Judge Richard Posner of the Seventh Circuit has on occasion sat by designation at district courts to adjudicate patent cases. We previously reported on Apple Inc. v. Motorola, Inc., in which Judge Posner excluded expert testimony on damages and denied injunctive relief. This week's summary looks at another decision by Judge Posner in a case he has been handling by designation, Brandeis Univ. v. Keebler Co. There, Judge Posner significantly narrowed the scope of expert testimony the parties may use at trial to prove liability and damages.

Background

Brandeis University owns several patents on a type of margarine that is claimed to have a certain fatty-acid profile and the health benefit of increasing the ratio of HDL ("good" cholesterol) to LDL ("bad" cholesterol). Brandeis exclusively licensed the patents to GFA Brands and the two collectively sued Keebler and other food manufacturers, alleging that they had used the patented margarine to make cookies. Before trial, the court conducted a Daubert hearing to consider challenges raised by both parties to each other's expert testimony.

Claim Construction in Relation to Daubert Challenges

To consider the reliability of the methodologies used by the experts, the court first construed certain claim terms the experts used in their analyses. The parties disputed the meaning of the term "percentage by weight of a fatty acid." A fat molecule-a triglyceride-is made of glycerol and three fatty acids. When fatty acids react with glycerol to form a triglyceride, each fatty acid loses its hydroxyl group (an oxygen atom bonded with a hydrogen atom). The parties disputed whether the weight of a hydroxyl group should be included in the weight of a fatty acid when determining the acid's weight percentage in a triglyceride. The court determined that it should, drawing support from the patent documents and publications by the Department of Agriculture and the FDA.

The parties also disputed the meaning of the term "stable emulsion," disagreeing on how stable an emulsion must be to be used as margarine. The court ruled that "margarine" means "a butter substitute, having flavorings or other additives, that constitutes an emulsion with a water phase and an oil phase, sufficiently stable to function as a butter substitute.

The Daubert Challenges

Testimony on Liability

The court evaluated the challenged testimony of each expert and considered whether each was qualified to testify on the subject and also had used a reliable methodology. For the plaintiffs' liability expert, Dr. Peter Jones, the court excluded testimony that the defendant's products contain no ingredients generally understood by consumers to contain cholesterol because consumers' understanding was not within Dr. Jones's expertise as a biochemist. The court also excluded Dr. Jones's fatty-acid-weight-percentage calculation because it did not comport with the court's claim construction-it did not include the hydroxyl group of each fatty acid. In addition, the court excluded some of Dr. Jones's testimony on infringement of the claim limitation requiring that an infringing product increase the HDL/LDL cholesterol ratio. Specifically, while Dr. Jones could rely on a number of studies, the court prevented him from using others where he, in the court's view, had not provided enough detail on the methodologies and results of the study, or where he had failed to justify extrapolating the results from animal studies to humans.

The court also narrowed the testimony permitted by the defendant's expert on the lack of health effects from the accused margarine. Specifically, the defendant's expert, Dr. Alice Lichtenstein, had identified additional studies that tended to rebut a benefit to cholesterol ratio by using the accused margarine. While the court permitted her to testify that the studies she had identified show that some fat blends within the patent's claimed ranges do not produce a benefit, it precluded her from stating that those studies directly contradict the study relied on by Dr. Jones. The court did not permit such a direct use of the study because of differences between the experimental designs of the studies.

In addition, the court significantly narrowed the testimony offered by the defendant's expert, Allan Roden, a food-industry chemist. The defendant sought to use Mr. Roden's testimony to prove that the accused product did not infringe because it is not a stable emulsion, as required by the claims. But the court held that Mr. Roden did not use a sufficiently reliable methodology when he tested the accused batter in his home after having it shipped there without temperature control. The court also precluded him from testifying that margarine could be made only in a certain manner, when he had admitted in his deposition that other methods could be used.

Testimony on Damages

In addition to limiting testimony on liability, the court significantly limited testimony on damages by plaintiffs' damages expert, Dr. Anne Layne-Farrar. She testified that there were no acceptable noninfringing alternatives to the patented margarine that could be used in cookies. According to the court, however, supporting such a claim requires an expert to consider how adopting a noninfringing alternative would affect consumer demand. Because Dr. Layne-Farrar was not an expert on consumer demand for cookies or how that demand is affected by ingredients, the court questioned her sources of information. Although she had conferred with Dr. Jones (the biochemistry expert), she had not talked to the industrial-baking expert, who understood how noninfringing alternatives would change the texture and taste of cookies. The court held that Dr. Layne-Farrar (a damages expert) could not rely on Dr. Jones (a biochemistry expert) to determine the market cost of using a noninfringing alternative. As the court viewed it, proper expert testimony on a reasonable royalty would have to consider the cost of using an imperfect alternative-both the increased production cost and the loss of business.

Rather than the approach envisioned by the court, Dr. Layne-Farrar based her damages estimates on licensing agreements negotiated under circumstances purportedly comparable to the facts of the Keebler case. One license was between the plaintiffs and one of Keebler's competitors, a large food conglomerate identified as Company A. The court reasoned that Dr. Layne-Farrar could not assert that using the infringing product allowed Keebler to regain market share because she failed to demonstrate the reliability of her market-share analysis, and that she had no basis to assert that the royalty with Company A should have been higher. The court did, however, permit her to estimate a reasonable royalty based on the license with Company A.

Further, the court excluded Dr. Layne-Farrar's use of another license between the plaintiffs and Company B as irrelevant because it was not a license for the patents disputed in the case. Finally, the court also rejected use of a third license, this one between the plaintiffs and Company C, the parent of Company D (which itself is one of the alleged infringers of the plaintiffs' patent). The court described the settlement agreement that led to the license as "complex"-in part because the agreement included return of upfront payments as "consulting fees"-and discounted what it viewed as self-serving statements in the settlement agreement that produced the third license. According to the court, because Dr. Layne-Farrar had failed to value the individual components of the settlement, she could not use the settlement agreement to estimate appropriate damages.

Strategy and Conclusion

While this district-court opinion does not carry precedential weight on other courts, Judge Posner's views on the calculus of patent damages may be influential and should be considered when developing a damages case or challenging expert testimony.

Michael Liu Su