Anatomy of a Spinal Patent

Medtronic, Inc. Settles Patent Dispute with Surgeon for $1.35B (Apr. 23, 2005)

Dr. Gary Michelson is one of the country’s newest billionaires, having recently received $1.35B in a settlement with Medtronic, Inc. over the use of Michelson’s patented spinal implant system. The settlement includes $550m to settle a patent infringement dispute and $800m for Medtronic to buy Michelson’s patent portfolio, which includes over 700 U.S. patents, patent applications and foreign patents.

Michelson began licensing his technology to Sofamor Danek in 1994, and later to Medtronic, which acquired the company in 1999 for $3.8b. Michelson felt that he wasn’t earning enough royalties from Medtronic and sought out other companies to make his devices.

In 2001, Medtronic sued Michelson for breach of contract over a noncompete clause in their agreement. Michelson then counter-sued for patent infringement. Protracted litigation resulted in a $559m verdict for Michelson. Along the way, Michelson spent $60m of his personal fortune in legal fees, while Medtronic spent $25-$30m per year over three years.

These staggering costs divert a lot Medtronic’s resources to a socially unproductive litigation. “Patent litigation is a big money hole,” notes Thomas Gunderson, a securities analyst at Piper Jaffray, “it’s part of the business, but sometimes too big a part.” Gunderson added that the litigation was “expensive and distracting.” However, Medtronic CFO Gary Ellis announced that up to $175m of the legal settlement will be recorded as research and development.

Surgical Patents
News reports have paid little attention to the substance of the patents in dispute. One of the hotly contested patents, US 6,210,412, is typical of a “medical method patent.” While some of Michelson’s patents covered a novel device, the ‘412 patent covers only a method using of the device. The patent is entitled, “Method for Inserting Frusto-Conical Interbody Spinal Fusion Implants.” Translated, the patent teaches a surgical technique for inserting a device that bridges adjacent vertebrae.

It may seem odd that an individual doctor could prevent all practitioners in the United States from performing a cutting-edge surgical procedure or else risk being sued for patent infringement. However, just such a situation occurred in Pallin v. Singer, where one eye surgeon sued another for infringement of a surgical eye procedure. In response to this lawsuit, Congress passed a law granting limited immunity to medical practitioners. The law, now 35 USC 287, however excludes immunity where the patented procedure is a method for using a patented device. This provision allows patents like the ‘412 patent to be enforced.

The American Medical Association has taken a strong position against medical procedure patents, though it recognizes the legitimacy of patents on surgical instruments and tools. According to the AMA code of ethics, rule E-9.095 provides, in part:

“The patenting of medical procedures poses substantial risks to the effective practice of medicine by limiting the availability of new procedures to patients and should be condemned on this basis. Accordingly, it is unethical for physicians to seek, secure or enforce patents on medical procedures.”

Opponents of the free use of surgical techniques have argued that patents on medical methods are necessary to promote innovation. The AMA however points to the fact that there has been no empirical research supporting this theory. The medical profession has its own series of incentives, including the respect and recognition from peers. This proved sufficient to lead to rapid breakthrough between World War II and the late 1970’s.

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