In Apple v. Motorola,1 the district court rejected damages experts proffered by the parties on the grounds that they failed to use proper or acceptable methodology. In conducting its analysis, the court repeatedly considered whether the experts’ methods would be plausible to provide similar financial estimations outside the context of litigation. Finding the proposed methods and calculations lacking when considered in this manner, the court ruled the experts’ testimony inadmissible, which influenced the court’s ultimate dismissal of the case with prejudice.
Background: Expert Testimony
Expert witnesses are often utilized by litigants when “[a]n intelligent evaluation of facts is . . . difficult or impossible without the application of some scientific, technical, or other specialized knowledge.”2 In Daubert v Merrell Dow Pharmaceuticals, the Supreme Court tasked trial judges with the gatekeeping function of admitting only relevant and reliable expert testimony.3 Daubert identified several factors trial judges may use in assessing expert testimony including the reliability of an expert’s technique and whether the technique is generally accepted within the applicable community.4 Similarly, Federal Rule of Evidence 702, which was amended in response to Daubert, allows expert testimony if “(a) the expert’s . . . specialized knowledge will help the trier of fact to understand the evidence or determine a fact in issue; (b) the testimony is based on sufficient facts or data; (c) the testimony is the product of reliable principles and method; and (d) the expert has reliably applied the principles and method to the facts of the case.”5 If a party challenges an opposing expert, the court may hold a Daubert hearing, the purpose of which is “to enable the judge to decide whether the expert’s proposed evidence is sufficiently reliable to be considered by the jury . . . .”6 The “Committee Notes on Rules - 2000 Amendment” state that “[a] review of the caselaw after Daubert shows that the rejection of expert testimony is the exception rather than the rule.”7 Thus, the Daubert order in Apple v. Motorola, likely came as a surprise to many.
In Apple v. Motorola, Judge Richard Posner, sitting by designation, ruled that the proposed testimony by three of the parties’ damages experts was inadmissible, excluding one expert for Apple and two for Motorola.8 A Daubert hearing was held to address cross challenges to the parties’ experts. At the hearing, the experts testified, and counsel presented oral arguments. In his order, Judge Posner considered the experts’ testimony and counsel’s arguments, in addition to the submitted expert reports.9
First at issue was the adequacy of Motorola’s expert, Mr. Michael J. Wagner, with respect to an Apple patent that claims a “feature on the toolbar notification window that gives the user basic information about the state of his device, such as battery strength.”10 Mr. Wagner proposed a royalty figure of $100,000 based on the cost of developing the allegedly infringing notification window of $67,000; to determine the development cost, Mr. Wagner interviewed a Motorola technical expert.11 Judge Posner dismissed this testimony not only because the development cost testimony was fact testimony and not expert testimony, but also because Wagner’s approach to determining the dollar figure was not the approach he would have used outside litigation.12
Next, Judge Posner turned to Apple’s damages expert’s valuation of a reasonable royalty. Mr. Brian W. Napper estimated a reasonable royalty of $14 million, a figure he calculated using consumers’ top ranking of “appealing features and functions” in a Motorola consumer survey when asked about their top reasons for buying a Motorola cell phone.13 Judge Posner dismantled Napper’s math, calling it “impossible,”14 and again asked what Mr. Napper would have done had he been hired by Motorola to determine the value of the allegedly infringing technology apart from any litigation.15
For another of Apple’s asserted patents, Judge Posner considered Apple’s experts estimate of $29 to $31 million to replace the functionality of the asserted patent. Similar to Motorola’s expert in the patent described previously, here Mr. Napper asked an Apple technical expert for information upon which he based his estimate.16
Judge Posner subjected the proposed expert testimony for the two additional Apple patents and two Motorola patents to similar analyses regarding how an expert might proceed in a “parallel nonlitigation context.”17 In total, the court excluded proposed testimony of three of the parties’ damages experts as inadmissible, which played a significant role in the ultimate dismissal of the case with prejudice.18
Judge Posner’s analysis makes clear that to fall safely within the boundaries of Daubert, an expert should employ an approach that he or she would have used to solve a similar problem or answer a similar question as a technical or business consultant: if an “expert, though he could have used in the lawsuit the same approach that he would have been required by the applicable professional standards to use to deal with an identical issue outside the litigation context, failed to do so-then . . . his proposed testimony should be barred.”19 Thus, litigants who proffer expert testimony that is not in some way tied to a standard business approach may risk exclusion.
Expert Testimony Moving Forward
In trying to satisfy Daubert in the future, patent litigants may take heed of Judge Posner’s repeated focus on damages figures tied to activity outside the litigation context. In particular, litigants may consider having experts rely on unaffiliated entities or utilize consumer surveys carefully designed to tease out information on the technology at issue, a method seemingly approved by the Judge.20
Although Judge Posner’s ruling is not binding authority for many patent disputes, this opinion has attracted a lot of attention, and its longer term effect remains to be seen.