Petition for Writ of Certiorari — Zimmer Biomet Holdings, Inc., Petitioner v. Mary N. Insall, as Executrix of the Estate of John N. Insall

APPENDIX

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APPENDIX

TABLE OF CONTENTS

Page

Appendix A — Court of appeals opinion

(July 12, 2024) ................................1a

Appendix B — District court memorandum

opinion and order

(Apr. 11, 2023) ..............................15a

Appendix C — District court minute entry

(Apr. 11, 2023) ..............................29a

Appendix D — District court judgment

(Apr. 11, 2023) ..............................31a

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APPENDIX A

IN THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

No. 23-1888

ZIMMER BIOMET HOLDINGS, INC.,

Plaintiff-Appellant,

v.

MARY N. INSALL, as Executrix of the Estate of John N.

Insall,

Defendant-Appellee.

Appeal from the United States District Court

for the Northern District of Illinois,

Eastern Division.

No. 1:22-cv-02575 —

Lindsay C. Jenkins, Judge.

ARGUED JANUARY 19, 2024 —

DECIDED JULY 12, 2024

Before ST. EVE, LEE, and PRYOR, Circuit Judges.

LEE, Circuit Judge. Dr. John Insall, an orthopedic surgeon who specialized in knee reconstruction

and replacement, developed and obtained a number of

valuable foreign and domestic patents involving knee

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replacement devices and accoutrements that he licensed to Zimmer Biomet Holdings, Inc. In exchange,

Zimmer agreed to pay substantial royalties to Insall

(which, upon his death, Zimmer paid to his Estate).

After Insall’s last patent expired in 2018, Zimmer

stopped all royalty payments, asserting that its obligation under the royalty agreement had expired. The

parties submitted the dispute to arbitration as required by the agreement, and the Estate prevailed.

Zimmer then asked the district court to vacate the arbitration award, arguing that enforcement of the contract would violate public policy. The district court

rejected this argument and confirmed the award. We

agree and affirm.

I.

Factual Background

As a medical device company, Zimmer manufactures a variety of products, including technology used

for knee replacements. Zimmer joined forces with Insall in 1991 to develop certain knee replacement devices and related appurtenances ultimately sold under the brand name “NexGen.” Under this plan, Insall would develop and secure patents for these devices, and Zimmer would pay royalties to Insall for the

right to license, market, and sell them. This arrangement was memorialized in a written agreement in

1991. It required Zimmer to make royalty payments

to Insall until “the expiration of the last to expire of

the patents licensed hereunder or so long as Product

is sold by ZIMMER, whichever is last to occur.”

The parties amended the agreement in 1994.

Among other things, Insall promised to work exclusively for Zimmer through January 1, 2011. The parties also agreed to expand the scope of the agreement

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from the particular knee replacement system identified in the 1991 agreement to “the design and development of all components of any future knee system

that is developed in whole or in part in the United

States and offered as a standard line product for Zimmer.” As for the royalty payments, they were to encompass Insall’s work on “future knee systems” until

“the expiration of the last to expire of the Patents licensed hereunder or on January 1, 2011, whichever is

last to occur.” The parties also added an arbitration

provision that required all disputes arising out of or

related to the agreement to be submitted for binding

arbitration.

Portions of the agreement were amended again in

1998. Relevant here, the amended agreement provided:

The parties acknowledge that . . . royalties

shall be paid at the rate of 1% of Net Sales

Price on all sales of the NexGen Knee and all

subsequently developed articles, devices or

components marketed by Zimmer as part of

the NexGen Knee family of knee components

and not at the rate provided for sales of “future knee systems.”

In a previous arbitration between the parties (referred

to as the Persona Arbitration, named after the technology at issue in that dispute), Zimmer’s counsel explained that the 1998 amendments changed the

method by which royalties were to be calculated. Rather than being based on the sale of products containing the patented technology, the royalties under the

1998 agreement were based on the sale of items that

Zimmer marketed under its “NexGen Knee” family of

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products.

changed.

The arbitration provision remained un-

Insall’s last patent expired on March 10, 2018,

and Zimmer’s chief patent counsel informed the Estate a few months later that the company would no

longer pay royalties to the Estate. By way of explanation, Zimmer asserted that under the Supreme Court

decisions Brulotte v. Thys Co., 379 U.S. 29 (1964), and

Kimble v. Marvel Entertainment, LLC, 576 U.S. 446

(2015), a licensor may not collect royalties based on an

expired patent. In its view, the payment of ongoing

royalties under the amended agreement ran “counter

to the policy and purpose of patent laws.”

Unsurprisingly, the Estate disagreed, and the

parties submitted the dispute for arbitration in late

2019. In a detailed decision, the arbitration panel concluded that Brulotte did not render the royalty provision in the 1998 agreement void and unenforceable.

As such, the panel found that Zimmer had breached

its obligations to pay royalties to the Estate, ordered

Zimmer to pay past-due royalties, and affirmed Zimmer’s obligation to pay royalties to the Estate in accordance with the 1998 agreement.

Zimmer then initiated this lawsuit and asked the

district court to vacate the award. The Estate responded with a motion to dismiss and moved the district court to confirm the arbitration award. The district court agreed with the Estate and confirmed the

arbitration award. This appeal followed.

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II. Scope of Review

A. Standard of Review

We review a district court’s decision on a motion

to vacate or confirm an arbitration award under the

Federal Arbitration Act (FAA) de novo. Webster v.

A.T. Kearney, Inc., 507 F.3d 568, 571 (7th Cir. 2007).

Factual findings are reviewed for clear error. Kinsella

v. Baker Hughes Oilfield Operations, LLC, 66 F.4th

1099, 1103 (7th Cir. 2023).

We begin by emphasizing that the FAA and Supreme Court precedent establish that “arbitration

awards are largely immune from . . . scrutiny in

court.” Nano Gas Techs., Inc. v. Roe, 31 F.4th 1028,

1031 (7th Cir. 2022) (cleaned up). The breadth of our

review is “extremely limited.” Chrysler Motors Corp.

v. Int’l Union, Allied Indus. Workers of Am., AFL-CIO,

959 F.2d 685, 687 (7th Cir. 1992). We may not reconsider the merits of an award even when a party argues

that the arbitrators made a factual error or even a legal one when interpreting a contract. United Paperworkers Int’l Union, AFL-CIO v. Misco, Inc., 484 U.S.

29, 36 (1987).

There is, however, a narrow exception to our

tightly proscribed review. As discussed more below,

“[t]he public policy doctrine allows this court to decide

de novo whether [the award at issue] violates public

policy.” Chrysler Motors, 959 F.2d at 687 (cleaned up).

B. The Federal Arbitration Act

Arbitration aims to resolve disputes more efficiently and at a lower cost than traditional litigation.

See Sarah Rudolph Cole, Curbing the Runaway Arbitrator in Commercial Arbitration: Making Exceeding

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the Powers Count, 68 Ala. L. Rev. 179, 184 (2016). In

exchange for expediency and finality, however, parties

trade the right to challenge the substance of the decisionmaker’s ruling; as a result, judicial review of arbitral awards is extremely limited and highly deferential. See Affymax, Inc. v. Ortho-McNeil-Janssen

Pharms., Inc., 660 F.3d 281, 285 (7th Cir. 2011) (citing

Major League Baseball Players Ass’n v. Garvey, 532

U.S. 504 (2001)).

The FAA authorizes a court to vacate an award for

only four reasons:

(1) where the award was procured by corruption, fraud, or undue means;

(2) where there was evident partiality or

corruption in the arbitrators, or either of

them;

(3) where the arbitrators were guilty of

misconduct in refusing to postpone the

hearing, upon sufficient cause shown, or in

refusing to hear evidence pertinent and

material to the controversy; or of any other

misbehavior by which the rights of any

party have been prejudiced; or

(4) where the arbitrators exceeded their

powers, or so imperfectly executed them

that a mutual, final, and definite award

upon the subject matter submitted was not

made.

9 U.S.C. § 10(a).

Congress statutorily constrained the grounds for

vacatur to these reasons, and courts may not expand

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them. Hall Street Associates, L.L.C. v. Mattel, Inc.,

552 U.S. 576, 584–89 (2008) (noting also that limited

judicial review of arbitration awards is “needed to

maintain arbitration’s essential virtue of resolving

disputes straightaway”). Furthermore, Section 10(a)

has been understood to reflect a congressional focus

on procedural protections rather than ensuring the

correct outcome. See Dean Witter Reynolds, Inc. v.

Byrd, 470 U.S. 213, 219 (1985) (“The legislative history of the Act establishes that the purpose behind its

passage was to ensure judicial enforcement of privately made agreements to arbitrate.”); see Hill v.

Norfolk & Western Ry., 814 F.2d 1192, 1194–95 (7th

Cir. 1987) (the question before us “is not whether the

arbitrator or arbitrators erred in interpreting the contract; it is not whether they clearly erred in interpreting the contract; it is not whether they grossly erred

in interpreting the contract; it is whether they interpreted the contract”).

C. Public Policy Exception

That said, the power of federal courts to enforce

contracts is at all times “subject to the restrictions and

limitations of the public policy of the United States as

manifested in the Constitution, treaties, federal statutes, and applicable legal precedents.” Hurd v.

Hodge, 334 U.S. 24, 35 (1948). And where enforcement of private agreements would violate public policy, “it is the obligation of courts to refrain from such

exertions of judicial power.” Id. The Supreme Court

has explicitly applied this principle to agreements to

arbitrate. In doing so, the Court has been clear that

if a contract—as interpreted by the arbitrators—and

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the accompanying remedy or relief violate some explicit public policy, “we are obliged to refrain from enforcing” the arbitration award. W.R. Grace & Co. v.

Loc. Union 759, Int’l Union of United Rubber, Cork,

Linoleum & Plastic Workers of Am., 461 U.S. 757, 766

(1983). Not any policy will do, however. To trigger

this exception, a policy “must be well defined and dominant, and is to be ascertained by reference to the laws

and legal precedents and not from general considerations of supposed public interests.” Chrysler Motors,

959 F.2d at 687 (cleaned up).

Despite our limited authority to review arbitration awards, then, “[t]he question of public policy is

ultimately one for resolution by the courts.” W.R.

Grace, 461 U.S. at 766. Here, Zimmer invokes this

exception, arguing that the arbitration panel’s interpretation of the agreement and resulting award of royalties must be voided as a matter of public policy.

Before proceeding, however, we need to address

the Estate’s threshold contention that the public policy exception to the enforcement of arbitration awards

is limited to disputes involving collective bargaining

agreements. While this issue certainly arises regularly in those types of cases, we have never cabined

the doctrine to the arbitration of labor disputes. Indeed, we have considered the public policy exception

to the enforcement of arbitration awards in other contexts. See, e.g., In re Harshaw, 26 F.4th 768, 775 (7th

Cir. 2022). And this makes sense given that the doctrine “derives from the basic notion that no court will

lend its aid to one who founds a cause of action upon

an immoral or illegal act.” United Paperworkers Int’l

Union, 484 U.S. at 42; see also W.R. Grace, 461 U.S.

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at 766 (“As with any contract, however, a court may

not enforce a collective bargaining agreement that is

contrary to public policy.”) (emphasis added). Thus,

neither precedent nor the FAA supports the Estate’s

view that the public policy exception can apply only to

arbitration awards in labor disputes. With that, we

proceed to the main topic at hand.

III. Analysis

A. The Arbitration Award

On appeal, Zimmer urges us to vacate the arbitration award because it violates the public policy the Supreme Court laid out in Brulotte and Kimble. In evaluating whether an arbitration award violates public

policy, we are bound by the arbitrators’ interpretation

of the contract. W.R. Grace, 461 U.S. at 766. As such,

we examine the interpretive questions put to the arbitration panel and the panel’s conclusions. We then

ask whether the contract—as interpreted by the arbitration panel—and the arbitration award violate public policy. But first we examine Brulotte and Kimble.

In Brulotte, the plaintiff owned several patents for

certain hop-picking machines. 379 U.S. 29, 29–30

(1964). He manufactured the machines and sold them

to farmers, along with licenses to use them. In return,

the farmers agreed to pay the plaintiff royalties from

the crops they harvested during the life of the license

agreements. The patents, however, expired before the

end date of the agreements, and the farmers refused

to make any royalty payments on the grounds that the

plaintiff had misused the patents by requiring royalties after their expiration. In the end, the Supreme

Court agreed, holding that the license agreements

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were unenforceable and “unlawful per se” to the extent they provided for the payment of royalties “accru[ing] after the last of the patents incorporated into

the machines had expired.” Id. at 30, 32.

Over the years, the reasoning in Brulotte has

faced much criticism from courts and academics alike.

See Scheiber v. Dolby Lab’ys, Inc., 293 F.3d 1014,

1017–18 (7th Cir. 2002) (reviewing the cases and academic writings critical of Brulotte). And we took part

in the growing chorus. Id. at 1017 (noting that

Brulotte has been “severely, and as it seems to us, with

all due respect, justly, criticized”). This was the landscape the Supreme Court encountered when it contemplated overruling Brulotte in Kimble.

In that case, the inventor Kimble had obtained a

patent on a toy that children used to shoot web-like

foam string to role-play as “a spider-person” (this is

the word the patent used). Not surprisingly, Marvel

Entertainment, LLC (the publisher of the Spider-Man

graphic novels and owner of the mark) was none too

happy. It sued Kimble, and the parties eventually entered into a settlement agreement. In it, Marvel

agreed to purchase the patent from Kimble in exchange for a lump sum and a three percent royalty on

future sales of the toy, with no termination date.

As the patent’s expiration approached, Marvel

sought a declaratory judgment that it could stop making the royalty payments to Kimble once the patent

became inviable, relying on Brulotte. In response, citing the criticism of Brulotte, Kimble asked that

Brulotte be overruled. The Supreme Court, however,

did not find Kimble’s criticism of Brulotte on economic

efficiency grounds particularly persuasive, noting

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that contracting parties “can often find ways around

Brulotte to achieve those same ends.” Kimble, 576

U.S. at 453. On the other hand, the Court stated, the

important aims of stare decisis counseled upholding

Brulotte, and to the extent that Kimble disagreed with

its holding as a matter of policy, he was better off addressing his complaints to Congress.

Significantly, however, the Supreme Court took

the opportunity to clarify Brulotte’s scope. First, it observed that “all the decision [i.e., Brulotte] bars are

royalties for using an invention after it has moved into

the public domain.” Id. at 453–54. Second, it explained that, even under Brulotte, “post-expiration

royalties are allowable so long as tied to a non-patent

right—even when closely related to a patent.” Id. at

454.

What does this mean for our case? In the arbitration, Zimmer argued that it need not pay any royalties

to Insall’s Estate because the basis for the royalties—

the patents—had expired. But this argument presupposes that the royalties were, in fact, based on the

rights the patents bestowed and not some “non-patent

right” that is “closely related to” the patents. Thus,

the main question the arbitration panel had to decide

is whether the royalties Zimmer promised in the

agreement and its amendments were based on the patents themselves or a closely related non-patent right.

Tackling this head-on, the arbitrators examined

and interpreted each iteration of the contract. The

panel first agreed with Zimmer that Brulotte applied

to the royalty provision in the 1991 agreement. But

the panel went on to find that the 1998 amendments

created a different royalty regime:

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What the parties contemplated in 1991 and

Dr. Insall’s imputed leverage were superseded

by events and a new basis for determining royalties in 1998, as Zimmer strenuously and

successfully maintained in the Persona Arbitration. Article IV’s Royalties provision from

1991 was not deleted (cf., 1998 Secs. 3 and 11).

Under 1998 Sec. 3, however, it became vestigial, replaced by a new royalty provision untied

and no longer dependent on Insall’s patents,

products, or technology. The 1998 Agreement

text separates Insall’s royalty rights from anything based on patents or technology. Zimmer obtained the new royalty provision it

sought superseding the 1991 “hybrid” license.

Nothing remained that mixed patent/non-patent royalties.

(emphasis provided).

Along the way, it relied on statements by Zimmer’s own witnesses in the Persona Arbitration as

well as Zimmer’s counsel, who stated in his closing argument that the 1998 amendment “changed the structure, changed the royalty payment determination

from one based on products having Insall’s technology

in them as it was in ‘91 and ‘94 to a[n] [sic] is it marketed based as [sic] NexGen determination.” The royalty in the 1998 amendments, counsel continued, became “a marketing and branding based determination” and gave Insall “royalty on components he

doesn’t have any technology in or any involvement in.”

On appeal, Zimmer disagrees with the arbitration

panel’s conclusions and argues that, although the parties changed how the royalties were calculated, they

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never changed why they were paid in the first place.

But we are not here to judge whether the panel’s determination was correct. As we have recently emphasized, “[a]n arbitration clause delegates interpretive

power to the arbitrators. We do not ask whether they

read the contractual language correctly; it is enough

that they tried to apply the contract that the parties

signed.” Am. Zurich Ins. Co. v. Sun Holdings, Inc.,

103 F.4th 475, 477 (7th Cir. 2024). Here, whether the

1998 amendment untethered the royalties from the

patents was a question of interpretation reserved for

the arbitrators. See United Steelworkers of Am. v. Enter. Wheel & Car Corp., 363 U.S. 593, 599 (1960). And,

after examining the agreement and its amendments,

the arbitration panel’s conclusion was clear—the 1998

amendments controlled, and the royalty terms were

no longer premised on the patents or the technology

they covered.

Our only remaining task, then, is to decide

whether the royalty provision in the 1998 agreement,

as the arbitration panel construed it, violates a welldefined and dominant public policy.

B. Well-Defined and Dominant Public

Policy

Despite the deference arbitral decisions demand,

we nevertheless must vacate an arbitration award if

the remedy or relief violates an explicit, well-defined,

and dominant public policy. W.R. Grace, 461 U.S. at

766. Whether a policy meets those criteria must be

decided based on “laws and legal precedents and not

from general considerations of supposed public interests.” Muschany v. United States, 324 U.S. 49, 66

(1945). An arbitral award most clearly violates public

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policy when it creates an explicit conflict with statutory laws or well-established and easily discernible

precedent. Titan Tire Corp. of Freeport v. United

Steel, Paper & Forestry, Rubber, Mfg., Energy, Allied

Indus. & Serv. Workers Int’l Union, 734 F.3d 708, 716

(7th Cir. 2013) (“A violation of a statute or some other

positive law is the clearest example of a violation of

public policy and no arbitrator is entitled to direct a

violation of positive law.”) (cleaned up).

Zimmer contends that Brulotte and Kimble established a dominant and well-defined public policy that

a party may not be compensated for patent rights after the patent’s expiration. But we need not decide

this question, because the arbitration award here

must be confirmed even if Zimmer’s assessment is correct.

Assuming, for argument’s sake, that Brulotte and

Kimble announced a clear public policy that royalties

tied to patent rights are unenforceable after the patent’s expiration, Zimmer has no path to victory. After

interpreting the parties’ license agreement and its

amendments, the panel determined that the royalty

payments in question were not grounded in any patent rights and, thus, did not offend Brulotte and Kimble. We have no power to unwind that holding here.

IV. Conclusion

For these reasons, we AFFIRM the district court

and confirm the arbitration award in favor of Insall’s

Estate.

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APPENDIX B

UNITED STATES DISTRICT COURT FOR THE

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

ZIMMER BIOMET HOLDINGS, INC.,

Plaintiff,

v.

MARY N. INSALL, as Executrix of The

Estate of John N. Insall,

Defendant

No. 22 CV 2575

Judge Lindsay C. Jenkins

Filed: April 11, 2023

MEMORANDUM OPINION AND ORDER

Plaintiff Zimmer Biomet Holdings, Inc. (“Zimmer”) initiated this action against Mary N. Insall, as

Executrix of the Estate of John N. Insall (“the Estate”)

to vacate an arbitration award entered in favor of the

Estate and against Zimmer. Currently before the

Court are Zimmer’s motion to vacate [Dkt. 21] and the

Estate’s motion to dismiss the motion to vacate and to

confirm the arbitration award [Dkt. 27]. For the reasons explained below, Zimmer’s motion to vacate

[Dkt. 21] is denied. The Estate’s motion [Dkt. 27] is

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moot to the extent it requests dismissal of the motion

to vacate but is otherwise granted. The Court confirms the arbitration award in favor of the Estate.

I.

Background

The following facts are taken from Zimmer’s complaint, the arbitration award being challenged, and

the various records submitted by the parties in support of their positions.1 Zimmer is a medical device

manufacturer and global leader in the manufacture

and sale of artificial knees. Dr. John Insall was an

1 Along with its memorandum in support of its motion to

vacate the arbitration award, Zimmer submits a “Local Rule 56.1

Statement of Material Facts In Support of Its Motion for Vacatur

of Arbitration Award.” [Dkt. 24–1.] Curiously, however, Zimmer

does not style its motion to vacate as a motion for summary

judgment and its motion and opening brief never cite Local

Rule 56.1 or Federal Rule of Civil Procedure 56. In its reply

brief, Zimmer claims that its statement of facts must be accepted

as true because “[t]he Estate did not provide accompanying

L.R. 56 submissions with its responsive pleading.” [Dkt. 32 at 7.]

The Court declines to follow the course urged by Zimmer. The

FAA provides that a petition to confirm or vacate an arbitral

award “shall be made and heard in the manner provided by law

for the making and hearing of motions . . . .” 9 U.S.C. § 6.

According to the Seventh Circuit, this provision “removes actions

to confirm or vacate arbitration awards from the realm of civil

cases governed by the Federal Rules of Civil Procedure.” Webster

v. A.T. Kearney, Inc., 507 F.3d 568, 570 (7th Cir. 2007). Since the

parties were not required to and did not bring their motions as

ones for summary judgment, the Court finds it inappropriate to

deem admitted the facts in Zimmer’s L.R. 56.1 Statement.

Instead, the Court will consider the arbitration award and

“whatever supporting documentation” the parties have

submitted for the Court to consider. Id. at 571; see also Wellpoint

Health Networks, Inc. v. John Hancock Life Ins., Co., 547 F.

Supp. 2d 899, 901 n.1 (N.D Ill. 2008).

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orthopedic surgeon who specialized in knee reconstruction and replacement. He participated in the development of knee repair and replacement systems for

more than 30 years, including Zimmer Biomet’s

NexGen Knee System, obtaining a dozen U.S. patents

and numerous foreign patents. Dr. Insall died in

2000.

Zimmer’s relationship with Dr. Insall was governed by a license agreement and several amendments to the agreement. Zimmer and Dr. Insall entered into the NexGen License Agreement (“License

Agreement”) in 1991. The License Agreement gave

Zimmer an “exclusive worldwide license . . . under Licensed Patents and to use Technology to make, have

made, use and sell Product.” [Dkt. 24 at 9.] “Technology” was defined as “all information, technical data,

instruments or other know-how” relating to the “manufacture, use or sale of the Device.” [Dkt. 24-2 at 5.]

“Device” was defined as “the medical article described

in Attachment A” [id. at 4], and Attachment A listed

“KNEE SYSTEM WITH CRUCIATE RETAINING/SACRIFICING FEATURES.” [Id. at 23.] “Product” meant “any device the manufacture, use or sale

of which would, but for this Agreement, infringe a

Valid Claim or any device incorporating, or the manufacture, use or sale of which utilizes Technology.”

[Id. at 6]. And “Valid Claim” meant “a claim pending

in a patent application or in an unexpired patent included within the Licensed Patents which has not

been held unenforceable, unpatentable or invalid . . .

.” [Id. at 5.]

In consideration for this license, Zimmer agreed to

pay Dr. Insall a royalty equal to:

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(1) One percent (1%) of the Net Sales Price of

Product, the manufacture, use or sale of which

is covered by a Valid Claim, sold by ZIMMER

and its Subsidiaries and sublicensees; or

(2) One percent (1%) of the Net Sales Price of

all other Products sold by ZIMMER and its

Subsidiaries and sublicensees.

[Dkt. 24 at 9.] The License Agreement continues until

“expiration of the last to expire of the patents licensed

hereunder or so long as Product is sold by ZIMMER,

whichever is last to occur.” [Id.]

Zimmer and Dr. Insall signed an amendment to

the License Agreement in 1994 (“1994 Amendment”),

making Dr. Insall’s consulting relationship with Zimmer exclusive, extending the agreement through January 1, 2011, and expanding its scope from “improvements relating to the Device” to “the design and development of all components of any future knee system

that is developed in whole or in part in the United

States and offered as a standard line product for Zimmer.” [Dkt. 24 at 10.] The 1994 Amendment also expanded the definitions of “Product” and “Technology”

to encompass Dr. Insall’s additional work on “future

knee systems” and added a 0.5% royalty to Dr. Insall

for sales of “implant components of such future knee

systems.” [Id.] That royalty expires “upon the expiration of the last to expire of the Patents licensed

hereunder or on January 1, 2011, whichever is last to

occur.” [Id.]

The parties amended the License Agreement

again in 1998 (“1998 Amendment”). Although the

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1998 Amendment did not delete the License Agreement’s original license or royalty provisions [see

Dkt. 24 at 10–11], it provided that:

The parties acknowledge that Articles IV, X

and XIV of the [License Agreement] shall be

interpreted so that royalties shall be paid at

the rate of 1% of Net Sales Price on all sales of

the NexGen Knee and all subsequently developed articles, devices or components marketed

by Zimmer as part of the NexGen Knee family

of knee components and not at the rate provided for sales of “future knee systems.”

[Id. at 11.]

Dr. Insall’s last surviving U.S. licensed patents—

U.S. Pat. Nos. 6,123,729 and 6,402,786—expired in

March 2018. At that time, Zimmer notified the Estate

that it would not be making further NexGen Knee royalty payments pursuant to the License Agreement

and its amendments, because doing so allegedly would

violate the Supreme Court’s instruction in Brulotte v.

Thys Co., 379 U.S. 29, 30 (1964), that patent license

agreements are unenforceable once their licensed patents expire.

In October 2019, the Estate initiated an arbitration (Case No. 02-13-0001-4010) with the American

Arbitration Association in Chicago seeking a determination that it was still entitled to royalties based on

Zimmer’s sale of NexGen Knee components. The

panel of three arbitrators (“Panel”) allowed the parties to file AAA Commercial Rule 33 dispositive motions (akin to summary judgment), which were denied. The parties then conducted extensive discovery

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and in November 2021 the Panel held a week-long evidentiary hearing. The Panel issued its final award

two months later, ruling that Brulotte did not render

the restructured royalty payment provision of the

1998 Amendment unenforceable. The details of the

Panel’s decision are discussed in the analysis section

below.

Zimmer filed this action seeking to vacate the arbitration award under 9 U.S.C. § 10 on the ground

that the Panel has allegedly ordered Zimmer to violate the well-defined and dominant public policy, expressed in Brolotte, precluding enforcement of royalty

provisions that compensate patentees for patented inventions post-expiration. The Estate moves to dismiss the motion to vacate and requests an order confirming the arbitration award.

II. Legal Standard

“‘Judicial review of arbitration awards is tightly

limited. Confirmation is usually routine or summary,

and a court will set aside an arbitration award only in

very unusual circumstances.’” Bartlit Beck LLP v.

Okada, 25 F.4th 519, 522 (7th Cir. 2022) (quoting

Standard Sec. Life Ins. Co. of N.Y. v. FCE Benefit

Adm’rs, Inc., 967 F.3d 667, 671 (7th Cir. 2020)). The

court will uphold the arbitrator’s award “so long as ‘an

arbitrator is even arguably construing or applying the

contract and acting within the scope of this authority.’” Johnson Controls, Inc. v. Edman Controls, Inc.,

712 F.3d 1021, 1025 (7th Cir. 2013) (quoting Local 15,

Int’l Bhd. of Elec. Workers v. Exelon Corp., 495 F.3d

779, 782–83 (7th Cir. 2007)). It will not overturn an

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award simply “because an arbitrator ‘committed serious error,’ or the decision is ‘incorrect or even

whacky.’” Id.

Instead, “[t]he FAA spells out a narrow set of reasons that may support a court’s confirmation, vacatur,

or modification of an award.” Continental Casualty

Co. v. Certain Underwriters of Lloyds of London, 10

F.4th 814, 816 (7th Cir. 2021) (citing 9 U.S.C. §§ 10–

11). Zimmer seeks to vacate the arbitration award under 9 U.S.C. § 10. Section 10(a) authorizes district

courts to vacate an arbitration award “(1) where the

award was procured by corruption, fraud, or undue

means; (2) where there was evident partiality or corruption in the arbitrators, or either of them; (3) where

the arbitrators were guilty of misconduct in refusing

to postpone the hearing, upon sufficient cause shown,

or in refusing to hear evidence pertinent and material

to the controversy; or of any other misbehavior by

which the rights of any party have been prejudiced; or

(4) where the arbitrators exceeded their powers, or so

imperfectly executed them that a mutual, final, and

definite award upon the subject matter submitted was

not made.” This list “is exclusive; neither judges nor

contracting parties can expand it.” Affymax, Inc. v.

Ortho-McNeil-Janssen Pharmaceuticals, Inc., 660

F.3d 281, 284 (7th Cir. 2011); see also Hall St. Assocs.,

LLC v. Mattel, Inc., 552 U.S. 576, 586 (2008).

Subsection 10(a)(4) of the FAA has been interpreted to encompass scenarios where the arbitrator

has shown a “manifest disregard of the law” by “direct[ing] the parties to violate the law.” George Watts

& Sons, Inc. v. Tiffany & Co., 248 F.3d 577, 578, 580

(7th Cir. 2001); see also Affymax, 660 F.3d at 283;

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Halim v. Great Gatsby’s Auction Gallery, Inc., 516

F.3d 557, 563 (7th Cir. 2008). Under this “public policy” justification for vacating an arbitration award,

“the judiciary may step in when the arbitrator has

commanded the parties to violate legal norms (principally, but not exclusively, those in positive law)” but

“may not deprive arbitrators of authority to reach

compromise outcomes that legal norms leave within

the discretion of the parties to the arbitration agreement.” George Watts & Son, 248 F.3d at 580 (citing

Eastern Assoc. Coal Corp. v. United Mine Workers, 531

U.S. 57 (2000)). Thus, for example, “an award directing the parties to form a cartel, and fix prices or output, could be vacated as a violation of the Sherman

Antitrust Act, even though the Federal Arbitration

Act does not authorize the award’s vacatur.” Affymax,

660 F.3d at 284.

III. Analysis

The controlling issue raised by the arbitration

award and the parties’ motions is whether the award

violates public policy as set forth in Brulotte. In that

case, the Supreme Court held that “a patentee’s use of

a royalty agreement that projects beyond the expiration date of the patent is unlawful per se.” 379 U.S. at

32. The Court explained that:

A patent empowers the owner to exact royalties as high as he can negotiate with the leverage of that monopoly. But to use that leverage to project those royalty payments beyond

the life of the patent is analogous to an effort

to enlarge the monopoly of the patent by tieing

the sale or use of the patented article to the

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purchase or use of unpatented ones. The exaction of royalties for use of a machine after

the patent has expired is an assertion of monopoly power in the post-expiration period

when, as we have seen, the patent has entered

the public domain. [A]fter expiration of the

last of the patents incorporated in the machines ‘the grant of patent monopoly was

spent’ and . . . an attempt to project it into another term by continuation of the licensing

agreement is unenforceable.

Brulotte, 379 U.S. at 33–34 (citations omitted).

Brulotte applies to both “pure licensing agreements” as well as “so-called ‘hybrid’ agreements that

‘contain[] a provision for a single royalty payment for

use of both a patent and other non-patent assets, such

as trade secrets.’” Ocean Tomo, LLC v. Barney, 133 F.

Supp. 3d 1107, 1115 (N.D. Ill. 2015) (quoting Nordion

Int’l, Inc. v. Medi-Physics, Inc., 1995 WL 519798, at *4

(N.D. Ill. Aug. 30, 1995)). However, Brulotte does not

apply to post-expiration royalties that are “tied to a

non-patent right—even when closely related to a patent.” Kimble v. Marvel Entertainment, LLC, 576 U.S.

446, 454 (2015). Although Brulotte was decided

nearly sixty years ago, its “statutory and doctrinal underpinnings have not eroded.” Id. at 458 (2015). According to the Supreme Court in Kimble, “[t]he decision is simplicity itself to apply”: “A court need only

ask whether a licensing agreement provides royalties

for post-expiration use of a patent. If not, no problem;

if so, no dice.” Id.

Zimmer argues that the arbitration award should

be vacated because it orders Zimmer to “pay royalties

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to the Estate that the Estate obtained from leveraging

patent rights beyond patent expiration,” in violation

of “the explicit, Constitutionally-imposed public policy

prohibiting projection of a patent monopoly after the

patent expires, as set forth in Brulotte . . . and its

progeny.” [Dkt. 1 at ¶¶ 2–3 (citing EEOC v. Indiana

Bell Tel. Co., 256 F.3d 516, 524 (7th Cir. 2001) (en

banc); Eastern Assoc. Coal Corp. v. United Mine Workers, 531 U.S. 57, 63 (2000)); see also Dkt. 24 at 20.]

Zimmer claims that the Tribunal “declared that . . . it

somehow had no obligation to apply Brulotte.”

[Dkt. 24 at 23.] According to Zimmer, “[t]he Tribunal’s plain disagreement with Brulotte’s rationale and

its heavy reliance on the parties’ prior arbitration involving an altogether different royalty obligation for

‘future knee products’ (in which Zimmer Biomet prevailed) reflects the Tribunal’s obvious intention to impose a Solomon-esque resolution across both disputes,

notwithstanding the legal merits.” [Id.]

The Court is not convinced. First, contrary to

Zimmer’s argument that the Panel believed it had “no

obligation” to apply Brulotte, the Panel expressly recognized Brulotte’s holding and that Brulotte was more

recently upheld in Kimble, despite a strongly worded

dissent. [See Dkt. 9–2 at 4–5, 13–14.] The Panel applied Brulotte to the original 1991 License Agreement

and concluded that the royalty provisions in that

agreement, taken by itself, would violate Brulotte because it was a “hybrid” licensing agreement that encompassed inseparable patent and non-patent rights

that extended beyond the expiration date of the underlying patents. [Id. at 6.] However, the Panel concluded, the 1998 Agreement superseded the License

Agreement with respect to patent royalties for the

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NexGen Knee family of products and was not a hybrid

agreement or otherwise subject to Brulotte. [Id. at 7.]

The Panel expressly addressed and rejected the

central argument that Zimmer makes here: that “Insall’s patent leverage was ‘baked’ into the [License]

Agreement and that this leverage persists despite the

1998 [Amendment].” [Dkt. 9–2 at 14.] The Panel

found that “[w]hat the parties contemplated in 1991

and Dr. Insall’s imputed leverage were superseded by

events and a new basis for determining royalties in

1998, as Zimmer strenuously and successfully maintained” in the immediately preceding arbitration between the parties in 2016, the “Persona Arbitration”

(AAA Case No. 01-15-002-6201). [Id.]

Zimmer’s opening brief glosses over the Persona

Arbitration without discussion. But as the Panel’s

discussion shows, the Persona Arbitration expressly

concerned the parties’ intentions in drafting the 1998

amendment and its royalty provision. According to

the Panel (whose factual findings the Court is required to take as true, Titan Tire, 734 F.3d at 716),

the 1998 Amendment was instigated by Zimmer so

that it could clear a path to developing future knee

systems (like the Persona knee system) that would be

royalty free. Zimmer was concerned that a 1994

amendment to the License Agreement could be interpreted to entitle Dr. Insall to royalties in future knee

systems beyond the “NexGen” family of products.

[Dkt. 9–2 at 7.]

Zimmer’s signatory to the 1998 Amendment,

Dr. Crowninshield, testified at the Persona Arbitration. According to Dr. Crowninshield, in negotiating

26a

the 1998 Amendment the parties decided that Dr. Insall would be “paid royalties on the brand [NexGen]

as opposed to the technology.” [Dkt. 9–2 at 11 (emphasis added).] Dr. Crowninshield explained that this

had “the effect of compensating Dr. Insall and his estate for components designed and manufactured long

after his death by virtue of their being marketed in the

NexGen knee family.” [Id. at 9 (emphasis added).]

While “[t]hat broadened potentially the scope of

things in the future that he would be compensated for

in the NexGen [family],” it also “restricted what might

be considered a NexGen Knee in the future as being

differentiated from a future knee,” which benefited

Zimmer’s interest in not paying NexGen royalties for

those knee systems. [Id. at 11.] Zimmer emphasized

this position in its closing arguments and post-hearing brief in the Persona Arbitration. [See id. at 11–

12.] The Persona Arbitration ended with a January

2018 award in favor of Zimmer on the issue of whether

Dr. Insall’s estate was entitled to royalties for Persona

knee systems. [Id. at 13.]

The Court sees no error—and certainly no error

providing a valid ground for vacating the arbitration

award—in the Tribunal looking to testimony in the

Persona Arbitration to understand the parties’ intentions at the time they agreed to the 1998 Amendment.

Under Indiana Law, which governs the License Agreement and its amendments [see Dkt. 9–2 at 3], “[t]he

paramount goal of contract interpretation is to ascertain and effectuate the intent of the parties.” KR Enterprises, Inc. v. Zerteck, Inc., 461 F. Supp. 3d 825, 833

(N.D. Ind. 2020) (citing Vic’s Antiques & Uniques, Inc.

v. J. Elra Holdingz, LLC, 143 N.E.3d 300, 303–04

(Ind. Ct. App. 2020). “This in turn requires that words

27a

and phrases are to be given their plain meaning unless doing so would defeat the parties’ intent, and

agreements are to be construed so as to give each provision meaning and to avoid rendering any provision,

or the agreement as whole, meaningless.” Id. The

Tribunal’s award properly focuses on the parties’ intentions, as expressed by Zimmer’s own Vice President and signatory to the 1998 Amendment.

The award and Dr. Crowninshield’s testimony are

consistent with the plain language of the 1998

Amendment and undermine Zimmer’s argument that

the amendment “provides royalties for post-expiration

use of a patent.” [Dkt. 24 at 26–27.] In the original

License Agreement, Zimmer’s royalty payment had

been tied to the “Product,” which was defined by reference to a “Valid Claim” to use of Dr. Insall’s patents.

[Dkt. 24–2 at 5–6.] The 1998 Amendment decoupled

the royalty from Insall’s patents by instead basing the

royalty on sales of “NexGen Knee and all subsequently developed articles, devices or components

marketed by Zimmer as part of the NexGen Knee family of knee components.” [Dkt. 9–2 at 8 (emphasis

added).] In other words, the 1998 Amendment does

not prevent Zimmer from using Dr. Insall’s patents or

tie royalties to those patents, but rather requires and

ties payment to Zimmer’s decision to market certain

components as part of the NexGen Knee family. Since

“post-expiration royalties are allowable so long as tied

to a non-patent right—even when closely related to a

patent,” Kimble, 576 U.S. at 454, the Court finds no

error in the Panel’s conclusion that Brulotte does not

28a

apply to NexGen Knee royalties set out in the 1998

Amendment.2

IV. Conclusion

For these reasons, Zimmer’s motion to vacate

[Dkt. 21] is denied. The Estate’s motion [Dkt. 27] is

moot to the extent it requests dismissal of the motion

to vacate but is otherwise granted. The Court confirms the arbitration award in favor of the Estate.

Enter: 22-cv-2575

Date: April 11, 2023

/s/ Lindsay C. Jenkins

Lindsay C. Jenkins

United States District

Judge

2 Given its decision to confirm the arbitration award, the

Court finds it largely unnecessary to address the Estate’s

alternative arguments opposing Zimmer’s motion to vacate. But

one point bears mentioning. The Estate argues that only

arbitrations involving collective bargaining agreements—and

not other types of contracts—are subject to the “public policy”

ground for vacating an arbitration award. [See Dkt. 27 at 21–

22.] The Court declines to follow the district court cases cited by

the Estate, however, because the Supreme Court has indicated

that the doctrine applies more broadly. In W.R. Grace & Co. v.

Local Union 759, 461 U.S. 757 (1983), the Court explained that

“[a]s with any contract, . . . a court may not enforce a collective

bargaining agreement that is contrary to public policy.” 461 U.S.

at 766 (emphasis added) (citing Hurd v. Hodge, 334 U.S. 24, 34–

35 (1948)). And in the Hurd cases cited in W.R. Grace, the Court

explained: “The power of the federal courts to enforce the terms

of private agreements is at all times exercised subject to the

restrictions and limitations of the public policy of the United

States as manifested in the Constitution, treaties, federal

statutes, and applicable legal precedents.

Where the

enforcement of private agreements would be violative of that

policy, it is the obligation of courts to refrain from such exertions

of judicial power.” 334 U.S. at 34–35.

29a

APPENDIX C

UNITED STATES DISTRICT COURT

FOR THE Northern District of Illinois –

CM/ECF NextGen 1.7.1.1

Eastern Division

Zimmer Biomet Holdings, Inc.

v.

Mary N. Insall

Plaintiff,

Defendant.

Case No.: 1:22−cv−02575

Honorable Lindsay C. Jenkins

Filed: April 11, 2023

NOTIFICATION OF DOCKET ENTRY

This docket entry was made by the Clerk on Tuesday,

April 11, 2023:

MINUTE entry before the Honorable Lindsay C.

Jenkins: For the reasons set forth in the Memorandum Opinion and Order, Plaintiff Zimmer Biomet

Holdings Inc.’s motion to vacate [21] is denied. The

Estate’s motion [27] is moot to the extent it requests

dismissal of the motion to vacate but is otherwise

granted. The Court confirms the arbitration award in

favor of the Estate. Enter judgment order. Civil case

closed. Mailed notice.(jlj, )

30a

ATTENTION: This notice is being sent pursuant to

Rule 77(d) of the Federal Rules of Civil Procedure or

Rule 49(c) of the Federal Rules of Criminal Procedure.

It was generated by CM/ECF, the automated docketing system used to maintain the civil and criminal

dockets of this District. If a minute order or other document is enclosed, please refer to it for additional information.

For scheduled events, motion practices, recent opinions and other information, visit our web site at

www.ilnd.uscourts.gov.

31a

APPENDIX D

THE UNITED STATES DISTRICT COURT FOR

THE NORTHERN DISTRICT OF ILLINOIS

Zimmer Biomet Holdings, Inc.,

v.

Insall,

Plaintiff(s),

Defendant(s).

Case No. 22 C 2575

Judge Lindsey C. Jenkins

Filed: April 11, 2023

JUDGMENT IN A CIVIL CASE

Judgment is hereby entered (check appropriate box):

in favor of plaintiff(s)

and against defendant(s)

in the amount of $

,



which





Includes pre-judgment interest.

does not include pre-judgment

interest.

Post-judgment interest accrues on that amount at

the rate provided by law from the date of this

judgment.

Plaintiff(s) shall recover costs from defendant(s).

32a



in favor of defendant(s)

and against plaintiff(s)

Defendant(s) shall recover costs from plaintiff(s).

 other: Plaintiff Zimmer Biomet Holdings Inc.’s

motion to vacate [21] is denied.

The Estate’s

motion [27] is moot to the extent it requests dismissal

of the motion to vacate but is otherwise granted. The

Court confirms the arbitration award in favor of the

Estate.

This action was (check one):

 tried by a jury with Judge

presiding, and the

jury has rendered a verdict.

 tried by Judge

without a jury and the above

decision was reached.

 decided by Judge Lindsey C. Jenkins on a motion.

Date: 4/11/2023

Thomas G. Bruton,

Clerk of Court

/s/ jackie Deanes,

Deputy Clerk