Damage Expert's Failure to Consider Non-Infringing Alternatives Justifies Summary Judgment of No Lost Profits

Protegrity Corporation ("Protegrity") filed a patent infringement action against Voltage Security, Inc. ("Voltage")over patents that allegedly cover methods, systems and apparatuses for encrypting electronic data. Protegrity asserted that its patents are infringed by products sold by Voltage and it sought lost profits as damages. Voltage moved for summary judgment on the issue of lost profits arguing that even if infringement could be established, Protegrity could not sustain its burden of proving that it has lost sales to Voltage because its expert failed to address whether there were non-infringing alternatives available in the market.

In response to the motion, Protegrity sought additional discovery in order to postpone consideration of the motion. As explained by the district court, "Protegrity seeks to postpone consideration of Voltage's motion for summary judgment under Fed. R. Civ. P. 56(d) pending a deposition of Voltage on issues relating to lost profits. Voltage opposes Protegrity's request for a postponement on the grounds that Protegrity has not identified the information it hopes to obtain, nor shown how the information will raise a genuine issue of material fact regarding Protegrity's claim for lost profits."

The district court agreed with Voltage that Protegrity's request for a postponement was deficient. "The discovery Protegrity seeks relates to sales by Voltage. In contrast, the factors on which Voltage has based its motion for summary judgment of no lost profits concern demand for Protegrity's product and the availability of acceptable non-infringing alternatives from third parties."

The district court then turned to the merits of the motion and recited the Panduit test for determining lost profits. "Damages for lost profits in patent infringement cases usually are determined using the Panduit test. See Rite-Hite, 56 F.3d at 1545 (citing Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152, 1156 (6th Cir. 1978)). Under this test, Protegrity has the burden of establishing (1) the demand for the patented product, (2) the absence of acceptable non-infringing substitutes, (3) Protegrity's manufacturing and marketing capability to exploit the demand, and (4) the amount of profit it would have made. Id. Protegrity does not argue that it can prove lost profits in some manner other than through the Panduit test. Accordingly, if Protegrity is unable to prove lost profits in accordance with the Panduit factors, summary judgment of no lost profits is appropriate. See Kearns, 32 F.3d at 1551-52 (summary judgment of no lost profits is appropriate when patentee fails to prove the Panduit factors)."

In its summary judgment motion, Voltage contended that Protegrity had no evidence to sustain its burden under the first two Panduit factors. The district court "concluded that Protegrity had failed to show the existence of a genuine issue of material fact with regard to a lack of commercially acceptable non-infringing substitutes, as required by the second Panduit factor."

The district court reached this conclusion based on the deposition testimony of Protegrity's expert, who had testified that he had made no attempt to determine whether there was a lack of commercially acceptable alternatives that do not infringe the patent-in-suit. "When questioned on this topic at his deposition, he acknowledged that acceptable non-infringing alternatives may be available from a third party, RSA. Protegrity's deposition of Voltage's customer, AT&T, shows that AT&T believes it has the option of using a product made by RSA. Voltage submits that products sold by two other third parties, Ingrian/SafeNet and nuBridges, also provide non-infringing alternatives. Protegrity sued these two parties for infringement but those actions have been settled."

Based on this evidence, the district court found that there are acceptable non-infringing alternatives and noted "[t]his is a significant concession, as it is Protegrity's burden under the Panduit test to prove a lack of such alternatives."

The district court then stated that "[i]n the absence of expert testimony supporting Protegrity's claim, summary judgment is appropriate. See Zygo Corp. v. Wyko Corp., 79 F.3d 1563, 1571 (Fed. Cir. 1996) (vacating and remanding for additional findings on lost profits because the evidence relied upon to show no non-infringing substitutes was too sparse to satisfy the plaintiff's burden)."

Accordingly, the district court found that summary judgment of no lost profits in favor of Voltage should be granted.

Protegrity Corporation v. Voltage Security, Inc., Case No. 3:10-cv-755 (RNC) (D. Conn. Dec. 21, 2013)

Topics:  Infringement, Lost Profits, Patent Infringement, Patent Litigation, Patents, Summary Judgment

Published In: Civil Procedure Updates, Civil Remedies Updates, Intellectual Property Updates, Science, Computers & Technology Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Jeffer Mangels Butler & Mitchell LLP | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »