Arthrocare Corp. v. Smith & Nephew, Inc.

406 F.3d 1365, 74 U.S.P.Q. 2d (BNA) 1749, 2005 U.S. App. LEXIS 8108, 2005 WL 1087950
CourtCourt of Appeals for the Federal Circuit
DecidedMay 10, 2005
Docket2004-1323
StatusPublished
Cited by26 cases

This text of 406 F.3d 1365 (Arthrocare Corp. v. Smith & Nephew, Inc.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Federal Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Arthrocare Corp. v. Smith & Nephew, Inc., 406 F.3d 1365, 74 U.S.P.Q. 2d (BNA) 1749, 2005 U.S. App. LEXIS 8108, 2005 WL 1087950 (Fed. Cir. 2005).

Opinion

BRYSON, Circuit Judge.

The term electrosurgery refers to a surgical technique in which high frequency electrical current is applied to cut or ablate body tissue. There are two forms of elec-trosurgical devices, monopolar and bipolar. In monopolar devices, electric current passes from a single exposed electrode into the body tissue that is to be ablated. The current then passes through the body to a return electrode, usually attached to the outside of the patient’s body. In bipolar devices, both electrodes are inserted into the body. The current passes from one electrode, through the targeted body tissue, and then back to the return electrode.

Electrosurgery has the benefit of reducing patient bleeding and trauma. However, there are disadvantages to applying high voltages within the patient’s body, including the risk that the electrical discharge will cause damage other than to the target tissue. For that reason, the path of the electrical current through the body needs to be carefully controlled. Moreover, surgeons prefer to cleanse the surgical area during arthroscopic procedures with fluids that conduct electricity, such as saline. Therefore, electrosurgical devices need to be usable in such fluids. The patents at issue in this case sought to address the problems of controlling the electrical path and enabling electrosurgical instruments to function in the presence of conductive fluids.

The three patents at issue, U.S. Patent Nos. 5,697,536 (“the ’536 patent”), 5,697,-882 (“the ’882 patent”), and 6,224,592 (“the ’592 patent”), are owned by Arthro-Care Corporation. ArthroCare sued Smith & Nephew, Inc., in the United States District Court for the District of Delaware claiming that Smith & Nephew was liable for infringement of those patents based on its manufacture of certain electrosurgical probes and the use of those probes in surgery. In response, Smith & Nephew filed a counterclaim alleging that ArthroCare and Ethicon, Inc., had violated the antitrust laws by entering into a conspiracy in restraint of trade. Smith & Nephew’s theory of antitrust liability was that ArthroCare and Ethicon had settled an earlier dispute in a manner designed to restrain other competitors from entering the market for electrosurgical devices and that ArthoCare had brought this action, although knowing it to be objectively baseless, as part of an unlawful conspiracy with Ethicon to interfere with Smith & Nephew’s business.

Before trial, the district court bifurcated the case. The first phase encompassed the patent issues of infringement, invalidity, and inequitable conduct. The second phase addressed damages, willfulness, and the antitrust counterclaim. The court stayed the second phase until after completion of the trial on the first.

At the conclusion of the patent trial, the jury determined that Smith & Nephew had directly or indirectly infringed the three patents and that none of the patents were invalid. Smith & Nephew then moved for judgment as a matter of law and a new trial. ArthroCare meanwhile moved to dismiss Smith & Nephew’s antitrust counterclaim for failure to state a claim upon which relief could be granted. Before *1368 Smith & Nephew’s response to that motion was due, the district judge stayed all proceedings on the antitrust counterclaim while she considered Smith & Nephew’s motions for judgment as a matter of law and a new trial. The court eventually denied Smith & Nephew’s motions and entered a permanent injunction against Smith & Nephew. Arthrocare Corp. v. Smith & Nephew, Inc., 310 F.Supp.2d 638, 681 (D.Del.2004). On the same day, the court granted ArthroCare’s motion to dismiss the antitrust counterclaim before Smith & Nephew responded to the motion. Smith & Nephew sought reconsideration of the dismissal order, but the court denied the motion for reconsideration. Arthrocare Corp. v. Smith & Nephew, Inc., 315 F.Supp.2d 615, 618 (D.Del.2004). In denying reconsideration, the court stated that the order staying proceedings on the antitrust counterclaim had stayed only discovery- and trial of the counterclaim and did not affect the motion to dismiss. The court further stated that Smith & Nephew’s reliance on a statement by the court in a June 2003 telephone conference was misplaced, and that if Smith & Nephew “believed that ArthroCare’s motion [to dismiss] was premature and inconsistent with” the court’s stay order, it should have indicated so, presumably in a more formal manner. Id. at 618 n. 3. The court added that it was “not persuaded that any argument from Smith & Nephew about the basis for its antitrust allegations will change the court’s decision.” Id. at 619.

I

On appeal, Smith & Nephew first argues that the district court erred in dismissing the antitrust counterclaim without giving it an opportunity to respond to the motion to dismiss or to amend its counterclaim. Following the trial on the patent issues, the district court continued the stay of the antitrust proceedings pending the disposition of Smith & Nephew’s motions for judgment as a matter of law and a new trial, and ArthroCare’s request for an injunction. After the comb ruled on those matters, however, the court dismissed the antitrust counterclaim even though it had not received a response to the motion to dismiss from Smith & Nephew. The court noted that Smith & Nephew had not filed a response to the motion and from its silence “presume[d] that Smith & Nephew does not oppose the motion.” Moreover, the court concluded that the “sham litigation” aspect of Smith & Nephew’s antitrust counterclaim was baseless. The court did not address the other ground for the antitrust counterclaim, namely, the allegation that ArthroCare and Ethicon had entered into a settlement of their dispute that was designed to exclude other competitors, including Smith & Nephew, from the relevant market.

Smith & Nephew contends that, because of the stay of proceedings on the antitrust counterclaim, it never had an opportunity to respond to the motion to dismiss. In the absence of an opportunity to respond, Smith & Nephew contends that it was error for the court to grant the motion to dismiss.

In its opinion on reconsideration, the district court characterized the pretrial order staying proceedings on the antitrust counterclaim as staying discovery and trial but not the motion to dismiss. While it is true that the written stay order referred only to discovery and trial, the court elaborated on that order in a June 9, 2003, telephone conference, in which the court stated that proceedings on the pending motion to dismiss the antitrust counter *1369 claim were stayed. In response to a question about the pending motion to dismiss, the court stated that “everything is stayed and we’ll deal with the antitrust issues later.... So the pending motion [to dismiss] on antitrust is stayed and everything having to do with the antitrust counterclaims, discovery, substantive motions, et cetera, is stayed pending further order of the court.” In light of that colloquy, it was reasonable for Smith & Nephew to conclude that the stay order extended to the proceedings on the motion to dismiss and that it would not be required to respond to the dismissal motion until the stay was lifted.

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406 F.3d 1365, 74 U.S.P.Q. 2d (BNA) 1749, 2005 U.S. App. LEXIS 8108, 2005 WL 1087950, Counsel Stack Legal Research, https://law.counselstack.com/opinion/arthrocare-corp-v-smith-nephew-inc-cafc-2005.