Promega Corp. v. Applied Biosystems, LLC, No. 1:13-cv-02333, slip op. (N.D. Ill. May 28, 2013) (Judge Richard Posner sitting by designation).
In Promega Corp. Judge Posner reminds us that attention to detail in opinions and resisting the temptation to overreach by damages experts is crucial. Gaps in the analysis proved to be the downfall of the patent owner’s damages expert and left it without their own proof of a royalty rate.
Defendant Applied Biosystems accused Plaintiff Promega of infringement. The parties previously entered into a cross-license with a 2 percent royalty rate on the patented technology sold by Promega within a certain limited field. Apparently, however, Promega made sales outside the specified field, and Defendant sought infringement damages on those unauthorized sales.
Promega moved to exclude the opinion of the patent owner’s damages expert, Jed Greene, that a reasonable royalty rate for infringement would be 10%. Id. slip op. at 3. After a Daubert hearing, Judge Posner (1) allowed Greene’s testimony regarding the amount of potentially infringing sales, subject to a ruling on the geographic scope of those sales, but (2) concluded Greene would not be permitted to testify to a reasonable royalty rate:
- Greene read 20 intellectual property licenses involving at least one of the parties containing rates ranging from 3 to 15 percent. He then narrowed the range based on six unidentified licenses he claimed were most relevant, but which he could not identify at the Daubert hearing. Id. slip op. at 3. He then further narrowed the range to 8 to 12 percent without explanation, before settling on 10 percent – the midpoint. Id.
- Some of the licenses upon which Greene relied related to patent claims other than the ones in suit, while each of the licenses covered multiple patents. Greene did not determine the percentage of the license rate that was attributable to the patent-in-suit. Id. Using the midpoint of a range of rates in disparate licenses to estimate a reasonable royalty is arbitrary. Id.
- Greene testified he considered “the totality of the circumstances,” but generalized impressions are no substitute for a method and evidence justifying a reasonable royalty rate. Id.
- Greene made no attempt to start from the 2 percent royalty in the cross-license between the parties, nor did he attempt to analyze other potentially relevant facts. Id.
Defendant apparently challenged Promega’s damages expert, Carl Degan. Judge Posner concluded:
- Degan testified 80 percent of distributor sales were within the scope of the cross-license, and not a part of the royalty base, because 80 percent of Promega’s direct sales were within that scope. Id. slip op. at 7. But, he admitted he had no information about the actual percentage of sales by distributors falling within the scope of the cross-license, so he could not testify any distributor sales are covered by the cross license. Id.
- Degan could testify about North American sales subject to the court’s determination about the geographic scope of infringement. Id.
- Degan’s testimony that the rate applicable to infringement would be 2 percent or slightly higher constituted a concession by Promega. Since Greene would not be allowed to testify as to a royalty rate, Degan’s testimony would not be relevant, and a concession would not require a witness. Id.
The court added that (1) because of the complexity of the technology, this is not a case where a lay witness might calculate damages, and (2) he saw nothing in the record affording the jury a basis to assess damages. Id. Therefore, he directed the parties to submit briefs clarifying their position on damages and the evidence they intended to present in light of the exclusion of Greene’s royalty rate opinion. Given the 2 percent rate concession and the possibility of a stipulation on the royalty base, the issue might not be one for the jury at all. Id.