United States District Court, D. Minnesota
FILED
UNDER SEAL
NATHAN
LOUWAGIE & SAMUEL T. LOCKNER, CARLSON CASPERS VANDENBURGH
LINDQUIST & SCHUMAN PA, FOR PLAINTIFF/COUNTER DEFENDANT.
JOSEPH
A. HERRIGES, JOHN C. ADKISSON, & MARIA ELENA STITELER,
FISH & RICHARDSON PC, FOR DEFENDANTS/COUNTER CLAIMANTS.
MEMORANDUM OPINION AND ORDER
JOHN
R. TUNHEIM CHIEF JUDGE
Polaris
Industries Inc. (“Polaris”) brings these
infringement actions against Arctic Cat Inc. and Arctic Cat
Sales Inc. (collectively “Arctic Cat”). Polaris
alleges Arctic Cat's Wildcat Trail vehicles infringe on
its ‘449 and ‘501 Patents for side-by-side
all-terrain vehicles.
Polaris
has moved to Exclude Certain Expert Testimony of Christopher
Bakewell. (Docket No. 212, Case No. 15-4129; Docket No. 320,
Case No. 15-4475.) Because Bakewell's opinions are
properly supported under Federal Rule of Evidence 702, the
Court will deny Polaris's Motions.
BACKGROUND
This
series of patent cases arises from Arctic Cat's alleged
infringement of Claim 1 of Polaris's '449 Patent in
November 2015 (Case No. 15-4129) and infringement of Claims
1, 10, and 11 of Polaris's '501 Patent in December
2015 (Case No. 15-4475).
The
‘449 Patent involves the positioning of a generally
U-shaped sway bar in side by side off-road vehicles. (Decl.
of Joseph A. Herriges in Supp. of Def.'s Opening Claim
Construction Brief (“Herriges Decl.”), Ex. A,
Mar. 31, 2017, Case No. 15-4475, Docket No. 137.) The
‘501 Patent involves the placement of air inlets
relative to a continuously variable transmission engine in
side by side off-road vehicles. (Herriges Decl., Ex. B.)
Polaris
moves to exclude the expert testimony of W. Christopher
Bakewell related to his opinion on reasonable royalty damages
for the ‘449 and ‘501 Patents. (Mot. to Exclude
Expert Test. of W. Christopher Bakewell, July 20, 2018,
Docket No. 320, Case No. 15-4475.) Bakewell is a Managing
Director of Duff & Phelps, LLC, an international
consulting firm specializing in financial advisory services.
(Decl. of Samuel T. Lockner (“Lockner Decl.”)
¶ 3, July 20, 2018, Docket No. 324, Case No. 15-4475;
Ex. B (“Bakewell Report”) ¶ 7, July 20,
2018, Docket No. 326, Case No. 15-4475.) At Duff &
Phelps, LLC Bakewell's primary responsibility is to
provide consulting services involving valuation and related
issues in connection with technology-rich businesses and
intellectual property. (Bakewell Report ¶ 7.)
Bakewell
used a two-step analysis to form his opinion on reasonable
royalty damages. (Id. ¶¶ 204.) First,
Bakewell used three intellectual property valuation
methodologies to determine a baseline of valuation for the
patents-in-suit. (Id..) These methodologies include
(1) the market approach, (2) the income approach, and (3) the
cost approach. (Id.) Second, Bakewell analyzed
qualitative factors known as the Georgia-Pacific
factors. (Id. ¶ 5.)
The
market approach values assets based on comparable
arm's-length transactions between unrelated parties.
(Id. ¶ 209.) Under this methodology, Bakewell
considered agreements between Polaris and third parties, and
Arctic Cat and third parties. (Id. ¶¶
216-89.) Bakewell determined that agreements between Polaris
and Vaughn North (“North Agreement”), and Polaris
and CFMOTO (“CFMOTO Agreement”) were comparable
to a hypothetical license between Polaris and Arctic Cat for
the ‘449 and ‘501 Patents from a technical and
economic standpoint. (Id. ¶¶ 218, 280.)
The
North Agreement XXXXX Bakewell based
his opinion that the North Agreement is comparable to the
hypothetical license at issue on several factors. First,
XXXXX (Id. ¶ 220.)
XXXXX (Id. ¶ 226.)
Third, XXXXX and explained why he
still considered the North Agreement comparable despite this
fact. (Id. ¶ 228.)
The
CFMOTO Agreement XXXXX (Id.
¶ 239.) Bakewell based his opinion that the CFMOTO
Agreement is comparable to the license at issue on several
factors. First, XXXXX Second,
XXXXX Third, XXXXX Fourth, (Id. ¶¶ 238-39,
262-64.) Fifth, XXXXX (Id.
¶¶ 266-75.) XXXXX
The
income approach involves analyzing the incremental value of
the economic benefits associated with the ‘449 and
‘501 Patents. (Id. ¶ 318.) Bakewell
opined that the ‘449 and ‘501 Patents had little
value under this approach. This conclusion is based on both
patents relating to features rather than to the entirety of
the accused Arctic Cat products and the fact that next-best
alternatives exist for both patents. (Id. ¶
320.) Bakewell also relied on discussions with Dr. Greg
Davis, Arctic Cat's technology expert, regarding the
benefits and uses of each patent. (Id. ¶¶
45-49, 57, 59-60.)
The
cost approach involves estimating the costs associated with
creating the assets at issue, or an acceptable substitute.
(Id. ¶ 292.) Bakewell opined that inexpensive
noninfringing alternatives for the '449 and '501
Patents exist. (Id. ¶¶ 182-85, 313-14.) To
reach this conclusion, Bakewell relied on a Polaris
expert's opinion that XXXXX For
the '501 Patent, Bakewell relied on Dr. Davis's
expert opinion that the air inlet could be moved without
impact on the performance of the accused vehicles.
(Id. ¶¶ 182-85.) Further, because the air
inlet could have been moved when the accused vehicles were
first designed, Bakewell opined that the new design would
have inclined no incremental cost. (Id. ¶¶
315-16.)
Bakewell
used the valuations he found through the market, cost and
income approaches to establish baseline values for the
'449 and '501 Patents and create the table below,
(Id. ¶¶ 322-23.)
(Image
Omitted)
(Id.)
Bakewell
also opined that the total lump-sum royalty would not exceed
XXXXX (Id.) Bakewell
allocated to the ‘449 Patent the baseline royalty of
XXXXX, and to the ‘501 Patent
XXXXX (Id.) The allocation
was made, in part, based on the weight that Polaris's
damages expert, Dr. Timothy J. Nantell, assigned to each
patent. (Decl. of Maria Elena Stiteler (“Stiteler
Decl.”) ¶ 4, Aug. 16, 2018, Docket No. 385, Case
No. 15-4475; Ex. 3 at 13, Aug. 16, 2018, Docket No. 388, Case
No. 15-4475.) The value of the ‘449 Patent is also
equivalent to the value derived from the cost ...