Case 3:04-cv MO Document 934 Filed 06/22/11 Page 1 of 42

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1 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 1 of 42 UNITED STATES DISTRICT COURT DISTRICT OF OREGON PORTLAND DIVISION SMITH & NEPHEW, INC, and JOHN O. HAYHURST, M.D., v. Plaintiffs, Civ. No MO FINAL JURY INSTRUCTIONS PATENT CASE ARTHREX, INC., Defendant. DATED this 11 day ofjune, M chael W. Mosman United States District Ju e

2 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 2 of 42 TABLE OF CONTENTS DUTY OF THE JURy... 1 WHAT IS EVIDENCE... 2 WHAT IS NOT EVIDENCE... 3 DIRECT AND CIRCUMSTANTIAL EVIDENCE... 4 CREDIBILITY OF WITNESSES... 5 EXPERT OPINION... 6 CHARTS AND SUMMARIES NOT RECEIVED IN EVIDENCE... 7 CHARTS AND SUMMARIES IN EVIDENCE... 8 DEPOSITION IN LIEU OF LIVE TESTIMONy... 9 EVIDENCE IN ELECTRONIC FORMAT BURDENS OF PROOF CLAIM CONSTRUCTION - GENERALLY CLAIM CONSTRUCTION CLAIM TERMS NOT IN DISPUTE INFRINGEMENT GENERALLY KNOWLEDGE OF PATENT FOR DIRECT INFRINGEMENT DIRECT AND INDIRECT INFRINGEMENT CONTRIBUTORY PATENT INFRINGEMENT INDUCING PATENT INFRINGEMENT INFRINGEMENT OF OPEN ENDED OR "COMPRISING" CLAIMS WILLFUL INFRINGEMENT DAMAGES - GENERALLY TWO TYPES OF DAMAGES - LOST PROFITS AND REASONABLE ROyALTy LOST PROFITS - "BUT FOR" TEST LOST PROFITS - PANDUIT FACTORS LOST PROFITS - P ANDUIT FACTORS - DEMAND LOST PROFITS - PANDUIT FACTORS - ACCEPTABLE NON-INFRINGING SUBSTITUTE LOST PROFITS - MARKET SHARE LOST PROFITS - P ANDUIT FACTORS - CAPACITy LOST PROFITS - PANDUIT FACTORS - AMOUNT OF PROFIT INCREMENTAL INCOME APPROACH REASONABLE ROYALTY REASONABLE ROYALTY - DEFINITION REASONABLE ROYALTY - RELEVANT FACTORS REASONABLE ROYALTY - TIMING CONCLUSION OF INSTRUCTIONS DUTY TO DELIBERATE ii

3 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 3 of 42 COMMUNICATION WITH THE COURT RETURN OF VERDICT III

4 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 4 of 42 Instruction No.1 DUTY OF THE JURY Ladies and Gentlemen: You are now the jury in this case. It is my duty to instruct you on the law. You must not infer from these instructions or from anything I may sayar do as indicating that I have an opinion regarding the evidence or what your verdict should be. It is your duty to find the facts from all the evidence in the case. To those facts you will apply the law as I give it to you. You must follow the law as I give it to you whether you agree with it or not. And you must not be influenced by any personal likes or dislikes, opinions, prejudices, or sympathy. That means that you must decide the case solely on the evidence before you. You will recall that you took an oath todo so. In following my instructions, you must follow all ofthem and not single out some and ignore others; they are all important. 1

5 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 5 of 42 Instruction No.2 WHAT IS EVIDENCE The evidence you are to consider in deciding what the facts are consists of: 1. the sworn testimony of any witness; 2. the exhibits which are received into evidence; and 3. any facts to which the lawyers have agreed. 2

6 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 6 of 42 Instruction No.3 WHAT IS NOT EVIDENCE In reaching your verdict, you may consider only the testimony and exhibits received into evidence. Certain things are not evidence, and you may not consider them in deciding what the facts are. I will list them for you: 1. Arguments and statements by lawyers are not evidence. The lawyers are not witnesses. What they have said in their opening statements, will say in their closing arguments, and at other times is intended to help you interpret the evidence, but it is not evidence. If the facts as you remember them differ from the way the lawyers have stated them, your memory of them controls. 2. Questions and objections by lawyers are not evidence. Attorneys have a duty to their clients to object when they believe a question is improper under the rules of evidence. You should not be influenced by the objection or by the court's ruling on it. 3. Testimony that has been excluded or stricken, or that you have been instructed to disregard, is not evidence and must not be considered. In addition sometimes testimony and exhibits are received only for a limited purpose; when I have given a limiting instruction, you must follow it. 4. Anything you may have seen or heard when the court was not in session is not evidence, You are to decide the case solely on the evidence received at the trial. 3

7 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 7 of 42 Instruction No, 4 DIRECT AND CIRCUMSTANTIAL EVIDENCE Evidence may be direct or circumstantial. Direct evidence is direct proof of a fact, such as testimony by a witness about what that witness personally saw or heard or did. Circumstantial evidence is proof of one or more facts from which you could find another fact. You are to consider both kinds of evidence. Either can be used to prove any fact. The law makes no distinction between the weight to be given to either direct or circumstantial evidence. It is for you to decide how much weight to give to any evidence. 4

8 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 8 of 42 Instruction No.5 CREDIBILITY OF WITNESSES In deciding the facts in this case, you may have to decide which testimony to believe and which testimony not to believe. You may believe everything a witness says, or pati of it, or none of it. Proof of a fact does not necessarily depend on the number of witnesses who testify about it. In considering the testimony of any witness, you may take into account: I. the oppatiunity and ability of the witness to see or hear or know the things testified to; 2. the witness's memory; 3. the witness's manner while testifying; 4. the witness's interest in the outcome of the case and any bias or prejudice; 5. whether other evidence contradicted the witness's testimony; 6. the reasonableness of the witness's testimony in light of all the evidence; and 7. any other factors that bear on believability. The weight of the evidence as to a fact does not necessarily depend on the number of witnesses who testify about it. 5

9 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 9 of 42 Instruction No.6 EXPERT OPINION Some witnesses, because of education or experience, are pennitted to state opinions and the reasons for those opinions. Opinion testimony should be judged just like any other testimony. You may accept it or reject it, and give it as much weight as you think it deserves, considering the witness's education and experience, the reasons given for the opinion, and all the other evidence in the case. 6

10 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 10 of 42 Instruction No.7 CHARTS AND SUMMARIES NOT RECEIVED IN EVIDENCE Celiain chalis and summaries not received in evidence have been shown to you in order to help explain the evidence in the case. They are not themselves evidence or proof of any facts. If they do not correctly reflect the facts or figures shown by the evidence in the case, you should disregard these charts and summaries and determine the facts from the underlying evidence 7

11 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 11 of 42 Instruction No.8 CHARTS AND SUMMARIES IN EVIDENCE Celiain charts and summaries have been received into evidence to illustrate information brought out in the trial. Charts and summaries are only as good as the underlying evidence that supports them. You should, therefore, give them only such weight as you think the underlying evidence deserves. 8

12 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 12 of 42 Instruction No.9 DEPOSITION IN LIEU OF LIVE TESTIMONY A deposition is the sworn testimony of a witness taken before trial. The witness is placed under oath to tell the truth and lawyers for each patiy may ask questions. The questions and answers are recorded. When a person is unavailable to testify at trial, the deposition ofthat person may be used at the trial. You should consider deposition testimony, presented to you in court in lieu of live testimony, insofar as possible, in the same way as if the witness had been present to testify. 9

13 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 13 of 42 Instruction No.1 0 EVIDENCE IN ELECTRONIC FORiVlAT Except for videos and spreadsheets, all the exhibits shown to you in electronic format will be available to you in paper form. For the videos and spreadsheets, a computer will be available to you in the jury room. A court technician will show you how to operate the computer and how to locate and view the videos and spreadsheets. You will also be provided with a paper list of all exhibits received in evidence. If you need additional equipment or supplies, you may make a request by sending a note. The sole purpose of providing the computer in the jury room is to enable jurors to view the exhibits received in evidence in this case. You may not use the computer for any other purpose. 10

14 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 14 of 42 Instruction No. 11 BURDENS OF PROOF In any legal action, facts must be proved by a specific standard known as the "burden of proof." In this case, one of two different burdens of proof will be used, depending upon the issue being decided. The first burden of proof standard requires that, in order for a party to prevail, you must be persuaded that what the party seeks to prove is more probably true than not true. Another way you will hear this phrased is "more likely true than not true." They are the same. This standard is called proof by a preponderance of the evidence. You will determine whether the Arthrex anchors infringe Smith & Nephew's '557 patent and damages using this standard. The second burden of proof standard is a higher one. It requires that you must be persuaded that it is highly probable that what the party seeks to prove is true. This standard is called proof by clear and convincing evidence. This second standard applies only to the issue of willful infringement. You may have heard of a burden of proof used in criminal cases called "beyond a reasonable doubt." That is the highest burden of proof. It does not apply in a civil case such as this one. You should, therefore, put it out of your mind. 11

15 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 15 of 42 Instruction No. 12 CLAIM CONSTRUCTION - GENERALLY Before you decide whether Atihrex has infringed the claims of the '557 patent, you will have to understand the patent claims. The patent claims are numbered sentences at the end of the patent. The patent claims involved here are claims 1 through 7, beginning at column 11, line 1 of the patent, which is Smith & Nephew's Exhibit 1 in evidence. The claims are intended to define, in words, the boundaries of the invention. Only the claims of the patent can be infringed. Neither the written description, nor the drawings of a patent can be infringed. Each of the claims must be considered individually. 12

16 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 16 of 42 Instruction No. 13 CLAIM CONSTRUCTION It is my job as Judge to provide you the meaning of any claim language that must be interpreted. You must accept the meanings I give you and use them when you decide whether any claim of the patent has been infringed. I will now tell you the meanings of the following words and groups of words that are found in the patent claims or that are words of the patent claims. Not all of these telms are in all the claims. "Member" "Member" is the anchor itself. It need not be made up of only one piece. The telm "member'! is interpreted to require that the entire member is "resilient" as defined below. The resilience must be accomplished in some fashion by the nature of the materials used. Either the material itself is resilient, or the combination of the configuration and the nature of the materials results in resilience. "Resile" & "Resilient" As the term "resile" appears in Claim 2, it means to return to or tend to return to a prior or original position in a manner sufficient to cause the lodging of the member in the hole. Completely returning to a prior or original position, though included, is not required. "Resilient," as that term is incolporated into the definition of "member," means that the device must "resile" in use in a manner sufficient to cause the lodging of the member in the hole. "Sufficient" means that resilience must be enough, on its own, to cause the lodging of the member in the hole, even though other factors may supplement the lodging. "Lodging the member within the hole" "Lodging the member within the hole" means that the anchor, once pressed into the hole, may not be removed. However, this pin'ase does not require that the anchor be immovable when pressed into the hole, nor does it preclude movement or manipulation after lodging. Therefore, once the anchor is pressed into the hole, some manipulation may occur, but manipulation beyond pressing must not be necessary in order to secure the anchor in the hole. The further movement that is pelmitted, but not required, mayor may not result in the suture anchor being even more securely lodged in the bone. "Lodged" means that the device is ready to secure tissue to the bone. "Lodging" takes place when the anchor is pressed into the bone hole. This is also when the anchor is ready to secure tissue to the bone. I remind you that "lodging" must be achieved by the resilience of the anchor alone, even though other factors may supplement the lodging. "Ready to secure tissue to bone" means that resilience must be sufficient to maintain the anchor in the hole up to the point that the suture is tensioned. You may consider events after the anchor is pressed into the bone hole as evidence of whether lodging occuned at the time the anchor was pressed into the hole. 13

17 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 17 of 42 Instruction No. 14 CLAIM TERMS NOT IN DISPUTE If you find that the accused At1hrex suture anchors are "resilient members" as I have defined those telms, then the following p0l1ions of the claims of the '557 patent are met when those anchors are used: 1. "A method for anchoring in bone a member and attached suture" (all claims); 2. "forming a hole in the bone" (claims 1-5); 3. "forming a hole in a bone in a manner that the hole has a diameter that is not greater than the width dimension D" (claims 6 and 7); 4. "attaching a suture to a member" (claims 1, 2 and 4-6); 5. "attaching a suture to a member by threading the suture through a passage in the member so that neither end of the suture is fastened to the member" (claim 3); 6. "threading the suture through the member so that the suture defines two contiguous segments extending from the member" (claim 7); 7. "within the hole" (all claims); 8. "inserting the member into the hole" (claims 6 and 7); 9. "pressing the member with attached suture into the hole" (claims 1-5); 10. "attaching tissue to the suture so that the tissue is secured against the bone" (claim 1); 11. "wherein the tissue is a non-bony tissue" (claim 4); 12. "wherein the tissue is a member of the group consisting ofcai1i1age, tendon" (claim 5); 13. "member having a width dimension 'D'" (claim 6); 14. "absence of any manipulation of the member other than insel1ing the member into the hole" (claim 6); and 15. "defoiming the member" (claim 2) and "defonnable member" (claim 6). 14

18 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 18 of 42 Instruction No. 15 INFRINGEMENT GENERALLY I will now instruct you as to the rules you must follow when deciding whether Smith & Nephew has proven that Atihrex infringed any of the claims of the' 557 patent. Patent law gives the owner of a patent the right to exclude others from importing, making, using, offering to sell, or selling the patented invention within the United States during the term of the patent. Any person or business entity that has engaged in any of those acts without the patent owner's permission infringes the patent. Here, Smith & Nephew alleges that the use of Arthrex's accused suture anchors infringes method claims 1 through 7 of the '557 patent. A patent may be infringed directly or indirectly. Direct infringement results if every element of the accused method is covered by at least one claim of the patent. Indirect infringement results if the defendant induces another to infringe a patent or contributes to the infringement of a patent by another. In this case, Smith & Nephew asserts that the surgeons who follow Atihrex's written instructions for Alihrex's Bio-Suture Tak, PEEK Suture Tak, Bio-PushLock and PEEK PushLock suture anchors directly infringe claims 1 through 7 of the '557 patent. Smith & Nephew alleges At threx indirectly infringes the claims of the '557 patent. 15

19 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 19 of 42 Instruction No. 16 KNOWLEDGE OF PATENT FOR DIRECT INFRINGEMENT A surgeon can directly infringe a patent without knowing that what he is doing is an infringement of the patent. He also may directly infringe even though he believes in good faith that what he is doing is not an infringement of any patent. 16

20 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 20 of 42 Instruction No. 17 DIRECT AND INDIRECT INFRINGEMENT To determine indirect infringement by Atthrex, you must first determine whether the acts perfolmed by the surgeons constitute direct infringement. If you determine that it is more likely true than not true that Arthrex's anchors (i.e., "members") "lodge" through "resilience" as I defined those terms in Instruction No. 13, then you must find that the surgeons directly infringe claims 1-7 of the '557 patent. 17

21 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 21 of 42 Instruction No. 18 CONTRIBUTORY PATENT INFRINGEMENT The first type of indirect infringement Smith & Nephew alleges is contributory infringement. Smith & Nephew asserts that Arthrex contributed to another's infringement. Smith & Nephew has the burden to prove that it is more likely tme than not tme that there was contributory infringement. Smith & Nephew alleges that surgeons using Arthrex anchors have directly infringed. If there is no direct infringement by surgeons, Artlu'ex cannot have contributed to the infringement of the patent. If you find surgeons have directly infringed the '557 patent, then contributory infringement exists only if: I, Arthrex sold or supplied; 2, a material component of the patented invention that is not a staple article of commerce capable of substantial non-infringing use; and 3, with knowledge that the component was especially made or adapted for use in a method Artlu'ex knew to be infringing, Smith & Nephew can prove Artlu'ex had knowledge of infringement either by showing Arthrex actually knew the surgeons were directly infringing or by showing Atilu'ex was willfully blind to whether surgeons were directly infringing, In order to show that Arthrex was willfully blind, Smith & Nephew must prove that it was more likely tme than not tme that: (1) Arthrex subjectively believed that there was a high probability that the surgeons would directly infringe; and (2) Arthrex took deliberate actions to avoid leaming of that fact. A "staple article of commerce capable of substantial non-infringing use" is something that has uses other than in the patented method, and those other uses are not occasional, farfetched, impractical, experimental or hypothetical. 18

22 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 22 of 42 Instruction No. 19 INDUCING PATENT INFRINGEMENT The second type of indirect infringement is infringement through inducement. Smith & Nephew asserts that Arthrex actively induced surgeons to directly infringe the' 557 patent. To show induced infringement, Smith & Nephew must prove that it is more likely true than not true that the surgeons have directly infringed the' 557 patent and that Arthrex has actively and knowingly aided and abetted that direct infringement. You will be asked to analyze induced infringement in two separate ways, First, you must determine whether Smith & Nephew has shown that it is more likely true than not true that Alihrex actually intended to cause the encouraged acts that constitute direct infringement, that Arthrex knew of the' 557 patent, and that ArtlU'ex knew or should have known that the encouraged acts constituted infringement ofthe patent. Second, you must determine whether Smith & Nephew has shown that it is more likely true than not that Atilu'ex actually intended to cause the acts that constitute direct infringement, that Alilu'ex knew of the patent, and that Arthrex actually knew or was willfully blind to the fact that its actions would lead to actual infringement. In order to show that Alihrex was willfully blind, Smith & Nephew must prove that it was more likely true than not true that (1) At,tlu'ex subjectively believed that there was a high probability that the induced acts constituted infringement, and (2) Artlu'ex took deliberate actions to avoid learning of that fact. Intent to cause the acts that constitute direct infringement may be demonstrated by evidence of active steps taken to encourage direct infringement, such as adveliising an infringing use or inst11lcting how to engage in an infi-inging use, Smith & Nephew alleges that surgeons using Artlu'ex anchors directly infringed, If you find there is no direct infringement by surgeons, there can be no induced infringement. 19

23 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 23 of 42 Instruction No. 20 INFRINGEMENT OF OPEN ENDED OR "COMPRISING" CLAIMS The preamble to claims 1, 2, 3 and 6 uses the phrase, "A method for anchoring in bone a member and attaching suture comprising the steps of.... " The word "comprising" means "including the following steps but not excluding others." If you find that the methods of using Arthrex's suture anchors include all the steps in claims 1,2,3 or 6, the fact that these methods might include additional method steps would not avoid literal or direct infringement of those claims. 20

24 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 24 of 42 Instruction No. 21 WILLFUL INFRINGEMENT If you find that it is more likely true than not true that Atihrex indirectly infringed the '557 patent under the definitions of "contributory" 01' "induced" infringement, then you must further detelmine if this infringement was willful. Willful infringement must be proved by clear and convincing evidence showing that: 1. At-tlu'ex was aware of the '557 patent; 2, Arthrex acted despite an objectively high likelihood that its actions infringed the '557 patent; and 3, This objectively high likelihood of infringement was either known 01' so obvious that it should have been known to Atilu'ex, In making the determination as to willful infringement, you must consider the totality of the circumstances. The totality of the circumstances comprises a number of factors, which include, but are not limited to, whether Arthrex intentionally copied the claimed invention or a product covered by the' 557 patent, and whether Artlu'ex presented a substantial defense to infringement. 21

25 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 25 of 42 Instruction No. 22 DAMAGES-GENERALLY If you find that Arthrex indirectly infringed any of the claims of the '557 patent, you must determine the amount of damages to be awarded Smith & Nephew for the infringement. On the other hand, if you find that each of the asserted patent claims are not infringed, then you need not address damages in your deliberations. If you need to detennine damages, the amount of damages must be adequate to compensate Smith & Nephew for the infringement. Your damage award should put Smith & Nephew in approximately the financial position it would have been in had the infringement not occurred; but in no event may the damage award be less than a reasonable royalty. You may not add anything to the amount of damages to punish the accused infringer or to set an example. Smith & Nephew must prove each element of its damages by a preponderance of the evidence. The fact that I am instructing you as to the proper measure of damages should not be construed as intimating any view of the Court as to which party is entitled to prevail in this case. Instructions as to the measure of damages are given for your guidance in the event you find the evidence in favor of the Smith & Nephew. 22

26 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 26 of 42 Instruction No. 23 TWO TYPES OF DAMAGES - LOST PROFITS AND REASONABLE ROYALTY There are two types of damages for patent infringement. The first type of patent damages is lost profits. Briefly, lost profits damages compensate the patent owner for the additional profits that it would have made if the accused infringer had not infringed. You may hear this referred to as the "but for" test. The second type of patent damages is called reasonable royalty. Generally, the patent laws define a reasonable royalty as the reasonable amount that someone wanting to use the patented invention should expect to pay the patent owner and the owner should expect to receive. A reasonable royalty is the minimum amount of damages that a patent owner may recover for infringement. 23

27 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 27 of 42 Instruction No. 24 LOST PROFITS - "BUT FOR" TEST Smith & Nephew is seeking its lost profits as a portion of its patent damages. Smith & Nephew must prove the amount of its lost profits. To recover lost profits for some or all of the infringing sales, Smith & Nephew must show that but for the infringement, it would have made those sales or a portion of them that Atthrex made of its accused suture anchors. Thus, part of your job is to detennine what the customers who purchased the accused suture anchors would have done if the infringement had not occulted. The profits I have been referring to are the profits allegedly lost by Smith & Nephew, not the profits, if any, made by Atthrex. 24

28 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 28 of 42 Instruction No. 25 LOST PROFITS - P ANDUIT FACTORS You may infer that Smith & Nephew has proven its lost profits if you find that it has proven each of the following factors by a preponderance ofthe evidence: 1. the demand for the suture anchors used with the claimed method; 2. the absence of acceptable non-infhnging substitutes; 3. that Smith & Nephew had the manufacturing and marketing capacity to make the infringing sales or a portion therefore actually made by Atthrex; and 4. the amount of profit that Smith & Nephew would have made but for At t!u ex's sales. I will now explain each of these factors. 25

29 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 29 of 42 Instruction No. 26 LOST PROFITS - P ANDUIT FACTORS - DEMAND The parties have stipulated that the first Panduit factor addressing demand is satisfied, and that there is demand for suture anchors that use the methods encompassed in the' 557 patent. 26

30 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 30 of 42 Instruction No. 27 LOST PROFITS - PANDUIT FACTORS - ACCEPTABLE NON-INFRINGING SUBSTITUTE In order to be an acceptable substitute, the product must have one or more of the advantages of the patented invention that were important to customers. If, however, the realities of the marketplace are that competitors other than Smith & Nephew would likely have captured some or all ofthe sales by the infringer, even despite a difference in the products, then Smith & Nephew is not entitled to lost profits on those sales. An acceptable non-infringing substitute is a product that does not infringe the patent. A product does not infringe a patent when it either: 1. is sold based on a license under that patent; or 2. its use does not include all the features required by the patent. An acceptable non-infringing substitute is available if, during the damages period, a competitor or Alihrex had all the necessary equipment, materials, know-how and experience to design and manufacture the substitute, and sell such substitute instead of its infringing sales at the time those infringing sales were made. If you detelmine that Arthrex's customers would just as likely have purchased a non-infringing acceptable product, then Smith & Nephew has not shown it lost that sale but for Arthrex' s sales. In order to assess whether there is an absence of acceptable non-infringing substitutes, you must consider whether non-infringing substitutes existed that were acceptable to the specific purchasers of the infringing products, not products generally. The test of whether purchasers of the Alihrex suture anchors involved in this case were motivated to make their purchases by features available only from Arthrex's accused anchors that were attributable to the claimed invention. If so, non-infringing products without those features would not be acceptable noninfringing substitutes. 27

31 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 31 of 42 Instruction No. 28 LOST PROFITS - MARKET SHARE It is not necessary for Smith & Nephew to prove that Smith & Nephew and Atthrex were the only two suppliers in the market for Smith & Nephew to demonstrate entitlement to lost profits. Ifthe realities of the marketplace are such that acceptable non-infringing substitutes were available from suppliers who would have made only some, but not all, of the sales made by Atthrex, then Smith & Nephew may be entitled to lost profits on a poltion of the infringing sales. The burden is on Smith & Nephew however, to show a reasonable probability that it would have sold that portion if Atthrex's accused suture anchors had never existed. By the same token, even if you find that Smith & Nephew and Atthrex were the only two suppliers of products having the advantages of the patented invention, it does not necessarily mean that Smith & Nephew would have made all of Atthrex's sales. The burden is on Smith & Nephew to show that its product competed in the same market with Arthrex's accused suture anchors and that it would have made those sales if the infringement had not occurred. 28

32 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 32 of 42 Instruction No. 29 LOST PROFITS - PANDUIT FACTORS - CAPACITY Smith & Nephew is only entitled to lost profits for sales it could have actually made. You should consider whether Smith & Nephew has proven that it had the manufacturing capacity and the marketing capability to make the sales it says it lost. Smith & Nephew must prove that it was more probable than not that it could have made, or could have had someone else make for it, the additional products it says it could have sold but for the infringement. Smith & Nephew must also prove that it had the capability to market and sell the additional patented products. 29

33 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 33 of 42 Instruction No. 30 LOST PROFITS - P ANDUIT FACTORS - AMOUNT OF PROFIT INCREMENTAL INCOME APPROACH Smith & Nephew may calculate its lost profits on lost sales by computing the lost revenue for its patented product and subtracting from that figure the amount of additional costs or expenses that it would have incurred in making those lost sales, including, but not limited to, cost of goods, sales costs, packaging, shipping, et cetera. Certain fixed costs such as taxes, insurance, rent and administrative overhead may not vary with increases in production or scale. These are called' fixed costs. Any costs which do not vary with increased production or scale should not be subtracted from the lost revenue when determining damages. Thus, in detennining Smith & Nephew's lost profits, you are not to subtract from its lost revenue the amount of any fixed costs. The amount of lost profits cannot be speculative but it need not be proved with unerring certainty. 30

34 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 34 of 42 Instruction No. 31 REASONABLE ROYALTY If you find that Smith & Nephew has not proven its claim for lost profits, or if you find that Smith & Nephew has proven its claim for lost profits for only a portion of the infringing sales, you must then detelmine what a reasonably royalty would be for that portion of At1hrex' s sales for which you have not awarded lost profit damages. The patent law specifically provides that the amount of damages that At1hrex must pay Smith & Nephew for infringing the' 557 patent may not be less than a reasonably royalty for the use that At1hrex made of Dr. Hayhurst's invention. A reasonable royalty is not necessarily the actual measure of damages, but is merely the floor below which damages should not fall. Smith & Nephew is entitled to a reasonable royalty for all infringing sales for which it is not entitled to lost profits damages. 31

35 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 35 of 42 Instruction No. 32 REASONABLE ROYALTY - DEFINITION A royalty is a payment made to the owner of a patent by a non-owner in exchange for rights to make, use or sell the claimed invention. A reasonable royalty is the royalty that would have resulted from a hypothetical negotiation between the patent owner and a company in the position of Alihrex taking place just before the infringement began. You should also assume that both pmiies to the negotiation understood the patent to be valid and infringed, and were willing to enter into a license. 32

36 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 36 of 42 Instl'uction No. 33 REASONABLE ROYALTY - RELEVANT FACTORS In determining the value of a reasonable royalty, you may consider evidence on any of the following factors: 1. Any royalties received by the licensor for the licensing of the patent in suit, proving or tending to prove an established royalty; 2. The rates paid by Atihrex to license other patents comparable to the' 557 patent; 3. The nature and scope of the license, as exclusive or nonexclusive, or as restricted or nonrestricted in tenns of its te11'itory or with respect to whom the manufactured product may be sold; 4. The licensor's established policy and marketing program to maintain its right to exclude others from using the patented invention by not licensing others to use the invention, or by granting licenses under special conditions designed to preserve that exclusivity; 5. The commercial relationship between the licensor and the licensee, such as whether or not they are competitors in the same te11'itory in the same line of business; 6. The effect of selling the patented product in promoting sales of other products of the licensee; 7. the existing value of the invention to the licensor as a generator of sales of its nonpatented items, and the extent of such collateral sales; 8. The duration ofthe '557 patent and the term of the license; 9. The established profitability of the product made under the '557 patent, its commercial success and its current popularity; lo. The utility and advantages of the patented invention over the old modes or devices, if any, that had been used for achieving similar results; 11. The nature of the patented invention, the character of the commercial embodiment of it as owned and produced by the licensor, and the benefits to those who have used the invention; 12. The extent to which Arthrex has made use of the invention; and any evidence that shows the value ofthat use; 13. A portion of the profit or of the selling price that may be customary in the particular business or in comparable business to allow for use of the invention or analogous inventions; 33

37 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 37 of The p011ion of the profit that arises from the patented invention itself as opposed to profit arising from un-patented features, such as the manufacturing process, business risks, or significant features or improvements added by the accused infringer; 15. The opinion testimony of qualified expells; 16. The amount that a licensor and a licensee (such as Arthrex), would have agreed upon (at the time the infringement began) if both sides had been reasonably and voluntarily trying to reach an agreement; that is, the amount which a prudent licensee--who desired, as a business proposition, to obtain a license to manufacture and sell a pallicular article embodying the patented invention-would have been willing to pay as a royalty and yet be able to make a reasonable profit and which amount would have been acceptable by a patentee who was willing to grant a license; 17. Any other economic factor that a normally prudent business person would, under similar circumstances, take into consideration in negotiating the hypothetical license. 34

38 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 38 of 42 Instruction No. 34 REASONABLE ROYALTY - TIMING Although the relevant date for the hypothetical reasonable royalty negotiation is just before the infringement began, you may consider in your determination of reasonable royalty damages any actual profits by Arthrex after the time and any commercial success ofthe patented invention in the form of sales of the patented or infringing products after that time. You may only consider this information, however, if it was foreseeable at the time that the infringement began. 35

39 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 39 of 42 Instruction No. 35 CONCLUSION OF INSTRUCTIONS You will be retiring to the jury room in a moment to begin your deliberations. You will take with you: 1. Exhibits: All of the exhibits that have been received as evidence in this case. 2. Notes: You may also take with you any notes you may have taken during the trial. These notes may be only those taken by you as a member ofthe jury and not any notes taken by any other person. You may use these notes, if you desire, to aid your recollection of the testimony and evidence in this trial, but bear in mind that such notes are simply another foml of recollection, and you should not place undue emphasis on them simply because they are written. Keep in mind that each party is entitled to the considered decision of each juror. Therefore, you should not give undue weight to another juror's notes if those notes conflict with your recollection of the evidence. 3. Verdict Form: You will also have a verdict fonn with you in the jury room. The verdict folm first asks a series of questions about infringement: First, you will detennine whether Smith & Nephew proved that it is more likely true than not true that surgeons using the Bio-SutureTak anchors directly infringe the claims of Smith & Nephew's '557 patent. The verdict form asks similar questions about the PEEK SutureTak and the PEEK PushLock anchors and the Bio-PushLock anchors. So there are four sets of direct infringement questions about the four anchors relevant to this case. If you find that Smith and Nephew has failed to prove direct infringement, you do not need to answer any ofthe remaining questions. If you find that there is a direct infringement, you will detelmine whether Smith & Nephew proved that it was more likely true than not true that Arthrex indirectly infringed the' 557 patent by contributing to or inducing the infringement by the surgeons. Only if you answer "yes" to any of those questions about indirect infringement do you then turn to the question of damages. You will be asked to determine whether Smith and Nephew proved that it is entitled to lost profits, and if so, the amount of lost profits, as well as or the appropriate amount of reasonable royalty damages. Finally, you will be asked whether Smith & Nephew proved by clear and convincing evidence that Arthrex's indirect infringement was willful. 4. Jury Instructions: You will also have a written copy ofthese instructions with you in the Jury room. 36

40 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 40 of 42 Instruction No. 36 DUTY TO DELIBERATE When you begin your deliberations, you should elect one member of the jury as your foreperson. That person will preside over the deliberations and speak for you here in couti. You will then discuss the case with your fellow jurors to reach agreement if you can do so. Your verdict must be unanimous. Each of you must decide the case for yourself, but you should do so only after you have considered all the evidence, discussed it fully with the other jurors, and listened to the views of your fellow jurors. Do not be afraid to change your opinion if the discussion persuades you that you should. But do not come to a decision simply because other jurors think it is right. It is important that you attempt to reach a unanimous verdict but, of course, only if each of you can do so after having made your own conscientious decision. Do not change an honest belief about the weight and effect of the evidence simply to reach a verdict. 37

41 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 41 of 42 Instruction No. 37 COMMUNICATION WITH THE COURT If it becomes necessary during your deliberations to communicate with me, you may send a note through the bailiff, signed by your foreperson or by one or more members of the jury. No member of the jury should ever attempt to communicate with me except by a signed writing, and I will respond to the jury concerning the case only in writing, or here in open court. If you send out a question, I will consult with the lawyers before answering it, which may take some time. You may continue your deliberations while waiting for the answer to any question. Remember that you are not to tell anyone-including me-how the jury stands, numerically or otherwise, lmtil after you have reached a unanimous verdict or have been discharged. Do not disclose any vote count in any note to the comt. 38

42 Case 3:04-cv MO Document 934 Filed 06/22/11 Page 42 of 42 Instruction No. 38 RETURN OF VERDICT A verdict form has been prepared for you. After you have reached unanimous agreement on a verdict, your foreperson will fill in the form that has been given to you, sign and date it and advise the COutt that you are ready to return to the couttroom. 39