Jury Orders Medtronic to Pay Punitive Damages of $400 Million to L.A. Inventor

A federal jury ordered Medtronic Inc. on Tuesday to pay a Los Angeles surgeon $400 million in punitive damages in a dispute over implants that he invented to treat spinal injuries.

Those damages came on top of $110 million in compensatory damages the jury awarded two weeks ago to Dr. Gary K. Michelson and his licensing firm, Karlin Technology Inc., after finding that Medtronic, which sold the implants, breached several licensing contracts.

The jury also ruled that the medical equipment maker infringed patents held by Michelson and must pay him 10% of its sales on those products -- royalties that could boost the total damages to more than $1 billion over the next 20 years, said Robert Krupka, a Los Angeles lawyer who represents Michelson.

“This is one of the best days of my life,” said Michelson, who practiced at Centinela Hospital Medical Center in Inglewood for two decades and holds hundreds of patents for spinal surgical techniques, implants and devices. “I have a deep sense of awe, really awe, that this jury could get it so right.”

Minneapolis-based Medtronic called the award “unjustified and excessive” and said it would appeal the ruling against its subsidiary Medtronic Sofamor Danek Inc. The company expressed confidence that it would be vindicated.

“We do not believe today’s verdict will have any material impact on our ability to supply products to our customers or to continue to innovate,” said Bob Hanvik, spokesman for Medtronic, which does $9 billion annually in global sales of medical devices.

Analysts said the cash-rich company could handle the award, if it sticks. An appeals court could reduce the damages or overturn the jury decision.

Medtronic shares fell 9 cents to $51.09 on the New York Stock Exchange.

The legal battle began in 2001 when Medtronic sued Michelson, alleging that he was interfering with its business by trying to sell his devices to competitors.

Michelson countersued, alleging that Medtronic invented its claim in an effort to scare off other firms from doing business with the doctor in order to gain a stronger position in its own negotiations with him. He also claimed that Medtronic had cheated him out of royalties and infringed some of his patents.

The trial was held in U.S. District Court in Memphis, Tenn., home of the Sofamor Danek unit.

Testimony lasted three months, and jurors pored over thousands of pages of documents before ruling that Medtronic had breached purchase and licensing agreements with Michelson, infringed six of his patents and intentionally underpaid royalties.

Michelson, 55, said he had spent $62 million of his own money and Karlin’s assets on legal expenses.

“I was well off before this started,” Michelson said in an interview from Memphis. “I risked everything and spent 3 1/2 years under siege and not sleeping at night because they were suing me for $820 million.”

Michelson told jurors during the trial that he became an inventor because of his unusually large hands, which were “too big to stick into anybody.” After working a full day as a doctor, Michelson tinkered in his kitchen and in his garage on devices to improve the way he and other doctors performed surgery.

Among his inventions that were at issue in the Medtronic case were metal cages that doctors implant when discs are removed to speed recovery from spinal surgery.

Michelson said he had just quit a successful career as a surgeon and was launching a nonprofit medical research company when Medtronic filed suit. Profit from Karlin, a company named after his grandparents and owned by a charitable trust, was earmarked for his research. But the legal battle consumed his time and soaked up the revenue stream for the research.

“What I’d like to do is get the research lab going,” Michelson said. “It’s a chance to do good for people, and Medtronic is stealing that opportunity from us right now.”

Appellate experts said it could take years for Medtronic’s appeals to work their way through the courts. Experts said the size of the damages could also be an issue in light of recent Supreme Court rulings.

“To me, this whole verdict sounds like it is subject to attack given the astronomical size of the award,” said Theodore Boutrous, a Los Angeles lawyer who handles appeals for large companies but is not involved in the Medtronic case.

In addition to the verdict, the damages award is subject to review by the trial judge, an appellate court and possibly the Supreme Court.

Medtronic “will have two or three bites at the apple in hopes of getting it lowered,” said Loyola Law School professor Richard L. Hasen.