1037-00004 · Solstice Biomedical Devices Ltd · Settlement Negotiation

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PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT

This memorandum is a privileged and confidential attorney-client communication and constitutes attorney work product prepared in anticipation of litigation. It is not intended for disclosure to any third party and should not be forwarded, copied, or distributed without the express authorization of Calderwood & Harkness LLP.

INTERNAL MEMORANDUM

March 19, 2025

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

TO: Eamon Rourke, General Counsel, Solstice Biomedical Devices Ltd.

CC: Dr. Fiona Tierney, CEO, Solstice Biomedical Devices Ltd.; Brendan Molloy, CFO, Solstice Biomedical Devices Ltd.; Catherine Bloom, Billing Partner, Calderwood & Harkness LLP

RE: Post-Mediation Assessment & Revised Settlement Range — Apex Surgical Innovations, Inc. v. Solstice Biomedical, Inc., Case No. 1:24-cv-00587-RGA (D. Del.)

MATTER NO.: 10294.0017

I. Executive Summary

The purpose of this memorandum is to provide Solstice Biomedical Devices Ltd. ("Solstice" or the "Company") with a comprehensive assessment of the full-day mediation held on March 17, 2025, before the Honorable Margaret Forsythe (Ret.) at Amberstone ADR Services, 1000 North West Street, Suite 1200, Wilmington, Delaware 19801, and to recommend a revised settlement range for Solstice's consideration in connection with the above-captioned patent infringement action brought by Apex Surgical Innovations, Inc. ("Apex").

Bottom Line: The mediation did not result in a resolution. At the close of the session, the parties remained approximately $18 million apart on a lump-sum basis. Apex's final demand stood at $18 million (or an alternative hybrid of $14 million plus a 5.5% running royalty), while Solstice's final offer stood at $6 million (or an alternative hybrid of $4.5 million plus a 2.5% running royalty). However, and importantly, the mediation dialogue revealed meaningful flexibility on Apex's side regarding deal structure. In particular, Apex demonstrated a genuine willingness to consider a hybrid lump-sum-plus-running-royalty arrangement, which we believe creates a viable settlement corridor that was not apparent prior to the mediation. The mediator shared this view and indicated her willingness to facilitate further discussions.

Recommendation: Based on our assessment of the litigation risks, the probability-weighted trial exposure, the cost of continued litigation, and the business considerations described in this memorandum, we recommend that Solstice revise its settlement authority to encompass a lump-sum payment in the range of $7.5 million to $10 million, coupled with a running royalty of 3.0% to 4.5% of Net Sales of Licensed Products, for a combined economic package that is materially below Apex's claimed $31.8 million in reasonable royalty damages and that represents a favorable resolution when evaluated against the expected value of trial. We further recommend that Solstice seek revised Board authority promptly and that we pursue negotiations with Apex's counsel in parallel with continued preparation for the September 30, 2025 trial.

The sections that follow provide the factual and analytical bases for this recommendation.

II. Background and Procedural Posture

A. The Litigation

Apex Surgical Innovations, Inc. filed its Complaint on May 9, 2024, in the United States District Court for the District of Delaware, alleging that Solstice Biomedical, Inc.'s PrecisionEdge™ PE-5000, PE-12000, and PE-15000 trocar assembly product lines infringe three Apex utility patents. The case was assigned to the Honorable Richard G. Andrews. The asserted patents are as follows:

1. U.S. Patent No. 9,814,237 (the "'237 Patent") — entitled "Locking Seal Assembly for Minimally Invasive Surgical Access Device." The '237 Patent was issued on November 14, 2017, and is currently set to expire on June 22, 2035. Apex asserts Claims 1, 3, 7, and 12 of the '237 Patent against the PrecisionEdge™ product lines.

2. U.S. Patent No. 10,271,884 (the "'884 Patent") — entitled "Retractable Blade Deployment Mechanism for Trocar Systems." The '884 Patent was issued on April 30, 2019, and is currently set to expire on September 15, 2036. Apex asserts Claims 1, 2, 5, 9, and 14 of the '884 Patent against the PrecisionEdge™ product lines.

3. U.S. Patent No. 10,932,105 (the "'105 Patent") — entitled "Integrated Insufflation Valve and Seal for Laparoscopic Trocar." The '105 Patent was issued on March 2, 2021, and is currently set to expire on January 10, 2038. Apex asserts Claims 1, 4, and 8 of the '105 Patent against the PrecisionEdge™ product lines.

The named inventor on all three asserted patents is Dr. Raymond Szabo, Vice President of Engineering at Apex. Dr. Szabo is expected to be a key trial witness for Apex, and his deposition testimony (taken on September 12, 2024) was generally consistent with his declarations submitted during prosecution, though we identified several areas of potential impeachment relating to the scope and functionality of the prior art references.

Solstice filed its Answer and Counterclaims on June 14, 2024, asserting defenses of non-infringement, invalidity under 35 U.S.C. §§ 102 and 103, and inequitable conduct. The inequitable conduct counterclaim is based on Dr. Szabo's alleged failure to disclose material prior art references to the United States Patent and Trademark Office during prosecution of the '884 Patent, specifically the Halvorsen PCT Application (WO 2015/064218) and the internal Apex design review memorandum dated March 3, 2016 (APEX-007241 through APEX-007249). While the inequitable conduct defense remains in the case, we note that the evidentiary threshold is high and we assess the probability of prevailing on this defense as relatively low (approximately 15%–20%).

B. Discovery and Claim Construction

Fact discovery in this matter has been extensive. Solstice produced a total of 48,217 documents bearing Bates Numbers SBD-000001 through SBD-048217, encompassing product design files, engineering change orders, regulatory submissions, sales and marketing records, and internal communications relating to the development of the PrecisionEdge™ product lines. Apex produced 31,450 documents bearing Bates Numbers APEX-000001 through APEX-031450, which included patent prosecution files, licensing correspondence, internal R&D documentation, and financial records.

The parties conducted a total of fourteen fact depositions, including depositions of Dr. Raymond Szabo (Apex), Martin Hale (Apex), Dr. Priya Chandrasekaran (Apex), Niamh Cassidy (Solstice), Colm O'Brien (Solstice, Director of Engineering), and representatives of key customers and distributors.

The Court held a Markman hearing on November 18, 2024, to address the parties' claim construction disputes. The Claim Construction Order was issued on December 6, 2024. Nine disputed claim terms were construed by the Court. Of these, five were construed in a manner favorable to Solstice, and four were construed in a manner favorable to Apex. The five constructions favorable to Solstice are particularly significant as they relate to the terms "locking seal assembly" (Claim 1, '237 Patent), "retractable blade deployment mechanism" (Claims 1 and 5, '884 Patent), "radially expandable elastomeric seal" (Claim 7, '237 Patent), "user-actuated spring-loaded return" (Claim 14, '884 Patent), and "hermetically sealed gas pathway" (Claim 4, '105 Patent). As discussed in Section IV below, the favorable constructions of "locking seal assembly" and "retractable blade deployment mechanism" substantially narrow the scope of the '237 and '884 Patents as applied to the PE-5000 Series and provide the basis for our contemplated summary judgment motion.

The four constructions favorable to Apex concern the terms "integrated insufflation valve" (Claim 1, '105 Patent), "proximal housing component" (Claims 1 and 12, '237 Patent), "blade retention channel" (Claims 2 and 9, '884 Patent), and "axially aligned fluid conduit" (Claim 8, '105 Patent). These constructions are broader than Solstice advocated and increase the infringement exposure for the PE-12000 and PE-15000 product lines.

Expert discovery opened on January 13, 2025, and the parties have exchanged the following expert reports:

• Dr. Miriam Ostrowski (Professor of Mechanical Engineering, Halford University) — Solstice's invalidity expert. Report served January 27, 2025. Dr. Ostrowski identifies multiple prior art references that she opines anticipate or render obvious the asserted claims of all three patents, with particular emphasis on the Halvorsen PCT Application, the Bergström U.S. Patent No. 8,945,112, and the Tanaka Japanese Patent Publication JP 2014-128762.

• Dr. Calvin Ng (Professor of Biomedical Engineering, Veltrano Polytechnic Institute) — Solstice's non-infringement expert. Report served February 10, 2025. Dr. Ng opines that the PrecisionEdge™ PE-5000 Series does not infringe any asserted claim under the Court's claim constructions, and that the PE-12000 and PE-15000 Series do not infringe several of the asserted claims, though he acknowledges closer questions with respect to Claims 1 and 9 of the '884 Patent and Claims 1 and 4 of the '105 Patent as applied to the PE-12000 Series.

• Dr. Elena Marchetti (Managing Director, Pinnacle Economics Group LLC) — Solstice's damages expert. Report served February 14, 2025. Dr. Marchetti applies a Georgia-Pacific reasonable royalty analysis and concludes that a reasonable royalty for the asserted patents would fall in the range of $2.8 million to $5.1 million.

• Hugh Danaher, CFA (Managing Director, Keystone Valuation Advisors LLC) — Apex's damages expert. Report served February 14, 2025. Mr. Danaher applies a Georgia-Pacific analysis and concludes that a reasonable royalty amounts to $31.8 million. His analysis applies a royalty rate of approximately 8.5% to Solstice's combined U.S. sales of the accused products.

• Rebuttal expert reports were exchanged on March 3, 2025. Dr. Marchetti's rebuttal report identifies numerous methodological flaws in Mr. Danaher's analysis, including his failure to properly apportion the royalty base, his reliance on non-comparable license agreements, and his inflation of the incremental value attributable to the patented features.

C. Trial Date

Trial is currently set for September 30, 2025, before the Honorable Richard G. Andrews with an estimated trial length of seven to nine days. A pretrial conference is scheduled for August 18, 2025. The summary judgment briefing deadline is April 25, 2025.

III. Mediation Summary

A. Format and Participants

A full-day mediation session was held on March 17, 2025, at the offices of Amberstone ADR Services, 1000 North West Street, Suite 1200, Wilmington, Delaware 19801. The mediation was conducted before the Honorable Margaret Forsythe (Ret.), a former judge of the Delaware Court of Chancery with extensive experience mediating patent disputes. The session commenced at approximately 9:00 a.m. and concluded at approximately 6:45 p.m.

The following individuals attended on behalf of Solstice:

• Eamon Rourke, General Counsel, Solstice Biomedical Devices Ltd.

• Niamh Cassidy, Vice President, Regulatory & intellectual Property, Solstice Biomedical Devices Ltd.

• Brendan Molloy, Chief Financial Officer, Solstice Biomedical Devices Ltd.

• Marcus Delgado, Partner, Calderwood & Harkness LLP

• Christy Bauer, Lead Associate, Calderwood & Harkness LLP

The following individuals attended on behalf of Apex:

• Martin Hale, General Counsel, Apex Surgical Innovations, Inc.

• Dr. Priya Chandrasekaran, Chief IP Officer, Apex Surgical Innovations, Inc.

• Victoria Stanton, Partner, Hargrove, Tate & Bennington LLP

• Derek Loomis, Associate, Hargrove, Tate & Bennington LLP

Solstice submitted its confidential mediation statement to Hon. Forsythe on March 14, 2025, which set forth Solstice's positions on liability and damages as well as the Company's settlement posture and business considerations. Apex submitted its own confidential mediation statement on the same date. Neither party's confidential statement was shared with the opposing side.

B. Opening Session

The mediation began with a joint session lasting approximately 45 minutes. Both parties presented opening statements.

Apex's presentation was led by Victoria Stanton and focused on Apex's infringement theory across all three patent families. Ms. Stanton walked through claim charts for representative claims of each patent as applied to each of the three PrecisionEdge™ product lines, emphasizing the opinions of Apex's infringement expert (whose identity has not yet been disclosed but whose positions are reflected in Mr. Danaher's damages analysis). Ms. Stanton also highlighted the four claim construction rulings favorable to Apex and argued that these constructions effectively resolved the infringement question in Apex's favor with respect to the PE-12000 Series. Mr. Danaher's $31.8 million damages figure was prominently featured. Apex's General Counsel, Martin Hale, also spoke briefly, characterizing the litigation as a case of "clear and deliberate copying" and expressing Apex's preference for a prompt resolution that fairly compensated Apex for the use of its patented technology.

Solstice's presentation, which I delivered with input from Niamh Cassidy, focused on three themes: (1) the strength of Solstice's non-infringement position with respect to the PE-5000 Series following the favorable claim constructions, including our plan to file a motion for summary judgment; (2) the invalidity arguments supported by Dr. Ostrowski's expert report and the prosecution history estoppel arguments developed by Dr. Jonathan Kendrick of Kendrick & Lau LLP (our technical patent advisor); and (3) Dr. Marchetti's alternative damages analysis, which places a reasonable royalty in the range of $2.8 million to $5.1 million — a fraction of Apex's claimed damages. We emphasized that even if Apex were to prevail on one or more patents, the royalty base and rate applied by Mr. Danaher are significantly inflated and unlikely to survive a Daubert challenge. Brendan Molloy also briefly addressed the competitive landscape, noting the availability of non-infringing alternative trocar technologies.

Following the opening session, the mediator transitioned to private caucus sessions for the remainder of the day.

C. Apex's Positions During Mediation

The movement of Apex's position during the mediation can be summarized as follows:

Opening Demand: Apex began with an opening demand of $28 million as a lump-sum payment. This represented a modest reduction from the $31.8 million claimed by Mr. Danaher in his expert report, which Apex characterized as a "reasonable accommodation" to facilitate settlement discussions. Martin Hale stated that Apex's Board of Directors had authorized settlement and expected a resolution that reflected the "full value" of its patent portfolio.

First Movement: After the initial round of caucus sessions, during which the mediator conveyed Solstice's opening offer and discussed the strengths and weaknesses of both parties' positions, Apex reduced its demand to $22 million as a lump sum. This $6 million reduction occurred over approximately two rounds of caucus and was accompanied by some signaling from Victoria Stanton that Apex recognized the litigation risk associated with the invalidity arguments.

Structural Flexibility: In the third round of caucus, Apex, through the mediator, indicated a willingness to consider a "hybrid" settlement structure consisting of a reduced lump-sum payment for past damages plus a forward-looking running royalty on future Net Sales of the accused PrecisionEdge™ products. This was a significant development, as it opened a new dimension in the negotiation and signaled that Apex was focused on ongoing revenue participation rather than solely on a one-time payment.

Final Position: At the close of the mediation, Apex's final position was $18 million as a lump-sum payment. Alternatively, Apex proposed a hybrid structure consisting of $14 million as a lump sum plus a running royalty of 5.5% on future Net Sales of all accused PrecisionEdge™ products, with no annual cap. The mediator also conveyed that Apex signaled the scope of a covenant-not-to-sue covering the broader Apex Trocar Patent Family (which encompasses 14 issued patents and 6 pending applications beyond the three asserted patents) was negotiable at higher settlement amounts. This is a potentially valuable concession, as it would provide Solstice with freedom to operate across a broader range of trocar-related technologies.

Victoria Stanton also emphasized, through the mediator, Apex's view that the Claim Construction Order's favorable constructions on four disputed terms supported infringement on at least the PE-12000 Series and that Apex was prepared to try the case if a satisfactory resolution could not be reached.

D. Solstice's Positions During Mediation

Solstice's movement during the mediation proceeded as follows:

Opening Offer: Solstice opened with an offer of $3.5 million as a lump-sum payment. This figure was calibrated to fall within the lower end of Dr. Marchetti's reasonable royalty range ($2.8 million to $5.1 million) and was intended to anchor the discussion around a realistic damages figure while leaving room for upward movement.

First Movement: After the initial rounds of caucus, Solstice moved to $5.0 million as a lump-sum payment. In connection with this movement, I communicated to the mediator that Solstice was willing to engage on the question of deal structure and would consider a hybrid structure involving a license agreement with a running royalty, provided that the royalty rate was reasonable and that the agreement included meaningful caps to limit Solstice's exposure as revenue grows.

Structural Flexibility: In subsequent rounds, Solstice expressed its willingness to consider a hybrid structure, consistent with the approach signaled by Apex. However, we conditioned this on several key terms, including a reasonable royalty rate (significantly below Apex's proposed 5.5%), meaningful annual royalty caps, and a broad scope of license covering the broader Apex Trocar Patent Family.

Final Position: At the close of the mediation, Solstice's final position was $6.0 million as a lump-sum payment. Alternatively, Solstice proposed a hybrid structure consisting of $4.5 million as a lump sum plus a running royalty of 2.5% on future Net Sales, with a meaningful annual cap (we proposed a cap of $1.0 million per year, though this figure was communicated through the mediator as an illustration rather than a firm commitment).

Throughout the mediation, we consistently stressed the strength of Solstice's non-infringement position on the PE-5000 Series, the significant prior art identified by Dr. Ostrowski and Dr. Jonathan Kendrick (Kendrick & Lau LLP), and the substantial gap between Dr. Marchetti's damages analysis and Mr. Danaher's inflated $31.8 million figure. We also emphasized the availability of non-infringing design-around alternatives and the limited incremental value attributable to the patented features.

E. Mediator's Observations

At the conclusion of the mediation, the Honorable Margaret Forsythe made several observations in a joint closing session:

• She acknowledged that a significant gap remained between the parties' positions and that further movement would be needed from both sides to reach a resolution.

• She observed that the emergence of structural flexibility on both sides — specifically, the willingness of both Apex and Solstice to explore a hybrid lump-sum-plus-running-royalty structure — represented a meaningful development and, in her view, the most likely path to a resolution.

• She encouraged both parties to continue discussions, either through a second mediation session or through direct counsel-to-counsel negotiations, and indicated that she would remain available to facilitate further discussions at the parties' request.

• She expressed the view, based on her experience, that the gap was bridgeable and that the structural framework that emerged during the mediation provided a solid foundation for continued negotiations.

No settlement was reached. The mediation concluded at approximately 6:45 p.m.

IV. Assessment of Litigation Strengths and Risks

In formulating our revised settlement range recommendation, we have carefully assessed the strengths and risks of Solstice's litigation position across the relevant dimensions of liability, damages, and practical considerations. Our assessment is summarized below.

A. Favorable Factors for Solstice

The following factors weigh in Solstice's favor and support a resolution at or below the recommended range:

1. Claim Construction Order. The Court's Claim Construction Order of December 6, 2024, construed five of nine disputed terms in a manner favorable to Solstice. Of particular significance are the constructions of "locking seal assembly" (as used in Claim 1 of the '237 Patent) and "retractable blade deployment mechanism" (as used in Claims 1 and 5 of the '884 Patent). The Court adopted narrow constructions of these terms that require specific structural features — namely, a multi-component interlocking engagement with a defined rotational actuation (for "locking seal assembly") and a spring-loaded blade retraction mechanism with a defined trigger-release sequence (for "retractable blade deployment mechanism"). These constructions significantly narrow the scope of the '237 and '884 Patents as applied to the PE-5000 Series, which employs a fundamentally different single-component compression seal and a gravity-assisted blade retraction mechanism. The claim construction ruling is the single most significant favorable development in the case to date.

2. PE-5000 Non-Infringement Position. Building on the favorable claim constructions, Solstice has a strong non-infringement position for the PrecisionEdge™ PE-5000 Series. Dr. Calvin Ng's expert report provides a detailed, element-by-element analysis demonstrating that the PE-5000 does not practice the asserted claims under the Court's constructions. We are preparing a Motion for Summary Judgment of Non-Infringement as to the PE-5000 Series, which we have targeted for filing on or about April 1, 2025. If successful, this motion would eliminate the PE-5000 from the case, reducing the accused product base by approximately 35% of total U.S. sales revenue and further narrowing Apex's damages claim. Even a partial grant — for example, summary judgment on the '237 Patent claims as applied to the PE-5000 — would materially improve Solstice's position.

3. Invalidity Defense. Dr. Miriam Ostrowski's invalidity expert report identifies strong prior art references that challenge the validity of the asserted claims across all three patents. Her opinions regarding the combination of the Halvorsen PCT Application (WO 2015/064218) and the Bergström U.S. Patent No. 8,945,112 as rendering obvious the asserted claims of the '884 Patent are particularly compelling. In addition, the prosecution history estoppel arguments developed by Dr. Jonathan Kendrick narrow the scope of several asserted claims and may foreclose Apex's reliance on the doctrine of equivalents. While invalidity defenses are inherently uncertain — the presumption of validity under 35 U.S.C. § 282 requires clear and convincing evidence — we assess the probability of invalidating at least some asserted claims at approximately 30%–40%.

4. Damages Limitation. Dr. Elena Marchetti's Georgia-Pacific analysis provides a well-supported basis for limiting damages to a reasonable royalty in the range of $2.8 million to $5.1 million. Her analysis properly apportions the royalty base to reflect the incremental value of the patented features, accounts for available non-infringing alternatives, and relies on genuinely comparable license agreements. By contrast, Mr. Danaher's $31.8 million figure is based on a royalty rate of approximately 8.5% applied to an unapportioned royalty base, which we believe is vulnerable to challenge under Daubert and Uniloc. Dr. Marchetti's rebuttal report served March 3, 2025, methodically identifies the flaws in Mr. Danaher's methodology.

5. Gross Margin and Apportionment Arguments. Combined U.S. sales of the accused PrecisionEdge™ products from 2021 through September 30, 2024, total approximately $74.6 million at a weighted average gross margin of 61.3%. While these figures may appear to support a substantial damages award, Solstice has strong arguments that substantial non-infringing alternatives exist in the trocar market and that the patented features drive only a small portion of the overall product value. The PrecisionEdge™ product lines compete primarily on the basis of ergonomic design, manufacturing quality, pricing, and Solstice's established distribution relationships with hospital group purchasing organizations — not on the specific seal, blade, or insufflation valve features covered by the asserted patents. These arguments support a low apportionment factor and a correspondingly modest royalty.

B. Risk Factors for Solstice

The following factors represent areas of risk and weigh in favor of resolving the case through settlement:

1. PE-12000 Infringement Risk. The PrecisionEdge™ PE-12000 Series presents the most significant infringement risk. The PE-12000 is accused of infringing all three asserted patents, and the four claim construction rulings favorable to Apex — particularly the broad constructions of "integrated insufflation valve" and "blade retention channel" — increase the likelihood that a jury could find infringement with respect to this product line. Dr. Ng's non-infringement opinions for the PE-12000 are less robust than for the PE-5000, and he acknowledges closer questions with respect to Claims 1 and 9 of the '884 Patent and Claims 1 and 4 of the '105 Patent as applied to the PE-12000 design. The PE-12000 represents approximately 45% of total U.S. sales of the accused products.

2. PE-15000 Risk. The PrecisionEdge™ PE-15000 Series presents a moderate infringement risk, particularly on the '884 and '105 Patents. The PE-15000 employs a blade deployment mechanism and an insufflation valve configuration that are more similar to the structures described in the asserted patents than the PE-5000 design, though meaningful non-infringement arguments remain. The PE-15000 represents approximately 20% of total U.S. sales of the accused products.

3. Jury Unpredictability. This case is set for trial before a jury in the District of Delaware. Delaware juries in patent cases can be unpredictable, and there is an inherent risk that a jury could credit Apex's technical and damages experts over Solstice's experts, particularly if Apex presents a compelling narrative around Dr. Szabo's inventive contributions and the commercial success of the PrecisionEdge™ product line (which Apex would characterize as evidence of copying). The human element of a jury trial introduces a degree of risk that cannot be fully eliminated through legal arguments alone.

4. Damages Exposure. If Apex prevails on all three patents as to the PE-12000 and PE-15000 product lines, and the jury credits Mr. Danaher's methodology, the damages exposure could range from approximately $15 million to $31.8 million. While we believe Mr. Danaher's analysis is significantly inflated and subject to challenge, we cannot guarantee that the Court will exclude his testimony or that the jury will reject his conclusions. In addition, enhanced damages under 35 U.S.C. § 284 remain a theoretical risk. Although the evidence of willfulness is thin — Solstice's engineers independently designed the PrecisionEdge™ products and the design process is well-documented — the risk cannot be entirely eliminated, and a finding of willfulness could result in up to treble damages.

5. Continued Litigation Costs. Estimated additional legal fees and costs to take this case through trial are approximately $1.2 million to $1.8 million. This estimate includes the costs of completing expert discovery, filing and briefing dispositive motions, preparing for and attending the pretrial conference, and the trial itself. As of March 19, 2025, approximately $2.1 million has been billed to date (the total through the anticipated trial date of September 30, 2025, is projected to be approximately $2,847,319.42 inclusive of the amounts already billed). Solstice's defense costs are currently covered by Halcyon Specialty Insurance Co. under Policy No. HSI-IP-2023-04891, which provides coverage of up to $5 million per occurrence and $10 million in the aggregate, subject to a $250,000 self-insured retention that has already been satisfied. However, it is important to note that settlement payments are not covered under the Halcyon policy; Solstice will bear the full economic cost of any settlement payment and running royalty obligation. This distinction is significant in evaluating the relative cost-benefit of settlement versus continued litigation.

6. Business Disruption. The ongoing litigation creates uncertainty for Solstice's U.S. sales operations and customer relationships. Several major hospital group purchasing organizations have inquired about the status of the litigation, and there is a risk that prolonged uncertainty could affect purchasing decisions. Additionally, the management time devoted to litigation — particularly by Eamon Rourke, Niamh Cassidy, and Colm O'Brien — represents an opportunity cost that, while difficult to quantify, is real and growing.

C. Probability Assessment

Drawing on the foregoing analysis, we assess the probabilities as follows:

• Estimated probability of Apex prevailing on at least one patent claim at trial: 40%–55%. This range reflects the significant infringement risk on the PE-12000 Series and the moderate risk on the PE-15000 Series, offset by the strong invalidity defense and the favorable claim constructions.

• Estimated probability of Apex prevailing on all three patents: 15%–25%. This lower probability reflects the independent invalidity and non-infringement arguments available for each patent and the cumulative likelihood that Solstice will prevail on at least some claims or patents.

• Expected value of Apex's damages claim (probability-weighted): Approximately $7 million to $12 million. This range is derived by applying the probability estimates above to the range of possible damages outcomes, from Dr. Marchetti's low-end estimate (applied to the PE-12000 and PE-15000 only) to a jury verdict in the range of $15 million to $20 million (reflecting a partial credit to Mr. Danaher's methodology).

It is important to note that this probability-weighted expected value range does not include Solstice's own continued legal costs (estimated at $1.2 million to $1.8 million through trial), management distraction, reputational considerations, or the value of certainty. When these factors are considered, the economic case for settlement in the recommended range becomes compelling.

V. Analysis of Settlement Structure Options

Based on the mediation dialogue and our assessment of the parties' respective positions, we have identified three primary structural alternatives for a potential settlement. Each is analyzed below.

A. Lump-Sum Only

Under this structure, Solstice would make a single, one-time payment to Apex in exchange for a license, covenant not to sue, mutual release, and dismissal with prejudice.

Advantages: A lump-sum-only structure offers simplicity and certainty. It avoids the administrative burden and ongoing obligations associated with a running royalty, including quarterly royalty reports, audit rights, and the need to maintain detailed sales records in a format consistent with the license agreement. A lump-sum deal provides a clean break between the parties, which may be desirable from Solstice's perspective given the adversarial history.

Disadvantages: A lump-sum-only structure requires a larger up-front cash outlay, which must be funded from Solstice's available cash reserves or existing credit facilities. More fundamentally, based on Apex's positions at the mediation — where Apex's final lump-sum demand was $18 million and its lowest lump-sum figure in a hybrid context was $14 million — it appears unlikely that Apex will accept a lump-sum-only settlement below $14 million. This figure exceeds the upper end of our probability-weighted expected value range and, in our judgment, exceeds the amount that Solstice should reasonably pay to resolve this dispute.

Assessment: A lump-sum-only deal likely exceeds Solstice's reasonable value threshold and is therefore not the preferred structure. However, we would not rule it out entirely if Apex were to show significantly more flexibility on the lump-sum number in future negotiations.

B. Hybrid: Lump Sum Plus Running Royalty

Under this structure, Solstice would make a reduced up-front lump-sum payment (representing compensation for past damages and/or a paid-up component) and would also agree to pay an ongoing running royalty on future Net Sales of the Licensed Products for the remaining life of the patents.

Advantages: A hybrid structure reduces the up-front cash payment, which is beneficial for Solstice's cash flow and working capital position. It spreads the economic cost of the settlement over time in a manner that is directly aligned with Solstice's actual product revenue — Solstice pays more only if it sells more, which creates a natural hedge. From Apex's perspective, a hybrid structure satisfies its interest in ongoing participation in the market value of the licensed technology and provides a revenue stream that may be more attractive to Apex's shareholders and financial planning than a single, lower lump-sum payment. This alignment of interests is key to bridging the current gap.

Disadvantages: A hybrid structure imposes ongoing royalty payment obligations and administrative burden on Solstice, including the need to prepare and deliver quarterly royalty reports, maintain auditable sales records, and submit to periodic audit by Apex or its designated auditor. It also creates a long-term contractual relationship with Apex that will last until the expiration of the last-to-expire Licensed Patent — currently the '105 Patent, expiring January 10, 2038. This relationship must be managed carefully, and the license agreement must be drafted with precision to avoid future disputes over royalty calculations, product scope, and other terms.

Assessment: The hybrid structure is the most promising path to resolution. Both sides demonstrated flexibility on this structure during the mediation, and the mediator expressly identified it as the most likely basis for a deal. We recommend pursuing negotiations centered on this structure.

C. Running Royalty Benchmarks

In evaluating the appropriate royalty rate for a hybrid settlement, we have considered the following benchmarks:

• Dr. Marchetti's Georgia-Pacific Analysis: Dr. Marchetti's analysis, which applies the fifteen Georgia-Pacific factors to a hypothetical negotiation between willing licensor and willing licensee, concludes that a reasonable royalty rate for the asserted patents would fall in the range of 2.0% to 3.5% of Net Sales. This range reflects, among other factors, the availability of non-infringing alternatives, the limited incremental value of the patented features relative to the overall product, and the competitive market for trocar products.

• Mr. Danaher's Analysis: By contrast, Mr. Danaher's report applies a royalty rate of approximately 8.5% of Net Sales, which we believe is significantly inflated. His analysis relies on non-comparable license agreements, fails to properly apportion the royalty base, and overstates the contribution of the patented features to the commercial value of the PrecisionEdge™ products.

• Ridgeline IP Analytics LLC Valuation: Dr. Arthur Gaines of Ridgeline IP Analytics LLC prepared a patent portfolio valuation at our request for use in settlement negotiations. Dr. Gaines's analysis, which considers the strength of the patents, the breadth of the claims (as construed), and comparable transactions, supports a reasonable royalty rate in the range of 3.0% to 4.0% of Net Sales.

• Comparable License Agreements in Apex's Production: Documents produced by Apex in discovery (Bates Nos. APEX-012840 through APEX-012897) reveal that Apex has licensed similar trocar-related patents to at least two other companies. The first agreement, with Medisphere Corporation (executed in 2019), provides for a royalty rate of 3.0% of net sales. The second agreement, with Innovate Surgical Solutions LLC (executed in 2021), provides for a royalty rate of 4.25% of net sales. These actual, arm's-length transactions involving the same or closely related patents are highly probative of the reasonable royalty and support a rate in the 3.0% to 4.25% range.

Based on these benchmarks, we believe a royalty rate of 3.0% to 4.5% of Net Sales is the appropriate negotiating range for Solstice. The lower end of this range (3.0%) is supported by Dr. Marchetti's analysis and the Medisphere comparable, while the upper end (4.5%) provides some room above the Innovate Surgical comparable to reflect the broader scope of the license being sought (all three asserted patents plus the broader patent family).

To illustrate the annual royalty cost, we note that Net Sales of Licensed Products in the United States for fiscal year 2023 were approximately $22.4 million. Assuming 8% annual growth (consistent with Solstice's internal projections), projected Net Sales for calendar year 2026 would be approximately $24.2 million. At a royalty rate of 3.75% (the midpoint of the recommended range), the annual royalty payment would be approximately $907,500. As revenue grows, the annual royalty payment would increase proportionally, underscoring the critical importance of negotiating an annual royalty cap to limit Solstice's exposure in the event of above-trend revenue growth.

D. Additional Deal Terms to Seek

In addition to the financial terms, we recommend that Solstice seek the following provisions in any settlement and license agreement:

1. Broad License Scope. A non-exclusive, worldwide license covering not only the three asserted patents ('237, '884, and '105) but also the broader Apex Trocar Patent Family, which encompasses 14 issued patents and 6 pending applications. Apex signaled during the mediation that the scope of its covenant not to sue was negotiable at higher settlement amounts. Securing a license to the broader family would provide Solstice with significant freedom to operate across a wide range of trocar-related technologies and would eliminate the risk of Apex asserting additional patents from this family in the future.

2. Covenant Not to Sue. A covenant not to sue for the entire Apex Trocar Patent Family in the laparoscopic surgical access device field, including a specific carve-out for future product development. This covenant should be irrevocable and should survive any change of ownership of the licensed patents.

3. Most-Favored Licensee Clause. A provision that if Apex licenses the covered patents to any third party at a lower effective royalty rate, Solstice's rate will automatically adjust downward to match. This protects Solstice from being disadvantaged relative to competitors who may negotiate licenses with Apex in the future.

4. Annual Royalty Floor and Cap. An annual royalty floor (protecting Apex's minimum revenue expectations) and an annual royalty cap (protecting Solstice's maximum exposure). We recommend negotiating a floor in the range of $400,000 to $500,000 per calendar year and a cap in the range of $1.5 million to $2.0 million per calendar year, beginning in calendar year 2026.

5. Sublicense Right. A limited right to sublicense the Licensed Patents to Solstice's contract manufacturers for the sole purpose of manufacturing the Licensed Products on Solstice's behalf. This is important given Solstice's use of third-party contract manufacturers for certain PrecisionEdge™ components.

6. Mutual Release. A mutual release of all claims and counterclaims arising out of or related to the litigation, including Solstice's counterclaims for declaratory judgment of non-infringement, invalidity, and inequitable conduct.

7. Dismissal with Prejudice. Joint stipulation of dismissal with prejudice of all claims and counterclaims.

8. Confidentiality. A robust confidentiality provision requiring that the financial terms of the settlement remain confidential and not be disclosed to any third party (other than auditors, legal and financial advisors, and as required by law or applicable stock exchange regulations).

VI. Revised Settlement Range Recommendation

Based on the foregoing analysis, we recommend the following revised settlement parameters for Solstice's consideration and Board approval.

A. Recommended Lump-Sum Range

We recommend a lump-sum payment in the range of $7.5 million to $10 million, payable in two tranches to manage Solstice's cash flow:

• First Tranche: Approximately 60% of the lump-sum amount (i.e., $4.5 million to $6.0 million) payable upon execution of the definitive settlement and license agreement.

• Second Tranche: Approximately 40% of the lump-sum amount (i.e., $3.0 million to $4.0 million) payable within 90 days following execution.

We recommend that both tranches be placed in escrow with Tidewater Fiduciary Services, Inc. (which Solstice has used previously for transactional escrows and which has an established relationship with Solstice's treasury function) for orderly release to Apex upon satisfaction of the applicable payment conditions, including execution and delivery of all definitive documentation and filing of the joint stipulation of dismissal.

B. Recommended Running Royalty Range

We recommend a running royalty in the range of 3.0% to 4.5% of Net Sales of Licensed Products, defined to include the PrecisionEdge™ PE-5000, PE-12000, and PE-15000 series and their successors, with the following key parameters:

• Definition of "Net Sales": Gross invoiced sales of Licensed Products, less returns, rebates, chargebacks, freight charges, and sales taxes, consistent with standard industry practice.

• Annual Royalty Floor: $400,000 to $500,000 per calendar year, beginning calendar year 2026. The floor ensures a minimum level of compensation to Apex regardless of actual sales levels and is a reasonable concession given the overall deal economics.

• Annual Royalty Cap: $1.5 million to $2.0 million per calendar year. The cap is critical to protecting Solstice's exposure in the event of above-trend revenue growth and limits the total running royalty burden to a manageable and predictable level.

• Royalty Term: The running royalty obligation would terminate upon expiration of the last-to-expire Licensed Patent, which is currently the '105 Patent, expiring January 10, 2038.

• Reporting and Audit: Quarterly royalty reports within 45 days of the end of each calendar quarter; Apex's right to audit Solstice's royalty records no more than once per calendar year, at Apex's expense (unless the audit reveals an underpayment of more than 5%, in which case Solstice bears the cost).

C. Total Economic Package Analysis

To provide context for the overall economic cost of a settlement in the recommended range, we present the following illustrative analysis, using midpoint assumptions:

Assumptions:

• Lump-sum payment: $8.75 million (midpoint of recommended range)

• Running royalty rate: 3.75% of Net Sales (midpoint of recommended range)

• Base year Net Sales (CY 2025): $22.4 million (based on FY 2023 actuals)

• Annual Net Sales growth: 8% per year (consistent with Solstice's internal projections)

• Annual royalty cap: $1.75 million per year (midpoint of recommended range)

• Patent term: Through January 10, 2038 (approximately 13 remaining years)

Projected Total Cost:

• Lump-sum payment: $8.75 million

• Estimated cumulative running royalties over patent life (through 2038, subject to annual cap): approximately $10 million to $14 million, depending on actual sales growth and the point at which the annual cap is triggered. Under the baseline assumption of 8% annual growth, the annual royalty payment would first hit the $1.75 million cap in approximately 2032–2033, and cumulative royalties over the full term would total approximately $12.5 million.

• Total estimated economic cost: approximately $18.75 million to $22.75 million over 13 years.

This total economic package compares favorably to the relevant benchmarks:

• Apex's Claimed Damages: $31.8 million. The recommended settlement range represents a discount of approximately 29%–41% from Apex's claimed damages figure.

• Probability-Weighted Trial Exposure: $7 million to $12 million in expected damages, plus $1.2 million to $1.8 million in additional legal costs through trial, plus the risk of an adverse outcome materially exceeding the expected value. While the probability-weighted expected value is lower than the recommended lump-sum range, the settlement must be evaluated in the context of the full distribution of outcomes — including the risk of a large adverse verdict — and the non-financial benefits of certainty, business continuity, and freedom to operate.

• Value of License and Covenant Not to Sue: In addition to resolving the pending litigation, the recommended settlement would secure a non-exclusive license and covenant not to sue covering the broader Apex Trocar Patent Family. This eliminates the risk of future patent assertions by Apex in this product field and provides significant strategic value to Solstice's ongoing operations and product development.

D. Comparison to Prior Settlement Authority

The Settlement Authority Memorandum to the Solstice Board of Directors, which is currently in preparation, will need to reflect the revised settlement range recommended in this memorandum.

We note that the prior informal settlement authority discussed with Eamon Rourke was in the range of $4 million to $6 million on a lump-sum-only basis. This recommendation reflects the reality — confirmed through the mediation process — that a lump-sum-only resolution at that level is not achievable based on Apex's positions and the overall litigation dynamics. The hybrid structure allows Solstice to stay within a reasonable total economic envelope while accommodating Apex's need for a more substantial headline number and ongoing revenue participation in the licensed technology.

Importantly, the economic cost of the hybrid structure, while higher in nominal terms than a $4 million to $6 million lump sum, is spread over approximately 13 years and is directly tied to Solstice's revenue performance. On a present-value basis, using a discount rate of 8% (approximating Solstice's weighted average cost of capital), the present value of the total economic package under the midpoint scenario is approximately $14 million to $16 million — a figure that is reasonable in light of the litigation risks and the value of the license and covenant not to sue.

VII. Recommended Next Steps

Based on the foregoing analysis, we recommend that Solstice take the following steps in the near term:

1. Client Discussion. We recommend scheduling a call with Dr. Fiona Tierney (CEO), Eamon Rourke (General Counsel), and Brendan Molloy (CFO) at the earliest opportunity to discuss the assessments and recommendations set forth in this memorandum. The primary objective of this discussion will be to align on the revised settlement range and to authorize preparation of the Settlement Authority Memorandum for consideration and approval by the Solstice Board of Directors. We are available for this call at your convenience and would suggest a date within the next seven to ten business days.

2. Summary Judgment Motion. We recommend proceeding with the preparation and filing of the Motion for Summary Judgment of Non-Infringement as to the PE-5000 Series. We have targeted a filing date of April 1, 2025, which is within the Court's dispositive motions briefing schedule. A successful motion — or even a strong showing on the motion — would materially strengthen Solstice's negotiating position and would reduce Apex's damages base by approximately 35%. The motion will be supported by Dr. Ng's expert opinions, the favorable claim constructions, and the detailed factual record developed during discovery. Christy Bauer and Peter Vassiliev are currently leading the drafting effort under my supervision.

3. Re-Engage Mediator or Direct Negotiations. We recommend considering whether to re-engage Hon. Forsythe for a second mediation session or to proceed with direct counsel-to-counsel negotiations between Marcus Delgado and Victoria Stanton. In our judgment, direct negotiations may be more efficient at this stage, given the structural framework that emerged during the mediation and the rapport established between counsel. A second mediation session could be reserved as a fallback if direct negotiations reach an impasse. We would welcome the client's input on this question.

4. Insurance Coordination. We recommend continuing coordination with Sandra Keene, Claims Manager at Halcyon Specialty Insurance Co., regarding defense cost coverage under Policy No. HSI-IP-2023-04891. We should confirm in writing that Halcyon acknowledges its continuing obligation to fund defense costs through trial (up to the remaining per-occurrence limit) and should also confirm that settlement payments and running royalty obligations will not be covered under the policy. This confirmation is important for Solstice's financial planning and Board authorization process.

5. Tax and Structuring Analysis. We recommend commissioning a tax analysis of the proposed settlement structure, including the lump-sum payment and running royalty obligations, for both Solstice Biomedical Devices Ltd. (Ireland) and Solstice Biomedical, Inc. (Delaware). Key issues to be analyzed include the deductibility of the lump-sum payment and royalty payments, withholding tax considerations under the U.S.-Ireland income tax treaty (particularly the treatment of royalty payments made by the U.S. subsidiary to the Irish parent), and any transfer pricing implications. We recommend engaging Solstice's tax advisors at Dunmore & Associates to prepare this analysis.

6. Antitrust Review. We recommend a brief review of any antitrust considerations under FTC and DOJ guidelines relating to the proposed patent license settlement terms, including the most-favored licensee clause, the field-of-use restrictions in the covenant not to sue, and the scope of the non-exclusive license. While we do not anticipate material antitrust concerns, a brief review is prudent given the scope of the proposed license.

7. Timeline. We recommend aiming to reach an agreement in principle within 60 to 90 days — i.e., by mid-May to early June 2025. This timeline would allow sufficient time to negotiate and execute the definitive settlement and license agreement, prepare and file the joint stipulation of dismissal, and complete all administrative steps well in advance of the September 30, 2025 trial date. If an agreement in principle is not reached within this timeframe, Solstice will need to proceed with full trial preparation in parallel, and the window for a cost-effective resolution may narrow.

VIII. Conclusion

The March 17, 2025 mediation session, while not resulting in a settlement, materially advanced the dialogue between the parties and revealed a viable settlement corridor centered on a hybrid lump-sum-plus-running-royalty structure. The emergence of structural flexibility on both sides — particularly Apex's willingness to accept a reduced lump sum in exchange for an ongoing royalty stream — creates an opportunity for a resolution that serves Solstice's interests.

A settlement in the recommended range of $7.5 million to $10 million in lump-sum payments plus a running royalty of 3.0% to 4.5% of Net Sales represents a favorable outcome for Solstice when measured against the probability-weighted trial exposure (approximately $7 million to $12 million in expected damages alone), continued defense costs ($1.2 million to $1.8 million through trial), and the broader business considerations of certainty, freedom to operate, and elimination of ongoing litigation risk.

We recommend that Solstice seek revised settlement authority from the Board of Directors promptly and that we pursue negotiations with Apex's counsel in parallel with continued, vigorous litigation preparation — including the filing of the summary judgment motion as to the PE-5000 Series. This dual-track approach maximizes Solstice's leverage and preserves all options.

We stand ready to discuss this memorandum and our recommendations at your earliest convenience. Please do not hesitate to contact me directly.

Respectfully submitted,

CALDERWOOD & HARKNESS LLP

By: ________

Marcus Delgado Partner, intellectual Property 1201 Market Street, Suite 2500 Wilmington, Delaware 19801 Telephone: (302) 555-7100

Email: m.delgado@calderwoodharkness.com

Prepared with the assistance of Christy Bauer, Lead Associate, and Peter Vassiliev, Working Associate, Calderwood & Harkness LLP.

PRIVILEGED & CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT Calderwood & Harkness LLP — Matter No. 10294.0017

PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
This memorandum is a privileged and confidential attorney-client communication and constitutes attorney work product prepared in anticipation of litigation. It is not intended for disclosure to any third party and should not be forwarded, copied, or distributed without the express authorization of Calderwood & Harkness LLP.
INTERNAL MEMORANDUM
March 19, 2025
FROM: Marcus Delgado, Responsible Partner, intellectual Property, Calderwood & Harkness LLP
TO: Eamon Rourke, General Counsel, Solstice Biomedical Devices Ltd.
CC: Dr. Fiona Tierney, CEO, Solstice Biomedical Devices Ltd.; Brendan Molloy, CFO, Solstice Biomedical Devices Ltd.; Catherine Bloom, Billing Partner, Calderwood & Harkness LLP
RE: Post-Mediation Assessment & Revised Settlement Range — Apex Surgical Innovations, Inc. v. Solstice Biomedical, Inc., Case No. 1:24-cv-00587-RGA (D. Del.)
MATTER NO.: 10294.0017
I. Executive Summary
The purpose of this memorandum is to provide Solstice Biomedical Devices Ltd. ("Solstice" or the "Company") with a comprehensive assessment of the full-day mediation held on March 17, 2025, before the Honorable Margaret Forsythe (Ret.) at Amberstone ADR Services, 1000 North West Street, Suite 1200, Wilmington, Delaware 19801, and to recommend a revised settlement range for Solstice's consideration in connection with the above-captioned patent infringement action brought by Apex Surgical Innovations, Inc. ("Apex").
Bottom Line: The mediation did not result in a resolution. At the close of the session, the parties remained approximately $18 million apart on a lump-sum basis. Apex's final demand stood at $18 million (or an alternative hybrid of $14 million plus a 5.5% running royalty), while Solstice's final offer stood at $6 million (or an alternative hybrid of $4.5 million plus a 2.5% running royalty). However, and importantly, the mediation dialogue revealed meaningful flexibility on Apex's side regarding deal structure. In particular, Apex demonstrated a genuine willingness to consider a hybrid lump-sum-plus-running-royalty arrangement, which we believe creates a viable settlement corridor that was not apparent prior to the mediation. The mediator shared this view and indicated her willingness to facilitate further discussions.
Recommendation: Based on our assessment of the litigation risks, the probability-weighted trial exposure, the cost of continued litigation, and the business considerations described in this memorandum, we recommend that Solstice revise its settlement authority to encompass a lump-sum payment in the range of $7.5 million to $10 million, coupled with a running royalty of 3.0% to 4.5% of Net Sales of Licensed Products, for a combined economic package that is materially below Apex's claimed $31.8 million in reasonable royalty damages and that represents a favorable resolution when evaluated against the expected value of trial. We further recommend that Solstice seek revised Board authority promptly and that we pursue negotiations with Apex's counsel in parallel with continued preparation for the September 30, 2025 trial.
The sections that follow provide the factual and analytical bases for this recommendation.
II. Background and Procedural Posture
A. The Litigation
Apex Surgical Innovations, Inc. filed its Complaint on May 9, 2024, in the United States District Court for the District of Delaware, alleging that Solstice Biomedical, Inc.'s PrecisionEdge™ PE-5000, PE-12000, and PE-15000 trocar assembly product lines infringe three Apex utility patents. The case was assigned to the Honorable Richard G. Andrews. The asserted patents are as follows:
1. U.S. Patent No. 9,814,237 (the "'237 Patent") — entitled "Locking Seal Assembly for Minimally Invasive Surgical Access Device." The '237 Patent was issued on November 14, 2017, and is currently set to expire on June 22, 2035. Apex asserts Claims 1, 3, 7, and 12 of the '237 Patent against the PrecisionEdge™ product lines.
2. U.S. Patent No. 10,271,884 (the "'884 Patent") — entitled "Retractable Blade Deployment Mechanism for Trocar Systems." The '884 Patent was issued on April 30, 2019, and is currently set to expire on September 15, 2036. Apex asserts Claims 1, 2, 5, 9, and 14 of the '884 Patent against the PrecisionEdge™ product lines.
3. U.S. Patent No. 10,932,105 (the "'105 Patent") — entitled "Integrated Insufflation Valve and Seal for Laparoscopic Trocar." The '105 Patent was issued on March 2, 2021, and is currently set to expire on January 10, 2038. Apex asserts Claims 1, 4, and 8 of the '105 Patent against the PrecisionEdge™ product lines.
The named inventor on all three asserted patents is Dr. Raymond Szabo, Vice President of Engineering at Apex. Dr. Szabo is expected to be a key trial witness for Apex, and his deposition testimony (taken on September 12, 2024) was generally consistent with his declarations submitted during prosecution, though we identified several areas of potential impeachment relating to the scope and functionality of the prior art references.
Solstice filed its Answer and Counterclaims on June 14, 2024, asserting defenses of non-infringement, invalidity under 35 U.S.C. §§ 102 and 103, and inequitable conduct. The inequitable conduct counterclaim is based on Dr. Szabo's alleged failure to disclose material prior art references to the United States Patent and Trademark Office during prosecution of the '884 Patent, specifically the Halvorsen PCT Application (WO 2015/064218) and the internal Apex design review memorandum dated March 3, 2016 (APEX-007241 through APEX-007249). While the inequitable conduct defense remains in the case, we note that the evidentiary threshold is high and we assess the probability of prevailing on this defense as relatively low (approximately 15%–20%).
B. Discovery and Claim Construction
Fact discovery in this matter has been extensive. Solstice produced a total of 48,217 documents bearing Bates Numbers SBD-000001 through SBD-048217, encompassing product design files, engineering change orders, regulatory submissions, sales and marketing records, and internal communications relating to the development of the PrecisionEdge™ product lines. Apex produced 31,450 documents bearing Bates Numbers APEX-000001 through APEX-031450, which included patent prosecution files, licensing correspondence, internal R&D documentation, and financial records.
The parties conducted a total of fourteen fact depositions, including depositions of Dr. Raymond Szabo (Apex), Martin Hale (Apex), Dr. Priya Chandrasekaran (Apex), Niamh Cassidy (Solstice), Colm O'Brien (Solstice, Director of Engineering), and representatives of key customers and distributors.
The Court held a Markman hearing on November 18, 2024, to address the parties' claim construction disputes. The Claim Construction Order was issued on December 6, 2024. Nine disputed claim terms were construed by the Court. Of these, five were construed in a manner favorable to Solstice, and four were construed in a manner favorable to Apex. The five constructions favorable to Solstice are particularly significant as they relate to the terms "locking seal assembly" (Claim 1, '237 Patent), "retractable blade deployment mechanism" (Claims 1 and 5, '884 Patent), "radially expandable elastomeric seal" (Claim 7, '237 Patent), "user-actuated spring-loaded return" (Claim 14, '884 Patent), and "hermetically sealed gas pathway" (Claim 4, '105 Patent). As discussed in Section IV below, the favorable constructions of "locking seal assembly" and "retractable blade deployment mechanism" substantially narrow the scope of the '237 and '884 Patents as applied to the PE-5000 Series and provide the basis for our contemplated summary judgment motion.
The four constructions favorable to Apex concern the terms "integrated insufflation valve" (Claim 1, '105 Patent), "proximal housing component" (Claims 1 and 12, '237 Patent), "blade retention channel" (Claims 2 and 9, '884 Patent), and "axially aligned fluid conduit" (Claim 8, '105 Patent). These constructions are broader than Solstice advocated and increase the infringement exposure for the PE-12000 and PE-15000 product lines.
Expert discovery opened on January 13, 2025, and the parties have exchanged the following expert reports:
• Dr. Miriam Ostrowski (Professor of Mechanical Engineering, Halford University) — Solstice's invalidity expert. Report served January 27, 2025. Dr. Ostrowski identifies multiple prior art references that she opines anticipate or render obvious the asserted claims of all three patents, with particular emphasis on the Halvorsen PCT Application, the Bergström U.S. Patent No. 8,945,112, and the Tanaka Japanese Patent Publication JP 2014-128762.
• Dr. Calvin Ng (Professor of Biomedical Engineering, Veltrano Polytechnic Institute) — Solstice's non-infringement expert. Report served February 10, 2025. Dr. Ng opines that the PrecisionEdge™ PE-5000 Series does not infringe any asserted claim under the Court's claim constructions, and that the PE-12000 and PE-15000 Series do not infringe several of the asserted claims, though he acknowledges closer questions with respect to Claims 1 and 9 of the '884 Patent and Claims 1 and 4 of the '105 Patent as applied to the PE-12000 Series.
• Dr. Elena Marchetti (Managing Director, Pinnacle Economics Group LLC) — Solstice's damages expert. Report served February 14, 2025. Dr. Marchetti applies a Georgia-Pacific reasonable royalty analysis and concludes that a reasonable royalty for the asserted patents would fall in the range of $2.8 million to $5.1 million.
• Hugh Danaher, CFA (Managing Director, Keystone Valuation Advisors LLC) — Apex's damages expert. Report served February 14, 2025. Mr. Danaher applies a Georgia-Pacific analysis and concludes that a reasonable royalty amounts to $31.8 million. His analysis applies a royalty rate of approximately 8.5% to Solstice's combined U.S. sales of the accused products.
• Rebuttal expert reports were exchanged on March 3, 2025. Dr. Marchetti's rebuttal report identifies numerous methodological flaws in Mr. Danaher's analysis, including his failure to properly apportion the royalty base, his reliance on non-comparable license agreements, and his inflation of the incremental value attributable to the patented features.
C. Trial Date
Trial is currently set for September 30, 2025, before the Honorable Richard G. Andrews with an estimated trial length of seven to nine days. A pretrial conference is scheduled for August 18, 2025. The summary judgment briefing deadline is April 25, 2025.
III. Mediation Summary
A. Format and Participants
A full-day mediation session was held on March 17, 2025, at the offices of Amberstone ADR Services, 1000 North West Street, Suite 1200, Wilmington, Delaware 19801. The mediation was conducted before the Honorable Margaret Forsythe (Ret.), a former judge of the Delaware Court of Chancery with extensive experience mediating patent disputes. The session commenced at approximately 9:00 a.m. and concluded at approximately 6:45 p.m.
The following individuals attended on behalf of Solstice:
• Eamon Rourke, General Counsel, Solstice Biomedical Devices Ltd.
• Niamh Cassidy, Vice President, Regulatory & intellectual Property, Solstice Biomedical Devices Ltd.
• Brendan Molloy, Chief Financial Officer, Solstice Biomedical Devices Ltd.
• Marcus Delgado, Partner, Calderwood & Harkness LLP
• Christy Bauer, Lead Associate, Calderwood & Harkness LLP
The following individuals attended on behalf of Apex:
• Martin Hale, General Counsel, Apex Surgical Innovations, Inc.
• Dr. Priya Chandrasekaran, Chief IP Officer, Apex Surgical Innovations, Inc.
• Victoria Stanton, Partner, Hargrove, Tate & Bennington LLP
• Derek Loomis, Associate, Hargrove, Tate & Bennington LLP
Solstice submitted its confidential mediation statement to Hon. Forsythe on March 14, 2025, which set forth Solstice's positions on liability and damages as well as the Company's settlement posture and business considerations. Apex submitted its own confidential mediation statement on the same date. Neither party's confidential statement was shared with the opposing side.
B. Opening Session
The mediation began with a joint session lasting approximately 45 minutes. Both parties presented opening statements.
Apex's presentation was led by Victoria Stanton and focused on Apex's infringement theory across all three patent families. Ms. Stanton walked through claim charts for representative claims of each patent as applied to each of the three PrecisionEdge™ product lines, emphasizing the opinions of Apex's infringement expert (whose identity has not yet been disclosed but whose positions are reflected in Mr. Danaher's damages analysis). Ms. Stanton also highlighted the four claim construction rulings favorable to Apex and argued that these constructions effectively resolved the infringement question in Apex's favor with respect to the PE-12000 Series. Mr. Danaher's $31.8 million damages figure was prominently featured. Apex's General Counsel, Martin Hale, also spoke briefly, characterizing the litigation as a case of "clear and deliberate copying" and expressing Apex's preference for a prompt resolution that fairly compensated Apex for the use of its patented technology.
Solstice's presentation, which I delivered with input from Niamh Cassidy, focused on three themes: (1) the strength of Solstice's non-infringement position with respect to the PE-5000 Series following the favorable claim constructions, including our plan to file a motion for summary judgment; (2) the invalidity arguments supported by Dr. Ostrowski's expert report and the prosecution history estoppel arguments developed by Dr. Jonathan Kendrick of Kendrick & Lau LLP (our technical patent advisor); and (3) Dr. Marchetti's alternative damages analysis, which places a reasonable royalty in the range of $2.8 million to $5.1 million — a fraction of Apex's claimed damages. We emphasized that even if Apex were to prevail on one or more patents, the royalty base and rate applied by Mr. Danaher are significantly inflated and unlikely to survive a Daubert challenge. Brendan Molloy also briefly addressed the competitive landscape, noting the availability of non-infringing alternative trocar technologies.
Following the opening session, the mediator transitioned to private caucus sessions for the remainder of the day.
C. Apex's Positions During Mediation
The movement of Apex's position during the mediation can be summarized as follows:
Opening Demand: Apex began with an opening demand of $28 million as a lump-sum payment. This represented a modest reduction from the $31.8 million claimed by Mr. Danaher in his expert report, which Apex characterized as a "reasonable accommodation" to facilitate settlement discussions. Martin Hale stated that Apex's Board of Directors had authorized settlement and expected a resolution that reflected the "full value" of its patent portfolio.
First Movement: After the initial round of caucus sessions, during which the mediator conveyed Solstice's opening offer and discussed the strengths and weaknesses of both parties' positions, Apex reduced its demand to $22 million as a lump sum. This $6 million reduction occurred over approximately two rounds of caucus and was accompanied by some signaling from Victoria Stanton that Apex recognized the litigation risk associated with the invalidity arguments.
Structural Flexibility: In the third round of caucus, Apex, through the mediator, indicated a willingness to consider a "hybrid" settlement structure consisting of a reduced lump-sum payment for past damages plus a forward-looking running royalty on future Net Sales of the accused PrecisionEdge™ products. This was a significant development, as it opened a new dimension in the negotiation and signaled that Apex was focused on ongoing revenue participation rather than solely on a one-time payment.
Final Position: At the close of the mediation, Apex's final position was $18 million as a lump-sum payment. Alternatively, Apex proposed a hybrid structure consisting of $14 million as a lump sum plus a running royalty of 5.5% on future Net Sales of all accused PrecisionEdge™ products, with no annual cap. The mediator also conveyed that Apex signaled the scope of a covenant-not-to-sue covering the broader Apex Trocar Patent Family (which encompasses 14 issued patents and 6 pending applications beyond the three asserted patents) was negotiable at higher settlement amounts. This is a potentially valuable concession, as it would provide Solstice with freedom to operate across a broader range of trocar-related technologies.
Victoria Stanton also emphasized, through the mediator, Apex's view that the Claim Construction Order's favorable constructions on four disputed terms supported infringement on at least the PE-12000 Series and that Apex was prepared to try the case if a satisfactory resolution could not be reached.
D. Solstice's Positions During Mediation
Solstice's movement during the mediation proceeded as follows:
Opening Offer: Solstice opened with an offer of $3.5 million as a lump-sum payment. This figure was calibrated to fall within the lower end of Dr. Marchetti's reasonable royalty range ($2.8 million to $5.1 million) and was intended to anchor the discussion around a realistic damages figure while leaving room for upward movement.
First Movement: After the initial rounds of caucus, Solstice moved to $5.0 million as a lump-sum payment. In connection with this movement, I communicated to the mediator that Solstice was willing to engage on the question of deal structure and would consider a hybrid structure involving a license agreement with a running royalty, provided that the royalty rate was reasonable and that the agreement included meaningful caps to limit Solstice's exposure as revenue grows.
Structural Flexibility: In subsequent rounds, Solstice expressed its willingness to consider a hybrid structure, consistent with the approach signaled by Apex. However, we conditioned this on several key terms, including a reasonable royalty rate (significantly below Apex's proposed 5.5%), meaningful annual royalty caps, and a broad scope of license covering the broader Apex Trocar Patent Family.
Final Position: At the close of the mediation, Solstice's final position was $6.0 million as a lump-sum payment. Alternatively, Solstice proposed a hybrid structure consisting of $4.5 million as a lump sum plus a running royalty of 2.5% on future Net Sales, with a meaningful annual cap (we proposed a cap of $1.0 million per year, though this figure was communicated through the mediator as an illustration rather than a firm commitment).
Throughout the mediation, we consistently stressed the strength of Solstice's non-infringement position on the PE-5000 Series, the significant prior art identified by Dr. Ostrowski and Dr. Jonathan Kendrick (Kendrick & Lau LLP), and the substantial gap between Dr. Marchetti's damages analysis and Mr. Danaher's inflated $31.8 million figure. We also emphasized the availability of non-infringing design-around alternatives and the limited incremental value attributable to the patented features.
E. Mediator's Observations
At the conclusion of the mediation, the Honorable Margaret Forsythe made several observations in a joint closing session:
• She acknowledged that a significant gap remained between the parties' positions and that further movement would be needed from both sides to reach a resolution.
• She observed that the emergence of structural flexibility on both sides — specifically, the willingness of both Apex and Solstice to explore a hybrid lump-sum-plus-running-royalty structure — represented a meaningful development and, in her view, the most likely path to a resolution.
• She encouraged both parties to continue discussions, either through a second mediation session or through direct counsel-to-counsel negotiations, and indicated that she would remain available to facilitate further discussions at the parties' request.
• She expressed the view, based on her experience, that the gap was bridgeable and that the structural framework that emerged during the mediation provided a solid foundation for continued negotiations.
No settlement was reached. The mediation concluded at approximately 6:45 p.m.
IV. Assessment of Litigation Strengths and Risks
In formulating our revised settlement range recommendation, we have carefully assessed the strengths and risks of Solstice's litigation position across the relevant dimensions of liability, damages, and practical considerations. Our assessment is summarized below.
A. Favorable Factors for Solstice
The following factors weigh in Solstice's favor and support a resolution at or below the recommended range:
1. Claim Construction Order. The Court's Claim Construction Order of December 6, 2024, construed five of nine disputed terms in a manner favorable to Solstice. Of particular significance are the constructions of "locking seal assembly" (as used in Claim 1 of the '237 Patent) and "retractable blade deployment mechanism" (as used in Claims 1 and 5 of the '884 Patent). The Court adopted narrow constructions of these terms that require specific structural features — namely, a multi-component interlocking engagement with a defined rotational actuation (for "locking seal assembly") and a spring-loaded blade retraction mechanism with a defined trigger-release sequence (for "retractable blade deployment mechanism"). These constructions significantly narrow the scope of the '237 and '884 Patents as applied to the PE-5000 Series, which employs a fundamentally different single-component compression seal and a gravity-assisted blade retraction mechanism. The claim construction ruling is the single most significant favorable development in the case to date.
2. PE-5000 Non-Infringement Position. Building on the favorable claim constructions, Solstice has a strong non-infringement position for the PrecisionEdge™ PE-5000 Series. Dr. Calvin Ng's expert report provides a detailed, element-by-element analysis demonstrating that the PE-5000 does not practice the asserted claims under the Court's constructions. We are preparing a Motion for Summary Judgment of Non-Infringement as to the PE-5000 Series, which we have targeted for filing on or about April 1, 2025. If successful, this motion would eliminate the PE-5000 from the case, reducing the accused product base by approximately 35% of total U.S. sales revenue and further narrowing Apex's damages claim. Even a partial grant — for example, summary judgment on the '237 Patent claims as applied to the PE-5000 — would materially improve Solstice's position.
3. Invalidity Defense. Dr. Miriam Ostrowski's invalidity expert report identifies strong prior art references that challenge the validity of the asserted claims across all three patents. Her opinions regarding the combination of the Halvorsen PCT Application (WO 2015/064218) and the Bergström U.S. Patent No. 8,945,112 as rendering obvious the asserted claims of the '884 Patent are particularly compelling. In addition, the prosecution history estoppel arguments developed by Dr. Jonathan Kendrick narrow the scope of several asserted claims and may foreclose Apex's reliance on the doctrine of equivalents. While invalidity defenses are inherently uncertain — the presumption of validity under 35 U.S.C. § 282 requires clear and convincing evidence — we assess the probability of invalidating at least some asserted claims at approximately 30%–40%.
4. Damages Limitation. Dr. Elena Marchetti's Georgia-Pacific analysis provides a well-supported basis for limiting damages to a reasonable royalty in the range of $2.8 million to $5.1 million. Her analysis properly apportions the royalty base to reflect the incremental value of the patented features, accounts for available non-infringing alternatives, and relies on genuinely comparable license agreements. By contrast, Mr. Danaher's $31.8 million figure is based on a royalty rate of approximately 8.5% applied to an unapportioned royalty base, which we believe is vulnerable to challenge under Daubert and Uniloc. Dr. Marchetti's rebuttal report served March 3, 2025, methodically identifies the flaws in Mr. Danaher's methodology.
5. Gross Margin and Apportionment Arguments. Combined U.S. sales of the accused PrecisionEdge™ products from 2021 through September 30, 2024, total approximately $74.6 million at a weighted average gross margin of 61.3%. While these figures may appear to support a substantial damages award, Solstice has strong arguments that substantial non-infringing alternatives exist in the trocar market and that the patented features drive only a small portion of the overall product value. The PrecisionEdge™ product lines compete primarily on the basis of ergonomic design, manufacturing quality, pricing, and Solstice's established distribution relationships with hospital group purchasing organizations — not on the specific seal, blade, or insufflation valve features covered by the asserted patents. These arguments support a low apportionment factor and a correspondingly modest royalty.
B. Risk Factors for Solstice
The following factors represent areas of risk and weigh in favor of resolving the case through settlement:
1. PE-12000 Infringement Risk. The PrecisionEdge™ PE-12000 Series presents the most significant infringement risk. The PE-12000 is accused of infringing all three asserted patents, and the four claim construction rulings favorable to Apex — particularly the broad constructions of "integrated insufflation valve" and "blade retention channel" — increase the likelihood that a jury could find infringement with respect to this product line. Dr. Ng's non-infringement opinions for the PE-12000 are less robust than for the PE-5000, and he acknowledges closer questions with respect to Claims 1 and 9 of the '884 Patent and Claims 1 and 4 of the '105 Patent as applied to the PE-12000 design. The PE-12000 represents approximately 45% of total U.S. sales of the accused products.
2. PE-15000 Risk. The PrecisionEdge™ PE-15000 Series presents a moderate infringement risk, particularly on the '884 and '105 Patents. The PE-15000 employs a blade deployment mechanism and an insufflation valve configuration that are more similar to the structures described in the asserted patents than the PE-5000 design, though meaningful non-infringement arguments remain. The PE-15000 represents approximately 20% of total U.S. sales of the accused products.
3. Jury Unpredictability. This case is set for trial before a jury in the District of Delaware. Delaware juries in patent cases can be unpredictable, and there is an inherent risk that a jury could credit Apex's technical and damages experts over Solstice's experts, particularly if Apex presents a compelling narrative around Dr. Szabo's inventive contributions and the commercial success of the PrecisionEdge™ product line (which Apex would characterize as evidence of copying). The human element of a jury trial introduces a degree of risk that cannot be fully eliminated through legal arguments alone.
4. Damages Exposure. If Apex prevails on all three patents as to the PE-12000 and PE-15000 product lines, and the jury credits Mr. Danaher's methodology, the damages exposure could range from approximately $15 million to $31.8 million. While we believe Mr. Danaher's analysis is significantly inflated and subject to challenge, we cannot guarantee that the Court will exclude his testimony or that the jury will reject his conclusions. In addition, enhanced damages under 35 U.S.C. § 284 remain a theoretical risk. Although the evidence of willfulness is thin — Solstice's engineers independently designed the PrecisionEdge™ products and the design process is well-documented — the risk cannot be entirely eliminated, and a finding of willfulness could result in up to treble damages.
5. Continued Litigation Costs. Estimated additional legal fees and costs to take this case through trial are approximately $1.2 million to $1.8 million. This estimate includes the costs of completing expert discovery, filing and briefing dispositive motions, preparing for and attending the pretrial conference, and the trial itself. As of March 19, 2025, approximately $2.1 million has been billed to date (the total through the anticipated trial date of September 30, 2025, is projected to be approximately $2,847,319.42 inclusive of the amounts already billed). Solstice's defense costs are currently covered by Halcyon Specialty Insurance Co. under Policy No. HSI-IP-2023-04891, which provides coverage of up to $5 million per occurrence and $10 million in the aggregate, subject to a $250,000 self-insured retention that has already been satisfied. However, it is important to note that settlement payments are not covered under the Halcyon policy; Solstice will bear the full economic cost of any settlement payment and running royalty obligation. This distinction is significant in evaluating the relative cost-benefit of settlement versus continued litigation.
6. Business Disruption. The ongoing litigation creates uncertainty for Solstice's U.S. sales operations and customer relationships. Several major hospital group purchasing organizations have inquired about the status of the litigation, and there is a risk that prolonged uncertainty could affect purchasing decisions. Additionally, the management time devoted to litigation — particularly by Eamon Rourke, Niamh Cassidy, and Colm O'Brien — represents an opportunity cost that, while difficult to quantify, is real and growing.
C. Probability Assessment
Drawing on the foregoing analysis, we assess the probabilities as follows:
• Estimated probability of Apex prevailing on at least one patent claim at trial: 40%–55%. This range reflects the significant infringement risk on the PE-12000 Series and the moderate risk on the PE-15000 Series, offset by the strong invalidity defense and the favorable claim constructions.
• Estimated probability of Apex prevailing on all three patents: 15%–25%. This lower probability reflects the independent invalidity and non-infringement arguments available for each patent and the cumulative likelihood that Solstice will prevail on at least some claims or patents.
• Expected value of Apex's damages claim (probability-weighted): Approximately $7 million to $12 million. This range is derived by applying the probability estimates above to the range of possible damages outcomes, from Dr. Marchetti's low-end estimate (applied to the PE-12000 and PE-15000 only) to a jury verdict in the range of $15 million to $20 million (reflecting a partial credit to Mr. Danaher's methodology).
It is important to note that this probability-weighted expected value range does not include Solstice's own continued legal costs (estimated at $1.2 million to $1.8 million through trial), management distraction, reputational considerations, or the value of certainty. When these factors are considered, the economic case for settlement in the recommended range becomes compelling.
V. Analysis of Settlement Structure Options
Based on the mediation dialogue and our assessment of the parties' respective positions, we have identified three primary structural alternatives for a potential settlement. Each is analyzed below.
A. Lump-Sum Only
Under this structure, Solstice would make a single, one-time payment to Apex in exchange for a license, covenant not to sue, mutual release, and dismissal with prejudice.
Advantages: A lump-sum-only structure offers simplicity and certainty. It avoids the administrative burden and ongoing obligations associated with a running royalty, including quarterly royalty reports, audit rights, and the need to maintain detailed sales records in a format consistent with the license agreement. A lump-sum deal provides a clean break between the parties, which may be desirable from Solstice's perspective given the adversarial history.
Disadvantages: A lump-sum-only structure requires a larger up-front cash outlay, which must be funded from Solstice's available cash reserves or existing credit facilities. More fundamentally, based on Apex's positions at the mediation — where Apex's final lump-sum demand was $18 million and its lowest lump-sum figure in a hybrid context was $14 million — it appears unlikely that Apex will accept a lump-sum-only settlement below $14 million. This figure exceeds the upper end of our probability-weighted expected value range and, in our judgment, exceeds the amount that Solstice should reasonably pay to resolve this dispute.
Assessment: A lump-sum-only deal likely exceeds Solstice's reasonable value threshold and is therefore not the preferred structure. However, we would not rule it out entirely if Apex were to show significantly more flexibility on the lump-sum number in future negotiations.
B. Hybrid: Lump Sum Plus Running Royalty
Under this structure, Solstice would make a reduced up-front lump-sum payment (representing compensation for past damages and/or a paid-up component) and would also agree to pay an ongoing running royalty on future Net Sales of the Licensed Products for the remaining life of the patents.
Advantages: A hybrid structure reduces the up-front cash payment, which is beneficial for Solstice's cash flow and working capital position. It spreads the economic cost of the settlement over time in a manner that is directly aligned with Solstice's actual product revenue — Solstice pays more only if it sells more, which creates a natural hedge. From Apex's perspective, a hybrid structure satisfies its interest in ongoing participation in the market value of the licensed technology and provides a revenue stream that may be more attractive to Apex's shareholders and financial planning than a single, lower lump-sum payment. This alignment of interests is key to bridging the current gap.
Disadvantages: A hybrid structure imposes ongoing royalty payment obligations and administrative burden on Solstice, including the need to prepare and deliver quarterly royalty reports, maintain auditable sales records, and submit to periodic audit by Apex or its designated auditor. It also creates a long-term contractual relationship with Apex that will last until the expiration of the last-to-expire Licensed Patent — currently the '105 Patent, expiring January 10, 2038. This relationship must be managed carefully, and the license agreement must be drafted with precision to avoid future disputes over royalty calculations, product scope, and other terms.
Assessment: The hybrid structure is the most promising path to resolution. Both sides demonstrated flexibility on this structure during the mediation, and the mediator expressly identified it as the most likely basis for a deal. We recommend pursuing negotiations centered on this structure.
C. Running Royalty Benchmarks
In evaluating the appropriate royalty rate for a hybrid settlement, we have considered the following benchmarks:
• Dr. Marchetti's Georgia-Pacific Analysis: Dr. Marchetti's analysis, which applies the fifteen Georgia-Pacific factors to a hypothetical negotiation between willing licensor and willing licensee, concludes that a reasonable royalty rate for the asserted patents would fall in the range of 2.0% to 3.5% of Net Sales. This range reflects, among other factors, the availability of non-infringing alternatives, the limited incremental value of the patented features relative to the overall product, and the competitive market for trocar products.
• Mr. Danaher's Analysis: By contrast, Mr. Danaher's report applies a royalty rate of approximately 8.5% of Net Sales, which we believe is significantly inflated. His analysis relies on non-comparable license agreements, fails to properly apportion the royalty base, and overstates the contribution of the patented features to the commercial value of the PrecisionEdge™ products.
• Ridgeline IP Analytics LLC Valuation: Dr. Arthur Gaines of Ridgeline IP Analytics LLC prepared a patent portfolio valuation at our request for use in settlement negotiations. Dr. Gaines's analysis, which considers the strength of the patents, the breadth of the claims (as construed), and comparable transactions, supports a reasonable royalty rate in the range of 3.0% to 4.0% of Net Sales.
• Comparable License Agreements in Apex's Production: Documents produced by Apex in discovery (Bates Nos. APEX-012840 through APEX-012897) reveal that Apex has licensed similar trocar-related patents to at least two other companies. The first agreement, with Medisphere Corporation (executed in 2019), provides for a royalty rate of 3.0% of net sales. The second agreement, with Innovate Surgical Solutions LLC (executed in 2021), provides for a royalty rate of 4.25% of net sales. These actual, arm's-length transactions involving the same or closely related patents are highly probative of the reasonable royalty and support a rate in the 3.0% to 4.25% range.
Based on these benchmarks, we believe a royalty rate of 3.0% to 4.5% of Net Sales is the appropriate negotiating range for Solstice. The lower end of this range (3.0%) is supported by Dr. Marchetti's analysis and the Medisphere comparable, while the upper end (4.5%) provides some room above the Innovate Surgical comparable to reflect the broader scope of the license being sought (all three asserted patents plus the broader patent family).
To illustrate the annual royalty cost, we note that Net Sales of Licensed Products in the United States for fiscal year 2023 were approximately $22.4 million. Assuming 8% annual growth (consistent with Solstice's internal projections), projected Net Sales for calendar year 2026 would be approximately $24.2 million. At a royalty rate of 3.75% (the midpoint of the recommended range), the annual royalty payment would be approximately $907,500. As revenue grows, the annual royalty payment would increase proportionally, underscoring the critical importance of negotiating an annual royalty cap to limit Solstice's exposure in the event of above-trend revenue growth.
D. Additional Deal Terms to Seek
In addition to the financial terms, we recommend that Solstice seek the following provisions in any settlement and license agreement:
1. Broad License Scope. A non-exclusive, worldwide license covering not only the three asserted patents ('237, '884, and '105) but also the broader Apex Trocar Patent Family, which encompasses 14 issued patents and 6 pending applications. Apex signaled during the mediation that the scope of its covenant not to sue was negotiable at higher settlement amounts. Securing a license to the broader family would provide Solstice with significant freedom to operate across a wide range of trocar-related technologies and would eliminate the risk of Apex asserting additional patents from this family in the future.
2. Covenant Not to Sue. A covenant not to sue for the entire Apex Trocar Patent Family in the laparoscopic surgical access device field, including a specific carve-out for future product development. This covenant should be irrevocable and should survive any change of ownership of the licensed patents.
3. Most-Favored Licensee Clause. A provision that if Apex licenses the covered patents to any third party at a lower effective royalty rate, Solstice's rate will automatically adjust downward to match. This protects Solstice from being disadvantaged relative to competitors who may negotiate licenses with Apex in the future.
4. Annual Royalty Floor and Cap. An annual royalty floor (protecting Apex's minimum revenue expectations) and an annual royalty cap (protecting Solstice's maximum exposure). We recommend negotiating a floor in the range of $400,000 to $500,000 per calendar year and a cap in the range of $1.5 million to $2.0 million per calendar year, beginning in calendar year 2026.
5. Sublicense Right. A limited right to sublicense the Licensed Patents to Solstice's contract manufacturers for the sole purpose of manufacturing the Licensed Products on Solstice's behalf. This is important given Solstice's use of third-party contract manufacturers for certain PrecisionEdge™ components.
6. Mutual Release. A mutual release of all claims and counterclaims arising out of or related to the litigation, including Solstice's counterclaims for declaratory judgment of non-infringement, invalidity, and inequitable conduct.
7. Dismissal with Prejudice. Joint stipulation of dismissal with prejudice of all claims and counterclaims.
8. Confidentiality. A robust confidentiality provision requiring that the financial terms of the settlement remain confidential and not be disclosed to any third party (other than auditors, legal and financial advisors, and as required by law or applicable stock exchange regulations).
VI. Revised Settlement Range Recommendation
Based on the foregoing analysis, we recommend the following revised settlement parameters for Solstice's consideration and Board approval.
A. Recommended Lump-Sum Range
We recommend a lump-sum payment in the range of $7.5 million to $10 million, payable in two tranches to manage Solstice's cash flow:
• First Tranche: Approximately 60% of the lump-sum amount (i.e., $4.5 million to $6.0 million) payable upon execution of the definitive settlement and license agreement.
• Second Tranche: Approximately 40% of the lump-sum amount (i.e., $3.0 million to $4.0 million) payable within 90 days following execution.
We recommend that both tranches be placed in escrow with Tidewater Fiduciary Services, Inc. (which Solstice has used previously for transactional escrows and which has an established relationship with Solstice's treasury function) for orderly release to Apex upon satisfaction of the applicable payment conditions, including execution and delivery of all definitive documentation and filing of the joint stipulation of dismissal.
B. Recommended Running Royalty Range
We recommend a running royalty in the range of 3.0% to 4.5% of Net Sales of Licensed Products, defined to include the PrecisionEdge™ PE-5000, PE-12000, and PE-15000 series and their successors, with the following key parameters:
• Definition of "Net Sales": Gross invoiced sales of Licensed Products, less returns, rebates, chargebacks, freight charges, and sales taxes, consistent with standard industry practice.
• Annual Royalty Floor: $400,000 to $500,000 per calendar year, beginning calendar year 2026. The floor ensures a minimum level of compensation to Apex regardless of actual sales levels and is a reasonable concession given the overall deal economics.
• Annual Royalty Cap: $1.5 million to $2.0 million per calendar year. The cap is critical to protecting Solstice's exposure in the event of above-trend revenue growth and limits the total running royalty burden to a manageable and predictable level.
• Royalty Term: The running royalty obligation would terminate upon expiration of the last-to-expire Licensed Patent, which is currently the '105 Patent, expiring January 10, 2038.
• Reporting and Audit: Quarterly royalty reports within 45 days of the end of each calendar quarter; Apex's right to audit Solstice's royalty records no more than once per calendar year, at Apex's expense (unless the audit reveals an underpayment of more than 5%, in which case Solstice bears the cost).
C. Total Economic Package Analysis
To provide context for the overall economic cost of a settlement in the recommended range, we present the following illustrative analysis, using midpoint assumptions:
Assumptions:
• Lump-sum payment: $8.75 million (midpoint of recommended range)
• Running royalty rate: 3.75% of Net Sales (midpoint of recommended range)
• Base year Net Sales (CY 2025): $22.4 million (based on FY 2023 actuals)
• Annual Net Sales growth: 8% per year (consistent with Solstice's internal projections)
• Annual royalty cap: $1.75 million per year (midpoint of recommended range)
• Patent term: Through January 10, 2038 (approximately 13 remaining years)
Projected Total Cost:
• Lump-sum payment: $8.75 million
• Estimated cumulative running royalties over patent life (through 2038, subject to annual cap): approximately $10 million to $14 million, depending on actual sales growth and the point at which the annual cap is triggered. Under the baseline assumption of 8% annual growth, the annual royalty payment would first hit the $1.75 million cap in approximately 2032–2033, and cumulative royalties over the full term would total approximately $12.5 million.
• Total estimated economic cost: approximately $18.75 million to $22.75 million over 13 years.
This total economic package compares favorably to the relevant benchmarks:
• Apex's Claimed Damages: $31.8 million. The recommended settlement range represents a discount of approximately 29%–41% from Apex's claimed damages figure.
• Probability-Weighted Trial Exposure: $7 million to $12 million in expected damages, plus $1.2 million to $1.8 million in additional legal costs through trial, plus the risk of an adverse outcome materially exceeding the expected value. While the probability-weighted expected value is lower than the recommended lump-sum range, the settlement must be evaluated in the context of the full distribution of outcomes — including the risk of a large adverse verdict — and the non-financial benefits of certainty, business continuity, and freedom to operate.
• Value of License and Covenant Not to Sue: In addition to resolving the pending litigation, the recommended settlement would secure a non-exclusive license and covenant not to sue covering the broader Apex Trocar Patent Family. This eliminates the risk of future patent assertions by Apex in this product field and provides significant strategic value to Solstice's ongoing operations and product development.
D. Comparison to Prior Settlement Authority
The Settlement Authority Memorandum to the Solstice Board of Directors, which is currently in preparation, will need to reflect the revised settlement range recommended in this memorandum.
We note that the prior informal settlement authority discussed with Eamon Rourke was in the range of $4 million to $6 million on a lump-sum-only basis. This recommendation reflects the reality — confirmed through the mediation process — that a lump-sum-only resolution at that level is not achievable based on Apex's positions and the overall litigation dynamics. The hybrid structure allows Solstice to stay within a reasonable total economic envelope while accommodating Apex's need for a more substantial headline number and ongoing revenue participation in the licensed technology.
Importantly, the economic cost of the hybrid structure, while higher in nominal terms than a $4 million to $6 million lump sum, is spread over approximately 13 years and is directly tied to Solstice's revenue performance. On a present-value basis, using a discount rate of 8% (approximating Solstice's weighted average cost of capital), the present value of the total economic package under the midpoint scenario is approximately $14 million to $16 million — a figure that is reasonable in light of the litigation risks and the value of the license and covenant not to sue.
VII. Recommended Next Steps
Based on the foregoing analysis, we recommend that Solstice take the following steps in the near term:
1. Client Discussion. We recommend scheduling a call with Dr. Fiona Tierney (CEO), Eamon Rourke (General Counsel), and Brendan Molloy (CFO) at the earliest opportunity to discuss the assessments and recommendations set forth in this memorandum. The primary objective of this discussion will be to align on the revised settlement range and to authorize preparation of the Settlement Authority Memorandum for consideration and approval by the Solstice Board of Directors. We are available for this call at your convenience and would suggest a date within the next seven to ten business days.
2. Summary Judgment Motion. We recommend proceeding with the preparation and filing of the Motion for Summary Judgment of Non-Infringement as to the PE-5000 Series. We have targeted a filing date of April 1, 2025, which is within the Court's dispositive motions briefing schedule. A successful motion — or even a strong showing on the motion — would materially strengthen Solstice's negotiating position and would reduce Apex's damages base by approximately 35%. The motion will be supported by Dr. Ng's expert opinions, the favorable claim constructions, and the detailed factual record developed during discovery. Christy Bauer and Peter Vassiliev are currently leading the drafting effort under my supervision.
3. Re-Engage Mediator or Direct Negotiations. We recommend considering whether to re-engage Hon. Forsythe for a second mediation session or to proceed with direct counsel-to-counsel negotiations between Marcus Delgado and Victoria Stanton. In our judgment, direct negotiations may be more efficient at this stage, given the structural framework that emerged during the mediation and the rapport established between counsel. A second mediation session could be reserved as a fallback if direct negotiations reach an impasse. We would welcome the client's input on this question.
4. Insurance Coordination. We recommend continuing coordination with Sandra Keene, Claims Manager at Halcyon Specialty Insurance Co., regarding defense cost coverage under Policy No. HSI-IP-2023-04891. We should confirm in writing that Halcyon acknowledges its continuing obligation to fund defense costs through trial (up to the remaining per-occurrence limit) and should also confirm that settlement payments and running royalty obligations will not be covered under the policy. This confirmation is important for Solstice's financial planning and Board authorization process.
5. Tax and Structuring Analysis. We recommend commissioning a tax analysis of the proposed settlement structure, including the lump-sum payment and running royalty obligations, for both Solstice Biomedical Devices Ltd. (Ireland) and Solstice Biomedical, Inc. (Delaware). Key issues to be analyzed include the deductibility of the lump-sum payment and royalty payments, withholding tax considerations under the U.S.-Ireland income tax treaty (particularly the treatment of royalty payments made by the U.S. subsidiary to the Irish parent), and any transfer pricing implications. We recommend engaging Solstice's tax advisors at Dunmore & Associates to prepare this analysis.
6. Antitrust Review. We recommend a brief review of any antitrust considerations under FTC and DOJ guidelines relating to the proposed patent license settlement terms, including the most-favored licensee clause, the field-of-use restrictions in the covenant not to sue, and the scope of the non-exclusive license. While we do not anticipate material antitrust concerns, a brief review is prudent given the scope of the proposed license.
7. Timeline. We recommend aiming to reach an agreement in principle within 60 to 90 days — i.e., by mid-May to early June 2025. This timeline would allow sufficient time to negotiate and execute the definitive settlement and license agreement, prepare and file the joint stipulation of dismissal, and complete all administrative steps well in advance of the September 30, 2025 trial date. If an agreement in principle is not reached within this timeframe, Solstice will need to proceed with full trial preparation in parallel, and the window for a cost-effective resolution may narrow.
VIII. Conclusion
The March 17, 2025 mediation session, while not resulting in a settlement, materially advanced the dialogue between the parties and revealed a viable settlement corridor centered on a hybrid lump-sum-plus-running-royalty structure. The emergence of structural flexibility on both sides — particularly Apex's willingness to accept a reduced lump sum in exchange for an ongoing royalty stream — creates an opportunity for a resolution that serves Solstice's interests.
A settlement in the recommended range of $7.5 million to $10 million in lump-sum payments plus a running royalty of 3.0% to 4.5% of Net Sales represents a favorable outcome for Solstice when measured against the probability-weighted trial exposure (approximately $7 million to $12 million in expected damages alone), continued defense costs ($1.2 million to $1.8 million through trial), and the broader business considerations of certainty, freedom to operate, and elimination of ongoing litigation risk.
We recommend that Solstice seek revised settlement authority from the Board of Directors promptly and that we pursue negotiations with Apex's counsel in parallel with continued, vigorous litigation preparation — including the filing of the summary judgment motion as to the PE-5000 Series. This dual-track approach maximizes Solstice's leverage and preserves all options.
We stand ready to discuss this memorandum and our recommendations at your earliest convenience. Please do not hesitate to contact me directly.
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
By: ________
Marcus Delgado Partner, intellectual Property 1201 Market Street, Suite 2500 Wilmington, Delaware 19801 Telephone: (302) 555-7100
Email: m.delgado@calderwoodharkness.com
Prepared with the assistance of Christy Bauer, Lead Associate, and Peter Vassiliev, Working Associate, Calderwood & Harkness LLP.
PRIVILEGED & CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT Calderwood & Harkness LLP — Matter No. 10294.0017

PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT

INTERNAL MEMORANDUM

MATTER NO.: 10294.0017

CALDERWOOD & HARKNESS LLP

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