On July 27, 2012, in Sargent Mf’g Co. v. Cal-Royal Prods., Inc. , Civil Action No. 3:08-cv-408 (VLB) (D. Conn.), the court considered defendant’s motions in limine (MILs) concerning lost profits and reasonable royalties. The lost profits issue involved the non-infringing alternatives prong of the Panduit four-part test. The reasonable royalty issues were EMVR and comparable licenses. (The court also provides a reasonably in-depth analysis of a willfulness MIL, which is worthy reading for those interested.)
First, the court considered defendant’s MIL to exclude the plaintiff’s expert’s (Crawford) testimony regarding lost profits. The following block quote summarizes the issue:
First, Cal-Royal argues that Crawford’s testimony regarding lost profits should be excluded, asserting that his opinion regarding “reasonably acceptable substitutes” inappropriately limits acceptable substitutes to locks incorporating all of the features of the patent, thereby failing to consider several mortise locks which Cal-Royal purports constitute acceptable noninfringing substitutes. Sargent disputes the assertion that Crawford’s consideration of reasonably acceptable substitutes tracked precisely the scope of the patent, noting several features of the patented design which were not considered by Crawford in identifying substitutes for purposes of the lost profits analysis.
The court denied this motion, citing the Federal Circuit’s decision in C.R. Bard, 250 F.3d 761 (Fed. Cir. 2000), in which the Federal stated: “To be an acceptable noninfringing substitute, the alternative product must have the advantages of the patented product.” The court concluded, based on this statement of the law, that the jury would be allowed to hear, and decide, whether Crawford was correct that no acceptable noninfringing substitutes existed.
Next, the court considered defendant’s EMVR and comparable license MILs. Crawford proffered a 33% royalty rate. Defendant argued this was much higher than royalty rates contained in several licenses that Crawford considered, and that Crawford improperly used the EMVR when the patented feature did not create the basis for demand for the patented produce. The court rejected both arguments (without much analysis), preferring instead to let the jury decide these issues on the facts presented. The following quotes provide the court’s limited analysis on these points:
Regarding the licensing agreements, Sargent acknowledges that Crawford did receive and several licensing agreements during the course of his analysis this case, however Sargent notes that Crawford ultimately did not rely on these agreements, finding that they were dissimilar to the patented product at issue. As the Federal Circuit has recognized, “the licenses relied upon by the patentee in proving damages [must be] sufficiently comparable to the hypothetical license at issue in suit.” Uniloc, 632 F.3d at 1316. “[T]here must be a basis in fact to associate the royalty rates used in prior licenses to the particular hypothetical negotiation at issue in the case.” Id. at 1317. Where no analogous licenses are available as a frame of reference, expert testimony may be offered opining on a reasonable royalty rate, provided that such testimony “carefully tie[s] proof of damages to the claimed invention’s footprint in the marketplace.” ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860, 869 (Fed. Cir. 2010). As these cases make clear, the question of a reasonable royalty rate and the similarity of licensing agreements as a basis of reference for arriving at a reasonable royalty rate, are questions of fact. This argument raised by Cal-Royal is therefore yet another attempt to usurp the role of the jury. At trial, the Parties will each have the opportunity to present evidence regarding a reasonable royalty rate, and to challenge the rates proposed by the opposing party. The Court will not foreclose the jury’s review of this question of fact.
Cal-Royal’s argument regarding the entire market value method is similarly flawed. The Court cannot preclude testimony regarding the entire market value methodology at this stage without having first entertained Sargent’s evidence as to damages to discern whether the factual predicate for relying upon this methodology has been satisfied. This is yet another premature attempt to exclude Sargent’s evidence.