UNITED STATES DISTRICT COURT FOR THE

DISTRICT OF NEW HAMPSHIR E

HVpertherm, Inc .

V .

American Torch Tip CompanV

Civil No . 05-cv-373-JD

SEALED ORDER

ATTC has filed three motions challenging Hypertherm's proof

of damages . Although ATTC wrote in the caption of its motions,

"Oral Argument Requested," it failed to provide the required

written statement in support of its request .' Therefore, the

motions are addressed without a hearing .

Legal Standard

A patentee is entitled to compensatory damages of at least

reasonable royalties for infringement . 35 U .S .C . § 284 .

"Despite the broad damages language of § 284, patentees tend to

try to fit their damages cases into the 'lost profits' framework,

or else fall back on the statutory grant of a reasonable

royalty ." Mars, Inc . v . Coin Accpetors, Inc . , 527 F .3d 1359 ,

'As the court has previously explained, under the local

rules of this district, motions are decided without oral

argument, although argument may be permitted based on a written

statement outlining the reasons why it may provide assistance to

the court . LR 7 .1(d) .

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1366 (Fed . Cir . 2008) . "'To recover lost profits damages, the

patentee must show a reasonable probability that, "but for" the

infringement, it would have made the sales that were made by the

infringer ."' Golden Blount, Inc . v . Robert H . Peterson Co . , 438

F .3d 1354, 1371 (Fed . Cir . 2006) (quoting Rite-Hite Corp . v .

Kelley Co ., Inc . , 56 F .3d 1538, 1545 (Fed . Cir . 1995)) . Lost

profits may be proven under the "Panduit test" by showing "(1) a

demand for the patented product, (2) an absence of acceptable

noninfringing substitutes, (3) the manufacturing and marketing

capability to exploit the demand, and (4) the amount of profit

the patent owner would have made ." Cohesive Techs . Inc . v .

Waters Corp . , 543 F .3d 1351, 1373 (Fed . Cir . 2008) .

One component of lost profits may be an amount of loss due

to convoyed sales . "A 'convoyed sale' refers to the relationship

between the sale of a patented product and a functionally

associated non-patented product ." Am . Seating Co . v . USSC Group,

Inc . , 514 F .3d 1262, 1268 (Fed . Cir . 2008) (internal quotation

marks omitted) . "A patentee may recover lost profits on

unpatented components sold with a patented item, a convoyed sale,

if both the patented and unpatented products together were

considered to be components of a single assembly or parts of a

complete machine, or they together constituted a functional

unit ." Id . The "convoyed sales" theory does not extend to item s

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with no functional relationship to each other that are sol d

together only as a convenience or for a business advantage . Id .

Background

Under the scheduling order in this case, the deadline fo r

supplementing interrogatory answers was January 29, 2007 . All

fact discovery closed on April 16, 2007 . Expert reports were due

on May 14, 2007, and the deadline for rebuttal expert reports was

June 14, 2007 . All discovery, including depositions of al l

experts, was to be completed by June 25, 2007 .

In the course of discovery, ATTC propounded Interrogatories

11 and 12 on damages, asking Hypertherm to identify all damages

associated with the case, with an explanation of the damages

calculation, and to identify and explain the proper measure of

damages, including the type of damages, the calculation, all

persons knowledgeable of the basis for the damages claimed, and

all facts and documents on which Hypertherm relied . Hypertherm

responded with objections that its investigation into damages was

not complete and would include expert opinions . Hypertherm also

stated that it was entitled to at least a reasonable royalty,

lost profits, and up to treble damages for willful infringement .

ATTC asked Hypertherm, in Requests 56 and 57, to produce all

documents relied on to calculate infringement damages an d

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documents to show Hypertherm's manufacturing costs and profit on

its products covered by the patents in suit . Hypertherm objected

to the extent the requested documents were protected b y

privileges and stated that it would produce non-privileged

documents responsive to the requests . On January 22, 2007,

Hypertherm produced documents to support its claim for lost

profits .

On January 29, 2007, Hypertherm provided answers to

Interrogatories 11 and 12 . Hypertherm objected in part on the

grounds that it had not concluded its investigation into damages

and that its claims would likely include expert analysis and

opinions that had not been exchanged at that time . Hypertherm

also stated that its damages amounted to at least a reasonable

royalty based on sales by ATTC of infringing products, that it

sought lost profits, and that it was entitled to enhanced

compensatory damages for willful infringement .

Counsel for both parties continued to discuss discovery

matters . On April 12, 2007, counsel for ATTC wrote to

Hypertherm's counsel to confirm their agreement that Hypertherm's

counsel would be permitted to inspect documents at ATTC on April

17, 2002 . The letter refers to documents "relating to underlying

sales invoices that were reflected in the original sales

documents produced by [ATTC] ." Counsel also stated that i f

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copies of the documents were needed, they would discuss a

procedure for providing them . The inspection occurred as agreed .

By agreement with ATTC, Hypertherm deposed three of ATTC's

witnesses, William Shriver, Jeff Walters, and Jack Walters, on

April 17 and 18, 2007 . Hypertherm asked the witnesses questions

related to damages under a convoyed sales theory . On April 20,

2007, Hypertherm produced cost information in spreadsheets copied

onto CDs, and that information was updated on May 17 . ATTC

produced its updated damages information on May 23, 2007 .

A series of emails between counsel in early May documents

their efforts to get copies of invoices and sales summaries from

ATTC following the inspection on April 17 . Additional emails

show that copies of requested documents were sent on May 10,

2007 . On May 11, Hypertherm provided supplemental answers to the

damages interrogatories in which it added : "Hypertherm is

permitted the recovery of damages based on the sale of convoyed

items which are not accused of infringement themselves, but which

are sold by ATTC along with the infringing products ." ATTC

provided supplemental interrogatory answers to Hypertherm on May

15, 2007, about accused products that ATTC contended did not

infringe the asserted patents . ATTC deposed Hypertherm's witness

designated under Federal Rule of Civil Procedure 30(b)(6), Evan

Smith, on May 18, 2007, and addressed Hypertherm's convoyed sale s

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theory during the deposition .

On May 24, 2007, Hypertherm served ATTC with the report of

its expert witness on damages, Christopher C . Barry .2 In his

report, Barry addressed convoyed sales and calculated damages

including losses due to convoyed sales . Barry then prepared an

updated report, dated June 13, 2007, which Hypertherm represents

was served on ATTC the same day . The next day, Barry submitted a

supplemental report with corrections to his previous report .

ATTC filed a "notice" that Barry's damages report was

inconsistent with Hypertherm's defense to ATTC's antitrust

counterclaim but did not otherwise challenge Barry's reports . On

June 18, Hypertherm provided ATTC with additional supplemental

responses to the damages interrogatories, stating : "Hypertherm

incorporates by reference herein the expert report of Christopher

C . Barry dated May 24, 2007 and supplemental report dated June

14, 2007 ." ATTC provided supplemental answers to some of

Hypertherm's interrogatories on June 13, 2007, based on its

technical expert witness's report and in reaction to Hypertherm's

technical expert witness's report .

ATTC provided the report of its damages expert, Steven J .

2 Hypertherm first says that it served the report on May 24

and then refers to the report by the date of May 27, 2008 . The

report filed as Exhibit 8 with Hypertherm's objection, filed with

the sealed version (doc . # 420) is dated May 24, 2007 .

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Shapiro, on June 25, 2007 . Shapiro addressed the issue of

convoyed sales and challenged Barry's explanation of the theory,

the application of convoyed sales to the circumstances of the

case, and Barry's calculations that included losses due to

convoyed sales . Hypertherm provided updated and corrected cost

spreadsheets on August 10, 2007 . ATTC deposed Barry on August

14, 2007, and questioned him about convoyed sales and lost

profits damages .

Discussion

ATTC moves to preclude Hypertherm from using evidence o f

convoyed sales and lost profits in support of its damages claims

on the ground that Hypertherm did not timely disclose related

evidence . ATTC also moves to bar Hypertherm's expert witness,

Christopher C . Barry, from testifying about convoyed sales,

contending that Barry does not meet the requirements of Federal

Rule of Evidence 702 . Hypertherm objects to the motions .

I . Evidence of Convoyed Sales

ATTC contends that Hypertherm did not disclose, within the

discovery deadline, that it was claiming damages based on a

convoyed sales theory . For that reason, ATTC argues that

Hypertherm is precluded, under Federal Rule of Civil Procedur e

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37(c), from using evidence of convoyed sales to prove its

infringement damages . Hypertherm responds that it provided

timely supplementation of its interrogatory answers to include

the convoyed sales theory and that the delay was harmless .

Rule 37(c)(1) provides that "[i]f a party fails to provide

information or identify a witness as required by Rule 26(a) or

(e), the party is not allowed to use that information or witness

to supply evidence on a motion, at a hearing, or at a trial,

unless the failure was substantially justified or is harmless ."

Rule 26(e) requires parties to supplement their interrogatory

responses "in a timely manner if the party learns that in some

material respect the disclosure or response is incomplete or

incorrect, and if the additional or corrective information has

not otherwise been made known to the other parties during th e

discovery process or in writing . .

Ordinarily, the sanction for a party's failure to abide by

the requirements of Rule 26(a) and (e) is mandatory preclusion of

the undisclosed evidence . Santiago-Diaz v . Laboratorio Clinico Y

de Referencia del Estate & Sara Lopez , 456 F .3d 272, 276 (lst

Cir . 2006) . The purpose of Rule 37(c)(1) is to enforce discovery

deadlines in case management orders . Gagnon v . Teledyne

Princeton, Inc . , 437 F .3d 188, 191 (lst Cir . 2006) . Therefore,

parties who ignore case management deadlines do so at their own

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peril . Santiago-Diaz, 456 F .3d at 277 .

In this case, the record shows that counsel for the parties

mutually agreed to ignore the case management deadlines for

supplementing interrogatories and completing discovery on damages

issues, including the depositions of expert witnesses .

Hypertherm supplemented its interrogatory answers within the time

frame both sides were using for that purpose .3 ATTC cannot

expect the court to enforce a deadline, for ATTC's benefit, that

it agreed with Hypertherm to ignore . Under these circumstances,

Hypertherm has shown that its late disclosure was substantially

justified .

In addition, ATTC's damages expert was notified of the

convoyed sales damages theory before he submitted his report, and

he addressed the theory in his report . ATTC deposed Hypertherm's

expert, Barry, about the convoyed sales damages theory and th e

3ATTC argues that Hypertherm must be precluded from using

convoyed sales and lost profits evidence because ATTC was

precluded from using undisclosed evidence of sales of the Whitney

electrode and from relying on a new affirmative defense theory

for purposes of summary judgment . ATTC, however, never provided

supplemental interrogatory answers or any other means to disclose

its new evidence and theory . Instead, it first disclosed the

sales evidence more than a year after the close of fact discovery

by submitting the evidence in support of its objection to

Hypertherm's motion for summary judgment . ATTC first introduced

its theory that its affirmative defenses were based on earlier

and different communications in its motion for summary judgment .

Therefore, the circumstances are not analogous .

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evidentiary support for it . Damages discovery, including the

issue of convoyed sales, was concluded by the middle of August of

2007, eighteen months ago . Although ATTC now argues that Barry's

deposition responses were inadequate, it did nothing to remedy

any discovery deficiencies at the time .

ATTC also argues that Hypertherm's supplemental

interrogatory answers were incomplete due to a lack of evidence

of convoyed products . In the intervening year and a half since

Hypertherm disclosed the convoyed sales theory, ATTC did not move

to compel more complete answers or otherwise indicate a need for

supplemental information . See Fed . R . Civ . P . 37(a)(3)(B)(iii) .

Instead, ATTC accepted the supplemental answers and responded

with its own damages expert's report .

ATTC asserts that Hypertherm's delay in disclosing its

convoyed sales damages theory caused prejudice because "ATTC was

denied any reasonable opportunity to inquire as to the factual

basis for such a theory during the fact discovery period ." The

record belies ATTC's assertion . By mutual agreement, the parties

did not abide by the scheduling deadlines . ATTC did respond to

the convoyed sales theory and did not indicate that it required

more time or additional discovery to address the theory .

Under the circumstances presented here, Hypertherm's late

disclosure of its convoyed sales damages theory and evidence wa s

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both substantially justified and harmless . Therefore, ATTC' s

motion to preclude evidence of convoyed sales is denied .

II . Motion to Preclude Evidence of Lost Profit s

ATTC also moves to preclude Hypertherm from presenting

evidence of lost profits, based on a similar theory that

Hypertherm did not disclose information to support lost profits

damages until after the close of fact discovery . In addition,

ATTC contends that Hypertherm's document production was

inadequate because the 600 pages produced were virtually

unreadable . ATTC contends that it "was denied any reasonable

opportunity to conduct critical fact discovery on one of the four

elements that Hypertherm needs to prove in order to recover lost

profits damages . "

Hypertherm responds that, as explained above, the parties

agreed to provide damages discovery after the scheduling

deadline, that they both provided discovery materials after the

deadline, and that ATTC never objected to the discovery as being

untimely at that time or at any time in the intervening eighteen

months . Hypertherm also contends that ATTC used the damages

information during the deposition of Hypertherm's expert witness

in August of 2007 and did not mention then or at anytime since

then that the quality of the documents was unacceptable .

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As is discussed in the context of the evidence of convoyed

sales, ATTC acquiesced in the late discovery disclosures and

cannot now seek to enforce deadlines that it failed to enforce or

abide by at the time . Hypertherm's late disclosures are both

substantially justified and harmless .

To the extent ATTC now argues that the documents Hypertherm

produced were inadequate, it should have requested better copies

or different identification from Hypertherm when they were

produced . If those requests were unavailing, ATTC's remedy was

to move to compel production or other discovery, which it failed

to do . Therefore, ATTC's motion is denied .

III . Motion to Exclude Testimony by Hypertherm's Damages Expert

ATTC argues that the opinions of Hypertherm's damages expert

about convoyed sales do not meet the reliability requirement of

Federal Rule of Evidence 702 . Hypertherm objects, contending

that ATTC's motion is untimely and that Barry's opinion on

damages due to convoyed sales is reliable .

A . Timeliness of Motio n

The scheduling order in this case required the parties to

file motions challenging expert testimony forty-five days befor e

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trial . Trial was scheduled for February 18, 2009 .9 Therefore,

forty-five days prior to trial was January 5, 2009 . See Fed . R .

Civ . P . 6(a) . ATTC filed its motion challenging Barry' s

testimony on January 16, 2009, along with its motions in limine .

As such, the motion is untimely . Under the circumstances,

however, it appears that the delay is harmless .

B . Reliabilitv of Testimon y

Expert witnesses in patent cases must meet the requirements

of Rule 702, as in all cases . Sundance, Inc . v . DeMonte

Fabricating Ltd . , 550 F .3d 1356, 1360 (Fed . Cir . 2008) . Under

Rule 702, expert opinion testimony is allowed "if (1) the

testimony is based upon sufficient facts or data, (2) the

testimony is the product of reliable principles and methods, and

(3) the witness has applied the principles and methods reliably

to the facts of the case ." Fed . R . Evid . 702 . "[A]n expert need

not have obtained the basis of his opinion from personal

perception ." Monsanto Co . v . David , 516 F .3d 1009, 1015 (Fed .

Cir . 2008) . Therefore, an expert's opinion need not be based o n

9Although the trial date has been continued to April 27,

2009, all of the deadlines counted from the trial date or the

final pretrial conference date are based on the February 18,

2009, trial date . The continuance of the trial does not extend

the time for the parties to file pretrial motions .

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firsthand knowledge and may rely, instead, on facts, tests,

reports, and other underlying data prepared by others . Id . A

challenge to the reliability of an expert's opinion requires an

inquiry into the principles and methodology used by the expert,

not on the ultimate conclusions . Liquid Dynamics, Corp . v .

Vaughan Co ., Inc . , 449 F .3d 1209, 1221 (Fed . Cir . 2006) .

ATTC contends that Barry's opinions on damages from convoyed

sales are unreliable because no factual basis exists to show that

the products he lists meet the standard for convoyed sales and

because Barry lacks the expertise to determine whether products

are convoyed or not . ATTC points to deposition testimony from

Hypertherm's Rule 30(b)(6) witness, Evan Smith, which ATTC

interprets to mean that some products are sold together merely

for convenience or business advantage . ATTC also challenges the

methods Barry used to determine the number of convoyed sales .

Hypertherm responds that Barry is not providing opinions as

to which products are functionally related and sold together,

constituting convoyed sales . Instead, Barry calculated damages,

based on data provided to him about convoyed sales . Therefore,

Hypertherm is not offering Barry to provide opinions about what

products meet the standard for convoyed sales .

At trial, to support its convoyed sales damages theory,

Hypertherm first will have to prove that the convoyed sale s

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referenced in Barry's opinions occurred . That is, Hypertherm

will have to show that certain non-infringing products sold by

ATTC are functionally related to ATTC's infringing products and

are sold together in convoyed sales . Barry will not be permitted

to present any opinion as to which product sales constitute

convoyed sales . His testimony will be limited to the calculation

of damages due to convoyed sales, based on Hypertherm's proof

through other witnesses that the specific convoyed sales, which

form the factual basis of Barry's opinion, occurred .

Conclusion

For the foregoing reasons, the defendant's motions t o

exclude evidence of convoyed sales (doc . no . 399) and to exclude

evidence of lost profits (document no . 423) are denied . ATTC's

motion to exclude expert evidence on convoyed sales (document no .

424) is granted to the extent that Christopher Barry will not be

permitted to give his opinion about which products constitute

convoyed sales, and otherwise the motion is denied .

SO ORDERED .

/s/ Joseph A . DiClerico, Jr .

Joseph A . DiClerico, Jr .

United States District Judge

February 20, 200 9

cc : Benjamin Stern, Esq .

Colin Cabral, Esq .

Jill Anderson, Esq .

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Jacob Baron, Esq .

Steven Bauer, Esq .

Lucas Blower, Esq .

Seth Cannon, Esq .

Joseph Capraro, Jr ., Esq .

Christopher Carney, Esq .

Jeffery Cross, Esq .

Joseph Dattilo, Esq .

Ami Gandhi, Esq .

Maia Harris, Esq .

Marc Kallish, Esq .

Rhett Krulla, Esq .

Jonathan Lax, Esq .

Richard Nelson, Esq .

W . Scott O'Connell, Esq .

Jeremy Oczek, Esq .

Richard Rochford, Jr ., Esq .

David Ruoff, Esq .

John Shapiro, Esq .

John Skeriotis, Esq .

Wayne Tang, Esq .

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