The NDCA, in Digital Reg of Texas v. Adobe, Civil Action No. 12-1971 CW (Judge Claudia Wilken) (August 19, 2014), granted a motion to exclude testimony from Digital Reg’s damages expert Robert Parr on a number of grounds.
The patents-in-suit related to digital rights management. Mr. Parr, in deriving his royalty rate, looked at software piracy rates across the software industry and from Symantec (who had settled out), but not Adobe itself. Moreover, Mr. Parr did not seek to adjust the industry data or Symantec data to account for differences that might be applicable to Adobe. Digital Reg stated that the information it desired was not produced by Adobe, and Adobe responded that it did not track that specific statistic. The Court analyzed all of the various things Mr. Parr could have done, but did not do, and held “the inputs of Mr. Parr’s damages calculation are inherently unreliable.”
On August 7, 2012, the Federal Circuit in WhitServe, LLC v. Computer Packages, Inc., Case No. 2011-1206, 1261 (Fed. Cir.), the court vacated the jury’s damages award and remanded for a new trial on damages. The case addresses many damages issues—reasonable royalty base, reasonable royalty rate, lump sum versus running royalty, the 25% rule, ongoing royalties, prejudment interest, and supplemental damages—but none of the rulings is surprising or ground breaking. The case is instructive, however, on how much care must be taken in presenting a coherent damages case. Plaintiff, WhitServe, and its damages expert, Shapiro, made mistakes at trial, and WhitServe’s desperate attempt on appeal to preserve the verdict (approximately $8M) simply could not overcome these mistakes.
WD TN Grants New Trial on Damages after Remand Because the Reasonable Royalty Rate in the Original Verdict Was Based on the Now-Defunct 25%
After remand from the Federal Circuit, Judge McCalla of the Western District of Tennessee considered Medtronic’s motion for a new trial on damages because the earlier verdict was flawed because the plaintiff (SSI) based its reasonable royalty analysis on the 25% rule. Spine Solutions, Inc. v. Medtronic Sofamor Danek, Inc., Case No. 2:07-02175-JPM-dkv (W.D. Tenn. Nov. 23, 2011). The court granted the motion even though Medtronic had failed to object to the 25% rule at trial because, in the interim, the Federal Circuit handed down the Uniloc case, which found the 25% rule inapplicable as a matter of law and evidence based on it inadmissible.
Oracle v. Google: NDCA Judge Alsup Rejects Nash Bargaining Solution and Grants Google’s Motion to Exclude Oracle’s Expert’s Report and Testimony Advocating $1.4B to $6.1B in Damages
The battle between Oracle and Google, concerning patent and copyright infringement relating to features of Java and Android, is approaching an October trial date. Damages is a huge issue in the case—in fact, in an opinion issued by Judge Alsup on July 22, 2011, Oracle’s expert has submitted a report advocating that Google should pay Oracle somewhere between $1.4 and $6.1 billion in damages. See Oracle America, Inc. v. Google Inc., No. C 10-03561 WHA (N.D. Cal. July 22, 2011).
On May 21, 2011, Oracle served the expert report of Dr. Iain M. Cockburn, who is a professor of finance and economics at Boston University. Dr. Cockburn provided an opinion on damages using the Nash bargaining solution and other economic analysis. Nash bargaining is named for its creator, Dr. John Nash, a Nobel Prize winning mathematician at Princeton, who was the subject of an Oscar-winning movie entitled “A Beautiful Mind.” Nash proposed that two people bargaining over a unit of some good (e.g., money) will get nothing unless their portions total no more than the total of the good, e.g., the total amount of money. A Nash bargaining solution is a “Pareto efficient” solution to a bargaining problem. Pareto efficiency, named after an Italian economist, can be summarized as follows: if an initial allocation of a good among two or more individuals can be changed to make one individual better off without making another individual worse off is a Pareto improvement, and a Pareto efficient (or Pareto optimal) allocation is achieved when no further Pareto improvements can be made. (See http://en.wikipedia.org/wiki/Pareto_efficiency.) Simply put, the Nash bargaining solution is the best possible result for both parties.
The Federal Circuit issued a bright-line rule regarding the “25% rule”, holding it to be inadmissible as a matter of Federal Circuit law. Specifically, “This court now holds as a matter of Federal Circuit law that the 25 percent rule of thumb is a fundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiation. Evidence relying on the 25 percent rule of thumb is thus inadmissible under Daubert and the Federal Rules of Evidence, because it fails to tie a reasonable royalty base to the facts of the case at issue.”
Additionally, the Court addressed language from Lucent regarding the propriety of using the entire product as a royalty base. The plaintiff argued that, as it understood Lucent, using the entire base is always acceptable, so long as the royalty rate is sufficiently low. The Court disagreed, stating: “The Supreme Court and this court’s precedents do not allow consideration of the entire market value of accused products for minor patent improvements simply by asserting a low enough royalty rate.”