related matter known to Solstice prior to the inception date of the Policy should have been disclosed in the insurance application and whether any non-disclosure of such information affects coverage. This is a standard reservation that insurers commonly include in reservation-of-rights letters, and it preserves Halcyon's ability to investigate the completeness and accuracy of Solstice's representations during the underwriting process.

Importantly, Halcyon has not identified any specific basis for denying coverage on this ground at this time. The reservation appears to be a precautionary measure rather than an indication of an actual coverage concern. Nevertheless, the firm should remain alert to this issue and should confirm with Eamon Rourke and Brendan Molloy at Solstice that no prior claims, threats of litigation, or related circumstances involving the three asserted patents (or the PrecisionEdge™ product line) were known to Solstice prior to the Policy inception date that were not disclosed in the application.

G. Reservation Regarding Willful Infringement

Halcyon has noted that if Apex amends its complaint to include a claim for willful infringement, and if a finding of willful infringement or an award of enhanced damages under 35 U.S.C. § 284 is ultimately entered against Solstice, the Policy may exclude coverage for the enhanced portion of any damages award. This reservation is consistent with common public policy limitations on insurance coverage for intentional or willful misconduct.

As of the date of this memorandum (June 3, 2024), Apex's complaint does not include a claim for willful infringement. However, it is not uncommon for plaintiffs in patent infringement cases to amend their complaints to add willful infringement allegations as discovery progresses and additional evidence is developed. If Apex were to assert willful infringement, this could have implications not only for the potential damages exposure but also for the scope of insurance coverage available to Solstice.

The litigation team should monitor this issue and notify Halcyon promptly if Apex amends its complaint to include willful infringement allegations. In the event of such an amendment, additional analysis of the Policy's coverage for willful infringement defense costs (as opposed to enhanced damages) will be required.

V. PRACTICAL IMPLICATIONS AND RECOMMENDATIONS

A. Fee and Cost Tracking

Given Halcyon's reservation regarding counterclaim prosecution costs and its general reservation regarding invoice review and audit rights, it is essential that Calderwood & Harkness maintain detailed, contemporaneous time records that clearly distinguish between covered defense-side work and potentially non-covered counterclaim prosecution work. Specifically, the following categories of work should be tracked and coded separately:

Covered Defense-Side Work:

• Responding to Apex's infringement claims, including analysis of the asserted claims and accused products;

• Claim construction research, briefing, and preparation for the Markman hearing;

• Invalidity analysis, including prior art searches and invalidity contentions preparation;

• Non-infringement analysis, including claim charting and preparation of non-infringement contentions;

• discovery defense, including responding to Apex's written discovery requests and preparing for and defending depositions of Solstice witnesses;

• Expert work in support of the defense, including expert retention, direction, and preparation;

• Motions practice in defense of the Claim (e.g., motions for summary judgment on non-infringement or invalidity grounds);

• Trial preparation and trial work in defense of the Claim.

Potentially Non-Covered Counterclaim Prosecution Work:

• Work specifically directed at the prosecution of the declaratory judgment counterclaims, to the extent such work is not coextensive with the defensive invalidity and non-infringement work;

• Drafting of counterclaim-specific pleadings, motions, or briefs;

• discovery initiated by Solstice in prosecution of the counterclaims, to the extent distinguishable from defensive discovery.

Catherine Bloom, as Billing Partner, should implement billing code protocols to facilitate the categorization of time entries along these lines. The goal is to create a transparent and defensible record that minimizes the risk of allocation disputes with Halcyon and ensures that Halcyon reimburses the maximum amount of legitimate defense costs.

Invoices should be submitted to Sandra Keene at Halcyon Specialty Insurance Co., 185 Asylum Street, Hartford, Connecticut 06103, on a monthly basis, in compliance with Halcyon's submission requirements.

B. SIR Exhaustion Monitoring

The $250,000 self-insured retention will be tracked on an ongoing basis by the billing team. Once cumulative defense fees and costs exceed $250,000, Halcyon's reimbursement obligation will be triggered, and Calderwood & Harkness will begin submitting invoices to Halcyon for direct payment.

Brendan Molloy, Chief Financial Officer of Solstice, and Eamon Rourke, General Counsel, should be informed that Solstice will bear the first $250,000 of defense costs out of its own funds. This amount represents Solstice's non-reimbursable out-of-pocket obligation under the Policy. The SIR applies to defense fees and costs only; it is separate from and in addition to any settlement payment or other uncovered liability.

The team should provide a written notification to both Solstice and Halcyon when the $250,000 SIR threshold has been reached, triggering the transition to insurer-reimbursed defense costs.

C. Settlement Communication Protocol

Given the clear and unambiguous exclusion of settlement payments from coverage under the Policy, the client must understand from the outset that any settlement monetary terms — whether structured as a lump-sum payment, a running royalty, a paid-up license, or any other form of consideration — will be Solstice's sole financial responsibility. This point should be communicated to Eamon Rourke and Brendan Molloy in clear and unequivocal terms, ideally in a written communication that can be documented in the file.

Notwithstanding the settlement payment exclusion, Halcyon should be kept informed of settlement discussions as a matter of policy compliance. Halcyon's cooperation and notice obligations require that Solstice (through its counsel) provide notice of settlement conferences, mediations, and other resolution-related activities. Even though Halcyon does not bear financial responsibility for settlement payments, maintaining open communication with the Insurer is important for preserving the coverage relationship and ensuring continued reimbursement of defense costs.

Any formal settlement proposal or acceptance should be communicated to Halcyon prior to execution, consistent with the cooperation, notice, and consent-to-settlement obligations described in Sections IV.B and IV.C above.

D. Separate Engagement Costs

The firm of Kendrick & Lau LLP (Dr. Jonathan Kendrick, Principal), located at 601 Pennsylvania Avenue NW, Suite 820, Washington, DC 20004, has been engaged separately by Solstice for prior art searches and freedom-to-operate ("FTO") analysis related to the PrecisionEdge™ product line. As of the date of this memorandum, Kendrick & Lau has billed approximately $184,500 for this work. The prior art search and FTO analysis were commissioned in connection with the defense of this litigation and directly support the invalidity and non-infringement defenses asserted in Solstice's Answer and Affirmative Defenses.

It is an open question whether the Kendrick & Lau fees qualify as covered defense costs under the Halcyon Policy. On the one hand, the work directly supports the defense and is of the type typically incurred in patent infringement defense matters. On the other hand, the engagement was initiated separately from the Calderwood & Harkness engagement, and Halcyon may take the position that it must approve all defense-side professionals or that the Kendrick & Lau work falls outside the scope of covered "defense fees and costs."

Recommendation: Calderwood & Harkness should submit the Kendrick & Lau invoices to Halcyon for coverage consideration, accompanied by a letter explaining the scope and purpose of the engagement and its direct relationship to the invalidity and non-infringement defenses. If Halcyon agrees to treat the Kendrick & Lau fees as covered defense costs, this would reduce Solstice's uncovered out-of-pocket exposure. If Halcyon declines coverage, the fees will remain Solstice's responsibility.

E. Ongoing Reporting

Calderwood & Harkness will provide quarterly litigation status reports to Sandra Keene at Halcyon, supplemented by immediate notice of material developments as required by the Policy. Material developments warranting prompt notice include, without limitation:

• Entry of a scheduling order or case management order;

• Claim construction rulings (Markman order);

• Filing of motions for summary judgment or other dispositive motions;

• Scheduling of settlement conferences, mediation, or other ADR proceedings;

• Scheduling of trial dates;

• Amendment of pleadings (including any amendment by Apex to add willful infringement claims);

• Entry of significant court orders or rulings affecting the scope or direction of the litigation.

Peter Vassiliev will serve as the primary point of contact for day-to-day insurance reporting and invoice coordination. All communications with Halcyon should be coordinated through Peter Vassiliev to ensure consistency and to maintain a complete record of all correspondence with the Insurer.

VI. SUMMARY OF COVERAGE PARAMETERS

The following table provides a quick-reference summary of the key policy terms and coverage parameters applicable to this matter:

VII. ACTION ITEMS

The following action items should be completed in connection with the coverage acknowledgment and reservation of rights:

1. Circulate Memo. Circulate this memorandum to Marcus Delgado (Responsible Partner), Catherine Bloom (Billing Partner), and Christy Bauer (Lead Associate) for review and discussion.

2. Brief Client. Schedule a call or meeting with Eamon Rourke (General Counsel, Solstice) and Brendan Molloy (CFO, Solstice) to brief them on the coverage acknowledgment and the specific exclusions, with particular emphasis on: (a) the settlement payment exclusion and its implications for any potential resolution of the litigation; and (b) the $250,000 SIR obligation that Solstice must fund out of pocket before Halcyon's reimbursement obligation attaches.

3. Implement Billing Protocols. Work with Catherine Bloom to implement billing code protocols that clearly distinguish covered defense work from counterclaim prosecution work, in order to facilitate monthly invoice submissions to Halcyon and minimize allocation disputes.

4. Kendrick & Lau Coverage Inquiry. Submit Kendrick & Lau LLP invoices (totaling approximately $184,500) to Halcyon with a cover letter requesting confirmation that these fees qualify as covered defense costs under the Policy, given their direct support of the invalidity and non-infringement defenses.

5. Monthly Invoice Schedule. Establish a monthly invoice submission schedule to Halcyon (Sandra Keene, 185 Asylum Street, Hartford, CT 06103), with invoices to be submitted within fifteen (15) days of the close of each billing period.

6. Quarterly Reporting Calendar. Calendar quarterly reporting dates for the submission of litigation status updates to Halcyon, with the first quarterly report due on or about September 1, 2024.

7. SIR Monitoring. Track cumulative defense fees and costs against the $250,000 SIR and notify the client (Brendan Molloy and Eamon Rourke) and Halcyon (Sandra Keene) when the SIR threshold is reached.

8. File Management. File the original of Halcyon's Coverage Acknowledgment and Reservation of Rights Letter in the matter file (Matter No. 10294.0017) as a privileged document, along with this memorandum and the coverage notification letter.

VIII. ATTACHMENTS

The following documents are referenced in this memorandum and are attached hereto:

Attachment A: Copy of Calderwood & Harkness LLP's Insurance Coverage Notification Letter to Halcyon Specialty Insurance Co. (Sandra Keene, Claims Adjuster), dated May 13, 2024.

Attachment B: Copy of Halcyon Specialty Insurance Co.'s Coverage Acknowledgment and Reservation of Rights Letter, received approximately late May 2024.

Attachment C: Copy of Halcyon Specialty Insurance Co. Policy No. HSI-IP-2023-04891, Declarations Page and relevant policy provisions (excerpts).

This memorandum and its attachments are privileged and confidential. They are prepared as attorney work product in anticipation of litigation and are subject to the attorney-client privilege. Distribution is limited to the individuals identified in the header of this memorandum. Any questions regarding the contents of this memorandum should be directed to Peter Vassiliev at (212) 555-4892 or pvassiliev@calderwoodharkness.com.

Prepared by:

PETER VASSILIEV Working Associate, intellectual Property Practice Group Calderwood & Harkness LLP

Date: June 3, 2024

Parameter	Detail
Policy No.	HSI-IP-2023-04891
Insurer	Halcyon Specialty Insurance Co.
Insured	Solstice Biomedical Devices Ltd.
Per-Occurrence Limit	$5,000,000
Aggregate Limit	$10,000,000
Self-Insured Retention (SIR)	$250,000
Defense Fees and Costs	COVERED (subject to SIR and limits)
Settlement Payments / Licensing Fees / Royalties	NOT COVERED
Enhanced / Willful Infringement Damages	Reserved (potential exclusion if willful infringement found)
Counterclaim Prosecution Costs	Subject to allocation / Reserved
Approved Defense Counsel	Calderwood & Harkness LLP
Approved Partner Rate	$1,250/hr
Approved Senior Associate Rate	$875/hr
Approved Associate Rate	$725/hr
Claims Adjuster	Sandra Keene, Halcyon Specialty Insurance Co.
Invoice Submission	Monthly, detailed, to Sandra Keene
Reporting	Quarterly status reports; immediate notice of material developments

CALDERWOOD & HARKNESS LLP INTERNAL MEMORANDUM
PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
June 3, 2024
TO: Marcus Delgado, Responsible Partner, intellectual Property Practice Group
FROM: Peter Vassiliev, Working Associate, intellectual Property Practice Group
RE: Summary of Halcyon Specialty Insurance Co. Coverage Acknowledgment and Reservation of Rights — Solstice Biomedical Devices Ltd. v. Apex Surgical Innovations, Inc., Case No. 1:24-cv-00587-RGA (D. Del.)
MATTER NO.: 10294.0017
CC: Catherine Bloom (Billing Partner); Christy Bauer (Lead Associate)
This memorandum is protected by the attorney-client privilege and constitutes attorney work product prepared in anticipation of litigation. It is intended solely for the use of the attorneys and staff of Calderwood & Harkness LLP working on the above-referenced matter. This memorandum should not be disclosed to any person outside the firm without the express authorization of the Responsible Partner. Any inadvertent disclosure does not constitute a waiver of any applicable privilege.
I. PURPOSE AND EXECUTIVE SUMMARY
The purpose of this memorandum is to summarize the coverage acknowledgment and reservation-of-rights letter received from Halcyon Specialty Insurance Co. ("Halcyon" or the "Insurer"), dated approximately late May 2024, in response to the insurance coverage notification letter that this firm transmitted on behalf of our client, Solstice Biomedical Devices Ltd. ("Solstice" or "SBD"), on May 13, 2024. The Halcyon correspondence was received by this office on or about May 30, 2024, and is attached hereto as Attachment B.
In its letter, Halcyon has acknowledged coverage for the defense of the patent infringement action brought by Apex Surgical Innovations, Inc. ("Apex") against Solstice under intellectual Property Litigation Insurance Policy No. HSI-IP-2023-04891 (the "Policy"). Specifically, Halcyon has agreed to reimburse defense fees and costs incurred by Calderwood & Harkness LLP and other defense-side professionals in connection with the litigation captioned Solstice Biomedical Devices Ltd. v. Apex Surgical Innovations, Inc., Case No. 1:24-cv-00587-RGA, pending before Chief Judge Richard G. Andrews in the United States District Court for the District of Delaware. This reimbursement obligation is subject to Solstice first satisfying the self-insured retention ("SIR") of $250,000 and is further subject to the per-occurrence limit of $5,000,000 and the aggregate limit of $10,000,000.
However, Halcyon has also reserved certain rights under the Policy. Most significantly, Halcyon has expressly reserved its position that the Policy does not cover settlement payments, including any lump-sum payment, running royalties, licensing fees, or other monetary consideration that may be paid to Apex as part of any settlement or resolution of the litigation. Halcyon has additionally reserved rights with respect to counterclaim prosecution costs, consent-to-settlement requirements, cooperation and notice obligations, expert and vendor cost review, related or prior claims investigations, and the potential for willful infringement allegations and enhanced damages.
Key Takeaway: The $8,750,000 lump-sum settlement payment and any running royalties that may result from a negotiated settlement of this matter are NOT covered by the Halcyon Policy. Only defense fees and costs are covered, and such coverage is subject to the SIR, policy limits, and the various reservations described in detail below. The litigation team and the client must operate with a clear understanding that Solstice bears full financial responsibility for any settlement consideration, regardless of its form or characterization.
II. BACKGROUND
A. The Underlying Litigation
On May 9, 2024, Apex Surgical Innovations, Inc. ("Apex"), a Delaware corporation (EIN: 51-0483762) with its principal office located at 1220 North Market Street, Suite 550, Wilmington, Delaware 19801, filed a civil complaint in the United States District Court for the District of Delaware. The case has been assigned to Chief Judge Richard G. Andrews and docketed as Case No. 1:24-cv-00587-RGA.
In its complaint, Apex alleges that Solstice's PrecisionEdge™ line of laparoscopic trocar assemblies — specifically, the PE-5000 Series, the PE-12000 Series, and the PE-15000 Series — infringes three Apex utility patents. The asserted patents and specific claims at issue are as follows:
1.  U.S. Patent No. 9,814,237 (the "'237 Patent"), entitled "Locking Seal Assembly for Minimally Invasive Surgical Access Device," issued November 14, 2017, with an expiration date of June 22, 2035. Apex asserts infringement of Claims 1, 3, 7, and 12 of the '237 Patent.
2.  U.S. Patent No. 10,271,884 (the "'884 Patent"), entitled "Retractable Blade Deployment Mechanism for Trocar Systems," issued April 30, 2019, with an expiration date of September 15, 2036. Apex asserts infringement of Claims 1, 2, 5, 9, and 14 of the '884 Patent.
3.  U.S. Patent No. 10,932,105 (the "'105 Patent"), entitled "Integrated Insufflation Valve and Seal for Laparoscopic Trocar," issued March 2, 2021, with an expiration date of January 10, 2038. Apex asserts infringement of Claims 1, 4, and 8 of the '105 Patent.
The named inventor on all three asserted patents is Dr. Raymond Szabo, who currently serves as Vice President of Engineering at Apex. The complaint asserts both literal infringement and infringement under the doctrine of equivalents with respect to each of the asserted claims. As of the date of this memorandum, Apex's complaint does not include a claim for willful infringement, although such an amendment remains a possibility as the litigation progresses.
Solstice was served with the complaint and summons on May 23, 2024, through its registered agent, Pemberton Industries, located in Wilmington, Delaware. The deadline for Solstice to file a responsive pleading was calculated at twenty-one (21) days from service, or June 13, 2024, subject to any agreed extension.
Calderwood & Harkness LLP was engaged by Solstice on May 10, 2024, pursuant to an Engagement Letter addressed to Eamon Rourke, General Counsel of Solstice Biomedical Devices Ltd. The engagement covers the defense of Solstice in this patent infringement action, including the filing of any appropriate affirmative defenses and counterclaims.
On June 14, 2024, Calderwood & Harkness filed Solstice's Answer, Affirmative Defenses, and Counterclaims on behalf of Solstice. The responsive pleading asserts, among other things, affirmative defenses of non-infringement as to all asserted claims of the three patents-in-suit, invalidity of the asserted claims under 35 U.S.C. §§ 102, 103, and 112, and inequitable conduct during prosecution of the asserted patents. The counterclaims seek declaratory judgments of non-infringement and invalidity with respect to each of the three patents.
Apex is represented in this litigation by the law firm of Hargrove, Tate & Bennington LLP, with offices at 900 North King Street, Suite 1200, Wilmington, Delaware 19801. Lead counsel for Apex is Victoria Stanton, Partner, with Derek Loomis, Associate, serving as additional trial counsel.
B. Insurance Coverage Notification
On May 13, 2024, Marcus Delgado, as Responsible Partner on this matter, transmitted a coverage notification letter on behalf of Solstice to Sandra Keene, Claims Adjuster, Halcyon Specialty Insurance Co., 185 Asylum Street, Hartford, Connecticut 06103. The notification letter provided formal written notice of the claim under Policy No. HSI-IP-2023-04891, as required by the Policy's notice provisions.
The coverage notification letter identified the matter by caption and docket number, described the parties to the litigation, identified the three asserted Apex patents and the specific claims at issue, and summarized the nature of Apex's infringement allegations with respect to Solstice's PrecisionEdge™ product line. The letter further requested that Halcyon acknowledge coverage for the defense of Solstice in this action and provide written confirmation of the applicable policy terms, including the per-occurrence and aggregate limits, the SIR, and any applicable exclusions or conditions. A copy of Apex's complaint was enclosed with the notification letter. A copy of Calderwood & Harkness's coverage notification letter is attached hereto as Attachment A.
C. The Halcyon Policy
The relevant insurance policy is summarized as follows:
•  Insured: Solstice Biomedical Devices Ltd.
•  Policy Number: HSI-IP-2023-04891
•  Insurer: Halcyon Specialty Insurance Co.
•  Coverage Type: Patent Infringement Defense — Intellectual Property Litigation Insurance
•  Per-Occurrence Limit: $5,000,000
•  Aggregate Limit: $10,000,000
•  Self-Insured Retention (SIR): $250,000
•  Coverage Scope: Defense fees and costs incurred in connection with covered patent infringement claims brought against the Insured
A copy of the Policy Declarations Page and the relevant policy provisions is attached hereto as Attachment C. The Policy is a defense-cost policy, meaning that it is designed to cover the costs of defending against patent infringement claims, rather than to indemnify the insured against judgments or settlement payments. This distinction is central to several of the reservations discussed in Section IV below.
III. SUMMARY OF HALCYON'S COVERAGE ACKNOWLEDGMENT
A. Acknowledgment of Coverage
In its letter, Halcyon has acknowledged that the lawsuit filed by Apex Surgical Innovations, Inc. against Solstice constitutes a covered "Claim" as that term is defined in the Policy. Halcyon's acknowledgment confirms that the filing of the complaint in Case No. 1:24-cv-00587-RGA satisfies the Policy's triggering conditions for the commencement of coverage, including the requirement that the Claim arise from an allegation of patent infringement directed at the Insured's products or services.
Halcyon has further confirmed that defense fees and costs incurred by Calderwood & Harkness LLP, and by other defense-side professionals retained in connection with this litigation, are covered under the Policy, subject to the self-insured retention, the per-occurrence limit, and the aggregate limit. Coverage extends to the following categories of reasonable and necessary defense expenditures:
•  Attorney fees for work performed in the defense of the Claim;
•  Expert witness fees and related costs;
•  E-discovery vendor costs, including costs for document collection, processing, review, and production;
•  Court reporter fees for depositions and other proceedings;
•  Travel expenses reasonably incurred in connection with the defense;
•  Filing fees, service of process costs, and other court costs; and
•  Other litigation-related disbursements that are reasonable and necessary for the defense of the Claim.
This acknowledgment is significant and favorable to Solstice, as it provides assurance that the substantial defense costs anticipated in this multi-patent infringement case will be reimbursed by Halcyon once the SIR is exhausted, thereby limiting Solstice's out-of-pocket exposure for defense costs to $250,000 (the SIR) plus any costs that may be allocated to non-covered activities, as discussed below.
B. Self-Insured Retention
The Policy provides for a self-insured retention of $250,000. This means that Solstice is responsible for paying the first $250,000 in defense fees and costs out of its own funds before Halcyon's indemnity obligation attaches. The SIR operates as a threshold, not a deductible — once cumulative defense expenditures exceed $250,000, Halcyon will begin reimbursing defense fees and costs going forward, rather than retroactively covering the first $250,000.
As of the date of this memorandum (June 3, 2024), defense fees and costs billed to date have not yet exceeded the SIR. However, given the pace of early-stage litigation activity — including the preparation and filing of the Answer, Affirmative Defenses, and Counterclaims, initial discovery preparations, preliminary prior art research, and client consultations — the SIR is expected to be exhausted in the near term, likely within the next thirty to sixty days. Once the SIR has been reached, Halcyon's reimbursement obligation will be triggered, and Calderwood & Harkness should begin submitting invoices directly to Halcyon for payment.
C. Policy Limits
The per-occurrence limit of $5,000,000 applies to this litigation as a single "occurrence" under the Policy. This is the maximum amount that Halcyon will pay in defense fees and costs for this particular Claim, regardless of the number of asserted patents, the number of accused products, or the duration of the litigation.
The aggregate limit of $10,000,000 applies across all claims made during the Policy period. As of the date of this memorandum, no other pending claims are known to be drawing upon the aggregate limit. This should be confirmed with Eamon Rourke and Brendan Molloy at Solstice, as Solstice may have other matters or potential claims that could implicate the aggregate. Absent any other pending claims, the full $10,000,000 aggregate remains available, of which this matter may consume up to the $5,000,000 per-occurrence limit.
Given the complexity of this three-patent infringement case, involving claim construction proceedings (Markman hearing), extensive fact and expert discovery, and potential trial, defense costs could be substantial. The litigation team should monitor the pace of expenditures against the per-occurrence limit and advise the client if it appears that the limit may be approached.
D. Approved Defense Counsel
Halcyon has acknowledged Calderwood & Harkness LLP as approved defense counsel for this matter. This is an important confirmation, as certain IP litigation insurance policies require the insured to select counsel from a pre-approved panel or to obtain insurer consent before retaining outside counsel.
Halcyon has accepted the firm's standard billing rates for this matter, which are as follows:
•  Partners: $1,250 per hour
•  Senior Associates: $875 per hour
•  Associates: $725 per hour
These rates are within the range that Halcyon has indicated it considers reasonable for patent infringement defense matters in the District of Delaware. Halcyon has not imposed any rate reductions or limitations beyond its general reservation of the right to review invoices for reasonableness.
Halcyon requires that Calderwood & Harkness submit detailed invoices on a monthly basis for review and reimbursement. Invoices must include sufficient task-level detail to enable Halcyon to assess the nature and reasonableness of the charges. Block billing is discouraged, and entries should clearly describe the task performed, the time expended, the billing professional, and the applicable rate.
Importantly, Halcyon has reserved the right to audit fee invoices submitted by the firm and to object to charges that it deems unreasonable, duplicative, or outside the scope of the defense. This is a standard reservation that is common in the insurance defense context, and it underscores the importance of maintaining detailed, well-organized time records and ensuring that all entries are defensible as reasonable and necessary defense costs.
IV. SUMMARY OF HALCYON'S RESERVATION OF RIGHTS
Halcyon's coverage acknowledgment letter also sets forth a number of specific reservations of rights. These reservations do not constitute a denial of coverage; rather, they identify specific areas where Halcyon has preserved its right to limit, allocate, or potentially deny coverage based on the future development of the litigation or the application of specific policy provisions. Each reservation is summarized below.
A. Settlement Payments Exclusion
This is the most significant reservation in Halcyon's letter. Halcyon has expressly reserved its position that the Policy does not cover settlement payments of any kind, including but not limited to:
•  Any lump-sum monetary payment to Apex as part of a settlement;
•  Any running royalty payments, whether based on a percentage of sales or a per-unit rate;
•  Any licensing fees or other monetary consideration paid to Apex in connection with a settlement agreement or license;
•  Any other form of monetary transfer to Apex as consideration for the resolution of the litigation.
This reservation is consistent with the structure of the Policy as a defense-cost policy. As noted above, the Policy is designed to cover the costs of defending against patent infringement claims — that is, attorney fees, expert fees, and other litigation expenditures — rather than to indemnify the insured against damages, judgments, or settlement payments. Accordingly, this exclusion means that any settlement consideration negotiated by Solstice, regardless of how it may be characterized (as "damages," "a license fee," "a royalty," or otherwise), will be the sole financial responsibility of Solstice.
The practical significance of this reservation cannot be overstated. As the litigation team is aware, the parties have had preliminary informal discussions regarding potential settlement terms, and early indications suggest that Apex may seek a lump-sum settlement payment in the range of $8,750,000, potentially supplemented by a running royalty on future sales of the PrecisionEdge™ product line. Neither the lump-sum payment nor any running royalty obligation would be covered by the Halcyon Policy. The client must be advised of this exclusion clearly and promptly, so that Solstice's financial planning and settlement decision-making take into account the full, uninsured cost of any settlement.
B. Consent to Settlement
Halcyon has reserved its right to withhold consent to any settlement that would trigger the Insurer's obligation to pay or reimburse any amount under the Policy. While the settlement payment exclusion described above means that Halcyon is unlikely to be directly financially implicated by a settlement — since settlement payments are excluded from coverage — this consent reservation serves as an additional layer of control.
Halcyon has stated in its letter that it expects to be kept informed of settlement discussions and any proposed resolution of the litigation. This expectation is consistent with the cooperation and notice obligations discussed in Section IV.C below. Although Halcyon's practical leverage over settlement is limited (given the settlement payment exclusion), the firm should nonetheless ensure that Halcyon is kept apprised of settlement developments, both as a matter of policy compliance and as a matter of maintaining a constructive relationship with the Insurer throughout the life of this claim.
Calderwood & Harkness should continue to provide periodic litigation status updates to Sandra Keene, including reports on any settlement conferences, mediations, or other resolution-related activities.
C. Cooperation and Notice Obligations
Halcyon has reminded Solstice of its ongoing obligations under the Policy to cooperate fully with the Insurer in the investigation and defense of the Claim. The cooperation and notice obligations identified in Halcyon's letter include the following:
(a) Full Cooperation. Solstice must cooperate fully with Halcyon in the investigation, defense, and resolution of the Claim. This includes making personnel and documents available to Halcyon as reasonably requested and responding promptly to Halcyon's inquiries.
(b) Prompt Written Notice of Material Developments. Solstice (through its counsel) must provide prompt written notice to Halcyon of any material developments in the litigation. Material developments include, without limitation, the filing or receipt of dispositive motions, the scheduling of settlement conferences or mediation, the entry of scheduling orders or trial dates, the issuance of significant court rulings (including claim construction rulings), and any amendment of the pleadings.
(c) No Admission of Liability. Solstice must not admit liability or make any voluntary payment to Apex without Halcyon's prior written consent. Any unauthorized admission of liability or voluntary payment could jeopardize coverage under the Policy.
(d) Monthly Invoice Submission. Defense invoices must be submitted to Halcyon on a monthly basis with sufficient detail to enable Halcyon's review and assessment of the charges. Failure to submit invoices in a timely manner may delay reimbursement or create coverage disputes.
These obligations are standard in the insurance defense context, but they require diligent compliance by both Solstice and its defense counsel. Calderwood & Harkness should ensure that all material developments are communicated to Sandra Keene promptly and that the firm's billing procedures are aligned with Halcyon's monthly submission requirements.
D. Reservation Regarding Counterclaims
Halcyon has noted that costs incurred in prosecuting affirmative counterclaims — as distinguished from defending against Apex's infringement claims — may not be covered under the Policy. This reservation is consistent with the Policy's structure as a defense-cost policy; the Policy covers the costs of defending against covered claims, not the costs of bringing offensive actions against third parties.
In the responsive pleading filed on June 14, 2024, Calderwood & Harkness asserted counterclaims for declaratory judgments of non-infringement and invalidity with respect to each of the three asserted patents. While these counterclaims are closely related to the defensive positions asserted in the Answer and Affirmative Defenses — and could be characterized as defensive in nature, insofar as they seek judicial determinations that support Solstice's defense — Halcyon has reserved the right to allocate fees between:
(a) Covered defense activities — responding to Apex's infringement claims, preparing and presenting non-infringement and invalidity defenses, claim construction work, defensive discovery, and other work directly related to defending against the Claim; and
(b) Non-covered counterclaim prosecution activities — work specifically directed at prosecuting the affirmative declaratory judgment counterclaims, to the extent such work is not duplicative of or coextensive with the defensive work.
In practice, the line between defense work and counterclaim prosecution work is often blurred, as much of the legal analysis and factual investigation underlying the defensive positions (non-infringement, invalidity, inequitable conduct) also supports the affirmative counterclaims. Nevertheless, Halcyon has preserved its right to challenge the characterization of specific time entries and to allocate a portion of the defense costs to non-covered counterclaim prosecution.
To mitigate the risk of allocation disputes, Calderwood & Harkness should take care to clearly distinguish between defensive and offensive work in its time records. Defensive invalidity and non-infringement contentions — which form the core of the defense — should be coded and described as defense-side work. Time entries specifically directed at the prosecution of the declaratory judgment counterclaims (e.g., drafting counterclaim-specific briefing, pursuing counterclaim-specific discovery) should be coded separately.
E. Reservation Regarding Experts and Vendors
Halcyon has acknowledged coverage for reasonable expert and vendor costs but has reserved the right to review the selection and hourly rates of retained experts and vendors. This reservation gives Halcyon the ability to challenge specific expert retentions or rates if it considers them unreasonable or excessive.
The following experts and vendors have been retained or are expected to be retained for Solstice's defense:
1.  Dr. Miriam Ostrowski (Professor of Mechanical Engineering, Halford University) — retained as an invalidity and claim construction expert. Dr. Ostrowski's hourly rate is $750 per hour. She has been engaged to provide expert analysis on the prior art landscape, claim construction of the disputed claim terms, and invalidity opinions with respect to the asserted claims of the '237, '884, and '105 Patents.
2.  Dr. Elena Marchetti / Pinnacle Economics Group LLC — anticipated to be retained as a damages expert later in the case, likely in connection with Daubert challenges to Apex's damages theories and the preparation of Solstice's responsive damages analysis. Dr. Marchetti's anticipated hourly rate is $850 per hour. Formal retention has not yet occurred but is expected as the case progresses toward expert discovery.
3.  DataVault Litigation Solutions, LLC (Philadelphia, Pennsylvania) — engaged as the e-discovery vendor for this matter, responsible for document collection, processing, review platform hosting, and production management. DataVault's fees are billed on a per-gigabyte basis for processing and a monthly hosting fee for the review platform.
Halcyon may require advance notification before Solstice or its counsel retains additional experts or vendors whose anticipated costs exceed a specified threshold. The precise threshold is not stated in Halcyon's letter but is likely defined in the Policy provisions. The litigation team should review the relevant Policy language (Attachment C) and ensure compliance with any pre-approval requirements before engaging additional experts or vendors.
F. Reservation Regarding Related or Prior Claims
Halcyon has reserved the right to investigate whether any prior claim, circumstance, or related matter known to Solstice prior to the inception date of the Policy should have been disclosed in the insurance application and whether any non-disclosure of such information affects coverage. This is a standard reservation that insurers commonly include in reservation-of-rights letters, and it preserves Halcyon's ability to investigate the completeness and accuracy of Solstice's representations during the underwriting process.
Importantly, Halcyon has not identified any specific basis for denying coverage on this ground at this time. The reservation appears to be a precautionary measure rather than an indication of an actual coverage concern. Nevertheless, the firm should remain alert to this issue and should confirm with Eamon Rourke and Brendan Molloy at Solstice that no prior claims, threats of litigation, or related circumstances involving the three asserted patents (or the PrecisionEdge™ product line) were known to Solstice prior to the Policy inception date that were not disclosed in the application.
G. Reservation Regarding Willful Infringement
Halcyon has noted that if Apex amends its complaint to include a claim for willful infringement, and if a finding of willful infringement or an award of enhanced damages under 35 U.S.C. § 284 is ultimately entered against Solstice, the Policy may exclude coverage for the enhanced portion of any damages award. This reservation is consistent with common public policy limitations on insurance coverage for intentional or willful misconduct.
As of the date of this memorandum (June 3, 2024), Apex's complaint does not include a claim for willful infringement. However, it is not uncommon for plaintiffs in patent infringement cases to amend their complaints to add willful infringement allegations as discovery progresses and additional evidence is developed. If Apex were to assert willful infringement, this could have implications not only for the potential damages exposure but also for the scope of insurance coverage available to Solstice.
The litigation team should monitor this issue and notify Halcyon promptly if Apex amends its complaint to include willful infringement allegations. In the event of such an amendment, additional analysis of the Policy's coverage for willful infringement defense costs (as opposed to enhanced damages) will be required.
V. PRACTICAL IMPLICATIONS AND RECOMMENDATIONS
A. Fee and Cost Tracking
Given Halcyon's reservation regarding counterclaim prosecution costs and its general reservation regarding invoice review and audit rights, it is essential that Calderwood & Harkness maintain detailed, contemporaneous time records that clearly distinguish between covered defense-side work and potentially non-covered counterclaim prosecution work. Specifically, the following categories of work should be tracked and coded separately:
Covered Defense-Side Work:
•  Responding to Apex's infringement claims, including analysis of the asserted claims and accused products;
•  Claim construction research, briefing, and preparation for the Markman hearing;
•  Invalidity analysis, including prior art searches and invalidity contentions preparation;
•  Non-infringement analysis, including claim charting and preparation of non-infringement contentions;
•  discovery defense, including responding to Apex's written discovery requests and preparing for and defending depositions of Solstice witnesses;
•  Expert work in support of the defense, including expert retention, direction, and preparation;
•  Motions practice in defense of the Claim (e.g., motions for summary judgment on non-infringement or invalidity grounds);
•  Trial preparation and trial work in defense of the Claim.
Potentially Non-Covered Counterclaim Prosecution Work:
•  Work specifically directed at the prosecution of the declaratory judgment counterclaims, to the extent such work is not coextensive with the defensive invalidity and non-infringement work;
•  Drafting of counterclaim-specific pleadings, motions, or briefs;
•  discovery initiated by Solstice in prosecution of the counterclaims, to the extent distinguishable from defensive discovery.
Catherine Bloom, as Billing Partner, should implement billing code protocols to facilitate the categorization of time entries along these lines. The goal is to create a transparent and defensible record that minimizes the risk of allocation disputes with Halcyon and ensures that Halcyon reimburses the maximum amount of legitimate defense costs.
Invoices should be submitted to Sandra Keene at Halcyon Specialty Insurance Co., 185 Asylum Street, Hartford, Connecticut 06103, on a monthly basis, in compliance with Halcyon's submission requirements.
B. SIR Exhaustion Monitoring
The $250,000 self-insured retention will be tracked on an ongoing basis by the billing team. Once cumulative defense fees and costs exceed $250,000, Halcyon's reimbursement obligation will be triggered, and Calderwood & Harkness will begin submitting invoices to Halcyon for direct payment.
Brendan Molloy, Chief Financial Officer of Solstice, and Eamon Rourke, General Counsel, should be informed that Solstice will bear the first $250,000 of defense costs out of its own funds. This amount represents Solstice's non-reimbursable out-of-pocket obligation under the Policy. The SIR applies to defense fees and costs only; it is separate from and in addition to any settlement payment or other uncovered liability.
The team should provide a written notification to both Solstice and Halcyon when the $250,000 SIR threshold has been reached, triggering the transition to insurer-reimbursed defense costs.
C. Settlement Communication Protocol
Given the clear and unambiguous exclusion of settlement payments from coverage under the Policy, the client must understand from the outset that any settlement monetary terms — whether structured as a lump-sum payment, a running royalty, a paid-up license, or any other form of consideration — will be Solstice's sole financial responsibility. This point should be communicated to Eamon Rourke and Brendan Molloy in clear and unequivocal terms, ideally in a written communication that can be documented in the file.
Notwithstanding the settlement payment exclusion, Halcyon should be kept informed of settlement discussions as a matter of policy compliance. Halcyon's cooperation and notice obligations require that Solstice (through its counsel) provide notice of settlement conferences, mediations, and other resolution-related activities. Even though Halcyon does not bear financial responsibility for settlement payments, maintaining open communication with the Insurer is important for preserving the coverage relationship and ensuring continued reimbursement of defense costs.
Any formal settlement proposal or acceptance should be communicated to Halcyon prior to execution, consistent with the cooperation, notice, and consent-to-settlement obligations described in Sections IV.B and IV.C above.
D. Separate Engagement Costs
The firm of Kendrick & Lau LLP (Dr. Jonathan Kendrick, Principal), located at 601 Pennsylvania Avenue NW, Suite 820, Washington, DC 20004, has been engaged separately by Solstice for prior art searches and freedom-to-operate ("FTO") analysis related to the PrecisionEdge™ product line. As of the date of this memorandum, Kendrick & Lau has billed approximately $184,500 for this work. The prior art search and FTO analysis were commissioned in connection with the defense of this litigation and directly support the invalidity and non-infringement defenses asserted in Solstice's Answer and Affirmative Defenses.
It is an open question whether the Kendrick & Lau fees qualify as covered defense costs under the Halcyon Policy. On the one hand, the work directly supports the defense and is of the type typically incurred in patent infringement defense matters. On the other hand, the engagement was initiated separately from the Calderwood & Harkness engagement, and Halcyon may take the position that it must approve all defense-side professionals or that the Kendrick & Lau work falls outside the scope of covered "defense fees and costs."
Recommendation: Calderwood & Harkness should submit the Kendrick & Lau invoices to Halcyon for coverage consideration, accompanied by a letter explaining the scope and purpose of the engagement and its direct relationship to the invalidity and non-infringement defenses. If Halcyon agrees to treat the Kendrick & Lau fees as covered defense costs, this would reduce Solstice's uncovered out-of-pocket exposure. If Halcyon declines coverage, the fees will remain Solstice's responsibility.
E. Ongoing Reporting
Calderwood & Harkness will provide quarterly litigation status reports to Sandra Keene at Halcyon, supplemented by immediate notice of material developments as required by the Policy. Material developments warranting prompt notice include, without limitation:
•  Entry of a scheduling order or case management order;
•  Claim construction rulings (Markman order);
•  Filing of motions for summary judgment or other dispositive motions;
•  Scheduling of settlement conferences, mediation, or other ADR proceedings;
•  Scheduling of trial dates;
•  Amendment of pleadings (including any amendment by Apex to add willful infringement claims);
•  Entry of significant court orders or rulings affecting the scope or direction of the litigation.
Peter Vassiliev will serve as the primary point of contact for day-to-day insurance reporting and invoice coordination. All communications with Halcyon should be coordinated through Peter Vassiliev to ensure consistency and to maintain a complete record of all correspondence with the Insurer.
VI. SUMMARY OF COVERAGE PARAMETERS
The following table provides a quick-reference summary of the key policy terms and coverage parameters applicable to this matter:
VII. ACTION ITEMS
The following action items should be completed in connection with the coverage acknowledgment and reservation of rights:
1.  Circulate Memo. Circulate this memorandum to Marcus Delgado (Responsible Partner), Catherine Bloom (Billing Partner), and Christy Bauer (Lead Associate) for review and discussion.
2.  Brief Client. Schedule a call or meeting with Eamon Rourke (General Counsel, Solstice) and Brendan Molloy (CFO, Solstice) to brief them on the coverage acknowledgment and the specific exclusions, with particular emphasis on: (a) the settlement payment exclusion and its implications for any potential resolution of the litigation; and (b) the $250,000 SIR obligation that Solstice must fund out of pocket before Halcyon's reimbursement obligation attaches.
3.  Implement Billing Protocols. Work with Catherine Bloom to implement billing code protocols that clearly distinguish covered defense work from counterclaim prosecution work, in order to facilitate monthly invoice submissions to Halcyon and minimize allocation disputes.
4.  Kendrick & Lau Coverage Inquiry. Submit Kendrick & Lau LLP invoices (totaling approximately $184,500) to Halcyon with a cover letter requesting confirmation that these fees qualify as covered defense costs under the Policy, given their direct support of the invalidity and non-infringement defenses.
5.  Monthly Invoice Schedule. Establish a monthly invoice submission schedule to Halcyon (Sandra Keene, 185 Asylum Street, Hartford, CT 06103), with invoices to be submitted within fifteen (15) days of the close of each billing period.
6.  Quarterly Reporting Calendar. Calendar quarterly reporting dates for the submission of litigation status updates to Halcyon, with the first quarterly report due on or about September 1, 2024.
7.  SIR Monitoring. Track cumulative defense fees and costs against the $250,000 SIR and notify the client (Brendan Molloy and Eamon Rourke) and Halcyon (Sandra Keene) when the SIR threshold is reached.
8.  File Management. File the original of Halcyon's Coverage Acknowledgment and Reservation of Rights Letter in the matter file (Matter No. 10294.0017) as a privileged document, along with this memorandum and the coverage notification letter.
VIII. ATTACHMENTS
The following documents are referenced in this memorandum and are attached hereto:
Attachment A: Copy of Calderwood & Harkness LLP's Insurance Coverage Notification Letter to Halcyon Specialty Insurance Co. (Sandra Keene, Claims Adjuster), dated May 13, 2024.
Attachment B: Copy of Halcyon Specialty Insurance Co.'s Coverage Acknowledgment and Reservation of Rights Letter, received approximately late May 2024.
Attachment C: Copy of Halcyon Specialty Insurance Co. Policy No. HSI-IP-2023-04891, Declarations Page and relevant policy provisions (excerpts).
This memorandum and its attachments are privileged and confidential. They are prepared as attorney work product in anticipation of litigation and are subject to the attorney-client privilege. Distribution is limited to the individuals identified in the header of this memorandum. Any questions regarding the contents of this memorandum should be directed to Peter Vassiliev at (212) 555-4892 or pvassiliev@calderwoodharkness.com.
Prepared by:
PETER VASSILIEV Working Associate, intellectual Property Practice Group Calderwood & Harkness LLP
Date: June 3, 2024
Parameter | Detail
Policy No. | HSI-IP-2023-04891
Insurer | Halcyon Specialty Insurance Co.
Insured | Solstice Biomedical Devices Ltd.
Per-Occurrence Limit | $5,000,000
Aggregate Limit | $10,000,000
Self-Insured Retention (SIR) | $250,000
Defense Fees and Costs | COVERED (subject to SIR and limits)
Settlement Payments / Licensing Fees / Royalties | NOT COVERED
Enhanced / Willful Infringement Damages | Reserved (potential exclusion if willful infringement found)
Counterclaim Prosecution Costs | Subject to allocation / Reserved
Approved Defense Counsel | Calderwood & Harkness LLP
Approved Partner Rate | $1,250/hr
Approved Senior Associate Rate | $875/hr
Approved Associate Rate | $725/hr
Claims Adjuster | Sandra Keene, Halcyon Specialty Insurance Co.
Invoice Submission | Monthly, detailed, to Sandra Keene
Reporting | Quarterly status reports; immediate notice of material developments