L.A. Surgeon to Be Paid $1.35 Billion for Patents

A Minneapolis medical device manufacturer said Friday that it would pay a Los Angeles back surgeon and his company $1.35 billion to end a long-running dispute over rights to spinal implants and other instruments invented by the doctor.

The deal is believed to be one of the largest ever involving an intellectual property dispute. Under its terms, Medtronic Inc. will pay $800 million to acquire many of Dr. Gary Michelson’s inventions and an additional $550 million to settle all legal claims.

Michelson, 56, a former surgeon at Centinela Hospital Medical Center in Inglewood, and his licensing firm, Karlin Technology Inc., will share the total amount, which is less than the $1.7 billion the doctor had sought in federal court.

The accord concludes a four-year legal battle over technology that helped make Medtronic a world leader in spinal implants. The products at the center of the dispute were invented by Michelson to simplify basic spinal surgery, in which a damaged disk is removed and the adjacent vertebrae are fused together. The devices help patients recover more quickly and spend less time in the hospital.

Michelson, a prolific inventor whose many patents include a newfangled paper clip, said he was pleased that the dispute was over. The physician said it cost him more than $60 million to fight Medtronic in an all-consuming battle that put his professional life on hold.

“This has been a terrible distraction,” he said. “I feel very good about being able to put this behind.”

Michelson said that he planned to start a research foundation, contributing $200 million of the money he will be receiving from Medtronic. He has chosen a name -- Medical Research Foundation Trust -- but has not yet settled on a focus.

Medtronic, too, said it was pleased with the agreement because the company would get all of Michelson’s spine-related inventions -- a portfolio of more than 100 U.S. patents, more than 110 pending U.S. patents and 500 patents in foreign countries. The company also will get rights to Michelson’s future spinal inventions for the next 15 years.

“With this agreement, we come full circle in our relationship with Dr. Michelson,” said Michael DeMane, head of Medtronic’s spinal business.

The dispute centered on rights to implants, surgical tools and techniques that Michelson had licensed in the mid-1990s to Sofamor Danek, a company Medtronic acquired in 1999.

In 2001, Medtronic sued Michelson, charging that the surgeon was interfering with Medtronic’s business by marketing some of the inventions to competitors. It sought $225 million in damages, plus an order that could have tripled that figure.

Michelson countersued, charging that Medtronic had violated its agreement with him by not developing and selling the inventions he had licensed to the company. He said Medtronic had failed to give him credit for his inventions and was depriving him of tens of millions of dollars in royalties.

Last fall, a federal jury in Memphis, Tenn., ruled in favor of Michelson and ordered Medtronic to pay $510 million in compensatory and punitive damages. The jury also said Medtronic owed royalties on sales of products that used Michelson’s inventions, an amount that could have totaled $1 billion over two decades.

Medtronic, which posted a $1.96-billion profit on sales of $9 billion last year, called the verdict “unjustified and excessive” and said it would appeal.

Neither side would say what led to the agreement announced Friday.

Despite his long fight with Medtronic, Michelson said he was comfortable putting his inventions in Medtronic’s hands.

“After four years of protracted battle, it could leave both sides fairly bitter, but the truth of the matter is, I don’t feel anything like that,” Michelson said.

“Medtronic is a very, very capable company. A world leader, capable of developing excellent products,” Michelson said. “Now that this is behind us, I look forward to having them do what they do best.”

Michelson said that he would spend at least the next six months helping Medtronic understand the inventions it was acquiring in the deal.

For Medtronic, the agreement was “the best of bad options” facing it, said Thomas Gunderson, a medical device industry analyst with Piper Jaffray & Co.

“To come up with something that makes the litigation go away, and doesn’t impact the bottom line, is remarkable,” he said.

Medtronic, which has $4 billion in cash, said the agreement would have no effect on its earnings. Medtronic shares slipped 61 cents to $50.54 on the New York Stock Exchange on Friday.

Michelson’s grandmother, who suffered from a severe spine condition, inspired his career as an inventor. Karlin Technology is named for his grandfather.

Michelson said he would probably take a break from pursuing new inventions.

“What I’d like to do right now is have a midlife crisis and go in a new direction,” he said. He said he hoped his foundation “would be exciting and make a difference.”

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Patent cases

Largest publicly disclosed patent settlements:

*--* Reported settlement Year Plaintiff Defendant (In millions) 2005 Dr. Gary K. Michelson Medtronic $1,350 1990 Polaroid Eastman Kodak 909 2004 Sun Microsystems Microsoft 900 2004 Intergraph Intel 675 2004 InterTrust Technologies Microsoft 440

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Does not include product discounts or supplemental payments.

Sources: William O. Kerr, les Nouvelles