Dynetix Design Solutions, Inc. v. Synopsys, Inc., No. C 11-05973 PSG, 2013 WL 4538210 (N.D. Cal. August 22, 1013).
Dynetix teaches us that it pays to know the law of patent damages. The district court granted Defendant’s motion to strike the damages report when Plaintiff’s expert (1) improperly relied on the EMVR and failed to apportion patent value, and (2) used a methodology to determine the royalty rate that was even more arbitrary than the 25% “rule of thumb” rejected by the Federal Circuit. But, Plaintiff dodged a bullet when the court allowed it to file a new expert report on damages.
Plaintiff’s damages expert, Dr. William H. Black, determined (1) the reasonable royalty base would be the entire revenues from the accused product, notwithstanding the patented feature was only one of many, and (2) “one reasonable” starting point for the reasonable royalty rate was half the gross margin of the infringing product. Id. at 1. Defendant moved to exclude the expert’s testimony under Federal Rules of Evidence 702 and 703 and Daubert. Id.
The court granted the motion, concluding Dr. Black used impermissible and arbitrary methodologies to determine both the base and the rate. Id.
The court relied on Lucent and LaserDynamics for the proposition that the royalty base must be apportioned to reflect the value of the patented feature in the absence of non-infringing features. Id. at *3. Then the court rejected Plaintiff’s reliance on Cornell to argue that no further apportionment was necessary after the smallest salable unit was determined. Id.
There is no reason to depart from the apportionment requirement when the smallest salable unit is not closely tied to the patented feature, and LaserDynamics strongly supports this premise. Id.
Dr. Black improperly skipped the step of apportionment, and his opinion could be excluded on that basis alone. Id.
The court rejected Dr. Black’s analysis of the royalty rate. While his observation that a reasonable place to start the royalty analysis was half the gross margin of the infringing product, the law required him to tailor the rate to the specific facts of the case. Id. at *4. Pointing to the Uniloc decision and the “now infamous” 25% rule of thumb, the court said Dr. Black’s reliance on his own experience and judgment alone was even more arbitrary that the 25% starting place rejected by the Federal Circuit. Id.
Leave to Supplement
Referencing Cornell and the fact that its decision to strike Dr. Black’s opinion would leave Plaintiff without any damages expert testimony, the court allowed Plaintiff to file a new expert report on damages and gave Defendant an opportunity to respond. Id. at *5.