NOTE 3  LEGAL PROCEEDINGS

From 2013 until May 2020, we were involved in several lawsuits with our principal competitor, EMED Technologies Corporation (“EMED”).  EMED alleged that our needle sets infringed various patents controlled by EMED.  Certain of these lawsuits also alleged antitrust violations, unfair business practices, and various other business tort claims.   On May 26, 2020, the parties announced the settlement of all of the litigation between KORU Medical and EMED.  The settlement agreement provides KORU Medical with freedom to operate under EMED’s existing patent portfolio, dismissal of all litigation with prejudice (including the claims against Andrew Sealfon, our former President and Chief Executive Officer), and an equity payment by KORU Medical to EMED. The settled litigation is described below.

The initial case involving EMED was filed by us in the United States District Court for the Eastern District of California on September 20, 2013 (the “California case”), in response to a letter from EMED claiming patent infringement by us, and sought a declaratory judgment establishing the invalidity of the patent referenced in the letter – EMED’s US patent 8,500,703 – “’703.”  EMED answered the complaint and asserted patent infringement of the ’703 patent and several counterclaims relating generally to claims of unfair business practices against us.  We responded by adding several claims against EMED, generally relating to claims of unfair business practices on EMED’s part.  On June 16, 2015, the California court entered a preliminary injunction against KORU Medical for making certain statements regarding products cleared for use by the FDA, or that could be safely used, with KORU Medical’s Freedom60 pump, without voiding the product warranty.  On September 11, 2015, we requested an ex parte reexamination of the ’703 patent by the U.S. Patent and Trademark Office (“USPTO”).  The ex parte reexamination resulted in the Patent Trial and Appeal Board (“PTAB”) of the USPTO determining that claims 1-10 of the ’703 patent are invalid, leaving claim 11 as the only surviving claim of the ’703 patent.  Claim 11 of the ’703 patent, however, was not asserted in the California case.  EMED informed KORU Medical it will neither appeal the PTAB’s decision nor pursue a claim based on infringement of claim 11 of the ’703 patent in the California case.

The second court case was filed by EMED in the United States District Court for the Eastern District of Texas (the “Texas Court”) on June 25, 2015, claiming patent infringement on another of its patents (US 8,961,476 – “’476”), by our needle sets, and seeking unspecified monetary damages (“ED Texas ’476 matter”).  This ’476 patent is related to the invalid claims of the EMED ’703 patent.

On September 17, 2015, we requested an inter partes review (“IPR”) of the ’476 patent, and subsequently after a trial the PTAB issued a Final Written Decision in our favor, invalidating all claims but one (“dependent Claim 9”) of the ’476 patent.  EMED appealed the PTAB’s ruling to the United States Court of Appeals for the Federal Circuit (the “CAFC”), which affirmed the PTAB’s Final Written Decision in our favor on April 3, 2018.

During the IPR proceedings regarding the ’476 patent, EMED filed a new patent application that subsequently issued as US 9,808,576 – “’576” on November 7, 2017.  On this same date, EMED filed a new case (the “third case”) in the Texas Court claiming patent infringement of the ’576 patent by our needle sets, and seeking unspecified damages and a preliminary injunction against marketing and sales of our needle sets.  We moved to dismiss or transfer venue to the United States District Court for the Southern District of New York (“SDNY”), which resulted in the transfer of the third case to SDNY (“SDNY ’576 matter”) on May 30, 2018.

On April 23, 2018, EMED filed a new civil case (the “fourth case”) against us in the Texas Court asserting antitrust, defamation and unfair business practice claims, and seeking unspecified damages, similar to those previously presented in the California case, described above.  The fourth case also named Andrew Sealfon, then President and Chief Executive Officer of KORU Medical, individually as a defendant.  Following a hearing held on November 14, 2018 to address a motion we had filed to transfer venue, on December 7, 2018, the Texas Court transferred the fourth case to the United States District Court for the Eastern District of California (the “California Court”).  We then moved to dismiss that complaint, and Andrew Sealfon filed a separate motion to dismiss the case as to him for lack of jurisdiction.

At the same hearing on November 14, 2018, the Texas Court granted EMED leave to amend its infringement contentions to assert infringement of that sole remaining claim 9 of the ’476 patent. In April 2019, EMED served its damages expert’s report opining that EMED’s past infringement damages amount to $1.5 million, and in May KORU Medical served its damages expert’s rebuttal report opining that EMED’s expert miscalculated damages which if properly calculated would amount to less than $100,000.  We moved to dismiss the case for lack of infringement.  On June 24, 2019, the Texas Court Magistrate Judge issued a Report and Recommendation decision granting summary judgment in our favor, finding no infringement, literally or under the doctrine of equivalents, by KORU Medical’s accused products.  EMED’s objections were overruled and on June 28, 2019, the Texas Court issued a Final Judgment in favor of KORU Medical, awarded court costs to KORU Medical, and dismissed the case.  A final judgment was entered and KORU Medical submitted its Bill of Costs for approximately $16,000, which was ordered granted by the Texas Court.  KORU Medical also moved to declare the case exceptional and for recovery of its attorney fees and expenses of approximately $2.5 million in defense of EMED’s assertion of the ’476 Patent.  EMED appealed the non-infringement judgment to the CAFC.  On April 9, 2020, the CAFC issued a unanimous decision affirming the Texas Court’s judgment of non-infringement.  The Texas Court had stayed proceedings in the district court until the appeal process was completed.

The SDNY ’576 matter proceeded in the New York court through claim construction on the ’576 Patent, whereupon KORU Medical filed a motion for summary judgement of non-infringement.  That motion was granted on August 30, 2019, and the New York court dismissed the lawsuit and entered a final judgement.  KORU Medical submitted a Bill of Costs for approximately $1,500, to which EMED objected, and moved the New York court to declare the case exceptional and for recovery of its attorney fees and expenses of at least $1.16 million. On November 12, 2019, the Magistrate Judge issued a Report and Recommendation that KORU Medical’s fee motion be granted, and KORU Medical be awarded approximately $1.1 million in fees and expenses.  EMED filed objections to that Report and Recommendation.  EMED also appealed the New York court’s judgment of non-infringement to the CAFC, which the parties had fully briefed, and were awaiting a decision from the CAFC Court.

The aforementioned district court litigation has now been finally dismissed with prejudice, and all associated appeals dismissed.