Opinion
Nos. CV-02-484-HU (LEAD CASE), CV-02-1359-HU.
August 30, 2006
John D. Vandenberg, Scott E. Davis, Michael N. Zachary, KLARQUIST SPARKMAN, LLP, Portland, Oregon, Robert A. Shlacter, STOLL STOLL BERNE LOKTING SHLACTER, P.C., Portland, Oregon, Attorneys for Plaintiff.
Kathleen C. Bricken, GARVEY SCHUBERT BARER, Portland, Oregon, J. Michael Jakes, Robert F. Shaffer, FINNEGAN HENDERSON FARABOW GARRETT DUNNER, LLP, Washington, D.C., Raymond C. Jones, CARR, MORRIS GRAEFF, P.C., Washington, D.C., Attorneys for Defendant.
OPINION ORDER
Plaintiff CollegeNET, Inc., filed a Supplemental Complaint in this patent infringement case, following the return of the case to this Court by the Federal Circuit. The claims raised in the Supplemental Complaint are the original patent infringement claim regarding the '042 patent, a supplemental claim seeking damages for infringement of the '042 patent from June 30, 2003, to the present, and a second supplemental claim seeking enhanced damages for alleged willful infringement of the '042 patent from August 2, 2005 to the present.
Defendant ApplyYourself, Inc., responded with an Answer, Affirmative Defenses, and Counterclaims filed on February 24, 2006, followed almost immediately by an Amended Answer, Affirmative Defenses, and Counterclaims filed on February 27, 2006. There, defendant raised affirmative defenses of non-infringement of the '042 patent, invalidity, and unenforceability. Defendant also brought a counterclaim seeking a declaratory judgment of invalidity, unenforceability, and anticompetitive conduct.
In preparation for trial on these claims, the parties stipulated to a narrowing of issues for the trial currently set in late October 2006. The April 12, 2006 Stipulation effectively postpones the resolution of any infringement claim based on an alleged new or modified product introduced by defendant on September 18, 2005 ("the new product"). Exh. A to Mem. in Support of Joint Mtn to Dismiss Aff. Defs. The Stipulation also reflects defendant's voluntary dismissal of the affirmative defenses and counterclaims raised in its Amended Answer. Id.
The parties entered into another Stipulation on May 4, 2006, related largely to the discovery of evidence regarding the new product. Stip. Regarding Certain Post-Sept. 18, 2005 Issues. Following these Stipulations and the granting of the Joint Motion to Dismiss Affirmative Defenses and Counterclaims, the issues for trial in October 2006 were limited to a claim for infringement damages for the period beginning September 10, 2003, to September 18, 2005, and the claim for enhanced damages for willful infringement for the period beginning August 2, 2005, to September 18, 2005.
On May 11, 2006, plaintiff moved to compel certain discovery from defendant. I heard oral argument on the motion and then issued an Order denying the motion on June 15, 2006. Notably, as part of that Order, I analyzed the parties' Stipulations in light of Federal Rule of Civil Procedure 42(b). I concluded that the Stipulations were not compatible with Rule 42(b) because they created the risk of "prejudice to both parties and could result in an incomplete presentation of evidence related to one or the other [of the two issues remaining for trial — ordinary damages for the period of September 10, 2003, to September 18, 2005, and enhanced damages for willful infringement for the period of August 2, 2005, to September 18, 2005]." June 15, 2006 Order at p. 6.
I then concluded that
when looking at all the factors in Rule 42(b), the case is more easily managed with clear lines of demarcation, meaning that the willfulness issue should not be bifurcated from the issue of post-September 18, 2005 infringement by the new product, and that the only issue that should be bifurcated and tried in October-November 2006, is the issue of ordinary damages for defendant's admitted infringement until September 18, 2005.Id. Thus, following the June 15, 2006 Order, the single issue remaining for trial in October-November 2006, is ordinary damages for defendant's infringement from September 10, 2003, to September 18, 2005.
Defendant now moves for summary judgment on plaintiff's claim for lost future profits resulting from defendant's pre-September 18, 2005 infringement. Defendant also moves to strike a report of plaintiff's expert David Maier, Ph.D., and to exclude his testimony from trial. Alternatively, defendant seeks to extend the discovery deadline to depose Maier.
For the reasons explained below, I grant defendant's motion for summary judgment, I deny defendant's motion to strike, and I grant defendant's alternative motion to extend the discovery deadline to depose Maier.
I. Motion for Summary Judgment
A. Standards
Summary judgment is appropriate if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The moving party bears the initial responsibility of informing the court of the basis of its motion, and identifying those portions of "`pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (quoting Fed.R.Civ.P. 56(c)).
"If the moving party meets its initial burden of showing `the absence of a material and triable issue of fact,' `the burden then moves to the opposing party, who must present significant probative evidence tending to support its claim or defense.'"Intel Corp. v. Hartford Accident Indem. Co., 952 F.2d 1551, 1558 (9th Cir. 1991) (quoting Richards v. Neilsen Freight Lines, 810 F.2d 898, 902 (9th Cir. 1987)). The nonmoving party must go beyond the pleadings and designate facts showing an issue for trial. Celotex, 477 U.S. at 322-23.
The substantive law governing a claim determines whether a fact is material. T.W. Elec. Serv. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987). All reasonable doubts as to the existence of a genuine issue of fact must be resolved against the moving party. Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 587 (1986). The court should view inferences drawn from the facts in the light most favorable to the nonmoving party. T.W. Elec. Serv., 809 F.2d at 630-31.
If the factual context makes the nonmoving party's claim as to the existence of a material issue of fact implausible, that party must come forward with more persuasive evidence to support his claim than would otherwise be necessary. Id.; In re Agricultural Research and Tech. Group, 916 F.2d 528, 534 (9th Cir. 1990); California Architectural Bldg. Prod., Inc. v. Franciscan Ceramics, Inc., 818 F.2d 1466, 1468 (9th Cir. 1987).
B. Discussion
As part of its claim of damages for defendant's infringement of the '042 patent from September 10, 2003, to September 18, 2005, plaintiff seeks lost future profits for a period of one year, beginning September 18, 2005. Generally, plaintiff's theory is that defendant's infringement before September 18, 2005, caused damages not only during the period of actual infringement, but for at least the following twelve months because, according to plaintiff, there is a lack of acceptable non-infringing substitute products offered by third parties, defendant's customers would not likely desire to continue using defendant's non-infringing alternative, and it would take several months for customers to switch to a contract with plaintiff.
In support of its future lost profits claim, plaintiff relies on the report of its damages expert William Partin. Partin's report postulates a claim of $1,174,973 in lost profits on post-infringement applications. Karnopp Declr. at p. 11.
In the report, Partin states that there are five companies offering services that compete in the same market as plaintiff for online applications: XAP, College Board, Princeton Review/Embark, Common Application (supplement), and defendant.Id. at p. 4. He concludes that neither XAP, nor Princeton Review/Embark are acceptable non-infringing substitutes because plaintiff's experts, in the context of litigation against those two companies, have evaluated the technologies used by XAP and Princeton Review/Embark and have concluded that they are in violation of at least some of plaintiff's patent claims. Id.
Partin also explains the reluctance of institutional clients to change existing application service providers and why it will be a gradual process to convert clients to plaintiff from defendant. Id. at pp. 6-7. Finally, Partin explains why it is unlikely defendant could design around the features of the '042 patent and create an acceptable non-infringing substitute product. Id. at p. 8-10.
Upon a finding of infringement, the patentee is entitled to an award of damages, adequate to compensate it for the infringement, but in no event less than a reasonable royalty. Oiness v. Walgreen Co., 88 F.3d 1025, 1029 (Fed. Cir. 1996). The patent owner bears the burden of proving this amount. Id. "Beyond a reasonable or established royalty, . . . a claimant must prove actual damages to establish entitlement to lost profits." Id. This proof must include "a causal connection between the infringement and the lost profits." Id. That is, "[t]o recover lost profits as actual damages, a patent holder must demonstrate that there was a reasonable probability that, but for the infringement, it would have made the infringer's sales." Id. (internal quotation omitted).
The law recognizes that a patentee may "produce sufficient evidence to recover projected future losses[.]" Id. at 1031. But, "those projections must not be speculative." Id. As theOiness court explained:
The burden of proving future injury is commensurately greater than that for damages already incurred, for the future always harbors unknowns. . . . While estimates of lost future profits may necessarily contain some speculative elements, . . ., the factfinder must have before it such facts and circumstances to enable it to make an estimate of damage based upon judgment, not guesswork.Id. (internal quotations and citations omitted).
Defendant argues that the claim for lost future profits exceeds the April 12, 2006 Stipulation where plaintiff agreed not to seek any damages based on defendant's new product.
I disagree with defendant that the lost future profit claim necessarily violates the April 12, 2006 Stipulation. It is possible that a certain number of post-September 18, 2005 applications processed by defendant would not have been so processed "but for" defendant's infringement of the '042 patent before September 18, 2005.
But, there may also be a certain number of post-September 18, 2005 applications processed by defendant with its new product that are not attributable to defendant's infringement. If defendant's client continues to use defendant to process applications after September 18, 2005, it is possible the client is using defendant because of the pre-existing relationship, cultivated on the basis of an infringing product. But it is also possible the client is using defendant because of defendant's new product.
The problem with plaintiff's future lost profit claim is that there is no rational way for the jury to approximate how many of the applications processed by defendant after September 18, 2005, were because of the pre-existing relationship or because of defendant's new product. Because any damages for applications processed after September 18, 2005, that were not attributable to a relationship established during the period of infringement, would violate the parties' agreement, and because it is impossible to rationally segregate such damages, it is inappropriate for plaintiff to proceed with its future lost profit claim in the trial set for late October 2006.
At all times, this Court has intended to try, in October 2006, all claims and counterclaims raised by the parties' pleadings. The parties then entered the April 12, 2006 Stipulation which narrowed the issues for trial to ordinary damages for infringement for the period September 10, 2003, to September 18, 2005, and to a short period of enhanced damages for alleged willfulness from August 2, 2005, to September 18, 2005. I further narrowed the issues to only ordinary damages for the approximate two-year period of infringement ending September 18, 2005.
Because, under the April 12, 2006 Stipulation, the claim for post-September 18, 2005 infringement based on defendant's newly introduced product was not dismissed, but was only bifurcated and postponed to a later date, there remains the potential for confusion and the possibility of a double recovery. If plaintiff is awarded damages now for post-September 18, 2005 applications that could be attributable to defendant's new product and not its pre-existing relationship with its clients, plaintiff could recover those same damages in the later new product infringement trial.
The more appropriate course is to limit this trial to pre-September 18, 2005 damages. This eliminates any possibility of confusion and double recovery by plaintiff. Plaintiff may seek lost future profits based on the pre-September 18, 2005 infringement, at a second trial at a later date.
II. Motion to Strike
As noted above, plaintiff intends to offer Partin's expert report and testimony to support its claim for damages for September 10, 2003, to September 18, 2005. As also noted above, one aspect of Partin's testimony includes his opinion about the number of acceptable non-infringing substitute products on the market during the relevant time period. Partin's report makes clear that his opinion is based on the fact that another expert has already determined that at least two of plaintiff's and defendant's competitors, Princeton Review/Embark and XAP, infringe the '042 patent and thus, are not acceptable non-infringing substitutes for the purposes of a lost profits analysis.
David Maier, Ph.D., is the expert who opined on the infringement of the '042 patent by Princeton Review/Embark and XAP. Plaintiff seeks to submit Maier's report and have him testify at the October 2006 trial regarding the infringement by these third party products. Defendant objects.
Defendant moves to strike Maier's report and anticipated testimony based on Federal Rule of Evidence 403 and the April 12, 2006 Stipulation. Defendant does not contend that the issue of acceptable non-infringing third-party products is irrelevant to plaintiff's claim of lost profits. But, defendant contends, plaintiff should not be allowed to present evidence on this issue via an independent infringement expert. Rather, defendant argues, plaintiff should rely solely on the testimony of Partin, the damages expert.
I disagree. Defendant concedes the relevance of the issue upon which Maier will offer testimony. As plaintiff notes, the presence or absence of acceptable non-infringing substitutes is one of the factors listed in Panduit Corporation v. Stahlin Brothers Fibre Works, Inc., 575 F.2d 1152, 1156 (6th Cir. 1978), as relevant to a lost profits analysis. In Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1545 (Fed. Cir. 1995) (en banc), the Federal Circuit re-articulated the test from Panduit and noted that the test requires the absence of acceptable non-infringing substitutes as one of its four factors in support of a lost profits claim. Additionally, as plaintiff notes, the availability or absence of non-infringing alternatives is also relevant to the hypothetical negotiation for a reasonable royalty analysis.
Defendant cannot dictate plaintiff's trial strategy or witness list, assuming plaintiff follows applicable rules of procedure and evidence and comports with the parties' agreements, and assuming the witness is otherwise qualified. Here, with defendant's concession that the issue is relevant, and with its concession that Partin may appropriately testify to the absence of non-infringing substitute products, there is no basis on which to strike Maier's report or testimony.
As to defendant's Rule 403 arguments that Maier's testimony on the issue will result in undue prejudice and create a burden of having a mini-trial on the infringement of each of the two third-party products, the same alleged prejudice and burden will exist whether it is Partin or Maier presenting the evidence on that issue. While Maier's report and testimony will be more comprehensive on the issue of infringement by the third-party products, Partin's testimony, by relying on Maier's opinion, may well cause the same alleged prejudice and burden. The concerns are not unique to Maier as a witness.
Additionally, the agreement between the parties eliminated the affirmative defenses and counterclaims and the issue of infringement by defendant's new product. The question of what damages plaintiff was owed for the period of stipulated infringement by defendant from September 10, 2003, to September 18, 2005, has remained in the trial at all times since plaintiff filed its Second Amended Complaint. Maier's report and testimony are directed to that damages analysis and his testimony is not an opinion on the infringement of the '042 patent by defendant post-September 18, 2005 allegedly infringing product. Thus, his testimony does not violate the parties' agreement.
Accordingly, I deny the motion to strike Maier's report. I do however, grant defendant's alternative motion to extend the discovery deadline to allow for defendant to depose Maier. The parties shall promptly schedule the deposition at a mutually convenient date.
CONCLUSION
Defendant's motion for summary judgment on the issue of lost future profits (#594) is granted. Defendant's motion to strike (#602) is denied but its alternative motion to extend the discovery deadline to allow for the deposition of Maier, is granted.
IT IS SO ORDERED.