The Eastern District of Texas, in Metaswitch Networks Ltd. v. Genband US LLC, Case No. 2:14-cv-00744 (Judge Payne) (March 5, 2016), addressed defendant Genband's Daubert motion seeking to strike plaintiff's expert Mr. Sims’ opinions relating to apportionment, royalty base calculation, and the application of the "analytical approach." The court concluded that Mr. Sims' opinions were reliable under FRE 702 and thus, denied Genband's Daubert motion.
The Eastern District of Texas, in Metaswitch Networks Ltd. V. Genband US LLC, Case No. 2:14-cv-00744 (Judge Payne) (March 7, 2015), addressed a number of issues in a FRAND case involving an IETF standard. Specifically, defendant moved under Daubert to exclude certain opinions of plaintiff’s damages expert Matthew R. Lynde. The court granted in part and denied in part the motion.
C.D. Cal. excludes do-over damages opinions for failure to apportion and allows second do-over if case proceeds to damages phase
The Central District of California, in Enovsys LLC v. AT&T Mobility LLC, et al., Case No. 11-5210 SS (Judge Suzanne H. Segal) (August 10, 2015), granted Defendant AT&T’s motion to exclude the supplemental opinions of Plaintiff Enovsys’ damages expert. The Court also bifurcated the trial into liability and damages phases, and allowed for a second supplemental damages opinion in the event the case proceeded to the damages phase.
In June 2015, the Court granted AT&T’s Motion in Limine to Exclude Enovsys’ damages expert, Russell Parr because Mr. Parr’s “did not sufficiently tie damages to the ‘limited features’ of the patented invention.” (slip op. at 3). The Court allowed Enovsys a do-over. AT&T took the position that the do-over report suffered from the same defect as the original report – the damages calculations were not tied to the value of the patented invention.
The Northern District of California, in Finjan, Inc. v. Blue Coat Systems, Inc., Case No. 13-cv-03999-BLF (Judge Beth Labson Freeman) (July 14, 2015), ruled on a host of Daubert motions, including by both plaintiff and defendant to exclude the other side’s damages expert. The court addressed several apportionment techniques, allowing some and rejecting others.
“Real estate approach” based on lines of software code (royalty base)
In what may be a first in a patent case, the court squarely addressed an apportionment technique relating to the royalty base that this author calls the “real estate approach,” finding it not inherently unreliable. This technique has different flavors, e.g., the footprint of circuitry on an integrated circuit or the lines of software code. Here, the question was how much respective “real estate” was occupied by the lines of code making up the accused feature versus the total lines of code in the accused product. The court held that use by defendant’s expert, Julie Davis, of a percentage of source code directed to the accused feature was not unreliable and could be presented to the jury. (Note, this issue has arisen in the trade secret context: UniRAM Tech., Inc. v. Taiwan Semiconductor Mfg. Co., No. C 04-1268 VRW (N.D. Cal. April 17, 2008) (allowing defendant’s expert’s apportionment that the accused misappropriated trade secret constituted 25% of the chip). It was also addressed in passing by the Federal Circuit in Lucent—see quoted language below.)
The District of Delaware, in Comcast IP Holding I LLC v. Sprint Comms. Co. LP, Civil Action No. 12-205-RGA (Judge Richard G. Andrews) (Sept. 29, 2014), granted Sprint’s motion in limine to exclude Comcast from introducing at trial profits and/or revenues related to the accused products. Sprint argued that this evidence was not allowed due to the entire market value rule (EMVR). Comcast contended that its expert did use EMVR but instead had apportioned. After obtaining a proffer of the Comcast expert’s testimony, Judge Andrews ruled for Sprint. He did note, however, that this exclusion still left Comcast with a basis to seek damages, which he believed would be in the same amount requested without the exclusion.
The District of Delaware, in Helios Software, LLC v. Awareness Tech., Inc., Civil Action No. 11:1259LPS (Judge Stark) (April 13, 2015), addressed a variety of motions to exclude damages testimony. Plaintiff and defendant each moved to dismiss its counterpart’s damages expert on various grounds. The most interesting issues are addressed below.
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.”
The District of Nebraska, in Prism Technologies LLC v. AT&T Mobility, Civil Action No. 8:12-cv-00122-LES-TDT (Judge Lyle E. Strom) (September 22, 2014), granted a motion to exclude testimony from Prism’s damages expert James Malackowski. As described by the Court:
Mr. Malackowski’s model has multiple stages. First, he attempted to isolate the “economic footprint” of the invention in each defendant’s revenues to create a royalty base in a three-step calculation. First, he identified each defendant’s data services revenue. Second, he reduced the revenue of RIM subscribers per Prism’s RIM agreement. Third, he “apportioned” these revenues by each defendant’s cost savings fraction….The cost-savings fraction is a separate, two-step, calculation. Mr. Malackowski identified the numerator of this fraction as the cost savings value of the asserted patents (Filing No. 265-3, at 43-46).Then, Mr. Malackowski identified the denominator as the total network costs for each defendant (Id.). The resulting fraction represented the “benefit cost savings” of the infringing system.
From this royalty base, Mr. Malackowski applied a royalty rate that varied between 2-4%. The defendants took issue with this damages model on three main grounds, 1) that a revenue-based royalty was inappropriate as a matter of law, 2) that the “cost-savings” apportionment was flawed, and 3) the methodology was effectively a “black box” that could not be correlated with the invention’s economic footprint.
“The name of the game is the claim.” Chief Judge Rich wrote those words back in 1990. Giles S. Rich, The Extent of the Protection and Interpretation of Claims--American Perspectives, 21 Int'l Rev. Indus. Prop. & Copyright L., 497, 499 (1990) ("To coin a phrase, the name of the game is the claim."). That statement has typically been invoked in the context of claim construction. However, in the ever-changing landscape of patent damages law, it seems to have growing force and effect.
The Southern District of Florida, in Atlas IP, LLC v. Medtronic, Inc., Civil Action No. 13-CIV-23309 (Judge Cecilia Altonaga) (Oct. 6, 2014), granted a motion to exclude testimony from Atlas’ damages expert Donald Merino. First, Medtronic alleged that Merino’s royalty base was “inflated and unreliable because it is derived from the entire market value of Medtronic end products, instead of the smallest salable patent-practicing unit.” The Court held that “while undoubtedly the end product derives value from the allegedly infringing technology, Medtronic buys a chip from third parties, and the chip includes the allegedly infringing technology.” Because of that, the chip was the SSPPU. But rather than start an apportionment analysis with the chip, Merino started with the end product, and apportioned from there. Atlas argued that this was permissible under the Rembrandt v Facebook decision, but the Court disagreed. Instead, the Court held that starting with a base larger than the SSPPU and then apportioning down was simply “form over substance,” and rejected Merino’s approach based on “his improper use of the EMVR.”