1037-00004 · Solstice Biomedical Devices Ltd · Regulatory & Compliance

antitrust-considerations-memo.docx DOCUMENT Litigation

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PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

MEMORANDUM

TO: Marcus Delgado, Responsible Partner, intellectual Property, Calderwood & Harkness LLP

FROM: Christy Bauer, Lead Associate, intellectual Property; Peter Vassiliev, Working Associate, intellectual Property

DATE: June 8, 2025

RE: Antitrust Considerations Applicable to License-and-Dismissal Settlement — Apex Surgical Innovations, Inc. v. Solstice Biomedical, Inc., Case No. 1:24-cv-00587-RGA (D. Del.)

MATTER NO.: 10294.0017

CLIENT: Solstice Biomedical Devices Ltd. / Solstice Biomedical, Inc.

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 resolution of Apex Surgical Innovations, Inc. v. Solstice Biomedical, Inc., Case No. 1:24-cv-00587-RGA (D. Del.) (the "Litigation"). This analysis is based on the near-final negotiated terms of the Term Sheet dated as of June 10, 2025, which the parties anticipate executing on that date. This memorandum has been prepared in advance of execution to permit timely review by the responsible partner and client before the Term Sheet becomes binding.

The principal commercial terms of the proposed settlement that are relevant to this antitrust analysis are as follows:

(a) Lump-Sum Payment. Solstice will pay Apex an aggregate lump-sum settlement payment of $8,750,000, payable in two tranches: $5,250,000 due on or before June 30, 2025, and $3,500,000 due on or before September 15, 2025.

(b) Running Royalty. Solstice will pay Apex a running royalty of 3.75% of Net Sales (as defined in the Patent License Agreement) of Licensed Products — specifically, the PrecisionEdge™ PE-5000, PE-12000, and PE-15000 laparoscopic trocar systems and their successors — for the remaining life of the Licensed Patents.

(c) Non-Exclusive License. Apex will grant Solstice a non-exclusive, non-transferable, worldwide license under U.S. Patent Nos. 9,814,237; 10,271,884; and 10,932,105, together with all continuations, divisionals, and reissues thereof (collectively, the "Licensed Patents").

(d) Field-of-Use Restriction. The license is limited to the field of use of laparoscopic surgical access devices.

(e) Sublicense Right. Solstice's right to sublicense the Licensed Patents is limited to contract manufacturers producing Licensed Products on Solstice's behalf.

(f) Covenant Not to Sue. Apex will covenant not to assert any patent in the Apex Trocar Patent Family (consisting of 14 issued U.S. patents and 6 pending U.S. patent applications) against Solstice or its subsidiaries for products within the licensed field during the term of the license.

(g) Most-Favored Licensee ("MFL") Clause. If Apex licenses the Licensed Patents to any third party at a running royalty rate lower than 3.75%, Solstice's royalty rate will be adjusted prospectively to match the lower rate.

(h) Royalty Floor and Cap. Beginning with calendar year 2026, Solstice's annual royalty obligation is subject to a floor of $500,000 per calendar year and a cap of $1,800,000 per calendar year.

Based on our analysis of these terms in light of the governing statutory framework — principally Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1–2; Section 5 of the FTC Act, 15 U.S.C. § 45; and the U.S. Department of Justice ("DOJ") and Federal Trade Commission ("FTC") Antitrust Guidelines for the Licensing of intellectual Property (1995, updated 2017) (the "IP Licensing Guidelines") — as well as controlling and persuasive case law, we conclude that the proposed settlement terms fall within the scope of permissible patent licensing conduct and do not present material antitrust risk under current U.S. law. However, certain provisions — specifically the MFL clause, the field-of-use restriction, and the royalty floor/cap structure — warrant careful drafting in the Definitive Settlement Agreement and ancillary documents to minimize exposure. We set forth specific drafting recommendations in Section VI below.

It is important to note at the outset that Apex and Solstice are horizontal competitors in the surgical access device market. Apex's estimated fiscal year 2023 revenue was approximately $312 million, encompassing surgical access devices, trocar systems, and insufflation equipment, among other product lines. Solstice's fiscal year 2023 revenue was €187.4 million at the group level, across all product lines. Both companies manufacture, market, and sell laparoscopic trocar systems in the United States, and both compete for the same hospital system and ambulatory surgical center customer base. This horizontal competitive relationship heightens the level of antitrust scrutiny applicable to any settlement terms that may constrain competition, even where those terms are otherwise consistent with legitimate patent licensing practices.

II. Legal Framework

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 is the foundation of the patent system's incentive structure, which promotes innovation by granting time-limited exclusive rights in exchange for public disclosure of inventions.

The right to exclude necessarily encompasses the right to license. A patent holder may choose to license some, all, or none of its patent rights to third parties, on terms selected by the patent holder, subject to applicable legal constraints. This includes the right to impose conditions on the scope of the license, such as field-of-use restrictions, territorial limitations, quantity limitations, and royalty structures. See, e.g., General Talking Pictures Corp. v. Western Electric Co., 305 U.S. 124, 127 (1938) (upholding field-of-use restrictions in patent licenses); United States v. General Electric Co., 272 U.S. 476, 489–90 (1926) (recognizing the patentee's right to impose conditions on licensing).

However, patent rights are not without limits, and they do not immunize conduct that extends the patent monopoly beyond the scope of the patent grant or that constitutes a naked restraint of trade unrelated to the patentee's legitimate interests. The intersection of patent law and antitrust law is governed primarily by the following federal statutes:

• Section 1 of the Sherman Act (15 U.S.C. § 1) prohibits "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States." While this language is literally sweeping, the Supreme Court has long interpreted Section 1 to prohibit only unreasonable restraints of trade. Standard Oil Co. of New Jersey v. United States, 221 U.S. 1, 60 (1911). Licensing agreements between competitors that contain restrictive provisions are evaluated under either the "per se" standard (for naked restraints such as price-fixing, output restrictions, or horizontal market allocation with no plausible efficiency justification) or the "rule of reason" (for restraints that may have both procompetitive and anticompetitive effects).

• Section 2 of the Sherman Act (15 U.S.C. § 2) prohibits monopolization, attempted monopolization, and conspiracy to monopolize. A patent holder possessing monopoly power in a relevant market may violate Section 2 if it uses licensing practices to acquire, maintain, or extend that monopoly power by anticompetitive means.

• Section 5 of the FTC Act (15 U.S.C. § 45) broadly prohibits "[u]nfair methods of competition in or affecting commerce." The FTC has used Section 5 as an enforcement tool in the patent licensing context, including in challenges to patent settlement agreements.

The DOJ and FTC jointly issued the Antitrust Guidelines for the Licensing of intellectual Property in 1995, with an updated version released in 2017. The IP Licensing Guidelines establish three core analytical principles that govern the agencies' approach to intellectual property licensing arrangements:

1. intellectual property licensing is generally procompetitive. The agencies recognize that licensing allows firms to combine complementary factors of production and promotes the dissemination of technology, resulting in lower prices, improved products, and increased consumer welfare.

2. intellectual property is comparable to other forms of property for antitrust purposes. While IP has certain unique characteristics (including the ability to be used by multiple parties simultaneously), the agencies do not presume that IP confers market power or that licensing practices are anticompetitive.

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 agreements between competitors receive heightened scrutiny under this framework, particularly where the settlement involves a combination of monetary payments and licensing restrictions that may affect competition in a relevant market. The seminal case addressing the antitrust analysis of patent settlements between competitors is FTC v. Actavis, Inc., 570 U.S. 136 (2013), which we discuss in detail in the following section. While Actavis arose in the specific context of pharmaceutical "reverse payment" settlements under the Hatch-Waxman Act, its broader principle — that patent settlement agreements are not automatically shielded from antitrust scrutiny merely because they fall within the scope of the patent — has implications for patent settlements across industries, including the medical device sector at issue here.

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 substantial sum in exchange for the generic's agreement to delay its entry into the market. The Court held that such settlements could violate the antitrust laws and that the FTC could challenge them under the rule of reason, rejecting the "scope of the patent" test applied by several courts of appeals, which had held that any settlement within the exclusionary scope of the patent was immune from antitrust challenge. Id. at 147–58.

The Court identified several factors suggesting that large reverse payments may constitute unreasonable restraints of trade: (1) the payment's large size, (2) the absence of any convincing justification other than delayed generic entry, (3) the potential for the payment to share monopoly profits, and (4) the availability of other forms of settlement that would not present the same concerns. Id. at 156–58.

It is essential to distinguish the present settlement from the Actavis paradigm. In Actavis, the flow of payment was anomalous: the patent holder paid the alleged infringer, suggesting that the payment was consideration for the alleged infringer's agreement to stay out of the market rather than a genuine resolution of the patent dispute on the merits. Here, by contrast, the flow of payment is in the expected direction: Solstice, the alleged infringer, is paying Apex, the patent holder, both in the form of a lump-sum settlement payment ($8,750,000) and ongoing running royalties (3.75% of Net Sales). This is the conventional directionality of a patent license settlement — the party that wishes to practice the patented technology compensates the party that owns the patent rights. There is nothing in the Term Sheet that constitutes a payment from Apex (the patentee) to Solstice (the accused infringer).

The lump-sum payment of $8,750,000 and running royalty of 3.75% represent Solstice's compensation to Apex for both the resolution of past infringement claims and the grant of a going-forward license. This is a standard royalty arrangement consistent with the patent holder's legitimate interest in monetizing its intellectual property rights. The payment does not serve to delay or prevent Solstice's market entry — to the contrary, it facilitates Solstice's continued competition in the market by resolving the cloud of patent infringement liability.

Accordingly, we conclude that the Actavis reverse-payment analysis is not directly triggered by the proposed settlement. There is no payment from patentee to infringer, no agreement by the alleged infringer to delay market entry, and no sharing of monopoly profits. The settlement is, in substance and form, a conventional license-and-dismissal arrangement.

Nevertheless, the broader principle of Actavis remains applicable: patent settlement agreements are not categorically immune from antitrust scrutiny. If the terms of a patent settlement between competitors unreasonably restrain competition — whether through the financial structure, the licensing restrictions, or ancillary provisions — they may be challenged under the antitrust laws. We therefore proceed to analyze each material provision of the settlement under the applicable antitrust framework, notwithstanding the absence of a reverse-payment concern.

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 licensor and its licensees collectively account for no more than 20% of each relevant market affected by the restraint. IP Licensing Guidelines § 4.3.

To assess whether the proposed settlement falls within this safety zone, it is necessary to define the relevant product and geographic markets and to estimate the combined market shares of Apex and Solstice in those markets.

Relevant Product Market. The relevant product market for purposes of this analysis is the U.S. market for laparoscopic surgical access devices — principally trocars, surgical ports, and directly related instrumentation used to establish access to the abdominal cavity during laparoscopic surgical procedures. This definition is consistent with the field of use specified in the proposed license and with the product market at issue in the Litigation.

Relevant Geographic Market. The relevant geographic market is the United States. Although the license grant is worldwide, the Litigation involves U.S. patent rights, the accused products are sold in the United States, and the antitrust analysis appropriately focuses on competitive effects within the United States.

Market Share Analysis. Apex and Solstice are both active participants in the U.S. laparoscopic surgical access device market. However, this market also includes several major multinational medical device companies with substantial market presence, including companies with significantly larger surgical device portfolios and broader hospital system relationships. Based on available revenue data — Apex's estimated FY 2023 revenue of approximately $312 million (not all of which is attributable to the relevant product market) and Solstice's combined U.S. sales of PrecisionEdge™ products of approximately $74.6 million over the 2021 through Q3 2024 period — the parties appear to be significant but not dominant participants in the relevant market. Their combined share is likely within or near the 20% safety zone identified in the IP Licensing Guidelines, although this conclusion should be confirmed with more granular market share data, including estimates of total market size and the shares held by other competitors. We recommend that the team request from Solstice's commercial analytics group any available industry reports or internal market share estimates to confirm this assessment.

Standard of Review. For restraints falling within the safety zone, the agencies will ordinarily decline to challenge the licensing arrangement. For restraints falling outside the safety zone, the agencies apply the rule of reason. Under either scenario, per se illegality is reserved for naked price-fixing, output restrictions, or market allocation among competitors with no plausible efficiency justification. None of the provisions of the proposed settlement falls within these per se categories, as discussed in detail in Section III below.

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 Solstice's license to laparoscopic surgical access devices), the royalty floor and cap (which establish a range of annual royalty obligations), and the MFL clause (which links Solstice's royalty rate to rates offered to future licensees).

Under the rule of reason, which applies to the vast majority of licensing restraints, courts assess three factors: (1) whether the restraint has actual or likely anticompetitive effects in a relevant market (such as increased prices, reduced output, diminished innovation, or reduced quality); (2) whether there are procompetitive justifications for the restraint (such as facilitating technology dissemination, reducing transaction costs, or promoting innovation incentives); and (3) whether less restrictive alternatives exist that would achieve the same procompetitive benefits with fewer anticompetitive effects. See Ohio v. Halcyon Corporation, 585 U.S. 529 (2018); Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 885–87 (2007).

Patent license settlements are overwhelmingly upheld under the rule of reason. Courts consistently recognize that such settlements avoid the substantial deadweight loss of continued litigation (including attorney's fees, expert costs, management distraction, and the risk of injunctive relief), facilitate the dissemination of patented technology, and promote competition by allowing the licensee to practice the patented invention in the market. These procompetitive benefits are amply present here, where the settlement will allow Solstice to continue manufacturing and selling its PrecisionEdge™ trocar product line without the overhang of pending patent infringement claims and potential injunctive relief.

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 Holdings Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 407 (2004).

There is no indication in the record that Apex possesses monopoly power in the relevant market for laparoscopic surgical access devices. The market includes multiple significant competitors, and Apex's market share, while meaningful, does not approach the levels typically required to establish monopoly power (generally 70% or higher, with surrounding circumstances). Moreover, the non-exclusive nature of the license expands, rather than restricts, competition in the market by permitting Solstice to continue selling its trocar products under a license. The settlement does not foreclose competitors from the market, raise barriers to entry, or facilitate the acquisition or maintenance of monopoly power by either party.

Accordingly, Section 2 risk is minimal and does not present a material concern for the proposed settlement.

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 from Apex to Solstice, no agreement by Solstice to delay its entry into or exit from any market, and no sharing of monopoly profits.

Lump-Sum Reasonableness. The lump-sum payment of $8,750,000, payable in two tranches, represents a settlement of Apex's past damages claims. Apex's retained damages expert, Hugh Danaher, submitted an expert report in the Litigation asserting claimed damages of $31,800,000 based on a reasonable royalty analysis. The settlement lump sum of $8,750,000 represents approximately 27.5% of the full claimed exposure. This discount reflects the inherent uncertainty of litigation — including the risks associated with claim construction (the Markman hearing was scheduled for August 2025), validity challenges, and damages quantification — and is entirely consistent with the settlement dynamics of patent disputes. The settlement payment represents a negotiated compromise, not an anticompetitive payment.

Running Royalty Rate. The 3.75% running royalty on Net Sales of Licensed Products is within reasonable market ranges for surgical device patent licenses. This rate was informed by the Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970), fifteen-factor analysis conducted by Solstice's valuation expert, Dr. Arthur Gaines of Ridgeline IP Analytics LLC, and reflects the negotiated arm's-length rate between sophisticated commercial parties represented by experienced patent counsel. The rate falls within the range of royalty rates observed in comparable medical device patent licenses, as identified in Dr. Gaines's valuation analysis (referencing comparable transactions in the 2.0% to 6.5% range for surgical device patents of similar scope and commercial significance).

Royalty Floor ($500,000 per Calendar Year, Beginning CY 2026). The royalty floor ensures minimum compensation to Apex for the ongoing license grant, regardless of fluctuations in Solstice's sales volumes. From an antitrust perspective, the key question is whether the floor operates as a de facto output restriction — that is, whether it creates an incentive for Solstice to reduce production or sales below competitive levels. We conclude that it does not. The royalty floor is a floor on payment, not on production. Solstice remains free to manufacture and sell Licensed Products at any volume. Even if Solstice's actual royalties (calculated at 3.75% of Net Sales) fall below $500,000 in a given year — which would imply Net Sales below approximately $13.3 million — Solstice would simply owe the $500,000 minimum payment. This does not restrict Solstice's output; it establishes a minimum price for the license. Minimum royalty provisions are standard in patent licenses and are routinely upheld as a reasonable means of ensuring that the licensor receives adequate consideration for the license grant.

Royalty Cap ($1,800,000 per Calendar Year). The royalty cap creates a ceiling on Solstice's annual royalty obligation at higher sales levels. At the 3.75% royalty rate, the cap is reached when Net Sales exceed approximately $48 million in a calendar year. Above that threshold, Solstice pays no additional royalty on incremental sales. This provision is procompetitive because it removes the marginal cost of the royalty at higher volumes, effectively incentivizing Solstice to compete more aggressively at scale. By reducing the per-unit royalty burden at higher sales volumes, the cap encourages Solstice to expand its market presence and invest in sales and marketing activities for the Licensed Products.

Combined Floor/Cap Structure. The spread between the $500,000 floor and the $1,800,000 cap is proportionate to the expected range of Solstice's Net Sales of Licensed Products. Based on Solstice's internal projections (Year 1 projected Net Sales of approximately $24.2 million, with an assumed 8% annual growth rate), the royalty at 3.75% would yield approximately $907,500 in Year 1 — well within the floor/cap range. The combined structure does not fix the prices of Licensed Products, allocate customers or territories, or restrict the quantity of Licensed Products that Solstice may manufacture or sell. It establishes a payment band that reflects the parties' negotiated allocation of risk and value.

Conclusion. The financial terms of the proposed settlement — the lump-sum payment, the running royalty rate, the royalty floor, and the royalty cap — are consistent with arm's-length patent licensing and present no material antitrust risk.

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 on Solstice and does not foreclose other competitors from obtaining licenses to the same technology from Apex.

Non-exclusive patent licenses are strongly favored from an antitrust perspective. They expand rather than restrict the number of competitors capable of practicing the patented technology in the market. Unlike exclusive licenses — which may, under certain circumstances, raise concerns about market foreclosure or the creation of barriers to entry — non-exclusive licenses increase the availability of the licensed technology and promote competition among licensees. The IP Licensing Guidelines recognize that non-exclusive licenses are among the most procompetitive forms of intellectual property licensing.

The license is non-transferable, except in connection with a change of control of Solstice (defined to include a merger, acquisition, or sale of all or substantially all of Solstice's assets). This is a standard anti-assignment provision that protects Apex's interest in knowing the identity and capabilities of its licensee. Anti-assignment provisions are commonplace in patent licenses and do not raise antitrust issues. They do not restrict competition because they do not prevent any third party from independently seeking a license from Apex.

The license covers U.S. Patent Nos. 9,814,237 (expiring June 22, 2035), 10,271,884 (expiring September 15, 2036), and 10,932,105 (expiring January 10, 2038), together with all continuations, divisionals, and reissues thereof. This scope tracks the patent family asserted in the Litigation and does not extend to unrelated technology or patents outside the trocar patent family. The inclusion of continuations, divisionals, and reissues is standard in patent license agreements and ensures that the license provides meaningful commercial coverage for the Licensed Products without requiring renegotiation as the patent family evolves through prosecution.

Conclusion. The non-exclusive nature of the license grant presents no antitrust concern. It is a procompetitive arrangement that facilitates technology dissemination and expands the number of competitors in the relevant market.

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 fields, such as robotic surgery, open surgery instrumentation, or non-surgical applications.

Legal Standard. Field-of-use restrictions in patent licenses are generally lawful under both the DOJ/FTC IP Licensing Guidelines and established Supreme Court precedent. In General Talking Pictures Corp. v. Western Electric Co., 305 U.S. 124 (1938), the Supreme Court upheld a patent license that restricted the licensee to manufacturing amplifiers for private (non-commercial) use, holding that the patentee had the right to carve up its patent grant by field of use and to restrict individual licensees to particular fields. The rationale is straightforward: since the patentee has the right to exclude others entirely from practicing the patented invention, it necessarily has the lesser right to permit practice only within a specified field while withholding the right to practice in other fields.

The IP Licensing Guidelines likewise recognize field-of-use restrictions as a legitimate and generally procompetitive form of licensing restraint. Such restrictions can promote efficiency by allowing the licensor to tailor the license to the licensee's core competencies and to preserve the ability to license the technology to other parties in other fields on terms appropriate to those fields. IP Licensing Guidelines § 2.3.

Application to the Proposed Settlement. Solstice's current product portfolio in the relevant technology area includes: (i) the PrecisionEdge™ laparoscopic trocar systems (PE-5000, PE-12000, PE-15000), which are the accused products in the Litigation; (ii) endoscopic graspers; and (iii) electrosurgical hand instruments. The field-of-use restriction limits Solstice's license to laparoscopic surgical access devices — the very market segment at issue in the Litigation and the segment in which the accused PrecisionEdge™ products compete. Solstice's other product lines (graspers and electrosurgical instruments) are not affected by this restriction because those products do not implicate the claims of the Licensed Patents and would not require a license under those patents.

Importantly, the field-of-use restriction does not prevent Solstice from independently developing or acquiring technology for use outside the licensed field. It merely limits the scope of the patent license — that is, the specific authorization that Apex is granting. Solstice remains free to design, develop, manufacture, and sell products in any market segment, provided that it does not practice the Licensed Patents outside the authorized field of use. This is a limitation on the license, not a limitation on Solstice's competitive activities more broadly.

Risk Factor. The principal antitrust risk associated with field-of-use restrictions arises when the restriction is drafted so broadly that it prevents the licensee from competing in adjacent product markets that are beyond the scope of the patent claims. In such cases, the restriction may function as a horizontal market allocation agreement disguised as a patent license limitation. For example, if the "Licensed Field" were defined to encompass not only laparoscopic surgical access devices but also endoscopic graspers and electrosurgical instruments — product categories in which both Apex and Solstice compete but which are unrelated to the Licensed Patent claims — a court might view the restriction as an impermissible restraint on Solstice's ability to compete in those adjacent markets.

To mitigate this risk, we recommend that the "Licensed Field" definition in the Patent License Agreement (Exhibit A to the Definitive Settlement Agreement) be drafted narrowly and precisely, tied to the actual claim scope of the Licensed Patents. The definition should reference trocar assemblies, surgical access ports, obturators, and directly related surgical access components, and should avoid overly broad language that could be interpreted to extend beyond the scope of the patent claims.

Conclusion. The field-of-use restriction is lawful and presents low antitrust risk, provided that it is drafted to correspond to the scope of the Licensed Patent claims and does not extend to product categories that are unrelated to the patented technology.

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 Solstice to maintain flexible manufacturing arrangements — an important operational consideration, given that Solstice utilizes third-party contract manufacturers for certain production processes — while preventing Solstice from effectively becoming a sub-licensor that could grant independent licenses to competing device companies. Without this restriction, Solstice could potentially undermine Apex's licensing strategy by offering sublicenses to Apex's competitors on terms that Apex did not negotiate and did not authorize.

From an antitrust perspective, the sublicense restriction does not foreclose any competitor from obtaining a license to the Licensed Patents. Any competitor that wishes to practice the Licensed Patents may independently approach Apex and negotiate a license on its own terms. The restriction simply ensures that the licensing relationship remains bilateral — between Apex and each licensee — rather than allowing Solstice to interpose itself as an intermediary.

Conclusion. The limitation on sublicensing rights to contract manufacturers presents no antitrust concern.

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, which covers only the three specifically identified Licensed Patents and their continuations, divisionals, and reissues. The covenant extends to the entire Trocar Patent Family, providing Solstice with a shield against infringement assertions under patents in the family that are not expressly licensed.

The covenant not to sue is procompetitive. It provides Solstice with the commercial certainty necessary to invest in product development, manufacturing capacity, and marketing for its PrecisionEdge™ product line and successor products. Without this covenant, Solstice would face the ongoing risk that Apex could assert additional patents in the Trocar Patent Family against Solstice's products, even after the current Litigation is resolved. The covenant reduces this litigation risk and encourages Solstice to compete vigorously in the market, to the benefit of hospitals, surgeons, and ultimately patients.

Potential Concern — No-Challenge Clauses. One issue that warrants attention in connection with the covenant not to sue is whether the settlement includes any provision that would prevent Solstice from challenging the validity of Apex's patents in future proceedings. Such "no-challenge" clauses have been the subject of antitrust scrutiny because they can shield potentially invalid patents from challenge, thereby maintaining exclusionary rights to which the patentee may not be entitled. In MedImmune, Inc. v. Pemberton Partners LLC, 549 U.S. 118 (2007), the Supreme Court held that a licensee in good standing may bring a declaratory judgment action challenging the validity of the licensed patents, eliminating the prior rule that required the licensee to breach the license before challenging validity. The DOJ and FTC have taken the enforcement position that no-challenge clauses in patent licenses may be anticompetitive because they insulate patents from validity challenges that could benefit competition.

We have reviewed the near-final Term Sheet and confirm that it does not include a no-challenge provision. Solstice retains the right to challenge the validity of the Licensed Patents and the other patents in the Trocar Patent Family in future proceedings, subject only to the covenant not to sue (which is a covenant by Apex not to assert its patents, not a covenant by Solstice not to challenge them). It is essential that the Definitive Settlement Agreement preserve this position and not introduce a no-challenge clause.

Conclusion. The covenant not to sue is procompetitive and presents no material antitrust risk, provided that the Definitive Settlement Agreement does not include a no-challenge clause restricting Solstice's right to challenge patent validity.

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 licenses have received antitrust scrutiny because of their potential to affect licensing dynamics in ways that may dampen competition. The principal concern is that an MFL clause may reduce the licensor's incentive to offer lower royalty rates to other potential licensees. If the licensor knows that any reduction in the royalty rate offered to a new licensee will automatically trigger a corresponding reduction in the rate paid by existing MFL-protected licensees, the licensor faces an increased cost of offering lower rates — because the revenue reduction applies not only to the new licensee but also to the MFL-protected licensee. This dynamic can create a "ratchet" effect that tends to maintain royalty rates at existing levels, potentially resulting in higher effective costs for all licensees than would prevail in the absence of the MFL clause.

The DOJ and FTC analyze MFL clauses under the rule of reason. The agencies have identified potential anticompetitive effects where: (1) the clause covers a significant portion of the market's licensees, creating a pervasive ratchet effect that discourages rate reductions across the market; or (2) the clause facilitates tacit coordination on royalty rates by making pricing information more transparent among competitors. However, MFL clauses can also have procompetitive justifications, including ensuring that a licensee receives fair treatment relative to subsequent licensees, reducing negotiation costs, and providing commercial certainty that encourages the licensee to invest in the licensed technology.

Assessment of Risk Factors. We assess the antitrust risk of the proposed MFL clause as low-to-moderate based on the following considerations:

• Solstice is one licensee among a potentially larger group. Apex's Trocar Patent Family includes 14 issued patents, and Apex's document production in the Litigation (Bates-stamped APEX-000001 through APEX-031450) indicates that Apex has entered into licensing arrangements with several other parties. Solstice's MFL clause, standing alone, does not create a pervasive ratchet effect across the licensing market. If a substantial majority of Apex's licensees held MFL protections, the cumulative effect might raise greater concerns — but based on available information, the Solstice MFL is a single-licensee provision.

• The MFL clause applies only prospectively. It does not require retroactive adjustment of the royalty rate based on licenses that Apex has already granted. This limits the scope of the clause and reduces its potential impact on Apex's licensing strategy going forward.

• The MFL is limited in scope. It applies only to the specific Licensed Patents (U.S. Patent Nos. 9,814,237; 10,271,884; and 10,932,105 and their continuations, divisionals, and reissues) and only to licenses within the licensed field of use (laparoscopic surgical access devices). It does not apply across Apex's entire patent portfolio or to licenses in other fields. This narrow scope limits the potential for the clause to affect competition in markets beyond the immediate scope of the settlement.

• The clause is unilateral. It benefits only Solstice and does not establish a common royalty rate across multiple licensees. It is a price protection mechanism for Solstice, not a coordinating mechanism among Apex's licensees.

Drafting Recommendation. The most significant antitrust risk associated with the MFL clause relates to the notification protocol — that is, the mechanism by which Apex informs Solstice that a lower rate has been triggered. If the notification protocol requires Apex to disclose the identity of the third-party licensee, the specific terms of the third-party license, or other commercially sensitive information, the MFL clause could serve as a conduit for the exchange of competitively sensitive information between horizontal competitors (Solstice and the third-party licensee, both of which compete in the laparoscopic surgical access device market). Such information exchange could facilitate tacit coordination on pricing, output, or other competitive variables.

To mitigate this risk, we recommend that the Side Letter governing the MFL notification protocol (which is to be executed alongside the Definitive Settlement Agreement) limit Apex's disclosure obligation to the following information: (i) notice that a third-party license has been granted at a running royalty rate lower than 3.75% of Net Sales, and (ii) the adjusted royalty rate applicable to Solstice going forward. The Side Letter should expressly prohibit disclosure of the identity of the third-party licensee, the amount of any lump-sum consideration paid by the third-party licensee, any field-of-use or territorial limitations in the third-party license, or any other commercial terms. This approach provides Solstice with the price protection benefit of the MFL clause while minimizing the risk of facilitating competitively sensitive information exchange.

Conclusion. The MFL clause presents a low-to-moderate level of antitrust sensitivity. The risk is manageable with proper drafting, particularly limiting the scope of information shared under the MFL notification protocol. With the recommended drafting measures in place, we do not believe the MFL clause creates material antitrust exposure.

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 procompetitive. The mutual release and dismissal eliminate the ongoing costs and uncertainties of patent litigation for both parties, free judicial resources, and allow both parties to redirect their attention and capital to competitive activities in the market. Courts have consistently recognized that the promotion of settlement is a strong public policy interest that supports the enforceability of reasonable settlement terms. See, e.g., Aro Corp. v. Allied Witan Co., 531 F.2d 1368, 1372 (6th Cir. 1976).

Conclusion. The mutual release and dismissal with prejudice present no antitrust concern.

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.

Confidentiality provisions in patent settlement agreements are common and generally do not raise antitrust issues. Parties to patent settlements routinely include confidentiality clauses to protect commercially sensitive information, including royalty rates, payment amounts, and other financial terms. Such provisions serve legitimate business interests and are not, standing alone, indicative of anticompetitive conduct.

The antitrust risk associated with confidentiality provisions arises only where the provisions are used to conceal anticompetitive conduct — for example, where the confidentiality clause is designed to prevent regulatory agencies or the public from learning about terms that would be challenged as antitrust violations. This concern is not present here, where the underlying settlement terms are, as analyzed throughout this memorandum, consistent with lawful patent licensing practices.

It is worth noting that in the post-Actavis enforcement environment, the FTC has required the filing of certain pharmaceutical patent settlement agreements under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 ("MMA"), 21 U.S.C. § 355 note. No analogous filing requirement exists for medical device patent settlements. However, the FTC retains general investigatory authority under Section 5 of the FTC Act and could, in theory, investigate the terms of a medical device patent settlement if it believed the terms raised antitrust concerns. Accordingly, the settlement should be structured to withstand scrutiny if the FTC or DOJ were to review the terms, and the confidentiality provision should not prohibit disclosure of settlement terms to government regulators upon lawful request or as required by applicable law.

Recommendation. We recommend including a carve-out in the confidentiality provisions that expressly permits either party to disclose the terms of the settlement to government regulators — including the FTC, DOJ, Securities and Exchange Commission, and Internal Revenue Service — upon lawful request, subpoena, civil investigative demand, or as otherwise required by applicable law or regulation. This carve-out is consistent with standard practice and ensures that the confidentiality provision cannot be characterized as an attempt to conceal the settlement terms from regulatory scrutiny.

Conclusion. The confidentiality provisions present no material antitrust risk, provided they include an appropriate carve-out for disclosure to government regulators.

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 related instrumentation used to establish access to the abdominal cavity during minimally invasive laparoscopic surgical procedures. This market is well-defined and recognized in the medical device industry. Laparoscopic surgical access devices are not substitutable with open-surgery instruments or robotic surgical access systems for purposes of this analysis, as they serve a distinct clinical function and are used in distinct procedural contexts.

Relevant Geographic Market. The relevant geographic market is the United States. The Litigation involves U.S. patent rights, and the accused products are manufactured for and sold in the U.S. market. While the license grant is worldwide, the antitrust analysis appropriately focuses on competitive effects within the United States, where both parties actively compete and where the relevant patent rights are enforceable.

Market Participants and Competitive Dynamics. The U.S. laparoscopic surgical access device market includes multiple significant competitors beyond Apex and Solstice. Several large multinational medical device companies maintain substantial market positions in this segment, with broad surgical device portfolios and well-established relationships with hospital group purchasing organizations ("GPOs") and integrated delivery networks ("IDNs"). These competitors exert meaningful competitive pressure on both Apex and Solstice and provide hospitals and surgical centers with multiple alternative sourcing options for laparoscopic surgical access devices.

Apex Financial Data. Apex's estimated fiscal year 2023 revenue was approximately $312 million. This revenue figure encompasses Apex's full product portfolio, including surgical access devices, trocar systems, insufflation equipment, and other surgical instrumentation. Not all of this revenue is attributable to the relevant product market (laparoscopic surgical access devices); Apex's revenue from that specific segment is a subset of the total.

Solstice Financial Data. Solstice's fiscal year 2023 revenue was €187.4 million at the group level, across all product lines including laparoscopic trocars, endoscopic graspers, and electrosurgical hand instruments, as well as products sold outside the United States. Solstice's combined U.S. sales of the accused PrecisionEdge™ products from 2021 through Q3 2024 totaled approximately $74.6 million, representing a meaningful but not dominant share of the U.S. laparoscopic surgical access device market during that period.

Combined Market Share. Based on available data, the combined market share of Apex and Solstice in the relevant product and geographic market is estimated to be well below the levels that would create monopoly power concerns (typically 70% or higher). The combined share is likely within or near the 20% safety zone identified in the DOJ/FTC IP Licensing Guidelines, although, as noted in Section II.C, this estimate should be confirmed with more granular market data from industry sources or Solstice's commercial analytics group.

Settlement Effects on Competition. The proposed settlement does not allocate customers between Apex and Solstice, divide territories, fix the prices at which either party sells its products to end customers, or restrict the output of either party's products. It is a straightforward patent license with standard commercial protections — a lump-sum settlement payment, ongoing royalties, a non-exclusive license, and a covenant not to sue — that resolves a bona fide patent infringement dispute. The settlement is expected to enhance competition by removing the cloud of patent infringement liability from Solstice's PrecisionEdge™ product line, enabling Solstice to compete more confidently and to invest in product development and commercialization without the risk of an adverse judgment or injunctive relief.

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 specified jurisdictional thresholds. The proposed settlement involves a patent license, not an acquisition of assets or voting securities. A non-exclusive patent license does not constitute an "asset" acquisition for purposes of the HSR Act because the licensor retains ownership of the patent and the licensee acquires only a non-exclusive right to practice the patented technology. Accordingly, HSR filing is not required in connection with this settlement.

FTC Notification of Patent Settlements. Under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, certain pharmaceutical patent settlement agreements must be filed with the FTC and DOJ. 21 U.S.C. § 355 note. This filing requirement applies specifically to agreements between brand-name drug manufacturers (NDA holders) and generic drug applicants (ANDA filers) that settle patent infringement litigation under the Hatch-Waxman Act. There is no analogous filing requirement for medical device patent settlements. The proposed settlement between Apex and Solstice does not involve pharmaceutical products or Hatch-Waxman litigation, and no FTC notification filing is required.

General FTC Investigatory Authority. Although no mandatory filing is required, the FTC retains broad investigatory authority under Section 5 of the FTC Act. The FTC may initiate an investigation of any agreement between competitors that it believes may constitute an "unfair method of competition," including patent settlement agreements. The settlement should therefore be structured and documented in a manner that would withstand scrutiny if the FTC or DOJ were to review the terms. As discussed throughout this memorandum, we believe the proposed settlement terms satisfy this standard.

State Antitrust Filing Requirements. We have not identified any state antitrust filing requirements applicable to a patent license settlement of this nature. Some states have enacted antitrust statutes that parallel the federal Sherman Act and FTC Act, but none that we have identified impose affirmative filing requirements for patent license settlements between competitors in the medical device industry.

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 surgical access components used to establish and maintain access to the abdominal or thoracic cavity during laparoscopic surgical procedures. The definition should avoid overly broad language — such as "all surgical devices" or "all instruments used in minimally invasive surgery" — that could be interpreted to restrict Solstice's competitive activities in adjacent product markets (such as endoscopic graspers or electrosurgical hand instruments) beyond the scope of the Licensed Patent claims.

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 other financial consideration paid by the third-party licensee, the field-of-use or territorial scope of the third-party license, or any other commercial terms of the third-party license. This approach minimizes the risk that the MFL clause could serve as a conduit for competitively sensitive information exchange between horizontal competitors.

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 position should be preserved in the definitive documentation. A no-challenge clause could raise antitrust concerns under MedImmune, Inc. v. Pemberton Partners LLC, 549 U.S. 118 (2007), and DOJ/FTC enforcement positions.

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 governing the license fee owed by Solstice to Apex and should be clearly characterized as such in the agreement — they should not be drafted or structured in a manner that could be interpreted as production constraints or price floors.

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 carve-out ensures that the confidentiality provision cannot be characterized as an attempt to conceal the settlement terms from regulatory scrutiny and is consistent with standard practice in patent settlement agreements between competitors.

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's-length nature of the royalty rate and other financial terms. These materials would be essential to demonstrating the reasonableness and procompetitive character of the settlement if the terms were ever challenged by the FTC, DOJ, or a private plaintiff.

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 dispute. The financial terms are reasonable and reflect arm's-length negotiations informed by expert economic analysis.

Specifically:

• The lump-sum payment of $8,750,000 represents approximately 27.5% of Apex's claimed damages exposure of $31,800,000 and reflects a negotiated compromise of the litigation risk, not an anticompetitive payment.

• The running royalty of 3.75% of Net Sales is within the range of reasonable royalty rates for comparable surgical device patent licenses and was informed by the Georgia-Pacific factor analysis and the Ridgeline IP Analytics LLC valuation.

• The non-exclusive license expands rather than restricts competition by permitting Solstice to continue manufacturing and selling its PrecisionEdge™ trocar products under a license.

• The field-of-use restrictio

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Marcus Delgado, Responsible Partner, intellectual Property, Calderwood & Harkness LLP
FROM: Christy Bauer, Lead Associate, intellectual Property; Peter Vassiliev, Working Associate, intellectual Property
DATE: June 8, 2025
RE: Antitrust Considerations Applicable to License-and-Dismissal Settlement — Apex Surgical Innovations, Inc. v. Solstice Biomedical, Inc., Case No. 1:24-cv-00587-RGA (D. Del.)
MATTER NO.: 10294.0017
CLIENT: Solstice Biomedical Devices Ltd. / Solstice Biomedical, Inc.
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 resolution of Apex Surgical Innovations, Inc. v. Solstice Biomedical, Inc., Case No. 1:24-cv-00587-RGA (D. Del.) (the "Litigation"). This analysis is based on the near-final negotiated terms of the Term Sheet dated as of June 10, 2025, which the parties anticipate executing on that date. This memorandum has been prepared in advance of execution to permit timely review by the responsible partner and client before the Term Sheet becomes binding.
The principal commercial terms of the proposed settlement that are relevant to this antitrust analysis are as follows:
(a) Lump-Sum Payment. Solstice will pay Apex an aggregate lump-sum settlement payment of $8,750,000, payable in two tranches: $5,250,000 due on or before June 30, 2025, and $3,500,000 due on or before September 15, 2025.
(b) Running Royalty. Solstice will pay Apex a running royalty of 3.75% of Net Sales (as defined in the Patent License Agreement) of Licensed Products — specifically, the PrecisionEdge™ PE-5000, PE-12000, and PE-15000 laparoscopic trocar systems and their successors — for the remaining life of the Licensed Patents.
(c) Non-Exclusive License. Apex will grant Solstice a non-exclusive, non-transferable, worldwide license under U.S. Patent Nos. 9,814,237; 10,271,884; and 10,932,105, together with all continuations, divisionals, and reissues thereof (collectively, the "Licensed Patents").
(d) Field-of-Use Restriction. The license is limited to the field of use of laparoscopic surgical access devices.
(e) Sublicense Right. Solstice's right to sublicense the Licensed Patents is limited to contract manufacturers producing Licensed Products on Solstice's behalf.
(f) Covenant Not to Sue. Apex will covenant not to assert any patent in the Apex Trocar Patent Family (consisting of 14 issued U.S. patents and 6 pending U.S. patent applications) against Solstice or its subsidiaries for products within the licensed field during the term of the license.
(g) Most-Favored Licensee ("MFL") Clause. If Apex licenses the Licensed Patents to any third party at a running royalty rate lower than 3.75%, Solstice's royalty rate will be adjusted prospectively to match the lower rate.
(h) Royalty Floor and Cap. Beginning with calendar year 2026, Solstice's annual royalty obligation is subject to a floor of $500,000 per calendar year and a cap of $1,800,000 per calendar year.
Based on our analysis of these terms in light of the governing statutory framework — principally Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1–2; Section 5 of the FTC Act, 15 U.S.C. § 45; and the U.S. Department of Justice ("DOJ") and Federal Trade Commission ("FTC") Antitrust Guidelines for the Licensing of intellectual Property (1995, updated 2017) (the "IP Licensing Guidelines") — as well as controlling and persuasive case law, we conclude that the proposed settlement terms fall within the scope of permissible patent licensing conduct and do not present material antitrust risk under current U.S. law. However, certain provisions — specifically the MFL clause, the field-of-use restriction, and the royalty floor/cap structure — warrant careful drafting in the Definitive Settlement Agreement and ancillary documents to minimize exposure. We set forth specific drafting recommendations in Section VI below.
It is important to note at the outset that Apex and Solstice are horizontal competitors in the surgical access device market. Apex's estimated fiscal year 2023 revenue was approximately $312 million, encompassing surgical access devices, trocar systems, and insufflation equipment, among other product lines. Solstice's fiscal year 2023 revenue was €187.4 million at the group level, across all product lines. Both companies manufacture, market, and sell laparoscopic trocar systems in the United States, and both compete for the same hospital system and ambulatory surgical center customer base. This horizontal competitive relationship heightens the level of antitrust scrutiny applicable to any settlement terms that may constrain competition, even where those terms are otherwise consistent with legitimate patent licensing practices.
II. Legal Framework
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 is the foundation of the patent system's incentive structure, which promotes innovation by granting time-limited exclusive rights in exchange for public disclosure of inventions.
The right to exclude necessarily encompasses the right to license. A patent holder may choose to license some, all, or none of its patent rights to third parties, on terms selected by the patent holder, subject to applicable legal constraints. This includes the right to impose conditions on the scope of the license, such as field-of-use restrictions, territorial limitations, quantity limitations, and royalty structures. See, e.g., General Talking Pictures Corp. v. Western Electric Co., 305 U.S. 124, 127 (1938) (upholding field-of-use restrictions in patent licenses); United States v. General Electric Co., 272 U.S. 476, 489–90 (1926) (recognizing the patentee's right to impose conditions on licensing).
However, patent rights are not without limits, and they do not immunize conduct that extends the patent monopoly beyond the scope of the patent grant or that constitutes a naked restraint of trade unrelated to the patentee's legitimate interests. The intersection of patent law and antitrust law is governed primarily by the following federal statutes:
• Section 1 of the Sherman Act (15 U.S.C. § 1) prohibits "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States." While this language is literally sweeping, the Supreme Court has long interpreted Section 1 to prohibit only unreasonable restraints of trade. Standard Oil Co. of New Jersey v. United States, 221 U.S. 1, 60 (1911). Licensing agreements between competitors that contain restrictive provisions are evaluated under either the "per se" standard (for naked restraints such as price-fixing, output restrictions, or horizontal market allocation with no plausible efficiency justification) or the "rule of reason" (for restraints that may have both procompetitive and anticompetitive effects).
• Section 2 of the Sherman Act (15 U.S.C. § 2) prohibits monopolization, attempted monopolization, and conspiracy to monopolize. A patent holder possessing monopoly power in a relevant market may violate Section 2 if it uses licensing practices to acquire, maintain, or extend that monopoly power by anticompetitive means.
• Section 5 of the FTC Act (15 U.S.C. § 45) broadly prohibits "[u]nfair methods of competition in or affecting commerce." The FTC has used Section 5 as an enforcement tool in the patent licensing context, including in challenges to patent settlement agreements.
The DOJ and FTC jointly issued the Antitrust Guidelines for the Licensing of intellectual Property in 1995, with an updated version released in 2017. The IP Licensing Guidelines establish three core analytical principles that govern the agencies' approach to intellectual property licensing arrangements:
1. intellectual property licensing is generally procompetitive. The agencies recognize that licensing allows firms to combine complementary factors of production and promotes the dissemination of technology, resulting in lower prices, improved products, and increased consumer welfare.
2. intellectual property is comparable to other forms of property for antitrust purposes. While IP has certain unique characteristics (including the ability to be used by multiple parties simultaneously), the agencies do not presume that IP confers market power or that licensing practices are anticompetitive.
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 agreements between competitors receive heightened scrutiny under this framework, particularly where the settlement involves a combination of monetary payments and licensing restrictions that may affect competition in a relevant market. The seminal case addressing the antitrust analysis of patent settlements between competitors is FTC v. Actavis, Inc., 570 U.S. 136 (2013), which we discuss in detail in the following section. While Actavis arose in the specific context of pharmaceutical "reverse payment" settlements under the Hatch-Waxman Act, its broader principle — that patent settlement agreements are not automatically shielded from antitrust scrutiny merely because they fall within the scope of the patent — has implications for patent settlements across industries, including the medical device sector at issue here.
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 substantial sum in exchange for the generic's agreement to delay its entry into the market. The Court held that such settlements could violate the antitrust laws and that the FTC could challenge them under the rule of reason, rejecting the "scope of the patent" test applied by several courts of appeals, which had held that any settlement within the exclusionary scope of the patent was immune from antitrust challenge. Id. at 147–58.
The Court identified several factors suggesting that large reverse payments may constitute unreasonable restraints of trade: (1) the payment's large size, (2) the absence of any convincing justification other than delayed generic entry, (3) the potential for the payment to share monopoly profits, and (4) the availability of other forms of settlement that would not present the same concerns. Id. at 156–58.
It is essential to distinguish the present settlement from the Actavis paradigm. In Actavis, the flow of payment was anomalous: the patent holder paid the alleged infringer, suggesting that the payment was consideration for the alleged infringer's agreement to stay out of the market rather than a genuine resolution of the patent dispute on the merits. Here, by contrast, the flow of payment is in the expected direction: Solstice, the alleged infringer, is paying Apex, the patent holder, both in the form of a lump-sum settlement payment ($8,750,000) and ongoing running royalties (3.75% of Net Sales). This is the conventional directionality of a patent license settlement — the party that wishes to practice the patented technology compensates the party that owns the patent rights. There is nothing in the Term Sheet that constitutes a payment from Apex (the patentee) to Solstice (the accused infringer).
The lump-sum payment of $8,750,000 and running royalty of 3.75% represent Solstice's compensation to Apex for both the resolution of past infringement claims and the grant of a going-forward license. This is a standard royalty arrangement consistent with the patent holder's legitimate interest in monetizing its intellectual property rights. The payment does not serve to delay or prevent Solstice's market entry — to the contrary, it facilitates Solstice's continued competition in the market by resolving the cloud of patent infringement liability.
Accordingly, we conclude that the Actavis reverse-payment analysis is not directly triggered by the proposed settlement. There is no payment from patentee to infringer, no agreement by the alleged infringer to delay market entry, and no sharing of monopoly profits. The settlement is, in substance and form, a conventional license-and-dismissal arrangement.
Nevertheless, the broader principle of Actavis remains applicable: patent settlement agreements are not categorically immune from antitrust scrutiny. If the terms of a patent settlement between competitors unreasonably restrain competition — whether through the financial structure, the licensing restrictions, or ancillary provisions — they may be challenged under the antitrust laws. We therefore proceed to analyze each material provision of the settlement under the applicable antitrust framework, notwithstanding the absence of a reverse-payment concern.
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 licensor and its licensees collectively account for no more than 20% of each relevant market affected by the restraint. IP Licensing Guidelines § 4.3.
To assess whether the proposed settlement falls within this safety zone, it is necessary to define the relevant product and geographic markets and to estimate the combined market shares of Apex and Solstice in those markets.
Relevant Product Market. The relevant product market for purposes of this analysis is the U.S. market for laparoscopic surgical access devices — principally trocars, surgical ports, and directly related instrumentation used to establish access to the abdominal cavity during laparoscopic surgical procedures. This definition is consistent with the field of use specified in the proposed license and with the product market at issue in the Litigation.
Relevant Geographic Market. The relevant geographic market is the United States. Although the license grant is worldwide, the Litigation involves U.S. patent rights, the accused products are sold in the United States, and the antitrust analysis appropriately focuses on competitive effects within the United States.
Market Share Analysis. Apex and Solstice are both active participants in the U.S. laparoscopic surgical access device market. However, this market also includes several major multinational medical device companies with substantial market presence, including companies with significantly larger surgical device portfolios and broader hospital system relationships. Based on available revenue data — Apex's estimated FY 2023 revenue of approximately $312 million (not all of which is attributable to the relevant product market) and Solstice's combined U.S. sales of PrecisionEdge™ products of approximately $74.6 million over the 2021 through Q3 2024 period — the parties appear to be significant but not dominant participants in the relevant market. Their combined share is likely within or near the 20% safety zone identified in the IP Licensing Guidelines, although this conclusion should be confirmed with more granular market share data, including estimates of total market size and the shares held by other competitors. We recommend that the team request from Solstice's commercial analytics group any available industry reports or internal market share estimates to confirm this assessment.
Standard of Review. For restraints falling within the safety zone, the agencies will ordinarily decline to challenge the licensing arrangement. For restraints falling outside the safety zone, the agencies apply the rule of reason. Under either scenario, per se illegality is reserved for naked price-fixing, output restrictions, or market allocation among competitors with no plausible efficiency justification. None of the provisions of the proposed settlement falls within these per se categories, as discussed in detail in Section III below.
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 Solstice's license to laparoscopic surgical access devices), the royalty floor and cap (which establish a range of annual royalty obligations), and the MFL clause (which links Solstice's royalty rate to rates offered to future licensees).
Under the rule of reason, which applies to the vast majority of licensing restraints, courts assess three factors: (1) whether the restraint has actual or likely anticompetitive effects in a relevant market (such as increased prices, reduced output, diminished innovation, or reduced quality); (2) whether there are procompetitive justifications for the restraint (such as facilitating technology dissemination, reducing transaction costs, or promoting innovation incentives); and (3) whether less restrictive alternatives exist that would achieve the same procompetitive benefits with fewer anticompetitive effects. See Ohio v. Halcyon Corporation, 585 U.S. 529 (2018); Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 885–87 (2007).
Patent license settlements are overwhelmingly upheld under the rule of reason. Courts consistently recognize that such settlements avoid the substantial deadweight loss of continued litigation (including attorney's fees, expert costs, management distraction, and the risk of injunctive relief), facilitate the dissemination of patented technology, and promote competition by allowing the licensee to practice the patented invention in the market. These procompetitive benefits are amply present here, where the settlement will allow Solstice to continue manufacturing and selling its PrecisionEdge™ trocar product line without the overhang of pending patent infringement claims and potential injunctive relief.
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 Holdings Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 407 (2004).
There is no indication in the record that Apex possesses monopoly power in the relevant market for laparoscopic surgical access devices. The market includes multiple significant competitors, and Apex's market share, while meaningful, does not approach the levels typically required to establish monopoly power (generally 70% or higher, with surrounding circumstances). Moreover, the non-exclusive nature of the license expands, rather than restricts, competition in the market by permitting Solstice to continue selling its trocar products under a license. The settlement does not foreclose competitors from the market, raise barriers to entry, or facilitate the acquisition or maintenance of monopoly power by either party.
Accordingly, Section 2 risk is minimal and does not present a material concern for the proposed settlement.
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 from Apex to Solstice, no agreement by Solstice to delay its entry into or exit from any market, and no sharing of monopoly profits.
Lump-Sum Reasonableness. The lump-sum payment of $8,750,000, payable in two tranches, represents a settlement of Apex's past damages claims. Apex's retained damages expert, Hugh Danaher, submitted an expert report in the Litigation asserting claimed damages of $31,800,000 based on a reasonable royalty analysis. The settlement lump sum of $8,750,000 represents approximately 27.5% of the full claimed exposure. This discount reflects the inherent uncertainty of litigation — including the risks associated with claim construction (the Markman hearing was scheduled for August 2025), validity challenges, and damages quantification — and is entirely consistent with the settlement dynamics of patent disputes. The settlement payment represents a negotiated compromise, not an anticompetitive payment.
Running Royalty Rate. The 3.75% running royalty on Net Sales of Licensed Products is within reasonable market ranges for surgical device patent licenses. This rate was informed by the Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970), fifteen-factor analysis conducted by Solstice's valuation expert, Dr. Arthur Gaines of Ridgeline IP Analytics LLC, and reflects the negotiated arm's-length rate between sophisticated commercial parties represented by experienced patent counsel. The rate falls within the range of royalty rates observed in comparable medical device patent licenses, as identified in Dr. Gaines's valuation analysis (referencing comparable transactions in the 2.0% to 6.5% range for surgical device patents of similar scope and commercial significance).
Royalty Floor ($500,000 per Calendar Year, Beginning CY 2026). The royalty floor ensures minimum compensation to Apex for the ongoing license grant, regardless of fluctuations in Solstice's sales volumes. From an antitrust perspective, the key question is whether the floor operates as a de facto output restriction — that is, whether it creates an incentive for Solstice to reduce production or sales below competitive levels. We conclude that it does not. The royalty floor is a floor on payment, not on production. Solstice remains free to manufacture and sell Licensed Products at any volume. Even if Solstice's actual royalties (calculated at 3.75% of Net Sales) fall below $500,000 in a given year — which would imply Net Sales below approximately $13.3 million — Solstice would simply owe the $500,000 minimum payment. This does not restrict Solstice's output; it establishes a minimum price for the license. Minimum royalty provisions are standard in patent licenses and are routinely upheld as a reasonable means of ensuring that the licensor receives adequate consideration for the license grant.
Royalty Cap ($1,800,000 per Calendar Year). The royalty cap creates a ceiling on Solstice's annual royalty obligation at higher sales levels. At the 3.75% royalty rate, the cap is reached when Net Sales exceed approximately $48 million in a calendar year. Above that threshold, Solstice pays no additional royalty on incremental sales. This provision is procompetitive because it removes the marginal cost of the royalty at higher volumes, effectively incentivizing Solstice to compete more aggressively at scale. By reducing the per-unit royalty burden at higher sales volumes, the cap encourages Solstice to expand its market presence and invest in sales and marketing activities for the Licensed Products.
Combined Floor/Cap Structure. The spread between the $500,000 floor and the $1,800,000 cap is proportionate to the expected range of Solstice's Net Sales of Licensed Products. Based on Solstice's internal projections (Year 1 projected Net Sales of approximately $24.2 million, with an assumed 8% annual growth rate), the royalty at 3.75% would yield approximately $907,500 in Year 1 — well within the floor/cap range. The combined structure does not fix the prices of Licensed Products, allocate customers or territories, or restrict the quantity of Licensed Products that Solstice may manufacture or sell. It establishes a payment band that reflects the parties' negotiated allocation of risk and value.
Conclusion. The financial terms of the proposed settlement — the lump-sum payment, the running royalty rate, the royalty floor, and the royalty cap — are consistent with arm's-length patent licensing and present no material antitrust risk.
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 on Solstice and does not foreclose other competitors from obtaining licenses to the same technology from Apex.
Non-exclusive patent licenses are strongly favored from an antitrust perspective. They expand rather than restrict the number of competitors capable of practicing the patented technology in the market. Unlike exclusive licenses — which may, under certain circumstances, raise concerns about market foreclosure or the creation of barriers to entry — non-exclusive licenses increase the availability of the licensed technology and promote competition among licensees. The IP Licensing Guidelines recognize that non-exclusive licenses are among the most procompetitive forms of intellectual property licensing.
The license is non-transferable, except in connection with a change of control of Solstice (defined to include a merger, acquisition, or sale of all or substantially all of Solstice's assets). This is a standard anti-assignment provision that protects Apex's interest in knowing the identity and capabilities of its licensee. Anti-assignment provisions are commonplace in patent licenses and do not raise antitrust issues. They do not restrict competition because they do not prevent any third party from independently seeking a license from Apex.
The license covers U.S. Patent Nos. 9,814,237 (expiring June 22, 2035), 10,271,884 (expiring September 15, 2036), and 10,932,105 (expiring January 10, 2038), together with all continuations, divisionals, and reissues thereof. This scope tracks the patent family asserted in the Litigation and does not extend to unrelated technology or patents outside the trocar patent family. The inclusion of continuations, divisionals, and reissues is standard in patent license agreements and ensures that the license provides meaningful commercial coverage for the Licensed Products without requiring renegotiation as the patent family evolves through prosecution.
Conclusion. The non-exclusive nature of the license grant presents no antitrust concern. It is a procompetitive arrangement that facilitates technology dissemination and expands the number of competitors in the relevant market.
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 fields, such as robotic surgery, open surgery instrumentation, or non-surgical applications.
Legal Standard. Field-of-use restrictions in patent licenses are generally lawful under both the DOJ/FTC IP Licensing Guidelines and established Supreme Court precedent. In General Talking Pictures Corp. v. Western Electric Co., 305 U.S. 124 (1938), the Supreme Court upheld a patent license that restricted the licensee to manufacturing amplifiers for private (non-commercial) use, holding that the patentee had the right to carve up its patent grant by field of use and to restrict individual licensees to particular fields. The rationale is straightforward: since the patentee has the right to exclude others entirely from practicing the patented invention, it necessarily has the lesser right to permit practice only within a specified field while withholding the right to practice in other fields.
The IP Licensing Guidelines likewise recognize field-of-use restrictions as a legitimate and generally procompetitive form of licensing restraint. Such restrictions can promote efficiency by allowing the licensor to tailor the license to the licensee's core competencies and to preserve the ability to license the technology to other parties in other fields on terms appropriate to those fields. IP Licensing Guidelines § 2.3.
Application to the Proposed Settlement. Solstice's current product portfolio in the relevant technology area includes: (i) the PrecisionEdge™ laparoscopic trocar systems (PE-5000, PE-12000, PE-15000), which are the accused products in the Litigation; (ii) endoscopic graspers; and (iii) electrosurgical hand instruments. The field-of-use restriction limits Solstice's license to laparoscopic surgical access devices — the very market segment at issue in the Litigation and the segment in which the accused PrecisionEdge™ products compete. Solstice's other product lines (graspers and electrosurgical instruments) are not affected by this restriction because those products do not implicate the claims of the Licensed Patents and would not require a license under those patents.
Importantly, the field-of-use restriction does not prevent Solstice from independently developing or acquiring technology for use outside the licensed field. It merely limits the scope of the patent license — that is, the specific authorization that Apex is granting. Solstice remains free to design, develop, manufacture, and sell products in any market segment, provided that it does not practice the Licensed Patents outside the authorized field of use. This is a limitation on the license, not a limitation on Solstice's competitive activities more broadly.
Risk Factor. The principal antitrust risk associated with field-of-use restrictions arises when the restriction is drafted so broadly that it prevents the licensee from competing in adjacent product markets that are beyond the scope of the patent claims. In such cases, the restriction may function as a horizontal market allocation agreement disguised as a patent license limitation. For example, if the "Licensed Field" were defined to encompass not only laparoscopic surgical access devices but also endoscopic graspers and electrosurgical instruments — product categories in which both Apex and Solstice compete but which are unrelated to the Licensed Patent claims — a court might view the restriction as an impermissible restraint on Solstice's ability to compete in those adjacent markets.
To mitigate this risk, we recommend that the "Licensed Field" definition in the Patent License Agreement (Exhibit A to the Definitive Settlement Agreement) be drafted narrowly and precisely, tied to the actual claim scope of the Licensed Patents. The definition should reference trocar assemblies, surgical access ports, obturators, and directly related surgical access components, and should avoid overly broad language that could be interpreted to extend beyond the scope of the patent claims.
Conclusion. The field-of-use restriction is lawful and presents low antitrust risk, provided that it is drafted to correspond to the scope of the Licensed Patent claims and does not extend to product categories that are unrelated to the patented technology.
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 Solstice to maintain flexible manufacturing arrangements — an important operational consideration, given that Solstice utilizes third-party contract manufacturers for certain production processes — while preventing Solstice from effectively becoming a sub-licensor that could grant independent licenses to competing device companies. Without this restriction, Solstice could potentially undermine Apex's licensing strategy by offering sublicenses to Apex's competitors on terms that Apex did not negotiate and did not authorize.
From an antitrust perspective, the sublicense restriction does not foreclose any competitor from obtaining a license to the Licensed Patents. Any competitor that wishes to practice the Licensed Patents may independently approach Apex and negotiate a license on its own terms. The restriction simply ensures that the licensing relationship remains bilateral — between Apex and each licensee — rather than allowing Solstice to interpose itself as an intermediary.
Conclusion. The limitation on sublicensing rights to contract manufacturers presents no antitrust concern.
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, which covers only the three specifically identified Licensed Patents and their continuations, divisionals, and reissues. The covenant extends to the entire Trocar Patent Family, providing Solstice with a shield against infringement assertions under patents in the family that are not expressly licensed.
The covenant not to sue is procompetitive. It provides Solstice with the commercial certainty necessary to invest in product development, manufacturing capacity, and marketing for its PrecisionEdge™ product line and successor products. Without this covenant, Solstice would face the ongoing risk that Apex could assert additional patents in the Trocar Patent Family against Solstice's products, even after the current Litigation is resolved. The covenant reduces this litigation risk and encourages Solstice to compete vigorously in the market, to the benefit of hospitals, surgeons, and ultimately patients.
Potential Concern — No-Challenge Clauses. One issue that warrants attention in connection with the covenant not to sue is whether the settlement includes any provision that would prevent Solstice from challenging the validity of Apex's patents in future proceedings. Such "no-challenge" clauses have been the subject of antitrust scrutiny because they can shield potentially invalid patents from challenge, thereby maintaining exclusionary rights to which the patentee may not be entitled. In MedImmune, Inc. v. Pemberton Partners LLC, 549 U.S. 118 (2007), the Supreme Court held that a licensee in good standing may bring a declaratory judgment action challenging the validity of the licensed patents, eliminating the prior rule that required the licensee to breach the license before challenging validity. The DOJ and FTC have taken the enforcement position that no-challenge clauses in patent licenses may be anticompetitive because they insulate patents from validity challenges that could benefit competition.
We have reviewed the near-final Term Sheet and confirm that it does not include a no-challenge provision. Solstice retains the right to challenge the validity of the Licensed Patents and the other patents in the Trocar Patent Family in future proceedings, subject only to the covenant not to sue (which is a covenant by Apex not to assert its patents, not a covenant by Solstice not to challenge them). It is essential that the Definitive Settlement Agreement preserve this position and not introduce a no-challenge clause.
Conclusion. The covenant not to sue is procompetitive and presents no material antitrust risk, provided that the Definitive Settlement Agreement does not include a no-challenge clause restricting Solstice's right to challenge patent validity.
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 licenses have received antitrust scrutiny because of their potential to affect licensing dynamics in ways that may dampen competition. The principal concern is that an MFL clause may reduce the licensor's incentive to offer lower royalty rates to other potential licensees. If the licensor knows that any reduction in the royalty rate offered to a new licensee will automatically trigger a corresponding reduction in the rate paid by existing MFL-protected licensees, the licensor faces an increased cost of offering lower rates — because the revenue reduction applies not only to the new licensee but also to the MFL-protected licensee. This dynamic can create a "ratchet" effect that tends to maintain royalty rates at existing levels, potentially resulting in higher effective costs for all licensees than would prevail in the absence of the MFL clause.
The DOJ and FTC analyze MFL clauses under the rule of reason. The agencies have identified potential anticompetitive effects where: (1) the clause covers a significant portion of the market's licensees, creating a pervasive ratchet effect that discourages rate reductions across the market; or (2) the clause facilitates tacit coordination on royalty rates by making pricing information more transparent among competitors. However, MFL clauses can also have procompetitive justifications, including ensuring that a licensee receives fair treatment relative to subsequent licensees, reducing negotiation costs, and providing commercial certainty that encourages the licensee to invest in the licensed technology.
Assessment of Risk Factors. We assess the antitrust risk of the proposed MFL clause as low-to-moderate based on the following considerations:
• Solstice is one licensee among a potentially larger group. Apex's Trocar Patent Family includes 14 issued patents, and Apex's document production in the Litigation (Bates-stamped APEX-000001 through APEX-031450) indicates that Apex has entered into licensing arrangements with several other parties. Solstice's MFL clause, standing alone, does not create a pervasive ratchet effect across the licensing market. If a substantial majority of Apex's licensees held MFL protections, the cumulative effect might raise greater concerns — but based on available information, the Solstice MFL is a single-licensee provision.
• The MFL clause applies only prospectively. It does not require retroactive adjustment of the royalty rate based on licenses that Apex has already granted. This limits the scope of the clause and reduces its potential impact on Apex's licensing strategy going forward.
• The MFL is limited in scope. It applies only to the specific Licensed Patents (U.S. Patent Nos. 9,814,237; 10,271,884; and 10,932,105 and their continuations, divisionals, and reissues) and only to licenses within the licensed field of use (laparoscopic surgical access devices). It does not apply across Apex's entire patent portfolio or to licenses in other fields. This narrow scope limits the potential for the clause to affect competition in markets beyond the immediate scope of the settlement.
• The clause is unilateral. It benefits only Solstice and does not establish a common royalty rate across multiple licensees. It is a price protection mechanism for Solstice, not a coordinating mechanism among Apex's licensees.
Drafting Recommendation. The most significant antitrust risk associated with the MFL clause relates to the notification protocol — that is, the mechanism by which Apex informs Solstice that a lower rate has been triggered. If the notification protocol requires Apex to disclose the identity of the third-party licensee, the specific terms of the third-party license, or other commercially sensitive information, the MFL clause could serve as a conduit for the exchange of competitively sensitive information between horizontal competitors (Solstice and the third-party licensee, both of which compete in the laparoscopic surgical access device market). Such information exchange could facilitate tacit coordination on pricing, output, or other competitive variables.
To mitigate this risk, we recommend that the Side Letter governing the MFL notification protocol (which is to be executed alongside the Definitive Settlement Agreement) limit Apex's disclosure obligation to the following information: (i) notice that a third-party license has been granted at a running royalty rate lower than 3.75% of Net Sales, and (ii) the adjusted royalty rate applicable to Solstice going forward. The Side Letter should expressly prohibit disclosure of the identity of the third-party licensee, the amount of any lump-sum consideration paid by the third-party licensee, any field-of-use or territorial limitations in the third-party license, or any other commercial terms. This approach provides Solstice with the price protection benefit of the MFL clause while minimizing the risk of facilitating competitively sensitive information exchange.
Conclusion. The MFL clause presents a low-to-moderate level of antitrust sensitivity. The risk is manageable with proper drafting, particularly limiting the scope of information shared under the MFL notification protocol. With the recommended drafting measures in place, we do not believe the MFL clause creates material antitrust exposure.
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 procompetitive. The mutual release and dismissal eliminate the ongoing costs and uncertainties of patent litigation for both parties, free judicial resources, and allow both parties to redirect their attention and capital to competitive activities in the market. Courts have consistently recognized that the promotion of settlement is a strong public policy interest that supports the enforceability of reasonable settlement terms. See, e.g., Aro Corp. v. Allied Witan Co., 531 F.2d 1368, 1372 (6th Cir. 1976).
Conclusion. The mutual release and dismissal with prejudice present no antitrust concern.
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.
Confidentiality provisions in patent settlement agreements are common and generally do not raise antitrust issues. Parties to patent settlements routinely include confidentiality clauses to protect commercially sensitive information, including royalty rates, payment amounts, and other financial terms. Such provisions serve legitimate business interests and are not, standing alone, indicative of anticompetitive conduct.
The antitrust risk associated with confidentiality provisions arises only where the provisions are used to conceal anticompetitive conduct — for example, where the confidentiality clause is designed to prevent regulatory agencies or the public from learning about terms that would be challenged as antitrust violations. This concern is not present here, where the underlying settlement terms are, as analyzed throughout this memorandum, consistent with lawful patent licensing practices.
It is worth noting that in the post-Actavis enforcement environment, the FTC has required the filing of certain pharmaceutical patent settlement agreements under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 ("MMA"), 21 U.S.C. § 355 note. No analogous filing requirement exists for medical device patent settlements. However, the FTC retains general investigatory authority under Section 5 of the FTC Act and could, in theory, investigate the terms of a medical device patent settlement if it believed the terms raised antitrust concerns. Accordingly, the settlement should be structured to withstand scrutiny if the FTC or DOJ were to review the terms, and the confidentiality provision should not prohibit disclosure of settlement terms to government regulators upon lawful request or as required by applicable law.
Recommendation. We recommend including a carve-out in the confidentiality provisions that expressly permits either party to disclose the terms of the settlement to government regulators — including the FTC, DOJ, Securities and Exchange Commission, and Internal Revenue Service — upon lawful request, subpoena, civil investigative demand, or as otherwise required by applicable law or regulation. This carve-out is consistent with standard practice and ensures that the confidentiality provision cannot be characterized as an attempt to conceal the settlement terms from regulatory scrutiny.
Conclusion. The confidentiality provisions present no material antitrust risk, provided they include an appropriate carve-out for disclosure to government regulators.
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 related instrumentation used to establish access to the abdominal cavity during minimally invasive laparoscopic surgical procedures. This market is well-defined and recognized in the medical device industry. Laparoscopic surgical access devices are not substitutable with open-surgery instruments or robotic surgical access systems for purposes of this analysis, as they serve a distinct clinical function and are used in distinct procedural contexts.
Relevant Geographic Market. The relevant geographic market is the United States. The Litigation involves U.S. patent rights, and the accused products are manufactured for and sold in the U.S. market. While the license grant is worldwide, the antitrust analysis appropriately focuses on competitive effects within the United States, where both parties actively compete and where the relevant patent rights are enforceable.
Market Participants and Competitive Dynamics. The U.S. laparoscopic surgical access device market includes multiple significant competitors beyond Apex and Solstice. Several large multinational medical device companies maintain substantial market positions in this segment, with broad surgical device portfolios and well-established relationships with hospital group purchasing organizations ("GPOs") and integrated delivery networks ("IDNs"). These competitors exert meaningful competitive pressure on both Apex and Solstice and provide hospitals and surgical centers with multiple alternative sourcing options for laparoscopic surgical access devices.
Apex Financial Data. Apex's estimated fiscal year 2023 revenue was approximately $312 million. This revenue figure encompasses Apex's full product portfolio, including surgical access devices, trocar systems, insufflation equipment, and other surgical instrumentation. Not all of this revenue is attributable to the relevant product market (laparoscopic surgical access devices); Apex's revenue from that specific segment is a subset of the total.
Solstice Financial Data. Solstice's fiscal year 2023 revenue was €187.4 million at the group level, across all product lines including laparoscopic trocars, endoscopic graspers, and electrosurgical hand instruments, as well as products sold outside the United States. Solstice's combined U.S. sales of the accused PrecisionEdge™ products from 2021 through Q3 2024 totaled approximately $74.6 million, representing a meaningful but not dominant share of the U.S. laparoscopic surgical access device market during that period.
Combined Market Share. Based on available data, the combined market share of Apex and Solstice in the relevant product and geographic market is estimated to be well below the levels that would create monopoly power concerns (typically 70% or higher). The combined share is likely within or near the 20% safety zone identified in the DOJ/FTC IP Licensing Guidelines, although, as noted in Section II.C, this estimate should be confirmed with more granular market data from industry sources or Solstice's commercial analytics group.
Settlement Effects on Competition. The proposed settlement does not allocate customers between Apex and Solstice, divide territories, fix the prices at which either party sells its products to end customers, or restrict the output of either party's products. It is a straightforward patent license with standard commercial protections — a lump-sum settlement payment, ongoing royalties, a non-exclusive license, and a covenant not to sue — that resolves a bona fide patent infringement dispute. The settlement is expected to enhance competition by removing the cloud of patent infringement liability from Solstice's PrecisionEdge™ product line, enabling Solstice to compete more confidently and to invest in product development and commercialization without the risk of an adverse judgment or injunctive relief.
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 specified jurisdictional thresholds. The proposed settlement involves a patent license, not an acquisition of assets or voting securities. A non-exclusive patent license does not constitute an "asset" acquisition for purposes of the HSR Act because the licensor retains ownership of the patent and the licensee acquires only a non-exclusive right to practice the patented technology. Accordingly, HSR filing is not required in connection with this settlement.
FTC Notification of Patent Settlements. Under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, certain pharmaceutical patent settlement agreements must be filed with the FTC and DOJ. 21 U.S.C. § 355 note. This filing requirement applies specifically to agreements between brand-name drug manufacturers (NDA holders) and generic drug applicants (ANDA filers) that settle patent infringement litigation under the Hatch-Waxman Act. There is no analogous filing requirement for medical device patent settlements. The proposed settlement between Apex and Solstice does not involve pharmaceutical products or Hatch-Waxman litigation, and no FTC notification filing is required.
General FTC Investigatory Authority. Although no mandatory filing is required, the FTC retains broad investigatory authority under Section 5 of the FTC Act. The FTC may initiate an investigation of any agreement between competitors that it believes may constitute an "unfair method of competition," including patent settlement agreements. The settlement should therefore be structured and documented in a manner that would withstand scrutiny if the FTC or DOJ were to review the terms. As discussed throughout this memorandum, we believe the proposed settlement terms satisfy this standard.
State Antitrust Filing Requirements. We have not identified any state antitrust filing requirements applicable to a patent license settlement of this nature. Some states have enacted antitrust statutes that parallel the federal Sherman Act and FTC Act, but none that we have identified impose affirmative filing requirements for patent license settlements between competitors in the medical device industry.
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 surgical access components used to establish and maintain access to the abdominal or thoracic cavity during laparoscopic surgical procedures. The definition should avoid overly broad language — such as "all surgical devices" or "all instruments used in minimally invasive surgery" — that could be interpreted to restrict Solstice's competitive activities in adjacent product markets (such as endoscopic graspers or electrosurgical hand instruments) beyond the scope of the Licensed Patent claims.
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 other financial consideration paid by the third-party licensee, the field-of-use or territorial scope of the third-party license, or any other commercial terms of the third-party license. This approach minimizes the risk that the MFL clause could serve as a conduit for competitively sensitive information exchange between horizontal competitors.
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 position should be preserved in the definitive documentation. A no-challenge clause could raise antitrust concerns under MedImmune, Inc. v. Pemberton Partners LLC, 549 U.S. 118 (2007), and DOJ/FTC enforcement positions.
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 governing the license fee owed by Solstice to Apex and should be clearly characterized as such in the agreement — they should not be drafted or structured in a manner that could be interpreted as production constraints or price floors.
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 carve-out ensures that the confidentiality provision cannot be characterized as an attempt to conceal the settlement terms from regulatory scrutiny and is consistent with standard practice in patent settlement agreements between competitors.
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's-length nature of the royalty rate and other financial terms. These materials would be essential to demonstrating the reasonableness and procompetitive character of the settlement if the terms were ever challenged by the FTC, DOJ, or a private plaintiff.
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 dispute. The financial terms are reasonable and reflect arm's-length negotiations informed by expert economic analysis.
Specifically:
• The lump-sum payment of $8,750,000 represents approximately 27.5% of Apex's claimed damages exposure of $31,800,000 and reflects a negotiated compromise of the litigation risk, not an anticompetitive payment.
• The running royalty of 3.75% of Net Sales is within the range of reasonable royalty rates for comparable surgical device patent licenses and was informed by the Georgia-Pacific factor analysis and the Ridgeline IP Analytics LLC valuation.
• The non-exclusive license expands rather than restricts competition by permitting Solstice to continue manufacturing and selling its PrecisionEdge™ trocar products under a license.
• The field-of-use restrictio

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