1037-00004 · Solstice Biomedical Devices Ltd · Settlement Negotiation

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PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT

This memorandum is protected by the attorney-client privilege and the work product doctrine. It is prepared solely for the purpose of providing legal advice and should not be disclosed to any third party without the prior written consent of counsel.

MEMORANDUM

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

TO: Dr. Fiona Tierney, Chief Executive Officer, Solstice Biomedical Devices Ltd. Eamon Rourke, General Counsel, Solstice Biomedical Devices Ltd. Brendan Molloy, Chief Financial Officer, Solstice Biomedical Devices Ltd.

DATE: June 2, 2025

RE: Risk Assessment — Trial vs. Settlement Apex Surgical Innovations, Inc. v. Solstice Biomedical, Inc. Case No. 1:24-cv-00587-RGA United States District Court for the District of Delaware

MATTER NO.: 10294.0017

PRIVILEGE DESIGNATION: This memorandum constitutes a privileged and confidential attorney-client communication and attorney work product. It has been prepared by Calderwood & Harkness LLP at the request of and for the exclusive use of Solstice Biomedical Devices Ltd. and its officers and directors. The information contained herein reflects the mental impressions, conclusions, opinions, and legal theories of counsel. This document should not be disclosed, disseminated, distributed, or copied to any person or entity other than the named addressees without the prior written consent of Calderwood & Harkness LLP. Inadvertent disclosure of this memorandum does not constitute a waiver of any applicable privilege or protection.

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I. Executive Summary

The purpose of this memorandum is to present a comprehensive comparison of the risks, costs, and strategic considerations attendant to proceeding to trial versus accepting the settlement terms currently under negotiation with Apex Surgical Innovations, Inc. ("Apex") in the above-captioned patent infringement action. Trial is currently scheduled to commence on September 30, 2025, before Chief Judge Richard G. Andrews of the United States District Court for the District of Delaware. The settlement negotiations, which intensified following a second settlement conference before Magistrate Judge Colleen Pratt on May 12, 2025, have produced a framework that we believe warrants serious consideration by Solstice Biomedical Devices Ltd. ("Solstice" or the "Company").

Bottom-Line Assessment. Based on the analysis set forth in detail below, Calderwood & Harkness LLP ("C&H") recommends that Solstice accept the negotiated settlement terms. Those terms call for a lump-sum payment of $8,750,000 (payable in two tranches) plus a 3.75% running royalty on Net Sales of Licensed Products, subject to an annual cap of $1,800,000. In our assessment, the risk-adjusted expected cost of proceeding through trial substantially exceeds the value of the proposed settlement. Moreover, the settlement provides important strategic benefits — including a non-exclusive license to the three asserted patents and a covenant not to sue covering the broader Apex Trocar Patent Family — that cannot be obtained through trial, even in the event of a complete defense verdict.

Specifically, the settlement would resolve all claims and counterclaims in Case No. 1:24-cv-00587-RGA and provide Solstice with a non-exclusive license to the '237, '884, and '105 Patents (and continuations, divisionals, and reissues thereof) for the remaining terms of those patents, the latest of which expires on January 10, 2038. This license eliminates Solstice's ongoing infringement exposure with respect to the PrecisionEdge™ product lines and, critically, extends protection to successor products in the laparoscopic surgical access field. The covenant not to sue encompasses the entire Apex Trocar Patent Family — fourteen issued United States patents and six pending continuation applications — providing Solstice with a breadth of protection that far exceeds what could be achieved through litigation of the three asserted patents alone.

This memorandum should be read in conjunction with the following prior memoranda prepared by C&H, which address specific aspects of the analysis in greater detail:

• Settlement Authority Memorandum (March 20, 2025)

• Post-Mediation Assessment & Revised Settlement Range (March 19, 2025)

• Georgia-Pacific Factor Analysis (May 20, 2025)

• Ridgeline IP Analytics Valuation Summary Review (May 21, 2025)

We respectfully request that the addressees review this memorandum and confirm authorization to proceed with settlement on the terms described herein at their earliest convenience, in order to permit execution of the Definitive Settlement Agreement on or before the target date of June 16, 2025.

II. Background and Procedural Posture

A. The Litigation

Apex Surgical Innovations, Inc. ("Apex"), a Delaware corporation headquartered in Malvern, Pennsylvania, filed its Complaint for Patent Infringement against Solstice Biomedical, Inc. ("Solstice US"), Solstice's wholly-owned U.S. operating subsidiary, on May 9, 2024. The Complaint, as subsequently amended, asserts infringement of three United States utility patents directed to components and systems used in minimally invasive laparoscopic surgical access devices, commonly known as trocars. The three asserted patents are as follows:

United States Patent No. 9,814,237 (the "'237 Patent"). Titled "Locking Seal Assembly for Minimally Invasive Surgical Access Device," the '237 Patent was issued on November 14, 2017, and expires on June 22, 2035. The patent is directed to a novel locking mechanism within the seal assembly of a trocar that maintains a pneumoperitoneum during laparoscopic procedures while permitting smooth instrument insertion and withdrawal. Apex asserts Claims 1, 3, 7, and 12 of the '237 Patent. Claim 1 is an independent claim directed to the overall locking seal assembly structure; Claims 3 and 7 are dependent claims adding specificity regarding the sealing material composition and the locking detent geometry, respectively; and Claim 12 is an independent method claim directed to a method of sealing a surgical access port during insufflation.

United States Patent No. 10,271,884 (the "'884 Patent"). Titled "Retractable Blade Deployment Mechanism for Trocar Systems," the '884 Patent was issued on April 30, 2019, and expires on September 15, 2036. This patent covers a mechanism for deploying and automatically retracting a cutting blade within a trocar obturator, designed to minimize the risk of inadvertent tissue injury during abdominal wall penetration. Apex asserts Claims 1, 2, 5, 9, and 14 of the '884 Patent. Claims 1 and 9 are independent claims directed to apparatus and system embodiments, respectively; Claims 2 and 5 are dependent claims further defining the blade actuation spring constant and deployment path angle; and Claim 14 is an independent method claim.

United States Patent No. 10,932,105 (the "'105 Patent"). Titled "Integrated Insufflation Valve and Seal for Laparoscopic Trocar," the '105 Patent was issued on March 2, 2021, and expires on January 10, 2038. This patent is directed to an integrated valve structure that combines insufflation gas delivery with the instrument seal in a single compact assembly, claimed to reduce trocar profile and improve gas flow efficiency during laparoscopic surgery. Apex asserts Claims 1, 4, and 8 of the '105 Patent. Claim 1 is an independent apparatus claim; Claim 4 is a dependent claim specifying a particular valve seat geometry; and Claim 8 is an independent method claim directed to a method of simultaneously maintaining insufflation pressure and providing an instrument seal.

All three asserted patents name Dr. Raymond Szabo, Vice President of Engineering at Apex, as the sole inventor. All three patents are assigned to Apex and remain in force with maintenance fees current. The three asserted patents are part of a broader patent family (the "Apex Trocar Patent Family") that includes fourteen total issued United States patents and six pending continuation applications. The existence of this broader family is significant to the settlement analysis, as discussed further below.

Accused Products. Apex's Complaint accuses the following Solstice products of infringement:

• PrecisionEdge™ PE-5000 Series — Solstice's 5 mm diameter trocar, used for smaller-bore instrument insertion during laparoscopic procedures. This product is accused of infringing the '237 and '884 Patents.

• PrecisionEdge™ PE-12000 Series — Solstice's 12 mm diameter trocar, used for standard laparoscopic instruments and tissue extraction. This product is accused of infringing all three asserted patents — the '237, '884, and '105 Patents. The PE-12000 Series is the highest-revenue product line among the accused products.

• PrecisionEdge™ PE-15000 Series — Solstice's 15 mm diameter trocar, designed for larger instrument access and specimen retrieval during laparoscopic and robotic-assisted surgery. This product is accused of infringing the '884 and '105 Patents.

B. Accused Product Sales and Margins

The financial significance of the accused PrecisionEdge™ product lines to Solstice's U.S. business cannot be overstated. Based on Solstice's sales records produced in discovery and the financial data compiled by Dr. Elena Marchetti of Pinnacle Economics Group LLC, the combined U.S. sales of the accused PrecisionEdge™ products from calendar year 2021 through September 30, 2024 total approximately $74.6 million, as set forth below:

The weighted average gross margin on the accused PrecisionEdge™ products is 61.3%, reflecting the premium pricing Solstice commands in the laparoscopic access device market. The year-over-year growth trajectory for the PrecisionEdge™ product lines is approximately 8%, a rate that is projected to continue or modestly accelerate as Solstice expands its U.S. hospital and ambulatory surgical center customer base. Extrapolating at this growth rate, FY 2024 full-year sales are projected at approximately $29.5 million, and FY 2025 sales are projected at approximately $31.9 million. These projections are relevant both to the forward-looking royalty analysis in the settlement context and to the damages exposure at trial.

The PrecisionEdge™ product lines collectively represent a substantial share of Solstice US's total revenue. Any disruption to the sale of these products — whether through an adverse judgment, an injunction, or the uncertainty of ongoing litigation — would have material consequences for Solstice's U.S. operations.

C. Key Litigation Milestones Completed

The litigation is at an advanced stage, with all major pre-trial activities either completed or substantially in progress. The following summarizes the key milestones:

Pleadings. Solstice US filed its Answer and Counterclaims on June 14, 2024. The Answer asserts defenses of non-infringement as to all accused products, invalidity of the asserted patents under 35 U.S.C. §§ 102 (anticipation) and 103 (obviousness), and inequitable conduct during the prosecution of the '237 Patent before the United States Patent and Trademark Office. Solstice's counterclaims seek declaratory judgments of non-infringement and invalidity.

discovery. Both fact and expert discovery have been completed. The discovery effort in this case has been extensive. Solstice produced 48,217 documents (Bates-stamped SBD-000001 through SBD-048217), including product design files, engineering specifications, manufacturing records, sales data, internal communications regarding the PrecisionEdge™ product development, and prior art references. Apex produced 31,450 documents (Bates-stamped APEX-000001 through APEX-031450), including the complete prosecution histories of the asserted patents, Dr. Szabo's laboratory notebooks and invention disclosures, Apex's licensing files, and internal marketing and competitive intelligence materials. Third-party discovery was obtained from Veridian Medical Technologies, Inc. through subpoena, yielding prior art documents relevant to Solstice's invalidity contentions.

Claim Construction. A Markman hearing on claim construction was held before Chief Judge Andrews on November 18, 2024. The Court issued its Claim Construction Order on December 6, 2024, construing nine disputed claim terms. The results were mixed: five of the nine constructions were favorable to Solstice and four were favorable to Apex. A detailed summary of the constructions is provided in Appendix A to this memorandum. The most significant construction for purposes of the infringement analysis was the Court's construction of "integrated insufflation valve" (Claim 1 of the '105 Patent), which was adopted substantially in the form proposed by Apex and which arguably encompasses the PE-12000's dual-valve design. Conversely, the Court's construction of "locking seal assembly" (Claim 1 of the '237 Patent) was favorable to Solstice and supports the argument that the PE-5000's seal retention mechanism falls outside the claim scope.

Expert Reports. Expert reports on liability and damages were exchanged during the January–March 2025 timeframe. The following expert reports are central to the trial risk analysis:

• Dr. Miriam Ostrowski (Halford University, Department of Mechanical Engineering) — Retained by Solstice on invalidity. Dr. Ostrowski's report, served January 27, 2025, identifies prior art references supporting anticipation and obviousness challenges to the asserted claims of all three patents. Her report relies on, among other things, prior art references identified through the Kendrick & Lau LLP prior art search and documents obtained from Veridian Medical Technologies, Inc.

• Dr. Calvin Ng (Veltrano Polytechnic Institute, Department of Biomedical Engineering) — Retained by Apex on infringement. Dr. Ng's report, served February 10, 2025, opines that each of the accused PrecisionEdge™ products meets every limitation of at least one asserted claim of the relevant patents, both literally and under the doctrine of equivalents.

• Dr. Elena Marchetti (Pinnacle Economics Group LLC) — Retained by Solstice on damages. Dr. Marchetti's report, served February 14, 2025, critiques the damages methodology employed by Apex's expert and provides an alternative reasonable royalty analysis. Her estimated reasonable royalty range is $4.2 million to $7.8 million.

• Hugh Danaher, CFA (Keystone Valuation Advisors LLC) — Retained by Apex on damages. Mr. Danaher's report, served February 14, 2025, claims reasonable royalty damages of $31,800,000 based on a royalty rate of approximately 12–15% applied to the accused product sales base.

• Rebuttal reports from all experts were exchanged on March 3, 2025.

Mediation. The parties participated in a full-day mediation before the Honorable Margaret Forsythe (Ret.) at Amberstone ADR Services on March 17, 2025. The mediation did not result in a resolution. However, the mediation process was constructive insofar as it clarified the parties' respective positions and narrowed certain areas of disagreement. Our Post-Mediation Assessment & Revised Settlement Range memorandum (March 19, 2025) addressed the implications of the mediation in detail.

Summary Judgment. Solstice filed a Motion for Summary Judgment of Non-Infringement as to the PE-5000 Series on April 1, 2025, arguing that the PE-5000's seal retention mechanism does not meet the Court's construction of "locking seal assembly" in Claim 1 of the '237 Patent. Apex filed a Cross-Motion for Partial Summary Judgment of Infringement as to the PE-12000 Series on April 14, 2025. Both motions were denied without prejudice by Chief Judge Andrews in an Order dated May 5, 2025. The Court found genuine disputes of material fact precluding summary judgment on both motions. Notably, the Court characterized the disputes regarding the PE-12000 as being "of a narrow character," which, while stopping short of granting Apex's motion, suggests that Apex has a plausible infringement case as to that product line.

Second Settlement Conference. The parties participated in a second settlement conference before Magistrate Judge Colleen Pratt on May 12, 2025. Following that conference, intensive settlement negotiations commenced on May 19, 2025, and have continued through the present date. The terms described in Section III of this memorandum reflect the current state of those negotiations as of June 2, 2025.

Trial Date. Trial remains set for September 30, 2025, before Chief Judge Andrews. A five-to-seven day jury trial is anticipated.

III. Settlement Terms Under Negotiation

The following summarizes the material terms of the settlement currently under negotiation between Solstice and Apex. These terms are reflected in the most recent draft of the Definitive Settlement Agreement circulated by Apex's counsel (Hargrove, Callister & Phelps LLP) on May 29, 2025, as modified by C&H's markup returned on May 31, 2025. We expect that any remaining open points will be resolved through additional negotiation prior to the target execution date of June 16, 2025.

A. Lump-Sum Payment

The settlement contemplates a total lump-sum payment by Solstice to Apex of $8,750,000, payable in two tranches:

• Tranche 1: $5,250,000. Due within ten (10) business days of execution of the Definitive Settlement Agreement. Based on a target execution date of June 16, 2025, the Tranche 1 payment deadline would fall on approximately June 30, 2025.

• Tranche 2: $3,500,000. Due on or before September 15, 2025.

Both payments are to be deposited by wire transfer into an escrow account maintained at Tidewater Fiduciary Services, Inc. (Jennifer Hsu, Vice President, Escrow Services; 300 Delaware Avenue, Suite 1400, Wilmington, DE 19801). Pursuant to the terms of the Escrow Agreement (to be finalized concurrently with the Definitive Settlement Agreement), escrowed funds will be released to Apex within three (3) business days of receipt of each deposit, provided that all conditions to release have been satisfied. The escrow arrangement provides Solstice with a brief window of protection in the unlikely event that Apex fails to comply with its obligations under the settlement (e.g., execution of the Stipulation of Dismissal), while ensuring prompt payment to Apex.

The bifurcated payment structure was negotiated at Solstice's request in order to ease the near-term cash flow impact of the settlement. The approximately eleven-week interval between Tranche 1 and Tranche 2 aligns with Solstice's Q3 2025 cash management cycle.

B. Running Royalty

In addition to the lump-sum payment, Solstice will pay Apex a running royalty at a rate of 3.75% of Net Sales of Licensed Products for the remaining life of the Licensed Patents.

Licensed Products are defined to include the PrecisionEdge™ PE-5000, PE-12000, and PE-15000 Series, as well as any successor products in the laparoscopic surgical access device field that would, but for the license, infringe any claim of the Licensed Patents.

Net Sales is defined as gross invoiced sales of Licensed Products less: (i) returns and allowances; (ii) trade discounts, rebates, and chargebacks; (iii) freight, shipping, and insurance charges; and (iv) sales, use, value-added, and similar taxes. This definition is consistent with industry standard practice for medical device royalty agreements and excludes items that do not represent revenue attributable to the patented technology.

Based on projected CY 2026 Net Sales of approximately $24.2 million (reflecting an 8% growth rate over FY 2023 actuals), the estimated Year 1 running royalty would be approximately $907,500.

The royalty is subject to the following floor and cap:

• Annual Royalty Floor: $500,000 per calendar year, beginning with CY 2026. This floor ensures a minimum level of compensation to Apex regardless of fluctuations in Solstice's sales volumes. At current and projected sales levels, the floor is unlikely to be triggered.

• Annual Royalty Cap: $1,800,000 per calendar year. This cap is a critical protective feature for Solstice. As PrecisionEdge™ sales continue to grow, the 3.75% rate would, in the absence of a cap, produce escalating royalty obligations. The cap limits Solstice's maximum annual royalty exposure to $1,800,000, regardless of sales volume. Based on our projections, the cap is likely to become binding within three to five years as the PrecisionEdge™ product lines continue their growth trajectory, at which point the effective royalty rate will decline as sales increase.

The royalty is payable for the remaining life of the Licensed Patents. The latest-expiring of the Licensed Patents is the '105 Patent, which expires on January 10, 2038, resulting in an approximate royalty term of 12.5 years (from mid-2025 through early 2038). Royalties are payable quarterly, within forty-five (45) days after the end of each calendar quarter, accompanied by a royalty report in the form attached as an exhibit to the Patent License Agreement.

C. License Grant

Under the Patent License Agreement (to be attached as an exhibit to the Definitive Settlement Agreement), Apex will grant Solstice a non-exclusive, non-transferable, worldwide license under the '237 Patent, the '884 Patent, the '105 Patent, and any continuations, divisionals, or reissues thereof (collectively, the "Licensed Patents").

The license is limited to the following field of use: laparoscopic surgical access devices. This field-of-use limitation is acceptable because the PrecisionEdge™ product lines and their planned successor products all fall within this field. Solstice does not currently manufacture or market products outside this field that would implicate the Licensed Patents.

The license is non-transferable, except that it may be transferred in connection with a change of control of Solstice (whether by merger, acquisition, sale of all or substantially all assets, or similar transaction). This exception is important to preserve the value of the license in the event of a future corporate transaction involving Solstice.

Solstice will have the right to sublicense the Licensed Patents to contract manufacturers engaged by Solstice to manufacture Licensed Products, provided that any such sublicense is subject to the terms and conditions of the Patent License Agreement and terminates upon termination of the manufacturing relationship. This sublicense right is necessary to accommodate Solstice's existing and potential future contract manufacturing arrangements.

D. Covenant Not to Sue

In addition to the license grant under the three asserted patents, Apex will execute a Covenant Not to Sue pursuant to which Apex covenants that it will not assert any patent in the Apex Trocar Patent Family — comprising all fourteen (14) issued United States patents and all six (6) pending continuation applications — against Solstice, its subsidiaries (including Solstice Biomedical, Inc.), or its contract manufacturers for products within the licensed field of use during the term of the Covenant.

The strategic significance of this covenant is substantial. The Apex Trocar Patent Family includes eleven patents that are not asserted in the current litigation. Without the covenant, even a complete defense verdict at trial would leave Solstice exposed to potential future infringement assertions based on these non-asserted patents, as well as any patents that issue from the six pending continuation applications. The covenant effectively neutralizes this risk for the duration of the patent terms, which provides a degree of freedom of action that cannot be achieved through trial.

E. Most-Favored Licensee

The settlement includes a Most-Favored Licensee ("MFL") provision. Under this clause, if Apex licenses the Licensed Patents to any third party at a running royalty rate below 3.75% of Net Sales, Solstice's royalty rate will be adjusted prospectively to match the lower rate, effective as of the date of the third-party license. Apex is obligated to notify Solstice in writing within thirty (30) days of entering into any such third-party license.

The MFL clause ensures that Solstice is not competitively disadvantaged if Apex subsequently grants more favorable license terms to a competitor or other market participant. Given the competitive dynamics in the laparoscopic surgical device market and the possibility that Apex may seek to license additional companies in the future, this provision has real practical value.

F. Other Terms

The following additional terms are included in the settlement framework:

Mutual Release. The parties will execute mutual general releases of all claims, counterclaims, and defenses asserted or that could have been asserted in Case No. 1:24-cv-00587-RGA. The release extends to all related claims arising out of or relating to the accused products and the Licensed Patents through the date of execution.

Dismissal with Prejudice. Upon execution of the Definitive Settlement Agreement, the parties will file a Stipulation of Dismissal with Prejudice, with each party bearing its own costs and attorneys' fees. The Stipulation will be filed with the Court and will result in the case being closed and the September 30, 2025 trial date being vacated.

Confidentiality. The terms of the settlement are subject to mutual confidentiality obligations. Neither party may disclose the specific financial terms of the settlement to any third party, except as required by law, regulation, or legal process, or to the parties' respective professional advisors (legal, tax, accounting, and insurance). The parties have agreed to issue a joint public statement limited to the following: "The matter has been resolved on mutually agreeable terms." This confidentiality provision protects Solstice from public disclosure of the settlement amount and royalty rate, which could affect negotiations with other potential licensors or create adverse perceptions in the market.

Audit Right. Apex will have the right to audit Solstice's books and records relating to royalty payments once per calendar year. Any such audit must be conducted by an independent certified public accountant selected by Apex and reasonably acceptable to Solstice. The audit is to be conducted at Apex's expense, unless the audit reveals an underpayment of royalties in excess of 5% for any audited period, in which case Solstice will bear the cost of the audit and promptly pay the deficiency plus interest at the prime rate.

Governing Law. The Definitive Settlement Agreement and all ancillary agreements will be governed by the laws of the State of Delaware, without regard to conflict of laws principles.

IV. Trial Risk Analysis

A. Claim-by-Claim Infringement Risk Assessment

The infringement risk varies significantly across the three accused product lines and the asserted patents. We have assessed the likelihood of a finding of infringement at trial for each product line, taking into account the Court's Claim Construction Order, the expert reports, the summary judgment rulings, and our assessment of how the evidence is likely to be received by a jury in the District of Delaware.

1. PE-5000 Series (5 mm Trocar) — Accused Under the '237 and '884 Patents

The PE-5000 Series presents the lowest infringement risk among the three accused product lines. Our assessment of the likelihood of an infringement finding at trial for this product is approximately 30–35%.

Key Strengths for Solstice. The PE-5000 utilizes a fundamentally different seal retention mechanism than the structure described and claimed in the '237 Patent. Specifically, the PE-5000 employs a friction-fit elastomeric plug that is retained by compression against the housing wall, rather than the mechanical locking detent structure recited in the asserted claims. The Court's Claim Construction Order construed "locking seal assembly" to require "a seal assembly with a mechanical locking feature that positively retains the seal in a fixed position within the housing" — a construction that was substantially in the form proposed by Solstice and that we believe the PE-5000's friction-fit design does not meet. Dr. Ostrowski's testimony provides strong support for this distinction, based on her detailed analysis of the mechanical engineering principles underlying the two approaches.

With respect to the '884 Patent, the PE-5000's blade deployment mechanism, while sharing certain functional objectives with the claimed invention, employs a different actuation geometry (a linear, rather than arcuate, blade path) and a materially different spring return mechanism. The Claim Construction Order's treatment of "retractable blade deployment mechanism" — requiring a "mechanism that deploys a cutting blade along a defined path and automatically retracts the blade upon penetration of a tissue boundary" — was also favorable to Solstice on the key sub-element of blade path geometry.

Key Weaknesses for Solstice. Apex will argue infringement under the doctrine of equivalents, contending that the PE-5000's friction-fit seal retention mechanism performs substantially the same function, in substantially the same way, to achieve substantially the same result as the claimed mechanical locking structure. While we believe the prosecution history estoppel arising from narrowing amendments made during prosecution of the '237 Patent limits Apex's doctrine of equivalents arguments, this is a factual question that will be presented to the jury. Additionally, Dr. Ng's infringement report identifies functional overlap between the PE-5000's blade deployment subsystem and the structure claimed in the '884 Patent, particularly with respect to the automatic retraction feature. Dr. Ng's analysis, while subject to critique, may resonate with a jury.

Our summary judgment motion seeking non-infringement of the PE-5000 was denied without prejudice on May 5, 2025, but the denial was based on the Court's conclusion that "genuine disputes of material fact" exist regarding the doctrine of equivalents analysis — the Court did not suggest that Apex has a strong literal infringement case as to the PE-5000. We view this as a modestly favorable signal.

2. PE-12000 Series (12 mm Trocar) — Accused Under All Three Patents

The PE-12000 Series presents the highest infringement risk and is the most consequential product line from both a liability and a financial standpoint. Our assessment of the likelihood of a finding of infringement on at least some asserted claims is approximately 55–65%.

Key Vulnerabilities. The Court's construction of "integrated insufflation valve" (Claim 1 of the '105 Patent) was favorable to Apex, defining the term as "a valve structure that integrates both insufflation gas delivery and instrument sealing functions within a unitary valve assembly." The PE-12000's dual-valve design, while employing two distinct valve elements, houses both elements within a single cartridge that Apex argues constitutes a "unitary valve assembly" under the Court's construction. This is a close question, but we must acknowledge that the PE-12000's design arguably reads on the claim as construed. Dr. Ng's report provides a detailed element-by-element comparison supporting this conclusion.

The PE-12000 is also accused of infringing the '237 and '884 Patents. With respect to the '237 Patent, the PE-12000's seal assembly includes a positive-retention clip that is more analogous to the claimed "locking" feature than the PE-5000's friction-fit design, increasing the infringement risk. With respect to the '884 Patent, the PE-12000 shares the same blade deployment mechanism platform as the PE-15000, and the risk analysis discussed below for the '884 Patent applies equally here.

Apex's cross-motion for partial summary judgment of infringement as to the PE-12000 was denied, but the Court's characterization of the disputes as being "of a narrow character" is not encouraging. This language suggests that the factual questions remaining for trial may be resolved on a thin evidentiary margin, and the outcome may turn on jury perceptions of the competing expert testimony.

Significance. The PE-12000 is the highest-revenue product line among the accused products, accounting for an estimated 45–50% of total accused product sales. A finding of infringement as to the PE-12000 alone would result in significant damages exposure and the most acute injunction risk.

3. PE-15000 Series (15 mm Trocar) — Accused Under the '884 and '105 Patents

The PE-15000 Series presents a moderate infringement risk. Our assessment of the likelihood of an infringement finding is approximately 40–50%.

The PE-15000 shares the same blade deployment mechanism platform as the PE-12000, creating similar exposure under the '884 Patent. The analysis of the '884 Patent infringement risk discussed above applies with equal force here. With respect to the '105 Patent, the PE-15000 employs a somewhat different insufflation valve configuration than the PE-12000, requiring a separate analysis under the Court's construction of "integrated insufflation valve." While the PE-15000's valve design is arguably less squarely within the claim scope than the PE-12000's, the differences are subtle and may not be dispositive.

The PE-15000 is a growing product line, with year-over-year sales increases exceeding the overall PrecisionEdge™ growth rate. It represents an expanding share of Solstice US's revenue, and the forward-looking exposure — both in terms of damages for future sales and the impact of a potential injunction — is significant.

B. Invalidity Defense Assessment

Solstice's invalidity defenses are supported by Dr. Ostrowski's expert report, which identifies prior art references supporting challenges under 35 U.S.C. § 102 (anticipation) and § 103 (obviousness) as to the asserted claims of all three patents. The prior art foundation for these defenses was developed through extensive searches conducted by Dr. Jonathan Kendrick of Kendrick & Lau LLP, analysis of the prosecution histories of the asserted patents, and documents obtained through third-party subpoena from Veridian Medical Technologies, Inc.

Our assessment of the likelihood that at least one asserted patent is found invalid is approximately 25–35%. The invalidity case is strongest with respect to the '237 Patent, where Dr. Ostrowski has identified a Veridian internal engineering report (VER-007214, dated March 2009) that describes a mechanical locking seal assembly with significant structural similarities to the claimed invention. This reference, combined with a published European patent application (EP 1,924,388, published May 2008) describing a related sealing mechanism, supports a strong obviousness argument and a colorable anticipation argument. The invalidity cases for the '884 and '105 Patents are less compelling, as the prior art references identified for those patents are less squarely on point and require a more complex combination analysis under § 103.

It is important to note that even if the invalidity defense succeeds as to the '237 Patent (our strongest invalidity case), this would reduce but not eliminate Solstice's infringement exposure. The PE-12000 and PE-15000 are also accused under the '884 and '105 Patents, and a finding of invalidity as to the '237 Patent alone would not resolve the claims relating to those patents.

Solstice's inequitable conduct counterclaim has a lower probability of success, which we estimate at approximately 10–15%. The inequitable conduct defense is based on Dr. Szabo's failure to disclose the Veridian engineering report (VER-007214) to the USPTO during prosecution of the '237 Patent, notwithstanding that Dr. Szabo was aware of the report and its relevance. However, the standard for inequitable conduct is demanding, requiring proof of both materiality and specific intent to deceive the USPTO, and Chief Judge Andrews has shown skepticism toward inequitable conduct claims in prior cases. Moreover, Apex has proffered a declaration from Dr. Szabo asserting that his non-disclosure was inadvertent and that he believed the Veridian report was cumulative of other references of record. While we have reasons to question this assertion, overcoming the intent element at trial remains an uphill battle.

C. Overall Liability Assessment

Taking into account the claim-by-claim infringement risk assessments, the invalidity defense, and the inequitable conduct counterclaim, our composite assessment of the probability that Apex prevails on at least one infringement claim and that no invalidity defense succeeds for that patent is estimated at approximately 40–50%.

This is a meaningful trial risk that cannot be dismissed. It reflects a scenario in which the most likely infringement finding would involve the PE-12000 Series under the '105 Patent (and possibly the '884 Patent), with the invalidity defense providing a partial but not dispositive counterweight. The risk is further compounded by the jury trial format: patent infringement trials before Delaware juries involve inherent unpredictability, and the outcome may turn on which party's expert testimony the jury finds more credible and comprehensible.

D. Damages Exposure at Trial

1. Apex's Damages Theory

Hugh Danaher, CFA, of Keystone Valuation Advisors LLC has submitted an expert report claiming $31,800,000 in reasonable royalty damages under 35 U.S.C. § 284. Mr. Danaher's analysis is based on a royalty rate of approximately 12–15% applied to the combined U.S. sales of the accused products (royalty base of $74.6 million in sales from CY 2021 through September 30, 2024, plus projected sales through the date of trial).

Mr. Danaher's royalty rate analysis relies heavily on the following Georgia-Pacific factors: (i) the 61.3% weighted average gross margin on the accused products, which he argues demonstrates that Solstice can afford a high royalty; (ii) the alleged strength and breadth of the asserted patents, which he characterizes as covering core functionality of the accused products; (iii) Apex's internal licensing benchmarks, including an alleged comparable license to a non-party (Meridian Surgical Systems, LLC) at a royalty rate of 9.5%; and (iv) the competitive relationship between Apex and Solstice, which Mr. Danaher argues would lead Apex to demand a premium royalty.

Mr. Danaher's claimed damages amount of $31.8 million is, in our view, inflated and vulnerable to challenge. However, we must acknowledge that it represents the upper bound of Solstice's potential exposure at trial and that some aspects of his analysis — particularly the gross margin evidence and the Meridian license — may resonate with a jury.

2. Solstice's Damages Rebuttal

Dr. Elena Marchetti of Pinnacle Economics Group LLC has submitted a comprehensive rebuttal to Mr. Danaher's damages analysis. Dr. Marchetti identifies several significant methodological flaws in Mr. Danaher's report:

• Inflated Royalty Base. Mr. Danaher fails to properly apportion the royalty base to account for the non-patented components and features of the accused products. The PrecisionEdge™ trocars incorporate numerous design elements — including the housing, grip, obturator tip geometry, and packaging — that are unrelated to the asserted patents. Dr. Marchetti applies an apportionment analysis that attributes approximately 35–40% of the value of the accused products to the patented features, resulting in a smaller royalty base.

• Overstated Royalty Rate. Mr. Danaher's reliance on the Meridian license as a comparable is inapt because (a) the Meridian license covers a different subset of the Apex patent portfolio, (b) it includes technology transfer and know-how components that are not present in the hypothetical negotiation, and (c) the Meridian license was negotiated under significantly different circumstances (Meridian was a market entrant seeking access to Apex's technology, whereas Solstice independently developed the PrecisionEdge™ products). Dr. Marchetti identifies more appropriate comparables, including arm's-length licenses in the minimally invasive surgical device space, that support a royalty rate in the range of 2.5–4.5%.

• Failure to Account for Non-Infringing Alternatives. Mr. Danaher gives insufficient weight to the availability of non-infringing alternative designs that Solstice could have adopted at the time of the hypothetical negotiation. Dr. Marchetti identifies at least three commercially viable alternative designs for each of the accused subsystems, which would constrain the royalty that a willing licensee would agree to pay.

Dr. Marchetti's estimated reasonable royalty range is $4.2 million to $7.8 million, implying a royalty rate of approximately 2.5–4.5% applied to a properly apportioned royalty base. This range is significantly below Mr. Danaher's claimed $31.8 million and provides strong evidentiary support for the reasonableness of the settlement royalty terms.

Additionally, Dr. Arthur Gaines of Ridgeline IP Analytics LLC prepared a confidential patent portfolio valuation at C&H's request. Dr. Gaines's valuation, which analyzes the economic value of the asserted patents in the context of the broader Apex Trocar Patent Family and the competitive landscape, supports a royalty rate at the lower end of Dr. Marchetti's range. A summary of Dr. Gaines's conclusions is provided in our Ridgeline IP Analytics Valuation Summary Review memorandum (May 21, 2025).

3. Damages Range Scenarios

Based on the foregoing analyses, we have modeled the following damages range scenarios:

The "worst case" scenario reflects our assessment that, even if infringement is found on all product lines, the Court is likely to exclude or limit portions of Mr. Danaher's testimony through Daubert challenges and that the jury is unlikely to adopt his analysis in full. We anticipate that a realistic worst-case damages award, accounting for the jury's likely discounting of Mr. Danaher's more aggressive assumptions, would be in the range of $18 million to $25 million. This is still a significant exposure.

Applying the probability assessments discussed in Section IV.C above, the risk-adjusted expected damages (probability-weighted) are approximately $7 million to $13 million. This range is calculated by weighting each scenario by its estimated probability and summing the results. The midpoint of this range — approximately $10 million — represents our best estimate of the expected damages outcome at trial.

4. Potential for Enhanced Damages and Attorneys' Fees

Under 35 U.S.C. § 284, the Court has discretion to award up to treble damages for willful infringement. Apex has alleged willfulness in its Complaint, contending that Solstice had knowledge of the asserted patents and continued to sell the accused products after receiving notice.

Solstice has a strong good-faith defense to the willfulness allegation. Prior to the commencement of this litigation, Solstice obtained a written opinion of counsel from Dr. Jonathan Kendrick of Kendrick & Lau LLP, opining that the PrecisionEdge™ products do not infringe the asserted patents and that the asserted patents are likely invalid over the prior art. Additionally, the PrecisionEdge™ products were independently designed by Solstice's engineering team without access to or knowledge of the specific details of Apex's patented designs, as documented in Solstice's contemporaneous design and development records. Taken together, these facts support a finding that Solstice acted in objective good faith, which should preclude a finding of willfulness under the framework established by the Supreme Court in Halo Electronics, Inc. v. Pulse Electronics, Inc., 579 U.S. 93 (2016).

We assess the risk of enhanced damages as low (10–15% probability). Even if infringement is found, the evidence of Solstice's good faith makes it unlikely that the Court would exercise its discretion to enhance damages. However, the possibility cannot be entirely excluded, and in a worst-case scenario, trebling of a $20 million award would produce a $60 million liability — a catastrophic outcome.

Under 35 U.S.C. § 285, the Court may award reasonable attorneys' fees to the prevailing party in "exceptional cases." The risk of an exceptional case finding against Solstice is also low but non-zero. The standard is high, requiring a showing that the case "stands out from others with respect to the substantive strength of a party's litigating position or the unreasonable manner in which the case was litigated." Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 545 (2014). Solstice's defenses are colorable and well-supported, and the litigation has been conducted in a professional manner. We do not believe an exceptional case finding is likely, but include it in the risk analysis for completeness.

5. Injunctive Relief Risk

If Apex prevails on infringement and the asserted patents are found valid, Apex will almost certainly seek a permanent injunction under 35 U.S.C. § 283. The post-Northgate Group v. MercExchange, L.L.C., 547 U.S. 388 (2006), four-factor test requires the patent holder to demonstrate: (1) irreparable injury; (2) inadequacy of legal remedies (i.e., money damages); (3) a balance of hardships favoring the patentee; and (4) that the public interest would not be disserved by an injunction.

Critically, Apex is a direct competitor of Solstice in the laparoscopic surgical device market — it is not a non-practicing entity or a patent licensing company. This fact significantly increases the likelihood of injunctive relief. Courts in the District of Delaware and the Federal Circuit have consistently recognized that competing patent holders are more likely to satisfy the irreparable harm and inadequacy of damages elements because they suffer competitive injury — including lost market share, price erosion, and loss of customer relationships — that cannot be fully remedied by money damages alone.

If an injunction is granted, Solstice would be required to either: (a) redesign the PrecisionEdge™ product lines to avoid the claims found to be infringed, or (b) cease U.S. sales of the enjoined products. Either course of action would be extraordinarily costly:

• Redesign costs: Solstice's engineering team estimates that a full redesign of the accused subsystems (seal assembly, blade deployment mechanism, insufflation valve) would require 18–24 months and approximately $4 million to $6 million in engineering and tooling costs. The redesigned products would also require new FDA 510(k) clearances, adding an estimated 6–12 months and $500,000 to $1 million in regulatory costs per product line.

• Lost revenue during redesign: During the redesign and regulatory re-clearance period (estimated at 2–3 years in total), Solstice would lose all or substantially all U.S. revenue from the enjoined product lines. Based on current and projected sales, this revenue loss is estimated at $15 million to $25 million over the redesign period.

• Customer attrition: Even after redesigned products are introduced, Solstice faces the risk of permanent customer attrition. Hospital systems and group purchasing organizations (GPOs) that switch to competitive products during the injunction period may not return to Solstice.

The business disruption cost of an injunction is estimated at $15 million to $25 million over the 2–3 year redesign period, making it one of the most significant risk factors in the trial analysis. When probability-weighted (40–50% probability of infringement finding × the estimated impact range), the expected injunction cost adds approximately $6 million to $12 million to the risk-adjusted cost of trial.

V. Cost-to-Complete Analysis: Trial Scenario

In order to provide a complete comparison of the settlement and trial paths, we have prepared a detailed estimate of the additional costs that would be incurred if the matter proceeds to trial.

A. Legal Fees — Calderwood & Harkness LLP

As of June 1, 2025, C&H has billed a total of $2,847,319.42 in fees and costs in this matter, comprised of $2,611,480.00 in attorney fees and $235,839.42 in costs and disbursements. The current billing rates applicable to this matter are as follows:

We estimate that the additional legal fees and costs to complete trial preparation and conduct a 5–7 day jury trial — including pre-trial briefing, Daubert motions, witness preparation, trial preparation (including preparation of trial exhibits, demonstratives, and jury instructions), trial, and post-trial motions — will be approximately $1,200,000 to $1,600,000. This estimate assumes a trial team of two partners, one senior associate, and two associates, with intensive trial preparation commencing in mid-August 2025 and continuing through the trial in late September/early October 2025.

Accordingly, the total estimated C&H litigation cost through the completion of trial (excluding any post-trial appeals) is approximately $4,050,000 to $4,450,000.

B. Expert Costs

Additional expert fees will be required for trial testimony preparation and in-court testimony. We estimate these costs as follows:

• Dr. Miriam Ostrowski (invalidity): Estimated additional fees of $75,000 to $100,000 for trial testimony preparation (including mock cross-examination sessions) and in-court testimony (estimated 1.5 trial days), at her billing rate of $750/hour.

• Dr. Elena Marchetti / Pinnacle Economics Group LLC (damages): Estimated additional fees of $50,000 to $75,000 for trial testimony preparation and in-court testimony, at her billing rate of $850/hour.

• Total additional expert fees: Approximately $125,000 to $175,000.

For reference, expert fees incurred to date are: Dr. Ostrowski — $127,500; Dr. Marchetti / Pinnacle — $89,250.

C. Additional E-discovery and Trial Support

DataVault Litigation Solutions, LLC has been engaged to provide e-discovery and litigation support services throughout this matter. To date, DataVault has processed approximately 1.2 terabytes of data and facilitated the review of 312,000 documents using a technology-assisted review (TAR) protocol. DataVault's charges to date total $141,200.

Additional DataVault charges for trial exhibit preparation, trial presentation technology setup and support, and on-site trial technician services are estimated at approximately $40,000 to $60,000.

D. Kendrick & Lau LLP

Kendrick & Lau LLP was retained under a separate engagement to conduct the prior art search and freedom-to-operate analysis that underlies Solstice's invalidity defense and the written opinion of counsel regarding non-infringement. Kendrick & Lau's fees to date total $184,500.

If the matter proceeds to trial, Kendrick & Lau may be called upon to provide additional support in connection with the presentation of the invalidity defense, particularly regarding the prior art search methodology and the prosecution history analysis. We estimate additional Kendrick & Lau fees of approximately $25,000 to $40,000.

E. Insurance Coverage

Solstice's intellectual property litigation insurance is provided under Halcyon Specialty Insurance Co. Policy No. HSI-IP-2023-04891, which provides coverage for patent infringement defense costs with the following limits and terms:

The $250,000 self-insured retention has been fully exhausted by Solstice. After application of the SIR, Halcyon has covered $2,597,319.42 of the total $2,847,319.42 in fees and costs incurred to date. The remaining per-occurrence coverage is therefore approximately $2,402,680.58.

Several important points regarding insurance coverage bear emphasis:

Insurance does NOT cover settlement payments. The Halcyon policy excludes indemnification for settlement payments and royalty obligations. Accordingly, the $8,750,000 lump sum and the running royalty payments contemplated by the proposed settlement would be borne entirely by Solstice.

If the matter proceeds to trial, remaining per-occurrence coverage should largely cover additional defense costs. The estimated additional defense costs of $1,390,000 to $1,875,000 fall within the remaining $2,402,680.58 of per-occurrence coverage. However, at the high end of our cost estimate, trial would consume most of the remaining coverage, leaving little or no coverage for post-trial proceedings, including any appeal to the Federal Circuit.

Exhaustion of the per-occurrence limit is a concern. If the matter proceeds through trial and the per-occurrence limit is fully or nearly fully exhausted, any post-trial motions, appellate proceedings, or related litigation would be uninsured. Federal Circuit appeals in patent cases typically cost $500,000 to $750,000, and these costs would be borne entirely by Solstice if the per-occurrence limit has been exhausted.

F. Total Estimated Cost to Try the Case

Combining all of the foregoing categories, the total estimated additional cost to complete trial is as follows:

These costs are largely covered by the remaining Halcyon per-occurrence coverage of approximately $2,402,680.58. However, as noted, exhaustion or near-exhaustion of the per-occurrence limit would leave Solstice exposed to uninsured costs for any post-trial proceedings. This is a meaningful consideration, as the probability of post-trial activity (whether appeal by the losing party, Daubert motions for new trial, or other proceedings) is significant regardless of the trial outcome.

VI. Comparative Financial Analysis: Settlement vs. Trial

A. Settlement Cost Structure

The total estimated cost of the settlement, expressed in net present value terms, is as follows:

Upfront Lump-Sum Cost: $8,750,000. This amount is payable in two tranches as described in Section III.A above. The full $8,750,000 is borne by Solstice from operating cash; it is not covered by insurance. Brendan Molloy (CFO) has confirmed that Solstice has sufficient liquidity to make both payments without material disruption to its operations or capital investment plans.

Ongoing Running Royalty Cost. The 3.75% running royalty on Net Sales of Licensed Products, subject to the $500,000 annual floor and $1,800,000 annual cap, represents a recurring cost obligation for the remaining life of the Licensed Patents (approximately 12.5 years, through January 10, 2038). We have modeled the expected royalty payments as follows:

As shown above, assuming continued sales growth at approximately 8% per year, the $1,800,000 annual cap becomes binding in approximately Year 10 (CY 2035), after which the effective royalty rate declines as sales continue to grow. The total undiscounted running royalty payments over the approximately 12.5-year royalty term are estimated at approximately $14 million to $19 million, depending on the actual sales growth trajectory.

Discounting the projected royalty payments to net present value at an 8% discount rate (consistent with Solstice's weighted average cost of capital), the NPV of the running royalty stream is approximately $9 million to $12 million.

Total Estimated Settlement Cost (NPV): Combining the lump sum and the NPV of the running royalties, the total estimated settlement cost is approximately $17 million to $21 million.

Benefits Obtained Through Settlement. In exchange for the foregoing costs, the settlement provides Solstice with the following tangible and strategic benefits:

• Certainty. The settlement eliminates all uncertainty associated with the trial outcome, including the risks of adverse damages awards, enhanced damages, and injunctive relief.

• Non-exclusive license. The license covers the three asserted patents and their continuations, divisionals, and reissues, providing Solstice with the legal right to continue manufacturing, selling, and distributing the PrecisionEdge™ products and successor products in the laparoscopic surgical access field.

• Covenant not to sue. The covenant covers the full Apex Trocar Patent Family (14 issued patents + 6 pending applications), providing protection well beyond the scope of the three asserted patents.

• Elimination of injunction risk. The settlement removes the possibility of a permanent injunction that could force cessation of U.S. sales or require a costly and time-consuming product redesign and regulatory re-clearance process.

• Business continuity. The settlement permits uninterrupted sales of the PrecisionEdge™ product lines, preserving customer relationships, GPO contracts, and market position.

• Most-favored licensee protection. The MFL clause ensures Solstice is not competitively disadvantaged relative to future licensees.

B. Trial Cost Structure (Risk-Adjusted)

The risk-adjusted expected cost of the trial path is calculated by combining the estimated damages exposure, litigation costs, injunction risk, and post-trial costs, each weighted by the applicable probabilities:

Risk-adjusted expected damages: As analyzed in Section IV.D.3 above, the probability-weighted expected damages at trial are approximately $7 million to $13 million.

Remaining litigation costs: The estimated additional defense costs of approximately $1.4 million to $1.9 million are largely covered by Halcyon insurance, so the net out-of-pocket cost to Solstice is modest. However, in the event of per-occurrence limit exhaustion, some portion of these costs may fall to Solstice. We conservatively include the full amount in the trial cost analysis.

Injunction risk. If infringement is found (estimated 40–50% probability), the likelihood of an injunction being granted is significant (estimated at 60–75%, given that Apex is a direct competitor). The business disruption cost of an injunction is estimated at $15 million to $25 million over the redesign period. Applying the composite probability of an injunction (40–50% infringement probability × 60–75% injunction probability = approximately 24–38% overall probability), the probability-weighted injunction cost is approximately $6 million to $12 million.

Post-trial costs. Regardless of outcome, it is likely that one or both parties will pursue post-trial motions, and the losing party may appeal to the Federal Circuit. We estimate that post-trial and appellate costs would be approximately $500,000 to $750,000 for a Federal Circuit appeal, plus the management time and distraction associated with ongoing litigation for an additional 2–3 years. If the per-occurrence insurance limit has been exhausted by the trial, these costs would be borne entirely by Solstice.

No license obtained. A critical point that cannot be overemphasized: even if Solstice prevails at trial on all counts, it obtains no license and no covenant not to sue. A defense verdict establishes only that the currently accused products do not infringe the three asserted patents (or that those patents are invalid). It provides no protection against assertions of the eleven non-asserted patents in the Apex Trocar Patent Family, future assertions based on the six pending continuation applications, or future assertions based on design changes to the PrecisionEdge™ products that may distinguish them from the claim constructions adopted in this case. In short, a trial victory is not a comprehensive resolution — it is a resolution of the current dispute only, leaving significant future risk on the table.

Total risk-adjusted expected cost of trial path: Aggregating the foregoing components, the total risk-adjusted expected cost of the trial path is approximately $15 million to $27 million.

C. Side-by-Side Comparison

The following table provides a summary comparison of the settlement and trial paths:

The comparison reveals that the settlement provides certainty within the range of the expected trial outcome, while eliminating the catastrophic downside tail risk. In the worst-case trial scenario — which involves infringement findings on all product lines, no successful invalidity defense, potential enhancement of damages, and an injunction — the total cost could exceed $40 million to $50 million, a figure that would be severely damaging to Solstice's financial position and comp

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
This memorandum is protected by the attorney-client privilege and the work product doctrine. It is prepared solely for the purpose of providing legal advice and should not be disclosed to any third party without the prior written consent of counsel.
MEMORANDUM
FROM: Marcus Delgado, Responsible Partner, intellectual Property Practice Group, Calderwood & Harkness LLP
TO: Dr. Fiona Tierney, Chief Executive Officer, Solstice Biomedical Devices Ltd. Eamon Rourke, General Counsel, Solstice Biomedical Devices Ltd. Brendan Molloy, Chief Financial Officer, Solstice Biomedical Devices Ltd.
DATE: June 2, 2025
RE: Risk Assessment — Trial vs. Settlement Apex Surgical Innovations, Inc. v. Solstice Biomedical, Inc. Case No. 1:24-cv-00587-RGA United States District Court for the District of Delaware
MATTER NO.: 10294.0017
PRIVILEGE DESIGNATION: This memorandum constitutes a privileged and confidential attorney-client communication and attorney work product. It has been prepared by Calderwood & Harkness LLP at the request of and for the exclusive use of Solstice Biomedical Devices Ltd. and its officers and directors. The information contained herein reflects the mental impressions, conclusions, opinions, and legal theories of counsel. This document should not be disclosed, disseminated, distributed, or copied to any person or entity other than the named addressees without the prior written consent of Calderwood & Harkness LLP. Inadvertent disclosure of this memorandum does not constitute a waiver of any applicable privilege or protection.
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I. Executive Summary
The purpose of this memorandum is to present a comprehensive comparison of the risks, costs, and strategic considerations attendant to proceeding to trial versus accepting the settlement terms currently under negotiation with Apex Surgical Innovations, Inc. ("Apex") in the above-captioned patent infringement action. Trial is currently scheduled to commence on September 30, 2025, before Chief Judge Richard G. Andrews of the United States District Court for the District of Delaware. The settlement negotiations, which intensified following a second settlement conference before Magistrate Judge Colleen Pratt on May 12, 2025, have produced a framework that we believe warrants serious consideration by Solstice Biomedical Devices Ltd. ("Solstice" or the "Company").
Bottom-Line Assessment. Based on the analysis set forth in detail below, Calderwood & Harkness LLP ("C&H") recommends that Solstice accept the negotiated settlement terms. Those terms call for a lump-sum payment of $8,750,000 (payable in two tranches) plus a 3.75% running royalty on Net Sales of Licensed Products, subject to an annual cap of $1,800,000. In our assessment, the risk-adjusted expected cost of proceeding through trial substantially exceeds the value of the proposed settlement. Moreover, the settlement provides important strategic benefits — including a non-exclusive license to the three asserted patents and a covenant not to sue covering the broader Apex Trocar Patent Family — that cannot be obtained through trial, even in the event of a complete defense verdict.
Specifically, the settlement would resolve all claims and counterclaims in Case No. 1:24-cv-00587-RGA and provide Solstice with a non-exclusive license to the '237, '884, and '105 Patents (and continuations, divisionals, and reissues thereof) for the remaining terms of those patents, the latest of which expires on January 10, 2038. This license eliminates Solstice's ongoing infringement exposure with respect to the PrecisionEdge™ product lines and, critically, extends protection to successor products in the laparoscopic surgical access field. The covenant not to sue encompasses the entire Apex Trocar Patent Family — fourteen issued United States patents and six pending continuation applications — providing Solstice with a breadth of protection that far exceeds what could be achieved through litigation of the three asserted patents alone.
This memorandum should be read in conjunction with the following prior memoranda prepared by C&H, which address specific aspects of the analysis in greater detail:
• Settlement Authority Memorandum (March 20, 2025)
• Post-Mediation Assessment & Revised Settlement Range (March 19, 2025)
• Georgia-Pacific Factor Analysis (May 20, 2025)
• Ridgeline IP Analytics Valuation Summary Review (May 21, 2025)
We respectfully request that the addressees review this memorandum and confirm authorization to proceed with settlement on the terms described herein at their earliest convenience, in order to permit execution of the Definitive Settlement Agreement on or before the target date of June 16, 2025.
II. Background and Procedural Posture
A. The Litigation
Apex Surgical Innovations, Inc. ("Apex"), a Delaware corporation headquartered in Malvern, Pennsylvania, filed its Complaint for Patent Infringement against Solstice Biomedical, Inc. ("Solstice US"), Solstice's wholly-owned U.S. operating subsidiary, on May 9, 2024. The Complaint, as subsequently amended, asserts infringement of three United States utility patents directed to components and systems used in minimally invasive laparoscopic surgical access devices, commonly known as trocars. The three asserted patents are as follows:
United States Patent No. 9,814,237 (the "'237 Patent"). Titled "Locking Seal Assembly for Minimally Invasive Surgical Access Device," the '237 Patent was issued on November 14, 2017, and expires on June 22, 2035. The patent is directed to a novel locking mechanism within the seal assembly of a trocar that maintains a pneumoperitoneum during laparoscopic procedures while permitting smooth instrument insertion and withdrawal. Apex asserts Claims 1, 3, 7, and 12 of the '237 Patent. Claim 1 is an independent claim directed to the overall locking seal assembly structure; Claims 3 and 7 are dependent claims adding specificity regarding the sealing material composition and the locking detent geometry, respectively; and Claim 12 is an independent method claim directed to a method of sealing a surgical access port during insufflation.
United States Patent No. 10,271,884 (the "'884 Patent"). Titled "Retractable Blade Deployment Mechanism for Trocar Systems," the '884 Patent was issued on April 30, 2019, and expires on September 15, 2036. This patent covers a mechanism for deploying and automatically retracting a cutting blade within a trocar obturator, designed to minimize the risk of inadvertent tissue injury during abdominal wall penetration. Apex asserts Claims 1, 2, 5, 9, and 14 of the '884 Patent. Claims 1 and 9 are independent claims directed to apparatus and system embodiments, respectively; Claims 2 and 5 are dependent claims further defining the blade actuation spring constant and deployment path angle; and Claim 14 is an independent method claim.
United States Patent No. 10,932,105 (the "'105 Patent"). Titled "Integrated Insufflation Valve and Seal for Laparoscopic Trocar," the '105 Patent was issued on March 2, 2021, and expires on January 10, 2038. This patent is directed to an integrated valve structure that combines insufflation gas delivery with the instrument seal in a single compact assembly, claimed to reduce trocar profile and improve gas flow efficiency during laparoscopic surgery. Apex asserts Claims 1, 4, and 8 of the '105 Patent. Claim 1 is an independent apparatus claim; Claim 4 is a dependent claim specifying a particular valve seat geometry; and Claim 8 is an independent method claim directed to a method of simultaneously maintaining insufflation pressure and providing an instrument seal.
All three asserted patents name Dr. Raymond Szabo, Vice President of Engineering at Apex, as the sole inventor. All three patents are assigned to Apex and remain in force with maintenance fees current. The three asserted patents are part of a broader patent family (the "Apex Trocar Patent Family") that includes fourteen total issued United States patents and six pending continuation applications. The existence of this broader family is significant to the settlement analysis, as discussed further below.
Accused Products. Apex's Complaint accuses the following Solstice products of infringement:
• PrecisionEdge™ PE-5000 Series — Solstice's 5 mm diameter trocar, used for smaller-bore instrument insertion during laparoscopic procedures. This product is accused of infringing the '237 and '884 Patents.
• PrecisionEdge™ PE-12000 Series — Solstice's 12 mm diameter trocar, used for standard laparoscopic instruments and tissue extraction. This product is accused of infringing all three asserted patents — the '237, '884, and '105 Patents. The PE-12000 Series is the highest-revenue product line among the accused products.
• PrecisionEdge™ PE-15000 Series — Solstice's 15 mm diameter trocar, designed for larger instrument access and specimen retrieval during laparoscopic and robotic-assisted surgery. This product is accused of infringing the '884 and '105 Patents.
B. Accused Product Sales and Margins
The financial significance of the accused PrecisionEdge™ product lines to Solstice's U.S. business cannot be overstated. Based on Solstice's sales records produced in discovery and the financial data compiled by Dr. Elena Marchetti of Pinnacle Economics Group LLC, the combined U.S. sales of the accused PrecisionEdge™ products from calendar year 2021 through September 30, 2024 total approximately $74.6 million, as set forth below:
The weighted average gross margin on the accused PrecisionEdge™ products is 61.3%, reflecting the premium pricing Solstice commands in the laparoscopic access device market. The year-over-year growth trajectory for the PrecisionEdge™ product lines is approximately 8%, a rate that is projected to continue or modestly accelerate as Solstice expands its U.S. hospital and ambulatory surgical center customer base. Extrapolating at this growth rate, FY 2024 full-year sales are projected at approximately $29.5 million, and FY 2025 sales are projected at approximately $31.9 million. These projections are relevant both to the forward-looking royalty analysis in the settlement context and to the damages exposure at trial.
The PrecisionEdge™ product lines collectively represent a substantial share of Solstice US's total revenue. Any disruption to the sale of these products — whether through an adverse judgment, an injunction, or the uncertainty of ongoing litigation — would have material consequences for Solstice's U.S. operations.
C. Key Litigation Milestones Completed
The litigation is at an advanced stage, with all major pre-trial activities either completed or substantially in progress. The following summarizes the key milestones:
Pleadings. Solstice US filed its Answer and Counterclaims on June 14, 2024. The Answer asserts defenses of non-infringement as to all accused products, invalidity of the asserted patents under 35 U.S.C. §§ 102 (anticipation) and 103 (obviousness), and inequitable conduct during the prosecution of the '237 Patent before the United States Patent and Trademark Office. Solstice's counterclaims seek declaratory judgments of non-infringement and invalidity.
discovery. Both fact and expert discovery have been completed. The discovery effort in this case has been extensive. Solstice produced 48,217 documents (Bates-stamped SBD-000001 through SBD-048217), including product design files, engineering specifications, manufacturing records, sales data, internal communications regarding the PrecisionEdge™ product development, and prior art references. Apex produced 31,450 documents (Bates-stamped APEX-000001 through APEX-031450), including the complete prosecution histories of the asserted patents, Dr. Szabo's laboratory notebooks and invention disclosures, Apex's licensing files, and internal marketing and competitive intelligence materials. Third-party discovery was obtained from Veridian Medical Technologies, Inc. through subpoena, yielding prior art documents relevant to Solstice's invalidity contentions.
Claim Construction. A Markman hearing on claim construction was held before Chief Judge Andrews on November 18, 2024. The Court issued its Claim Construction Order on December 6, 2024, construing nine disputed claim terms. The results were mixed: five of the nine constructions were favorable to Solstice and four were favorable to Apex. A detailed summary of the constructions is provided in Appendix A to this memorandum. The most significant construction for purposes of the infringement analysis was the Court's construction of "integrated insufflation valve" (Claim 1 of the '105 Patent), which was adopted substantially in the form proposed by Apex and which arguably encompasses the PE-12000's dual-valve design. Conversely, the Court's construction of "locking seal assembly" (Claim 1 of the '237 Patent) was favorable to Solstice and supports the argument that the PE-5000's seal retention mechanism falls outside the claim scope.
Expert Reports. Expert reports on liability and damages were exchanged during the January–March 2025 timeframe. The following expert reports are central to the trial risk analysis:
• Dr. Miriam Ostrowski (Halford University, Department of Mechanical Engineering) — Retained by Solstice on invalidity. Dr. Ostrowski's report, served January 27, 2025, identifies prior art references supporting anticipation and obviousness challenges to the asserted claims of all three patents. Her report relies on, among other things, prior art references identified through the Kendrick & Lau LLP prior art search and documents obtained from Veridian Medical Technologies, Inc.
• Dr. Calvin Ng (Veltrano Polytechnic Institute, Department of Biomedical Engineering) — Retained by Apex on infringement. Dr. Ng's report, served February 10, 2025, opines that each of the accused PrecisionEdge™ products meets every limitation of at least one asserted claim of the relevant patents, both literally and under the doctrine of equivalents.
• Dr. Elena Marchetti (Pinnacle Economics Group LLC) — Retained by Solstice on damages. Dr. Marchetti's report, served February 14, 2025, critiques the damages methodology employed by Apex's expert and provides an alternative reasonable royalty analysis. Her estimated reasonable royalty range is $4.2 million to $7.8 million.
• Hugh Danaher, CFA (Keystone Valuation Advisors LLC) — Retained by Apex on damages. Mr. Danaher's report, served February 14, 2025, claims reasonable royalty damages of $31,800,000 based on a royalty rate of approximately 12–15% applied to the accused product sales base.
• Rebuttal reports from all experts were exchanged on March 3, 2025.
Mediation. The parties participated in a full-day mediation before the Honorable Margaret Forsythe (Ret.) at Amberstone ADR Services on March 17, 2025. The mediation did not result in a resolution. However, the mediation process was constructive insofar as it clarified the parties' respective positions and narrowed certain areas of disagreement. Our Post-Mediation Assessment & Revised Settlement Range memorandum (March 19, 2025) addressed the implications of the mediation in detail.
Summary Judgment. Solstice filed a Motion for Summary Judgment of Non-Infringement as to the PE-5000 Series on April 1, 2025, arguing that the PE-5000's seal retention mechanism does not meet the Court's construction of "locking seal assembly" in Claim 1 of the '237 Patent. Apex filed a Cross-Motion for Partial Summary Judgment of Infringement as to the PE-12000 Series on April 14, 2025. Both motions were denied without prejudice by Chief Judge Andrews in an Order dated May 5, 2025. The Court found genuine disputes of material fact precluding summary judgment on both motions. Notably, the Court characterized the disputes regarding the PE-12000 as being "of a narrow character," which, while stopping short of granting Apex's motion, suggests that Apex has a plausible infringement case as to that product line.
Second Settlement Conference. The parties participated in a second settlement conference before Magistrate Judge Colleen Pratt on May 12, 2025. Following that conference, intensive settlement negotiations commenced on May 19, 2025, and have continued through the present date. The terms described in Section III of this memorandum reflect the current state of those negotiations as of June 2, 2025.
Trial Date. Trial remains set for September 30, 2025, before Chief Judge Andrews. A five-to-seven day jury trial is anticipated.
III. Settlement Terms Under Negotiation
The following summarizes the material terms of the settlement currently under negotiation between Solstice and Apex. These terms are reflected in the most recent draft of the Definitive Settlement Agreement circulated by Apex's counsel (Hargrove, Callister & Phelps LLP) on May 29, 2025, as modified by C&H's markup returned on May 31, 2025. We expect that any remaining open points will be resolved through additional negotiation prior to the target execution date of June 16, 2025.
A. Lump-Sum Payment
The settlement contemplates a total lump-sum payment by Solstice to Apex of $8,750,000, payable in two tranches:
• Tranche 1: $5,250,000. Due within ten (10) business days of execution of the Definitive Settlement Agreement. Based on a target execution date of June 16, 2025, the Tranche 1 payment deadline would fall on approximately June 30, 2025.
• Tranche 2: $3,500,000. Due on or before September 15, 2025.
Both payments are to be deposited by wire transfer into an escrow account maintained at Tidewater Fiduciary Services, Inc. (Jennifer Hsu, Vice President, Escrow Services; 300 Delaware Avenue, Suite 1400, Wilmington, DE 19801). Pursuant to the terms of the Escrow Agreement (to be finalized concurrently with the Definitive Settlement Agreement), escrowed funds will be released to Apex within three (3) business days of receipt of each deposit, provided that all conditions to release have been satisfied. The escrow arrangement provides Solstice with a brief window of protection in the unlikely event that Apex fails to comply with its obligations under the settlement (e.g., execution of the Stipulation of Dismissal), while ensuring prompt payment to Apex.
The bifurcated payment structure was negotiated at Solstice's request in order to ease the near-term cash flow impact of the settlement. The approximately eleven-week interval between Tranche 1 and Tranche 2 aligns with Solstice's Q3 2025 cash management cycle.
B. Running Royalty
In addition to the lump-sum payment, Solstice will pay Apex a running royalty at a rate of 3.75% of Net Sales of Licensed Products for the remaining life of the Licensed Patents.
Licensed Products are defined to include the PrecisionEdge™ PE-5000, PE-12000, and PE-15000 Series, as well as any successor products in the laparoscopic surgical access device field that would, but for the license, infringe any claim of the Licensed Patents.
Net Sales is defined as gross invoiced sales of Licensed Products less: (i) returns and allowances; (ii) trade discounts, rebates, and chargebacks; (iii) freight, shipping, and insurance charges; and (iv) sales, use, value-added, and similar taxes. This definition is consistent with industry standard practice for medical device royalty agreements and excludes items that do not represent revenue attributable to the patented technology.
Based on projected CY 2026 Net Sales of approximately $24.2 million (reflecting an 8% growth rate over FY 2023 actuals), the estimated Year 1 running royalty would be approximately $907,500.
The royalty is subject to the following floor and cap:
• Annual Royalty Floor: $500,000 per calendar year, beginning with CY 2026. This floor ensures a minimum level of compensation to Apex regardless of fluctuations in Solstice's sales volumes. At current and projected sales levels, the floor is unlikely to be triggered.
• Annual Royalty Cap: $1,800,000 per calendar year. This cap is a critical protective feature for Solstice. As PrecisionEdge™ sales continue to grow, the 3.75% rate would, in the absence of a cap, produce escalating royalty obligations. The cap limits Solstice's maximum annual royalty exposure to $1,800,000, regardless of sales volume. Based on our projections, the cap is likely to become binding within three to five years as the PrecisionEdge™ product lines continue their growth trajectory, at which point the effective royalty rate will decline as sales increase.
The royalty is payable for the remaining life of the Licensed Patents. The latest-expiring of the Licensed Patents is the '105 Patent, which expires on January 10, 2038, resulting in an approximate royalty term of 12.5 years (from mid-2025 through early 2038). Royalties are payable quarterly, within forty-five (45) days after the end of each calendar quarter, accompanied by a royalty report in the form attached as an exhibit to the Patent License Agreement.
C. License Grant
Under the Patent License Agreement (to be attached as an exhibit to the Definitive Settlement Agreement), Apex will grant Solstice a non-exclusive, non-transferable, worldwide license under the '237 Patent, the '884 Patent, the '105 Patent, and any continuations, divisionals, or reissues thereof (collectively, the "Licensed Patents").
The license is limited to the following field of use: laparoscopic surgical access devices. This field-of-use limitation is acceptable because the PrecisionEdge™ product lines and their planned successor products all fall within this field. Solstice does not currently manufacture or market products outside this field that would implicate the Licensed Patents.
The license is non-transferable, except that it may be transferred in connection with a change of control of Solstice (whether by merger, acquisition, sale of all or substantially all assets, or similar transaction). This exception is important to preserve the value of the license in the event of a future corporate transaction involving Solstice.
Solstice will have the right to sublicense the Licensed Patents to contract manufacturers engaged by Solstice to manufacture Licensed Products, provided that any such sublicense is subject to the terms and conditions of the Patent License Agreement and terminates upon termination of the manufacturing relationship. This sublicense right is necessary to accommodate Solstice's existing and potential future contract manufacturing arrangements.
D. Covenant Not to Sue
In addition to the license grant under the three asserted patents, Apex will execute a Covenant Not to Sue pursuant to which Apex covenants that it will not assert any patent in the Apex Trocar Patent Family — comprising all fourteen (14) issued United States patents and all six (6) pending continuation applications — against Solstice, its subsidiaries (including Solstice Biomedical, Inc.), or its contract manufacturers for products within the licensed field of use during the term of the Covenant.
The strategic significance of this covenant is substantial. The Apex Trocar Patent Family includes eleven patents that are not asserted in the current litigation. Without the covenant, even a complete defense verdict at trial would leave Solstice exposed to potential future infringement assertions based on these non-asserted patents, as well as any patents that issue from the six pending continuation applications. The covenant effectively neutralizes this risk for the duration of the patent terms, which provides a degree of freedom of action that cannot be achieved through trial.
E. Most-Favored Licensee
The settlement includes a Most-Favored Licensee ("MFL") provision. Under this clause, if Apex licenses the Licensed Patents to any third party at a running royalty rate below 3.75% of Net Sales, Solstice's royalty rate will be adjusted prospectively to match the lower rate, effective as of the date of the third-party license. Apex is obligated to notify Solstice in writing within thirty (30) days of entering into any such third-party license.
The MFL clause ensures that Solstice is not competitively disadvantaged if Apex subsequently grants more favorable license terms to a competitor or other market participant. Given the competitive dynamics in the laparoscopic surgical device market and the possibility that Apex may seek to license additional companies in the future, this provision has real practical value.
F. Other Terms
The following additional terms are included in the settlement framework:
Mutual Release. The parties will execute mutual general releases of all claims, counterclaims, and defenses asserted or that could have been asserted in Case No. 1:24-cv-00587-RGA. The release extends to all related claims arising out of or relating to the accused products and the Licensed Patents through the date of execution.
Dismissal with Prejudice. Upon execution of the Definitive Settlement Agreement, the parties will file a Stipulation of Dismissal with Prejudice, with each party bearing its own costs and attorneys' fees. The Stipulation will be filed with the Court and will result in the case being closed and the September 30, 2025 trial date being vacated.
Confidentiality. The terms of the settlement are subject to mutual confidentiality obligations. Neither party may disclose the specific financial terms of the settlement to any third party, except as required by law, regulation, or legal process, or to the parties' respective professional advisors (legal, tax, accounting, and insurance). The parties have agreed to issue a joint public statement limited to the following: "The matter has been resolved on mutually agreeable terms." This confidentiality provision protects Solstice from public disclosure of the settlement amount and royalty rate, which could affect negotiations with other potential licensors or create adverse perceptions in the market.
Audit Right. Apex will have the right to audit Solstice's books and records relating to royalty payments once per calendar year. Any such audit must be conducted by an independent certified public accountant selected by Apex and reasonably acceptable to Solstice. The audit is to be conducted at Apex's expense, unless the audit reveals an underpayment of royalties in excess of 5% for any audited period, in which case Solstice will bear the cost of the audit and promptly pay the deficiency plus interest at the prime rate.
Governing Law. The Definitive Settlement Agreement and all ancillary agreements will be governed by the laws of the State of Delaware, without regard to conflict of laws principles.
IV. Trial Risk Analysis
A. Claim-by-Claim Infringement Risk Assessment
The infringement risk varies significantly across the three accused product lines and the asserted patents. We have assessed the likelihood of a finding of infringement at trial for each product line, taking into account the Court's Claim Construction Order, the expert reports, the summary judgment rulings, and our assessment of how the evidence is likely to be received by a jury in the District of Delaware.
1. PE-5000 Series (5 mm Trocar) — Accused Under the '237 and '884 Patents
The PE-5000 Series presents the lowest infringement risk among the three accused product lines. Our assessment of the likelihood of an infringement finding at trial for this product is approximately 30–35%.
Key Strengths for Solstice. The PE-5000 utilizes a fundamentally different seal retention mechanism than the structure described and claimed in the '237 Patent. Specifically, the PE-5000 employs a friction-fit elastomeric plug that is retained by compression against the housing wall, rather than the mechanical locking detent structure recited in the asserted claims. The Court's Claim Construction Order construed "locking seal assembly" to require "a seal assembly with a mechanical locking feature that positively retains the seal in a fixed position within the housing" — a construction that was substantially in the form proposed by Solstice and that we believe the PE-5000's friction-fit design does not meet. Dr. Ostrowski's testimony provides strong support for this distinction, based on her detailed analysis of the mechanical engineering principles underlying the two approaches.
With respect to the '884 Patent, the PE-5000's blade deployment mechanism, while sharing certain functional objectives with the claimed invention, employs a different actuation geometry (a linear, rather than arcuate, blade path) and a materially different spring return mechanism. The Claim Construction Order's treatment of "retractable blade deployment mechanism" — requiring a "mechanism that deploys a cutting blade along a defined path and automatically retracts the blade upon penetration of a tissue boundary" — was also favorable to Solstice on the key sub-element of blade path geometry.
Key Weaknesses for Solstice. Apex will argue infringement under the doctrine of equivalents, contending that the PE-5000's friction-fit seal retention mechanism performs substantially the same function, in substantially the same way, to achieve substantially the same result as the claimed mechanical locking structure. While we believe the prosecution history estoppel arising from narrowing amendments made during prosecution of the '237 Patent limits Apex's doctrine of equivalents arguments, this is a factual question that will be presented to the jury. Additionally, Dr. Ng's infringement report identifies functional overlap between the PE-5000's blade deployment subsystem and the structure claimed in the '884 Patent, particularly with respect to the automatic retraction feature. Dr. Ng's analysis, while subject to critique, may resonate with a jury.
Our summary judgment motion seeking non-infringement of the PE-5000 was denied without prejudice on May 5, 2025, but the denial was based on the Court's conclusion that "genuine disputes of material fact" exist regarding the doctrine of equivalents analysis — the Court did not suggest that Apex has a strong literal infringement case as to the PE-5000. We view this as a modestly favorable signal.
2. PE-12000 Series (12 mm Trocar) — Accused Under All Three Patents
The PE-12000 Series presents the highest infringement risk and is the most consequential product line from both a liability and a financial standpoint. Our assessment of the likelihood of a finding of infringement on at least some asserted claims is approximately 55–65%.
Key Vulnerabilities. The Court's construction of "integrated insufflation valve" (Claim 1 of the '105 Patent) was favorable to Apex, defining the term as "a valve structure that integrates both insufflation gas delivery and instrument sealing functions within a unitary valve assembly." The PE-12000's dual-valve design, while employing two distinct valve elements, houses both elements within a single cartridge that Apex argues constitutes a "unitary valve assembly" under the Court's construction. This is a close question, but we must acknowledge that the PE-12000's design arguably reads on the claim as construed. Dr. Ng's report provides a detailed element-by-element comparison supporting this conclusion.
The PE-12000 is also accused of infringing the '237 and '884 Patents. With respect to the '237 Patent, the PE-12000's seal assembly includes a positive-retention clip that is more analogous to the claimed "locking" feature than the PE-5000's friction-fit design, increasing the infringement risk. With respect to the '884 Patent, the PE-12000 shares the same blade deployment mechanism platform as the PE-15000, and the risk analysis discussed below for the '884 Patent applies equally here.
Apex's cross-motion for partial summary judgment of infringement as to the PE-12000 was denied, but the Court's characterization of the disputes as being "of a narrow character" is not encouraging. This language suggests that the factual questions remaining for trial may be resolved on a thin evidentiary margin, and the outcome may turn on jury perceptions of the competing expert testimony.
Significance. The PE-12000 is the highest-revenue product line among the accused products, accounting for an estimated 45–50% of total accused product sales. A finding of infringement as to the PE-12000 alone would result in significant damages exposure and the most acute injunction risk.
3. PE-15000 Series (15 mm Trocar) — Accused Under the '884 and '105 Patents
The PE-15000 Series presents a moderate infringement risk. Our assessment of the likelihood of an infringement finding is approximately 40–50%.
The PE-15000 shares the same blade deployment mechanism platform as the PE-12000, creating similar exposure under the '884 Patent. The analysis of the '884 Patent infringement risk discussed above applies with equal force here. With respect to the '105 Patent, the PE-15000 employs a somewhat different insufflation valve configuration than the PE-12000, requiring a separate analysis under the Court's construction of "integrated insufflation valve." While the PE-15000's valve design is arguably less squarely within the claim scope than the PE-12000's, the differences are subtle and may not be dispositive.
The PE-15000 is a growing product line, with year-over-year sales increases exceeding the overall PrecisionEdge™ growth rate. It represents an expanding share of Solstice US's revenue, and the forward-looking exposure — both in terms of damages for future sales and the impact of a potential injunction — is significant.
B. Invalidity Defense Assessment
Solstice's invalidity defenses are supported by Dr. Ostrowski's expert report, which identifies prior art references supporting challenges under 35 U.S.C. § 102 (anticipation) and § 103 (obviousness) as to the asserted claims of all three patents. The prior art foundation for these defenses was developed through extensive searches conducted by Dr. Jonathan Kendrick of Kendrick & Lau LLP, analysis of the prosecution histories of the asserted patents, and documents obtained through third-party subpoena from Veridian Medical Technologies, Inc.
Our assessment of the likelihood that at least one asserted patent is found invalid is approximately 25–35%. The invalidity case is strongest with respect to the '237 Patent, where Dr. Ostrowski has identified a Veridian internal engineering report (VER-007214, dated March 2009) that describes a mechanical locking seal assembly with significant structural similarities to the claimed invention. This reference, combined with a published European patent application (EP 1,924,388, published May 2008) describing a related sealing mechanism, supports a strong obviousness argument and a colorable anticipation argument. The invalidity cases for the '884 and '105 Patents are less compelling, as the prior art references identified for those patents are less squarely on point and require a more complex combination analysis under § 103.
It is important to note that even if the invalidity defense succeeds as to the '237 Patent (our strongest invalidity case), this would reduce but not eliminate Solstice's infringement exposure. The PE-12000 and PE-15000 are also accused under the '884 and '105 Patents, and a finding of invalidity as to the '237 Patent alone would not resolve the claims relating to those patents.
Solstice's inequitable conduct counterclaim has a lower probability of success, which we estimate at approximately 10–15%. The inequitable conduct defense is based on Dr. Szabo's failure to disclose the Veridian engineering report (VER-007214) to the USPTO during prosecution of the '237 Patent, notwithstanding that Dr. Szabo was aware of the report and its relevance. However, the standard for inequitable conduct is demanding, requiring proof of both materiality and specific intent to deceive the USPTO, and Chief Judge Andrews has shown skepticism toward inequitable conduct claims in prior cases. Moreover, Apex has proffered a declaration from Dr. Szabo asserting that his non-disclosure was inadvertent and that he believed the Veridian report was cumulative of other references of record. While we have reasons to question this assertion, overcoming the intent element at trial remains an uphill battle.
C. Overall Liability Assessment
Taking into account the claim-by-claim infringement risk assessments, the invalidity defense, and the inequitable conduct counterclaim, our composite assessment of the probability that Apex prevails on at least one infringement claim and that no invalidity defense succeeds for that patent is estimated at approximately 40–50%.
This is a meaningful trial risk that cannot be dismissed. It reflects a scenario in which the most likely infringement finding would involve the PE-12000 Series under the '105 Patent (and possibly the '884 Patent), with the invalidity defense providing a partial but not dispositive counterweight. The risk is further compounded by the jury trial format: patent infringement trials before Delaware juries involve inherent unpredictability, and the outcome may turn on which party's expert testimony the jury finds more credible and comprehensible.
D. Damages Exposure at Trial
1. Apex's Damages Theory
Hugh Danaher, CFA, of Keystone Valuation Advisors LLC has submitted an expert report claiming $31,800,000 in reasonable royalty damages under 35 U.S.C. § 284. Mr. Danaher's analysis is based on a royalty rate of approximately 12–15% applied to the combined U.S. sales of the accused products (royalty base of $74.6 million in sales from CY 2021 through September 30, 2024, plus projected sales through the date of trial).
Mr. Danaher's royalty rate analysis relies heavily on the following Georgia-Pacific factors: (i) the 61.3% weighted average gross margin on the accused products, which he argues demonstrates that Solstice can afford a high royalty; (ii) the alleged strength and breadth of the asserted patents, which he characterizes as covering core functionality of the accused products; (iii) Apex's internal licensing benchmarks, including an alleged comparable license to a non-party (Meridian Surgical Systems, LLC) at a royalty rate of 9.5%; and (iv) the competitive relationship between Apex and Solstice, which Mr. Danaher argues would lead Apex to demand a premium royalty.
Mr. Danaher's claimed damages amount of $31.8 million is, in our view, inflated and vulnerable to challenge. However, we must acknowledge that it represents the upper bound of Solstice's potential exposure at trial and that some aspects of his analysis — particularly the gross margin evidence and the Meridian license — may resonate with a jury.
2. Solstice's Damages Rebuttal
Dr. Elena Marchetti of Pinnacle Economics Group LLC has submitted a comprehensive rebuttal to Mr. Danaher's damages analysis. Dr. Marchetti identifies several significant methodological flaws in Mr. Danaher's report:
• Inflated Royalty Base. Mr. Danaher fails to properly apportion the royalty base to account for the non-patented components and features of the accused products. The PrecisionEdge™ trocars incorporate numerous design elements — including the housing, grip, obturator tip geometry, and packaging — that are unrelated to the asserted patents. Dr. Marchetti applies an apportionment analysis that attributes approximately 35–40% of the value of the accused products to the patented features, resulting in a smaller royalty base.
• Overstated Royalty Rate. Mr. Danaher's reliance on the Meridian license as a comparable is inapt because (a) the Meridian license covers a different subset of the Apex patent portfolio, (b) it includes technology transfer and know-how components that are not present in the hypothetical negotiation, and (c) the Meridian license was negotiated under significantly different circumstances (Meridian was a market entrant seeking access to Apex's technology, whereas Solstice independently developed the PrecisionEdge™ products). Dr. Marchetti identifies more appropriate comparables, including arm's-length licenses in the minimally invasive surgical device space, that support a royalty rate in the range of 2.5–4.5%.
• Failure to Account for Non-Infringing Alternatives. Mr. Danaher gives insufficient weight to the availability of non-infringing alternative designs that Solstice could have adopted at the time of the hypothetical negotiation. Dr. Marchetti identifies at least three commercially viable alternative designs for each of the accused subsystems, which would constrain the royalty that a willing licensee would agree to pay.
Dr. Marchetti's estimated reasonable royalty range is $4.2 million to $7.8 million, implying a royalty rate of approximately 2.5–4.5% applied to a properly apportioned royalty base. This range is significantly below Mr. Danaher's claimed $31.8 million and provides strong evidentiary support for the reasonableness of the settlement royalty terms.
Additionally, Dr. Arthur Gaines of Ridgeline IP Analytics LLC prepared a confidential patent portfolio valuation at C&H's request. Dr. Gaines's valuation, which analyzes the economic value of the asserted patents in the context of the broader Apex Trocar Patent Family and the competitive landscape, supports a royalty rate at the lower end of Dr. Marchetti's range. A summary of Dr. Gaines's conclusions is provided in our Ridgeline IP Analytics Valuation Summary Review memorandum (May 21, 2025).
3. Damages Range Scenarios
Based on the foregoing analyses, we have modeled the following damages range scenarios:
The "worst case" scenario reflects our assessment that, even if infringement is found on all product lines, the Court is likely to exclude or limit portions of Mr. Danaher's testimony through Daubert challenges and that the jury is unlikely to adopt his analysis in full. We anticipate that a realistic worst-case damages award, accounting for the jury's likely discounting of Mr. Danaher's more aggressive assumptions, would be in the range of $18 million to $25 million. This is still a significant exposure.
Applying the probability assessments discussed in Section IV.C above, the risk-adjusted expected damages (probability-weighted) are approximately $7 million to $13 million. This range is calculated by weighting each scenario by its estimated probability and summing the results. The midpoint of this range — approximately $10 million — represents our best estimate of the expected damages outcome at trial.
4. Potential for Enhanced Damages and Attorneys' Fees
Under 35 U.S.C. § 284, the Court has discretion to award up to treble damages for willful infringement. Apex has alleged willfulness in its Complaint, contending that Solstice had knowledge of the asserted patents and continued to sell the accused products after receiving notice.
Solstice has a strong good-faith defense to the willfulness allegation. Prior to the commencement of this litigation, Solstice obtained a written opinion of counsel from Dr. Jonathan Kendrick of Kendrick & Lau LLP, opining that the PrecisionEdge™ products do not infringe the asserted patents and that the asserted patents are likely invalid over the prior art. Additionally, the PrecisionEdge™ products were independently designed by Solstice's engineering team without access to or knowledge of the specific details of Apex's patented designs, as documented in Solstice's contemporaneous design and development records. Taken together, these facts support a finding that Solstice acted in objective good faith, which should preclude a finding of willfulness under the framework established by the Supreme Court in Halo Electronics, Inc. v. Pulse Electronics, Inc., 579 U.S. 93 (2016).
We assess the risk of enhanced damages as low (10–15% probability). Even if infringement is found, the evidence of Solstice's good faith makes it unlikely that the Court would exercise its discretion to enhance damages. However, the possibility cannot be entirely excluded, and in a worst-case scenario, trebling of a $20 million award would produce a $60 million liability — a catastrophic outcome.
Under 35 U.S.C. § 285, the Court may award reasonable attorneys' fees to the prevailing party in "exceptional cases." The risk of an exceptional case finding against Solstice is also low but non-zero. The standard is high, requiring a showing that the case "stands out from others with respect to the substantive strength of a party's litigating position or the unreasonable manner in which the case was litigated." Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 545 (2014). Solstice's defenses are colorable and well-supported, and the litigation has been conducted in a professional manner. We do not believe an exceptional case finding is likely, but include it in the risk analysis for completeness.
5. Injunctive Relief Risk
If Apex prevails on infringement and the asserted patents are found valid, Apex will almost certainly seek a permanent injunction under 35 U.S.C. § 283. The post-Northgate Group v. MercExchange, L.L.C., 547 U.S. 388 (2006), four-factor test requires the patent holder to demonstrate: (1) irreparable injury; (2) inadequacy of legal remedies (i.e., money damages); (3) a balance of hardships favoring the patentee; and (4) that the public interest would not be disserved by an injunction.
Critically, Apex is a direct competitor of Solstice in the laparoscopic surgical device market — it is not a non-practicing entity or a patent licensing company. This fact significantly increases the likelihood of injunctive relief. Courts in the District of Delaware and the Federal Circuit have consistently recognized that competing patent holders are more likely to satisfy the irreparable harm and inadequacy of damages elements because they suffer competitive injury — including lost market share, price erosion, and loss of customer relationships — that cannot be fully remedied by money damages alone.
If an injunction is granted, Solstice would be required to either: (a) redesign the PrecisionEdge™ product lines to avoid the claims found to be infringed, or (b) cease U.S. sales of the enjoined products. Either course of action would be extraordinarily costly:
• Redesign costs: Solstice's engineering team estimates that a full redesign of the accused subsystems (seal assembly, blade deployment mechanism, insufflation valve) would require 18–24 months and approximately $4 million to $6 million in engineering and tooling costs. The redesigned products would also require new FDA 510(k) clearances, adding an estimated 6–12 months and $500,000 to $1 million in regulatory costs per product line.
• Lost revenue during redesign: During the redesign and regulatory re-clearance period (estimated at 2–3 years in total), Solstice would lose all or substantially all U.S. revenue from the enjoined product lines. Based on current and projected sales, this revenue loss is estimated at $15 million to $25 million over the redesign period.
• Customer attrition: Even after redesigned products are introduced, Solstice faces the risk of permanent customer attrition. Hospital systems and group purchasing organizations (GPOs) that switch to competitive products during the injunction period may not return to Solstice.
The business disruption cost of an injunction is estimated at $15 million to $25 million over the 2–3 year redesign period, making it one of the most significant risk factors in the trial analysis. When probability-weighted (40–50% probability of infringement finding × the estimated impact range), the expected injunction cost adds approximately $6 million to $12 million to the risk-adjusted cost of trial.
V. Cost-to-Complete Analysis: Trial Scenario
In order to provide a complete comparison of the settlement and trial paths, we have prepared a detailed estimate of the additional costs that would be incurred if the matter proceeds to trial.
A. Legal Fees — Calderwood & Harkness LLP
As of June 1, 2025, C&H has billed a total of $2,847,319.42 in fees and costs in this matter, comprised of $2,611,480.00 in attorney fees and $235,839.42 in costs and disbursements. The current billing rates applicable to this matter are as follows:
We estimate that the additional legal fees and costs to complete trial preparation and conduct a 5–7 day jury trial — including pre-trial briefing, Daubert motions, witness preparation, trial preparation (including preparation of trial exhibits, demonstratives, and jury instructions), trial, and post-trial motions — will be approximately $1,200,000 to $1,600,000. This estimate assumes a trial team of two partners, one senior associate, and two associates, with intensive trial preparation commencing in mid-August 2025 and continuing through the trial in late September/early October 2025.
Accordingly, the total estimated C&H litigation cost through the completion of trial (excluding any post-trial appeals) is approximately $4,050,000 to $4,450,000.
B. Expert Costs
Additional expert fees will be required for trial testimony preparation and in-court testimony. We estimate these costs as follows:
• Dr. Miriam Ostrowski (invalidity): Estimated additional fees of $75,000 to $100,000 for trial testimony preparation (including mock cross-examination sessions) and in-court testimony (estimated 1.5 trial days), at her billing rate of $750/hour.
• Dr. Elena Marchetti / Pinnacle Economics Group LLC (damages): Estimated additional fees of $50,000 to $75,000 for trial testimony preparation and in-court testimony, at her billing rate of $850/hour.
• Total additional expert fees: Approximately $125,000 to $175,000.
For reference, expert fees incurred to date are: Dr. Ostrowski — $127,500; Dr. Marchetti / Pinnacle — $89,250.
C. Additional E-discovery and Trial Support
DataVault Litigation Solutions, LLC has been engaged to provide e-discovery and litigation support services throughout this matter. To date, DataVault has processed approximately 1.2 terabytes of data and facilitated the review of 312,000 documents using a technology-assisted review (TAR) protocol. DataVault's charges to date total $141,200.
Additional DataVault charges for trial exhibit preparation, trial presentation technology setup and support, and on-site trial technician services are estimated at approximately $40,000 to $60,000.
D. Kendrick & Lau LLP
Kendrick & Lau LLP was retained under a separate engagement to conduct the prior art search and freedom-to-operate analysis that underlies Solstice's invalidity defense and the written opinion of counsel regarding non-infringement. Kendrick & Lau's fees to date total $184,500.
If the matter proceeds to trial, Kendrick & Lau may be called upon to provide additional support in connection with the presentation of the invalidity defense, particularly regarding the prior art search methodology and the prosecution history analysis. We estimate additional Kendrick & Lau fees of approximately $25,000 to $40,000.
E. Insurance Coverage
Solstice's intellectual property litigation insurance is provided under Halcyon Specialty Insurance Co. Policy No. HSI-IP-2023-04891, which provides coverage for patent infringement defense costs with the following limits and terms:
The $250,000 self-insured retention has been fully exhausted by Solstice. After application of the SIR, Halcyon has covered $2,597,319.42 of the total $2,847,319.42 in fees and costs incurred to date. The remaining per-occurrence coverage is therefore approximately $2,402,680.58.
Several important points regarding insurance coverage bear emphasis:
Insurance does NOT cover settlement payments. The Halcyon policy excludes indemnification for settlement payments and royalty obligations. Accordingly, the $8,750,000 lump sum and the running royalty payments contemplated by the proposed settlement would be borne entirely by Solstice.
If the matter proceeds to trial, remaining per-occurrence coverage should largely cover additional defense costs. The estimated additional defense costs of $1,390,000 to $1,875,000 fall within the remaining $2,402,680.58 of per-occurrence coverage. However, at the high end of our cost estimate, trial would consume most of the remaining coverage, leaving little or no coverage for post-trial proceedings, including any appeal to the Federal Circuit.
Exhaustion of the per-occurrence limit is a concern. If the matter proceeds through trial and the per-occurrence limit is fully or nearly fully exhausted, any post-trial motions, appellate proceedings, or related litigation would be uninsured. Federal Circuit appeals in patent cases typically cost $500,000 to $750,000, and these costs would be borne entirely by Solstice if the per-occurrence limit has been exhausted.
F. Total Estimated Cost to Try the Case
Combining all of the foregoing categories, the total estimated additional cost to complete trial is as follows:
These costs are largely covered by the remaining Halcyon per-occurrence coverage of approximately $2,402,680.58. However, as noted, exhaustion or near-exhaustion of the per-occurrence limit would leave Solstice exposed to uninsured costs for any post-trial proceedings. This is a meaningful consideration, as the probability of post-trial activity (whether appeal by the losing party, Daubert motions for new trial, or other proceedings) is significant regardless of the trial outcome.
VI. Comparative Financial Analysis: Settlement vs. Trial
A. Settlement Cost Structure
The total estimated cost of the settlement, expressed in net present value terms, is as follows:
Upfront Lump-Sum Cost: $8,750,000. This amount is payable in two tranches as described in Section III.A above. The full $8,750,000 is borne by Solstice from operating cash; it is not covered by insurance. Brendan Molloy (CFO) has confirmed that Solstice has sufficient liquidity to make both payments without material disruption to its operations or capital investment plans.
Ongoing Running Royalty Cost. The 3.75% running royalty on Net Sales of Licensed Products, subject to the $500,000 annual floor and $1,800,000 annual cap, represents a recurring cost obligation for the remaining life of the Licensed Patents (approximately 12.5 years, through January 10, 2038). We have modeled the expected royalty payments as follows:
As shown above, assuming continued sales growth at approximately 8% per year, the $1,800,000 annual cap becomes binding in approximately Year 10 (CY 2035), after which the effective royalty rate declines as sales continue to grow. The total undiscounted running royalty payments over the approximately 12.5-year royalty term are estimated at approximately $14 million to $19 million, depending on the actual sales growth trajectory.
Discounting the projected royalty payments to net present value at an 8% discount rate (consistent with Solstice's weighted average cost of capital), the NPV of the running royalty stream is approximately $9 million to $12 million.
Total Estimated Settlement Cost (NPV): Combining the lump sum and the NPV of the running royalties, the total estimated settlement cost is approximately $17 million to $21 million.
Benefits Obtained Through Settlement. In exchange for the foregoing costs, the settlement provides Solstice with the following tangible and strategic benefits:
• Certainty. The settlement eliminates all uncertainty associated with the trial outcome, including the risks of adverse damages awards, enhanced damages, and injunctive relief.
• Non-exclusive license. The license covers the three asserted patents and their continuations, divisionals, and reissues, providing Solstice with the legal right to continue manufacturing, selling, and distributing the PrecisionEdge™ products and successor products in the laparoscopic surgical access field.
• Covenant not to sue. The covenant covers the full Apex Trocar Patent Family (14 issued patents + 6 pending applications), providing protection well beyond the scope of the three asserted patents.
• Elimination of injunction risk. The settlement removes the possibility of a permanent injunction that could force cessation of U.S. sales or require a costly and time-consuming product redesign and regulatory re-clearance process.
• Business continuity. The settlement permits uninterrupted sales of the PrecisionEdge™ product lines, preserving customer relationships, GPO contracts, and market position.
• Most-favored licensee protection. The MFL clause ensures Solstice is not competitively disadvantaged relative to future licensees.
B. Trial Cost Structure (Risk-Adjusted)
The risk-adjusted expected cost of the trial path is calculated by combining the estimated damages exposure, litigation costs, injunction risk, and post-trial costs, each weighted by the applicable probabilities:
Risk-adjusted expected damages: As analyzed in Section IV.D.3 above, the probability-weighted expected damages at trial are approximately $7 million to $13 million.
Remaining litigation costs: The estimated additional defense costs of approximately $1.4 million to $1.9 million are largely covered by Halcyon insurance, so the net out-of-pocket cost to Solstice is modest. However, in the event of per-occurrence limit exhaustion, some portion of these costs may fall to Solstice. We conservatively include the full amount in the trial cost analysis.
Injunction risk. If infringement is found (estimated 40–50% probability), the likelihood of an injunction being granted is significant (estimated at 60–75%, given that Apex is a direct competitor). The business disruption cost of an injunction is estimated at $15 million to $25 million over the redesign period. Applying the composite probability of an injunction (40–50% infringement probability × 60–75% injunction probability = approximately 24–38% overall probability), the probability-weighted injunction cost is approximately $6 million to $12 million.
Post-trial costs. Regardless of outcome, it is likely that one or both parties will pursue post-trial motions, and the losing party may appeal to the Federal Circuit. We estimate that post-trial and appellate costs would be approximately $500,000 to $750,000 for a Federal Circuit appeal, plus the management time and distraction associated with ongoing litigation for an additional 2–3 years. If the per-occurrence insurance limit has been exhausted by the trial, these costs would be borne entirely by Solstice.
No license obtained. A critical point that cannot be overemphasized: even if Solstice prevails at trial on all counts, it obtains no license and no covenant not to sue. A defense verdict establishes only that the currently accused products do not infringe the three asserted patents (or that those patents are invalid). It provides no protection against assertions of the eleven non-asserted patents in the Apex Trocar Patent Family, future assertions based on the six pending continuation applications, or future assertions based on design changes to the PrecisionEdge™ products that may distinguish them from the claim constructions adopted in this case. In short, a trial victory is not a comprehensive resolution — it is a resolution of the current dispute only, leaving significant future risk on the table.
Total risk-adjusted expected cost of trial path: Aggregating the foregoing components, the total risk-adjusted expected cost of the trial path is approximately $15 million to $27 million.
C. Side-by-Side Comparison
The following table provides a summary comparison of the settlement and trial paths:
The comparison reveals that the settlement provides certainty within the range of the expected trial outcome, while eliminating the catastrophic downside tail risk. In the worst-case trial scenario — which involves infringement findings on all product lines, no successful invalidity defense, potential enhancement of damages, and an injunction — the total cost could exceed $40 million to $50 million, a figure that would be severely damaging to Solstice's financial position and comp

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT

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MATTER NO.: 10294.0017

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