Earlier this year, we discussed Judge Gibney’s rulings on motions to strike the testimony of both Dr. Prowse (i.e., damages expert for plaintiff Limelight) & Mr. Meyer (i.e., damages expert for the defendants). On March 23, Judge Gibney granted another motion to strike new damages analysis provided by plaintiff Limelight.
In this new opinion, Judge Gibney recounts the basis for his earlier exclusion of Dr. Prowse’s damages:
With the most recent iteration, it appears Limelight – without benefit of any expert opinion – sought to apply Dr. Prowse’s royalty rate to a different royalty base: namely, defendant Akamai’s “network traffic” revenue. Doing so, presumably, sought to avoid running afoul of Judge Gibney’s guidance to apportion the sales base, and thereby limit damages so as only to include the incremental value of the patent.
With Limelight’s latest effort, Judge Gibney appears to have had enough:
We will continue to follow this case, especially with an eye on the question of how damages might be determined if Limelight wins on liability.
On February 2, 2018, Judge Gibney re-struck the expert opinions of Stephen Prowse and Paul Meyer.
Dr. Prowse had applied the Rubenstein Bargaining Model to the hypothetical negotiation. The judge decided that such a model was properly tied neither to the facts of the case, nor to the patents in suit. Judge Gibney found Mr. Meyer’s reasonable royalty analysis based upon comparable licenses no more relevant than Dr. Prowse’s. Judge Gibney found Mr. Meyer’s comparable license analysis failed to establish that the agreements compare economically to the hypothetical license at issue.
Dr. Prowse’s analysis was excluded because it was deemed to be similar to the Nash Bargaining Model and the 25% rule of thumb, both of which have been excluded in the past. The concept of a Rubenstein Bargaining Model is that where two parties engage in a negotiation, the party with the most patience and least concern receives the benefit of that patience. In his effort to apply the model, Dr. Prowse used each company’s weighted average cost of capital as a proxy for patience.
This game theoretic model is much like other game theory models which mathematically conclude that the party with the most bargaining power or least concern enjoys the better outcome. The problem with such models is that they are irrelevant as a guide for damages experts seeking to determine the outcome of a hypothetical negotiation. In a hypothetical negotiation, there is no assessment for patience: only consideration for the value of the patented technology to those using the technology. Unlike the Rubenstein Model (and the Nash Model), the hypothetical negotiation is not iterative and the parties do not have endless time to complete the negotiation. While Judge Gibney did not delve into such specifics, he notes that:
Mr. Meyer’s exclusion based upon the use of comparables is possibly the more interesting of the two damages exclusions. Mr. Meyer had attempted to assess economic and technical comparability. In the end, however, the judge found the expert did not apportion the comparable licenses on a patent-specific basis; and when using a company acquisition price as another comparable, the expert failed to determine what portion of that acquisition was specifically for the comparable patent.