In this patent infringement action, Apple moved to exclude Masimo’s damage theory on lost profits for failure to disclose during discovery. As explained by the district court, Masimo presented its lost profits theory based on the equation: “Lost profits = Apple Watch units sold x Masimo’s per-unit profit.” Masimo claimed that the equation breaks down and is supported as follows:
- Apple Watch units sold from Q4 2018 to Q1 2023 (i.e., from the first sale of an Apple Watch to present), including Series 4-7
- Masimo’s sensor module price of $100
- Masimo’s gross profit margin (overall as a company) of 65% (or, alternatively, subtracting the cost to build each sensor module from the $100 price)
The district court analyzed whether each of these “building blocks” were adequately disclosed by Masimo.
With respect to the first building block, sold units of Apple Watches, the district court determined “that Plaintiffs did not disclose during fact or expert discovery (1) the subset of Apple Watch models and sales units on which they now intend to rely at trial; or (2) an explanation of why this subset of units properly informs lost profits.” Masimo’s reliance on Apple’s disclosure of total watches sold was insufficient because Massimo was not contending that all watches were part of the lost profits theory.
Turning to the sensor module price, Masimo relied “on a sensor module price of at least $100 per module. Plaintiffs state that they disclosed this component of their lost profits calculation during … depositions.” The district court found that this was insufficient because it is inadmissible hearsay. Therefore, even assuming an adequate disclosure, there was no evidentiary basis for this second point.
On the gross profit margin, the district court found that Masimo’s reliance on 10-K disclosures and W1 disclosures to provide general notice of Masimo’s expected gross margin was also insufficient. Even assuming gross margin could be an appropriate basis for lost profits, the district court found that a 10-K disclosure did not properly put Apple on notice of what would be used in the lost profits analysis.
As a result, the district court found that “the lack of various factual bases and admissible evidence precludes Plaintiffs from proceeding on a lost profits theory at trial.”
Masimo Corp., et al. v. Apple Inc., Case No. SA CV 20-00048 JVS (JDEx) (C.D. Cal. April 2023)
The authors of www.PatentLawyerBlog.com are patent trial lawyers at Jeffer Mangels Butler & Mitchell LLP. For more information about this case, contact Stan Gibson at 310.201.3548 or SGibson@jmbm.com.