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LLC denied royalties because of unenforceable contract

November 6, 2015

A company that sued seeking nearly $750 million in unpaid royalties for sales on medical devices using certain patents lost its appeal before the Indiana Court of Appeals because the contract is unenforceable.

Dr. Rick Sasso, a spinal surgeon and inventor, formed SEE LLC with his brother and father-in-law to manage his patents. His products deal with the rehabilitation of the spine. In 1998, SEE LLC entered into a contract with what is now Medtronic Inc. and Warsaw Orthopedic Inc. in which Sasso would transfer a patent and provide expertise in exchange for monetary compensation. But SEE never attached its formal rights to the patent to the contract and the contract never defined what medical devices to which SEE would be entitled. Sasso also entered into contracts individually with Medtronic and other defendants and was paid cash and royalties.

SEE filed this lawsuit after Sasso had a falling out with Medtronic, contending it is owed either 2.5 percent or 5 percent royalties on the sale of medical devices, which could total $750 million. The defendants said they negotiated all of the contracts under the presumption that they would not have to pay double compensation to Sasso and his company.

The trial court granted summary judgment against SEE, finding Sasso never transferred the patent to SEE and SEE never transferred the patent to the defendant companies. It ruled the transfer of the patent and the list of medical devices covered by the royalty agreement were conditions precedent to the defendants’ obligation to make any royalty payments.

“The addendum’s absence renders the Agreement unenforceable for two reasons. First, there is no basis for determining whether a breach occurred—since there are no products listed in an addendum, there are no ‘Medical Devices’ as defined in the Agreement. If there are no ‘Medical Devices,’ the defendants would not have breached by not paying royalties. The absence of the addendum means that courts would have no way of knowing whether the defendants breached the Agreement,” Judge John Baker wrote in Rick C. Sasso, M.D., and SEE LLC v. Warsaw Orthopedic, Inc., Medtronic Sofamor Danek, Inc., and Medtronic, Inc., 43A04-1504-PL-175.

“Second, there is no basis for giving an appropriate remedy—SEE claims an entitlement to either 5% or 2.5% of the net sales of ‘Medical Devices.’ But since the definition of ‘Medical Device’ depends on the addendum, and since the addendum does not exist, a court would have no way of determining the damages; 5% or 2.5% of what?”

“In sum, the list of products to be counted as ‘Medical Devices’ was an essential term of the contract, one that is needed to determine whether there is a breach and the amount of damages. Its absence renders the Agreement unenforceable at law.”
 

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