Daubert Motion to Strike Expert Testimony Denied Where Lump Sum Royalty Was Not Improperly Based on Total Market Value of Accused Products

by Jeffer Mangels Butler & Mitchell LLP
Contact

In this patent infringement action, the patent owner sought a reasonable royalty in the form of a lump sum payment. HTC filed a Daubert motion to exclude the expert's opinion on the ground that the lump sum royalty impermissibly included the entire market value.

The district court began its analysis with a commentary on Daubert motions in patent cases. "Another patent case on the eve of trial, another Daubert motion to strike a patent damages expert's testimony. The undersigned only recently observed that such motions have become a routine affair in patent litigation. And yet, as routine as the motion has become, skilled experts continue to fashion new theories prompting additional lines of attacks. In short, no two motions are quite the same."

The district court then explained that the patent owner's lump sum royalty calculation was based upon a section of a recent Federal Circuit decision. "In the latest installment of this serial, the patentee and its allies seize upon a particularly interesting section of the Federal Circuit's analysis in LaserDynamics, Inc. v. Quanta, Inc. In that section, the Circuit suggests that in certain cases, the record might support a relatively straightforward way to avoid the restrictions of the entire market value rule in a Section 284 reasonable royalty analysis: a lump-sum payment. Consistent with this suggestion, Defendants Technology Properties Limited, Patriot Scientific Corporation, and Alliacense, Limiteds' (collectively "TPL") expert Dr. Stephen Prowse looks to the 100 or so licenses to the patents-in-suit struck by TPL. Dr. Prowse eschews any reliance on the so-called "analytical method."4 Instead, he offers the opinion that in the hypothetical negotiation that would have predated the infringement giving rise to this litigation, Plaintiffs HTC Corporation and HTC America (collectively "HTC"), too, would have agreed to an approximately $10M lump-sum payment."

HTC objected to this approach arguing that in calculating the value the lump sum, Dr. Prowse returned "to the entire revenue of its accused mobile phones for his estimate even as he acknowledges there is no evidence that any of claimed inventions is the basis of demand for the phones. And thus, says HTC, Dr. Prowse's professed reliance on a lump-sum structure is nothing more than a ruse to avoid the entire market value rule ("EMVR") and the Federal Circuit's increasingly demanding standards surrounding it. HTC separately challenges Dr. Prowse's efforts to "tier" the existing TPL licenses to weigh what HTC would have paid here in light of the assumption in any hypothetical negotiation that the patents-in-suit are valid and infringed."

The district court ultimately disagreed that this methodology was so flawed that it has to be excluded. "Here's why. Lump sums are one species of the broader genus of reasonable royalties, running royalties being another. Depending on the certainty of the market opportunity, the cash constraints of the licensee, the licensor's appetite for risk and superior insight into the utility of the patented invention, the parties' competitive posture, and undoubtedly other factors, a lump sum structure might better reflect what the hypothetical negotiation would produce. Especially where, as here and in LaserDynamics, the patentee itself consistently and regularly negotiated lump sum payments with its licensees, there is even more reason to believe that the parties would have agreed to a lump sum to allow the licensee to infringe."

The district court then analyzed how the parties would have figured out the amount of the lump sum royalty and concluded that there was a sufficient basis for the expert to testify before the jury. "According to Dr. Prowse, here TPL and its licensees regularly estimated the anticipated revenue of the entire licensed product in arriving at a bottom line number. Given this record, the court cannot say Dr. Prowse's estimate is so unreliable as to violate the norms of Fed. R. Evid. 702. In Lucent, the Federal Circuit at least suggested that so long as an expert does not openly invite the jury to "speculate" about the future, she may opine on the magnitude of the lump sum payment by "estimating" what the total royalty would be based on a running royalty on the accused product as a whole. The Circuit did not suggest, and has not since suggested, that such as estimate is appropriate only where the demand requirement of the EMVR is satisfied. Two considerations are critical. The first is that there is evidence in the record in this case that this is what TPL and its licensees did over and over again.9 The second is not to use lump sum agreements that bear little resemblance to the hypothetical license in terms of patents licensed and field of use. . . . Here, there is no dispute that while the other agreement did license broader rights, those rights included the very same patents asserted against HTC. The licensor was none other the TPL, the same licensor here. While the other agreements did involve broader geographic rights than just those of the United States, so long as this broader scope is accounted for, the agreements may still be properly considered. Perhaps this explains why HTC's own damages expert agreed that the agreements were comparable."

Finally, the district court concluded that "[w]hether any of this will persuade the jury remains unclear. That is not the issue before the court. What is clear is that the jury should get the opportunity to hear this evidence, look Dr. Prowse in the eye, and give his testimony whatever weight it deems appropriate."

HTC Corporation, et al., v. Technology Properties Limited, Case No. 5:08-cv-00882-PSG (N.D. Cal. Sept. 6, 2013).

Written by:

Jeffer Mangels Butler & Mitchell LLP
Contact
more
less

Jeffer Mangels Butler & Mitchell LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!