In a Daubert ruling, a Washington district court judged allows Motorola’s expert to testify that the reasonable royalty should apply to the complete product, despite failing to meet the entire market value rule. In this patent infringement case related to Microsoft’s Xbox 360, the court had previously determined that due to Microsoft’s commitments to standard-setting bodies, the damages shall be at reasonable and non-discriminatory (RAND) royalty rates. Motorola’s expert, Charles Donohoe, opined that such a RAND royalty in this case would be 2.25% of the selling price of the Xbox 360. Microsoft moved to exclude the expert testimony of Mr. Donohoe among other reasons because it did not meet the entire market value rule; specifically, he applied the royalty to the complete product without attempting to satisfy the predicate that the patents create the basis of customer demand of the complete product.
In rejecting the Daubert motion, the judge first points to the Federal Circuit’s Lucent ruling that accepts the use of a larger base as long as you compensate for that by using a smaller royalty. We at IP Value Blog have noted that the Federal Circuit, in its Uniloc decision, backed away from that position.
The judge then notes that courts have indeed accepted royalties based on the entire product value when the rates were derived from past licenses, citing:
- The Boeing Co. v. United States, 86 Fed. Cl. 303, 319-20 (2009);
- Mondis Tech., Ltd. v. LG Elecs., Inc., 2011 WL 2417367, at *3 (E.D. Tex. June 14, 2011)
As a side note, in the Mondis case, a Texas district court ruled that the EMVR requirements were not met, yet plaintiffs could use the entire product as the royalty base because the expert largely based his opinion on 13 comparable licenses that provide for a royalty based on the entire value of the licensed products.
After expressing skepticism in Motorola’s damages position, the judge nonetheless concludes: “Thus, the court declines to adopt a per se rule that a royalty rate may never be applied to the entire product price without satisfaction of the entire market value rule.”
Microsoft Corporation v. Motorola Inc., et. al., 2-10-cv-01823 (W.D. WA, October 22, 2012, Order)(Robart)