In this Daubert ruling, a Texas court rejects two of the four reasonable royalty methodologies put forth by Defendant’s damages expert.
NCR’s expert first attempted to arrive at a reasonable royalty for the patents-in-suit by apportioning profits based on his identification of “similar” NCR patents (based on keyword searches), the number of forward citations to each “similar” patent, and the number of claims in each “similar” patent. He then calculates a weighted sum of the relative importance percentages to reach a “weighted relevant importance” that he multiplies by the estimated gross profits that NCR made on its sales of the accused product to reach a reasonable royalty rate.
However, this patent similarity analysis was done without consulting a technical expert, a process the court finds the expert was unqualified to do. The court also finds the method unreliable because his “damages analysis totally ignores the scope of the inventions as indicated in the patent claims themselves, but instead only relies on factors such as the CPC clarifications [sic. – classifications] of the patents, whether the patents include the phrase “point of sale” in their titles or abstract, the number of claims in each patent, and how many times the patents had been cited by others. This is completely divorced from the Federal Circuit’s guidance on damages analysis and therefore should be excluded.”
The court also rejects another approach by the expert wherein he first attempts to determine a “market value” of the claimed invention by tallying development costs then scaling it up by a factor of 7 based on an average price-to-book ratio. The expert then apportions this value based on the number of companies to which Plaintiff sent notice letters. The court excludes this analysis, finding this splitting up of value based on 26 notice letters “completely arbitrary” since notice letters here does not equate to infringement or use, and Defendant lacked support for the general methodology.
Overall, the court’s ruling here regarding patent comparability and forward citations is not too surprising, as other courts have excluded such analyses (see, e.g., Finjan v. Blue Coat Systems) for similar reasons. On the other hand, some courts have allowed such analyses in some circumstances (see, e.g., Comcast v. Sprint) Clearly, experts and attorneys will need to be very careful navigating such a methodology.
The case is: CloudofChange, LLC v. NCR Corporation, 6:19-CV-00513 (W.D. TX, November 1, 2021, Memorandum Opinion and Order) (Albright)