E.D. Tex. Denies Motion to Exclude Damages Testimony of Non-Infringing Alternatives in Expert's Reasonable Royalty Calculation

In the Eastern District of Texas, Judge Roy S. Payne presiding, in Salazar v. HTC Corporation, 2:16-CV-01096-JRG-RSP (E.D. Tex. Mar. 28, 2018) the court denied Mr. Salazar's motion to exclude HTC's damages expert's opinions related to non-infringing alternatives because the expert's opinion relates only to a reasonable-royalty calculation, which does not require assessment of non-infringing alternatives, and even if it did, Salazar lacked evidence that the products in question were not acceptable non-infringing alternatives.

Mr. Salazar accuses HTC of infringing his patent that "relates to a system for two-way communication with appliances" from a cell phone using "one-way communications such as infrared (IR) signal or radio frequency (RF) signal." Slip Op. at 1-2.  Salazar's motion relates to a patent element that requires an IR transceiver, an element "which Salazar calls '€˜uniquely attractive' to consumers." Id. at 2.  Salazar claims that HTC's expert, Christopher Bakewell, "reach[ed] improper conclusions about whether an ‘acceptable' non-infringing alternative must include an IR transceiver." Id.

"The concept of an '€˜acceptable non-infringing alternative' relates to a lost-profits damage model." Id. at 5.  Discussing the Panduit test, the Court notes that "although there are no bright-line rules for deciding '€˜acceptability' of a non-infringing substitute, if the patent owner shows consumers specifically want devices with certain advantages, non-infringing alternatives cannot be '€˜acceptable' without those advantages." Id. at 6.

The court noted is that "'€˜acceptable non-infringing alternatives' don't play the same role in a reasonable-royalty determination. Rather, courts consider the next-best available alternative, which is not necessarily an ‘acceptable' alternative that precludes recover of lost profits under Panduit." Id. (emphasis in original).

In denying Salazar's motion to exclude Bakewell's testimony, the Court points out that his "opinion doesn't relate to a lost-profits determination, so it doesn't matter whether the alternatives are ‘acceptable' under Panduit. Instead, the factfinder should consider the next-best alternative, regardless of whether that alternative would preclude recovery of lost profits under Panduit." Id. "Here, that next-best alternative, at least according to HTC, happens to lack IR capability[.]" Id.

Further, "even if next-best alternatives must be 'acceptable' alternatives under Panduit, Salazar presents no evidence supporting his contention that devices without IT capability … are not "acceptable." Id. at 7.  "[A] noninfringing alternative need not have the patented feature in order to be deemed '€˜acceptable.'" Id. (citing Apple Inc. v. Samsung Elec. Co., 2013 WL 5958178, at *2 (N.D. Cal. Nov. 7, 2013). Further, "Salazar presents no evidence consumers specifically want devices with IR capability … such that only non-infringing devices with [that feature] would be "acceptable.'" Id. "Put simply, even if a next-best alternative in a reasonable-royalty determination must be '€˜acceptable' under Panduit, Salazar hasn't met his burden of proving there are no acceptable non-infringing alternatives here." Id.