Case: 1:14-cv-00779 Document #: 404 Filed: 05/16/17 Page 1 of 21 PageID #:19049

REDACTED

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

)
DYSON, INC. and )
DYSON TECHNOLOGY LIMITED, )
)
Plaintiffs and ) Case No. 1:14-cv-00779
Counterclaim-Defendants, )
) Judge: Hon. Robert M. Dow, Jr.
v. )
) JURY TRIAL DEMANDED
SHARKNINJA OPERATING LLC and )
SHARKNINJA SALES COMPANY, )
)
Defendants and )
Counterclaim-Plaintiffs. )
)

DYSONS MEMORANDUM OF LAW IN SUPPORT OF ITS MOTION FOR PARTIAL

SUMMARY JUDGMENT REGARDING DISGORGEMENT DAMAGES
Case: 1:14-cv-00779 Document #: 404 Filed: 05/16/17 Page 2 of 21 PageID #:19050
 Case: 1:14-cv-00779 Document #: 404 Filed: 05/16/17 Page 3 of 21 PageID #:19051

REDACTED

TABLE OF AUTHORITIES

Page(s)

Cases

Anderson v. Liberty Lobby, Inc.,

477 U.S. 242 (1986) ............................................................................................................ 8

Baldwin Cooke Co. v. Keith Clark, Inc.,

420 F. Supp. 404 (N.D. Ill. 1976) ....................................................................................... 9

Gibson Guitar Corp. v. Paul Reed Smith Guitars, LP,

325 F. Supp. 2d 841 (M.D. Tenn. 2004) ............................................................................. 9

Henry Hanger & Display Fixture Corp. of Am. v. Sel-O-Rak Corp.,

270 F.2d 635 (5th Cir. 1959) ...................................................................................... 10, 15

John O. Butler Co. v. Block Drug Co., Inc.,

620 F. Supp. 771 (N.D. Ill. 1985) ........................................................................... 9, 14, 15

Levin Bros. v. Davis Mfg. Co.,

72 F.2d 163 (8th Cir. 1934) .............................................................................................. 10

Lucas v. Chicago Transit Authority,

367 F.3d 714 (7th Cir. 2004) .............................................................................................. 8

Nike, Inc. v. Wal-Mart Stores, Inc.,

Civil Action No. 96-38-A, 1996 WL 754076 (E.D. Va. Nov. 18, 1996) ........................... 8

Nike, Inc. v. Wal-Mart Stores, Inc.,

138 F.3d 1437 (Fed. Cir. 1998)........................................................................................... 8

Paper Converting Mach. Co. v. Magna-Graphics Corp.,

745 F.2d 11 (Fed. Cir. 1984)......................................................................................... 9, 12

Rocket Jewelry Box, Inc. v. Quality Intl Packaging, Ltd.,

250 F. Supp. 2d 333 (S.D.N.Y. 2003)................................................................................. 8

Sheldon v. Metro-Goldwyn Pictures Corp.,

106 F.2d 45 (2d Cir. 1939)................................................................................................ 10

Taylor v. Meirick,
712 F.2d 1112 (7th Cir. 1983) .................................................................................. 8, 9, 15

Statutes

35 U.S.C. 289 ......................................................................................................................... 1, 15

ii
 Case: 1:14-cv-00779 Document #: 404 Filed: 05/16/17 Page 4 of 21 PageID #:19052

REDACTED

Rules

Fed. R. Civ. Pro. 56(a) .................................................................................................................... 8

iii
Case: 1:14-cv-00779 Document #: 404 Filed: 05/16/17 Page 5 of 21 PageID #:19053
 Case: 1:14-cv-00779 Document #: 404 Filed: 05/16/17 Page 6 of 21 PageID #:19054

REDACTED

accused products also include next-generation versions of those products, including the HV310,

HV320, and HV380 stick-vac series of products, all of which Shark has introduced to the market

during the pendency of this lawsuit.

During discovery, Shark produced a profit-and-loss (P&L) statement showing that it

made in net sales for the Accused Products through November 2016. (Dysons

L.R. 56.1 Statement of Material Facts (hereafter, SMF) 6, [P&L by channel tab of

EP0523266].) From its net sales, Sharks P&L deducts

(SMF 7.)

(SMF 8,

[P&L by Channel tab of EP0523266].) A majority of these expenses do not vary with

incremental sales; rather, they are overhead expenses that are already allocated though

calculations, although Shark . (Id.;

SMF 9.) Those deductions leave . (Id.)

But Shark goes further and identifies generic costs,

referred to as admin expenses, that total

(SMF 11, 33.)

(SMF 10, [Admin Expenses Tab of

2
Case: 1:14-cv-00779 Document #: 404 Filed: 05/16/17 Page 7 of 21 PageID #:19055
Case: 1:14-cv-00779 Document #: 404 Filed: 05/16/17 Page 8 of 21 PageID #:19056
Case: 1:14-cv-00779 Document #: 404 Filed: 05/16/17 Page 9 of 21 PageID #:19057
 Case: 1:14-cv-00779 Document #: 404 Filed: 05/16/17 Page 10 of 21 PageID #:19058

REDACTED

Stevenson told him that

(Id.) However, Mr. Stevenson admitted, even to Mr. Haas,

that the Administrative Expenses are

. (SMF 33, [Haas Dep. at

85:5-23].) Mr. Haas admitted that the only information he gleaned from Mr. Stevenson in that

conversation was

(SMF 30, [Haas Dep. at 85:24-86:11].) He did not discuss

but rather he talked

with Mr. Stevenson about the rest of the expenses only in general terms. (SMF 32, [Haas

Dep. at 86:12-87:4].)

Mr. Haas, when discussing the Administrative Expenses with Mr. Stevenson, did not

ask

(SMF 32, [Haas Dep. at 89:16-22].). Instead,

Mr. Haas took Mr. Stevensons word that all s of Admin Expenses

activities allegedly relating to the Shark Rocket. (Id. [89:16-

90:10].) Other than the P&L and his assurances from Mr. Stevenson, Mr. Haas did not review

any documents or other evidence tying any of these categories of expenses to the production of

the Shark Rocket. (SMF 31, [Haas Dep. at 84:3-17].)

Moreover, other than repeating what he heard from Mr. Stevenson, that each category of

expense Mr. Haas could not provide any further information. For example,

when asked

Mr. Haas responded,

(SMF 35, [Haas Dep. at 122:21-123:3].) When asked how much, Mr. Haas conceded,

6
 Case: 1:14-cv-00779 Document #: 404 Filed: 05/16/17 Page 11 of 21 PageID #:19059

REDACTED

(SMF 34, [Haas Dep. at 126:8-127:13].) Mr. Haas confirmed that he

Mr. Stevenson whether he could identify how much lower those expenses would have been in

the absence of the infringement. (Id. [Haas Dep. at 127:14-128:9].)

Mr. Haas had little to no information about other categories of Administrative

Expenses as well. Despite deducting expenses, Mr. Haas was

unable to say whether Shark during the damages period for the

Shark Rocket. (E.g., SMF 36 [Haas Dep. at 135:18136:3] (testifying

) Similarly, when asked for his understanding of what the category

meant, Mr. Haas was unable to answer, even by reference to his expert report. (SMF 38, [Haas

Dep. at 137:9-138:5].) Nor could he identify involved in the production of the

Shark Rocket, (SMF 37, [Haas Dep. at 138:16-139:5]), or whether the expense for Facilities

would change in any way in the absence of the Shark Rocket, (id. at 139:6-21). Mr. Haas also did

not know what meant, or how it was tied in any way to the Shark

Rocket. (SMF 39, [Haas Dep. at 139:22140:14].) For the Administrative Expense

Mr. Haas likewise did not know what it meant, or whether and how it differed from

the (SMF 40, [Haas Dep. at 140:15-

142:12].)

Ultimately, Mr. Haas could not say one way or another whether Shark would have

incurred any of the Administrative Expenses in whole or in part regardless of the Shark Rocket,

such as in connection with its other existing lines of business, or with an alternative product.

(SMF 41, [Haas Dep. at 128:17-133:8].)

7
 Case: 1:14-cv-00779 Document #: 404 Filed: 05/16/17 Page 12 of 21 PageID #:19060

REDACTED

III. LEGAL STANDARD FOR SUMMARY JUDGMENT

Summary judgment is proper if there is no genuine dispute as to any material fact and

the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). After a properly

supported motion for summary judgment is made, the adverse party must set forth specific facts

showing that there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242,

250 (1986). Conclusory statements ungrounded in specific facts are insufficient to avoid

summary judgment. Anderson, 477 U.S. at 256 (1986); Lucas v. Chicago Transit Authority, 367

F.3d 714, 726 (7th Cir. 2004).

IV. ARGUMENT

A. Shark Bears The Burden To Establish That Its Administrative Expenses

Would Vary With Sales Of The Accused Products

Shark bears the burden to prove the costs that it seeks to deduct from disgorgement

profits. See, e.g., Nike, Inc. v. Wal-Mart Stores, Inc., Civil Action No. 96-38-A, 1996 WL

754076, at *5 (E.D. Va. Nov. 18, 1996), affd in relevant part, 138 F.3d 1437, 1447 (Fed. Cir.

1998) ([T]he information necessary to portray more accurately their net profits was in the hands

of the defendants. It was their burden to establish the costs which would truly reflect their net

profit.); Taylor v. Meirick, 712 F.2d 1112, 1121 (7th Cir. 1983) ([I]t was up to [Defendant] to

show what if any overhead items were really variable costs too.); Rocket Jewelry Box, Inc. v.

Quality Intl Packaging, Ltd., 250 F. Supp. 2d 333, 34041 (S.D.N.Y. 2003), vacated in-part on

other grounds, 90 F. Appx 543 (Fed. Cir. 2014) (analogizing design patent damages to

copyright damages, and noting that the infringer has the burden of proving deductible

expenses). Consistent with this burden, fundamental principles of justice require [courts] to

throw the risk of any uncertainty upon the wrongdoer instead of upon the injured party in the

calculation of profits. Paper Converting Mach. Co. v. Magna-Graphics Corp., 745 F.2d 11, 22

8
 Case: 1:14-cv-00779 Document #: 404 Filed: 05/16/17 Page 13 of 21 PageID #:19061

REDACTED

(Fed. Cir. 1984) (discussing patentees lost profits); see also, e.g., Gibson Guitar Corp. v. Paul

Reed Smith Guitars, LP, 325 F. Supp. 2d 841, 853 (M.D. Tenn. 2004) (If there is uncertainty in

the showing by [Defendant] on its relevant costs, then the Court will resolve that doubt in the

Plaintiffs favor).

This Court, when addressing design patent damages, has applied what is known as the

incremental income method to determine whether costs may be properly deducted. John O.

Butler Co. v. Block Drug Co., Inc., 620 F. Supp. 771, 778 (N.D. Ill. 1985). Under that

approach, fixed or indirect costs such as management and administrative salaries which do not

vary with increases in production are not deductible. Id. (citing Paper Converting, 745 F.2d

11). The approach recognizes that it does not cost as much to produce unit N + 1 if the first N

(or fewer) units produced already have paid the fixed costs. Paper Converting, 745 F.2d at 22.

This computation methodology is analogous to that applied by the Seventh Circuit in copyright

infringement cases holding that [c]osts that would be incurred anyway should not be subtracted,

because by definition they cannot be avoided by curtailing the profit-making activity. Taylor,

712 F.2d at 1121; Baldwin Cooke Co. v. Keith Clark, Inc., 420 F. Supp. 404, 406 (N.D. Ill. 1976)

(Defendant could not deduct overhead where it failed to make some showing of increase in its

administrative expenses and general overhead resulting from its manufacture of the infringing

books.). That is, if the cost does not change with the sale of additional unitse.g., overhead

costs such as rent and basic phone service, Taylor, 712 F.2d at 1121it is not deductible

from revenue when determining profit.

The incremental method requires that there be proof of a direct link between the alleged

overhead cost and the infringing activity; that requirement is contained in the tests adopted by

every other circuit that has considered the issue. In Henry Hanger & Display Fixture Corp. of

9
 Case: 1:14-cv-00779 Document #: 404 Filed: 05/16/17 Page 14 of 21 PageID #:19062

REDACTED

Am. v. Sel-O-Rak Corp., 270 F.2d 635, 643 (5th Cir. 1959), for example, the Court explained that

deduction for overhead expenses should not be done unless it is shown that the particular

overhead classifications are such that an apportionment is proper.

Further, it was not enough, according to the Henry Hangar Court, that the infringer

merely report the overall overhead as a stated percentage of overall sales. Id. Yet that

insufficient approach is precisely what Shark seeks to do here. Likewise, the Second Circuit has

long followed the guidance of Judge Learned Hand, who explained: Overhead which does not

assist in the production of the infringement should not be credited to the infringer; that which

does, should be. Sheldon v. Metro-Goldwyn Pictures Corp., 106 F.2d 45, 54 (2d Cir. 1939).

Ultimately, [t]he guiding principle must always be that the patentee recover every dollar of

advantage realized by the infringer from the infringement, and that with respect to overhead,

the factual relationship between the infringing production and the claimed expense [is]

determinative. Schnadig Corp. v. Gaines Mfg. Co., Inc., 620 F.2d 1166, 1175 (6th Cir. 1980);

accord Levin Bros. v. Davis Mfg. Co., 72 F.2d 163, 166 (8th Cir. 1934) (The profit on the

patented articles is the difference between the cost of producing them and the price received for

them. To put into this cost an overhead expense, in nowise caused thereby, would be an improper

inclusion.).

B. Shark Produced No Evidence To Satisfy Its Burden To Prove That Any

Generic Category Reported As An Administrative Expenses Is Related To
The Infringement

and that Dyson does not challenge in this

motion. (SMF 16, [Stevenson Dep. at 66:818] (testifying that

; SMF 8, [P&L by
10
Case: 1:14-cv-00779 Document #: 404 Filed: 05/16/17 Page 15 of 21 PageID #:19063
Case: 1:14-cv-00779 Document #: 404 Filed: 05/16/17 Page 16 of 21 PageID #:19064
Case: 1:14-cv-00779 Document #: 404 Filed: 05/16/17 Page 17 of 21 PageID #:19065
Case: 1:14-cv-00779 Document #: 404 Filed: 05/16/17 Page 18 of 21 PageID #:19066
 Case: 1:14-cv-00779 Document #: 404 Filed: 05/16/17 Page 19 of 21 PageID #:19067

REDACTED

are not deductible). Similarly, .

(SMF 10, [Admin Expenses tab of EP0523266]); but see Taylor, 712 F.2d at 1121 (But it is

possible, indeed likely, that he would have incurred at least some of these costs (rent, for

example, and basic phone service) even if he had not sold the infringing maps. Costs that

would be incurred anyway should not be subtracted.).

In short, Mr. Haas deducted for each subcategory of Administrative

Expenses merely by But Shark has not produced any

evidence that the particular overhead classifications are such that an apportionment is proper.

Henry Hanger, 270 F.2d at 643. Nor has Shark produced any evidence to meet its burden to

establish that these costs are related to the infringing products in such a way that they would not

be incurred anyway were the Accused Products never sold. Taylor, 712 F.2d at 1121. Rather,

Because Shark failed to prove that the amount it deducted in Administrative Expenses bears

any relation to the Accused Products, an allowance for overhead was not established by Shark.

Henry Hanger, 270 F.2d at 643; Taylor, 712 F.2d at 1121; John O. Butler, 620 F. Supp. at 778.

V. CONCLUSION

For the foregoing reasons, the Court should enter partial summary judgment finding that

Shark is not entitled to deduct its Administrative Expenses when determining Sharks profits

to be disgorged pursuant to 35 U.S.C. 289.

15
 Case: 1:14-cv-00779 Document #: 404 Filed: 05/16/17 Page 20 of 21 PageID #:19068

REDACTED

Date: May 15, 2017 Respectfully Submitted,

By: /s/ Bryan S. Hales, P.C.

Bryan S. Hales, P.C. (IL Bar No. 6243060)
bhales@kirkland.com
Dennis J. Abdelnour (IL Bar No. 6292242)
dabdelnour@kirkland.com
Brian A. Verbus (IL Bar No. 6314193)
brian.verbus@kirkland.com
Jay J. Emerick (IL Bar No. 6312746)
jay.emerick@kirkland.com
KIRKLAND & ELLIS LLP
300 North LaSalle
Chicago, Illinois 60654
Telephone: (312) 862-2000
Facsimile: (312) 862-2200

Gregg F. LoCascio, P.C. (admitted pro hac vice)

glocascio@kirkland.com
KIRKLAND & ELLIS LLP
655 Fifteenth Street, N.W.
Washington, D.C. 20005-5793
Telephone: (202) 879-5000
Facsimile: (202) 879-5200

Counsel for Plaintiffs Dyson, Inc.

and Dyson Technology Limited
 Case: 1:14-cv-00779 Document #: 404 Filed: 05/16/17 Page 21 of 21 PageID #:19069

REDACTED

CERTIFICATE OF SERVICE

I hereby certify that on this 15th day of May, 2017, the foregoing document was filed

electronically through the Courts Electronic Case Filing System. Service of this document is

being made upon all counsel of record in this case by email with a redacted copy being served by

Notice of Electronic Filing issued through the Courts Electronic Case Filing System on this

date.

/s/ Bryan S. Hales, P.C.