Navigating Patent Risks for Medical Technology Firms

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Navigating Patent Risks for Medical Technology Firms.

Patent litigations in the medical technology industry are frequent, often result in significant damages and settlements, and last longer compared to other sectors.

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Reviewing MedTech patent cases within the past 20 years suggests a near two-fold increase of MedTech patent litigation in the last decade compared to the preceding decade. There were 507 cases filed between 2002 and 2011 and 951 between 2012 and 2021. Nevertheless, this trend of elevated annual numbers over the past ten years (2012 to 2021) has remained relatively consistent averaging about 95 cases filed per year. These values represent both matched and probable MedTech patent cases. Understanding the historic limits of patent damages helps to manage MedTech firms’ enterprise risks. Patent damages in MedTech can reach well above $1 billion. Even falling short of the all-time maximum, the average patent damages can still be quite significant. Further, as you’ll see in our analysis, most MedTech patent cases settle before a court may award damages. However, settlement amounts are often similar to the damages a plaintiff is pursuing, which can be quite substantial. To determine the proportion of MedTech patent infringement cases that are settled rather than fully adjudicated, AUM reviewed a set of district court cases filed from 2011 to 2016. The total number of MedTech patent cases was 609 of which 501 were matched (i.e., tied to a specific device). During this six-year period, between 79 percent to 93 percent of resolved cases were in the form of settlement. Depending on the medical specialty involved, only about 5 percent of these resulted in damages. Additionally, our analysis found that the average MedTech patent litigation case runs 54 percent longer compared to non-sector-specific cases. Thus, besides possible damages and settlements, the legal costs alone for MedTech patent infringement defense may be considerably higher compared to other industries.

The Latest MedTech Patent Litigation Activity and Trends

Methods of Production, Distribution & End Uses

Over the past 20 years, there has been a consistent ebb and flow of overall patent litigation filings. A particularly steep trajectory of patent cases began between 2010 and 2011 after the Bilski decision¹ and the passage of the Leahy-Smith America Invents Act (AIA), respectively. This surge continued until the removal of Form 18 in 2015 (thereby increasing pleading standards), which served as a key contributing factor for the subsequent sustained drop in patent litigations that lasted until 2018. Now changing course once again, there appears to be a persistent upward trend in cases across industries.²

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MedTech firms may operate in one medical specialty or many. From the data presented, the regulatory descriptions of registered medical devices will impact the frequency and severity of patent litigation. When reviewing cases with a filing date between 2010 and 2021, AUM identified the top five most frequently litigated devices by specialty, see chart below.

Damages and Case Count by Medical Specialty

If you would like to discuss any aspects of these insights, or to better understand our capabilities in this area, please do not hesitate to get in contact with our team.

Chris Sclimenti, PhD, JD Sr. Underwriting Advisor, Intellectual Property Underwriting Solutions, Life Sciences Aon Underwriting Managers (AUM) chris.sclimenti@aon.com

Ian Lewis Global Head, Intellectual Property Underwriting Solutions Aon Underwriting Managers (AUM) ian.lewis3@aon.co.uk

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1. Bilski v. Kappos, 561 U.S. 593 (2010). 2. Aon’s Intellectual Property Solutions Data & Analytics 3. All MedTech patent litigation cases analyzed include only those filed in United States District Courts.

To examine this further, Aon Underwriting Managers (AUM) analyzed³ the medical technology (MedTech) industry and its rising levels of patent litigation activity. Here, MedTech is defined as medical technology that is linked directly to a finished device. The key criteria for flagging alleged patent infringement cases are that the firm and its completed medical device(s) in question are registered with the FDA. When these two conditions are met, the MedTech patent case is referred to as a “matched” case. For MedTech cases that are not matched to a specific device, the defendant firm must still be FDA registered. However, if a finished device is not identified or if the regulatory description is not recognizable, these cases are referred to as “probable” and use natural language processing (NLP) as a surrogate for the absence of a match. This article shares an assessment of trends within the MedTech space and offers practical measures to avoid and curtail IP risk and potential losses.

We set out to create underwriting analytics so we can widen our appetite for MedTech clients and look at risks more precisely to offer commercially competitive insurance terms. Not all devices, even within the same medical specialty, have the same patent infringement exposure. These tools allow us to tailor patent insurance that is proportionate to the actual risks rather than casting a large premium over everything 'MedTech'.”

Dr. Sclimenti

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Top Five Most Frequently Litigated Devices by Specialty (Case Count and Damages)

Although patent assertions against general and plastic surgery devices underwent 18 percent more litigation than cardiovascular devices, the maximum damages from cardiovascular patent litigation reached approximately $394 million. This is more than twice the maximum damages from the most frequently litigated general and plastic surgery devices during the same period. Since this chart includes patent cases filed throughout 2021, it is uncertain what the ultimate outcomes will be for those filed in recent years. Additionally, it’s important to note the likelihood for patent cases to settle before final adjudication. When looking only at MedTech patent defenses ending with damages in this same twelve-year period, cardiovascular devices had the highest case count with a total of thirteen cases and maximum damages of $393.6 million, see table below.

MedTech Patent Defenses Ending with Damages

Medical Specialty

Case Count

Cardiovascular

Orthopedic

General and Plastic Surgery

$36,207,491

$13,036,558

$32,841,332

Average Damages

$393,600,000

$29,000,000

$176,500,800

Max Damages

The appearance of a low case count tied to damages distorts the true risk exposure MedTech firms face from patent assertions, since settlement amounts can follow the damages being sought. Of course, settlements will likely deviate from the damages depending on how the patent case is progressing in favor of one party or the other.

Assessing and underwriting risks are beneficial to all industries. With growing case numbers comes the need for more protection and new ways to navigate an increasingly complex world. Whether patent risks emanate from frequent and protracted patent litigation or from large settlements and damages, IP insurance offers a strategic solution to mitigate these costs. Over recent years, more capacity has become available from insurers looking to expand growth beyond traditional property and casualty markets, which allows for larger policy limits. Available IP liability policy limits now range from $1 million to over $100 million, making these solutions central to a firm’s risk management strategy. IP liability policy forms have also evolved to broaden coverage and offer protection from various types of IP risks. For example, legal expenses, damages, settlements, and first-party business interruption loss can all be covered on one IP policy. Not only are these coverage options available for the insured, but they may also be extended to the insured’s contractual indemnitees. This indemnification option offers a flexible solution to enhance terms between contracting parties as well as a mechanism to overcome an impasse that may arise during negotiations. IP liability insurance is one of several innovative IP risk transfer solutions now growing in popularity. Other MedTech-specific products available include an analytics report for market and patent risk insights. Aon has also launched a solution to improve access to capital through collateral protection insurance (CPI), which is currently being utilized by other MedTech firms. This expands debt financing opportunities to companies with valuable IP who may not be ideal borrowers from traditional lending institutions. “Medical device companies have unique challenges when it comes to patent infringement risks, and a lot of that stems from the way medical devices are ‘cleared’ or ‘approved’ by the FDA,” says Dr. Chris Sclimenti, senior underwriting advisor for AUM’s Life Sciences IP Underwriting Solutions practice. “For example, firms who clear their devices through 510(k) premarket submissions are required to make statements that could potentially invalidate their patents or be considered admissions of infringement. At the same time, disclosing scant information in the submission could fail the substantial equivalence requirement altogether.” While devices requiring premarket approval (PMA) don’t face the same type of substantial equivalence dilemma as 510(k) devices, they have their own set of infringement risks. Among these include the revenue potential the medical device may produce coupled with the research and development (R&D) investments required to bring the device to market.

Luckily, the support of current MedTech-specific solutions — including IP insurance and analytics — can offset a lot of these IP and market hurdles, so you can protect your balance sheet and gain greater insight into these risks in the process.”

Dr. Sclimenti

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Top Five Most Frequently Litigated Devices by Specialty (Case Count and Damages)

Source: Based on AUM’s Proprietary MedTech Analytics

Damages and Case Count by Medical Specialty