In this Delaware patent infringement suit, the district court judge excluded plaintiff’s damages expert’s reasonable royalty opinion that apportioned 50% of product value to the patents-in-suit because his apportionment, based solely on discussions with their technical expert, lacked a factual foundation. While the ruling isn’t exactly surprising—plenty of other cases have rejected royalty rates pulled out of thin air—the opinion provides a useful summary of relevant case law and provides some pointers for attorneys on both sides of such a case.
In his expert report, the damages expert explained his reasoning:
“[The technical expert] informs me that the Patents-in-Suit are foundational to the commercial success of the Accused Products, and account for at least as much value as the non-patented contributions made by [Defendant]. This suggests an apportionment factor of no less than 50% of the value of the Accused Products to the Patents-in-Suit. For the purposes of my determination of the reasonable royalty, I have assumed an apportionment factor of 50% to the Patents-in-Suit.”
The expert further noted that “[b]ased on my discussion with [the technical expert], it is reasonable and conservative to assume that the Patents-in-Suit contribute at least 50% of the value of the Accused Products. Other [unpatented] elements that contribute to the success … may be important as well but would not be relevant without the benefits of the Patents-in-Suit.”
The court rejected this opinion for several reasons:
- • The technical expert’s report does not tie the relative value of the patented features to Defendant’s accused products, but instead generally discusses the product field;
- • The technical expert’s report provides no factual foundation to support the specific 50% figure that he provided to the damages expert;
- • The expert acknowledged that other non-patented features contribute to the products’ success, yet no explanation is provided as to why the patented features amount to 50% of the success;
- • The damages expert testified that the technical expert did not explain to him his methodology for evaluating the importance of the features. The conversation went “Okay, so if I’ve got to put a number on it, are you saying it’s at least 50%?” and the technical expert replying “Yeah, that would be reasonable”;
- • “[M]erely labelling a value ‘conservative’ is no substitute for a showing that there is an evidentiary foundation for the particular percentage selected—i.e. for describing the methodology used to reach that number.”
The court provides a useful list of district court and federal circuit cases that reject arbitrary royalty rates:
- • Koninklijke Philips Elecs. N.V. v. Zoll Lifecor Corp., Civil No. 12-1369, 2017 WL 3140798, at *4 (W.D. Pa. July 25, 2017) (excluding expert opinion that provided “no objective support for his 50% apportionment rate” and precluding testimony from that same expert that the patented features were a “significant driver” and “majority of” the value of the accused products).
- • Open Text S.A. v. Box, Inc., Case No. 13-cv-04910-JD, 2015 WL 349197, at *4, *6-7 (N.D. Cal. Jan. 23, 2015) (excluding expert’s purportedly “conservative” apportionment that did not reflect “the usage and importance of the accused features[,]” where the expert provided no “formula, method, or calculation, however approximate” to justify the 15% figure used, and instead “simply announces it and proceeds to apply it to her royalty base data”).
- • Exmark Mfg. Co. Inc. v. Briggs & Stratton Power Prods. Grp., LLC, 879 F.3d 1332, 1351 (Fed. Cir. 2018) (concluding that the district court erred in failing to exclude an expert’s damages opinion, where the expert “plucked the 5% royalty rate out of nowhere” because it “is not enough for an expert to simply assert that a particular royalty rate is reasonable in light of evidence without tying the proposed rate to that evidence”).
- • LaserDynamics, Inc. v. Quanta Comput., Inc., 694 F.3d 51, 69 (Fed. Cir. 2012) (rejecting apportionment that was “plucked out of thin air based on vague qualitative notions of the relative importance of the [accused technology]”).
- • NetFuel, Inc. v. Cisco Sys. Inc., Case No. 5:18-cv-02352-EJB, 2020 WL 1274985, at *9 (N.D. Cal. Mar. 17, 2020) (excluding apportionment analysis where the expert “failed to provide the methodology underlying his apportionment amount or explain how he arrived at that figure based on the facts of this case”).
Beyond the obvious lesson that an expert’s royalty opinion needs a factual foundation, the ruling offers some guidance for attorneys confronting an expert with such an opinion. When the expert relies on a technical (or other) expert as a basis for his opinions, then relevant avenues to pursue may include: (a) what exactly was relayed between the experts, (b) what methodologies did the technical expert employ in support of the damages expert’s opinions, (c) did the technical expert consider and address factors that minimize/weaken their positions, such as other non-patented features.
Moreover, since the technical expert’s opinions were used as a basis for the damages expert’s opinions, the court in this case expected the technical expert to adhere to the rules of the road for damages experts (e.g. case law on apportionment requirements and techniques). Attorneys and damages experts would want to prepare the technical expert accordingly.
The case is Guardant Health v. Foundation Medicine and Personal Genome Diagnostics, Case no. 17-1616-LPS-CJB (D. DE, April 22, 2020, Report and Recommendation) (Burke)