Anyone checking the PACER docket for the Eastern District of Texas will find voluminous filings on behalf of the companies above. It would appear that the makers of Clash Royale and Clash of Clans have differing views of damages in this latest round of litigation.
Gree counsel hired Stephen Becker, and SuperCell counsel hired Christopher Bakewell. Judge Payne found Supercell’s complaints about Dr. Becker’s analysis went to the weight, not admissibility of his opinions; he found the same for Mr. Bakewell’s opinions. Most interesting, however, is that Judge Payne did not allow Mr. Bakewell or Supercell to testify about the cost or implementation of a non-infringing alternative (below, “NIA”).
Judge Payne’s opinion provides yet another cautionary tale of defendant’s untimely disclosure. He found that Supercell did not properly disclose its non-infringing alternatives through interrogatory responses or deposition testimony, and consequently, it could not offer any testimony other than what had been supplied through an interrogatory response:
As regular readers know, we are perplexed by excessive statutory prejudgment rates applied to patent infringement awards. Those rates are historically sourced in a world financially & temporally removed from ours, which presently finds itself staring down negative rates. Antiquated statutory rates are increasingly unreasonable and afford plaintiffs windfall gains. The case below affords another such example.
Defendant Arkwright appealed this matter to the Federal Circuit based, in part, on the jury’s damages award, as well as on the prejudgment interest awarded by Judge Tunheim of the US District Court for the State of Minnesota. We do not address all of the damages-related decisions, but focus here on the determination that 10% per year was the appropriate prejudgment interest rate to apply to the jury’s award.
Here is the story: Initially, plaintiffs sought lost profits damages. Plaintiffs’ damages expert, Donald Gorowsky, provided an opinion relying only on lost profits – he did not provide any reasonable royalty alternative. In pre-trial motions, defense counsel sought to strike Mr. Gorowsky’s opinions, but Judge Tunheim chose to allow Mr. Gorowsky to testify. After plaintiffs presented their affirmative case at trial, however, Judge Tunheim granted defendant’s judgment as a matter of law on lost profits and instructed the jury to disregard the lost profits testimony of Mr. Gorowsky.
The jury then heard testimony from defendant’s expert, Arthur Cobb, who opined to a reasonable royalty of 2%. The jury ultimately returned a damages award of $2.6 million – a figure roughly seven times Mr. Cobb’s proffered damages amount. In his post-trial opinion, Judge Tunheim explained that the jury’s award of $2.6 million amounted to a 15.5% royalty rate on infringing sales from 2010 to 2017, when one averaged competing estimates for accused products at issue.
The court rejected a new trial on damages explaining that defendant’s gross margin supported the double-digit reasonable royalty.
Next, the court awarded prejudgment interest of $1.9 million on the $2.6 million award. This amount was derived using Minnesota’s statutory rate of 10% per annum. As the supporting Exhibit below shows, the 10% statutory rate was applied on the entire $2.6 million award from the date of first infringement through the date of judgment.
The prejudgment interest calculation does not afford consideration that the 15.5% reasonable royalty presumably would have been earned incrementally over the course of the infringement period as individual accused products were sold… and that as of the date of first infringement, only a small portion of total infringement had occurred. Instead, the prejudgment interest approach conceptually presupposes a fully paid-up, lump-sum royalty on the eve of infringement. Defense counsel made these arguments:
Importantly, nowhere in Judge Tunheim’s opinion do we find reference to the 15.5% rate as a “running” royalty; rather, it is described in the excerpt above as “a clean royalty rate.” And the only reference to “lump sum” is excerpted below, which quotes the passage above:
Accordingly, the court accepted Mr. Gorowsky’s PJI calculation.
All of these issues were appealed by defense counsel. In turn, the Federal Circuit ultimately affirmed Judge Tunheim’s judgment, as explained below:
We understand the charge of the trier of fact is to “make the patent owner whole”. Double-digit statutory rates increasingly afford windfall gains in a zero-rate environment by providing far more than the amount adequate to compensate for infringement. In this case, over 42% of the award was an interest payment (i.e., $1,915,328/$4,539,556 = 42.19%). Attorneys representing plaintiffs with a lump-sum royalty prospect stretching back years & years should consider the PJI windfalls evidently on offer from the US District Court for the State of Minnesota.
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.
The Federal Circuit issued a second opinion in this matter concerning the date damages accrue and patent marking. In its first opinion from December 2017, the court vacated the jury verdict from the Southern District of Florida, finding it was premised on the district court’s erroneous judgment on marking. Marking was important in this matter, because Arctic Cat sought damages prior to the date on which it served its complaint on Bombardier. Arctic Cat argued that it should be allowed damages going back in time before the date of its complaint, because a licensee to its patents in suit (i.e., Honda) sold a product that practiced the patent in the earlier time period.
In the first round of this litigation, the district court determined that to allow defendant Bombardier to limit damages to the date the complaint was filed, it was Bombardier’s burden to show that licensee-Honda had failed to mark its practicing products with Arctic Cat’s patents. Bombardier did not meet its burden per the District Court, and thus the damages period extended prior to Arctic Cat’s serving of its complaint.
The Federal Circuit explained in its 2017 opinion that the burden of marking was on the patent-holder Arctic Cat, not the defendant Bombardier. If the patent holder seeks damages prior to notice, it must prove its licensee marked practicing product. In its 2020 opinion, the Federal Circuit reiterated its findings from December 2017 that the burden of proof for marking falls upon the patent holder, not an alleged infringer.
In this latest opinion, the Federal Circuit considered when damages should accrue based on information that Arctic Cat’s licensee, Honda, both did not mark its product and stopped selling its unmarked practicing product prior to filing of the suit. Because there were no products to mark in the year or so prior to filing of the complaint, Arctic Cat argued that damages should accrue at least from when Honda stopped selling unmarked licensed products; but possibly back six years from filing based on Bombardier’s willful infringement. The District Court for its part ruled in favor of defendant Bombardier, which Arctic appealed.
The Federal Circuit affirmed the district court’s opinion that damages do not start and stop based on sales of an unmarked practicing product. It reiterated that in order for a patent holder to collect damages prior to notice, where a product practicing the patent(s) in suit is sold, that product must be marked. If a practicing product is sold but unmarked at any point in time, then the patent holder cannot seek damages prior to notice to the alleged infringer. The court also held that a finding of willfulness is irrelevant to when damages begin to accrue.
Judge Davila from the Northern District of California granted a Defendant’s motion to strike the technical expert and damages expert opinions on apportionment, and the damages expert report on all other issues as well. The court’s order serves as a cautionary tale not only for technical experts, but also for damages experts who would rely on technical experts for apportionment.
Plaintiff’s damages expert, Walter Bratic, relied on technical expert, Aviel Rubin, for an apportionment analysis. Dr. Rubin informed Mr. Bratic that certain percentages of practicing products and accused products were associated with the patents in suit. Mr. Bratic applied those percentages to his damages figures to apportion royalty rates. The court found, however, that Dr. Rubin’s percentages were “plucked out of thin air.” As such, the court further ruled that Mr. Bratic’s damages analysis, which relied on those percentages, would not be presented to the jury.
While reliance on a technical expert for damages opinions is both allowed and encouraged, it must also itself be subject to the damages expert’s critical consideration. Judge Davila made clear that a damages expert may not blindly rely upon a technical expert whose opinions have no basis in the facts of the case, but instead derive solely from his or her unrelated expertise. Damages experts must assess the reasonableness or the logic of the opinions relied upon. In this matter, while the apportionment exercise was not performed by Mr. Bratic himself, reliance on Dr. Rubin’s resulted in the exclusion of both.
Mr. Bratic’s comparable license approach to damages was also struck for being “plucked out of thin air.” Heavily citing the GPNE Corp. matter as well as LaserDynamics, the court rejected Plaintiff’s damages analysis in its entirety:
Finally, in this instance, the court would not entertain a “do over.” Judge Davila sagely noted, “Allowing a ‘second bite’ can encourage ‘overreaching on the first bite.'” We decidedly welcome that perspective.
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.
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.
Judge Payne of the Eastern District of Texas bench issued an opinion that is most interesting for its treatment of superfluous material included in a damages expert report. Wells Fargo requested that the court strike strike various opinions of Mr. Calman based upon a failure to apportion, based upon a violation of the entire market value rule, and based upon use of a 25% royalty rate which looked very similar to a 25% rule of thumb.
The court denied all requests to strike those opinions based on those claimed failures. The court did, however, strike certain portions of Mr. Calman’s report: namely, those that constituted narrative devoid of expert opinion. One set of such narrative related to industry history and background on the general product category:
A second set of excluded narrative related to willfulness:
Often, the first fifteen to twenty pages of an expert report are devoted to a narrative about the industry at issue or the history of the technology. It appears that such narrative is not only viewed as empty & irrelevant, but also subject to exclusion.
The Federal Circuit issued an opinion on March 18, 2019 that helps define what may be considered “a comparable” in a reasonable royalty analysis. In this case, a jury returned a verdict hitting Time Warner with a $140 million damages figure to be paid to Sprint. For its part, Sprint’s damages expert had offered a reasonable royalty rate analysis based, in part, on an earlier verdict from a different matter involving Sprint and Vonage.
Time Warner appealed the matter to the Federal Circuit on damages, contending that the district court improperly admitted the Sprint/Vonage verdict involving technology of disputed similarity and a different carrier. The Federal Circuit decided that the district court did not err in its admission:
The opinions of the Federal Circuit in this matter appear to broaden the scope of comparability so as to include comparable jury verdicts. But consistent with earlier Federal Circuit opinions, the differences between any comparable and the hypothetical negotiation at hand should be addressed.
In addition to the issue of comparability, the court made an interesting comment on apportionment. The court states that if the Georgia Pacific analysis is done correctly, then the analysis embodies apportionment principles. This suggests that apportionment may be done through the factor analysis, including at least via Factors 9 and 13:
We expect to see this language appear with frequency in responses to Daubert motions on apportionment.
In his 11 page order, Southern District of California Judge Sabraw addressed cross Daubert motions on Apple’s experts and Qualcomm’s experts, which in turn provide some general insight for damages experts.
For its part, Apple requested the court exclude Qualcomm’s damages expert (Dr. Kennedy*) and its survey expert (Dr. Prince). Judge Sabraw had provided an opinion a month earlier concerning surveys by Dr. Prince in a different matter, Wi-Lan v. Apple. Judge Sabraw drew analytic contrast between the two cases, however, noting that the survey analysis proffered in Qualcomm addressed fatal limitations advanced in the earlier Wi-Lan expert analysis.
Thus, while Apple took issue with specific formulation of the survey, Judge Sabraw concluded that the formulation spoke more to the survey’s “weight, not admissibility.”
These divergent outcomes concerning surveys from the same expert reveal the essential need for such experts to work closely with technical experts. The obvious precondition for a successful survey is to tie questions to relevant claims; but where those ties are reasonably established, Judge Sabraw’s formulation appears to acknowledge that some “hypothetical ideal survey” must not condemn a “real-world survey” that can otherwise afford some insight into the matter at hand. Rather, limitations of relevant “real-world surveys” can be heard, challenged & defended.
Turning next to Dr. Kennedy’s damages opinion, Apple argued that his “50-50” split was “untethered to the facts of the case.” Judge Sabraw, however, found otherwise:
We can imagine a circumstance where a different expert from an earlier era might advance a “50-50” split based solely on superficial invocation of the Nash Bargaining Solution. But what might otherwise appear as numerical recourse to a rule of thumb can, in fact, be an argued outcome grounded in the facts of the case. So, too, might a “25%” outcome… even if Goldscheider’s formulation no longer enjoys merit after Uniloc. That is to say, round numbers themselves need not be thrown out along with rules of thumb.
Dr. Kennedy’s opinion based upon the Prince survey results was deemed admissible. Dr. Kennedy’s controversial 50/50 profit split was grounded in enough facts of the matter to be allowed as well.
For its part, Qualcomm requested that the court exclude Apple’s damages expert, Dr. Prowse, for failure to establish the economic comparability of relied-upon licenses. A related question concerned whether Apple’s technical experts had done the minimum necessary to establish that the patents-in-suit were technically comparable to others the subject of Apple license agreements. Judge Sabraw agreed with Qualcomm that those technical experts’ opinions “are conclusory and do not meet the standard for technological comparability.”
Given failure to establish technological comparability, related damages opinions, too, must fail. Judge Sabraw offered, however, that Dr. Prowse did establish the necessary economic comparability between the relevant license agreements and a hypothetical license agreement.
Since Uniloc, and the abandonment of rules-of-thumb, the rigor demanded of damages analysis has increased. In response, and with the goal of grounding analysis in the facts of a case, damages experts must make increasing recourse to the analytic foundations established by technical experts and/or survey experts. This pair of cases (i.e., Qualcomm v. Apple and Wi-LAN v. Apple) reveals the multiplicity – and vulnerabilities – of such dependence.
(*These two cases involve experts with identical surnames: Dr. Patrick Kennedy is Qualcomm’s damages expert, while Mr. David Kennedy is Wi-Lan’s damages expert.)
