District of Connecticut blocks late addition of subsidiary, kills Lost Profits

On March 29, 2014, Judge Robert N. Chatigny in the District of Connecticut issued an opinion denying motion for leave to add plaintiff Protegrity's subsidiary as a co-plaintiff, effectively killing Protegrity's lost profit claims. Specifically, the Court found that there was no good cause for adding Protegrity USA, Inc. (PUSA) long after the deadline in the scheduling order. The Court found that:

Here, Protegrity had adequate time to add PUSA as a party within the period permitted by the scheduling order as amended. Voltage challenged Protegrity's right to recover lost profits under applicable law, which put Protegrity on notice that it might not be able to recover lost profits unless PUSA were added as a co-plaintiff. After the time for adding parties expired, Voltage successfully moved for summary judgment on the issue of lost profits. Only then did Protegrity seek leave to add PUSA as a co-plaintiff.

The Court found that under these circumstances, there was insufficient "good cause" under Rule 16(b) to add a new party. Also, even had PUSA been added, it is unclear whether this would have allowed for lost profits, as the Court found that there was a potential standing problem with PUSA, namely whether it was an exclusive licensee (with sufficient rights to sue for infringement) during the lost profits timeframe. This issue, and the additional discovery that would be required, would be highly prejudicial to Voltage, since trial was due to begin in two weeks, and the Court was disinclined to push the trial date. Protegrity argued that effectively eliminating its lost profits claim on what was basically a procedural matter would be manifestly unjust, but the Court disagreed, holding that "[i]f Protegrity prevails at trial, it can obtain significant monetary relief in the form of a reasonable royalty even without PUSA in the case as a co-plaintiff. Accordingly, the motion is hereby denied." As noted previously in the write-up on Volterra Semiconductor Corp. v. Primarion, Inc., cases involving related entities, subsidiaries, and holding corporations have proliferated greatly over the last decade, as companies form related corporations for foreign activities, patent holding entities, and so on, to help with tax issues, avoid potential counterclaims, etc. Opinions like this show that patent strategy should be discussed as part of overall corporate strategy, as there may be good reasons for having the patent-holding entity also be the patent-practicing entity.