Patent Damages
18Oct/170

D Minn addresses inexorable flow, non-infringing alternatives, EMVR, apportionment

Posted by patentda

The District of Minnesota, Judge Ericksen presiding, in Select Comfort Corp. v. Tempur Sealy Int’l, Inc., Civil Action 14-cv-245 JNE/TNL (D. Minn. June 23, 2017), issued an order concerning lost profits and reasonably royalty related to a patented air mattress valve.   Judge Ericksen excluded Select Comfort’s expert’s testimony on lost profits and reasonably royalty, but allowed Tempur Sealy’s expert’s testimony on noninfringing alternatives.  Judge Ericksen also granted Tempur Sealy’s motion for summary judgement on lost profits, but denied summary judgment on reasonably royalty.

Lost Profits

Tempur Sealy argued that Select Comfort’s expert, Schwartz, proffered no evidence that “the patented features form the basis of consumer demand, which is required to prove the absence of a non-infringing alternative under the second Panduit factor,” citing Mentor.  Slip Op. at 9.  “To prove that there are no acceptable noninfringing substitutes, the patent owner must show either that ( 1) the purchasers in the marketplace generally were willing to buy the patented product for its advantages, or (2) the specific purchasers of the infringing product purchased on that basis,” id. at 10 (quoting Standard Havens Prods.).  Ultimately the Court found an absence of such evidence, and concluded that “Schwartz's opinion on lost profits must be excluded.”  Id. at 12.

Select Comfort, the patent owner and plaintiff, was pursuing lost profits under the theory of “inexorable flow,” a theory of lost profits that arises when the patent owner is not the company who directly suffered the lost sales but argues that the lost profits inexorably flowed to it.  In this case, the issue centered on Select Comfort’s subsidiary, which was the company that had purportedly suffered lost profits.  Select Comfort argued that it was entitled to the subsidiary’s lost profits because those losses inexorably flowed to Select Comfort and thus were recoverable to Select Comfort.  The court noted that the Federal Circuit has not adopted the inexorable flow theory—noting that “lost profits must come from the lost sales of a product or service the patentee itself was selling.”  Id. at 24-25 (quoting Mars, Inc. v. Coin Acceptors, Inc., 527 F.3d 1359, 1367 (Fed. Cir. 2008)).  In addition to arguing that Select Comfort did not show lack of noninfringing alternatives, Tempur Sealy argued that Schwartz did not distinguish whether the lost profits were those of Select Comfort itself or those of a wholly owned subsidiary, a fact Schwartz admitted during deposition.  Id. at 26.  Indeed, Schwartz testified that “[h]e calculated what he characterized as ‘the rolled-up profits’” from Select Comfort.  The court observed that just because Select Comfort consolidates its financial statements does not demonstrate inexorable flow of profits from the subsidiary to Select Comfort, even assuming the viability of the inexorable flow doctrine.  Ultimately, “the Court conclude[d] that Select Comfort did not demonstrate the absence of acceptable noninfringing alternatives,” granting Tempur Sealy’s summary judgment motion of no lost profit damages.    

Select Comfort moved to exclude Tempur Sealy’s expert’s opinion that a Funai pump is a non-infringing alternative.  Id. at 19.  The Court rejected Select Comfort’s argument that the expert’s opinions about the Funai pump should be excluded because they are based on unreliable evidence, although the Court did limit his opinions to those identified in his report.  Id. at 19-20.

Reasonably Royalties

Regarding reasonable royalties, Tempur Sealy argued Schwartz’s opinion violated the entire market rule and should be excluded.  Id. at 13.  “The entire market value rule is a narrow exception to this general rule [that royalties be based not on the entire product, but instead on the smallest salable patent-practicing unit].  If it can be shown that the patented feature drives the demand for an entire multi-component product, a patentee may be awarded damages as a percentage of revenues or profits attributable to the entire product.”  Id. (quoting Laser Dynamics).  But driving demand is a high bar, requiring the feature to be more than just “valuable, important, or even essential.”  Id. at 13-14.  Because there was “no evidence that the patented valve enclosure assembly drove consumer demand,” the Court excluded Schwartz’s opinion.  Id. at 14.

In the alternative, Schwartz opined on the smallest salable unit.  Tempur Sealy argued that Schwartz failed to apportion between the patented features and the unpatented features of the air mattress pump, which includes power supply, hand controls, and the pump itself.  Id.  Because Schwartz “did not apportion between the patented and unpatented features in his reasonabl[e] royalty analysis,” the Court excluded his opinion.  Id. at 14-15. 

Neither of these rulings, however, cut off Select Comfort’s claim for damages based on a reasonable royalty.  Id. at 27.  Quoting Info-Hold Inc. v. Muzak LLC, 783 F.3d 1365, 1372 (Fed. Cir. 2015), the Court noted that “a patentee’s failure to show that its royalty estimate is correct is insufficient grounds for awarding a royalty of zero.”  In Info-Hold, the Federal Circuit also stated that, “[b]y extension, the exclusion of the patentee’s damages evidence is not sufficient to justify granting summary judgment.”  Id.

30Mar/17Off

DDE cites need for numerical calculation for apportionment, and cites non-technology factors and use patterns as contributing to value

Posted by Chris Marchese

The District of Delaware, Judge Andrews presiding, in Comcast IP Holdings I LLC v. Sprint Communications Co., Civil Action No. 12-205-RGA (D. Del. Sept. 29, 2014), issued a brief order concerning apportionment.  Judge Andrews was faced with a motion in limine seeking to exclude profits and and/or revenues relating to the accused products as violating the entire market value rule (EMVR).  The court decided that the briefing was not “enough for a good decision, and asked for further submissions including a proffer of the Comcast expert’s testimony.”  Slip op. at 1.  A proffer was thus requested.

23Dec/16Off

DDE denies request to strike lost profits opinion re non-patented items; addresses test data admissibility

Posted by Chris Marchese

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.

6Sep/16Off

D.Ariz excludes expert for not apportioning the rate, but OKs entire product as base

Posted by Chris Marchese

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.

25Aug/16Off

DDE excludes settlement agreements; allows licenses as a “check”; addresses apportionment of accused products & services

Posted by Chris Marchese

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.

15Aug/16Off

NDCA excludes expert testimony for failure to apportion (including addressing claim scope argument)

Posted by Chris Marchese

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.

20Apr/16Off

EDTX denies Daubert motions involving apportionment, entire market value rule, license agreements, and patent valuations

Posted by Chris Marchese

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.

3Jul/15Off

DDE excludes revenues & profits due to failed apportionment, allows do-over

Posted by Chris Marchese

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.

19Jun/15Off

CDIL rejects defendants’ EMVR and SSPPU arguments and allows royalty base on entire products

Posted by Chris Marchese

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. 

6May/15Off

DDE addresses various Daubert issues including EMVR and apportionment

Posted by Chris Marchese

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.