NDCA allows discovery into sales of non-accused items

On February 26, 2013, the NDCA issued an opinion in Positive Tech., Inc. v. Sony Elecs., Inc., Case No. 11-cv.2226 SI (KAW) (Doc. No. 427).  The court addressed defendants’ joint motion for a protective order barring discovery of sales information for non-accused, collateral products.  The court denied the motion. Plaintiff alleged that its patent covers Nook and Amazon E-readers.  Plaintiff sought discovery of sales and revenue information for “1) E-Reader content and services that are used directly on the E-Readers that allegedly contain Plaintiff's patented invention, such as eBooks, eMagazines, wireless connectivity, games and applications, and software upgrades; 2) accessories and protection plans which are typically sold contemporaneously with the E-Readers, such as covers, cases, reading lights, and warranties; and 3) information regarding the relationship between the accused E-Readers and the sale of the non-accused content and accessories.” Slip op. at 1.

Defendants argued that discovery regarding non-accused products was “only remotely related to any damages analysis.”  Defendants argued that the plaintiff was required first to establish application of the entire market value rule (EMVR).  In a December 3, 2012 order, District Judge Illston rejected this argument, ruling that sales information concerning the non-accused products was “discoverable because it is essential [plaintiff’s] reasonable royalty calculation, as part of its damages analysis.”  Slip op. at 2.  However, Judge Illston observed that plaintiff’s request for discovery appeared to be broader than merited by its damages analysis, requested supplemental briefing, and referred the issue to Magistrate Judge Westmore.

Judge Westmore held that the information sought was discoverable under Georgia-Pacific factors 6, 8, and 11.  According to the court, plaintiff wanted the discovery to calculate the royalty rate and not the base.  In fact, plaintiff stated that it would “not attempt to use the EMVR to get evidence of sales and non-accused products admitted as part of the royalty base analysis.”  Slip op. at 6.

The court found that factor 6 (promotion of sales of other products) allowed discovery of certain requested information—promotion or generation of sales of other products; value of the accused E-Reader feature to generate sales of non-patented items; and the extent of such sales.  The court cited factors 8 (commercial success) and 11 (defendants’ use of the accused feature and the value of that use) as entitling “discovery regarding the use Defendants have made of the display controller drive scheme [the accused feature], the value of that use, and the resulting commercial success and popularity of E-Readers.  The money that Defendants make on both content and accessories sold with their E-Readers is probative of the value of Defendant's use of the display controller scheme, as well as the commercial success and popularity of the E-Readers.”  Slip op. at 7.

The court also observed:  “This result comports with the rationale underlying the Georgia-Pacific case. If the parties had negotiated a price for using Plaintiff's patented specialty in Defendants' E-Readers before the alleged infringement began, the parties might reasonably have considered not only the revenue Defendants stood to gain through sales of the E-Readers containing the improved-quality displays, but also through sales of accessories and content. This is especially true if, as Plaintiff argued at the hearing, Defendants sell their E-Readers at a low price to induce customers to buy E-Books and magazines, and therefore make the bulk of their revenue from sales of content.”  Id.

Finally, the court held that LaserDynamics did not bar the discovery.  The court stated:  “LaserDynamics limits admissibility, not discoverability.”  Slip op. at 8.  The court observed that the sales information sought by plaintiff may not be admissible at trial, because the smallest salable patent-practicing units are the E-Readers containing the display controller drive scheme, but the court would not bar discovery on this basis.