Area of Law: patent damages
Grounds: Defendants sought to exclude Plaintiff’s expert’s report and testimony related to Plaintiff’s damages in a patent infringement case because:
- Expert’s opinion regarding lost profits relies on an “unsupported, and speculative, assumption” that the parties control 95% of the market space.
- Expert’s approximation of the royalty rate is arbitrary, is not tied to the facts of the case, and has no relation to the patented technology at issue.
- The patented technology does not support the Expert’s application of the “entire market value rule” in calculating lost profits and damages. Therefore the Expert’s calculation is based on speculation and conjecture.
- Testimony regarding total sales from 2012-2014 should be excluded because they have no connection to the accused technology or the asserted patent.
Outcome: Defendant’s motion was denied
1. Expert’s opinion regarding lost profits relies on an “unsupported, and speculative, assumption” that the parties control 95% of the market space.
Defendants argued that the Expert’s (Mr. Cobb) opinion regarding lost profits relied on an ―unsupported, and speculative, assumption that Motio and BSP control 95% of the market. While Defendants noted that Mr. Cobb acknowledged there are other competitors that provide competing products and yet still made conclusions based on the 95% figure, Plaintiff countered that Mr. Cobb did not merely base his opinion upon the 95% market ownership figure at face value; but rather stated where he obtained this figure, explained that his independent analysis of other potential competitors led him to discount their presence, and further gave him no reason not to assume that the 95% figure provided to him, and presented in his report, was accurate. Plaintiff highlighted that Mr. Cobb prepared and provided other lost profits figures for the circumstance that the finder of fact determines that 95% market share is incorrect, specifically calculations assuming an 85% market share and a 75% market share.
Defendants also asserted that, even if 95% of the market was controlled by Motio and BSP, it does not necessarily follow that ―but for infringement, Motio would have received any additional profits. Further, Defendants contended that Mr. Cobb failed to perform a market reconstruction analysis, claiming that the court requires a market reconstruction analysis for any lost profits opinion. Plaintiff countered by stating that the court does not require a complete market reconstruction for a two-supplier market, and argued that parties represent effectively a two-supplier market.
The Court found that Mr. Cobb made no expert assertion that the 95% figure was correct, and did not present that percentage to prove a market share figure. Rather, the court found that the Expert simply relied on 95% as a reasonable assumption, and, even accounted for circumstances where the fact finder finds that 85% or 75% is more appropriate. The Court also found that, under the factual assumption Mr. Cobb based his opinion on—that this is effectively a two-supplier market—it is reasonable to assume causation. Further, the court found that Mr. Cobb did not arbitrarily determine the 95% figure, conducted an independent analysis to determine that the figure wasn‘t clearly unreasonable.
2. Expert’s approximation of the royalty rate is arbitrary, is not tied to the facts of the case, and has no relation to the patented technology at issue.
Defendants contested Mr. Cobb‘s approximation of a royalty rate of 75%, claiming the figure was arbitrary, not tied to the facts of the case, and had no relation to the patented technology at issue. Plaintiff argued that Mr. Cobb‘s opinion regarding a reasonable royalty is properly premised upon the Georgia Pacific factors. Plaintiff noted, although unable to be known with certainty, Mr. Cobb’s estimation was based on relevant factors. Plaintiff explained that Motio would likely have little or no incentive to discount a royalty to provide patented technology to its sole competitor, and that Mr. Cobb’s royalty rate of 75% was appropriate given that direct competition over the same finite number of customers.
The court found that Mr. Cobb reached his opinions based upon his knowledge, training, and experience and application of the Georgia Pacific factors. The Court noted that reliability and validity do not require certainty, but there must be evidence that the knowledge is more than mere speculation of the expert witness. Daubert, 509 U.S. at 590.
3. The patented technology does not support the Expert’s application of the “entire market value rule” in calculating lost profits and damages. Therefore the Expert’s calculation is based on speculation and conjecture.
Defendants did not question Mr. Cobb‘s qualifications or calculations or methodology, but instead challenged the reliability of Mr. Cobb‘s opinions. Defendants argued that Mr. Cobb‘s application of the entire market value rule in calculating lost profits and reasonable royalty was unsupported by any demonstration that the patented technology was the basis for demand, simply assumed that this is the case. Defendants contended that Mr. Cobb‘s analysis was therefore based on speculation and conjecture, was unreliable, and should be excluded. Plaintiff noted that Mr. Cobb stated in his report that he assumed, for the purposes of his opinions, that the technology encompassed by the patent was the essential driver behind demand for Defendants‘ products.
The Court acknowledged Mr. Cobb‘s assumption and did not find that Mr. Cobb‘s assumption was unsupported or that his analysis was unreliable.
The Court found that, considering the purpose of the testimony is to make estimations of damages, certain underlying factual assumptions are appropriate and Mr. Cobb‘s report was relevant and sufficiently reliable. The court noted its role as a gate-keeper should not invade upon the trier fact‘s role in making credibility determinations at trial. See Daubert, 509 U.S. at 596. The court further emphasized that it makes no determination on the merits of Defendants‘ challenges to the factual assumptions, but recognizes that these particular challenges would be more appropriately presented to the trier of fact, rather than the Court under a Daubert challenge.
4. Testimony regarding total sales from 2012-2014 should be excluded because they have no connection to the accused technology or the asserted patent.
Finally, Defendants asked the Court to exclude testimony of total sales from 2012 through 2014 despite the fact that the Expert’s damages analysis did not rely on these revenues. Defendants argue that the total sales were mainly attributable to the distribution of electronic components which had no connection to the accused technology or the asserted patent. Defendants contended that the inclusion of these figures rendered Mr. Cobb‘s opinion needlessly prejudicial, and that he could have arrived at a similar conclusion by just comparing profit margins as percentages without discussing the dollar amount of total revenues.
Plaintiff argues that Mr. Cobb‘s reference to Defendants‘ total sales was appropriate as part of his determination of Defendants‘ gross profit in furtherance of his analysis that a 75% reasonable royalty figure would still leave Defendants with a profit ―more than two times the Gross Profit‖ reported by Defendants from 2012-2014.
The Court made no judgment as to whether presentation of Defendants‘ total sales was appropriate in the form presented, but did find that Mr. Cobb relied upon the total sales appropriately as part of his analysis of reasonable royalty. The Court concluded that Defendants’ argument regarding prejudice and alternative methods of referencing total sales by Defendants is more properly advanced as a motion in liminie.