DDE denies request to strike lost profits opinion re non-patented items; addresses test data admissibility
The District of Delaware, in Masimo Corp. v. Philips Elec. North Am. Corp., (Judge Leonard P. Stark) (October 31, 2016), addressed motions to strike opinions of several experts related to damages. The experts in question were Michael Keeley (Finance), Joseph Dyro (Technical), Nitin Shah (Technical), Vijai Madisetti (Finance), and Michael Wagner (Finance). The court granted in part and denied in part the motions. The key motions are addressed below.
The District of Arizona, in GoDaddy.com LLC v. RPost Communications Limited, Case No. CV-14-00126-PHX-JAT (Judge James A. Teilborg) (May 10, 2016), excluded the entire report of Defendant’s damages expert, Gregory Smith, but allowed a do-over.
Plaintiff GoDaddy moved to exclude Smith’s testimony under FRE 702, asserting two grounds: (1) Smith inappropriately accounted for non-infringing features in his royalty rate analysis rather than apportioning the royalty base, and (2) because Smith used the entire revenue of the accused product as the royalty base, he necessarily applied the entire market value rule (“EMVR”) but failed to demonstrate that the patented features form the basis of consumer demand. Defendant RPost denied that Smith applied the EMVR, arguing that the accused products were the smallest saleable unit (“SSU”), and the Federal Circuit has never defined a particular formula for apportioning damages for SSUs. Smith used the operating margin of the accused products and apportioned the royalty rate instead of the royalty base.
DDE excludes settlement agreements; allows licenses as a “check”; addresses apportionment of accused products & services
The District of Delaware, in ART+Com Innovation GMBH v. Google Inc., Case No. 14-217-RGA (Judge Richard G. Andrews) (April 28, 2016), considered several motions related to royalty calculations. In a previous blog post, we addressed the motion for reconsideration of the 13% apportionment issue addressed below. This post covers the earlier order addressing that issue plus others.
Plaintiff ART+Com Innovation (“ACI”) challenged the reliance of Google’s expert Reed on seven licenses as a "check" on his reasonable royalty analysis. Five of these licenses were settlement agreements. The court excluded these (except as to their lump-sum nature) because they were products of litigation and not economically comparable. The other two licenses were the product of licensing negotiations. ACI disputed that these licenses were technologically comparable. The court allowed these licenses because Reed acknowledged the differences, and his analysis was consonant with using the licenses as a "check" against his reasonable royalty calculations. The jury could then weigh the evidence for itself.
The Northern District of California, in Nortek Air Solutions, LLC v. Energy Lab Corp., No. 14-cv-02919-BLE (July 15, 2016) (Judge Beth Labson Freeman), granted Energy Labs’ Daubert motion to exclude testimony of Nortek’s damages expert, Dr. Stephen Prowse, regarding reasonable royalty damages. The motion included three reasons; we address the first one here: “Dr. Prowse’s royalty analysis fails to apportion the value of the allegedly patented features from the unpatented features in the accused products ….” Slip op. at 8. The accused products were air handling systems.
In response to the motion, Nortek argued that Dr. Prowse had properly relied on the value of the accused air handling system as a whole rather than a smaller component for several reasons: (1) “because the asserted claims are directed to the entire air handling unit rather than any individual features,” and (2) because “the air handling unit is the smallest saleable unit and thus an appropriate royalty base.” Id.
EDTX denies Daubert motions involving apportionment, entire market value rule, license agreements, and patent valuations
The Eastern District of Texas, in Core Wireless Licensing SARL v. LG Electronics, Inc. et al, Case No. 2-14-cv-00911 (Judge Payne) (March 19, 2016), addressed motions filed by both parties seeking to exclude the other party’s damages expert’s opinions and testimony. LG, the alleged infringer, filed a motion to exclude the opinions of Core’s damages expert, Dr. Stephen Magee, on Daubert and untimeliness grounds. Similarly, Core, the patent owner, sought to exclude the opinions of LG’s damages expert, Dr. Thomas Vander Veen, on the same grounds. The court concluded that both experts’ opinions were reliable under FRE 702, and thus denied both parties’ Daubert motions. The court also concluded that the parties’ late disclosures were harmless and denied the parties’ motions to exclude the adverse party’s supplemental report for untimeliness.
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 Central District of Illinois, in Philippi-Hagenbuch, Inc. v. Western Tech. Services Int’l, Inc., Case No. 12-1099 (Chief Judge James E. Shadid) (April 8, 2015), denied defendants’ motion to exclude opinions of plaintiffs’ damages expert, Michael E. Tate. Tate had offered opinions on lost profits and reasonable royalty. The reasonable royalty issue—whether Tate’s opinion that the royalty base should be the entire products at issue, which were truck bodies and water tanks, or should be apportioned—is addressed here.
The case involved two sets of patents: water tank patents and truck body patents. The plaintiffs contended that their patented design process created a water tank or a truck body and that no smaller, salable unit was separable or could be apportioned from the larger products for purposes of damages computation. To this end, the court noted that the truck body patents claim a process for designing a custom truck body for specific environments by use of three-dimensional modeling of the loads to be hauled. Some of the evidence indicated that the defendants’ customers purchased the custom truck bodies over generic bodies because the custom bodies were designed to meet the customers’ specifications, to carry a particular load, and to “max out” the truck’s performance, making the premium cost for the patented truck bodies worthwhile to the customers.
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.