EDTX issues Daubert ruling on FRAND damages including "top down" approach

The Eastern District of Texas, in Metaswitch Networks Ltd. V. Genband US LLC, Case No. 2:14-cv-00744 (Judge Payne) (March 7, 2015), addressed a number of issues in a FRAND case involving an IETF standard. Specifically, defendant moved under Daubert to exclude certain opinions of plaintiff's damages expert Matthew R. Lynde. The court granted in part and denied in part the motion.

First, defendant moved to exclude Mr. Lynde's opinions that defendant, Genband, was contractually obligated to license its patents at a FRAND rate, contending that these opinions offered improper legal conclusions by an economic expert. Metaswitch responded that the opinions were not legal but rather economic in nature and had been discussed in academic literature relating to SSOs and FRAND licensing. The court reasoned it was proper for Mr. Lynde, as an economist, to assume for purposes of his analysis that a FRAND obligation existed and to opine on the effect that this obligation had on damages. The court cautioned Metaswitch, however, that Mr. Lynde should not stray into legal conclusions about whether Genband is actually bound contractually to license on FRAND terms.

Second, the court rejected Genband's argument that Mr. Lynde could not rely on the W-CDMA patent pool license as evidence of an appropriate FRAND rate. The issue turned on whether the technology in that pool was sufficiently comparable. Mr. Lynde had relied on Metaswitch's technical expert who concluded that the W-CDMA patent pool agreement was technically and economically comparable to the technology at issue, which the court found "supported by reliable economic and technical analysis." The court also addressed Mr. Lynde's opinion that the W-CDMA patent pool rate needed to be adjusted by a "multiplier" "based on real-world factors such as the participation rate and the value of expected cross-licenses." Slip op. at 4. Mr. Lynde arrived at a 3X multiplier based on these considerations. The court found both the comparability and multiplier analysis to be sufficient supported by analysis, and suggested that Genband resort to cross examination to explore the weight that should be accorded these opinions.

Third, the court rejected a "top down" approach to derive an alternative FRAND rate Mr. Lynde's specific top down approach counted the number of companies that provided IP disclosures to the IETF and assumed that each participant company's patent portfolio was the same. Id. at 5. The court found this approach unreliable because it ignored "the size of each company, the number of patents in each company's portfolio, and the differences in value between the patents his approach necessarily assumes that every participant company's patent portfolio was exactly the same as Nortel's." Id. The court noted that Mr. Lynde had made no effort to quantitatively or qualitatively compare the Nortel portfolio to the other companies' portfolios. Mr. Lynde's report countered that the IP disclosures were simply blanket declarations and that, therefore, there was not information available as to the specific patents at issue. The court found this unpersuasive: "An absence of information is not a license to speculate." Id. Accordingly, Mr. Lynde's version of the "top down" approach was excluded. (This approach was also used in In re Innovatio IP Ventures, LLC, 2013 U.S. Dist. LEXIS 144061, at *168 (N.D. Ill. Sept. 27, 2013) (stating that the top down approach "requires verifiable data points, such as the number of 802.11 standards-essential patents").)