EDTX denies Daubert motions involving apportionment, entire market value rule, license agreements, and patent valuations

The Eastern District of Texas, in Core Wireless Licensing SARL v. LG Electronics, Inc. et al, Case No. 2-14-cv-00911 (Judge Payne) (March 19, 2016), addressed motions filed by both parties seeking to exclude the other party's damages expert's opinions and testimony. LG, the alleged infringer, filed a motion to exclude the opinions of Core's damages expert, Dr. Stephen Magee, on Daubert and untimeliness grounds. Similarly, Core, the patent owner, sought to exclude the opinions of LG's damages expert, Dr. Thomas Vander Veen, on the same grounds. The court concluded that both experts' opinions were reliable under FRE 702, and thus denied both parties' Daubert motions. The court also concluded that the parties' late disclosures were harmless and denied the parties' motions to exclude the adverse party's supplemental report for untimeliness.

Defendant's Daubert Motion

Defendant LG moved to strike Core's expert's opinion under Rule 702, raising three challenges: (1) the expert selected the wrong hypothetical negotiation date; (2) the expert's analysis of the Georgia-Pacific reasonable royalty factors was "conclusory;" and (3) the expert's opinions regarding apportionment and entire market value rule did not comport with Federal Circuit case law. Slip op. at 7 (citing Ericsson, Inc. v. D-Link Sys., 773 F.3d 1201, 1226 (Fed. Cir. 2014)). The court found the first challenge to be moot, as Core had revised the hypothetical negotiation date in its supplemental report, and LG did not challenge that new date under Rule 702. The court rejected LG's second challenge, finding that

"[t]here is no legal requirement that an expert begin with a particular "starting point" and then use the fifteen [Georgia-Pacific] factors to nudge the royalty up or down. Here, [Core's expert] frames his economic analysis around the Georgia-Pacific factors and offers his royalty rate opinions as a conclusion, having considered the applicability (or inapplicability) of each factor. In doing so, he spells out the economic principles and methods on which he relies."

Slip op. at 8. The court similarly rejected LG's third challenge, that Dr. Magee's opinions violated the entire market value rule. The court found that, because the expert's "report identifies the smallest salable patent practicing unit, attempts to estimate the value of that unit using economic principles, then attempts to isolate the fraction of that value the parties would attribute to the patented features at the hypothetical negotiation," the opinions comply with Rule 702, and, accordingly, declined to strike Dr. Magee's opinions. Slip op. at 8.

Plaintiff's Daubert Motion

Core, the plaintiff, moved to strike LG's expert's opinion under Rule 702, challenging Dr. Vander Veen's reliance on license agreements and patent valuations that it alleged were "not sufficiently comparable to the patents-in-suit." Slip op. at 8. The court noted that, while an opinion that "alleg[ed] loose or vague comparability between different technologies or licenses" would not meet the standard under Rule 702, an expert may nevertheless "rely on comparable licenses that differ in some respects from the hypothetical agreement" so long as the expert "account[s] for the technological and economic differences between them." Slip op. at 9, (citing LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51, 79 (Fed. Cir. 2012); Wordtech Sys. v. Integrated Networks Solutions, Inc., 609 F.3d 1308, 1320 (Fed. Cir. 2010)). Accordingly, the court declined to strike Dr. Vander Veen's opinions, holding that his opinions for each license or valuation were explained in sufficient detail for the purposes of the Daubert motion, and LG's challenge was fundamentally against "the weight of the evidence rather than the sufficiency of Dr. Vander Veen's analysis under Rule 702." Slip op. at 9.

Timeliness

Bot LG and Core moved to strike each other's late-served supplemental expert damages report, which were served in response to Core's withdrawal of several patents in the case. The supplemental reports of both parties were served after the expert disclosure deadline, and, as such, were deemed untimely under Fed. R. Civ. P. 26(a)(2)(D). The court cited to Fifth Circuit precedent in considering whether the untimely disclosures were harmless, and thus admissible under Rule 26, employing a four-factor test: "(1) [the party's] explanation for its failure to disclose the evidence, (2) the importance of the evidence, (3) the potential prejudice to [the opposing party] in allowing the evidence, and (4) the availability of a continuance." Slip op. at 4 (citing Heidtman v. County of El Paso, 171 F.3d 1038, 1040 (5th Cir. 1999); CQ, Inc. v. TXU Min. Co., L.P., 565 F.3d 268, 280 (5^th Cir. 2009)). The court concluded that, because both parties' explanations were the same, namely, that several patents had been withdrawn, factors (1), (2), and (3) weighed in favor of supplementation, while factor (4) was neutral. Accordingly, the court found that the late disclosures of both parties were harmless and declined to strike the supplemental damages expert reports.