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.

14Jul/16Off

District of Minnesota Orders Additional Expert Discovery and Sanctions Based on Information Not Produced During Discovery

The District of Minnesota, in Luminara Worldwide, LLC v. Liown Electronics Co. Ltd. et al., Case No. 14-3103 (Magistrate Judge Noel) (May 18, 2016), agreed that Plaintiff should have produced its manufacturing capacity data on which its damages expert relied for his lost profits analysis during discovery.  The Court allowed Defendants to take further discovery and supplement their expert report.  The Court declined to exclude the data because there was enough time before trial to complete the additional discovery.  The Court denied Defendants’ motion to strike the history of the technology at issue from the Plaintiff’s report, leaving it for cross-examination.

In this case, Defendants moved to strike Plaintiff’s expert report regarding damages because the damages expert presented theories based on evidence Plaintiff withheld during fact discovery. 

10Aug/12Off

SDCA rules on Daubert motions related to both Lost Profits and Reasonable Royalty

Posted by Justin Barnes

In Area 55, Inc. v. Amazon.com, Inc., Case No. 11-CV-00145-H-NLS, the Court issued an opinion on July 24, 2012 regarding pending Daubert motions relating to both lost profits and reasonable royalty.

The lost profits issue related to whether the Plaintiff’s expert had reached an appropriate conclusion regarding lack of acceptable non-infringing substitutes.  The Court noted that the Defendant was challenging the conclusion, not the methodology.  The argument was that there was insufficient basis to reach this conclusion, but the Plaintiff argued that there was sufficient basis, namely the expert’s discussions with the inventor.  The inventor had spoken to the expert about the various alternative products in the marketplace, and had explained why he (the inventor) believed each was inferior in comparison to the patented product.  The Court found no issue with this, noting “[a]n expert cannot be an expert in all fields, and it is reasonable to expect that experts will rely on the opinions of experts in other fields as background material for arriving at an opinion.”  Accordingly, the Court refused to exclude the testimony and invited the Defendant to vigorously cross-examine the expert on the issue of non-infringing substitutes.