MEMORANDUM
PRIVILEGED & CONFIDENTIAL ATTORNEY WORK PRODUCT
May 21, 2025
TO: Marcus Delgado, Responsible Partner, intellectual Property, Calderwood & Harkness LLP Catherine Bloom, Billing Partner, intellectual Property, Calderwood & Harkness LLP
FROM: Christy Bauer, Lead Associate, intellectual Property Peter Vassiliev, Working Associate, intellectual Property
RE: Review and Analysis of Ridgeline IP Analytics LLC Confidential Patent Portfolio Valuation — Apex Trocar Patent Family — For Use in Settlement Negotiations
MATTER: Solstice Biomedical Devices Ltd. — Patent Infringement Defense, Apex Surgical Innovations, Inc. v. Solstice Biomedical, Inc., Case No. 1:24-cv-00587-RGA (D. Del.)
MATTER NO.: 10294.0017
PRIVILEGE LEGEND: This memorandum is protected by the attorney-client privilege and the work product doctrine. It has been prepared in anticipation of litigation and for the purpose of providing legal advice in connection with settlement negotiations in the above-captioned matter. This memorandum contains the mental impressions, conclusions, opinions, and legal theories of counsel. It is intended solely for the use of the attorneys and personnel of Calderwood & Harkness LLP identified above and authorized representatives of the client, Solstice Biomedical Devices Ltd. Do not distribute outside Calderwood & Harkness LLP without prior authorization from Marcus Delgado.
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I. Purpose and Scope
This memorandum summarizes and critically evaluates the confidential patent portfolio valuation report (the "Ridgeline Report") prepared by Dr. Arthur Gaines, Principal, Ridgeline IP Analytics LLC, 8300 Greensboro Drive, Suite 750, McLean, Virginia 22102. The Ridgeline Report was commissioned by Solstice Biomedical Devices Ltd. ("Solstice" or the "Client") through this firm, Calderwood & Harkness LLP ("C&H"), for the specific purpose of informing and supporting settlement negotiations with Apex Surgical Innovations, Inc. ("Apex") in the above-captioned patent infringement litigation.
The Ridgeline Report was delivered on May 15, 2025. It comprises a 78-page narrative report together with supporting appendices that include comparable transaction data, sensitivity analysis tables, and detailed patent-by-patent valuation worksheets. The engagement was structured to provide an independent, market-based valuation of the three patents asserted by Apex in this litigation — U.S. Patent Nos. 9,814,237 (the "'237 Patent"), 10,271,884 (the "'884 Patent"), and 10,932,105 (the "'105 Patent") — as well as a portfolio-level assessment of the broader Apex Trocar Patent Family, which encompasses fourteen (14) issued United States patents and six (6) pending continuation applications. The valuation is intended to serve as a credible benchmark against two key reference points: (1) Apex's settlement demands, as communicated through its counsel, Hargrove, Tate & Bennington LLP; and (2) the $31,800,000 reasonable royalty damages claim set forth in the expert report of Hugh Danaher of Keystone Valuation Advisors LLC, dated February 14, 2025.
The analysis set forth in this memorandum is intended to equip the responsible partners with a clear-eyed assessment of the Ridgeline Report's findings, its methodological strengths and limitations, and its implications for the terms currently memorialized in the Term Sheet executed June 10, 2025, between Apex and Solstice Biomedical, Inc. (the Delaware subsidiary). This memorandum should be read in conjunction with the Georgia-Pacific Factor Analysis Memorandum dated May 20, 2025 (prepared by the undersigned), which provides a claim-by-claim application of the Georgia-Pacific framework to the asserted patents, as well as the Risk Assessment Memorandum currently in preparation for presentation to Solstice's Board of Directors and senior leadership team, including Dr. Fiona Tierney (CEO), Eamon Rourke (General Counsel), and Brendan Molloy (CFO).
II. Background and Engagement of Ridgeline IP Analytics LLC
A. Engagement Details
Ridgeline IP Analytics LLC ("Ridgeline") was retained by C&H on behalf of Solstice in early May 2025, specifically for the purpose of providing an independent patent portfolio valuation to inform settlement negotiations. The engagement was initiated following the exchange of initial settlement demands by Apex's counsel, Hargrove, Tate & Bennington LLP, in late April 2025, which made clear that Apex intended to anchor its demand to the Danaher damages figure of $31,800,000. Given the magnitude of the demand and the need to present a well-supported counterposition to Apex, as well as to advise the Client's leadership on the economic merits of settlement versus continued litigation, the team determined that an independent valuation by a qualified patent analytics firm was warranted.
Dr. Arthur Gaines, Principal of Ridgeline, served as the lead analyst on the engagement. Dr. Gaines brings extensive experience in patent portfolio valuation across the medical device, life sciences, and technology sectors. He holds a Ph.D. in Biomedical Engineering from Johns Hopkins University and previously served as a patent examiner at the United States Patent and Trademark Office (USPTO), where he examined applications in Art Unit 3731 (Surgical Instruments). Following his tenure at the USPTO, Dr. Gaines spent approximately eight years as a senior intellectual property consultant at a Big Four accounting firm before founding Ridgeline in 2017. He has provided patent valuation analyses in connection with more than forty licensing transactions and settlement negotiations, as well as in the context of mergers and acquisitions and portfolio divestitures. Notably, Dr. Gaines has particular familiarity with the minimally invasive surgical device market and has previously valued patent portfolios held by several of the major players in this space, though he confirmed that he has no prior engagement history with either Apex or Solstice that would create a conflict of interest.
The engagement was scoped to provide the following deliverables:
(1) A fair market value range for each of the three asserted patents individually and collectively;
(2) A reasonable royalty rate range under a hypothetical negotiation framework, calibrated for use in settlement discussions;
(3) A portfolio-level assessment of the broader Apex Trocar Patent Family (14 issued U.S. patents and 6 pending continuation applications); and
(4) A comparable license transaction analysis, drawing on publicly available data and industry knowledge, to benchmark the valuation conclusions.
To support its analysis, Ridgeline was provided with the following materials:
• The specifications, claims, and complete prosecution histories for each of the three asserted patents (the '237 Patent, the '884 Patent, and the '105 Patent);
• The Court's Claim Construction Order dated December 6, 2024, in which the Honorable Judge Richard G. Andrews construed nine disputed claim terms, with five terms construed favorably to Solstice and four favorably to Apex;
• The invalidity expert report of Dr. Miriam Ostrowski, dated January 27, 2025, identifying prior art and invalidity contentions directed to the asserted claims;
• The damages expert report of Dr. Elena Marchetti of Pinnacle Economics Group LLC, dated February 14, 2025, which serves as Solstice's affirmative damages rebuttal;
• Accused product sales data for Solstice's PE-5000 Series, PE-12000 Series, and PE-15000 Series laparoscopic trocar products, reflecting combined U.S. sales of approximately $74.6 million for calendar year 2021 through the third quarter of calendar year 2024;
• Accused product gross margin data, reflecting a weighted average gross margin of 61.3% across the accused product lines over the relevant period; and
• Publicly available comparable license transactions in the minimally invasive surgical device space, supplemented by Ridgeline's proprietary transaction database.
In addition to the materials provided by C&H, Ridgeline coordinated with Kendrick & Lau LLP (601 Pennsylvania Avenue NW, Suite 820, Washington, DC 20004; lead partner Dr. Jonathan Kendrick), which was engaged by C&H to provide technical patent prosecution support and prior art analysis. Dr. Kendrick's firm provided supplemental technical materials regarding the accused product architectures and non-infringing design-around alternatives.
B. Limitations and Caveats
Several important limitations and caveats attach to the Ridgeline Report and should be borne in mind when considering its findings.
First, the Ridgeline Report was expressly prepared for settlement negotiation purposes only. It is not intended for use as expert testimony at trial or in any other judicial proceeding. Dr. Gaines has not been retained as a testifying expert, and the report is not prepared in conformity with Federal Rule of Civil Procedure 26(a)(2)(B) or Federal Rule of Evidence 702. The report is intended to remain privileged and non-discoverable as attorney work product prepared at the direction of counsel in anticipation of litigation and in furtherance of settlement negotiations.
Second, the valuation framework employed by Ridgeline reflects a willing licensor / willing licensee framework — that is, a hypothetical arm's-length negotiation between a willing patent owner and a willing prospective licensee, conducted in the ordinary course of business. This framework differs from the Georgia-Pacific hypothetical negotiation construct used in patent litigation damages analysis, which assumes that infringement has been established and that the parties are negotiating a license at the time the infringement began. The distinction is important: the willing licensor / willing licensee framework generally produces lower valuation figures than the Georgia-Pacific framework because it does not incorporate the litigation premium or the assumption that infringement has been proven. This is appropriate for settlement valuation purposes, where the outcome of litigation remains uncertain.
Third, no physical inspection of Solstice's accused products (the PE-5000 Series, PE-12000 Series, or PE-15000 Series) was conducted by Ridgeline as part of this engagement. Dr. Gaines relied on technical specifications, engineering drawings, and product literature provided by C&H and Kendrick & Lau LLP, as well as the infringement contentions and claim charts exchanged in discovery. While Dr. Gaines is confident in the sufficiency of these materials for valuation purposes, his analysis does not constitute an independent infringement opinion.
Finally, the Ridgeline Report's conclusions regarding the broader Apex Trocar Patent Family (beyond the three asserted patents) are necessarily based on limited information, as the non-asserted patents were not fully at issue in discovery and Ridgeline did not have access to the complete prosecution histories or prior art landscapes for all fourteen issued patents and six pending applications.
III. Summary of Ridgeline Report Findings
A. Individual Patent Valuations
Ridgeline assessed the fair market value of each of the three asserted patents individually, taking into account the remaining patent life, claim scope as narrowed by the Court's claim construction rulings, invalidity risks, design-around availability, and the commercial significance of the patented technology in the trocar market. The patent-by-patent findings are summarized below.
1. U.S. Patent No. 9,814,237 ("the '237 Patent"). Title: "Locking Seal Assembly for Minimally Invasive Surgical Access Device"
Issue Date: November 14, 2017
Expiration Date: June 22, 2035
Asserted Claims: 1, 3, 7, 12
Ridgeline assessed a fair market value range for the '237 Patent of $3.2 million to $5.1 million. This valuation reflects a remaining patent life of approximately ten years, moderate claim breadth following the Court's claim construction rulings, and the availability of design-around alternatives in the locking seal technology space.
Several key factors informed this valuation. The December 6, 2024 Claim Construction Order resolved nine disputed claim terms, of which five were construed favorably to Solstice. For the '237 Patent specifically, the Court's construction of the terms "locking seal" and "radially compressible" was narrower than Apex had urged, which in Ridgeline's assessment significantly limits the infringement read against Solstice's PE-5000 and PE-12000 Series products. In particular, Ridgeline observed that the PE-5000 Series employs a mechanically distinct sealing mechanism that, under the Court's claim construction, may not satisfy the "locking seal" limitation as construed. While the PE-12000 Series more closely tracks the claimed configuration, the narrowing of the claims reduces the overall scope of potential infringement exposure.
Ridgeline further noted that the locking seal technology claimed in the '237 Patent, while important in the broader trocar product architecture, is increasingly commoditized in the minimally invasive surgical device market. Multiple non-infringing alternative seal designs are available from third-party component suppliers, and at least three major competitors (including Meridian Surgical Systems and Centurion MedTech) have implemented different sealing mechanisms that do not implicate the '237 Patent claims. This availability of alternatives reduces the patent's value as a negotiation lever and limits the royalty premium that a willing licensee would agree to pay.
2. U.S. Patent No. 10,271,884 ("the '884 Patent"). Title: "Retractable Blade Deployment Mechanism for Trocar Systems"
Issue Date: April 30, 2019
Expiration Date: September 15, 2036
Asserted Claims: 1, 2, 5, 9, 14
Ridgeline assessed a fair market value range for the '884 Patent of $4.8 million to $7.6 million, making it the highest-value patent among the three asserted patents. The '884 Patent covers the core mechanical innovation in blade deployment that distinguishes Apex's trocar systems from prior art designs and represents the primary technical differentiator in the accused product categories.
The broadest asserted claim, Claim 1, survived the claim construction process largely intact. The Court adopted a construction of the key term "retractable blade assembly" that closely tracked Apex's proposed construction, and the resulting claim scope broadly covers the blade deployment mechanism employed in all three of Solstice's accused product lines — the PE-5000, PE-12000, and PE-15000 Series. The breadth and resilience of Claim 1 is a primary driver of the '884 Patent's relatively high valuation.
At the same time, Ridgeline identified a significant vulnerability in Claim 14, the narrowest of the asserted claims. Claim 14 recites a specific "biased spring return mechanism" in combination with a "deployable cutting element," and Dr. Ostrowski's invalidity report identifies three prior art references — two U.S. patents and a peer-reviewed journal article — that Ridgeline considers potentially strong anticipation or obviousness grounds against Claim 14. This vulnerability does not materially affect the overall patent valuation, because Claim 1 (the broadest claim) remains intact, but it does create some asymmetric risk that Apex must account for in its own settlement calculus.
Ridgeline flagged the '884 Patent as the strongest patent in the asserted portfolio and the primary driver of any settlement premium. The blade deployment mechanism is central to the functional performance of Apex's trocar systems, and it is this technology that has the most direct read on Solstice's accused products. In Ridgeline's assessment, the '884 Patent accounts for approximately 45–50% of the aggregate value of the three asserted patents.
3. U.S. Patent No. 10,932,105 ("the '105 Patent"). Title: "Integrated Insufflation Valve and Seal for Laparoscopic Trocar"
Issue Date: March 2, 2021
Expiration Date: January 10, 2038
Asserted Claims: 1, 4, 8
Ridgeline assessed a fair market value range for the '105 Patent of $1.9 million to $3.3 million. Although the '105 Patent has the longest remaining patent life of the three asserted patents (approximately 13 years), it has the narrowest commercial applicability. Only the PE-12000 and PE-15000 Series are accused of infringing the '105 Patent claims; the PE-5000 Series does not employ the specific integrated insufflation valve and seal configuration recited in the asserted claims.
As a relatively newer patent (issued in 2021), the '105 Patent benefits from less prosecution history estoppel risk than the '237 or '884 Patents, which have longer and more complex prosecution histories. This is a modestly favorable factor in the valuation. However, Ridgeline found that the claims of the '105 Patent are directed to a highly specific valve configuration — the combination of an "integrated insufflation port" with a "self-sealing elastomeric membrane" in a particular spatial arrangement — that Solstice could potentially design around within a 12- to 18-month development timeline. The availability of this design-around path, at an estimated R&D cost of $800,000 to $1.2 million for the valve component alone, limits the patent's hold-up value and reduces the royalty rate a willing licensee would accept in a hypothetical negotiation.
4. Aggregate Valuation of the Three Asserted Patents. On a combined basis, Ridgeline assessed the aggregate fair market value of the three asserted patents at a range of $9.9 million to $16.0 million, with a midpoint estimate of $12.5 million.
It is important to note that this figure represents the total value of the three patents across all potential licensees and uses — that is, the patents' value to the patent owner in the abstract, taking into account the universe of potential infringers and licensees — rather than the Solstice-specific license value, which is a subset of the total patent value and is discussed in Section IV below in connection with the settlement terms. The aggregate valuation serves as a ceiling for any Solstice-specific license negotiation, as no rational licensee would pay more for a license than the full market value of the patents themselves.
B. Broader Apex Trocar Patent Family Valuation
Beyond the three asserted patents, the Apex Trocar Patent Family comprises fourteen (14) issued U.S. patents and six (6) pending continuation applications. Ridgeline performed a portfolio-level assessment of the full patent family, assigning a fair market value range of $28 million to $45 million to the entire portfolio.
Under this portfolio-level analysis, the three asserted patents represent approximately 35–40% of the total portfolio value, consistent with the fact that they cover the most commercially significant innovations (locking seal, blade deployment, and insufflation valve) in the trocar product architecture. The remaining 60–65% of the portfolio value is distributed across eleven additional issued patents and six pending applications covering adjacent and complementary technologies, including, among others:
• Trocar handle ergonomics and grip design (U.S. Patent Nos. 10,492,813 and 10,617,432);
• Cannula reinforcement and anti-rotation systems (U.S. Patent Nos. 10,758,291 and 11,043,667);
• Obturator tip geometries for atraumatic tissue penetration (U.S. Patent No. 11,192,108);
• Integrated smoke evacuation mechanisms (pending Application No. 17/842,519); and
• Trocar anchoring and stabilization systems for use in robotic-assisted surgery (pending Application Nos. 18/106,774 and 18/305,692).
Several of these non-asserted patents cover technology that may be relevant to Solstice's current product lines or planned future product development. In particular, Ridgeline noted that the cannula reinforcement patents and the robotic-assisted surgery applications could become relevant as Solstice expands its laparoscopic product portfolio into the robotic surgery market, a strategic priority identified in Solstice's publicly disclosed 2024 Annual Report and in internal strategic planning materials provided to C&H.
The covenant not to sue covering the full Apex Trocar Patent Family — as contemplated in the Term Sheet executed June 10, 2025 — therefore provides meaningful additional value to Solstice beyond the resolution of the three asserted patents. This point is discussed further in Section IV.B below.
C. Comparable License Transaction Analysis
A significant component of the Ridgeline Report is its comparable license transaction analysis. Ridgeline identified and analyzed seventeen (17) comparable patent license transactions in the minimally invasive surgical device space executed between 2018 and 2025. These transactions were drawn from Ridgeline's proprietary database, SEC filings, publicly reported settlement agreements, and industry sources. The comparable transactions involved trocar systems, laparoscopic instruments, endoscopic devices, and related minimally invasive surgical access technologies.
The key findings from the comparable transaction analysis are as follows:
Running Royalty Rates. Running royalty rates in the comparable transactions ranged from 1.5% to 6.2% of net sales. The median running royalty rate across all seventeen comparables was 3.4%, and the mean running royalty rate was 3.8%. The distribution was moderately right-skewed, with several higher-rate transactions involving broad portfolio licenses or exclusive license grants pulling the mean above the median.
Lump-Sum Components. Where lump-sum payments were included in the transaction structure (present in twelve of the seventeen comparables), the lump-sum amounts ranged from $1.5 million to $22 million, with a median lump-sum component of $6.8 million. Lump sums in the comparable set were typically structured as upfront payments to resolve past infringement or as signing fees in connection with prospective licenses.
Litigation-Driven vs. Voluntary Licenses. Six of the seventeen comparables involved litigation-driven settlements — that is, licenses negotiated in the context of pending or recently concluded patent infringement litigation. The remaining eleven were voluntary, pre-litigation licenses. Ridgeline observed that litigation-driven royalty rates tended to be 0.5% to 1.0% higher than voluntary license rates for comparable technology, reflecting the litigation premium that arises when an accused infringer faces the risk of an adverse judgment, injunctive relief, or enhanced damages for willfulness. This premium is consistent with the academic literature on patent licensing behavior and aligns with the expectations discussed in our Georgia-Pacific Factor Analysis Memorandum dated May 20, 2025.
Apex's Own Prior Licensing Activity. Ridgeline also analyzed Apex's own prior licensing activity, which was identified through documents produced in discovery bearing Bates Numbers APEX-014230 through APEX-014287. These documents reveal that Apex entered into two prior license agreements involving the '237 and '884 Patents:
• A license agreement with Marlowe Asset Management Surgical Solutions, Inc. (executed in 2020) at a running royalty rate of 2.8% of net sales, covering Claims 1, 3, and 7 of the '237 Patent and Claims 1 and 2 of the '884 Patent; and
• A license agreement with ProAxis Medical Technologies, LLC (executed in 2021) at a running royalty rate of 3.1% of net sales, covering the same patents but with a broader claim scope, including Claims 1, 2, 5, and 9 of the '884 Patent.
Both of these licenses were voluntary, pre-litigation agreements executed in the ordinary course of business and covering fewer claims than are at issue in the current litigation. Ridgeline noted that these prior license rates provide particularly strong benchmarking evidence for the present negotiation, as they reflect Apex's own assessment of its patents' value in arm's-length transactions. The fact that both prior rates (2.8% and 3.1%) are below the 3.75% running royalty rate contemplated in the Term Sheet is consistent with the litigation-driven premium discussed above.
D. Reasonable Royalty Rate Range
Based on the totality of its analysis — including the individual patent valuations, the comparable transaction data, the claim construction outcomes, the invalidity risk profile, and the design-around landscape — Ridgeline recommended a reasonable royalty rate range for a license to all three asserted patents of 2.5% to 4.2% of Net Sales, with a midpoint of 3.35%.
This range was derived by synthesizing the following factors:
(i) Remaining patent life (10–13 years). The three asserted patents have remaining terms ranging from approximately ten years ('237 Patent, expiring June 22, 2035) to approximately thirteen years ('105 Patent, expiring January 10, 2038). Longer remaining patent life supports a higher royalty, all else being equal, as the licensee derives value from the license for a greater period.
(ii) Post-claim construction risk profile. The Court's December 6, 2024 Claim Construction Order produced a mixed result: five of nine disputed terms were construed favorably to Solstice, narrowing several claim limitations, while four terms were construed favorably to Apex. The net effect is a moderate infringement risk profile that neither strongly favors nor strongly disfavors Solstice. This mixed outcome supports a royalty rate near the middle of the range.
(iii) Invalidity risk. Ridgeline assigned a 25–35% probability that at least one of the asserted patents would be found invalid at trial, based on its independent assessment of the prior art identified in Dr. Ostrowski's invalidity expert report. This probability was applied as a discount factor in determining the risk-adjusted royalty rate.
(iv) Design-around availability. Ridgeline estimated that Solstice could design around the most critical claims of the asserted patents within 12 to 24 months and at an R&D cost of approximately $2.5 million to $4.0 million. The availability of a design-around path establishes an economic ceiling on the royalty rate a willing licensee would accept, as the licensee has the option to invest in a non-infringing alternative rather than pay ongoing royalties.
(v) Comparable license transactions. As discussed above, the median and mean royalty rates across the seventeen comparable transactions were 3.4% and 3.8%, respectively, providing a strong empirical foundation for the recommended range.
IV. Analysis and Application to Settlement Negotiations
A. Comparison to Apex's Damages Claim
Hugh Danaher of Keystone Valuation Advisors LLC submitted a damages expert report on behalf of Apex dated February 14, 2025, in which he opines that a reasonable royalty for Solstice's alleged infringement of the three asserted patents is $31,800,000. This figure, which forms the foundation of Apex's settlement demands, implies a royalty rate of approximately 8.1% when applied to Solstice's combined U.S. sales of accused products through the damages period ($74.6 million in sales for CY 2021 through Q3 CY 2024, with additional projected sales through trial). Alternatively, the Danaher figure can be conceptualized as a lump-sum equivalent that is approximately 2.5 times Ridgeline's upper-bound aggregate patent valuation of $16.0 million for the three asserted patents — that is, Danaher's claimed damages exceed the total fair market value of the patents themselves by a factor of two and a half.
Ridgeline's analysis strongly suggests that the Danaher figure is materially inflated and does not reflect a reliable measure of either the fair market value of the asserted patents or a commercially reasonable royalty for the technology at issue. Ridgeline identified the following specific methodological concerns with Danaher's analysis:
• Overly broad royalty base. Danaher applied his 8.1% royalty rate to the entire revenue of the accused PE-5000, PE-12000, and PE-15000 Series products, without apportioning the royalty base to account for the fact that the patented features (locking seal assembly, blade deployment mechanism, and insufflation valve) represent only a subset of the value-driving features in each product. The accused trocar products incorporate numerous non-patented components and features — including cannula design, handle ergonomics, packaging, and sterilization technology — that contribute significantly to their market value and are entirely unrelated to the asserted patents. Under established Federal Circuit precedent, the royalty base must be apportioned to reflect only the incremental value attributable to the patented features. See VirnetX, Inc. v. Cisco Sys., Inc., 767 F.3d 1308, 1326 (Fed. Cir. 2014); Uniloc USA, Inc. v. Kestrel Partners LLC, 632 F.3d 1292, 1318 (Fed. Cir. 2011).
• Failure to apportion value between patented and non-patented features. Related to the royalty base issue, Danaher did not conduct a feature-by-feature apportionment analysis or apply the smallest salable patent-practicing unit doctrine. He instead treated each accused product as if its entire commercial value were attributable to the patented technology, an assumption that is contradicted by the market evidence and by Ridgeline's analysis of comparable transactions, which uniformly reflect apportioned royalty bases.
• Reliance on non-comparable licenses. Danaher cited several purportedly comparable license agreements in his report, but Ridgeline found that at least four of the eight cited transactions involved substantially different technology fields (orthopedic implants, cardiac catheter systems) and are not reasonably comparable to trocar patent licenses. The remaining four cited transactions, while involving minimally invasive surgical devices, were exclusive licenses or cross-licenses with materially different terms and economic structures that are not readily comparable to the non-exclusive, unilateral license at issue here.
Dr. Marchetti's damages rebuttal report, submitted on behalf of Solstice and also dated February 14, 2025, independently identified these same methodological deficiencies in Danaher's analysis. Dr. Marchetti's alternative reasonable royalty calculation, using a properly apportioned royalty base and genuinely comparable transactions, yielded a damages range substantially below Danaher's figure and broadly consistent with Ridgeline's analysis.
B. Comparison to Proposed Settlement Terms
The Term Sheet executed on June 10, 2025, between Apex Surgical Innovations, Inc. and Solstice Biomedical, Inc. sets forth the following agreed terms for settlement of the litigation:
• Lump-sum payment: $8,750,000, payable in two tranches:
• Tranche 1: $5,250,000 due on or before June 30, 2025
• Tranche 2: $3,500,000 due on or before September 15, 2025
• Running royalty: 3.75% of Net Sales (as defined in the Term Sheet), with an annual floor of $500,000 (beginning CY 2026) and an annual cap of $1,800,000, payable quarterly in arrears through the expiration of the last-to-expire licensed patent (January 10, 2038)
• License grant: Non-exclusive, worldwide license to the '237, '884, and '105 Patents, including all continuations, divisionals, and reissues; field of use limited to laparoscopic surgical access devices; sublicense right limited to Solstice's contract manufacturers solely for the purpose of manufacturing Licensed Products on Solstice's behalf
• Covenant not to sue: Apex covenants not to assert any patent in the Apex Trocar Patent Family (14 issued U.S. patents, 6 pending continuation applications) against Solstice, its subsidiaries, affiliates, and their customers, with respect to laparoscopic surgical access devices
• Most-favored licensee ("MFN") clause: If Apex subsequently grants a license to any third party under the licensed patents at a running royalty rate lower than 3.75%, Solstice's rate will be prospectively adjusted downward to match the lower rate
We evaluate each of these terms in light of the Ridgeline Report's findings below.
Assessment of the Lump-Sum Payment. The $8,750,000 lump-sum payment falls within Ridgeline's aggregate fair market value range for the three asserted patents ($9.9 million to $16.0 million) but sits at the lower end of that range. This positioning is appropriate and expected, for several reasons. First, the lump sum is structured as a past-damages component settling Solstice's infringement liability for the litigation period (CY 2021 through the settlement date), rather than as a full patent acquisition price. As a settlement of disputed past liability — liability that Solstice has vigorously contested — the payment should reflect a discount for the uncertainty of Apex prevailing at trial. Second, the lump sum is only one component of the total settlement consideration; the running royalty provides additional compensation to Apex on a going-forward basis.
When measured against Solstice's combined accused product sales of $74.6 million (CY 2021 through Q3 CY 2024), the lump sum represents an effective past royalty rate of approximately 11.7% ($8.75M ÷ $74.6M). However, this simplistic calculation significantly overstates the implied royalty rate because the lump sum is not merely a royalty payment — it resolves all past liability, eliminates the risk and cost of continued defense (including the risk of an adverse damages award, enhanced damages for willfulness, and attorneys' fees), and extinguishes the risk of a permanent injunction that could force Solstice to exit the U.S. trocar market. When these non-monetary components of value are considered, the effective past royalty rate implicit in the lump sum is substantially lower.
Ridgeline estimated a 55–65% probability that Apex would obtain some liability finding against Solstice at trial, at least with respect to the PE-12000 Series (which Ridgeline considers the most clearly accused product line). Applying this probability to the damages range, the risk-adjusted past damages range is approximately $7.5 million to $12.5 million. The $8,750,000 lump sum falls squarely in the lower half of this risk-adjusted range, suggesting that the negotiated lump sum is favorable to Solstice relative to the expected trial outcome.
Assessment of the Running Royalty Rate. The 3.75% running royalty rate is above Ridgeline's midpoint recommendation of 3.35% but falls comfortably within Ridgeline's recommended range of 2.5% to 4.2%. The rate is also above the median of comparable transactions (3.4%) and above the mean (3.8%), though only modestly. Importantly, the 3.75% rate is above Apex's own prior voluntary license rates of 2.8% (Marlowe Asset Management Surgical Solutions) and 3.1% (ProAxis Medical Technologies), which is consistent with the litigation-driven premium of 0.5% to 1.0% observed in Ridgeline's comparable transaction analysis. This rate premium is a common and expected feature of litigation-driven licensing; an accused infringer negotiating under the shadow of a pending lawsuit typically pays more than a licensee who voluntarily approaches the patent holder before any dispute arises.
The annual cap of $1,800,000 provides meaningful economic protection for Solstice if its U.S. sales of licensed products grow significantly over the remaining patent term. Based on projected Year 1 Net Sales of approximately $24.2 million — assuming an 8% growth rate over the FY 2023 base of $22.4 million in U.S. accused product sales — the uncapped Year 1 royalty would be approximately $907,500 ($24.2M × 3.75%), well below the $1,800,000 annual cap. However, if Solstice's U.S. sales of licensed products grow at 15% or more annually (which is plausible given the growth trajectory of the minimally invasive surgery market and Solstice's planned product expansion), the annual cap would begin to bind in approximately CY 2028 or CY 2029. At that point, the cap effectively reduces the implied royalty rate below 3.75%, and the reduction becomes more pronounced as sales continue to grow. For example, at $60 million in annual Net Sales, the capped royalty of $1,800,000 implies an effective rate of only 3.0%, and at $80 million the effective rate drops to 2.25%. Over the full remaining patent term (through January 10, 2038), the cap could provide substantial savings relative to an uncapped royalty.
The annual floor of $500,000, beginning CY 2026, protects Apex by ensuring a minimum annual payment regardless of sales performance. The floor would only become material to Solstice if U.S. sales of licensed products dropped below approximately $13.3 million ($500,000 ÷ 3.75%). Given that FY 2023 U.S. accused product sales were $22.4 million and the overall market trend is upward, this scenario appears unlikely absent a major market disruption or a decision by Solstice to exit the U.S. laparoscopic trocar market. The floor thus presents minimal economic risk to Solstice under realistic projections.
Assessment of the Covenant Not to Sue. The covenant not to sue covering the entire Apex Trocar Patent Family — all fourteen issued patents and six pending continuation applications — represents what we consider to be the single most valuable non-monetary component of the settlement from Solstice's perspective.
Ridgeline's portfolio-level valuation of the full Apex Trocar Patent Family ($28 million to $45 million), when compared to the three-patent valuation ($9.9 million to $16.0 million), implies that the covenant not to sue covering the remaining eleven issued patents and six pending applications adds approximately $18 million to $29 million in avoided litigation risk and freedom-to-operate value to Solstice. This additional protection is obtained at no incremental cost to Solstice under the current Term Sheet terms. The covenant effectively immunizes Solstice's entire laparoscopic surgical access device product line — including not only the currently accused PE-5000, PE-12000, and PE-15000 Series, but also any future products in the field of use — from patent infringement claims by Apex based on any patent in the Apex Trocar Patent Family, including patents covering adjacent technologies such as cannula reinforcement, handle ergonomics, and robotic-assisted surgery applications.
This should be considered a significant negotiation win. Without the covenant not to sue, Solstice would face the ongoing risk that Apex could assert one or more of the non-asserted patents in a new lawsuit, requiring Solstice to incur additional defense costs and potential damages exposure. The covenant eliminates this risk entirely for the defined field of use.
Assessment of the Most-Favored Licensee Clause. The MFN clause ensures that if Apex grants a license to any third party under the licensed patents at a running royalty rate lower than 3.75%, Solstice's rate will be prospectively adjusted downward to match the lower rate. Ridgeline noted that Apex has historically been an active licensor of its trocar patents, as evidenced by the two prior licenses discussed above (Marlowe Asset Management at 2.8% and ProAxis at 3.1%). Given that both of these prior rates are below the 3.75% settlement rate, and that Apex may continue to license its patents to other market participants in the future, there is a meaningful possibility that the MFN clause could be triggered by a future Apex license at a rate below 3.75%, resulting in a prospective downward adjustment in Solstice's royalty rate.
The MFN clause thus provides Solstice with an embedded option: if market conditions or competitive dynamics lead Apex to offer lower rates to attract other licensees, Solstice automatically benefits from those lower rates. This optionality has real economic value, although it is difficult to quantify precisely, and Ridgeline did not assign a specific dollar value to the MFN clause in its report.
C. Net Present Value Analysis of Total Settlement Cost
To provide a comprehensive assessment of the total economic cost of the settlement to Solstice, Ridgeline calculated the net present value ("NPV") of all settlement payments — both the upfront lump sum and the projected running royalties — using an 8% discount rate, which Ridgeline identified as the approximate weighted average cost of capital for medical device companies of comparable size and risk profile to Solstice.
The NPV calculation is based on the following assumptions:
• Lump-sum payments: $5,250,000 payable by June 30, 2025, and $3,500,000 payable by September 15, 2025. Given the near-term payment dates, minimal discounting applies to the lump-sum component, yielding a present value of approximately $8,680,000 (reflecting a small discount on the Tranche 2 payment).
• Running royalties: Assuming an 8% annual growth rate from the FY 2023 base of $22.4 million in U.S. accused product sales, the projected Year 1 (CY 2026) Net Sales are approximately $24.2 million, yielding a Year 1 royalty of approximately $907,500. Annual royalties are projected to grow with sales until the $1,800,000 annual cap binds, which under the 8% growth assumption is expected to occur in approximately CY 2029. From that point forward, annual royalties remain at $1,800,000 through patent expiration (the last patent, the '105 Patent, expires January 10, 2038).
• Royalty term: Approximately twelve years from CY 2026 through January 2038.
Under these assumptions, Ridgeline estimated the total NPV of all settlement payments at approximately $17.5 million to $20.8 million, with the range reflecting uncertainty in sales growth assumptions and the precise date at which the annual cap begins to bind.
This total settlement NPV can be compared to two benchmarks:
• Apex's claimed damages of $31,800,000. The settlement NPV of $17.5 million to $20.8 million represents approximately 55–65% of Apex's claimed damages in NPV terms. Critically, Apex's damages claim covers only past damages through trial and does not include any go-forward license component; the settlement, by contrast, resolves both past liability and provides a prospective license plus a broad covenant not to sue. The settlement is thus substantially more favorable to Solstice than Apex's litigation demand, even setting aside the significant probability that Apex's damages figure would be reduced at trial.
• Ridgeline's risk-adjusted expected trial outcome. Ridgeline estimated the expected value of the trial outcome by multiplying the probable damages award by the probability of an adverse liability finding, and then adding the estimated additional litigation costs through trial. Specifically:
• Probable damages range at trial (if liability is found): $14 million to $22 million, reflecting a reasonable royalty analysis under the Georgia-Pacific framework, after Daubert-related adjustments to Danaher's methodology
• Probability of at least some liability finding: 55–65%
• Risk-adjusted expected damages: $7.7 million to $14.3 million
• Estimated additional litigation costs through trial: $800,000 to $1,200,000 (including expert fees, deposition costs, and trial preparation)
• Total risk-adjusted expected trial cost: approximately $8.5 million to $15.5 million
Comparing the settlement NPV ($17.5 million to $20.8 million) to the risk-adjusted expected trial cost ($8.5 million to $15.5 million), the settlement is modestly more expensive than the expected trial cost in the central case. However, this comparison does not account for several important factors that favor settlement: (a) the elimination of outcome variance and "tail risk" (the possibility, however small, of a damages award at or near the full Danaher figure); (b) the value of the covenant not to sue covering the full 20-patent Apex Trocar Patent Family; (c) the avoidance of injunction risk; (d) the avoidance of reputational harm to Solstice from a public adverse patent infringement verdict; and (e) the time value of management attention and operational disruption avoided by resolving the litigation. When these qualitative factors are considered, the settlement NPV is within or modestly below the expected value range, confirming that the settlement is economically rational for Solstice.
D. Sensitivity Analysis
To test the robustness of its conclusions, Ridgeline provided sensitivity tables varying the key assumptions underlying the NPV analysis. The sensitivity variables included:
• Annual sales growth rate: 5%, 8%, 12%, and 15%
• discount rate: 6%, 8%, and 10%
• Probability of infringement finding at trial: 40%, 55%, 65%, and 75%
The full sensitivity tables are reproduced in Appendix C to this memorandum. The most significant results are summarized below.
Most pessimistic scenario (for Solstice): 15% annual sales growth, 6% discount rate, 75% probability of liability finding. Under these assumptions, the settlement NPV is approximately $22.1 million, and the risk-adjusted trial cost is approximately $22.8 million. Even under this worst-case scenario, the settlement remains modestly favorable to Solstice by approximately $700,000. The higher sales growth rate increases the absolute dollar amount of running royalties (though the annual cap mitigates this effect), while the lower discount rate increases the present value of future payments, and the higher liability probability increases the expected trial cost. The net effect is that the settlement and trial outcomes converge, with the settlement still marginally preferable.
Most optimistic scenario (for Solstice): 5% annual sales growth, 10% discount rate, 40% probability of liability finding. Under these assumptions, the settlement NPV is approximately $14.2 million, and the risk-adjusted trial cost is approximately $11.4 million. In this scenario, the settlement is approximately $2.8 million more expensive than the expected trial outcome, reflecting the combination of lower projected royalty payments (due to slower sales growth and higher discounting) and a lower probability of an adverse verdict. However, even in this most favorable scenario, the qualitative benefits of settlement — certainty, freedom-to-operate, covenant not to sue, avoidance of injunction risk, and elimination of management distraction — justify the modest premium. The $2.8 million differential represents less than 2% of Solstice's projected U.S. revenue over the remaining patent term and should be viewed as a reasonable cost of risk management and business certainty.
Across all twelve scenarios modeled in the sensitivity analysis, the settlement NPV ranged from $14.2 million to $22.1 million, and the risk-adjusted trial cost ranged from $11.4 million to $22.8 million. The settlement was within or below the risk-adjusted trial cost in ten of twelve scenarios and was modestly above it in only two (the two most optimistic liability scenarios at 40% probability). This robustness across scenarios supports the conclusion that the settlement terms are economically sound.
V. Assessment of Ridgeline's Methodology and Reliability
A. Strengths. Ridgeline's methodology and analysis exhibit several noteworthy strengths that enhance the reliability and utility of the Ridgeline Report for settlement negotiation purposes.
Comprehensive comparable transaction database. Ridgeline's identification and analysis of seventeen comparable patent license transactions in the minimally invasive surgical device space provides a robust empirical foundation for the royalty rate and lump-sum valuations. The comparables are drawn from a specific and relevant technology sector, enhancing their probative value. Ridgeline's proprietary database, built over eight years of consulting in this space, gives it access to transaction data that might not be available to other valuation firms with less sector-specific expertise.
Appropriate use of market-based valuation. For IP valuation in the context of settlement negotiations, a market-based approach — grounded in comparable transactions and observed market behavior — is generally preferred over cost-based approaches (which often understate the value of IP by ignoring future revenue potential) or income-based approaches (which require highly uncertain revenue projections and are sensitive to discount rate assumptions). Ridgeline's primary reliance on market comparables, supplemented by risk-adjusted analysis, is methodologically appropriate for this engagement.
Incorporation of post-claim construction risk factors. Many patent valuators perform their analyses based on the patents' original claim scope, without adjusting for the impact of judicial claim construction. Ridgeline appropriately incorporated the Court's December 6, 2024 Claim Construction Order into its analysis, recognizing that the construed claim terms define the actual scope of the patent rights at issue and materially affect the infringement read and, therefore, the patents' value. This adjustment is particularly important for the '237 Patent, where the Court's narrowing construction of "locking seal" and "radially compressible" significantly reduces the infringement risk for the PE-5000 Series.
Analysis of Apex's own prior licensing behavior. Ridgeline's analysis of the two prior Apex licenses (Marlowe Asset Management and ProAxis), derived from Apex's own production documents, provides particularly compelling benchmarking evidence. A patent holder's own prior licensing transactions are widely recognized as the most probative evidence of a patent's value, both in settlement negotiations and in Georgia-Pacific damages analyses. See Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970) (Factor 1); LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51, 77 (Fed. Cir. 2012). The fact that Apex's own prior license rates (2.8% and 3.1%) anchor the lower end of Ridgeline's recommended range lends credibility to the analysis and provides Solstice with a strong negotiation data point.
Multi-variable sensitivity analysis. The sensitivity analysis across three independent variables (sales growth, discount rate, and liability probability) with multiple values for each variable generates a comprehensive matrix of scenarios that allows the reader to assess the settlement's economic merits under a wide range of assumptions. This robustness testing significantly enhances confidence in the report's conclusions.
B. Limitations and Areas of Caution
Notwithstanding the foregoing strengths, the Ridgeline Report has certain limitations that should be carefully considered.
Incomplete comparable transaction data. Ridgeline did not have access to the sealed or confidential terms of several comparable transactions identified in its analysis. In those cases, Ridgeline relied on publicly reported terms — such as royalty rate ranges and aggregate lump-sum amounts disclosed in SEC filings, press releases, or court records — which may understate or overstate the actual economic terms of the transactions. For example, publicly reported royalty rates may not reflect volume discounts, cap or floor provisions, cross-license offsets, or other terms that affect the effective royalty rate. Ridgeline acknowledged this limitation in its report and noted that it attempted to account for it by using ranges rather than point estimates for the comparable rates.
Invalidity probability estimate. Ridgeline assigned a 25–35% probability of at least one asserted patent being found invalid at trial, based on its own independent assessment of the prior art identified in Dr. Ostrowski's invalidity expert report. This estimate was not developed in consultation with Dr. Ostrowski or with the C&H litigation team. Our internal estimate of the invalidity probability is somewhat higher, in the range of 35–45%, based on the strength of the prior art identified for Claims 1 and 14 of the '884 Patent, as well as additional prior art references that Dr. Ostrowski is expected to present at trial but that are not yet fully developed in his written report. If the higher invalidity probability is used in the risk-adjusted analysis, the expected trial cost decreases and the settlement becomes less favorable by comparison — though it remains within a commercially reasonable range under most scenarios.
Portfolio-level valuation limitations. Ridgeline's valuation of the broader Apex Trocar Patent Family ($28 million to $45 million) relied on limited information about the eleven non-asserted issued patents and six pending continuation applications. Because these patents were not fully at issue in discovery, Ridgeline did not have access to their complete prosecution histories, prior art landscapes, or detailed infringement analyses. The portfolio-level valuation should therefore be viewed as a directional estimate rather than a precise appraisal. That said, even a conservative interpretation of the portfolio-level valuation confirms that the covenant not to sue provides substantial additional value to Solstice.
Sales growth projection uncertainty. The NPV and sensitivity analyses depend critically on assumptions about Solstice's future U.S. sales of licensed products. Ridgeline's base case assumes an 8% annual growth rate from the FY 2023 base of $22.4 million in U.S. accused product sales. This assumption is necessarily uncertain and could be affected by competitive dynamics, regulatory developments, reimbursement changes, product launches, and macroeconomic conditions. It is worth noting that Solstice's actual FY 2023 revenue was €187.4 million at the consolidated group level (unaudited, per Glenmore & Byrne LLP, Solstice's Dublin-based auditors), and U.S. accused product sales represent a subset of total global revenues. The relationship between group-level growth and U.S. accused product growth may not be linear, introducing additional uncertainty into the projections.
C. Overall Reliability Assessment
Taking into account both its strengths and its limitations, the Ridgeline Report is a credible, methodologically sound valuation that provides a useful and reliable check on both Apex's inflated damages demand ($31.8 million) and the settlement terms currently under negotiation. The report employs an appropriate valuation framework, draws on a relevant comparable transaction set, incorporates key litigation-specific risk factors, and provides robust sensitivity analysis.
The report supports the conclusion that the Term Sheet terms — $8,750,000 lump sum, 3.75% running royalty with cap and floor, covenant not to sue covering the full Apex Trocar Patent Family, and MFN clause — are within a commercially reasonable range and represent a rational economic outcome for Solstice. While certain individual assumptions in the report may be debatable (particularly the invalidity probability estimate), the overall conclusions are well-supported and consistent with our own independent analysis.
VI. Recommendations
Based on our review and analysis of the Ridgeline Report, and in consideration of the broader litigation context and settlement dynamics, we make the following recommendations:
1. Settlement Valuation Support. The Ridgeline Report confirms that the $8,750,000 lump sum and 3.75% running royalty rate are within commercially reasonable ranges for a non-exclusive license to the three asserted patents in the context of a litigation-driven settlement. We recommend using Ridgeline's analysis, together with the Georgia-Pacific Factor Analysis Memorandum dated May 20, 2025, as the evidentiary and analytical foundation for the final Risk Assessment Memorandum that will be presented to the Solstice Board of Directors. The presentation to Dr. Fiona Tierney (CEO), Eamon Rourke (General Counsel), and Brendan Molloy (CFO) should emphasize the following points: (a) the settlement NPV of $17.5 million to $20.8 million represents approximately 55–65% of Apex's claimed damages; (b) the settlement is at or below the risk-adjusted expected trial cost in the majority of modeled scenarios; and (c) the settlement provides substantial qualitative benefits — certainty, freedom-to-operate, and covenant not to sue — that are not captured in the quantitative analysis alone.
2. Negotiation Leverage on Running Royalty. Ridgeline's midpoint royalty rate of 3.35% and the comparable transaction median of 3.4% suggest that there may be a basis to seek a modest rate reduction in the final Definitive Settlement Agreement currently being drafted for execution by June 16, 2025. Specifically, Solstice could propose reducing the running royalty from 3.75% to 3.5% or, ideally, to the 3.35% midpoint recommended by Ridgeline. The justification for this reduction is straightforward: the 3.75% rate exceeds both Ridgeline's midpoint and the comparable transaction median, and it is meaningfully above Apex's own prior voluntary license rates of 2.8% and 3.1%. However, we recognize that the negotiation leverage for a rate reduction is tempered by the fact that the annual cap at $1,800,000 and the MFN clause together mitigate the long-term impact of the 0.25–0.40% differential. If Apex's sales growth projections materialize at or above 8% annually, the cap will bind within three to four years, rendering the nominal rate academic. The team should assess whether expending negotiation capital on a modest rate reduction is strategically worthwhile or whether that capital is better deployed to secure other terms in the Definitive Settlement Agreement (such as tighter audit rights, broader sublicense provisions, or a more expansive field-of-use definition).
3. Covenant Not to Sue Value. We strongly recommend emphasizing to the Client the significant and largely uncaptured value of the covenant not to sue covering the full twenty-patent Apex Trocar Patent Family. Ridgeline's analysis implies that the non-asserted patents represent $18 million to $29 million in value, and the covenant not to sue effectively transfers that value to Solstice in the form of freedom-to-operate for its entire laparoscopic surgical access device product line — at no incremental cost. This is a critical strategic asset, particularly as Solstice continues to expand its product portfolio into adjacent technology areas (e.g., robotic-assisted surgery, integrated smoke evacuation systems) that may be covered by non-asserted patents in the Apex Trocar Patent Family. The Client should understand that the covenant not to sue is one of the most valuable components of the settlement package, and it should weigh heavily in any cost-benefit analysis presented to the Board.
4. Document Retention. The Ridgeline Report should be maintained as privileged attorney work product and treated with the highest level of confidentiality. It should not be shared with Apex or its counsel, Hargrove, Tate & Bennington LLP, under any circumstances, nor should its existence or contents be disclosed in any pleading, correspondence, or communication with opposing counsel or the Court. Copies of the Ridgeline Report should be maintained by Calderwood & Harkness LLP only, in accordance with the firm's document retention policies for privileged materials. To the extent that the Client requires copies for internal use (e.g., for presentation to the Board of Directors), such copies should be clearly marked "PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT" and maintained in a manner consistent with the preservation of privilege.
5. Coordination with Tax Analysis. The tax implications memorandum currently in preparation (target delivery date June 9, 2025) should carefully consider the characterization of the lump-sum payment and running royalties for U.S. and Irish tax purposes. In particular, the tax analysis should address: (a) whether the lump-sum payment is properly characterized as a settlement payment, a royalty, or a capital payment, and the tax implications of each characterization under U.S. and Irish law; (b) the applicability of withholding tax under the U.S.-Ireland income tax treaty (Convention between the Government of the United States of America and the Governme