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.”
On June 20, 2014, Judge Gonzalez Rogers of the Northern District of California issued an opinion on defendant Freescale’s motion to exclude certain testimony of plaintiff’s damages expert, Catharine M. Lawton. MediaTek, Inc. v. Freescale Semiconductor, Inc., Case No. 11-cv-5341 YGR. Freescale moved on three issues: “(1) [Lawton’s] apportionment analysis; (2) her royalty rate estimate for certain patents-in-suit; and (3) her opinion on the U.S. share of Kindle e-reader sales.” Slip op. at 1. The court denied the motion on each issue.
MDPA approves smallest salable unit as base; allows lump sum agreements as evidence of running royalty
On May 27, 2014, Judge Caldwell of the Middle District of Pennsylvania issued an opinion on a motion for reconsideration of an earlier Daubert opinion. The case is Kimberly-Clark Worldwide, Inc. v. First Quality Baby Products, LLC, Civil No. 1:09-CV-1685. The court addressed defendants’ motion to exclude opinions by plaintiff’s damages expert, Julie L. Davis, on two issues: (1) whether Ms. Davis’ use of the smallest salable patent-practicing unit (“SSU”) as the royalty base violated the entire market value rule (“EMVR”); and (2) whether Ms. Davis’ use of lump sum agreements as evidence of a running royalty rate should be allowed. The court ruled in plaintiff’s favor on both issues.
On March 26, 2014, Judge St. Eve of the Northern District of Illinois issued a lengthy, detailed damages opinion in Sloan Valve Co. v. Zurn Industries, Inc., Case No. 10-cv-00204, in which defendant Zurn moved to exclude testimony of plaintiff’s damages expert, Richard Bero. The court addressed several interesting damages issues, including entire market value rule, apportionment, inclusion of unpatented items in the royalty base, and price erosion. The court granted Zurn’s motion.
NDCA denies summary judgment and Daubert motions on lost profits and reasonable royalty; allows patentee’s entire market value and comparable license theories
On July 18, 2013, Judge Seeborg of the Northern District of California issued an opinion in Interwoven, Inc. v. Vertical Computer Sys., Case No. CV 10-04645 RS (Doc. 191), in which the court denied Interwoven’s motion for summary judgment concerning lost profits and reasonable royalties, and denied Interwoven’s motion to exclude Vertical’s damages expert, Joseph Gemini.
NDCA denies motion to strike reports for inadequate apportionment in lost profits and reasonable royalty; allows testimony on disputed licenses and offer to license
On February 21, 2014, Judge Alsup of the Northern District of California issued an opinion in Plantronics, Inc. v. Aliph, Inc., Case No. C 09-01714 WHA, in which the court denied motions to strike defendant’s damages experts on lost profits (Matthew R. Lynde) and reasonable royalty (Brian Napper). The case was a competitor suit involving bluetooth headsets. The opinion has several interesting issues, but the most significant is the treatment of apportionment and lost profits. Judge Alsup, in effect, held that the Panduit test only requires proof of demand for the patented product, and thus the plaintiff need not prove demand for the patented feature, thus avoiding the entire market value rule.
On November 14, 2013, Judge Schneider of the Eastern District of Texas issued an opinion in L.C. Eldridge Sales Co. v. Azen Mfg. PTE, Ltd., Case No. 6:11-CV-599 (Doc. No. 290), in which the court ruled on several issues including a motion to exclude opinions of plaintiff’s damages expert, Todd W. Schoettelkotte. The opinion is brief on this point, but is worth noting for the fact that an expert was allowed to testify on EMVR. The relevant portion states:
On December 3, 2013, Judge Cote of the Southern District of New York issued a lengthy bench trial order in Astrazeneca AB v. Apotex Corp., 01 Civ. 9351 (DLC) (Doc. No. 240), addressing a number of damages issues. The only issue we address here involves the entire market value rule. In particular, the court commented on its applicability in pharma cases. It also cited language from Uniloc in which the Federal Circuit suggested that entire market value rule could be satisfied if the patented feature substantially created the value of the component parts. We quote in full because the language is interesting (slip op. at 82-84):