EDTX denies exclusion of settlement license and "real estate" apportionment

The Eastern District of Texas, in  ZiiLabs, Inc. v. Samsung Electronics Co., (Judge Roy S. Payne) (December 4, 2015), granted in part and denied in part defendant's motion to exclude various opinions from plaintiff's damages expert, Robert Mills.

Grounds:

1) Defendant sought to exclude expert's reliance on litigation settlement license covering 100 patents as not economically comparable and not the most reliable license in the record.

2) Defendants sought to exclude expert's reliance on licensing negotiations that never resulted in executed licenses, and were not technically comparable.

3) Defendant sought to exclude apportionment based on surface area of accused element on the chip.

4) Defendants sought to exclude expert's testimony on several economic theories

Outcome: Defendant's motion was granted-in-part as to all references to unconsummated license agreements and denied as to the remainder

Analysis:

1) Litigation settlement license (Denied)

The court declined to exclude the Plaintiff's expert's (damages expert) opinion based on a license between the Samsung and a third party (MicroUnity) that covered 100 U.S. and foreign patents, and arose out of a litigation settlement. Slip op. at 3. The expert calculated his effective royalty rate based on the value of 10 of the patents in the license, justifying this by stating that in certain patent groups, 10% of the patents account for 81% to 93% of the value of the portfolio. Id. at 3-4. The expert also selected a license period based on the expiration dates of most of the patents, and a second license period based on the expiration of the last patent in the portfolio. Id. at 4. The court allowed these opinions because they were testable and supported by publications, or, in the case of the licensing periods could be challenged on cross-examination. Id. at 5.

The court rejected defendant's arguments that the MicroUnity license was not economically or technically comparable. Regarding economic comparability, the court stated that, while LaserDyanmics, Inc. v. Quanta Comput., Inc., discouraged relying on litigation settlements, if there were no more reliable licenses in the record, they could be used. 694 F.3d 51, 77 (Fed. Cir. 2012); Slip op. at 5. The court found the license agreement proposed by defendants was not "more reliable" because it was also a settlement agreement, and thus declined to exclude the expert's testimony on the MicroUnity agreement. Slip op. at 6-7. Regarding technical comparability, the court found the damages expert's reliance on the technical expert's opinion was proper and sufficient to establish technical comparability. Id. at 7.

2) Unconsummated license negotiations (Granted)

The court granted Samsung's motion with regard to four licensing negotiations between Apple and Samsung that were never executed. Slip op. at 8. The court agreed that Plaintiff had not shown how the negotiations were factually analogous to the hypothetical negotiation, because Apple and Samsung were direct competitors, whereas Plaintiff and Defendant were not. Id. at 8-9.

3) Surface area apportionment (Denied)

The expert analyzed the surface area that the Graphics Processing Unit (GPU) covered of the System-on-Chip (Soc), stating that the area of an SoC will be budgeted to various components based on the value of the component. Id. at 9-10. He used this value to qualitatively analyze the profit that should be credited to the invention, and then used it to adjust the royalty rate for the asserted patent upward. Id. at 10. He did not appear to use the surface area analysis as the royalty base. Id. at 10. The court declined to exclude the expert's opinion because he explained his method, and the defendant could challenge it on cross-examination. Id.

4) Various economic theories (Denied)

The expert also used 3 economic theories in his hypothetical negotiation analysis: 1) "settlement discounts" based on litigation uncertainty; 2) that a significant majority of the value of a patent portfolio is concentrated in a small subset of the patents in the portfolio; and 3) a survey discussion of running and lump-sum royalties. Id. at 11. The court allowed each of these because the expert tied the discussion of each theory to the facts and evidence of the case. See id. at 11.