Polaris Industries, Inc. v. Arctic Cat Inc.

Background

Polaris brought related patent-infringement actions against Arctic Cat in 2015. Polaris, the patent owner, sells products through Polaris Sales Inc. (PSI), which the opinion identifies as Polaris’s wholly owned subsidiary. Polaris intended to seek lost-profits damages based on sales that PSI allegedly would have made but for Arctic Cat’s infringement. Polaris’s theory was that PSI’s profits flowed inexorably—that is, necessarily or directly—to Polaris.

In March 2016, Arctic Cat served a document request seeking materials concerning lost profits that Polaris claimed it was owed. Arctic Cat defined “Polaris” broadly to include subsidiaries and other related entities. Polaris objected to that definition and said it would interpret “Polaris” to mean only Polaris Industries Inc. During discovery, Polaris produced a Marketing and Distribution Agreement between Polaris and PSI and hundreds of other documents related to PSI.

In April 2018, Arctic Cat moved to compel additional documents concerning the financial relationship between Polaris and PSI. Arctic Cat said it had only recently learned that Polaris would rely on the inexorable-flow theory. The magistrate judge denied the motion under Federal Rule of Civil Procedure 26(b)(2)(C)(ii), which requires limiting discovery when the requesting party has already had ample opportunity to obtain the information.

District Court Review

The district court reviewed the magistrate judge’s nondispositive discovery ruling under the highly deferential “clearly erroneous or contrary to law” standard. The court explained that reversal was appropriate only if the magistrate judge’s ruling left the court with a definite and firm conviction that a mistake had been made.

The court held that the magistrate judge did not clearly err. The court relied on the parties’ litigation history, Polaris’s production of documents showing a relationship between Polaris and PSI, Polaris’s disclosure that it was seeking lost profits, and Arctic Cat’s failure to press Polaris for more details until late in discovery. The court acknowledged that reasonable people could disagree about whether Polaris was required to disclose its precise damages theory and whether it had done so, but found no clear error in the magistrate judge’s decision.

Guidance About Lost-Profits Evidence

The court separately described its expectations for the case going forward. It stated that Polaris could not prove that PSI’s profits flowed inexorably to Polaris merely through ownership and control of PSI or PSI’s tax status. Citing prior decisions, the court said Polaris would need contractual, structural, or historical evidence. Any damages expert’s opinion on the issue also had to rely on more than ownership and control and had to be based on sufficient facts or data.

Polaris had agreed that it would rely at trial only on documents produced during discovery and that its damages expert would likewise rely only on produced documents. The court therefore expected Polaris to present enough properly supported evidence for a jury to decide whether PSI’s profits flowed inexorably to Polaris, without relying on unproduced documents.

Disposition

Judge John R. Tunheim denied defendants’ appeals. He affirmed the magistrate judge’s orders denying Arctic Cat’s motions to compel.