Polaris Industries Inc. v. Arctic Cat Inc.

Background

Polaris brought two patent-infringement actions against Arctic Cat Inc. and Arctic Cat Sales Inc., which the opinion collectively calls Arctic Cat. Polaris alleged that Arctic Cat’s Wildcat Trail vehicles infringed Polaris’s ’449 and ’501 patents. The ’449 patent concerns the positioning of a generally U-shaped sway bar in side-by-side off-road vehicles. The ’501 patent concerns the placement of air inlets in relation to a continuously variable transmission engine in those vehicles.

Polaris moved to exclude the reasonable-royalty damages testimony of W. Christopher Bakewell, a managing director of Duff & Phelps, LLC. Bakewell used market, income, and cost valuation approaches to establish baseline values for the patents, then considered the Georgia-Pacific factors, which are factors used to estimate the royalty that a willing patent owner and willing licensee would have agreed upon.

Polaris’s objections

Polaris raised three principal objections. First, it argued that Bakewell did not adequately explain how he reached his lump-sum royalty opinion. Second, it argued that Bakewell’s reliance on agreements involving Polaris and third parties—including the North Agreement and the CFMOTO Agreement—was unreliable because those agreements were not sufficiently comparable. Third, Polaris argued that Bakewell improperly relied on opinions from Arctic Cat expert Dr. Gregory Davis concerning possible design-arounds for the patents.

Court’s analysis

Federal Rule of Evidence 702 permits qualified experts to testify when their specialized knowledge will help the fact finder, their testimony is based on sufficient facts or data, their methods are reliable, and they reliably applied those methods to the case. The court explained that factual challenges ordinarily affect the weight and credibility of expert testimony rather than its admissibility. Exclusion is appropriate when an opinion is so unsupported that it cannot assist the jury.

The court found that Bakewell’s lump-sum opinion was supported by six baseline data points, including agreements, expert opinions, possible substitutes, and competitive assessments. Although Bakewell did not specifically explain how he moved from the evidence to the final lump-sum figure in the relevant portion of his report, the court held that this issue was suitable for cross-examination rather than exclusion. The court also allowed Bakewell to rely on Dr. Nantell’s allocation of value between the two patents, even though Bakewell disagreed with that allocation, because the underlying opinion was sufficiently grounded in facts.

Regarding the North Agreement, the court distinguished a prior Federal Circuit decision involving the admission of a settlement agreement as evidence. Here, Arctic Cat was not seeking to introduce the North Agreement itself into evidence; Bakewell relied on it in forming his opinion. The court concluded that an expert may rely on information that experts in the field would reasonably use. It also held that the asserted differences involving the patents and the parties did not require exclusion and that comparability primarily affected the weight of the opinion.

The court reached a similar conclusion regarding the CFMOTO Agreement. Although courts generally disfavor using settlements to prove patent damages, the court found that this agreement was reached during litigation after significant discovery and a claim-construction order, and that Arctic Cat was not seeking to admit the agreement itself. The court held that Bakewell’s reliance on the agreement was admissible and that Polaris’s comparability objections went to weight rather than admissibility.

Finally, the court held that Dr. Davis had sufficiently supported his opinions about design-arounds. Davis cited prior patents and explained why, in his view, a person with ordinary skill in the field could modify sway-bar and air-inlet positions without reducing performance or increasing costs. The court concluded that Davis’s failure to identify his own specific design-around did not require exclusion.

Disposition

The court denied Polaris’s motion to exclude Bakewell’s expert testimony in Case No. 15-4129 and denied Polaris’s motion to exclude the same testimony in Case No. 15-4475. The court did not decide whether Arctic Cat infringed the patents or determine the amount of damages. The court separately ordered the parties to show cause within 14 days why the order should not be unsealed and to identify any portion that warranted redaction. Judge John R. Tunheim signed the order as chief judge of the United States District Court for the District of Minnesota.