On March 29, 2012, in Mformation Techs., Inc. v. Research in Motion Ltd, No. C 08-04990 JW (N.D. Cal.), the court ruled on motions to exclude expert testimony, including testimony from damages experts. The case addresses two interesting damages issues: 1) use of the Nash bargaining solution in determining a reasonable royalty rate, and 2) the entire market value rule for accused products where method claims are at issue.
The defendant moved to exclude plaintiff's expert's reasonable royalty opinions as unreliable because they were based on the Nash bargaining solution, contending this is an impermissible rule of thumb for determining the royalty rate. The Nash bargaining solution, named for Nobel Prize-winning mathematician John Nash, is a controversial methodology for determining a reasonable royalty. Indeed, in an earlier case, the Northern District of California addressed Nash bargaining at length and criticized its utility for determining a reasonable royalty in patent cases. See Oracle America, Inc. v. Google Inc., No. C 10-03561 WHA (N.D. Cal., July 22, 2011) (stating that Nash bargaining is a theory "that a patent plaintiff would love...because it awards fully half of the surplus to the patent owner, which in most cases will amount to half of the infringer's profit, which will be many times the amount of real-world royalty rates").
In the Mformation case, however, the court was not forced to address Nash bargaining squarely. The court found that the expert had conducted an "extensive" Georgia-Pacific analysis, and merely used Nash bargaining "in addition to, rather than in lieu of," Georgia-Pacific. Slip op. at 7 n.19. Having determined that Nash bargaining was used as a "check" instead of the primary methodology, the court denied the defendant's motion to exclude the expert's royalty rate calculation.
The court also considered the entire market value rule (EMVR). The court found application of the EMVR to be unwarranted, however, because the expert did not attribute all of the defendant's customer demand to use of the Patent-in-Suit—even if all the accused products were capable of operating in the accused manner, when connected to the system at issue, there was no proof that customer demand was driven by the patented method as opposed to other features of the accused products. The court therefore excluded the expert's testimony as to the total profitability of Defendants' products.
Note that the court relied on the three-part EMVR test from Cornell Univ. v. Hewlett-Packard Co., 609 F. Supp. 2d 279, 285-87 (N.D.N.Y. 2009) (Rader, J., sitting by designation) (part one of the test holds that the infringing components of a larger machine must be "the basis for customer demand for the entire machine including the parts beyond the claimed invention"). Other district courts have used the Cornell three-part test for EMVR analysis. See, e.g., Univ. of Pittsburgh v. Varian Med. Sys., Inc., No. 08cv1307 (W.D. Pa., February 10, 2012).