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$112 Million Verdict is Not Excessive; Warsaw Orthopedic, Inc. v. Sasso

Dr. Rick Sasso is a renowned spinal surgeon and inventor of technology used in spinal surgery. Sasso assigned certain intellectual property rights, including patents, to Medtronic and was promised royalties in return. Sasso was not receiving all the royalties that he thought were owed and sued Medtronic for breach of two contracts.

One of the contracts, the Screw Agreement, involved a new technique for spinal surgery that minimized incisions by using a tube to guide surgical implements and instruments.

The second, the Vertex Agreement, involved a new posterior spinal rod system that solved a problem with anchoring and aligning screws and plates in the cervical spine during surgery.

After a 15-day trial in November 2018, a Marshall County jury returned a verdict in favor of Sasso for $112 million and Medtronic appealed on multiple grounds. In a 45-page Memorandum Opinion, the Court of Appeals addressed several complex issues, two of which we address here.

The Screw Agreement provided that Medtronic would pay a royalty of 2.5% for worldwide sale of Medtronic parts that utilized Sasso’s intellectual property and these parts were to be identified by catalog number on Schedule B of the agreement. No
catalog part numbers were ever listed on Schedule B. However, for 16 years, Medtronic paid Sasso the stated royalty for sales of some parts that used Sasso’s Intellectual Property.

Medtronic argued that since the contract required listing of the part numbers on Schedule B and none were listed, it was not obliged to pay further royalties. Medtronic also argued that the contract required that any modification must be in writing, but no such written modification had occurred. Rejecting these arguments, the Court held that the parties’ course of conduct effected an implied modification of the contract so that listing on Schedule B was not required.

Medtronic also argued that the evidence was insufficient to support a $112 million judgment. The Court declared: “We employ an extremely deferential standard when reviewing a jury’s damage award.” Rejecting Medtronic’s argument that the damages
were “wildly inflated”, the Court found the damage award to be within the scope of the evidence. In particular, the Court noted that Sasso’s damages expert testified, without objection at trial, to the specific numbers that the jury awarded.

The Court added by footnote that Medtronic had attempted to exclude the expert’s testimony at a Daubert hearing but had failed to object when the expert testified to these damages at trial. This failure to object waived the issue for appeal.

Lessons:

1. The parties may by course of conduct modify the terms of a contract even when the contract states that any modification must be made in writing.
2. The standard of review of damages awards is “extremely deferential” to the jury’s decision.
3. In state court, if you want to preserve an evidentiary issue for appeal, you must make a contemporaneous objection when the evidence is offered at trial. A Daubert motion or other pretrial motion in limine will not preserve the issue.
NOTE: As a Memorandum Opinion, this decision may not be cited as precedent. The issue of “implied modification of a contract by course of conduct” was decided by applying Tennessee law as the contract required. There are similar cases in Indiana to the same effect.