EDTX Issues Pretrial Rulings on Reasonable Royalty and Lost Profits Damages

On May 5, 2011, Judge Charles Everingham IV of the Eastern District of Texas issued a two part opinion. In Part 1, the Court issued the following rulings related to damages: (1) carried in part and denied in part SAP's ("defendant") Motion to Exclude Expert Testimony; (2) granted Versata's ("plaintiff") Motion to Exclude Inadmissible Opinion of SAP's Experts; and (3) denied Versata's Motion to Strike Portions of the Rebuttal Expert Report. In Part 2 of the opinion, the Court ruled on Versata's and SAP's Motion in Limine to exclude testimony, evidence, or argument related to the addition of a new damages theory - lost profits. Versata Software Inc. v. SAP America, Inc., 2:07-CV-153-CE (E.D. Tex., May 5, 2011).

Part 1 of the Court's Opinion:

1. SAP's Motion to Exclude Expert Testimony

SAP moved to exclude expert testimony relating to Versata's damages models - lost profits and reasonable royalty. The Court held that SAP's motion to exclude Versata's reasonable royalty model should be carried until oral arguments at a later date. However, as to the lost profits model, the Court held that SAP's motion to exclude should be denied. The Court found that Versata's expert had met the minimum threshold required by Daubert and Rule 702 because the expert based his lost profits calculation on Versata's actual sales of its product for a period of three years and because the expert discussed the accuracy of Versata's incremental profit margins.

2. Versata's Motion to Exclude Inadmissible Opinion of SAP's Experts

Versata argued that SAP's expert's opinion was inadmissible under Rule 702 and Daubert because they were irrelevant and unreliable testimony. In a report, SAP's experts claimed that Versata's expert had failed to "isolate the value of the asserted claim of the '350 patent from the '400 patent." In a prior case, the Court had held that Versata had not proven that SAP directly infringed the '400 patent, which was the parent to the '350 patent. The Court granted Versata's motion to exclude inadmissible opinion of SAP's experts, reasoning that its decision in the prior case had no bearing on the value of the '350 patent.

3. Versata's Motion to Strike Portions of the Rebuttal Expert Report

Versata argued that SAP should be precluded from presenting expert testimony that states that Versata would have offered its product for a price of $100,000 or $150,000 embodying the '350 patent. The Court denied Versata's motion to strike a portion of the rebuttal expert's report because Versata's former employee and trial witness admitted that Versata had considered but had chosen not to develop a cheaper version of its product.

Part 2 of the Court's Opinion:

In a prior case, the Court had granted Versata's motion in limine to preclude evidence that was neither probative nor admissible. But, because Versata sought lost profits damages in the present case, the Court ruled on SAP's motion in limine in the present case and made the following changes to its Versata motion in limine rulings from the prior case:

a) The Court denied Versata's motion to preclude references to market valuations of the Versata's business even though it may not conclusively prove damages. The Court found that market valuations were relevant to both lost profits and reasonable royalty calculations because they potentially provide insight into a number of Georgia-Pacific factors.

b) The Court denied SAP's motion to preclude Versata from offering testimony, evidence, or argument regarding allegations of infringement for third-party products not accused of infringement. The Court said that "because [plaintiff's expert's] opinion appears to be a rebuttal to SAP's claim ... Versata is not precluded from offering it at trial."

c) The Court denied SAP's motion to exclude Versata from offering testimony, evidence, or argument regarding reasonable royalty damages to the jury. SAP argued that the award of any reasonable royalty is equitable in nature and should be determined by the Court, not the jury. The Court disagreed with SAP because as a matter of law, Section 284 specifically provides for reasonable royalty damages and states that "[w]hen the damages are not found by a jury, the court shall assess them." Moreover, SAP failed to cite a single case to support its proposition.