Bayer v. Baxalta, Part II (Federal Circuit opinion, March 1, 2021)

A lot has happened in this matter since we last discussed it on A2C. To recap, Bayer’s expert, Dr. Addanki, had been excluded from offering his specific damages opinion, derived by employing the Nash Bargaining Theorem. In the absence of his damages value, we questioned how and with what the case might continue to trial. It turns out that the surprise is on us, because a lot remained: in fact, so much so that in November 2018, a Delaware jury awarded Bayer damages of $155,190,264 based on a reasonable royalty rate of 17.78%.

How did Bayer secure this damages sum in the absence of Dr. Addanki’s opinion?

In fact, while Dr. Addanki was not allowed to testify to a discrete damages value, he was permitted to testify to a damages-rate range, which he opined fell between 5.1% and 42.4%. As a result, the jury returned a damages figure within Dr. Addanki’s range. In turn, the Federal Circuit affirmed the damages award.

This conclusion to the Bayer v. Baxalta matter teaches us two things. First, damages experts need not opine to a specific number. Ranges on damages are just fine. In fact, very wide ranges on damages are just fine. Secondly, Daubert motions involving opinions with ranges must strategically address the essential roots of analysis, and not just a specific tainted “fruit” offered by the expert.

Bio-Rad Laboratories, University of Chicago v. 10X Genomics Inc. (Federal Circuit, August 3, 2020)

This case finally made it to the Federal Circuit. A2C awaited its outcome and the prospect of available lessons. Way back in September 2018, Judge Andrews in Delaware issued an opinion on Daubert motions. The court found defendant expert Ryan Sullivan’s analysis of comparable licenses sufficiently reliable to pass Daubert.

The court also found that James Malackowski, Bio-Rad’s expert, offered sufficient support for his comparable license analysis opinion, but not enough economic analysis to support his lost profits opinions which asserted a two-supplier market:

Judge Andrews also rejected Mr. Malackowski’s apportionment of the royalty base, which presupposed apportionment through the comparable license relied upon:

Judge Andrews allowed Bio-Rad and Mr. Malackowski to “supplement” damages opinions after having excluded Mr. Malackowski’s lost profits and reasonable royalty opinions. In this second bite of the apple, Mr. Malackowski did not offer a lost profits opinion, but rather only a reasonable royalty opinion. Mr. Malackowski relied upon the same licenses as those relied upon by the opposing expert. And in relying upon those same licenses, Mr. Malackowski’s opinions, like Dr. Sullivan’s initial opinions, were not excluded. Judge Andrews explained that Mr. Malackowski provided sufficient evidence of apportionment with what A2C views as creative analogous analysis of unpatented and unlicensed features:

Trial ensued, Plaintiffs prevailed, and they were awarded approximately $24 million. Defendant appealed the award based upon infringement, validity, willfulness and damages. The Federal Circuit affirmed the jury verdict in full and rejected the claims by defendant 10X that Mr. Malackowski failed to apportion and failed to use comparable licenses. In the first instance, while the Federal Circuit found two of three asserted patents were not infringed, because jury instructions were mute on the question of division of damages among patents, the award necessarily stood:

With regard to comparability, the Federal Circuit noted there was sufficient analysis for its assessment, and that Mr. Malackowski had met a showing of “baseline comparability.” With respect to apportionment, the Federal Circuit agreed with Judge Andrews noting:

This case is interesting to A2C, because it concerns litigation strategy and second bites at the damages apple. Had defendant’s counsel not been so successful in its first Daubert motion, would an appeal have been subsequently more successful? Additionally, would different jury instructions have afforded a new trial on damages for only the single patent?

Takeda Pharmaceuticals v. Mylan Pharmaceuticals (CAFC opinion July 31, 2020)

In this matter, Judge Andrews of Delaware’s District Court rejected an injunction bid by Takeda, which Takeda in turn appealed. The Federal Circuit has now affirmed Judge Andrew’s decision. Important for A2C’s consideration is the Federal Circuit’s opinion regarding irreparable harm, or lack thereof:

This expressed need for reliance on experts is not new. In a CAFC opinion from January 2018, the Federal Circuit took issue with a District Court’s claim construction; however, both the District Court and Federal Circuit agreed with Liqwd’s economic expert analysis of the market. Critical to this opinion is the importance of expert testimony on the issues of both irreparable harm and the definition of the market.

These cases suggest that if a party requests that a court prohibit the sale of product, it had better hire an economic expert to assess harm and to define the relevant market. The courts have spoken.

Hologic, Inc., Cytyc Surgical Products, LLC v. Minerva Surgical, Inc. (Federal Circuit Opinion, April 22, 2020)

The Federal Circuit issued an opinion regarding apportionment, supplemental damages, post-verdict royalty rate, and enhanced damages. Delaware Federal Circuit Judge Bataillon’s decisions regarding all of these damages issues were affirmed by the Federal Circuit.

The most interesting of the Federal Circuit’s affirmations concerns apportionment. The initial suit accused defendant Minerva of infringing claims of the ‘183 patent and ‘348 patent. Subsequent to the complaint, the PTO determined that the claims (including all asserted claims) of the ‘183 method patent were obvious & invalid. By the time of trial, only the ‘348 patent remained asserted; however, the patent damages experts did not apportion damages between the two patents. Post verdict, Minerva moved for judgment that the jury was not instructed to apportion damages on a per patent basis.

Judge Bataillon and the Federal Circuit agreed that given the overlapping nature of the two asserted patents, as well as the fact that the patent claims found invalid were those of the method patent, the jury’s damages award should stand. The Federal Circuit distinguished this opinion from other opinions about per-patent damages as follows:

This provides an interesting exception to the rule that damages must be apportioned on a patent-specific basis.

Bioverativ Inc., et al. v. CSL Behring LLC, et al. (Opinion, March 4, 2020)

This opinion by Judge Andrews in Delaware provides insight into the court’s thinking with respect to convoyed sales. Ultimately, the court excluded certain opinions of Dr. Matthew Lynde, plaintiffs’ damages expert, based upon his opinion that non-infringing uses of the drug at issue constituted convoyed sales and, therefore, were subject to damages.

This case involved not a patented drug itself, but rather “infringing prophylaxis uses and non-infringing prophylaxis and on-demand uses.” Judge Andrews agreed with defendants that those sales to patients prescribed a non-infringing dosing regimen should not be subject to damages. Citing American Seating and Juicy Whip v. Orange Bang, the court explained that such non-infringing sales – generally subject to separate prescription – were not available for damages because they did not pass the functional unit test.

Plaintiffs’ damages here appear a simple case of over-reach.

In Re Chanbond Litigation (Opinion, February 4, 2020)

Judge Andrews of Delaware has provided a host of opinions to help guide patent damages experts. Despite his detailed and well-articulated opinions, patent damages experts continue to fail his gatekeeper tests. Such is the case for Mr. Christopher Bakewell in a recent opinion.

Mr. Bakewell, defendant’s damages expert, was excluded from offering his market approach opinion which appeared to have three “valuation datapoints.” The first datapoint involved investment solicitations for financial interests in the company holding the patents-in-suit. The second was a series of patent transfers among interested parties that were ultimately valuing the litigation and not the patents. The final datapoint was an offer to sell the patents-in-suit, which Judge Andrews found relevant but not sufficient to support a market approach on its own.

With respect to the first datapoint, Judge Andrews offered the following guidance:

With respect to the second datapoint, Judge Andrews did not simply accept a patent transaction as relevant to valuing the patents-in-suit. Rather, he pointed to a measure of circular-reasoning, wherein parties to a transaction value prospective litigation, rather than the patents themselves… which in turn is used for damages purposes in litigation:

Further, rather than afford “a transaction” some measure of casual abstraction, Judge Andrews considered the purchaser and seller of those patents. He explained:

Indeed, Mr. Bakewell needed to acknowledge the incentives of the parties to the transaction making these decisions.

Ultimately, Judge Andrews found the last datapoint relevant for damages, but not sufficiently developed to support an affirmative damages opinion. The three-pronged analysis was excluded, one prong at a time.

Bayer Healthcare LLC, v. Baxalta Inc., et al. (Order January 25, 2019)

It remains unclear what damages theories might remain after Judge Andrews provided his order on Daubert motions. Defendant’s expert was excluded in part and Plaintiff’s expert was excluded in part. The resulting questions: “What remains – what might damages testimony at trial look like?”

The order explains that Bayer sued Baxalta for patent infringement concerning the drug Adynovate. Dr. Rausser, Baxalta’s expert, claimed that the damages were small based upon the perspective that the patent possessed little to no value. Plaintiff’s counsel argued that Dr. Rausser failed to assume infringement, used non-comparable licenses and derived a lump sum from licenses that were, in contrast, running royalty licenses. Judge Andrews struck Dr. Rausser’s opinion based upon Plaintiff’s final complaint, noting:

Dr. Addanki, Bayer’s expert, argued that the patents are valuable and that damages would be derived from a 50/50 split of profits. Evoking the Nash Bargaining Solution (which damages experts should understand now to create Daubert exposure), Dr. Addanki claims that this outcome would be “reasonable as a matter of economics.” Judge Andrews disagreed and struck the 50/50 split analysis and “any subsequent opinions that rely on that mid-point rate.”

It would seem little remained of damages for this matter given the exclusions. We shall return later to see whether and how Baxter might advance opinions regarding damages at trial.

Princeton Digital Image Corp. v. Ubisoft Entertainment SA, et al. (Opinion December 11, 2018)

We have previously written about a damages opinion having been excluded for relying on a jury verdict from an unrelated matter. Another recent effort to use a jury verdict has also been excluded in this opinion from Judge Burke in the District of Delaware.

In the opinion, Judge Burke observes that some may reasonably conclude that courts appear to have established jury-verdict reliance as per se unreliable:

In contrast to this view, however, Judge Burke suggests no such blanket rule should be presupposed to exist:

Judge Burke goes on to describe in a footnote a scenario where a jury verdict might prove relevant for damages:

It appears clear to us that the lesson remains to exercise extreme caution when entertaining use of a jury verdict in damages analysis. While the unique facts of a case may support such reliance, those occasions will likely prove exceedingly rare.

Acceleration Bay LLC v. Activision Blizzard, Inc. (Opinion on Motion to Exclude – August 29, 2018)

Delaware District Court Judge Andrews ruled on a very creative damages analysis. And when we say “creative” we mean really, really outlandishly creative.

Plaintiff’s expert, Dr. Christine Meyer, determined the hypothetical negotiation date for her patent infringement damages analysis and then recalculated a jury verdict award from a separate and unrelated patent infringement matter (namely, Uniloc USA, Inc. v. EA) to use as her anchoring point for her Georgia Pacific analysis.

Yes, you read that correctly, and we represented it faithfully:

It appears from Judge Andrew’s opinion that Dr. Meyer attempted to introduce an unrelated jury verdict award as a “comparable license” analog by relying upon a technical expert’s analysis of both the unrelated verdict-patents and their relative value as compared to the patents in suit. Such malarkey was unacceptable and the motion to exclude on this issue was granted.

Apart from this unrelated jury verdict “analytic” sideshow, Judge Andrews offered insight into lump sum and running royalty rates.

Dr. Meyer’s lump sum opinion was not excluded for looking into the future and thereby forecasting hypothetical future sales. But Judge Andrews suggests that such analysis would have been excluded if she had ultimately settled upon a running royalty rate:

Judge Andrews thereby clarifies a subtle, but important (and now specifically-articulated) rule for lump-sum opinions as necessarily distinct from running royalty opinions.

Johns Hopkins University v. Alcon Laboratories, Inc. et al. (Order Issued April 25, 2018)

Judge Lawrence Stengel of the District of Delaware, Sitting by Designation, approved and adopted the recommendations of Magistrate Judge Sherry Fallon. Among other recommendations, Judge Fallon recommended denying the motion to exclude plaintiff’s damages expert.

The case involves a method patent for performing eye surgery. Alcon moved to exclude Brian Napper, plaintiff’s expert, based on alleged violation of the entire market value rule for his use of product and ancillary sales in his royalty base. Mr. Napper relied upon a comparable patent licensing analysis to support his royalty base which included more than the accused cannula at issue.

Citing to Commonwealth Scientific and Industrial Research Organization (“CSIRO”) v. Cisco, Judge Fallon noted that the royalty base in the comparable license and the one contemplated by Mr. Napper were the same.

Judge Fallon also noted that Mr. Napper provided some accounting for non-infringing uses. Accordingly, she recommended denying the Daubert motion related to these issues.

An additional issue that arose in the motions for summary judgment was whether the reasonable royalty could be tied to defendant’s sales. Alcon explained that Alcon would not infringe the patented method because it only sells products; it does not use the products in an infringing manner. Thus, Alcon reasoned, its sales are not the proper royalty base. Judge Fallon denied Alcon’s motion because Johns Hopkins showed that the product was purchased for use in an infringing way and because both damages experts (for plaintiff and for defendant) used Alcon sales as the basis for their royalty base.