August 11, 2005| By Amy Kolz
Before Gary Michelson won a $1.35 billion settlement with Medtronic, he'd spent many years and millions of dollars meticulously building and protecting his patent portfolio.
Gary Michelson didn't set out to build a patent empire, but the Los Angeles doctor clearly knows how to run one. In the 1980s the six-foot-1-inch surgeon's large hands, and his relentless need to solve problems that cropped up in surgery; drove him to begin developing instruments, implants, and techniques that would make spinal surgery safer and less invasive.
Today roughly 60-80 percent of spinal surgeries performed uses a technology patented by Michelson, according to Dr. Mark Spoonamore, director of the University of Southern California's Center for Spinal Surgery. According to Michelson, his inventions have generated several hundred million dollars in royalties.
In April, the 56-year-old surgeon earned his patent crown-a $1.35 billion settlement with company thrived: Karlin was generating $3 million Medtronic, Inc., triumphantly ending a four-year legal battle with the $64' billion medical device behemoth.
Many surgeons invent devices, but Michelson stands out as a sophisticated student-and consumer-of patent prosecution and litigation. One small law firm, founded solely to help the surgeon, spends nearly all its time working on Michelson's patents, a process the doctor closely supervises. Over the years, Michelson has laid out more than $90 million in legal fees for patent prosecutors and IP litigators. It has been money well spent: Michelson hasn't lost a single claim dealing with the validity or enforceability of any his hundreds of patents.
Michelson says that he had no intention of building a separate enterprise around his inventions. But when colleagues started to request copies of his new tools, Michelson realized that it would be more cost-effective to produce them in bulk. In 1983, he founded Karlin Technology, named after his grandfather, to manufacture and sell the instruments. He hired his dog walker as president.
Over the next four years. Michelson developed more than 20 instrument product lines, many of which contained numerous inventions. The doctor rose at 5:30 A.M., performed surgeries, rounds, and office visits during the day, and worked on ideas for new tools at night He didn't always sleep, but the company thrived: Karlin was generating $3 million in sales by the late 1980s.
Nonetheless Michelson until Codman, a subsidiary of Johnson and Johnson and a leading provider of spinal neuro-surgery instruments, approached him. Codman executives were interested in setting up a distribution or licensing agreement, but they would only sell proprietary products. Michelson had filed his first and only patent for a support-frame used during orthopedic surgery to increase stability of the patient-in 1983, but the experience had taught him little about the process, other than that it was expensive. He needed a patent lawyer.
Enter Lewis Anten; a Los Angeles-based patent attorney with medical device experience; who met with Michelson in 1987. By November of that year they filed for the first of six sets of design patents, and in 1988 Michelson signed his first distribution deal with Codman. The doctor was a perfectionist from day one says Anten. Unlike inventors who would present their ideas with sketches on the back of a paper napkin or a Denny's menu, Michelson would come in with a working prototype. He even asked his lawyers to perform his surgical methods on models in their conference room to demonstrate that they understood the subtleties of his inventions. "He made me become a surgeon," says former Anten associate, Amedo Ferraro, laughing.
The doctor's reliance on lawyers grew in the 1990s as he turned his attention to developing a set of implants and instruments for spinal fusion surgery, a lengthy operation by which a damaged disk is removed and adjacent vertebrae are fused together. Implants require Food and Drug Administration approval, and Michelson needed to partner with a company familiar with this regulator process. He also needed strong patents to protect his IP in these new business arrangements.
Michelson might have been a novice businessman, but he, Anten, and his tax, trust, and estate lawyer, Burton Mitchell, a partner at Jeffer Mangels, Butler & Marmaro, negotiated a series of business agreements over the next decade that would make Michelson a very wealthy man. He licensed his threaded fusion implant technology to both Zimmer Inc. and Spine-Tech Inc. in 1992. And when Zimmer decided to exit the spine implant business soon after, the doctor began selling and licensing his inventions to Sofamor Danek in 1994.
Michelson frequently describes his inventions as 'right work,' one of the Buddha's seven paths to happiness (Credit: Envato Elements)
The first two deals with the Memphis-based company were extensive, involving over 140 patents and patent applications for spinal implants and surgical tools and techniques. Michelson also licensed his cervical plating technology, a novel multi-lock technology used in cervical fusion surgery to Arlington, Tennessee-based Wright Medical in 1997. The terms of these agreements are not public but they were certainly lucrative. By 1994, Michelson no longer needed to work, he says, but he continued to practice medicine. The money didn't squelch his drive to invent- Michelson has filed more than 400 patent applications worldwide since 1999- nor did it change his lifestyle. The doctor gets around today in a modest white PT Cruiser.
Michelson didn't just negotiate favorable economic terms in these deals. He demanded contract terms that required the companies to use their best efforts to develop and market his technology, or to set specific sales milestones. Michelson, who frequently describes his inventions as his "right work," one of the Buddha's seven paths to happiness, wasn't willing to accept on faith that companies with thousands of products lines would give his inventions their best efforts.
"I said, 'Put it on paper,' he says. "I didn't want someone to buy [the technology] and not produce it. I didn't invent things to make money; I invented them to benefit patients."
Despite Michelson's negotiating skills, there were conflicts, and the surgeon wasn't shy about resolving them with litigation. He sued Spine-Tech in 1993, claiming the company shortchanged him on royalties, misappropriated his intellectual property, and interfered with his relationship with Sofamor Danek. The litigation lasted seven years, spanned multiple jurisdictions, and involved several arbitrations before settlement. In 1999, he sued Wright Medical for failing to develop his technology and for subcontracting his license to a third party. The litigation settled in 2001. The terms were not disclosed.
Michelson learned his most critical lesson about patent protection when he was defending a suit. In 1995 Surgical Dynamics, Inc., a subsidiary of U.S. Surgical Corp., sued Michelson's company, Karlin, over a patent covering his threaded fusion implant technology, the same technology licensed to both Spine-Tech and Sofamor Danek, claiming the patent was invalid. Spine-Tech was embroiled in litigation with Michelson at the time, but Sofamor Danek had a vested interest in Michelson's victory.
Although the suit concerned a patent that had been issued in 1991, Sofamor Danek believed that Michelson's pending applications on related technology could impact the litigation. They asked their attorneys at Finnegan, Henderson, Farabow, Garrett & Dunner to get involved. In late 1996 Finnegan associate Tom Martin began working with Michelson and Anten's associate Ferraro. They revisited the scope of claims in all of the existing patent applications that related to the Sofamor Danek agreements.
The doctor ultimately prevailed in the Surgical Dynamics matter, but the road to victory was rocky. A California district court granted a summary judgment of non-infringement in favor of Surgical Dynamics in 1997. The decision was reversed by the U.S. Court of Appeals for the Federal Circuit two years later, but Michelson saw firsthand the fickleness of claim interpretation and the importance of precise word choice: He believed that the judge had misinterpreted the meaning of just four words in the patent claim, says Martin. That decision, plus Surgical Dynamic's "blatant infringement," convinced Michelson that he needed better patent protection for all of) his inventions.
"I didn't want this to happen over and over again," he says.
The doctor retained Martin and Ferraro separately, and the team spent thousands of hours laboring over the entire Michelson portfolio over the next several years. Working through the night and calls at 1 A.M. and during the holidays was not unusual. "I'm a perfectionist, and so is Tom [Martin]; we were very meticulous in our patent work," says Michelson. Ironically, Medtronic’s predecessor company, Sofamor Danek, had introduced its future adversary to the value of a higher standard of intellectual property protection. Michelson never turned back. When Martin contemplated joining former Finnegan, Henderson colleague Dirk Thomas as a litigator at Robins, Kaplan, Miller & Ciresi in 1999, Michelson proposed that Martin and Ferraro open up their own shop with the doctor as their primary client.
Before hiring the litigators in the Medtronic case, Michelson asked for commitments of a certain percentage of their time (Credit: Envato Elements)
Century City, California-based Martin & Ferraro opened its doors in 1999 as Michelson's exclusive patent counsel. Martin estimates that the firm spends approximately 80 percent of its time on Michelson-related intellectual properly, but the percentage of Martin's time is even higher. Martin and Ferraro's undivided attention hasn't come cheap. Michelson estimates that he has paid the firm more than $7 million since its inception. The effort (and money) was worth it. Today his patents are so comprehensive that they often span 30 or even 40 pages. "His patents include the most complete descriptions of inventions, compared to any other patents I've ever seen," says Kirkland & Ellis IP lawyer Marc Cohen, Michelson's co-counsel, along with Jeffer Mangels, on the Medtronic litigation.
Given his frequent involvement in litigation, it is not surprising that Michelson has learned not to skimp on litigators either. Although Finnegan, Henderson represented Sofamor Danek and the doctor in the Surgical Dynamics litigation, Michelson spent money to retain his own team in the matter, Anten and Ian Herzog, a local litigator who had worked with Michelson in the Spine-Tech dispute. It was a smart move. Herzog helped the doctor win two-thirds of the 2001 settlement with surgical Dynamics despite the fact that Medtronic, Sofamor Danek, and Spine-Tech were also plaintiffs in the suit. The total deal was reported to be worth several hundred million dollars.
Michelson didn't hesitate to upgrade to higher profile attorneys for his later cases. He hired Irell & Manella's Morgan Chu for his 1999 litigation with Wright Medical. And when Medtronic sued Michelson in 2001, he knew that again, he needed top-notch litigators. The Medtronic suit was a fight for his life, Michelson says. The Minneapolis-based company, which had acquired Sofamor Danek in 1999, was suing the doctor for a staggering $800 million, claiming that Michelson broke certain terms under their contracts, including peddling inventions to Medtronic competitors.
The doctor wasn't. going to stand down.
"These inventions are my kids," he says. "I put my life into these; I wasn't going to let them get away [with it]." This time around, Michelson decided not to use Chu because he didn't want to get handed off to one of Chu's lieutenants. "There wasn't enough Morgan to go around," Michelson says.
After interviewing a number of litigators, Michelson hired Jeffer Mangels litigator Marc Marmaro and, later, Kirkland & Ellis IP star Robert Krupka. Before he hired them, however, he asked for commitments of a certain percentage of their time. The doctor, and Karlin, countersued for $1.7 billion, claiming that Medtronic infringed patents, underpaid royalties, and failed to market his inventions as promised. The case was mammoth: There were more than 20 different claims between the parties. The four-year battle cost Michelson more than $80 million in legal fees. But Michelson's $1.35 billion settlement, which settled all litigation and gave the rights of many of the doctor's spinal inventions to Medtronic, again, dwarfed the legal bills. (The doctor has already pledged $200 million of his Medtronic settlement to his new foundation, which will fund cutting-edge medical research.)
Michelson's lawyers all profess the utmost admiration for him but admit that his intelligence and intensity make him a challenging client. "He does expect the best," says Kirkland's Krupka. "You can't deal with him on a superficial level-there is no superficiality to Gary Michelson."
Not everyone has such effusive praise. Michelson's monetary and legal victories haven't come without some grumbling about his tactics.
Dr. George Bagby, a founding doctor of SpineTech, says, "I'm inclined to say that he has been aggressive [in litigation], but I have to worry about getting quoted and then sued by Dr. Michelson."
One lawyer who has been involved in litigation with Michelson elaborates: "He has acquired the reputation of being extremely litigious, extremely difficult, and resolving all disputes, including good faith disputes, with a lawsuit."
Michelson responds that the value of his inventions has meant that some of the companies he has dealt with haven't acted honorably.
As Irell & Manella's Chu puts it, Michelson "can be a force to be reckoned with if he feels he has been wronged."
Just ask Medtronic.