Context: In January 2018, medical device maker Beijing Choice Electronic Technology Co., Ltd sued Chinese rival Contec Medical Systems Co., Ltd. in the United States District Court for the Northern District of Illinois, alleging it had infringed a patent related to one of its fingertip pulse oximeters. The plaintiff also requested a preliminary injunction (PI). Judge Sara L. Ellis, who was presiding over the matter at the time, initially urged the companies to settle, but this was unsuccessful. Following years of litigation, including COVID-19-related delays, Contec then asked the USPTO to re-examine the patent involved, which – in May – the USPTO initially rejected as obvious. Contec filed a motion to stay the ongoing litigation pending the outcome of the final validity decision. However, it was dealt a heavy blow by the Northern District of Illinois when the court denied that motion, reminding it that a motion to stay may only be filed under “exceptional circumstances”.
What’s new: Last week, after six long years, the companies settled their dispute for US$1 million. The settlement does not include a patent licensing agreement but encouraged Contec to strike one if it wants to continue manufacturing and selling fingertip oximeters in the U.S.
Direct impact: Contec needed this settlement, given the recent sharp declines in its revenue and the fact that its share price continues to fall. But for Beijing Choice, this is an even better result as the company was not only paid US$1 million – a relatively large number for China – but it now means Contec cannot sell its fingertip oximeters in the U.S. (one of its biggest markets) without reaching a licensing agreement with the plaintiff first.
Wider ramifications: While Beijing choice failed in its dispute against Contec in its home market, this agreement gives it a leg up in the global pulse oximeter market – with the U.S. segment valued at US$877.4 million (eight times that of China’s). It is a rare Chinese-Chinese patent dispute on U.S. soil.
Beijing Choice is a medical device maker that manufactures and sells fingertip pulse oximeters, among other specialist equipment. Founded in 1996, Contec also makes and distributes medical devices such as fingertip pulse oximeters out of Qinhuangdao, China. It has a U.S. subsidiary, Contec USA, based in Illinois.
According to its Q3 2024 report, Contec’s total global operating revenue decreased by 45% from the same period last year, accumulating a total of 334 million Chinese yuan (US$ 45.8 million) in revenue. After announcing its settlement with Beijing Choice on December 13, Contec’s share price fell by 2.80% to close at 15.95 Chinese yuan (US$2.19) per share.
In its announcement, Contec stated that it had been forced to stop manufacturing, importing and selling the products involved in its patent dispute with Beijing Choice since 2018. The dispute also forced Contec to incur fees of over 13.8 million Chinese yuan (US$1.89 million) between 2018 and 2020 alone. Therefore, settling with Beijing Choice was the most cost-effective option it had to bring an end to the six-year dispute.
The sole patent-in-suit in this U.S. case was the following:
- US Patent No. 8,639,308 (“Fingertip oximeter and a method for observing a measurement result thereon”)
In January 2018, Beijing Choice sued Contec in both the United States District Court for the Northern District of Illinois and the Beijing IP Court, alleging that certain fingertip oximeters sold in the U.S. and China infringed its patents. It demanded that Contec stop the infringement, and compensate for the losses, requesting an order for a PI on the related products and sales in both jurisdictions. In the Chinese prong of the dispute, the China National Intellectual Property Administration’s patent re-examination board held that Beijing Choice’s fingertip oximeter patent was invalid and the Beijing IP Court upheld this decision. In October 2018, Beijing Choice withdrew its lawsuit against Contec in China.
In the U.S., however, the case dragged on for six years.
The companies seemed to want to resolve the case peacefully. For example, nine months after launching its litigation, Beijing Choice withdrew its request for a PI after Contec had informed it that it was no longer manufacturing or selling fingertip pulse oximeters in the U.S. The defendant also agreed not to manufacture or sell the products as long as the litigation was pending – at least not without giving Beijing Choice a 90-day notice first.
But then, when given the chance to settle the case via mediation in October 2019, Beijing Choice and Contec failed to reach a consensus on the settlement claims. COVID-19 then caused extensive delays in the dispute and resulted in an abnormally long discovery period.
In February, five years after Contec submitted its final invalidity contentions, it asked the USPTO to re-examine the patent-in-suit. The USPTO issued a non-final decision in May that sided with Contec, finding that the patent was indeed invalid. A month later, it asked the court to stay the litigation pending the USPTO’s final validity decision, arguing that this was under “exceptional circumstances”.
But in a decision handed down in September, the court ruled that “no party may file a motion to stay the lawsuit pending any proceeding in the U.S. Patent and Trademark Office after the due date for service of that party’s final contentions”. This is only allowed under exceptional circumstances but Contec’s arguments for such circumstances, including how the USPTO issued a non-final invalidity decision, were “unpersuasive”, it held. “The possibility of invalidation is a non-factor for the exceptional circumstances test,” it stated.
The US$1 million agreement reached on 10 December replaces all previous agreements between the companies, waives and releases any claims for damages from Beijing Choice and the invalidation of its patent from Contec, and requires Contec to apply for a licence from Beijing Choice if it intends to start selling its fingertip oximeters in the U.S. again.
Contec was represented by King & Spalding’s Chris Campbell and Brian Eutermoser, and Allen E. Hoover at Fitch Even Tabin & Flannery LLP.Meanwhile, Beijing Choice was represented by McDonald Hopkins LLC’s Stephen J. Rosenfeld; Bayes PLLC’s Mandy Song, Philip Wang, Anita Bhushan and Kris Teng; and Kathleen A. Daley at Finnegan, Henderson, Farabow, Garrett & Dunner LLP.