PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
MEMORANDUM
PRIVILEGE NOTICE: This memorandum is a privileged and confidential attorney-client communication and attorney work product. It is prepared by Calderwood & Harkness LLP for the exclusive use of the Board of Directors, senior management, and in-house counsel of Solstice Biomedical Devices Ltd. and its subsidiaries. This memorandum contains confidential legal analysis, strategic recommendations, and assessments of litigation risk that are protected from disclosure by the attorney-client privilege, the work-product doctrine, and all other applicable privileges. This document must not be disclosed, copied, distributed, or discussed with any person outside of the named recipients without the prior written authorization of Calderwood & Harkness LLP. Inadvertent disclosure does not constitute a waiver of any privilege or protection.
I. Executive Summary
The purpose of this memorandum is to present the Board of Directors of Solstice Biomedical Devices Ltd. ("Solstice" or the "Company") with a comprehensive assessment of the litigation risks, damages exposure, and settlement landscape in Apex Surgical Innovations, Inc. v. Solstice Biomedical, Inc., Case No. 1:24-cv-00587-RGA (D. Del.) (the "Litigation"), and to request formal authorization to negotiate a settlement within defined financial parameters.
Apex Surgical Innovations, Inc. ("Apex") filed this patent infringement action on May 9, 2024, in the United States District Court for the District of Delaware, alleging that Solstice's PrecisionEdge™ line of laparoscopic trocar assemblies — specifically, the PE-5000 Series, PE-12000 Series, and PE-15000 Series — infringes three Apex utility patents relating to trocar seal assemblies, blade deployment mechanisms, and insufflation valve technology. The asserted patents are U.S. Patent Nos. 9,814,237 (the "'237 Patent"), 10,271,884 (the "'884 Patent"), and 10,932,105 (the "'105 Patent").
The case has progressed through significant milestones. Discovery is substantially complete. A claim construction order was issued by Chief Judge Richard G. Andrews on December 6, 2024, construing nine disputed claim terms — of which five were resolved favorably to Solstice and four favorably to Apex. Expert reports on liability, invalidity, and damages have been exchanged by both sides. On March 17, 2025, the parties participated in a full-day mediation before the Honorable Margaret Forsythe (Ret.) at Amberstone ADR Services in Wilmington, Delaware. Despite good-faith efforts on both sides and the mediator's intervention, the parties were unable to reach a resolution, primarily due to a substantial gap between Apex's demand of approximately $22 million in a lump-sum payment and Solstice's offer of $4.5 million with no ongoing royalty.
The trial is currently set for September 30, 2025. Remaining pre-trial activity — including dispositive motion practice, Daubert motions, pre-trial briefing, and trial preparation — will require significant additional expenditures of legal fees, expert costs, and management time.
After careful evaluation of the litigation merits, the claim construction results, the damages exposure, the cost-to-complete through trial, the mediation dynamics, and an independent patent valuation prepared by Ridgeline IP Analytics LLC, Calderwood & Harkness recommends that the Board authorize settlement negotiations within the following parameters:
• Lump-Sum Payment: $7,000,000 to $10,000,000 (preferred target: $8,500,000 to $9,000,000), structured in two tranches;
• Running Royalty Rate: 3.0% to 4.5% of Net Sales of Licensed Products (preferred target: 3.5% to 4.0%), subject to an annual cap and floor;
• Structure: Non-exclusive license-and-dismissal with a covenant not to sue covering the full Apex Trocar Patent Family, including all 14 issued U.S. patents and 6 pending continuation applications;
• Dismissal: With prejudice, mutual release, each party bearing its own costs and attorneys' fees.
Settlement within these parameters would produce a total cost comparable to or below the probability-weighted expected value of proceeding to trial, while providing the Company with certainty of outcome, continued market access for the PrecisionEdge™ product line, and comprehensive freedom-to-operate protection against the broader Apex trocar patent portfolio through patent expiration.
The detailed analysis supporting this recommendation is set forth in the sections that follow.
II. Background of the Litigation
A. Parties
Plaintiff — Apex Surgical Innovations, Inc. Apex Surgical Innovations, Inc. ("Apex") is a Delaware corporation with its principal office located at 1220 North Market Street, Suite 550, Wilmington, Delaware 19801. Founded in 2006, Apex is a specialty surgical device company with approximately 1,100 employees and estimated fiscal year 2023 revenue of approximately $312 million. Apex's product portfolio includes surgical access devices, trocar systems, insufflation equipment, and related accessories sold principally in the United States and Europe. Apex is led by Chief Executive Officer Gerald K. Whitford and maintains an active patent portfolio managed by its Chief IP Officer, Dr. Priya Chandrasekaran. Martin Hale serves as Apex's General Counsel.
Apex is represented in this Litigation by Hargrove, Tate & Bennington LLP ("HTB"), with Victoria Stanton serving as lead partner and Derek Loomis as the primary associate on the matter. HTB is a well-regarded IP litigation firm with substantial experience before the District of Delaware.
Defendant — Solstice Biomedical, Inc. The named defendant in the Litigation is Solstice Biomedical, Inc. ("Solstice U.S."), a Delaware corporation with its principal office at 3800 Concord Pike, Suite 410, Wilmington, Delaware 19803, EIN 84-3291056. Solstice U.S. is a wholly owned subsidiary of Solstice Biomedical Devices Ltd. ("Solstice" or the "Parent"), an Irish company incorporated under Company Registration Office No. 648217 and headquartered in Galway, Ireland. Solstice was founded in 2011 and employs approximately 620 people worldwide. The Company reported unaudited fiscal year 2023 revenue of €187.4 million. Solstice's product offerings include laparoscopic instruments, surgical access devices, energy-based surgical tools, and ancillary equipment.
Solstice U.S. is the entity through which the Company conducts its U.S. sales and marketing operations, including sales of the accused PrecisionEdge™ trocar product line. For purposes of this memorandum, references to "Solstice" refer collectively to the parent company and its U.S. subsidiary unless the context otherwise requires.
B. Asserted Patents
Apex asserts three United States utility patents in this action, all of which name Dr. Raymond Szabo, Vice President of Engineering at Apex, as the named inventor. All three patents are assigned to Apex. The asserted patents are part of a broader patent family (the "Apex Trocar Patent Family") that includes 14 total issued U.S. patents and 6 pending continuation applications directed to various aspects of laparoscopic trocar and surgical access device technology. The three asserted patents and the specific claims at issue are as follows:
U.S. Patent No. 9,814,237 (the "'237 Patent") — Entitled "Locking Seal Assembly for Minimally Invasive Surgical Access Device." The '237 Patent was issued on November 14, 2017, and has an expiration date of June 22, 2035. The patent is directed generally to a trocar seal assembly that incorporates a locking mechanism to maintain an airtight seal during laparoscopic procedures while permitting instrument insertion and withdrawal. Apex asserts Claims 1, 3, 7, and 12 of the '237 Patent. Claim 1, the sole independent claim at issue, recites a "locking seal assembly" comprising a plurality of seal elements, a locking ring, and a biased retention member.
U.S. Patent No. 10,271,884 (the "'884 Patent") — Entitled "Retractable Blade Deployment Mechanism for Trocar Systems." The '884 Patent was issued on April 30, 2019, and has an expiration date of September 15, 2036. The patent is directed generally to a mechanism for deploying and retracting a cutting blade within a trocar obturator, designed to enhance safety by ensuring the blade is shielded after initial tissue penetration. Apex asserts Claims 1, 2, 5, 9, and 14 of the '884 Patent. This patent contains the largest number of asserted claims and is relevant to all three accused product series.
U.S. Patent No. 10,932,105 (the "'105 Patent") — Entitled "Integrated Insufflation Valve and Seal for Laparoscopic Trocar." The '105 Patent was issued on March 2, 2021, and has an expiration date of January 10, 2038. This is the most recently issued of the three asserted patents and is directed to a combined insufflation valve and seal structure that is integrated within the trocar housing to provide simultaneous insufflation and sealing functionality. Apex asserts Claims 1, 4, and 8 of the '105 Patent.
These three patents collectively address the principal functional components of laparoscopic trocar assemblies — sealing, blade deployment, and insufflation — and together cover key features of Solstice's PrecisionEdge™ product architecture.
C. Accused Products
The Complaint accuses three product series within Solstice's PrecisionEdge™ laparoscopic trocar line:
• PrecisionEdge™ PE-5000 Series (5 mm trocar assembly) — accused of infringing the '237 Patent (Claims 1, 3, 7, 12) and the '884 Patent (Claims 1, 2, 5, 9, 14). The PE-5000 is Solstice's smallest-diameter trocar and is used for the insertion of 5 mm laparoscopic instruments.
• PrecisionEdge™ PE-12000 Series (12 mm trocar assembly) — accused of infringing all three asserted patents. The PE-12000 is the Company's flagship trocar product and the highest-volume SKU in the PrecisionEdge™ line.
• PrecisionEdge™ PE-15000 Series (15 mm trocar assembly) — accused of infringing the '884 Patent (Claims 1, 2, 5, 9, 14) and the '105 Patent (Claims 1, 4, 8). The PE-15000 is designed for larger-diameter instrument access and is used primarily in procedures requiring specimen retrieval through the trocar cannula.
The combined U.S. sales of the accused PrecisionEdge™ products from calendar year 2021 through September 30, 2024 total approximately $74.6 million, broken down as follows:
These figures reflect significant and sustained year-over-year revenue growth. The weighted average gross margin on the accused products is approximately 61.3%. The PrecisionEdge™ line represents a significant and growing portion of Solstice's U.S. revenue, and the product line is central to the Company's commercial strategy in the minimally invasive surgical access market in the United States.
D. Procedural History
The following is a summary of the key procedural events in the Litigation:
• May 9, 2024: Apex files its Complaint for Patent Infringement against Solstice Biomedical, Inc. in the U.S. District Court for the District of Delaware.
• May 23, 2024: Service of process is effected on Solstice through its registered agent, Pemberton Industries, 251 Little Falls Drive, Wilmington, Delaware 19808.
• June 14, 2024: Solstice files its Answer, Affirmative Defenses, and Counterclaims. Affirmative defenses include non-infringement, invalidity under 35 U.S.C. §§ 102 and 103, and inequitable conduct. Counterclaims seek declaratory judgments of non-infringement and invalidity of the three asserted patents.
• July 2, 2024: Initial Scheduling Conference held before Chief Judge Richard G. Andrews. Scheduling Order entered establishing discovery and trial deadlines.
• July 15, 2024: Joint discovery Plan filed by the parties in accordance with the Scheduling Order and the Local Rules of the District of Delaware.
• August 5, 2024: Apex serves its First Set of Interrogatories (18 interrogatories) and First Set of Requests for Production of Documents (42 requests) on Solstice.
• August 19, 2024: Solstice serves its First Set of Interrogatories (15 interrogatories) and First Set of Requests for Production of Documents (38 requests) on Apex.
• September 30, 2024: Solstice completes its principal document production, comprising 48,217 documents (Bates Nos. SBD-000001 through SBD-048217), including technical design documentation, engineering specifications, sales and revenue data, internal communications regarding the PrecisionEdge™ development program, and regulatory filings.
• October 7, 2024: Apex completes its principal document production, comprising 31,450 documents (Bates Nos. APEX-000001 through APEX-031450), including patent prosecution files, licensing correspondence, inventor notebooks, and marketing materials.
• October 22, 2024: Parties exchange Proposed Claim Constructions and identify nine (9) disputed claim terms for construction.
• November 4, 2024: Joint Claim Construction Brief filed with the Court, presenting each party's proposed constructions and supporting arguments for all nine disputed terms.
• November 18, 2024: Markman Hearing conducted before Chief Judge Andrews. Oral argument presented by both parties, with reference to intrinsic and extrinsic evidence.
• December 6, 2024: The Court issues its Claim Construction Order, construing all nine disputed terms. Five terms are construed favorably to Solstice; four terms are construed favorably to Apex. The Order is discussed in detail in Section III of this memorandum.
• January 13, 2025: Expert discovery opens pursuant to the Scheduling Order.
• January 27, 2025: Dr. Miriam Ostrowski's Invalidity Expert Report is served on behalf of Solstice, addressing anticipation and obviousness arguments for all three asserted patents.
• February 10, 2025: Dr. Liang Ng's Infringement Expert Report is served on behalf of Apex, opining that all three accused product series infringe the asserted claims of each patent at issue.
• February 14, 2025: Damages expert reports are exchanged. Dr. Elena Marchetti (Pinnacle Economics Group LLC) serves her report on behalf of Solstice; Hugh Danaher (Keystone Valuation Advisors LLC) serves his report on behalf of Apex, claiming total reasonable royalty damages of $31.8 million.
• March 3, 2025: Rebuttal expert reports exchanged by both parties.
• March 17, 2025: Full-day mediation conducted before the Honorable Margaret Forsythe (Ret.) at Amberstone ADR Services, 1000 West Street, Suite 200, Wilmington, Delaware 19801. No resolution reached. The mediation outcome is discussed in detail in Section VII.
• Upcoming deadlines: The summary judgment motion deadline is April 1, 2025. Calderwood & Harkness intends to file a motion for summary judgment of non-infringement as to the PE-5000 Series on that date. The trial is currently scheduled to commence on September 30, 2025, with an estimated trial length of seven to ten days.
III. Claim Construction Results and Impact on Case Strength
The December 6, 2024 Claim Construction Order is a pivotal development in this Litigation. In patent cases, claim construction — the process by which the Court determines the meaning and scope of the asserted patent claims — frequently determines the trajectory of the case. The Board should understand both the favorable and unfavorable aspects of the Court's ruling, as they directly inform the risk assessment and settlement recommendation presented herein.
A. Favorable Constructions (5 of 9 Terms)
Of the nine disputed claim terms submitted for construction, the Court adopted constructions consistent with Solstice's proposed interpretations for five terms. This is a meaningful result, particularly with respect to two key terms.
First, the Court construed the term "locking seal assembly" as used in Claims 1 and 3 of the '237 Patent in a manner that requires the seal assembly to include a specific mechanical interlock between the locking ring and the seal housing — a structural limitation that Solstice argued was inherent in the patent specification. Under this construction, the accused PE-5000 Series trocar, which employs a friction-fit retention approach rather than a mechanical interlock, has a strong basis for non-infringement. The PE-5000's seal retention system was designed around a different engineering principle, and the Court's narrow construction of this term supports Solstice's position that the PE-5000 design falls outside the scope of the asserted claims.
Second, the Court construed the term "retractable blade deployment mechanism" as used in Claim 1 of the '884 Patent to require a blade that is both deployed and retracted by a single actuating member — a construction that aligns with the preferred embodiment in the patent specification and excludes dual-actuator designs. The PE-5000 Series utilizes a dual-actuator architecture in which the deployment and retraction functions are governed by separate mechanical elements, which places this product outside the literal scope of the '884 Patent claims as construed.
The remaining three favorable constructions relate to subsidiary dependent claim limitations in the '237 and '884 Patents that further narrow Apex's infringement allegations and provide Solstice with additional defenses at the product-specific level. While individually less decisive, these constructions collectively strengthen Solstice's overall position.
Our analysis of the favorable constructions was prepared in close coordination with Dr. Jonathan Kendrick of Kendrick & Lau LLP, who served as patent prosecution counsel during the original prosecution of the Solstice patent portfolio and who has deep familiarity with the relevant prior art landscape. Dr. Miriam Ostrowski (Department of Mechanical Engineering, Halford University), who served as Solstice's technical expert on invalidity, also contributed her assessment of how the construed claim terms map onto the accused product architectures.
B. Unfavorable Constructions (4 of 9 Terms)
The Court adopted constructions consistent with Apex's proposed interpretations for four terms. The most consequential of these relates to the '105 Patent.
The Court construed the term "integrated insufflation valve and seal" as used in Claims 1, 4, and 8 of the '105 Patent broadly, rejecting Solstice's argument that "integrated" requires the valve and seal to be formed as a single unitary component. Instead, the Court held that "integrated" requires only that the valve and seal be "functionally combined within a common housing such that insufflation and sealing functions are performed concurrently." This broad construction is problematic because the PE-12000 Series employs a valve-and-seal architecture in which a separate valve element and a separate seal element are housed within a common trocar body and operate concurrently. Under the Court's construction, it will be difficult to argue that the PE-12000's design does not meet this limitation.
The remaining three unfavorable constructions relate to terms in the '884 Patent (specifically, the scope of the "biased shielding element" and "spring-loaded retraction assembly" limitations) and the '237 Patent (the meaning of "plurality of seal elements"). These constructions expand the scope of the asserted claims in ways that make it more difficult to defend the PE-12000 and PE-15000 Series on non-infringement grounds. In particular, the broad construction of "spring-loaded retraction assembly" in the '884 Patent encompasses the coil-spring retraction mechanism employed in the PE-15000 Series, whereas Solstice had argued that the term should be limited to leaf-spring configurations as described in the patent specification.
C. Net Assessment of Claim Construction Impact
The net effect of the Claim Construction Order is a mixed result that creates a divergent risk profile across the three accused product series:
• PE-5000 Series: Solstice has a strong non-infringement position following the favorable constructions of "locking seal assembly" and "retractable blade deployment mechanism." This product is a viable candidate for summary judgment of non-infringement, and Calderwood & Harkness intends to file such a motion on April 1, 2025.
• PE-12000 Series: Solstice faces meaningful infringement risk, particularly under the '105 Patent given the broad construction of "integrated insufflation valve and seal." The PE-12000 is the highest-volume product in the accused line and represents the most significant damages exposure.
• PE-15000 Series: Solstice also faces meaningful infringement risk, particularly under the '884 Patent given the unfavorable construction of "spring-loaded retraction assembly" and the '105 Patent. The PE-15000's blade retraction system and valve architecture are more difficult to distinguish from the asserted claims as construed.
It is important to note that the claim construction results do not affect Solstice's invalidity defenses. The prior art arguments under 35 U.S.C. §§ 102 (anticipation) and 103 (obviousness) are based on the content of the prior art references and the scope of the claims as construed — and the constructions adopted by the Court do not eliminate or materially weaken the prior art positions developed by Dr. Ostrowski and Kendrick & Lau LLP. Invalidity remains an independent defense that would, if successful, resolve the entire case in Solstice's favor regardless of the infringement analysis.
IV. Assessment of Defenses
This section presents Calderwood & Harkness's assessment of Solstice's defenses on a claim-by-claim and product-by-product basis, incorporating the impact of the claim construction ruling, the expert discovery record, and the anticipated posture at trial.
A. Non-Infringement
PE-5000 Series. As discussed above, the PE-5000 Series has a strong non-infringement position following the Court's favorable constructions of "locking seal assembly" ('237 Patent) and "retractable blade deployment mechanism" ('884 Patent). The PE-5000's friction-fit seal retention system and dual-actuator blade architecture are structurally distinct from the claimed inventions as construed by the Court. Calderwood & Harkness intends to file a motion for summary judgment of non-infringement as to the PE-5000 Series on April 1, 2025. We assess a reasonable probability of success on this motion, although the Court's willingness to resolve infringement issues on summary judgment in the District of Delaware can be inconsistent and may depend on whether Apex's expert, Dr. Liang Ng, can create a genuine issue of material fact through his infringement report.
PE-12000 Series. The PE-12000 Series presents a moderate non-infringement position. The infringement analysis is heavily fact-intensive, involving detailed comparison of the PE-12000's valve-and-seal architecture to the construed claim limitations of the '105 Patent. While Solstice has arguments that the PE-12000's design does not meet certain dependent claim limitations, the broad construction of the "integrated insufflation valve and seal" term in the independent claim creates a significant hurdle. We expect that the PE-12000 infringement dispute will present genuine issues of material fact that preclude summary judgment and will need to be resolved by the jury. We estimate the risk of a jury finding of infringement as to the PE-12000 at approximately 55% to 65%.
PE-15000 Series. The PE-15000 Series has the weakest non-infringement position, particularly with respect to the '105 Patent (given the unfavorable "integrated insufflation valve and seal" construction) and the '884 Patent (given the unfavorable "spring-loaded retraction assembly" construction). The PE-15000's coil-spring retraction mechanism falls squarely within the Court's construction, and the PE-15000's valve architecture presents the same challenges as the PE-12000. We estimate the risk of a jury finding of infringement as to the PE-15000 at approximately 60% to 70%.
B. Invalidity
Solstice's invalidity defenses have been developed through an extensive prior art search conducted by Kendrick & Lau LLP under the direction of Dr. Jonathan Kendrick, with the technical analysis summarized in Dr. Miriam Ostrowski's invalidity expert report served on January 27, 2025.
'237 Patent. Solstice has a moderately strong anticipation argument based on a prior art reference identified through a third-party subpoena to Veridian Medical Technologies, Inc. The Veridian reference is a technical disclosure bulletin dated September 2014 that describes a locking trocar seal assembly with features substantially similar to those claimed in the '237 Patent. In addition, Solstice has a viable obviousness argument combining the Veridian reference with a published patent application from 2012 (the "Hartley" reference) to address dependent claim limitations not fully disclosed in the Veridian document alone.
'884 Patent. Solstice has a strong obviousness argument with respect to the '884 Patent, based on a combination of two prior art references: a European Patent Office publication (the "Kessler" reference, EP 2,145,817) and a journal article published in the Journal of Laparoscopic & Advanced Surgical Techniques in 2015 (the "Chen" article). Together, these references disclose all elements of the asserted claims of the '884 Patent and provide a motivation to combine. The anticipation argument is weaker, as neither reference individually discloses all claim elements.
'105 Patent. Solstice's invalidity position is weakest with respect to the '105 Patent. The prior art search identified several references that individually disclose insufflation valve or seal components, but none that disclose the specific "integrated" configuration claimed in the '105 Patent. The obviousness argument requires combining three or more references, which increases the risk that a jury will view the combination as impermissibly based on hindsight. Dr. Ostrowski's report makes the best available case, but we assess this as the most vulnerable of the three invalidity defenses.
Overall Invalidity Probability. Considering the strength of the individual arguments across the three patents and the general reluctance of juries to invalidate issued patents, we estimate the overall probability of a jury finding at least one of the three asserted patents invalid at trial at approximately 30% to 40%. The probability of invalidity findings across all three patents is meaningfully lower — approximately 15% to 25%.
C. Inequitable Conduct Counterclaim
Solstice has asserted a counterclaim for inequitable conduct based on the alleged failure of the named inventor, Dr. Raymond Szabo, to disclose material prior art references to the United States Patent and Trademark Office during prosecution of the asserted patents. Specifically, Solstice alleges that Dr. Szabo was aware of the Veridian technical disclosure bulletin and the Chen journal article at the time of prosecution and failed to submit them to the examiner as part of his duty of candor under 37 C.F.R. § 1.56.
This defense is subject to the heightened legal standard established by the Federal Circuit in Brightmoor & Co., Inc. v. Becton, Dickinson & Co., 649 F.3d 1276 (Fed. Cir. 2011), which requires Solstice to prove, by clear and convincing evidence, both that the withheld references were "but-for" material (i.e., the patent would not have issued but for the failure to disclose) and that Dr. Szabo acted with the specific intent to deceive the USPTO. This is a demanding standard, and success on an inequitable conduct defense is statistically uncommon.
Nevertheless, the inequitable conduct counterclaim provides Solstice with meaningful litigation leverage. The defense requires Apex to address the allegation in discovery and at trial, creates the possibility of an adverse inference if Dr. Szabo's testimony is not credible, and raises the specter of unenforceability — a result that Apex would find highly undesirable, particularly given the broader 14-patent family. We estimate the probability of success on this counterclaim at approximately 10% to 15%, but its strategic value exceeds its probability of prevailing.
D. Overall Probability Assessment
Drawing together the non-infringement, invalidity, and inequitable conduct analyses, Calderwood & Harkness's overall assessment of the range of trial outcomes is as follows:
These probability ranges are informed by our experience in patent litigation before the District of Delaware, the specific record developed in this case, and consultations with our technical and damages experts. They reflect the inherent uncertainty of jury trials in patent cases and the reality that the most probable single outcome — a partial defense victory in which Solstice prevails on the PE-5000 but loses on one or both of the larger-diameter products — still carries substantial damages exposure.
V. Damages Exposure Analysis
A. Apex's Damages Position
Apex's damages expert, Hugh Danaher of Keystone Valuation Advisors LLC, submitted his expert report on February 14, 2025, claiming total reasonable royalty damages of $31.8 million through a Georgia-Pacific analysis. See Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970). Danaher's analysis proceeds as follows:
• Royalty Base: Danaher applies the full $74.6 million in U.S. revenue from the accused products (CY 2021 through September 30, 2024) as the royalty base, rejecting any apportionment to the specific patented features.
• Royalty Rate: Danaher applies a royalty rate of approximately 10.2%, derived from his assessment of the fifteen Georgia-Pacific factors, including the importance of the patented features to the overall product, the profitability of the accused products, Apex's purported licensing program (which includes two prior licenses at rates of 7.5% and 9.0%, respectively), and the competitive landscape.
• Forward-Looking Damages: Danaher's report projects ongoing damages through the expiration of the last patent (January 10, 2038), assuming continued product sales at current trajectory. Including projected future royalties, Danaher estimates total damages exposure well in excess of $50 million.
Danaher's analysis is aggressive in several respects, as discussed in the rebuttal section below. Nevertheless, his report is competently prepared and will present a credible damages case to a jury if it survives Daubert challenge.
B. Solstice's Damages Rebuttal
Solstice's damages expert, Dr. Elena Marchetti of Pinnacle Economics Group LLC, submitted her rebuttal report on March 3, 2025, identifying several significant methodological flaws in Danaher's analysis:
• Royalty Base Apportionment: Dr. Marchetti contends that Danaher's use of the full product revenue as the royalty base violates the entire market value rule (Uniloc USA, Inc. v. Kestrel Partners LLC, 632 F.3d 1292 (Fed. Cir. 2011)). She argues that the royalty base should be apportioned to reflect only the incremental value of the patented features, not the value of the entire trocar assembly. Using an apportionment methodology based on a conjoint analysis of surgeon purchasing preferences, Dr. Marchetti reduces the effective royalty base by approximately 35% to 45%.
• Comparable Licenses: Dr. Marchetti challenges the two prior Apex licenses cited by Danaher, arguing that they are not sufficiently comparable to the hypothetical negotiation in this case because they involve different technology, different market conditions, and were entered under different circumstances (one was a settlement of prior litigation; the other was a proactive licensing deal with a non-competitor). Dr. Marchetti identifies a set of more comparable arm's-length medical device patent licenses that reflect royalty rates in the range of 2.5% to 5.0%.
• Royalty Rate: Based on her own Georgia-Pacific analysis incorporating the apportioned royalty base and the more comparable license benchmarks, Dr. Marchetti opines that the appropriate royalty rate falls in the range of 2.5% to 4.0%.
• Alternative Damages Calculation: Dr. Marchetti's alternative damages calculation yields a range of $5.6 million to $9.2 million in past damages — substantially below Danaher's $31.8 million figure.
Dr. Marchetti's analysis is well-supported and, in our view, reflects the more reasonable assessment of damages. However, we must acknowledge the inherent uncertainty of damages determinations at trial, where juries have significant latitude to adopt or reject competing expert methodologies.
C. Realistic Damages Range at Trial
Based on our assessment of the merits, the claim constructions, and the competing damages analyses, we present the following range of potential damages outcomes at trial:
Enhanced Damages (Willfulness). Apex has alleged willful infringement, which, if proven, could result in up to treble damages under 35 U.S.C. § 284. Apex's willfulness theory is based on the allegation that Solstice had knowledge of the asserted patents prior to launching the PE-12000 Series. We assess the probability of a willfulness finding at approximately 10% to 15%, as Solstice can demonstrate that it obtained a written opinion of counsel from Kendrick & Lau LLP prior to product launch concluding that the PE-12000 did not infringe the then-existing Apex patents. If willfulness were found, the Court would have discretion to enhance damages by up to a 2x multiplier (treble damages are rare in practice under Halo Electronics, Inc. v. Pulse Electronics, Inc., 579 U.S. 93 (2016)).
Injunction Risk. In the event of a finding of infringement, Apex may seek a permanent injunction. Under the Supreme Court's holding in Northgate Group v. MercExchange, L.L.C., 547 U.S. 388 (2006), a permanent injunction requires the patentee to demonstrate (1) irreparable harm, (2) inadequacy of monetary damages, (3) balance of hardships favoring the movant, and (4) public interest. We assess the risk of a permanent injunction as low to moderate. Apex has its own competing trocar products in the market, which undermines its claim of irreparable harm, and the availability of reasonable royalty damages counsels against an injunction. However, the risk is not negligible, particularly if the jury awards a lower royalty rate that Apex argues is inadequate to compensate for ongoing infringement.
D. Post-Verdict Royalty and Injunction Risk
In cases where a permanent injunction is denied, the Court may impose an ongoing royalty for continued post-verdict sales. Courts typically impose a post-verdict royalty at a rate higher than the reasonable royalty determined at trial, reflecting the changed bargaining dynamics following a finding of infringement. This "step-up" is typically in the range of 25% to 50% above the trial royalty rate.
If Apex were to prevail and the Court were to impose a post-verdict royalty in lieu of an injunction, the royalty rate could be in the range of 5% to 7% of net sales — significantly higher than what Solstice could negotiate in a pre-trial settlement.
Alternatively, if a permanent injunction were granted, Solstice would be forced to redesign the PrecisionEdge™ product line to design around the asserted patents. Based on input from Solstice's engineering team and an independent assessment by our technical expert, Dr. Ostrowski, the estimated cost of a complete redesign is approximately $3 million to $5 million, with a timeline of 12 to 18 months to complete the redesign, obtain regulatory clearance (510(k) or equivalent), and transition manufacturing. During the redesign period, Solstice would lose market share to Apex and other competitors, resulting in revenue losses that are difficult to quantify but could be substantial given the trajectory of PrecisionEdge™ sales.
VI. Cost-to-Complete Through Trial
A. Fees and Costs Incurred to Date
As of approximately March 2025, Calderwood & Harkness's total fees and costs billed in connection with this Litigation are approximately $2.3 million. Based on work currently in progress and anticipated billing through June 1, 2025, total billed fees and costs are trending toward approximately $2,847,319.42. A breakdown of the principal cost categories is as follows:
• Attorney Fees: The majority of fees billed reflect work by the Calderwood & Harkness litigation team at blended hourly rates: Partners at $1,250 per hour; Senior Associates at $875 per hour; Associates at $725 per hour. Attorney fees cover all phases of the Litigation to date, including case investigation and assessment, pleadings, discovery management and review, deposition preparation and attendance, claim construction briefing and the Markman hearing, expert engagement and coordination, and mediation preparation.
• E-discovery Costs: Calderwood & Harkness engaged DataVault Litigation Solutions to provide e-discovery processing, hosting, and review platform services. Total e-discovery vendor charges to date are approximately $141,200 for the processing and hosting of approximately 1.2 terabytes of electronically stored information.
• Expert Costs: Dr. Miriam Ostrowski (technical expert, invalidity) has billed approximately $127,500 to date at a rate of $750 per hour for her analysis, report preparation, and deposition testimony. Dr. Elena Marchetti and her team at Pinnacle Economics Group LLC (damages expert) have billed approximately $89,250 at a rate of $850 per hour for damages analysis, rebuttal, and report preparation.
• Other Costs and Disbursements: Court reporter fees for depositions, travel expenses for deposition and hearing attendance, court filing fees, and miscellaneous litigation costs.
• Kendrick & Lau LLP: In a separate engagement, Kendrick & Lau LLP (Dr. Jonathan Kendrick) has billed $184,500 to date for prior art search and analysis and freedom-to-operate (FTO) assessment work that supports both the invalidity defense and the non-infringement analysis. These fees are billed separately from the Calderwood & Harkness engagement.
B. Estimated Cost to Complete Through Trial (September 30, 2025)
Calderwood & Harkness estimates the following additional fees and costs to complete the Litigation through the September 30, 2025 trial date:
The trial is estimated at seven to ten days before a jury, based on the number of patents, the number of accused products, the complexity of the technical issues, and the anticipated damages presentation. Trial preparation alone — including preparation of trial exhibits, jury instructions, witness preparation, and opening and closing argument development — will represent a substantial portion of the estimated costs.
Total Estimated All-In Litigation Cost Through Verdict: Combining fees and costs incurred to date with the estimated cost-to-complete, the total estimated cost of this Litigation through verdict (exclusive of any settlement payments) is approximately $3.8 million to $4.3 million. This figure does not include the Kendrick & Lau LLP fees or post-trial motion practice, which would add to the total.
C. Insurance Coverage Status
Solstice maintains patent infringement defense coverage under the following policy:
• Insurer: Halcyon Specialty Insurance Co.
• Policy Number: HSI-IP-2023-04891
• Coverage: Patent infringement defense costs
• Limits: $5,000,000 per occurrence / $10,000,000 aggregate
• Self-Insured Retention (SIR): $250,000 (fully satisfied as of early in the Litigation)
• Claims Adjuster: Sandra Keene, Halcyon Specialty Insurance Co.
As of the March 2025 billing cycle, the insurance policy has covered approximately $2,050,000 of the $2,300,000 in fees and costs billed by Calderwood & Harkness (i.e., the total billed amount minus the $250,000 SIR). Trending forward to June 1, 2025, coverage is projected to reach approximately $2,597,319.42 of the $2,847,319.42 in total billed fees and costs. As of March 2025, the remaining per-occurrence coverage available under the policy is approximately $2.4 million, which should be sufficient to cover the estimated cost-to-complete through trial.
Critical Note Regarding Settlement Payments: The Halcyon policy covers defense costs (attorney fees, expert fees, and litigation expenses) but does not cover settlement payments. Any lump-sum payment and running royalty obligations arising from a settlement agreement would be borne entirely by Solstice. This is a material consideration in the cost-benefit analysis, as the Company will bear the full financial burden of any settlement while the insurance coverage continues to defray the costs of proceeding to trial. However, the insurance coverage does not eliminate the risk of an adverse verdict, and the damages exposure at trial far exceeds the remaining available coverage.
VII. Mediation Outcome and Settlement Landscape
A. March 17, 2025 Mediation
On March 17, 2025, the parties participated in a full-day mediation session at Amberstone ADR Services, 1000 West Street, Suite 200, Wilmington, Delaware 19801. The mediation was conducted before the Honorable Margaret Forsythe (Ret.), a former United States Magistrate Judge for the District of Delaware with extensive experience in patent litigation. Judge Forsythe was selected jointly by the parties for her familiarity with the medical device industry and her reputation as a skilled and persistent mediator.
The mediation session commenced at 9:00 a.m. and continued until approximately 6:30 p.m. The parties presented opening statements to Judge Forsythe in joint session, followed by extended caucus sessions throughout the remainder of the day. The key positions and developments during the mediation were as follows:
• Apex's Opening Demand: Apex presented an opening demand of approximately $22 million in a lump-sum payment. This figure was positioned by Apex as a discount from Danaher's $31.8 million damages claim, purportedly reflecting Apex's assessment of litigation risk and the benefits of an early resolution. However, when accounting for the present value of the ongoing royalties that Danaher projects through patent expiration, Apex's demand substantially exceeds the reasonable royalty damages claimed in the expert report. In our assessment, the $22 million demand was an aggressive opening position intended to anchor the negotiation.
• Solstice's Opening Offer: Solstice presented an opening offer of $4.5 million in a lump-sum payment with no ongoing royalty. This offer was based on Dr. Marchetti's low-end damages assessment ($5.6 million), discounted to reflect Solstice's invalidity and non-infringement defenses, and was structured as a paid-up license for the three asserted patents.
• Movement During the Day: Through Judge Forsythe's shuttle diplomacy during the caucus sessions, there was modest movement. Apex indicated a willingness to reduce its demand into the mid-teens range under certain structural conditions. Solstice increased its offer incrementally but did not approach $10 million. A significant gap remained at the conclusion of the day.
• Structural Discussions: Importantly, Apex indicated a willingness to consider a license-and-dismissal structure combining a lump-sum payment with an ongoing running royalty, rather than a purely lump-sum deal. This structural flexibility is significant because it may allow the parties to bridge the gap between their respective valuations by disaggregating the payment into upfront and ongoing components.
Judge Forsythe declared an impasse at approximately 6:30 p.m. and recommended that the parties remain open to continued discussions as the case progresses toward trial. She offered to make herself available for further mediation sessions if the parties are interested.
B. Assessment of Apex's Settlement Posture
Based on our observations at the mediation and our communications with HTB throughout the Litigation, Calderwood & Harkness assesses that Apex is genuinely motivated to reach a negotiated resolution, notwithstanding the aggressive opening demand. Several factors support this assessment:
• Portfolio Risk: Apex has a strong institutional incentive to avoid invalidity findings at trial. A judgment of invalidity on any of the three asserted patents — particularly the '884 Patent, which is the broadest and most commercially significant patent in the family — would have cascading effects on Apex's broader 14-patent portfolio. Invalid claims cannot be reasserted, and invalidity findings may undermine the enforceability of related continuation claims. A settlement, by contrast, preserves the validity and enforceability of the entire portfolio.
• Cost Avoidance: Apex is also incurring substantial legal costs. While we do not have precise figures, we estimate that HTB's fees are comparable to Calderwood & Harkness's, and Apex's expert costs (Dr. Ng's infringement analysis and Danaher's damages analysis) are likely in the range of $200,000 to $300,000 to date.
• Revenue Stream: From Apex's perspective, a license agreement generating an ongoing royalty stream from Solstice's PrecisionEdge™ sales — which are growing at approximately 8% to 10% per year — represents a reliable source of recurring revenue.
• Signal from Dr. Chandrasekaran: During the mediation, Apex's Chief IP Officer, Dr. Priya Chandrasekaran, was present and actively engaged in the caucus discussions. She signaled openness to a non-exclusive license structure that would allow Solstice to continue selling the PrecisionEdge™ products while generating royalty income for Apex. Her participation and engagement suggest that Apex's business leadership views a license as a commercially rational outcome.
The primary sticking points identified during the mediation were (1) the quantum of the lump-sum payment and (2) the applicable running royalty rate. We believe that with appropriate negotiating strategy and the filing of the PE-5000 summary judgment motion (which will demonstrate the strength of Solstice's defenses and create pressure on Apex), there is a realistic path to bridging the remaining gap within the settlement parameters recommended below.
C. Ridgeline IP Analytics Valuation
In preparation for the mediation and for the Board's consideration in evaluating settlement parameters, Calderwood & Harkness engaged Dr. Arthur Gaines of Ridgeline IP Analytics LLC to prepare an independent, confidential patent portfolio valuation of the three asserted Apex patents. Dr. Gaines is a recognized expert in patent valuation with extensive experience in the medical device sector.
Dr. Gaines's valuation employed two primary methodologies: (1) an income approach, which estimates the value of the patents based on the projected incremental income attributable to the patented features, discounted to present value; and (2) a comparable transactions approach, which benchmarks the license terms against publicly available and proprietary data on comparable medical device patent licensing transactions. Key findings of the Ridgeline valuation include:
• The fair value of a non-exclusive license under the three asserted patents, in the field of laparoscopic surgical access devices, falls in the range of $7 million to $11 million in lump-sum equivalent, depending on assumptions about Solstice's product growth rate, market share trajectory, and discount rate.
• Running royalty benchmarks from comparable medical device patent licenses (arm's-length transactions between non-affiliated parties in the United States) range from 2.5% to 5.0% of net sales, with a central tendency of approximately 3.5% to 4.0%.
• The Ridgeline valuation is broadly consistent with Dr. Marchetti's damages range ($5.6 million to $9.2 million for past damages) when adjusted for the going-forward royalty component.
The Ridgeline valuation provides an independent, market-based framework for evaluating the reasonableness of the settlement parameters recommended in this memorandum.
VIII. Recommended Settlement Parameters
A. Proposed Settlement Structure
Based on the foregoing analysis, Calderwood & Harkness recommends that the Board authorize the negotiation of a settlement structured as follows:
License-and-Dismissal Agreement. The core of the proposed settlement is a non-exclusive, worldwide patent license from Apex to Solstice under the '237, '884, and '105 Patents — including all continuations, divisionals, reissues, and foreign counterparts — in the field of laparoscopic surgical access devices (the "Licensed Field"). The license would cover the manufacture, use, sale, offer for sale, and import of the PrecisionEdge™ PE-5000, PE-12000, and PE-15000 Series and any successor or replacement products within the Licensed Field (collectively, "Licensed Products"). The license would be non-exclusive, meaning that Apex retains the right to license other parties, and would be effective for the full remaining terms of the licensed patents.
Covenant Not to Sue. In addition to the license under the three asserted patents, Calderwood & Harkness strongly recommends that the settlement include a covenant not to sue covering the entire Apex Trocar Patent Family — i.e., all 14 issued U.S. patents and all 6 pending continuation applications. This covenant is critical to eliminating the risk of serial litigation, in which Apex could assert additional claims from the broader patent family against the same or similar Solstice products. Without a covenant covering the full family, a settlement of this case would leave Solstice exposed to follow-on infringement actions on continuation claims that have not yet been asserted.
Mutual Release. The settlement agreement would include a full mutual release of all claims, counterclaims, defenses, and causes of action asserted or that could have been asserted by either party in Case No. 1:24-cv-00587-RGA.
Dismissal with Prejudice. The Litigation would be dismissed with prejudice by stipulation of the parties, with each party bearing its own costs and attorneys' fees.
Confidentiality. The settlement terms would be confidential. Any joint public statement would be limited to a brief announcement that "the matter has been resolved on mutually agreeable terms." This protects Solstice from disclosure of the settlement economics, which could affect future licensing negotiations with other patentees.
Sublicense Right. Solstice would have a limited right to sublicense the licensed patents to contract manufacturers of Licensed Products, to the extent necessary for Solstice to maintain its existing and future manufacturing arrangements. This sublicense right would not extend to distributors or end users.
B. Recommended Financial Parameters
Lump-Sum Payment. Calderwood & Harkness recommends that the Board authorize a lump-sum payment in the range of $7,000,000 to $10,000,000, with a preferred negotiating target of $8,500,000 to $9,000,000.
• The recommended range represents approximately 27% to 32% of the midpoint realistic damages exposure in a partial adverse verdict scenario ($8 million to $16 million in past damages), adjusted for the probability of each outcome, the costs of trial, and the value of the non-financial benefits of settlement.
• The recommended range is significantly below Apex's mediation demand of $22 million and Danaher's claimed damages of $31.8 million.
• The recommended range is consistent with the Ridgeline IP Analytics valuation of $7 million to $11 million in lump-sum equivalent.
• Payment Structure: To manage cash flow impact, Calderwood & Harkness recommends structuring the lump-sum payment in two tranches: approximately 60% (approximately $5.1 million to $5.4 million at the target midpoint) payable upon execution of the definitive settlement agreement, and approximately 40% (approximately $3.4 million to $3.6 million) payable within 90 days thereafter. This structure is common in patent settlement transactions and may be acceptable to Apex provided that the second tranche is supported by appropriate payment assurances.
Running Royalty Rate
Calderwood & Harkness recommends that the Board authorize a running royalty rate in the range of 3.0% to 4.5% of Net Sales of Licensed Products, with a preferred negotiating target of 3.5% to 4.0%.
• "Net Sales" should be defined as gross invoiced sales of Licensed Products to unaffiliated third parties, less the following customary deductions: (i) returns and allowances, (ii) trade discounts and rebates actually granted, (iii) chargebacks and retroactive price adjustments, (iv) freight, insurance, and shipping charges, and (v) sales taxes, use taxes, value-added taxes, and similar governmental charges. This definition is consistent with industry practice in medical device patent license agreements and provides a transparent and auditable basis for royalty calculation.
• Estimated Year 1 Royalty (CY 2026): Assuming Net Sales of Licensed Products of approximately $24.2 million in CY 2026 (reflecting approximately 8% year-over-year growth from CY 2024 annualized levels), the estimated Year 1 royalty at the recommended rate range would be approximately $725,000 to $1,090,000.
• Annual Royalty Cap: Calderwood & Harkness recommends negotiating an annual royalty cap in the range of $1,500,000 to $2,000,000 per calendar year. A cap limits Solstice's upside exposure as PrecisionEdge™ sales grow over the remaining patent terms, which extend through 2038. A cap is common in patent license agreements and provides cost predictability for the licensee while still providing Apex with meaningful compensation.
• Annual Royalty Floor: As a reasonable concession to Apex, Calderwood & Harkness recommends accepting an annual royalty floor (minimum annual royalty) in the range of $400,000 to $500,000 per calendar year. A floor ensures that Apex receives a minimum annual payment regardless of actual sales volume, which provides downside protection for Apex and is a standard feature of royalty-bearing patent licenses. At current and projected sales levels, the floor is not expected to be triggered.
Most-Favored Licensee Clause
Calderwood & Harkness recommends seeking a most-favored licensee ("MFN") clause in the settlement agreement, providing that if Apex subsequently grants a license under the asserted patents (or the broader Apex Trocar Patent Family) to any third party at a royalty rate lower than the rate granted to Solstice, Apex must promptly reduce Solstice's rate to match the lower rate. This provision protects Solstice against the risk that Apex might offer more favorable terms to Solstice's competitors.
Audit Right. Apex will likely require an audit right as a condition of a royalty-bearing license. Calderwood & Harkness recommends accepting a reasonable audit provision, limited to once per calendar year, conducted by an independent certified public accounting firm selected by Apex and bound by confidentiality obligations, at Apex's expense unless the audit reveals a material underpayment (customarily defined as an underpayment of 5% or more of the royalties owed for the audited period), in which case Solstice would bear the cost of the audit.
C. Cost-Benefit Comparison: Settlement vs. Trial
The following table summarizes the financial comparison between settlement at the recommended parameters and the range of trial outcomes:
Expected Value of Trial (Probability-Weighted): Using the midpoints of the probability ranges and the midpoints of the cost estimates for each scenario, the probability-weighted expected value of proceeding to trial is approximately $14 million to $20 million, before accounting for business disruption, management distraction, reputational risk, and the time value of money. This expected value analysis inherently involves uncertainty and is presented as a range rather than a point estimate.
Conclusion of Cost-Benefit Analysis: Settlement within the recommended parameters produces a total cost that is comparable to the probability-weighted expected value of proceeding to trial, with the critical additional benefits of certainty, continued market access, and comprehensive freedom-to-operate protection. In our judgment, the risk-adjusted economics favor settlement.
D. Non-Financial Considerations
The financial analysis alone does not capture the full range of considerations relevant to the settlement decision. The following non-financial factors weigh in favor of settlement:
• Business Certainty: Settlement allows Solstice to continue manufacturing and selling the PrecisionEdge™ product line without interruption throughout the remaining patent terms (through January 2038). The PrecisionEdge™ line is a growing and strategically important product family, and any disruption — whether from an injunction, a forced redesign, or market uncertainty — would have consequences beyond the direct financial costs.
• Freedom of Operation: A covenant not to sue covering the full Apex Trocar Patent Family (14 issued patents and 6 pending applications) provides Solstice with comprehensive freedom to operate in the laparoscopic trocar space without the risk of follow-on litigation. This is a significant strategic benefit that cannot be obtained through trial, even in the event of a complete defense victory on the three currently asserted patents.
• Competitive Positioning: Avoidance of injunction risk preserves Solstice's market share in a growing and competitive product segment. The laparoscopic trocar market is characterized by strong customer loyalty and switching costs; if Solstice were forced to withdraw the PrecisionEdge™ products from the market for a redesign period, it would be difficult and expensive to recover lost market share.
• Management Time and Distraction: Trial preparation would require substantial involvement from Solstice's senior leadership, including Dr. Fiona Tierney (who may be called as a trial witness on business strategy and willfulness issues), Niamh Cassidy (who will be involved in technical testimony regarding product design decisions), and multiple engineering and sales personnel. The estimated time commitment for trial preparation and attendance is significant and diverts management attention from operations and strategic priorities.
• Confidentiality: Settlement avoids the public disclosure of sensitive financial, technical, and strategic information that would be presented at trial, including detailed product cost data, margin information, development roadmaps, and internal communications regarding competitive strategy.
• Relationship Dynamics: Solstice and Apex compete in overlapping markets but also have potential for future commercial interactions, including possible supply agreements, distribution partnerships, or co-development opportunities. A litigated judgment — particularly one involving findings of willful infringement or inequitable conduct — could materially damage the commercial relationship. A negotiated settlement, by contrast, preserves the option for a constructive future relationship.
IX. Process and Timeline
Calderwood & Harkness recommends the following process and timeline for pursuing a settlement within the authorized parameters:
1. Board Approval (March 2025). The Board grants the requested settlement authority at the March 2025 board meeting, authorizing Calderwood & Harkness to negotiate within the parameters described in Section VIII.
2. Filing of Motion for Summary Judgment (April 1, 2025). Calderwood & Harkness will file a Motion for Summary Judgment of Non-Infringement as to the PE-5000 Series on or before April 1, 2025. This filing serves a dual purpose: it advances a meritorious legal argument that could narrow the scope of the case, and it demonstrates the strength of Solstice's defenses, thereby creating additional pressure on Apex to negotiate in good faith. The summary judgment motion will be a significant leverage event in the settlement discussions.