Polaris Industries Inc. v. Arctic Cat Inc. et al

Filing 480

REDACTED ORDER in Response to 462 Order on Motion to Exclude Expert Testimony denying (212) Motion to Exclude Expert Testimony in case 0:15-cv-04129-JRT-TNL; denying (320) Motion to Exclude Expert Testimony in case 0:15-cv-04475-JRT-TNL (Written Opinion). Signed by Chief Judge John R. Tunheim on 3/12/2019. (HAZ)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
POLARIS INDUSTRIES INC.,
Plaintiff/Counter Defendant,
v.

Civil Nos. 15-4129 (JRT/TNL)
15-4475 (JRT/TNL)

FILED UNDER SEAL

ARCTIC CAT INC. and ARCTIC CAT
SALES INC.,

MEMORANDUM OPINION AND
ORDER

Defendant/Counter Claimants.
Nathan Louwagie & Samuel T. Lockner, CARLSON CASPERS
VANDENBURGH LINDQUIST & SCHUMAN PA, 225 South Sixth
Street, Suite 4200, Minneapolis, MN 55402, for plaintiff/counter defendant.

Joseph A. Herriges, John C. Adkisson, & Maria Elena Stiteler, FISH &
RICHARDSON PC, 60 South Sixth Street, Suite 3200, Minneapolis, MN
55402, for defendants/counter claimants.

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
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methodologies include (1) the market approach, (2) the income approach, and (3) the cost
approach. (Id.) Second, Bakewell analyzed qualitative factors known as the GeorgiaPacific 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. ¶¶ 21689.) 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
Bakewell based his opinion that the North Agreement is
comparable to the hypothetical license at issue on several factors. First,

(Id. ¶ 220.)

(Id.
¶ 226.) Third,
and explained why he still considered the North
Agreement comparable despite this fact. (Id. ¶ 228.)
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The CFMOTO Agreement
(Id. ¶ 239.)
Bakewell based his opinion that the CFMOTO Agreement is comparable to the license at
issue on several factors. First,

Second,

Third,

Fourth,

(Id. ¶¶ 238-39, 262-64.) Fifth,

(Id. ¶¶ 266-75.)
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.)
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(Id.)
Bakewell also opined that the total lump-sum royalty would not exceed
(Id.) Bakewell allocated to the ‘449 Patent the baseline royalty of
‘501 Patent

, and to the

(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 approach—

for a

design around. (Id. at 12.) After establishing this baseline, Bakewell also considered the
Georgia-Pacific factors. (Bakewell Report ¶ 325.)
DISCUSSION
I.

STANDARD OF REVIEW
Federal Rule of Evidence 702 governs the admissibility of expert testimony and

provides the following:
A witness who is qualified as an expert by knowledge, skill,
experience, training, or education may testify in the form of an
opinion or otherwise if:
(a) the expert’s scientific, technical, or other specialized
knowledge will help the trier of fact to understand the evidence
or to determine a fact in issue;
(b) the testimony is based on sufficient facts or data;
(c) the testimony is the product of reliable principles and
methods; and
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(d) the expert has reliably applied the principles and methods
to the facts of the case.
Fed. R. Evid. 702. The district court has a gate-keeping obligation to make certain that all
testimony admitted under Rule 702 satisfies these prerequisites and that “any and all
scientific testimony or evidence admitted is not only relevant, but reliable.” Daubert v.
Merrell Dow Pharm., Inc., 509 U.S. 579, 589 (1993). The proponent of the expert
testimony has the burden of establishing by a preponderance of the evidence that the expert
is qualified, that his or her methodology is scientifically valid, and that “the reasoning or
methodology in question is applied properly to the facts in issue.” Marmo v. Tyson Fresh
Meats, Inc., 457 F.3d 748, 757-58 (8th Cir. 2006).
“[T]he trial judge must have considerable leeway in deciding in a particular case
how to go about determining whether particular expert testimony is reliable.” Kumho Tire
Co., Ltd. v. Carmichael, 526 U.S. 137, 152 (1999). However, the Eighth Circuit has held
that “[c]ourts should resolve doubts regarding the usefulness of an expert’s testimony in
favor of admissibility.” Marmo, 457 F.3d at 758. “As a general rule, the factual basis of
an expert opinion goes to the credibility of the testimony, not the admissibility, and it is up
to the opposing party to examine the factual basis for the opinion in cross-examination.”
Loudermill v. Dow Chem. Co., 863 F.2d 566, 570 (8th Cir. 1988). “Only if [an] expert’s
opinion is so fundamentally unsupported that it can offer no assistance to the jury must
such testimony be excluded.” Hose v. Chi. Nw. Transp. Co., 70 F.3d 968, 974 (8th Cir.
1995).

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II.

BAKEWELL’S REASONABLE ROYALTIES OPINION
Polaris points to three reasons why Bakewell’s testimony on reasonable royalties

should be excluded. First, Polaris alleges that Bakewell failed to explain the basis for his
affirmative lump-sum royalty opinion. Second, Polaris argues that Bakewell’s reliance on
the North and CFMOTO Agreements is unreliable. Third, Polaris argues that Bakewell’s
reliance on the ipse dixit of Dr. Davis renders certain data points unreliable.
A.

Lump-sum Royalty Opinion

In Exmark Manufacturing Company Inc. v. Briggs & Stratton Power Products
Group, LLC, the Federal Circuit held that it was “not enough for an expert to simply assert
that a particular royalty rate is reasonable in light of the evidence without tying the
proposed rate to that evidence.” 879 F.3d 1332, 1351 (Fed. Cir. Jan. 12, 2018). There, the
expert analyzed the Georgia-Pacific factors in light of the facts, but “plucked the 5%
royalty rate out of nowhere.” Id. The court, thus, held that the district court erred by not
excluding the expert opinion. Polaris argues that because Bakewell failed to tie his lumpsum royalty figure to the evidence and did not explain how he reached the final figure of
“no greater than $1 million,” his testimony should be excluded.
Bakewell supports his lump-sum royalty figure by creating a baseline using six data
points. Each data point is sufficiently grounded in facts. Bakewell relied on evidence,
including ready substitutes, expert opinions from Polaris and Arctic Cat, the North and
CFMOTO Agreements, and competitive assessments.

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Although Bakewell does not specifically tie any evidence to the

figure in

the section where he concludes that the lump-sum royalty should be
Bakewell does note differences between the CFMOTO Agreement and the instant
case that may justify a figure

the CFMOTO Agreement’s

For instance,
Also, part of the value of
the CFMOTO settlement was accounted for
Thus, Bakewell’s opinion is grounded in enough facts to allow him to
testify at trial because his opinion would be helpful to the jury. That Bakewell failed to
specifically identify how he got from

is

appropriate for cross-examination, not exclusion of testimony.
Second, Polaris argues that Bakewell’s allocation of value among the ‘449 and ‘501
Patents is not based on the facts of the case. Bakewell does not form his own opinion on
the allocation of value. Instead, he relies on the allocation that Dr. Nantell makes,
Bakewell stated in his
deposition that he disagrees with Dr. Nantell’s allocation of value, but nevertheless relied
on it. Polaris argues that Bakewell should not be allowed to testify to an opinion that he
does not believe.
Arctic Cat argues that experts can rely on the opinion of other experts. See Arctic
Cat Inc. v. Bombardier Recreational Products Inc., 876 F.3d 1350, 1369-70 (Fed. Cir.
2017). While true, this does not address Polaris’s argument that Bakewell should not be
allowed to testify to an opinion he does not hold. While it seems contrary to allow an
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expert to testify to an opinion that he does not hold, where he relies on the opinion of
another expert, that opinion may nonetheless be grounded in sufficient facts. An opinion
based on that opinion may, in turn, be helpful to the jury. Unless Polaris is arguing that
the opinion of its own expert, Dr. Nantell, is not sufficiently grounded in facts, the Court
sees no reason to exclude Bakewell’s opinion based on his reliance on Dr. Nantell’s
opinion.
B.

Comparability of North and CFMOTO Agreements
1.

North Agreement

Polaris next challenges Bakewell’s reliance on the North and CFMOTO
Agreements. Bakewell relies on the North (and CFMOTO) Agreement to determine the
terms of a hypothetical license agreement between Polaris and Arctic Cat for the allegedly
infringed patent. This hypothetical license is derived from Georgia-Pacific factor fifteen.
That factor
evaluates the royalty that a licensor (such as the patentee) and
licensee (such as the infringer) would have agreed upon if both
had been reasonably and voluntarily trying to reach an
agreement; that is, the amount which a prudent licensee—who
desired, as business proposition, to obtain a license to
manufacture and sell a particular article embodying the
intellectual property—would have been willing to pay as a
royalty and yet be able to make a reasonable profit and which
amount would have been acceptable by a prudent licensor who
was willing to grant a license.
(Bakewell Report at 125 n. 644.)

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Polaris argues that the North Agreement is not comparable to the instant case, and thus,
Bakewell’s reliance on it warrants the exclusion of his testimony on the issue.
In LaserDynamics, Inc. v. Quanta Computer, Inc., the Federal Circuit reversed an
order of the district court where the court, through a motion in limine, allowed a settlement
agreement to come in as evidence. 694 F.3d 51, 77 (Fed. Cir. 2012). There, the settlement
agreement was used to prove the amount of a reasonable royalty. Id. In reversing, the
Federal Circuit stated,
The notion that license fees that are tainted by the coercive
environment of patent litigation are unsuitable to prove
reasonable royalty is a logical extension of Georgia-Pacific,
the premise of which assumes a voluntary agreement will be
reached between a willing licensor and a willing licensee, with
validity and infringement of the patent not being disputed.
Id.
Several differences exist between LaserDynamics and this case. First, Arctic Cat is
not seeking to admit the North Agreement into evidence. Bakewell relies on the North
Agreement to form his opinions, but Arctic Cat does not, at this time, seek to introduce it
into evidence. Second, LaserDynamics analyzed the settlement agreement in the context
of Federal Rules of Evidence 403 and 408 as opposed to the analysis here under 702. The
LaserDynamics court viewed the use of the settlement in that case with suspicion because
“‘it was the least reliable license [in the record] by a wide margin,’” and there were twentynine other licenses in the record that were far more reliable.

Id. at 77-78. While

LaserDynamics informs whether Bakewell relied on sufficient facts, it does not control
whether Bakewell may rely on the North Agreement.
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Although settlement agreements are not an ideal proxy for royalty payments, other
courts have recognized that such agreements may be used.

In Comcast Cable

Communications, LLC v. Spring Communications Company, LP, the court distinguished
LaserDynamics because the settlement agreement had been entered into evidence at trial.
218 F. Supp. 3d 375, 385 (E.D. Pa. 2016). Here, as in Comcast, an expert relies on the
settlement agreement in forming their opinion, and the parties are not seeking to admit that
agreement into evidence. Id. As noted in Comcast, even if the settlement agreement itself
were inadmissible evidence, “Federal Rule of Evidence 703 permits an expert . . . to rely
on inadmissible evidence if experts in the field would reasonably rely on such evidence.”
Id. Because Bakewell reasonably relies on the North Agreement to form his opinion, it is
admissible. See Fed. R. Evid. 703.
Polaris also argues that Bakewell cannot rely on the North Agreement because it is
not comparable to the instant case for two reasons: (1) the North patents cannot be
presumed valid and enforceable, thus it is possible that the settlement was a nuisance
payment; and (2) North was an NPE.
Polaris argues that Arctic Cat cannot show comparability because to be comparable,
the patents at issue must be able to be presumed valid and enforceable. LaserDynamics,
649 F.3d at 77. When North sued Arctic Cat under the same patents as those asserted
against Polaris, Arctic Cat took the position that the asserted patents were invalid and
unenforceable.

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Polaris also argues that the North Agreement is not comparable because North was
an NPE and was thus materially different from Arctic Cat, a head-to-head competitor.
Sprint Communs. Co. L.P. v. Comcast IP Holdings, LLC, 2015 U.S. Dist. LEXIS 10838,
at *3 (D. Del. Jan. 20, 2018) (“The agreement, however, was the result of a settlement
between Comcast and a non-practicing entity, meaning that there were likely major
economic differences between the negotiating parties.”). Although that court noted this
difference, it did not discuss the effects of settlements with NPEs on comparability.
Because these differences have not been held by the Federal Circuit as a bar to
admissibility, this Court declines to do so here.
Lastly, the question of comparability goes to weight, not admissibility. Apple, Inc.
v. Motorola, Inc., 757 F.3d 1286, 1327 (Fed. Cir. 2014) (“Here, whether these licenses are
sufficiently comparable such that Motorola’s calculation is a reasonable royalty goes to the
weight of the evidence, not its admissibility.”) (overruled on other grounds). Bakewell’s
opinions have met the Rule 702 requirements for admissibility, and Polaris’s arguments
go only to the weight of the evidence. Thus, the Court will deny Polaris’s motion on this
ground.
2.

CFMOTO Agreement

Polaris makes similar arguments regarding Bakewell’s reliance on the CFMOTO
Agreement. As a general rule, courts frown on the use of settlements to prove the amount
of damages in a patent case. LaserDynamics, 694 F.3d at 77. However, where agreements
are reached at the end of trial, before closing arguments and jury deliberations, courts have

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affirmed the use of settlement agreements to prove damages. See Prism Techs. LLC v.
Sprint Spectrum L.P., 849 F.3d 1360, 1371 (Fed. Cir. 2017).

Here, the CFMOTO

Agreement was reached during litigation following significant fact discovery and issue of
a claim construction order. Each parties’ assessment of the case was likely enhanced
because of the discovery and claim construction order. Thus, Bakewell’s reliance on the
CFMOTO Agreement despite it being reached during litigation is admissible, particularly
because Arctic Cat does not seek to admit the Agreement itself into evidence.
Polaris also attacks the CFMOTO Agreement on the grounds that,

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Thus,
Bakewell’s opinion is grounded in sufficient facts.
Any attacks on the comparability of the CFMOTO Agreement go to its weight, not
its admissibility. Furthermore,
Thus, the Court will
deny Polaris’s motion with respect to this argument.
C.

Ipse Dixit

Bakewell relies on several opinions of another Arctic Cat expert, Dr. Gregory Davis.
Polaris attacks Bakewell’s reliance on Dr. Davis’ opinions because, Polaris argues, Dr.
Davis’ opinions are ipse dixit. Specifically, Polaris disputes Bakewell’s reliance on Dr.
Davis’ opinion that a person could design around the ‘449 and ‘501 Patents without
sacrificing performance or increasing costs. Polaris argues that this opinion is ipse dixit
because Dr. Davis does not identify a specific design-around to support this opinion.
In Uniloc USA, Inc. v. Microsoft Corp., the Federal Circuit held that a “patentee
must ‘sufficiently [tie the expert testimony on damages] to the facts of the case.’” 632 F.3d
1291, 1315 (Fed. Cir. 2011) (alteration in original) (quoting Daubert, 509 U.S. at 591).
“Nothing in either Daubert or the Federal Rules of Evidence requires a district court to
admit opinion evidence that is connected to existing data only by the ipse dixit of the

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expert.” General Elec. Co. v. Joiner, 522 U.S. 512, 519 (1997). Where the expert fails to
connect the evidence to his or her opinion, “[a] court may conclude that there is simply too
great an analytical gap between the data and the opinion proffered,” and exclude the
opinion. Id.
Here, Polaris failed to show that to have the proper support for his opinion, Dr.
Davis must identify a specific design-around. The only case Polaris cites for this argument
is Biscotti Inc. v. Microsoft Corp., Case No. 2:13-cv-01015, 2017 U.S. Dist. LEXIS 94016,
at *14 (E.D. Tex. May 25, 2017). However, there are material differences between Biscotti
and the instant case. In Biscotti, the court excluded the testimony of two experts because
they failed to provide a basis for their opinions that several patents were technically and
economically comparable to the patent at issue. Id. at *11-14. The court identified several
differences between the patent at issue and the patents being compared to it, including that
the patents were for technologies that were used in different fields, and that the licenses
associated with those patents were granted from an organization whose mission was to
provide an open, fair, reasonable, and non-discriminatory licensing program, as opposed
to a competitor.
In this case, Dr. Davis sufficiently supported his conclusion that design-arounds for
the ‘449 and ‘501 Patents would not increase costs or decrease performance. Dr. Davis
opined that there were relatively few positions to mount a sway bar and that a person of
ordinary skill in the art would have been aware of these few positions, as evidenced by
prior patents. (Lockner Decl. ¶ 9, Ex. H ¶¶ 161-63.) Dr. Davis opined that prior patents
would have shed light on the benefits of certain positions for sway bars, and as such,
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persons of ordinary skill would have sought to modify the sway bars. (Id. ¶ 165.) Although
Dr. Davis acknowledged that tradeoffs existed with different positions of the sway bar, this
goes to the weight of his opinion on costs of implementing design-arounds rather than
admissibility. (Id. ¶ 335.) Dr. Davis supported these conclusions by citing several prior
patents (Kobayashi, Reynolds, Gradu, etc.) that showed rear mounted sway bars which a
person of ordinary skill in the art could review and modify to create a design-around. (Id.
¶ 336.) Dr. Davis makes similar conclusions regarding air inlets—that placement is largely
a design choice even though tradeoffs may exist. (Id. ¶¶ 1057-58.) Dr. Davis cites prior
patents to show that conventional wisdom at the time of the invention supported various
positions of air inlets and that using side air inlets had been done before. (Id. ¶¶ 1058-59.)
Although Dr. Davis does not identify his own design-around, he has cited sufficient
evidence and tied the evidence to the facts of the case. Dr. Davis discussed different prior
patents and how they disclose similar technology used in side-by-side all-terrain vehicles
that would, in his opinion, lead a person of ordinary skill in the art to create a design-around
that would not decrease performance nor increase costs. He also tied this opinion to the
facts of the case, specifically the ‘449 and ‘501 Patents and Arctic Cat’s actual
implementation of similar technology.

Because Dr. Davis’s opinions are properly

supported and Polaris’s arguments go to weight and not admissibility, the Court will deny
Polaris’s motion regarding this argument.

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ORDER
Based on the foregoing, and all the files, records, and proceedings herein, IT IS
HEREBY ORDERED that:
1. Plaintiff’s Motion to Exclude Expert Testimony of Christopher Bakewell
[Case No. 15-4129, Docket No. 212] is DENIED.
2. Plaintiff’s Motion to Exclude Expert Testimony of Christopher Bakewell
[Case No. 15-4475, Docket No. 320] is DENIED.
IT IS FURTHER ORDERED that the parties are to show cause on or before
fourteen (14) days from the date of this Order why the Court should not unseal the Order
and to specify any portion of the Order warranting redaction.
DATED: March 12, 2019
at Minneapolis, Minnesota.

_____s/John R. Tunheim______
JOHN R. TUNHEIM
Chief Judge
United States District Court

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