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.

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.

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.

Nox Medical EHF v. Natus Neurology Inc. (Order on Motion to Strike Issued March 26, 2018)

Delaware District Court Judge Andrews issued an order and an opinion regarding patent infringement damages analyses by Richard Bero and Scott W. Cragun. Judge Andrews granted in part the motion to exclude Mr. Cragun, while denying the motion to exclude Mr. Bero.

The alleged infringing product is a sleep belt that was used together with a non-accused sleep monitor. Plaintiff’s expert Mr. Cragun was excluded from issuing some, but not all of his lost profit opinions regarding accused belt sales. Mr. Cragun advanced the view that, but for the alleged infringement, 75 percent of accused belts would have been sold by plaintiff Nox. The basis for his 75 percent figure was grounded in three different categories of belt consumers: 1) those Nox monitor consumers who purchased the accused belt, 2) those Natus monitor consumers who, but-for infringement, would have purchased both Nox’s monitor and Nox’s belt, and 3) those consumers of defendant’s monitor or other third-party monitors, for which consumers would purchase an accused belt.

Judge Andrews allowed Mr. Cragun’s lost profit calculations on #1 (i.e., the installed base of Nox monitor users), but found that his categories #2 and #3 above were speculative.

With regard to category #2, Judge Andrews notes that Mr. Cragun failed to “identify a single customer who would have but did not purchase Plaintiff’s device due to Defendant’s alleged infringement.” With regard to category #3, Judge Andrews explains that Nox only had adapters which connected its patented belt to its own monitor base. To substantiate his third category, Mr. Cragun would have had to prove that “an adapter would have been available in the United States to use Plaintiff’s patented belt with Defendant’s or third-parties’ sleep-monitoring devices.” Mr. Cragun failed to prove any such adapter was available.

Judge Andrews did find Mr. Bero’s reasonable royalty calculation to be based on an acceptable methodology and chose not to exclude those opinions, despite what appears to be a strong motion by the plaintiffs. Mr. Bero appears to have used a novel method as the starting point for his royalty rate considerations: namely, he multiplied the estimate of plaintiff’s lost sales (i.e., 15%) times defendant’s profit margin on accused products to establish his starting point:

We will await to see whether the jury is convinced.

United States of America v. Gibson, Harra, North and Rakowski (Order on Motion to Exclude Issued February 12, 2018)

Damages experts make occasional recourse to event studies:

Prior to Delaware District Court Judge Andrew’s ruling on the admissibility in a false statements case of four event studies conducted by a damages expert, the Government decided it would no longer pursue damages. Instead, it would offer the testimony of its expert, Dr. Alan Hess, who compared the relevant entity’s stock price before and after an alleged bad act, to prove the materiality of the alleged false claims.

While three of the four event studies were not excluded under Daubert, Judge Andrews concluded that a fourth failed to isolate reliable causality with regard to the specific bad acts at issue. Although Dr. Hess claimed he could have isolated that causal analysis, he did not do so.

The court also precluded Dr. Hess from presenting analysis comparing the financial performance of the relevant bank to its peers.

Critical takeaways from the order are 1) Event studies are admissible and helpful to a trier of fact; 2) Event studies that do not isolate the critical event are subject to exclusion, and 3) Industry reports and analysis on a stand-alone basis do not speak to the facts of a case, and are unlikely to survive Daubert.