First published in LES Insights
A Florida court recently excluded from evidence an expert's opinions on reasonable-royalty patent-infringement damages to the extent the expert failed to calculate his asserted royalty rate using data pertinent to the patents-in-suit and to limit the royalty base to the value of the patented feature.
Plaintiffs and defendants in patent-infringement litigation typically engage experts to assess and opine on the amount of damages to compensate for patent infringement. The methodologies and data supporting their calculations are often intensely contested, and trial courts serve as gatekeepers to prevent speculative and unreliable opinions from reaching the jury. Recently, in Chico's FAS, Inc. v. Andrea Clair et al.,1 the U.S. District Court for the Middle District of Florida excluded from evidence the opinions of the patent owner's damages expert to the extent the expert failed to base his asserted royalty rate on data pertinent to the patents-in-suit and to limit the royalty base to the value of the patented feature.
Andrea Clair, Anastasios Koskinas, and 1654754 Ontario, Inc. (collectively "Wink") sell camisole bras and own patents on the same. Chico's FAS, Inc. ("Chico's"), which also sells camisole bras, sued Wink, seeking a declaratory judgment that it did not infringe Wink's patents. Wink countersued Chico's for infringement. Wink retained an expert who opined on the proper amount of reasonable-royalty damages to compensate for infringement. Chico's moved the court to exclude several of the expert's opinions, arguing that he was not qualified to render an opinion on financial matters and that he relied on flawed methodologies and data to calculate a reasonable-royalty rate and total royalty damages. Although reserving until trial its ruling on the expert's qualifications, the court agreed with Chico's that the expert's opinions were inadmissible in many respects.
The Chico's Decision
At the outset, the court shared some of Chico's concerns that Wink's expert may not be qualified as an expert on damages. It nonetheless reserved its ruling on the issue until trial, noting that Chico's will have the opportunity to question the expert if he testifies.
Next, the court excluded the expert's opinions to the extent he failed to calculate his asserted royalty rate using data pertinent to the patents-in-suit. In particular, in calculating the royalty rate that Chico's and Wink would have agreed to just before infringement began, the expert relied on a variety of data, including (1) nine license agreements selected from RoyaltySource, a database that contains a collection of licenses in diverse fields; (2) Licensing Economics Review ("LER") data regarding form royalty rates in the industries of consumer goods, retail, and leisure; (3) a Licensing Letter Royalty Trends Report regarding the royalty rates for hosiery; (4) a KPMG 2012 article suggesting a 15 percent benchmark royalty rate; (5) Wink's expectations regarding the proper royalty for licensing the patents-in-suit; and (6) customer survey results.
Evaluating in turn the reliability of each piece of evidence, the court excluded the expert's opinions that were based on RoyaltySource because the patents involved in the RoyaltySource licenses were not comparable to the patents-in-suit. According to the court, the RoyaltySource licenses concerned "furniture, enzymes, spider silk, and the like," which did not bear on the reasonable-royalty rate for the camisole-bra patents. Similarly, the court excluded the opinions that were based on LER because it used the same database as RoyaltySource and, according to the court, is even less reliable because it provides on general royalty rates for broad categories of goods not comparable to the patents-in-suit. The court next rejected the expert's reliance on the Licensing Letter Royalty Trends Report because, like the LER, it provided only generic industry data rather than data for a specific product line, such as bras. Likewise, the court rejected the use of the KPMG article for failing to tie the asserted 15 percent benchmark rate to bras or similar products.
The court, however, allowed the expert to rely on Wink's expectations regarding the amount of a proper royalty rate, even though Wink had not created a formal licensing policy at the time immediately preceding the alleged infringement. According to the court, while evidence of Wink's expectations may be weak, it is not unreliable and is best left for cross examination. The court also permitted the expert to rely on customer reviews on Chico's website, despite Chico's arguments that the reviews were unsolicited and lacked statistical significance. Chico's arguments, the court found, spoke to the weight of the evidence, rather than admissibility, and were best left for cross examination.
Lastly, the court excluded the expert's opinion on the amount of total royalties because the expert applied his asserted royalty rate to the entire Chico's camisole bras without showing that the demand for the entire product was attributable to the fabric overlay that was claimed to be the patented feature. According to the court, the expert's calculation should have been limited to the smallest salable patent-practicing unit, but the expert failed to account for non-infringing portions of the bras.
Strategy and Conclusion
This decision serves as a reminder that evidence underlying an expert's reasonable-royalty damages calculation should be comparable to the patent(s) at issue. In some instances, courts may view royalty-rate evidence that relates to only broad categories of goods or industry trends as too generalized to support a damages calculation for a particular line of products covered by a patent. Moreover, absent evidence that the demand for the entire product is attributable to the patented feature, courts may limit the royalty base to the value of the smallest salable patent-practicing unit.