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Mar 08

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Another plaintiff patent damage expert gets excluded

In AVM Technologies vs. Intel Corporation, USDC for Delaware, case No. 10-610-RGA (February 21, 2013), Plaintiff’s damage expert witness was excluded entirely, thus gutting a case that the trial court acknowledged was otherwise worth $300 million or more.

Recent patent cases emphasize the use of comparable licensees in determining a reasonable royalty, but have also made the selection of such comparable licenses more narrow. The result is that appraisers end up with fewer available comparisons. When pushed, the analyst ends up in the situation we have here, where only one potentially comparable license remains. In the instant case, the expert attempted to use a larger number of licenses initially, but the Court previously indicated that the other potentially-comparable licenses would not be accepted, leaving only the one license that the Court now criticizes. The Court summarized its concerns about the use of only one piece of data for a damages conclusion as follows:

“Although Evans’ report discloses his opinion concerning the 2009 W ARF agreement on which he now solely relies,3 that opinion is not supported by any methodology that explains why the 2009 W ARF agreement by itself could be the basis for an accurate conclusion about the hypothetical negotiation over the ‘547 patent. To say that one litigation settlement agreement relating to a different patent and executed five years4 after the hypothetical negotiation have taken place- even assuming the ‘752 patent is comparable to the ‘547 patent- is e basis for an opinion is completely speculative without, at a minimum, some analysis of the litigation that led to the settlement. Without analysis of the litigation, the conclusion cannot be based on “sound economic and factual predicates.”

So what is a litigant to do? Here are some suggestions:

  1. Discovery requests need to be broadened to include not just the settlement agreement or license agreement, but the economic circumstances surrounding the agreement. This is another reason to get one’s damage expert on board earlier, so that you will have the benefit of this person’s advice in the discovery process.
  2. The emphasis on comparable licenses should not cause the damage analyst to ignore other relevant factors that could be use to supplement or replace comparable factors. The fifteen Georgia Pacific factors are not substantively mentioned in the Court’s discussion of the excluded expert’s opinion, and the Opinion states plainly that only one license was being considered. The failure to consider other economic factors might have been the expert’s fatal error.

Another point of interest is that there was not any meaningful hesitation to accept settlement agreements as evidence of a reasonable royalty. Not that long ago, settlement agreements could not be used. Recent cases have changed this, as is summarized in this article. The current Order mentions challenges to using litigation settlements primarily in the context of criticizing the use of only one such settlement, as follows:

“Whereas multiple settlement agreements might show a pattern, a single settlement agreement on a different patent without any analysis of the settlement context is not a reliable method for calculating damages. See Laser Dynamics, 694 F .3d at 77-79 (noting that “the propriety of using prior settlement agreements to prove the amount of a reasonable royalty is questionable” and further stating that “[t]he notion that license fees are tainted by the coercive environment of patent litigation are unsuitable to prove a reasonable royalty is a logical extension of Georgia-Pacific, the premise of which assumes a voluntary agreement will be reached between a willing licensee, with validity and infringement of the patent not being disputed”).”

 

About the author

David Nolte

I am a founding principal of Fulcrum Inquiry, an accounting and economic consulting firm that performs damage analysis for commercial litigation, forensic accountings, financial investigations, and business valuations. I am a Certified Public Accountant (CPA) and an Accredited Senior Appraiser (ASA), as well as having other professional credentials. I regularly serve as an expert witness involving damages measurement. My litigation-oriented resume is on Fulcrum's website.

Permanent link to this article: http://betweenthenumbers.net/2013/03/another-plaintiff-patent-damage-expert-gets-excluded/

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