georgia-pacific-analysis-memo.docx

1037-00004 · Solstice Biomedical Devices Ltd · Settlement Negotiation

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CALDERWOOD & HARKNESS LLP INTELLECTUAL PROPERTY GROUP

May 20, 2025

MEMORANDUM

FROM: Christy Bauer, Lead Associate, intellectual Property, Calderwood & Harkness LLP Peter Vassiliev, Working Associate, intellectual Property, Calderwood & Harkness LLP

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

CC: Eamon Rourke, General Counsel, Solstice Biomedical Devices Ltd. Brendan Molloy, Chief Financial Officer, Solstice Biomedical Devices Ltd.

RE: Georgia-Pacific Factor Analysis — Reasonable Royalty Benchmark for Settlement Negotiations

MATTER: Apex Surgical Innovations, Inc. v. Solstice Biomedical, Inc., Case No. 1:24-cv-00587-RGA (D. Del.)

MATTER NO.: 10294.0017

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I. Executive Summary

The purpose of this memorandum is to analyze and apply the fifteen factors articulated in Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970), to establish a defensible reasonable royalty benchmark for the three United States patents asserted by Apex Surgical Innovations, Inc. ("Apex") against Solstice Biomedical, Inc. ("Solstice") in the above-captioned litigation. This analysis is intended to inform Solstice's settlement negotiation posture in the intensive settlement discussions that commenced on May 19, 2025, and to provide a rigorous analytical foundation for evaluating the economic reasonableness of the terms currently under negotiation.

The three patents at issue are:

• U.S. Patent No. 9,814,237 ("the '237 Patent"), entitled "Locking Seal Assembly for Minimally Invasive Surgical Access Device," issued November 14, 2017, expiring June 22, 2035;

• U.S. Patent No. 10,271,884 ("the '884 Patent"), entitled "Retractable Blade Deployment Mechanism for Trocar Systems," issued April 30, 2019, expiring September 15, 2036; and

• U.S. Patent No. 10,932,105 ("the '105 Patent"), entitled "Integrated Insufflation Valve and Seal for Laparoscopic Trocar," issued March 2, 2021, expiring January 10, 2038.

All three patents name Dr. Raymond Szabo as inventor and are assigned to Apex Surgical Innovations, Inc.

The accused products are Solstice's PrecisionEdge™ line of laparoscopic trocars: the PE-5000 Series (5 mm trocar), the PE-12000 Series (12 mm trocar), and the PE-15000 Series (15 mm trocar). Combined United States sales of the accused products from calendar year 2021 through the third quarter of calendar year 2024 total approximately $74.6 million, broken down as follows: $12.1 million in FY 2021, $17.8 million in FY 2022, $22.4 million in FY 2023, and $22.3 million through September 30, 2024. The weighted average gross margin on accused products over this period is approximately 61.3%.

Apex's retained damages expert, Hugh Danaher, CFA, of Keystone Valuation Advisors LLC, has asserted $31.8 million in reasonable royalty damages. As demonstrated in this memorandum, that figure is significantly overstated and would not withstand rigorous scrutiny under Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), or established Federal Circuit precedent on reasonable royalty damages. Solstice's retained damages expert, Dr. Elena Marchetti of Pinnacle Economics Group LLC, has provided a competing analysis that supports a substantially lower royalty rate, consistent with the conclusions reached herein.

Based on our factor-by-factor analysis, we conclude that a reasonable royalty rate falls in the range of approximately 2.5% to 4.5% of net sales, with a central tendency or midpoint benchmark of approximately 3.5%. This range is consistent with the 3.75% running royalty rate currently under discussion in settlement negotiations, which falls slightly above the midpoint but is justified by the broader scope of the license and covenant not to sue being offered. Applied to the $74.6 million in past sales, a 3.5% rate would yield approximately $2.61 million in past damages — a figure that stands in stark contrast to Danaher's $31.8 million claim.

This memorandum should be read in conjunction with the companion memorandum dated May 21, 2025, reviewing the patent portfolio valuation summary prepared by Ridgeline IP Analytics LLC.

II. Background

A. The Asserted Patents

Apex has asserted three patents from a broader patent family (the "Apex Trocar Patent Family") consisting of fourteen total issued United States patents and six pending continuation applications, all directed to various aspects of laparoscopic trocar design and functionality. The three asserted patents and their relevant characteristics are as follows:

U.S. Patent No. 9,814,237 ("the '237 Patent"). The '237 Patent is entitled "Locking Seal Assembly for Minimally Invasive Surgical Access Device." It was filed on June 22, 2015, and issued on November 14, 2017. Its expiration date is June 22, 2035. The '237 Patent generally claims a multi-component seal assembly for a trocar that provides a gas-tight seal around surgical instruments of varying diameters while incorporating a locking mechanism to prevent inadvertent disengagement during laparoscopic procedures. Apex asserts Claims 1, 3, 7, and 12 of the '237 Patent against Solstice's PE-5000 and PE-12000 Series products.

U.S. Patent No. 10,271,884 ("the '884 Patent"). The '884 Patent is entitled "Retractable Blade Deployment Mechanism for Trocar Systems." It was filed on September 15, 2016, and issued on April 30, 2019. Its expiration date is September 15, 2036. The '884 Patent generally claims a spring-loaded, retractable blade mechanism for a trocar obturator that automatically retracts the blade after initial tissue penetration, reducing the risk of inadvertent tissue injury. Apex asserts Claims 1, 2, 5, 9, and 14 of the '884 Patent against all three PrecisionEdge™ product lines — the PE-5000, PE-12000, and PE-15000 Series.

U.S. Patent No. 10,932,105 ("the '105 Patent"). The '105 Patent is entitled "Integrated Insufflation Valve and Seal for Laparoscopic Trocar." It was filed on January 10, 2018, and issued on March 2, 2021. Its expiration date is January 10, 2038. The '105 Patent generally claims an integrated valve assembly that combines insufflation gas management with the trocar's primary instrument seal, providing continuous CO₂ flow control without the need for a separate stopcock or auxiliary valve. Apex asserts Claims 1, 4, and 8 of the '105 Patent against the PE-12000 and PE-15000 Series products.

All three patents name Dr. Raymond Szabo, Vice President of Engineering at Apex, as the sole inventor and are assigned to Apex Surgical Innovations, Inc. The patents share a common specification lineage and are part of a continuation family that traces back to the '237 Patent's priority date. The broader Apex Trocar Patent Family encompasses a range of additional claims directed to alternative embodiments of trocar seal, blade, and insufflation technologies, though only the twelve specific claims identified above are asserted in this litigation.

B. The Accused Products and Revenue Data

Solstice's PrecisionEdge™ line of laparoscopic trocars comprises three product series, each of which is accused of infringing one or more of the asserted patents:

• PE-5000 Series (5 mm trocar assembly): Accused of infringing the '237 Patent (Claims 1, 3, 7, 12) and the '884 Patent (Claims 1, 2, 5, 9, 14). The PE-5000 is Solstice's smallest-diameter trocar, used primarily for the introduction of 5 mm laparoscopic instruments including graspers, scissors, and dissectors.

• PE-12000 Series (12 mm trocar assembly): Accused of infringing all three asserted patents — the '237 Patent (Claims 1, 3, 7, 12), the '884 Patent (Claims 1, 2, 5, 9, 14), and the '105 Patent (Claims 1, 4, 8). The PE-12000 is Solstice's highest-revenue product in the PrecisionEdge™ line and accommodates larger-diameter instruments such as endoscopic staplers and clip appliers.

• PE-15000 Series (15 mm trocar assembly): Accused of infringing the '884 Patent (Claims 1, 2, 5, 9, 14) and the '105 Patent (Claims 1, 4, 8). The PE-15000 is the largest-diameter trocar in the PrecisionEdge™ line, designed for the introduction of specimen retrieval bags and larger surgical instruments.

The combined United States sales of the accused PrecisionEdge™ products from calendar year 2021 through the third quarter of calendar year 2024 are as follows:

The revenue data demonstrates a strong growth trajectory, with year-over-year increases of approximately 47% (FY 2021 to FY 2022), 26% (FY 2022 to FY 2023), and an annualized rate for FY 2024 that, if extrapolated, suggests continued growth. The weighted average gross margin across all three product lines over the relevant period is approximately 61.3%, reflecting the generally high margins characteristic of proprietary single-use surgical devices.

For broader context, Solstice Biomedical Devices Ltd. (the ultimate parent entity, incorporated in Ireland) reported group-level revenue of approximately €187.4 million (unaudited) for fiscal year 2023. Solstice employs approximately 620 people worldwide. By comparison, Apex Surgical Innovations, Inc. reported estimated fiscal year 2023 revenue of approximately $312 million and employs approximately 1,100 people. Apex is thus the substantially larger enterprise, with revenue roughly 1.7 times that of Solstice's global group revenue when converted to a common currency.

C. Procedural Posture

This action was filed by Apex on May 9, 2024, in the United States District Court for the District of Delaware and was assigned to the Honorable Richard G. Andrews, United States District Judge. The case has proceeded on an accelerated schedule, and the relevant procedural milestones are summarized below:

• Claim Construction: A Markman hearing was held on November 8, 2024, and the Court issued its Claim Construction Order on December 6, 2024, construing nine disputed claim terms. Of the nine terms, five were construed favorably to Solstice and four were construed favorably to Apex. Notably, the Court adopted Solstice's proposed constructions for the terms "locking engagement" (in the '237 Patent), "retractable blade" and "automatically retracting" (in the '884 Patent), and "integrated valve assembly" (in the '105 Patent), each of which significantly narrows the scope of the asserted claims. The constructions favorable to Apex primarily related to means-plus-function limitations and corresponding structures, which expanded the range of structures covered by certain dependent claims.

• Expert Reports: The parties exchanged expert reports on liability and damages according to the following schedule:

• Dr. Stefan Ostrowski's invalidity report on behalf of Solstice: January 27, 2025

• Dr. James Ng's infringement report on behalf of Apex: February 10, 2025

• Damages reports from both parties' experts (Dr. Elena Marchetti for Solstice; Hugh Danaher, CFA, for Apex): February 14, 2025

• Rebuttal expert reports from all experts: March 3, 2025

• Mediation: The parties participated in a full-day mediation before the Honorable Margaret Forsythe (Ret.) at Amberstone ADR Services on March 17, 2025. The mediation did not result in a resolution, though the parties narrowed certain issues and expressed willingness to continue negotiations.

• Summary Judgment: Both parties filed cross-motions for summary judgment. Apex moved for summary judgment of infringement on all asserted claims; Solstice moved for summary judgment of invalidity on the '237 Patent and non-infringement on the '105 Patent. Both motions were denied on May 5, 2025, with the Court finding genuine disputes of material fact on all contested issues.

• Second Settlement Conference: A settlement conference was held before Magistrate Judge Colleen Pratt on May 12, 2025, at which the parties exchanged settlement proposals and began the framework discussions that led to the current intensive negotiations.

• Ongoing Settlement Negotiations: Intensive settlement negotiations commenced on May 19, 2025, and are ongoing as of the date of this memorandum. The parties have exchanged a preliminary term sheet.

• Trial Date: The case is currently set for a jury trial beginning September 30, 2025.

D. The Hypothetical Negotiation Framework

The Georgia-Pacific framework requires the Court (or, as here, the parties in evaluating settlement positions) to construct a hypothetical negotiation between a willing licensor and a willing licensee, negotiating at arm's length, at the time infringement began. Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970); see also Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1324–25 (Fed. Cir. 2009). The hypothetical negotiation is a legal construct designed to determine what royalty would have resulted from an arm's-length transaction in which both parties are assumed to be willing and to have knowledge of the relevant facts.

For purposes of this analysis, the hypothetical negotiation date is set at approximately early 2021 — the time at which Solstice's PrecisionEdge™ products first entered United States commerce and the alleged infringement began. We note that Danaher selected a similar date in his report. Both parties in the hypothetical negotiation are assumed to be reasonably informed of the patent landscape, the commercial potential of the PrecisionEdge™ products, the strength and scope of the asserted claims, the available non-infringing alternatives, and the competitive dynamics of the laparoscopic trocar market as of that date.

Where relevant throughout this analysis, we also consider the parties' ex post knowledge — including actual sales performance, the Claim Construction Order, and invalidity evidence developed in litigation — as a "book of wisdom" check on the reasonableness of the hypothetical negotiation outcome, consistent with the approach approved by the Federal Circuit in Fromson v. Western Litho Plate & Supply Co., 853 F.2d 1568, 1575 (Fed. Cir. 1988), and subsequent authority.

III. Analysis of the Fifteen Georgia-Pacific Factors

Factor 1: Royalties Received by the Patentee for Licensing the Patents-in-Suit

The first Georgia-Pacific factor considers the royalties received by the patentee for the licensing of the patents-in-suit, proving or tending to prove an established royalty. This factor is often viewed as among the most probative when reliable comparable license data exists.

We have conducted a thorough review of Apex's document production in this litigation (Bates-stamped APEX-000001 through APEX-031450), including all license agreements, term sheets, correspondence relating to licensing discussions, and internal memoranda addressing the valuation or licensing of the Apex Trocar Patent Family. This review reveals limited prior licensing activity with respect to the asserted patents or the broader Apex Trocar Patent Family.

Specifically, the document production discloses only two prior license agreements that reference any patents within the Apex Trocar Patent Family:

1. Apex–Hightower Medical Agreement (2018). Apex entered into a non-exclusive license agreement with Hightower Medical Systems, Inc., a manufacturer of specialty endoscopic instruments, in November 2018 (APEX-004712 through APEX-004743). This agreement licensed certain claims of the '237 Patent (but not the '884 or '105 Patents, which were not yet issued at the time) for use in Hightower's EndoPort™ line of single-use access ports. The agreement provided for a royalty of 2.0% of net sales with a minimum annual royalty of $75,000. However, this license is distinguishable on several grounds: (a) Hightower's products are not trocars but single-use access ports, a related but distinct product category; (b) the license covered only the '237 Patent and not the full set of asserted patents; (c) the field of use was limited to non-trocar surgical access devices; and (d) internal Apex correspondence (APEX-004698) suggests that the license was granted primarily to avoid invalidation of the '237 Patent in a post-grant review proceeding that Hightower had threatened to initiate, rather than as a true arm's-length commercial transaction.

2. Apex–MedVault Settlement License (2020). Apex resolved a patent infringement dispute with MedVault Surgical Technologies GmbH through a settlement agreement and license executed in June 2020 (APEX-011293 through APEX-011340). The settlement included a lump-sum payment of $1.2 million and a prospective non-exclusive license under the '237 and '884 Patents at a running royalty of 4.5% of net sales, with a five-year term. However, it is well established that litigation settlement licenses must be viewed with caution as comparable licenses because the royalty rate may reflect litigation risk, attorneys' fees exposure, and the desire to resolve uncertainty rather than a pure economic assessment of patent value. See LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51, 77 (Fed. Cir. 2012) (cautioning against undue reliance on litigation-driven licenses). The MedVault license, moreover, involved a European manufacturer with a relatively modest U.S. sales presence, further limiting its comparability.

Beyond these two agreements, the production reflects several instances in which Apex was approached by third parties regarding potential licensing of patents in the Apex Trocar Patent Family but declined to engage in substantive negotiations (see, e.g., APEX-015887, APEX-015892, APEX-018034). This pattern of declining to license is relevant to Factor 4, discussed below, but also suggests that there is no robust body of "established royalty" data from which to draw definitive conclusions under Factor 1.

Conclusion: The limited and distinguishable nature of Apex's prior licensing activity means that Factor 1 provides only modest guidance. To the extent it is informative, the data points — 2.0% (Hightower, non-arm's-length) and 4.5% (MedVault, litigation settlement) — bracket a range that is generally consistent with the 2.5%–4.5% reasonable royalty range proposed in this memorandum. On balance, this factor modestly favors Solstice because the available data does not establish a high royalty rate as the norm, and the most reliable comparable (Hightower) reflects a relatively low rate.

Factor 2: Rates Paid by the Licensee for the Use of Other Comparable Patents

The second Georgia-Pacific factor examines the rates paid by the accused infringer for the use of other patents comparable to the patents-in-suit. This factor looks at the licensing behavior of the licensee rather than the licensor.

Solstice's existing patent license portfolio includes several agreements for surgical device technologies, though none involve patents that are directly comparable to the asserted Apex patents in terms of specific technology:

• Solstice licenses certain electrosurgical instrument patents from NeuroVolt Medical, Inc. at a running royalty of 3.0% of net sales under a 2019 non-exclusive license agreement.

• Solstice licenses endoscopic visualization technology patents from ClearSight Optics Ltd. under a 2020 cross-license arrangement in which each party pays the other a net royalty differential, which effectively results in Solstice paying approximately 1.5% of net sales on the relevant product lines.

• Solstice licenses certain ergonomic handle and grip design patents from Ergomed Design GmbH at a lump-sum payment of $350,000 with no running royalty — reflecting the relatively low value attributed to purely design-oriented patents in this space.

Beyond Solstice's own portfolio, Dr. Marchetti's analysis (Pinnacle Economics Group LLC) surveyed publicly available and production-document license agreements in the minimally invasive surgical instrument and laparoscopic device space. Dr. Marchetti identified a set of twelve comparable license agreements involving patents directed to trocar, cannula, and surgical access device technologies. The royalty rates in these agreements ranged from 1.5% to 6.0% of net sales, with a median of approximately 3.2% and a mean of approximately 3.5%. The agreements at the upper end of this range (5.0%–6.0%) generally involved exclusive licenses or licenses to dominant patents with broad claim scope; the agreements at the lower end (1.5%–2.5%) generally involved narrow patents, non-exclusive licenses, or patents late in their term.

By contrast, Hugh Danaher's comparable license analysis relied on a set of seven purported comparable agreements, several of which are distinguishable on significant grounds. In particular, Danaher relied heavily on two exclusive license agreements in the robotic surgery space (a fundamentally different technology and market segment) with royalty rates of 8.0% and 10.5%, respectively. These exclusive, robotic-surgery licenses are not meaningfully comparable to a non-exclusive license for conventional laparoscopic trocar technology. Danaher also included a license agreement between two pharmaceutical device companies involving a drug-eluting stent technology — a product with dramatically different regulatory and commercial characteristics. The inclusion of these non-comparable licenses inflates Danaher's proposed rate and undermines the reliability of his analysis.

Conclusion: Industry rates for comparable, non-exclusive patents in the surgical access device space generally fall in the 2.0%–5.0% range of net sales, with a central tendency around 3.0%–3.5%. Danaher's reliance on non-comparable licenses from different technology segments and involving exclusive arrangements significantly overstates the appropriate benchmark. This factor supports a royalty rate consistent with the range identified by Dr. Marchetti and is generally neutral to modestly favorable to Solstice.

Factor 3: Nature and Scope of the License

The third Georgia-Pacific factor considers the nature and scope of the hypothetical license, including whether it is exclusive or non-exclusive, its geographic scope, restrictions on territory or field of use, and any limitations on sublicensing or transferability.

In the hypothetical negotiation, the license would almost certainly be non-exclusive. Apex is a direct competitor of Solstice in the laparoscopic trocar market and actively manufactures and sells its own competing trocar systems embodying the patented technology. It is inconceivable that Apex, as a willing licensor, would grant an exclusive license to a direct competitor, thereby foreclosing its own ability to practice its own patents. The Federal Circuit has recognized that a licensor's competitive interest in maintaining its own freedom to operate is a significant consideration in determining the scope of a hypothetical license. See Monsanto Co. v. McFarling, 363 F.3d 1336, 1348 (Fed. Cir. 2004).

With respect to geographic scope, the hypothetical license would likely be either worldwide or United States-only, depending on whether the parties anticipated the extension of infringement beyond the United States. Given that the litigation is limited to U.S. patent rights and the accused sales are U.S. sales, a U.S.-only license is most directly comparable for purposes of calculating U.S. damages, though the settlement terms currently under negotiation contemplate a worldwide license — a broader grant that carries additional value.

The field of use would be limited to laparoscopic surgical access devices — that is, trocars and directly related products. This limitation reflects the scope of the asserted patents and the relevant product market. The hypothetical licensee would not receive rights to practice the patents in unrelated fields (e.g., orthopedic devices, cardiovascular instruments).

Sublicense rights would be limited to contract manufacturers engaged by Solstice to produce PrecisionEdge™ products, which is standard commercial practice for medical device companies that outsource certain manufacturing operations. The license would be non-transferable except in connection with a change of control of Solstice, a customary provision designed to prevent the license from being separated from the operating business to which it relates.

Conclusion: A non-exclusive, field-limited, non-transferable license is the most reasonable construct for the hypothetical negotiation. Non-exclusive licenses command lower royalty rates than exclusive licenses because the licensee does not obtain the right to exclude others (including the licensor) from practicing the patented technology. This factor supports a moderate royalty rate and is neutral to modestly favorable to Solstice.

Factor 4: Licensor's Established Policy and Marketing Program to Maintain Patent Monopoly

The fourth Georgia-Pacific factor examines the licensor's established policy and marketing program to maintain its patent monopoly by refusing to license others to use the invention or by granting licenses under special conditions designed to preserve its monopoly.

As discussed in connection with Factor 1, Apex has engaged in very limited voluntary licensing of the Apex Trocar Patent Family. The Hightower Medical agreement was entered into under the pressure of a threatened post-grant review, and the MedVault agreement was a litigation settlement. The document production reveals multiple instances in which Apex declined to engage in licensing discussions with interested third parties (APEX-015887, APEX-015892, APEX-018034), and an internal Apex memorandum dated March 2019 (APEX-018034) states that it is "Apex's general policy to maintain exclusivity over its core trocar technology portfolio and to enforce its patents vigorously against competitors rather than dilute its competitive position through broad licensing."

Apex is a direct competitor in the trocar market with approximately $312 million in revenue and approximately 1,100 employees. It actively manufactures and sells competing trocar systems, insufflation equipment, and related laparoscopic surgical instruments. Apex's litigation posture — filing suit relatively promptly after Solstice's PrecisionEdge™ products gained market traction — is consistent with a policy of aggressive enforcement designed to protect market share rather than a willingness to monetize its patents through licensing revenue.

This evidence suggests that Apex has an established policy of maintaining patent exclusivity, which would tend to push the hypothetical royalty upward. A patentee that jealously guards its patent monopoly would be expected to demand a higher price for any license it does grant, particularly to a direct competitor.

However, it is important to note that the Georgia-Pacific hypothetical negotiation assumes, as a matter of law, that the patentee is a willing licensor — willing, at some price, to grant the license. See Georgia-Pacific, 318 F. Supp. at 1120. The hypothetical negotiation framework does not permit the patentee to simply refuse to license and thereby drive the royalty to infinity. Apex's preference for exclusivity is a factor that increases the rate but does not render the hypothetical negotiation impossible.

Conclusion: This factor modestly favors Apex and supports a higher royalty rate. The weight of this factor, however, is tempered by the legal requirement that a willing licensor is assumed to exist in the hypothetical negotiation.

Factor 5: Commercial Relationship Between the Licensor and Licensee

The fifth Georgia-Pacific factor addresses the commercial relationship between the patentee and the alleged infringer — whether they are competitors, and whether the license agreement would tend to increase the licensee's competitive position to the detriment of the licensor.

Apex and Solstice are direct competitors in the laparoscopic trocar market. Both companies manufacture and sell trocar assemblies for minimally invasive surgery, targeting overlapping customer bases (hospital purchasing organizations, ambulatory surgical centers, and individual surgeons). The PE-5000, PE-12000, and PE-15000 Series products compete directly with Apex's own trocar product lines.

The licensing of a direct competitor may require a premium to compensate the licensor for the competitive harm it suffers by enabling the competitor's continued sales of products that directly compete with the licensor's own offerings. As the court recognized in Georgia-Pacific itself, where the licensor and licensee are competitors, "the royalty must reflect the harm to the patentee's competitive position." 318 F. Supp. at 1121. The Federal Circuit has also recognized the competitive premium principle. See Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1554 (Fed. Cir. 1995) (en banc).

As a counterargument, Solstice's market share in the U.S. laparoscopic trocar market is modest relative to Apex's. With approximately $22.4 million in FY 2023 U.S. trocar sales (across the accused PrecisionEdge™ line, which represents Solstice's primary trocar offering in the U.S. market), Solstice's U.S. trocar revenue represents only approximately 7.2% of Apex's estimated $312 million in total revenue. The actual competitive impact of Solstice's PrecisionEdge™ products on Apex's sales, while not negligible, is limited by Solstice's smaller market footprint, more limited distribution network, and narrower brand recognition in the U.S. market. Moreover, the laparoscopic trocar market includes multiple other competitors — including Harborview Corporation, Calderon Corporation (Kestrel Partners LLC), Ashford & Co., and Beaumont Group — such that Solstice's competitive impact on Apex is diluted by the presence of these other substantial players.

Conclusion: This factor favors Apex and supports a higher royalty rate to account for the competitive relationship. The weight of this factor is partially offset by the limited magnitude of Solstice's competitive impact relative to Apex's size and the multi-competitor market structure.

Factor 6: Effect of Selling the Patented Specialty in Promoting Sales of Other Products of the Licensee

The sixth Georgia-Pacific factor considers the effect of selling the patented specialty in promoting sales of other products of the licensee — sometimes referred to as the "convoyed sales" or "derivative sales" analysis.

Solstice's PrecisionEdge™ trocar line is part of a broader portfolio of laparoscopic surgical instruments that includes endoscopic graspers, electrosurgical hand instruments, specimen retrieval devices, and ancillary insufflation accessories. In the surgical device market, hospitals and ambulatory surgical centers frequently purchase instruments as part of bundled surgical kits or through group purchasing organization (GPO) contracts that favor vendors who can supply a full complement of instruments for a given procedure. A surgeon who adopts the PrecisionEdge™ trocar as part of his or her preferred laparoscopic setup may, as a practical matter, also adopt other Solstice instruments — particularly if Solstice offers a procedure-specific tray or kit that includes trocars alongside graspers and other instruments.

Our review of Solstice's sales data and customer purchasing patterns (as analyzed in Dr. Marchetti's expert report) indicates that there is a measurable but moderate convoyed sales effect. Approximately 28% of hospital accounts that purchase PrecisionEdge™ trocars also purchase at least one other Solstice instrument product line, compared with approximately 15% of accounts that purchase Solstice instruments without also purchasing PrecisionEdge™ trocars. This suggests that the trocar line does promote cross-selling of complementary Solstice products, but the effect is not overwhelming.

From the perspective of the hypothetical negotiation, this convoyed sales benefit increases the value that Solstice, as licensee, would place on the license — because the ability to sell PrecisionEdge™ trocars generates not only direct trocar revenue but also incremental revenue from related product sales. However, this factor does not increase the royalty rate that Solstice would be willing to pay; rather, it increases the ceiling of what Solstice could afford to pay while still finding the license economically rational.

Conclusion: The existence of some derivative sales benefit is modestly relevant and slightly increases the value Solstice derives from the license, which in turn modestly supports the patentee's position. This factor is modestly favorable to Apex but carries limited weight in the overall analysis.

Factor 7: Duration of the Patent and the Term of the License

The seventh Georgia-Pacific factor considers the duration of the patent and the term of the license.

The three asserted patents have the following expiration dates, calculated from the earliest effective filing date and accounting for any applicable patent term adjustments:

As of the hypothetical negotiation date of early 2021, the three patents collectively provided coverage extending through January 10, 2038 — a period of approximately 17 years. Even as of the date of this memorandum, the combined portfolio provides approximately 12.7 years of remaining patent life.

This extended remaining patent life has a dual effect on the hypothetical royalty. On the one hand, a longer remaining term increases the cumulative value of the license to the licensee because the licensee benefits from the licensed technology over a longer period. On the other hand, a longer term may support a lower per-year (or per-unit) royalty rate because the licensor's return is spread over a greater number of years. As the Federal Circuit has observed, the total consideration for a license can be equivalent whether structured as a higher rate over a shorter term or a lower rate over a longer term. See Prism Techs. LLC v. Sprint Spectrum L.P., 849 F.3d 1360, 1373 (Fed. Cir. 2017).

In the context of the settlement negotiations, the parties are discussing a license that would extend for the full remaining term of the longest-lived patent (the '105 Patent), providing Solstice with certainty through 2038. This extended term justifies a moderate running royalty rate rather than the elevated rates that might be appropriate for a short-term or limited-duration license.

Conclusion: This factor is neutral to modestly favorable to Solstice (supports a lower annual rate), given the extended remaining patent life and the corresponding spread of the licensor's return over a long period.

Factor 8: Established Profitability of the Product Made Under the Patent, Its Commercial Success, and Its Current Popularity

The eighth Georgia-Pacific factor examines the established profitability of the product made under the patent, its commercial success, and its current popularity.

The accused PrecisionEdge™ products have demonstrated strong commercial performance since their introduction to the U.S. market in early 2021. As set forth in Section II.B above, combined U.S. sales have grown from $12.1 million in FY 2021 to an annualized pace of approximately $29.7 million in FY 2024 (based on $22.3 million through the first three quarters). Total cumulative U.S. sales through the third quarter of FY 2024 are $74.6 million.

The year-over-year growth rates — approximately 47% (2021–2022), 26% (2022–2023), and an accelerating trajectory in 2024 — demonstrate that the PrecisionEdge™ line is gaining market traction and increasing commercial acceptance among U.S. surgeons and hospital purchasing organizations.

The weighted average gross margin of 61.3% indicates robust profitability. This margin is consistent with or slightly above industry norms for single-use laparoscopic devices, which typically carry gross margins in the 50%–65% range depending on the complexity of the device and the manufacturer's cost structure. The strong gross margin reflects both Solstice's efficient manufacturing operations and the premium pricing that the PrecisionEdge™ brand has been able to command in the market.

From the perspective of the hypothetical negotiation, the established profitability and commercial success of the accused products increase the value that a willing licensor would demand for a license. A patentee licensing technology embodied in a commercially successful product would rationally demand a share of the demonstrated profits. Conversely, a licensee negotiating for the right to sell a proven, profitable product line would be willing to accept a higher royalty rate than it would for an unproven technology with uncertain commercial prospects.

Conclusion: This factor favors Apex and supports a higher royalty rate. The established commercial success and strong profitability of the PrecisionEdge™ products are significant factors that increase the patentee's leverage in the hypothetical negotiation.

Factor 9: Utility and Advantages of the Patent Property over the Old Modes or Devices

The ninth Georgia-Pacific factor considers the utility and advantages of the patented technology compared with prior art devices and methods. This factor examines the incremental value of the patented inventions over what was previously available in the art.

Each of the three asserted patents claims a specific technical improvement to laparoscopic trocar systems:

• The '237 Patent (Locking Seal Assembly): The patented locking seal assembly provides a mechanism for securing the instrument seal in a closed position to prevent gas leakage during instrument exchanges. Prior art trocar seals generally relied on passive elastomeric seals without a locking feature, which could result in intermittent CO₂ leakage during procedures involving frequent instrument changes. The '237 Patent's locking mechanism represents an incremental improvement, though alternative locking mechanisms (e.g., twist-lock and snap-fit designs not covered by the asserted claims) were known in the art.

• The '884 Patent (Retractable Blade Deployment Mechanism): The patented retractable blade mechanism provides automatic blade retraction after initial tissue penetration to reduce the risk of inadvertent organ injury. While spring-loaded retractable obturator blades were known in the prior art (as documented in Dr. Ostrowski's invalidity report, citing multiple prior art references including the Kestrel Partners LLC Excel™ trocar design), the '884 Patent claims a specific combination of a dual-spring actuation mechanism with a force-calibrated release threshold. This combination provides a measurable improvement in blade retraction speed and reliability, but the incremental advantage over prior art designs is modest rather than transformative.

• The '105 Patent (Integrated Insufflation Valve and Seal): The patented integrated valve assembly combines CO₂ insufflation gas management with the primary instrument seal in a single integrated component, eliminating the need for a separate stopcock. This integration provides a convenience advantage and reduces the trocar's overall form factor, but alternative approaches to insufflation management — including external stopcock valves and side-port insufflation ports — remain widely available and are used in many competing trocar products.

Dr. Ostrowski's invalidity report, submitted on January 27, 2025, identifies substantial prior art that narrows the scope of the patented inventions. For the '237 Patent, Dr. Ostrowski identifies three prior art references (including the Dunmore Partners LLC ENDOTIP® trocar and U.S. Patent No. 7,329,254 to Chen et al.) that disclose locking seal mechanisms for surgical access devices. For the '884 Patent, Dr. Ostrowski identifies the Kestrel Partners LLC Excel™ trocar system and two additional prior art references that disclose spring-loaded retractable blade mechanisms with force-calibrated release features. For the '105 Patent, Dr. Ostrowski identifies prior art integrated valve designs from Beaumont Group and Stonefield Enterprises that predate the '105 Patent's priority date. Kendrick & Lau LLP's prior art search and freedom-to-operate analysis (which incurred $184,500 in fees) provided the foundation for Dr. Ostrowski's opinions and identified several additional references that strengthen Solstice's invalidity position.

Importantly, the Court's Claim Construction Order of December 6, 2024, construed five of nine disputed terms favorably to Solstice, with the effect of narrowing the scope of the asserted claims. In particular, the Court's construction of "integrated valve assembly" in the '105 Patent requires the valve and seal to be "formed as a single unitary component" rather than merely "housed within a common body," which significantly narrows the scope of the '105 Patent claims and strengthens Solstice's non-infringement position with respect to the PE-12000 and PE-15000 Series products.

Conclusion: This factor is mixed and, on balance, modestly favors Solstice. The patented features provide some incremental utility over prior art trocar designs, but they are not breakthrough innovations. The narrowed claim scope resulting from the Court's claim constructions and the substantial prior art identified by Dr. Ostrowski further reduce the incremental value of the patented technology.

Factor 10: Nature of the Patented Invention, the Character of the Commercial Embodiment of It as Owned and Produced by the Licensor, and the Benefits to Those Who Have Used the Invention

The tenth Georgia-Pacific factor examines the nature of the patented invention, the character of the commercial embodiment as produced by the licensor, and the benefits realized by users of the invention.

Apex's own commercial embodiment of the patented technology is found in its proprietary trocar product lines, including the Apex UltraSeal™ and Apex SafeBlade™ trocar families. These products incorporate the locking seal, retractable blade, and integrated insufflation valve technologies claimed in the asserted patents, and they have achieved significant commercial success in the U.S. and international markets. Apex's trocar products are generally well-regarded among surgeons for their seal reliability, blade safety features, and insufflation management capabilities.

However, a comparison of Apex's commercial products with the specific claim scope of the asserted patents reveals that Apex's commercial embodiments include numerous additional features and design elements that are not claimed in the asserted patents and that contribute substantially to their commercial appeal. These include Apex's proprietary low-friction cannula coating, its SmartTip™ tissue identification sensor, and its ergonomic handpiece design — none of which are covered by the asserted claims. This observation supports the argument that the commercial success of Apex's own products is attributable to a combination of patented and non-patented features, and that the asserted patents alone do not account for the full market value of Apex's (or Solstice's) trocar products.

From the end-user (surgeon) perspective, the benefits of the patented features include: (a) improved seal reliability during instrument exchanges (reducing CO₂ leakage and maintaining pneumoperitoneum), (b) safer blade deployment and retraction (reducing the risk of inadvertent organ injury), and (c) improved insufflation management through the integrated valve design (providing more consistent intra-abdominal pressure control). These benefits are clinically meaningful and contribute to surgeon satisfaction, but they are incremental improvements to an established product category rather than enabling technologies without which the product could not function.

Conclusion: This factor modestly favors Apex, as the patented technology is embodied in commercially successful products and provides identifiable clinical benefits to end users. However, the weight of this factor is limited by the observation that significant non-patented features also contribute to the commercial value of both Apex's and Solstice's trocar products.

Factor 11: Extent to Which the Infringer Has Made Use of the Invention and Any Evidence Probative of the Value of That Use

The eleventh Georgia-Pacific factor considers the extent to which the accused infringer has made use of the patented invention and any evidence of the value of that use.

Solstice has incorporated the accused features across all three PrecisionEdge™ product lines — the PE-5000 (5 mm), PE-12000 (12 mm), and PE-15000 (15 mm) Series. The accused features are embedded in the core design of these products and cannot be removed or replaced without a substantial product redesign. This suggests that Solstice views the accused features as integral to its product design, which in turn suggests that Solstice derives significant value from the use of those features.

The PE-12000 Series is the highest-revenue product in the PrecisionEdge™ line and is accused of infringing all three asserted patents. Internal Solstice product planning documents indicate that the PE-12000 Series accounts for approximately 55% of total PrecisionEdge™ U.S. sales revenue, with the PE-5000 and PE-15000 Series accounting for approximately 25% and 20%, respectively.

The $74.6 million in cumulative U.S. sales demonstrates significant and sustained commercial use of the accused technology. The year-over-year growth in sales further indicates that Solstice's use of the accused features is not diminishing but increasing, which strengthens the inference that the patented technology contributes meaningfully to the PrecisionEdge™ products' market appeal.

However, several considerations temper the weight of this factor. First, Solstice has advanced substantial non-infringement arguments based on the Court's claim constructions. As noted above, five of nine disputed claim terms were construed favorably to Solstice, and several of these constructions create genuine issues as to whether Solstice's products actually fall within the scope of the asserted claims. Second, even assuming infringement, the question of whether the accused features are critical drivers of customer purchasing decisions — as opposed to merely ancillary features that contribute to the overall product offering — is contested. Solstice's marketing materials emphasize the PrecisionEdge™ line's ergonomic design, low insertion force, and visual clarity features, which are not related to the asserted patents. Surgeon surveys conducted by Dr. Marchetti's team suggest that surgeons' trocar purchasing decisions are influenced by a range of factors, with seal reliability (related to the '237 Patent) and blade safety (related to the '884 Patent) ranking as important but not dominant considerations.

Conclusion: This factor favors Apex because Solstice has made extensive and growing commercial use of the accused features across its entire PrecisionEdge™ product line. The weight of this factor is, however, tempered by the scope of Solstice's infringement defenses and the evidence that non-patented features also drive purchasing decisions.

Factor 12: Portion of the Profit or of the Selling Price That May Be Customary in the Particular Business or in Comparable Businesses to Allow for the Use of the Invention or Analogous Inventions

The twelfth Georgia-Pacific factor considers the customary profit split or royalty rate in the relevant industry or comparable industries for the use of analogous patented inventions.

Dr. Marchetti's analysis for Pinnacle Economics Group LLC surveyed a comprehensive set of comparable license agreements in the minimally invasive surgical device industry. As discussed in connection with Factor 2, the royalty rates in these comparable agreements ranged from 1.5% to 6.0% of net sales, with a median of approximately 3.2% and a mean of approximately 3.5%. The subset of agreements most directly comparable to the present case — non-exclusive licenses to laparoscopic instrument or surgical access device patents — clustered in the 2.5% to 4.5% range.

Dr. Marchetti also examined the "25% rule of thumb" (the now-disfavored heuristic that the licensee should pay approximately 25% of its expected profits to the licensor), which the Federal Circuit rejected as a standalone methodology in Uniloc USA, Inc. v. Kestrel Partners LLC, 632 F.3d 1292, 1315 (Fed. Cir. 2011). While the 25% rule cannot serve as the basis for a reasonable royalty determination, it provides a rough cross-check: applying a 25% profit split to a 61.3% gross margin would yield an implied royalty of approximately 15.3% of net sales — a figure that is useful primarily as an upper bound but is far above what industry-specific comparable licenses suggest. The discrepancy highlights the importance of using actual comparable licenses rather than abstract heuristics.

Hugh Danaher's analysis for Keystone Valuation Advisors LLC identified a different set of purportedly comparable licenses with higher royalty rates, ranging from 4.0% to 10.5%. As discussed in connection with Factor 2, however, several of Danaher's comparables are distinguishable because they involve exclusive licenses, different technology fields (robotic surgery, drug-eluting stents), or other characteristics that make them unreliable indicators of the appropriate royalty in this case. Moreover, Danaher's implied effective royalty rate of approximately 42.6% (derived from his $31.8 million damages claim on a $74.6 million royalty base) is wholly inconsistent with any identifiable industry norm and would represent a dramatic outlier in the surgical device licensing landscape.

Conclusion: Industry customs and comparable licenses in the minimally invasive surgical device field support a royalty rate in the range of approximately 2.5% to 5.0% of net sales for a non-exclusive license to patents of the type and scope asserted here. This factor is neutral to modestly favorable to Solstice and supports the 2.5%–4.5% range identified in this analysis.

Factor 13: Portion of the Realizable Profit That Should Be Credited to the Invention as Distinguished from Non-Patented Elements, Manufacturing Processes, Business Risks, or Significant Features or Improvements Added by the Infringer

The thirteenth Georgia-Pacific factor is the apportionment factor — often the most critical factor in modern reasonable royalty analyses. It requires an assessment of the portion of the accused product's value that is attributable to the patented invention, as distinguished from non-patented elements, manufacturing processes, business risks, and significant features or improvements contributed by the infringer.

This factor is central to Solstice's defense and is one of the primary bases for our conclusion that Danaher's $31.8 million damages figure is significantly overstated.

The PrecisionEdge™ trocar products are complex medical devices that incorporate dozens of components and design features, only a subset of which are covered by the asserted patents. The following non-patented elements contribute substantially to the value and commercial success of the PrecisionEdge™ products:

• Proprietary Materials: Solstice utilizes a proprietary polycarbonate-silicone composite material for its trocar cannula that provides superior optical clarity and reduced insertion friction. This material was developed by Solstice's materials science team at a cost of approximately $2.4 million in R&D expenditure and is not related to any of the asserted patents.

• Ergonomic Handle Design: The PrecisionEdge™ handle incorporates an ergonomic contoured grip designed through extensive surgeon feedback and human factors testing. This design feature is covered by Solstice's own design patents and is a significant differentiator in the market.

• Regulatory Clearances: Solstice invested significant time and resources in obtaining FDA 510(k) clearance for each PrecisionEdge™ product (PE-5000: K202847; PE-12000: K203156; PE-15000: K210412). The regulatory clearances are essential to the products' commercial viability and are entirely independent of the asserted Apex patents.

• Manufacturing Processes: Solstice's cleanroom manufacturing facilities in Cork, Ireland, and its contract manufacturing arrangements employ proprietary assembly and quality control processes that ensure consistent product quality and reliability. These manufacturing capabilities are a significant contributor to product value and customer confidence.

• Brand and Distribution: Solstice has invested in building the PrecisionEdge™ brand through direct sales force coverage, surgeon education programs, and strategic GPO contracts. These commercial investments are unrelated to the patented technology and contribute independently to the products' market success.

• Quality Systems and Clinical Data: Solstice maintains ISO 13485-certified quality management systems and has generated post-market clinical data demonstrating the safety and efficacy of its PrecisionEdge™ products. These quality and clinical assets enhance the products' value independently of the patented features.

The gross margin of 61.3% on PrecisionEdge™ products reflects the combined contribution of all of these factors — patented and non-patented alike. It would be improper to attribute the entirety of this margin to the three asserted Apex patents. Significant apportionment is required to isolate the value contribution of the patented features from the non-patented elements.

Danaher's analysis is deficient in this regard. His damages report uses the entire market value of the accused products as the royalty base without adequately apportioning the value attributable to the patented features versus the non-patented elements. The Federal Circuit has repeatedly held that the entire market value rule may be applied only where the patented feature drives the demand for the entire product — a demanding standard that is not met here. See VirnetX, Inc. v. Cisco Sys., Inc., 767 F.3d 1308, 1326 (Fed. Cir. 2014); LaserDynamics, 694 F.3d at 67–68. Danaher has not established that the locking seal, retractable blade, or integrated insufflation valve features — as distinguished from the numerous non-patented features described above — are the basis for customer demand for PrecisionEdge™ products.

In Dr. Marchetti's analysis, she applies an apportionment framework that estimates the value contribution of the three patented features at approximately 15%–25% of the total product value, based on a combination of (a) feature-level conjoint analysis of surgeon purchasing preferences, (b) technical decomposition of the trocar's bill of materials, and (c) comparison with non-infringing alternative designs that omit the accused features. Applying this apportionment percentage to the royalty calculation yields results consistent with the 2.5%–4.5% range identified in this memorandum.

Conclusion: This factor strongly favors Solstice and supports a lower royalty rate. The PrecisionEdge™ products derive significant value from non-patented elements contributed by Solstice, including proprietary materials, ergonomic design, regulatory clearances, manufacturing processes, and brand investments. Significant apportionment is required, and Danaher's failure to adequately apportion is a critical weakness in Apex's damages position.

Factor 14: Opinion Testimony of Qualified Experts

The fourteenth Georgia-Pacific factor considers the opinion testimony of qualified experts.

Dr. Elena Marchetti (Pinnacle Economics Group LLC) — Solstice's Damages Expert. Dr. Marchetti is a Ph.D. economist with over twenty years of experience in intellectual property damages analysis, including extensive work in the medical device sector. She has been qualified as an expert in patent damages in over thirty federal district court proceedings. Dr. Marchetti's analysis supports a reasonable royalty rate in the range of 2.5% to 4.0% of net sales, based on her comprehensive application of the Georgia-Pacific factors, her comparable license analysis (identifying a median industry rate of approximately 3.2%), her apportionment analysis (estimating the patented features contribute approximately 15%–25% of total product value), and her consideration of the narrowed claim scope and invalidity risks. Dr. Marchetti calculates total reasonable royalty damages in the range of approximately $1.87 million to $2.98 million, with a central estimate of approximately $2.24 million (at a 3.0% rate).

Hugh Danaher, CFA (Keystone Valuation Advisors LLC) — Apex's Damages Expert. Mr. Danaher is a Chartered Financial Analyst and managing director at Keystone Valuation Advisors LLC with experience in patent damages analysis, primarily in the pharmaceutical and biotechnology sectors. Mr. Danaher's analysis claims $31.8 million in reasonable royalty damages, a figure that implies an effective royalty rate of approximately 42.6% on the $74.6 million royalty base. Even if recharacterized as a running royalty rate (which Mr. Danaher does in a supplemental analysis), his proposed rate of approximately 8%–10% of net sales far exceeds any comparable in the surgical device industry.

Mr. Danaher's methodology is subject to several significant critiques:

1. Inflated Royalty Base: Danaher uses the entire revenue of the accused products ($74.6 million) as the royalty base without adequate apportionment, effectively invoking the entire market value rule without satisfying its prerequisites.

2. Failure to Apportion: As discussed under Factor 13, Danaher does not properly isolate the value contribution of the three patented features from the substantial non-patented elements of the PrecisionEdge™ products.

3. Reliance on Non-Comparable Licenses: As discussed under Factor 2, Danaher's comparable license set includes exclusive licenses in robotic surgery and drug-eluting stent technologies that are not meaningfully comparable to a non-exclusive license for conventional laparoscopic trocar patents.

4. Failure to Account for Narrowed Claim Scope: Danaher's report was prepared in February 2025, after the December 6, 2024 Claim Construction Order, yet does not adequately adjust his analysis to account for the narrowed claim scope resulting from the Court's constructions, particularly the construction of "integrated valve assembly" in the '105 Patent.

5. Inconsistency with Industry Norms: Danaher's implied royalty rate of 42.6% (or his running rate of 8%–10%) is dramatically above any identified industry benchmark for non-exclusive surgical device patent licenses, which cluster in the 2%–5% range.

We believe that Danaher's analysis would be vulnerable to a Daubert challenge at trial. His methodology suffers from the same deficiencies that the Federal Circuit has identified as grounds for exclusion or reversal in cases such as VirnetX (failure to apportion), Uniloc (reliance on unsupported rules of thumb), and LaserDynamics (improper application of the entire market value rule). While we cannot predict with certainty how the Court would rule on a Daubert motion, the vulnerabilities in Danaher's analysis are significant and provide substantial leverage in settlement negotiations.

In addition to the damages experts, the technical expert opinions of Dr. Stefan Ostrowski (Solstice's invalidity expert) and Dr. James Ng (Apex's infringement expert) are relevant to the reasonable royalty analysis insofar as they bear on the strength of the asserted patents and the scope of infringement. Dr. Ostrowski's repo

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum has been prepared at the direction of counsel in anticipation of settlement negotiations and in connection with pending litigation. It is protected by the attorney-client privilege, the work product doctrine, and all other applicable privileges. It should not be disclosed to any person outside the attorney-client relationship without the prior written consent of Calderwood & Harkness LLP and Solstice Biomedical Devices Ltd. Any inadvertent disclosure does not constitute a waiver of any applicable privilege.
CALDERWOOD & HARKNESS LLP INTELLECTUAL PROPERTY GROUP
May 20, 2025
MEMORANDUM
FROM: Christy Bauer, Lead Associate, intellectual Property, Calderwood & Harkness LLP Peter Vassiliev, Working Associate, intellectual Property, Calderwood & Harkness LLP
TO: Marcus Delgado, Responsible Partner, intellectual Property, Calderwood & Harkness LLP Catherine Bloom, Billing Partner, intellectual Property, Calderwood & Harkness LLP
CC: Eamon Rourke, General Counsel, Solstice Biomedical Devices Ltd. Brendan Molloy, Chief Financial Officer, Solstice Biomedical Devices Ltd.
RE: Georgia-Pacific Factor Analysis — Reasonable Royalty Benchmark for Settlement Negotiations
MATTER: Apex Surgical Innovations, Inc. v. Solstice Biomedical, Inc., Case No. 1:24-cv-00587-RGA (D. Del.)
MATTER NO.: 10294.0017
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I. Executive Summary
The purpose of this memorandum is to analyze and apply the fifteen factors articulated in Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970), to establish a defensible reasonable royalty benchmark for the three United States patents asserted by Apex Surgical Innovations, Inc. ("Apex") against Solstice Biomedical, Inc. ("Solstice") in the above-captioned litigation. This analysis is intended to inform Solstice's settlement negotiation posture in the intensive settlement discussions that commenced on May 19, 2025, and to provide a rigorous analytical foundation for evaluating the economic reasonableness of the terms currently under negotiation.
The three patents at issue are:
• U.S. Patent No. 9,814,237 ("the '237 Patent"), entitled "Locking Seal Assembly for Minimally Invasive Surgical Access Device," issued November 14, 2017, expiring June 22, 2035;
• U.S. Patent No. 10,271,884 ("the '884 Patent"), entitled "Retractable Blade Deployment Mechanism for Trocar Systems," issued April 30, 2019, expiring September 15, 2036; and
• U.S. Patent No. 10,932,105 ("the '105 Patent"), entitled "Integrated Insufflation Valve and Seal for Laparoscopic Trocar," issued March 2, 2021, expiring January 10, 2038.
All three patents name Dr. Raymond Szabo as inventor and are assigned to Apex Surgical Innovations, Inc.
The accused products are Solstice's PrecisionEdge™ line of laparoscopic trocars: the PE-5000 Series (5 mm trocar), the PE-12000 Series (12 mm trocar), and the PE-15000 Series (15 mm trocar). Combined United States sales of the accused products from calendar year 2021 through the third quarter of calendar year 2024 total approximately $74.6 million, broken down as follows: $12.1 million in FY 2021, $17.8 million in FY 2022, $22.4 million in FY 2023, and $22.3 million through September 30, 2024. The weighted average gross margin on accused products over this period is approximately 61.3%.
Apex's retained damages expert, Hugh Danaher, CFA, of Keystone Valuation Advisors LLC, has asserted $31.8 million in reasonable royalty damages. As demonstrated in this memorandum, that figure is significantly overstated and would not withstand rigorous scrutiny under Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), or established Federal Circuit precedent on reasonable royalty damages. Solstice's retained damages expert, Dr. Elena Marchetti of Pinnacle Economics Group LLC, has provided a competing analysis that supports a substantially lower royalty rate, consistent with the conclusions reached herein.
Based on our factor-by-factor analysis, we conclude that a reasonable royalty rate falls in the range of approximately 2.5% to 4.5% of net sales, with a central tendency or midpoint benchmark of approximately 3.5%. This range is consistent with the 3.75% running royalty rate currently under discussion in settlement negotiations, which falls slightly above the midpoint but is justified by the broader scope of the license and covenant not to sue being offered. Applied to the $74.6 million in past sales, a 3.5% rate would yield approximately $2.61 million in past damages — a figure that stands in stark contrast to Danaher's $31.8 million claim.
This memorandum should be read in conjunction with the companion memorandum dated May 21, 2025, reviewing the patent portfolio valuation summary prepared by Ridgeline IP Analytics LLC.
II. Background
A. The Asserted Patents
Apex has asserted three patents from a broader patent family (the "Apex Trocar Patent Family") consisting of fourteen total issued United States patents and six pending continuation applications, all directed to various aspects of laparoscopic trocar design and functionality. The three asserted patents and their relevant characteristics are as follows:
U.S. Patent No. 9,814,237 ("the '237 Patent"). The '237 Patent is entitled "Locking Seal Assembly for Minimally Invasive Surgical Access Device." It was filed on June 22, 2015, and issued on November 14, 2017. Its expiration date is June 22, 2035. The '237 Patent generally claims a multi-component seal assembly for a trocar that provides a gas-tight seal around surgical instruments of varying diameters while incorporating a locking mechanism to prevent inadvertent disengagement during laparoscopic procedures. Apex asserts Claims 1, 3, 7, and 12 of the '237 Patent against Solstice's PE-5000 and PE-12000 Series products.
U.S. Patent No. 10,271,884 ("the '884 Patent"). The '884 Patent is entitled "Retractable Blade Deployment Mechanism for Trocar Systems." It was filed on September 15, 2016, and issued on April 30, 2019. Its expiration date is September 15, 2036. The '884 Patent generally claims a spring-loaded, retractable blade mechanism for a trocar obturator that automatically retracts the blade after initial tissue penetration, reducing the risk of inadvertent tissue injury. Apex asserts Claims 1, 2, 5, 9, and 14 of the '884 Patent against all three PrecisionEdge™ product lines — the PE-5000, PE-12000, and PE-15000 Series.
U.S. Patent No. 10,932,105 ("the '105 Patent"). The '105 Patent is entitled "Integrated Insufflation Valve and Seal for Laparoscopic Trocar." It was filed on January 10, 2018, and issued on March 2, 2021. Its expiration date is January 10, 2038. The '105 Patent generally claims an integrated valve assembly that combines insufflation gas management with the trocar's primary instrument seal, providing continuous CO₂ flow control without the need for a separate stopcock or auxiliary valve. Apex asserts Claims 1, 4, and 8 of the '105 Patent against the PE-12000 and PE-15000 Series products.
All three patents name Dr. Raymond Szabo, Vice President of Engineering at Apex, as the sole inventor and are assigned to Apex Surgical Innovations, Inc. The patents share a common specification lineage and are part of a continuation family that traces back to the '237 Patent's priority date. The broader Apex Trocar Patent Family encompasses a range of additional claims directed to alternative embodiments of trocar seal, blade, and insufflation technologies, though only the twelve specific claims identified above are asserted in this litigation.
B. The Accused Products and Revenue Data
Solstice's PrecisionEdge™ line of laparoscopic trocars comprises three product series, each of which is accused of infringing one or more of the asserted patents:
• PE-5000 Series (5 mm trocar assembly): Accused of infringing the '237 Patent (Claims 1, 3, 7, 12) and the '884 Patent (Claims 1, 2, 5, 9, 14). The PE-5000 is Solstice's smallest-diameter trocar, used primarily for the introduction of 5 mm laparoscopic instruments including graspers, scissors, and dissectors.
• PE-12000 Series (12 mm trocar assembly): Accused of infringing all three asserted patents — the '237 Patent (Claims 1, 3, 7, 12), the '884 Patent (Claims 1, 2, 5, 9, 14), and the '105 Patent (Claims 1, 4, 8). The PE-12000 is Solstice's highest-revenue product in the PrecisionEdge™ line and accommodates larger-diameter instruments such as endoscopic staplers and clip appliers.
• PE-15000 Series (15 mm trocar assembly): Accused of infringing the '884 Patent (Claims 1, 2, 5, 9, 14) and the '105 Patent (Claims 1, 4, 8). The PE-15000 is the largest-diameter trocar in the PrecisionEdge™ line, designed for the introduction of specimen retrieval bags and larger surgical instruments.
The combined United States sales of the accused PrecisionEdge™ products from calendar year 2021 through the third quarter of calendar year 2024 are as follows:
The revenue data demonstrates a strong growth trajectory, with year-over-year increases of approximately 47% (FY 2021 to FY 2022), 26% (FY 2022 to FY 2023), and an annualized rate for FY 2024 that, if extrapolated, suggests continued growth. The weighted average gross margin across all three product lines over the relevant period is approximately 61.3%, reflecting the generally high margins characteristic of proprietary single-use surgical devices.
For broader context, Solstice Biomedical Devices Ltd. (the ultimate parent entity, incorporated in Ireland) reported group-level revenue of approximately €187.4 million (unaudited) for fiscal year 2023. Solstice employs approximately 620 people worldwide. By comparison, Apex Surgical Innovations, Inc. reported estimated fiscal year 2023 revenue of approximately $312 million and employs approximately 1,100 people. Apex is thus the substantially larger enterprise, with revenue roughly 1.7 times that of Solstice's global group revenue when converted to a common currency.
C. Procedural Posture
This action was filed by Apex on May 9, 2024, in the United States District Court for the District of Delaware and was assigned to the Honorable Richard G. Andrews, United States District Judge. The case has proceeded on an accelerated schedule, and the relevant procedural milestones are summarized below:
• Claim Construction: A Markman hearing was held on November 8, 2024, and the Court issued its Claim Construction Order on December 6, 2024, construing nine disputed claim terms. Of the nine terms, five were construed favorably to Solstice and four were construed favorably to Apex. Notably, the Court adopted Solstice's proposed constructions for the terms "locking engagement" (in the '237 Patent), "retractable blade" and "automatically retracting" (in the '884 Patent), and "integrated valve assembly" (in the '105 Patent), each of which significantly narrows the scope of the asserted claims. The constructions favorable to Apex primarily related to means-plus-function limitations and corresponding structures, which expanded the range of structures covered by certain dependent claims.
• Expert Reports: The parties exchanged expert reports on liability and damages according to the following schedule:
• Dr. Stefan Ostrowski's invalidity report on behalf of Solstice: January 27, 2025
• Dr. James Ng's infringement report on behalf of Apex: February 10, 2025
• Damages reports from both parties' experts (Dr. Elena Marchetti for Solstice; Hugh Danaher, CFA, for Apex): February 14, 2025
• Rebuttal expert reports from all experts: March 3, 2025
• Mediation: The parties participated in a full-day mediation before the Honorable Margaret Forsythe (Ret.) at Amberstone ADR Services on March 17, 2025. The mediation did not result in a resolution, though the parties narrowed certain issues and expressed willingness to continue negotiations.
• Summary Judgment: Both parties filed cross-motions for summary judgment. Apex moved for summary judgment of infringement on all asserted claims; Solstice moved for summary judgment of invalidity on the '237 Patent and non-infringement on the '105 Patent. Both motions were denied on May 5, 2025, with the Court finding genuine disputes of material fact on all contested issues.
• Second Settlement Conference: A settlement conference was held before Magistrate Judge Colleen Pratt on May 12, 2025, at which the parties exchanged settlement proposals and began the framework discussions that led to the current intensive negotiations.
• Ongoing Settlement Negotiations: Intensive settlement negotiations commenced on May 19, 2025, and are ongoing as of the date of this memorandum. The parties have exchanged a preliminary term sheet.
• Trial Date: The case is currently set for a jury trial beginning September 30, 2025.
D. The Hypothetical Negotiation Framework
The Georgia-Pacific framework requires the Court (or, as here, the parties in evaluating settlement positions) to construct a hypothetical negotiation between a willing licensor and a willing licensee, negotiating at arm's length, at the time infringement began. Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970); see also Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1324–25 (Fed. Cir. 2009). The hypothetical negotiation is a legal construct designed to determine what royalty would have resulted from an arm's-length transaction in which both parties are assumed to be willing and to have knowledge of the relevant facts.
For purposes of this analysis, the hypothetical negotiation date is set at approximately early 2021 — the time at which Solstice's PrecisionEdge™ products first entered United States commerce and the alleged infringement began. We note that Danaher selected a similar date in his report. Both parties in the hypothetical negotiation are assumed to be reasonably informed of the patent landscape, the commercial potential of the PrecisionEdge™ products, the strength and scope of the asserted claims, the available non-infringing alternatives, and the competitive dynamics of the laparoscopic trocar market as of that date.
Where relevant throughout this analysis, we also consider the parties' ex post knowledge — including actual sales performance, the Claim Construction Order, and invalidity evidence developed in litigation — as a "book of wisdom" check on the reasonableness of the hypothetical negotiation outcome, consistent with the approach approved by the Federal Circuit in Fromson v. Western Litho Plate & Supply Co., 853 F.2d 1568, 1575 (Fed. Cir. 1988), and subsequent authority.
III. Analysis of the Fifteen Georgia-Pacific Factors
Factor 1: Royalties Received by the Patentee for Licensing the Patents-in-Suit
The first Georgia-Pacific factor considers the royalties received by the patentee for the licensing of the patents-in-suit, proving or tending to prove an established royalty. This factor is often viewed as among the most probative when reliable comparable license data exists.
We have conducted a thorough review of Apex's document production in this litigation (Bates-stamped APEX-000001 through APEX-031450), including all license agreements, term sheets, correspondence relating to licensing discussions, and internal memoranda addressing the valuation or licensing of the Apex Trocar Patent Family. This review reveals limited prior licensing activity with respect to the asserted patents or the broader Apex Trocar Patent Family.
Specifically, the document production discloses only two prior license agreements that reference any patents within the Apex Trocar Patent Family:
1. Apex–Hightower Medical Agreement (2018). Apex entered into a non-exclusive license agreement with Hightower Medical Systems, Inc., a manufacturer of specialty endoscopic instruments, in November 2018 (APEX-004712 through APEX-004743). This agreement licensed certain claims of the '237 Patent (but not the '884 or '105 Patents, which were not yet issued at the time) for use in Hightower's EndoPort™ line of single-use access ports. The agreement provided for a royalty of 2.0% of net sales with a minimum annual royalty of $75,000. However, this license is distinguishable on several grounds: (a) Hightower's products are not trocars but single-use access ports, a related but distinct product category; (b) the license covered only the '237 Patent and not the full set of asserted patents; (c) the field of use was limited to non-trocar surgical access devices; and (d) internal Apex correspondence (APEX-004698) suggests that the license was granted primarily to avoid invalidation of the '237 Patent in a post-grant review proceeding that Hightower had threatened to initiate, rather than as a true arm's-length commercial transaction.
2. Apex–MedVault Settlement License (2020). Apex resolved a patent infringement dispute with MedVault Surgical Technologies GmbH through a settlement agreement and license executed in June 2020 (APEX-011293 through APEX-011340). The settlement included a lump-sum payment of $1.2 million and a prospective non-exclusive license under the '237 and '884 Patents at a running royalty of 4.5% of net sales, with a five-year term. However, it is well established that litigation settlement licenses must be viewed with caution as comparable licenses because the royalty rate may reflect litigation risk, attorneys' fees exposure, and the desire to resolve uncertainty rather than a pure economic assessment of patent value. See LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51, 77 (Fed. Cir. 2012) (cautioning against undue reliance on litigation-driven licenses). The MedVault license, moreover, involved a European manufacturer with a relatively modest U.S. sales presence, further limiting its comparability.
Beyond these two agreements, the production reflects several instances in which Apex was approached by third parties regarding potential licensing of patents in the Apex Trocar Patent Family but declined to engage in substantive negotiations (see, e.g., APEX-015887, APEX-015892, APEX-018034). This pattern of declining to license is relevant to Factor 4, discussed below, but also suggests that there is no robust body of "established royalty" data from which to draw definitive conclusions under Factor 1.
Conclusion: The limited and distinguishable nature of Apex's prior licensing activity means that Factor 1 provides only modest guidance. To the extent it is informative, the data points — 2.0% (Hightower, non-arm's-length) and 4.5% (MedVault, litigation settlement) — bracket a range that is generally consistent with the 2.5%–4.5% reasonable royalty range proposed in this memorandum. On balance, this factor modestly favors Solstice because the available data does not establish a high royalty rate as the norm, and the most reliable comparable (Hightower) reflects a relatively low rate.
Factor 2: Rates Paid by the Licensee for the Use of Other Comparable Patents
The second Georgia-Pacific factor examines the rates paid by the accused infringer for the use of other patents comparable to the patents-in-suit. This factor looks at the licensing behavior of the licensee rather than the licensor.
Solstice's existing patent license portfolio includes several agreements for surgical device technologies, though none involve patents that are directly comparable to the asserted Apex patents in terms of specific technology:
• Solstice licenses certain electrosurgical instrument patents from NeuroVolt Medical, Inc. at a running royalty of 3.0% of net sales under a 2019 non-exclusive license agreement.
• Solstice licenses endoscopic visualization technology patents from ClearSight Optics Ltd. under a 2020 cross-license arrangement in which each party pays the other a net royalty differential, which effectively results in Solstice paying approximately 1.5% of net sales on the relevant product lines.
• Solstice licenses certain ergonomic handle and grip design patents from Ergomed Design GmbH at a lump-sum payment of $350,000 with no running royalty — reflecting the relatively low value attributed to purely design-oriented patents in this space.
Beyond Solstice's own portfolio, Dr. Marchetti's analysis (Pinnacle Economics Group LLC) surveyed publicly available and production-document license agreements in the minimally invasive surgical instrument and laparoscopic device space. Dr. Marchetti identified a set of twelve comparable license agreements involving patents directed to trocar, cannula, and surgical access device technologies. The royalty rates in these agreements ranged from 1.5% to 6.0% of net sales, with a median of approximately 3.2% and a mean of approximately 3.5%. The agreements at the upper end of this range (5.0%–6.0%) generally involved exclusive licenses or licenses to dominant patents with broad claim scope; the agreements at the lower end (1.5%–2.5%) generally involved narrow patents, non-exclusive licenses, or patents late in their term.
By contrast, Hugh Danaher's comparable license analysis relied on a set of seven purported comparable agreements, several of which are distinguishable on significant grounds. In particular, Danaher relied heavily on two exclusive license agreements in the robotic surgery space (a fundamentally different technology and market segment) with royalty rates of 8.0% and 10.5%, respectively. These exclusive, robotic-surgery licenses are not meaningfully comparable to a non-exclusive license for conventional laparoscopic trocar technology. Danaher also included a license agreement between two pharmaceutical device companies involving a drug-eluting stent technology — a product with dramatically different regulatory and commercial characteristics. The inclusion of these non-comparable licenses inflates Danaher's proposed rate and undermines the reliability of his analysis.
Conclusion: Industry rates for comparable, non-exclusive patents in the surgical access device space generally fall in the 2.0%–5.0% range of net sales, with a central tendency around 3.0%–3.5%. Danaher's reliance on non-comparable licenses from different technology segments and involving exclusive arrangements significantly overstates the appropriate benchmark. This factor supports a royalty rate consistent with the range identified by Dr. Marchetti and is generally neutral to modestly favorable to Solstice.
Factor 3: Nature and Scope of the License
The third Georgia-Pacific factor considers the nature and scope of the hypothetical license, including whether it is exclusive or non-exclusive, its geographic scope, restrictions on territory or field of use, and any limitations on sublicensing or transferability.
In the hypothetical negotiation, the license would almost certainly be non-exclusive. Apex is a direct competitor of Solstice in the laparoscopic trocar market and actively manufactures and sells its own competing trocar systems embodying the patented technology. It is inconceivable that Apex, as a willing licensor, would grant an exclusive license to a direct competitor, thereby foreclosing its own ability to practice its own patents. The Federal Circuit has recognized that a licensor's competitive interest in maintaining its own freedom to operate is a significant consideration in determining the scope of a hypothetical license. See Monsanto Co. v. McFarling, 363 F.3d 1336, 1348 (Fed. Cir. 2004).
With respect to geographic scope, the hypothetical license would likely be either worldwide or United States-only, depending on whether the parties anticipated the extension of infringement beyond the United States. Given that the litigation is limited to U.S. patent rights and the accused sales are U.S. sales, a U.S.-only license is most directly comparable for purposes of calculating U.S. damages, though the settlement terms currently under negotiation contemplate a worldwide license — a broader grant that carries additional value.
The field of use would be limited to laparoscopic surgical access devices — that is, trocars and directly related products. This limitation reflects the scope of the asserted patents and the relevant product market. The hypothetical licensee would not receive rights to practice the patents in unrelated fields (e.g., orthopedic devices, cardiovascular instruments).
Sublicense rights would be limited to contract manufacturers engaged by Solstice to produce PrecisionEdge™ products, which is standard commercial practice for medical device companies that outsource certain manufacturing operations. The license would be non-transferable except in connection with a change of control of Solstice, a customary provision designed to prevent the license from being separated from the operating business to which it relates.
Conclusion: A non-exclusive, field-limited, non-transferable license is the most reasonable construct for the hypothetical negotiation. Non-exclusive licenses command lower royalty rates than exclusive licenses because the licensee does not obtain the right to exclude others (including the licensor) from practicing the patented technology. This factor supports a moderate royalty rate and is neutral to modestly favorable to Solstice.
Factor 4: Licensor's Established Policy and Marketing Program to Maintain Patent Monopoly
The fourth Georgia-Pacific factor examines the licensor's established policy and marketing program to maintain its patent monopoly by refusing to license others to use the invention or by granting licenses under special conditions designed to preserve its monopoly.
As discussed in connection with Factor 1, Apex has engaged in very limited voluntary licensing of the Apex Trocar Patent Family. The Hightower Medical agreement was entered into under the pressure of a threatened post-grant review, and the MedVault agreement was a litigation settlement. The document production reveals multiple instances in which Apex declined to engage in licensing discussions with interested third parties (APEX-015887, APEX-015892, APEX-018034), and an internal Apex memorandum dated March 2019 (APEX-018034) states that it is "Apex's general policy to maintain exclusivity over its core trocar technology portfolio and to enforce its patents vigorously against competitors rather than dilute its competitive position through broad licensing."
Apex is a direct competitor in the trocar market with approximately $312 million in revenue and approximately 1,100 employees. It actively manufactures and sells competing trocar systems, insufflation equipment, and related laparoscopic surgical instruments. Apex's litigation posture — filing suit relatively promptly after Solstice's PrecisionEdge™ products gained market traction — is consistent with a policy of aggressive enforcement designed to protect market share rather than a willingness to monetize its patents through licensing revenue.
This evidence suggests that Apex has an established policy of maintaining patent exclusivity, which would tend to push the hypothetical royalty upward. A patentee that jealously guards its patent monopoly would be expected to demand a higher price for any license it does grant, particularly to a direct competitor.
However, it is important to note that the Georgia-Pacific hypothetical negotiation assumes, as a matter of law, that the patentee is a willing licensor — willing, at some price, to grant the license. See Georgia-Pacific, 318 F. Supp. at 1120. The hypothetical negotiation framework does not permit the patentee to simply refuse to license and thereby drive the royalty to infinity. Apex's preference for exclusivity is a factor that increases the rate but does not render the hypothetical negotiation impossible.
Conclusion: This factor modestly favors Apex and supports a higher royalty rate. The weight of this factor, however, is tempered by the legal requirement that a willing licensor is assumed to exist in the hypothetical negotiation.
Factor 5: Commercial Relationship Between the Licensor and Licensee
The fifth Georgia-Pacific factor addresses the commercial relationship between the patentee and the alleged infringer — whether they are competitors, and whether the license agreement would tend to increase the licensee's competitive position to the detriment of the licensor.
Apex and Solstice are direct competitors in the laparoscopic trocar market. Both companies manufacture and sell trocar assemblies for minimally invasive surgery, targeting overlapping customer bases (hospital purchasing organizations, ambulatory surgical centers, and individual surgeons). The PE-5000, PE-12000, and PE-15000 Series products compete directly with Apex's own trocar product lines.
The licensing of a direct competitor may require a premium to compensate the licensor for the competitive harm it suffers by enabling the competitor's continued sales of products that directly compete with the licensor's own offerings. As the court recognized in Georgia-Pacific itself, where the licensor and licensee are competitors, "the royalty must reflect the harm to the patentee's competitive position." 318 F. Supp. at 1121. The Federal Circuit has also recognized the competitive premium principle. See Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1554 (Fed. Cir. 1995) (en banc).
As a counterargument, Solstice's market share in the U.S. laparoscopic trocar market is modest relative to Apex's. With approximately $22.4 million in FY 2023 U.S. trocar sales (across the accused PrecisionEdge™ line, which represents Solstice's primary trocar offering in the U.S. market), Solstice's U.S. trocar revenue represents only approximately 7.2% of Apex's estimated $312 million in total revenue. The actual competitive impact of Solstice's PrecisionEdge™ products on Apex's sales, while not negligible, is limited by Solstice's smaller market footprint, more limited distribution network, and narrower brand recognition in the U.S. market. Moreover, the laparoscopic trocar market includes multiple other competitors — including Harborview Corporation, Calderon Corporation (Kestrel Partners LLC), Ashford & Co., and Beaumont Group — such that Solstice's competitive impact on Apex is diluted by the presence of these other substantial players.
Conclusion: This factor favors Apex and supports a higher royalty rate to account for the competitive relationship. The weight of this factor is partially offset by the limited magnitude of Solstice's competitive impact relative to Apex's size and the multi-competitor market structure.
Factor 6: Effect of Selling the Patented Specialty in Promoting Sales of Other Products of the Licensee
The sixth Georgia-Pacific factor considers the effect of selling the patented specialty in promoting sales of other products of the licensee — sometimes referred to as the "convoyed sales" or "derivative sales" analysis.
Solstice's PrecisionEdge™ trocar line is part of a broader portfolio of laparoscopic surgical instruments that includes endoscopic graspers, electrosurgical hand instruments, specimen retrieval devices, and ancillary insufflation accessories. In the surgical device market, hospitals and ambulatory surgical centers frequently purchase instruments as part of bundled surgical kits or through group purchasing organization (GPO) contracts that favor vendors who can supply a full complement of instruments for a given procedure. A surgeon who adopts the PrecisionEdge™ trocar as part of his or her preferred laparoscopic setup may, as a practical matter, also adopt other Solstice instruments — particularly if Solstice offers a procedure-specific tray or kit that includes trocars alongside graspers and other instruments.
Our review of Solstice's sales data and customer purchasing patterns (as analyzed in Dr. Marchetti's expert report) indicates that there is a measurable but moderate convoyed sales effect. Approximately 28% of hospital accounts that purchase PrecisionEdge™ trocars also purchase at least one other Solstice instrument product line, compared with approximately 15% of accounts that purchase Solstice instruments without also purchasing PrecisionEdge™ trocars. This suggests that the trocar line does promote cross-selling of complementary Solstice products, but the effect is not overwhelming.
From the perspective of the hypothetical negotiation, this convoyed sales benefit increases the value that Solstice, as licensee, would place on the license — because the ability to sell PrecisionEdge™ trocars generates not only direct trocar revenue but also incremental revenue from related product sales. However, this factor does not increase the royalty rate that Solstice would be willing to pay; rather, it increases the ceiling of what Solstice could afford to pay while still finding the license economically rational.
Conclusion: The existence of some derivative sales benefit is modestly relevant and slightly increases the value Solstice derives from the license, which in turn modestly supports the patentee's position. This factor is modestly favorable to Apex but carries limited weight in the overall analysis.
Factor 7: Duration of the Patent and the Term of the License
The seventh Georgia-Pacific factor considers the duration of the patent and the term of the license.
The three asserted patents have the following expiration dates, calculated from the earliest effective filing date and accounting for any applicable patent term adjustments:
As of the hypothetical negotiation date of early 2021, the three patents collectively provided coverage extending through January 10, 2038 — a period of approximately 17 years. Even as of the date of this memorandum, the combined portfolio provides approximately 12.7 years of remaining patent life.
This extended remaining patent life has a dual effect on the hypothetical royalty. On the one hand, a longer remaining term increases the cumulative value of the license to the licensee because the licensee benefits from the licensed technology over a longer period. On the other hand, a longer term may support a lower per-year (or per-unit) royalty rate because the licensor's return is spread over a greater number of years. As the Federal Circuit has observed, the total consideration for a license can be equivalent whether structured as a higher rate over a shorter term or a lower rate over a longer term. See Prism Techs. LLC v. Sprint Spectrum L.P., 849 F.3d 1360, 1373 (Fed. Cir. 2017).
In the context of the settlement negotiations, the parties are discussing a license that would extend for the full remaining term of the longest-lived patent (the '105 Patent), providing Solstice with certainty through 2038. This extended term justifies a moderate running royalty rate rather than the elevated rates that might be appropriate for a short-term or limited-duration license.
Conclusion: This factor is neutral to modestly favorable to Solstice (supports a lower annual rate), given the extended remaining patent life and the corresponding spread of the licensor's return over a long period.
Factor 8: Established Profitability of the Product Made Under the Patent, Its Commercial Success, and Its Current Popularity
The eighth Georgia-Pacific factor examines the established profitability of the product made under the patent, its commercial success, and its current popularity.
The accused PrecisionEdge™ products have demonstrated strong commercial performance since their introduction to the U.S. market in early 2021. As set forth in Section II.B above, combined U.S. sales have grown from $12.1 million in FY 2021 to an annualized pace of approximately $29.7 million in FY 2024 (based on $22.3 million through the first three quarters). Total cumulative U.S. sales through the third quarter of FY 2024 are $74.6 million.
The year-over-year growth rates — approximately 47% (2021–2022), 26% (2022–2023), and an accelerating trajectory in 2024 — demonstrate that the PrecisionEdge™ line is gaining market traction and increasing commercial acceptance among U.S. surgeons and hospital purchasing organizations.
The weighted average gross margin of 61.3% indicates robust profitability. This margin is consistent with or slightly above industry norms for single-use laparoscopic devices, which typically carry gross margins in the 50%–65% range depending on the complexity of the device and the manufacturer's cost structure. The strong gross margin reflects both Solstice's efficient manufacturing operations and the premium pricing that the PrecisionEdge™ brand has been able to command in the market.
From the perspective of the hypothetical negotiation, the established profitability and commercial success of the accused products increase the value that a willing licensor would demand for a license. A patentee licensing technology embodied in a commercially successful product would rationally demand a share of the demonstrated profits. Conversely, a licensee negotiating for the right to sell a proven, profitable product line would be willing to accept a higher royalty rate than it would for an unproven technology with uncertain commercial prospects.
Conclusion: This factor favors Apex and supports a higher royalty rate. The established commercial success and strong profitability of the PrecisionEdge™ products are significant factors that increase the patentee's leverage in the hypothetical negotiation.
Factor 9: Utility and Advantages of the Patent Property over the Old Modes or Devices
The ninth Georgia-Pacific factor considers the utility and advantages of the patented technology compared with prior art devices and methods. This factor examines the incremental value of the patented inventions over what was previously available in the art.
Each of the three asserted patents claims a specific technical improvement to laparoscopic trocar systems:
• The '237 Patent (Locking Seal Assembly): The patented locking seal assembly provides a mechanism for securing the instrument seal in a closed position to prevent gas leakage during instrument exchanges. Prior art trocar seals generally relied on passive elastomeric seals without a locking feature, which could result in intermittent CO₂ leakage during procedures involving frequent instrument changes. The '237 Patent's locking mechanism represents an incremental improvement, though alternative locking mechanisms (e.g., twist-lock and snap-fit designs not covered by the asserted claims) were known in the art.
• The '884 Patent (Retractable Blade Deployment Mechanism): The patented retractable blade mechanism provides automatic blade retraction after initial tissue penetration to reduce the risk of inadvertent organ injury. While spring-loaded retractable obturator blades were known in the prior art (as documented in Dr. Ostrowski's invalidity report, citing multiple prior art references including the Kestrel Partners LLC Excel™ trocar design), the '884 Patent claims a specific combination of a dual-spring actuation mechanism with a force-calibrated release threshold. This combination provides a measurable improvement in blade retraction speed and reliability, but the incremental advantage over prior art designs is modest rather than transformative.
• The '105 Patent (Integrated Insufflation Valve and Seal): The patented integrated valve assembly combines CO₂ insufflation gas management with the primary instrument seal in a single integrated component, eliminating the need for a separate stopcock. This integration provides a convenience advantage and reduces the trocar's overall form factor, but alternative approaches to insufflation management — including external stopcock valves and side-port insufflation ports — remain widely available and are used in many competing trocar products.
Dr. Ostrowski's invalidity report, submitted on January 27, 2025, identifies substantial prior art that narrows the scope of the patented inventions. For the '237 Patent, Dr. Ostrowski identifies three prior art references (including the Dunmore Partners LLC ENDOTIP® trocar and U.S. Patent No. 7,329,254 to Chen et al.) that disclose locking seal mechanisms for surgical access devices. For the '884 Patent, Dr. Ostrowski identifies the Kestrel Partners LLC Excel™ trocar system and two additional prior art references that disclose spring-loaded retractable blade mechanisms with force-calibrated release features. For the '105 Patent, Dr. Ostrowski identifies prior art integrated valve designs from Beaumont Group and Stonefield Enterprises that predate the '105 Patent's priority date. Kendrick & Lau LLP's prior art search and freedom-to-operate analysis (which incurred $184,500 in fees) provided the foundation for Dr. Ostrowski's opinions and identified several additional references that strengthen Solstice's invalidity position.
Importantly, the Court's Claim Construction Order of December 6, 2024, construed five of nine disputed terms favorably to Solstice, with the effect of narrowing the scope of the asserted claims. In particular, the Court's construction of "integrated valve assembly" in the '105 Patent requires the valve and seal to be "formed as a single unitary component" rather than merely "housed within a common body," which significantly narrows the scope of the '105 Patent claims and strengthens Solstice's non-infringement position with respect to the PE-12000 and PE-15000 Series products.
Conclusion: This factor is mixed and, on balance, modestly favors Solstice. The patented features provide some incremental utility over prior art trocar designs, but they are not breakthrough innovations. The narrowed claim scope resulting from the Court's claim constructions and the substantial prior art identified by Dr. Ostrowski further reduce the incremental value of the patented technology.
Factor 10: Nature of the Patented Invention, the Character of the Commercial Embodiment of It as Owned and Produced by the Licensor, and the Benefits to Those Who Have Used the Invention
The tenth Georgia-Pacific factor examines the nature of the patented invention, the character of the commercial embodiment as produced by the licensor, and the benefits realized by users of the invention.
Apex's own commercial embodiment of the patented technology is found in its proprietary trocar product lines, including the Apex UltraSeal™ and Apex SafeBlade™ trocar families. These products incorporate the locking seal, retractable blade, and integrated insufflation valve technologies claimed in the asserted patents, and they have achieved significant commercial success in the U.S. and international markets. Apex's trocar products are generally well-regarded among surgeons for their seal reliability, blade safety features, and insufflation management capabilities.
However, a comparison of Apex's commercial products with the specific claim scope of the asserted patents reveals that Apex's commercial embodiments include numerous additional features and design elements that are not claimed in the asserted patents and that contribute substantially to their commercial appeal. These include Apex's proprietary low-friction cannula coating, its SmartTip™ tissue identification sensor, and its ergonomic handpiece design — none of which are covered by the asserted claims. This observation supports the argument that the commercial success of Apex's own products is attributable to a combination of patented and non-patented features, and that the asserted patents alone do not account for the full market value of Apex's (or Solstice's) trocar products.
From the end-user (surgeon) perspective, the benefits of the patented features include: (a) improved seal reliability during instrument exchanges (reducing CO₂ leakage and maintaining pneumoperitoneum), (b) safer blade deployment and retraction (reducing the risk of inadvertent organ injury), and (c) improved insufflation management through the integrated valve design (providing more consistent intra-abdominal pressure control). These benefits are clinically meaningful and contribute to surgeon satisfaction, but they are incremental improvements to an established product category rather than enabling technologies without which the product could not function.
Conclusion: This factor modestly favors Apex, as the patented technology is embodied in commercially successful products and provides identifiable clinical benefits to end users. However, the weight of this factor is limited by the observation that significant non-patented features also contribute to the commercial value of both Apex's and Solstice's trocar products.
Factor 11: Extent to Which the Infringer Has Made Use of the Invention and Any Evidence Probative of the Value of That Use
The eleventh Georgia-Pacific factor considers the extent to which the accused infringer has made use of the patented invention and any evidence of the value of that use.
Solstice has incorporated the accused features across all three PrecisionEdge™ product lines — the PE-5000 (5 mm), PE-12000 (12 mm), and PE-15000 (15 mm) Series. The accused features are embedded in the core design of these products and cannot be removed or replaced without a substantial product redesign. This suggests that Solstice views the accused features as integral to its product design, which in turn suggests that Solstice derives significant value from the use of those features.
The PE-12000 Series is the highest-revenue product in the PrecisionEdge™ line and is accused of infringing all three asserted patents. Internal Solstice product planning documents indicate that the PE-12000 Series accounts for approximately 55% of total PrecisionEdge™ U.S. sales revenue, with the PE-5000 and PE-15000 Series accounting for approximately 25% and 20%, respectively.
The $74.6 million in cumulative U.S. sales demonstrates significant and sustained commercial use of the accused technology. The year-over-year growth in sales further indicates that Solstice's use of the accused features is not diminishing but increasing, which strengthens the inference that the patented technology contributes meaningfully to the PrecisionEdge™ products' market appeal.
However, several considerations temper the weight of this factor. First, Solstice has advanced substantial non-infringement arguments based on the Court's claim constructions. As noted above, five of nine disputed claim terms were construed favorably to Solstice, and several of these constructions create genuine issues as to whether Solstice's products actually fall within the scope of the asserted claims. Second, even assuming infringement, the question of whether the accused features are critical drivers of customer purchasing decisions — as opposed to merely ancillary features that contribute to the overall product offering — is contested. Solstice's marketing materials emphasize the PrecisionEdge™ line's ergonomic design, low insertion force, and visual clarity features, which are not related to the asserted patents. Surgeon surveys conducted by Dr. Marchetti's team suggest that surgeons' trocar purchasing decisions are influenced by a range of factors, with seal reliability (related to the '237 Patent) and blade safety (related to the '884 Patent) ranking as important but not dominant considerations.
Conclusion: This factor favors Apex because Solstice has made extensive and growing commercial use of the accused features across its entire PrecisionEdge™ product line. The weight of this factor is, however, tempered by the scope of Solstice's infringement defenses and the evidence that non-patented features also drive purchasing decisions.
Factor 12: Portion of the Profit or of the Selling Price That May Be Customary in the Particular Business or in Comparable Businesses to Allow for the Use of the Invention or Analogous Inventions
The twelfth Georgia-Pacific factor considers the customary profit split or royalty rate in the relevant industry or comparable industries for the use of analogous patented inventions.
Dr. Marchetti's analysis for Pinnacle Economics Group LLC surveyed a comprehensive set of comparable license agreements in the minimally invasive surgical device industry. As discussed in connection with Factor 2, the royalty rates in these comparable agreements ranged from 1.5% to 6.0% of net sales, with a median of approximately 3.2% and a mean of approximately 3.5%. The subset of agreements most directly comparable to the present case — non-exclusive licenses to laparoscopic instrument or surgical access device patents — clustered in the 2.5% to 4.5% range.
Dr. Marchetti also examined the "25% rule of thumb" (the now-disfavored heuristic that the licensee should pay approximately 25% of its expected profits to the licensor), which the Federal Circuit rejected as a standalone methodology in Uniloc USA, Inc. v. Kestrel Partners LLC, 632 F.3d 1292, 1315 (Fed. Cir. 2011). While the 25% rule cannot serve as the basis for a reasonable royalty determination, it provides a rough cross-check: applying a 25% profit split to a 61.3% gross margin would yield an implied royalty of approximately 15.3% of net sales — a figure that is useful primarily as an upper bound but is far above what industry-specific comparable licenses suggest. The discrepancy highlights the importance of using actual comparable licenses rather than abstract heuristics.
Hugh Danaher's analysis for Keystone Valuation Advisors LLC identified a different set of purportedly comparable licenses with higher royalty rates, ranging from 4.0% to 10.5%. As discussed in connection with Factor 2, however, several of Danaher's comparables are distinguishable because they involve exclusive licenses, different technology fields (robotic surgery, drug-eluting stents), or other characteristics that make them unreliable indicators of the appropriate royalty in this case. Moreover, Danaher's implied effective royalty rate of approximately 42.6% (derived from his $31.8 million damages claim on a $74.6 million royalty base) is wholly inconsistent with any identifiable industry norm and would represent a dramatic outlier in the surgical device licensing landscape.
Conclusion: Industry customs and comparable licenses in the minimally invasive surgical device field support a royalty rate in the range of approximately 2.5% to 5.0% of net sales for a non-exclusive license to patents of the type and scope asserted here. This factor is neutral to modestly favorable to Solstice and supports the 2.5%–4.5% range identified in this analysis.
Factor 13: Portion of the Realizable Profit That Should Be Credited to the Invention as Distinguished from Non-Patented Elements, Manufacturing Processes, Business Risks, or Significant Features or Improvements Added by the Infringer
The thirteenth Georgia-Pacific factor is the apportionment factor — often the most critical factor in modern reasonable royalty analyses. It requires an assessment of the portion of the accused product's value that is attributable to the patented invention, as distinguished from non-patented elements, manufacturing processes, business risks, and significant features or improvements contributed by the infringer.
This factor is central to Solstice's defense and is one of the primary bases for our conclusion that Danaher's $31.8 million damages figure is significantly overstated.
The PrecisionEdge™ trocar products are complex medical devices that incorporate dozens of components and design features, only a subset of which are covered by the asserted patents. The following non-patented elements contribute substantially to the value and commercial success of the PrecisionEdge™ products:
• Proprietary Materials: Solstice utilizes a proprietary polycarbonate-silicone composite material for its trocar cannula that provides superior optical clarity and reduced insertion friction. This material was developed by Solstice's materials science team at a cost of approximately $2.4 million in R&D expenditure and is not related to any of the asserted patents.
• Ergonomic Handle Design: The PrecisionEdge™ handle incorporates an ergonomic contoured grip designed through extensive surgeon feedback and human factors testing. This design feature is covered by Solstice's own design patents and is a significant differentiator in the market.
• Regulatory Clearances: Solstice invested significant time and resources in obtaining FDA 510(k) clearance for each PrecisionEdge™ product (PE-5000: K202847; PE-12000: K203156; PE-15000: K210412). The regulatory clearances are essential to the products' commercial viability and are entirely independent of the asserted Apex patents.
• Manufacturing Processes: Solstice's cleanroom manufacturing facilities in Cork, Ireland, and its contract manufacturing arrangements employ proprietary assembly and quality control processes that ensure consistent product quality and reliability. These manufacturing capabilities are a significant contributor to product value and customer confidence.
• Brand and Distribution: Solstice has invested in building the PrecisionEdge™ brand through direct sales force coverage, surgeon education programs, and strategic GPO contracts. These commercial investments are unrelated to the patented technology and contribute independently to the products' market success.
• Quality Systems and Clinical Data: Solstice maintains ISO 13485-certified quality management systems and has generated post-market clinical data demonstrating the safety and efficacy of its PrecisionEdge™ products. These quality and clinical assets enhance the products' value independently of the patented features.
The gross margin of 61.3% on PrecisionEdge™ products reflects the combined contribution of all of these factors — patented and non-patented alike. It would be improper to attribute the entirety of this margin to the three asserted Apex patents. Significant apportionment is required to isolate the value contribution of the patented features from the non-patented elements.
Danaher's analysis is deficient in this regard. His damages report uses the entire market value of the accused products as the royalty base without adequately apportioning the value attributable to the patented features versus the non-patented elements. The Federal Circuit has repeatedly held that the entire market value rule may be applied only where the patented feature drives the demand for the entire product — a demanding standard that is not met here. See VirnetX, Inc. v. Cisco Sys., Inc., 767 F.3d 1308, 1326 (Fed. Cir. 2014); LaserDynamics, 694 F.3d at 67–68. Danaher has not established that the locking seal, retractable blade, or integrated insufflation valve features — as distinguished from the numerous non-patented features described above — are the basis for customer demand for PrecisionEdge™ products.
In Dr. Marchetti's analysis, she applies an apportionment framework that estimates the value contribution of the three patented features at approximately 15%–25% of the total product value, based on a combination of (a) feature-level conjoint analysis of surgeon purchasing preferences, (b) technical decomposition of the trocar's bill of materials, and (c) comparison with non-infringing alternative designs that omit the accused features. Applying this apportionment percentage to the royalty calculation yields results consistent with the 2.5%–4.5% range identified in this memorandum.
Conclusion: This factor strongly favors Solstice and supports a lower royalty rate. The PrecisionEdge™ products derive significant value from non-patented elements contributed by Solstice, including proprietary materials, ergonomic design, regulatory clearances, manufacturing processes, and brand investments. Significant apportionment is required, and Danaher's failure to adequately apportion is a critical weakness in Apex's damages position.
Factor 14: Opinion Testimony of Qualified Experts
The fourteenth Georgia-Pacific factor considers the opinion testimony of qualified experts.
Dr. Elena Marchetti (Pinnacle Economics Group LLC) — Solstice's Damages Expert. Dr. Marchetti is a Ph.D. economist with over twenty years of experience in intellectual property damages analysis, including extensive work in the medical device sector. She has been qualified as an expert in patent damages in over thirty federal district court proceedings. Dr. Marchetti's analysis supports a reasonable royalty rate in the range of 2.5% to 4.0% of net sales, based on her comprehensive application of the Georgia-Pacific factors, her comparable license analysis (identifying a median industry rate of approximately 3.2%), her apportionment analysis (estimating the patented features contribute approximately 15%–25% of total product value), and her consideration of the narrowed claim scope and invalidity risks. Dr. Marchetti calculates total reasonable royalty damages in the range of approximately $1.87 million to $2.98 million, with a central estimate of approximately $2.24 million (at a 3.0% rate).
Hugh Danaher, CFA (Keystone Valuation Advisors LLC) — Apex's Damages Expert. Mr. Danaher is a Chartered Financial Analyst and managing director at Keystone Valuation Advisors LLC with experience in patent damages analysis, primarily in the pharmaceutical and biotechnology sectors. Mr. Danaher's analysis claims $31.8 million in reasonable royalty damages, a figure that implies an effective royalty rate of approximately 42.6% on the $74.6 million royalty base. Even if recharacterized as a running royalty rate (which Mr. Danaher does in a supplemental analysis), his proposed rate of approximately 8%–10% of net sales far exceeds any comparable in the surgical device industry.
Mr. Danaher's methodology is subject to several significant critiques:
1. Inflated Royalty Base: Danaher uses the entire revenue of the accused products ($74.6 million) as the royalty base without adequate apportionment, effectively invoking the entire market value rule without satisfying its prerequisites.
2. Failure to Apportion: As discussed under Factor 13, Danaher does not properly isolate the value contribution of the three patented features from the substantial non-patented elements of the PrecisionEdge™ products.
3. Reliance on Non-Comparable Licenses: As discussed under Factor 2, Danaher's comparable license set includes exclusive licenses in robotic surgery and drug-eluting stent technologies that are not meaningfully comparable to a non-exclusive license for conventional laparoscopic trocar patents.
4. Failure to Account for Narrowed Claim Scope: Danaher's report was prepared in February 2025, after the December 6, 2024 Claim Construction Order, yet does not adequately adjust his analysis to account for the narrowed claim scope resulting from the Court's constructions, particularly the construction of "integrated valve assembly" in the '105 Patent.
5. Inconsistency with Industry Norms: Danaher's implied royalty rate of 42.6% (or his running rate of 8%–10%) is dramatically above any identified industry benchmark for non-exclusive surgical device patent licenses, which cluster in the 2%–5% range.
We believe that Danaher's analysis would be vulnerable to a Daubert challenge at trial. His methodology suffers from the same deficiencies that the Federal Circuit has identified as grounds for exclusion or reversal in cases such as VirnetX (failure to apportion), Uniloc (reliance on unsupported rules of thumb), and LaserDynamics (improper application of the entire market value rule). While we cannot predict with certainty how the Court would rule on a Daubert motion, the vulnerabilities in Danaher's analysis are significant and provide substantial leverage in settlement negotiations.
In addition to the damages experts, the technical expert opinions of Dr. Stefan Ostrowski (Solstice's invalidity expert) and Dr. James Ng (Apex's infringement expert) are relevant to the reasonable royalty analysis insofar as they bear on the strength of the asserted patents and the scope of infringement. Dr. Ostrowski's repo

CALDERWOOD & HARKNESS LLP INTELLECTUAL PROPERTY GROUP

MEMORANDUM

MATTER NO.: 10294.0017

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