Judge Posner precludes royalty rate testimony based on disparate licenses for unknown different inventions

On May 28, 2013, Judge Posner, sitting by designation in the Northern District of Illinois, issued an opinion in Promega Corp. v. Applied Biosystems, LLC, et al., Case No. 13-cv-2333 (Doc. No. 378), addressing Daubert motions to exclude opinions by plaintiff's and defendant's experts, including damages experts for both sides. The patentee in the case was Life Technologies, and the accused infringer was Promega. Promega's motion to exclude royalty rate testimony by Life Tech's expert (Jed Greene) will be addressed here. Judge Posner granted the motion to exclude Greene's testimony because "[u]sing the midpoint of a range of royalty rates in disparate licenses for unknown different inventions as the estimate of a reasonable royalty for a license for Promega products outside the field of use of the 2006 patent is arbitrary." Slip op. at 3 (citing Federal Circuit's opinions in Wordtech and Lucent). Judge Posner observed that "Greene testified simply that he considered the totality of the circumstances. But generalized impressions are no substitute for a method of computing, and evidence justifying, a reasonable royalty rate." Id. More specifically, Greene had examined 20 intellectual property licenses entered into either by Life Tech or Promega. The royalty rates ranged from 3% to 15%. Greene narrowed the range to between 7.5% and 15% based on six licenses he found most relevant to the patent-in-suit, and then further narrowed to between 8% and 12% "without explanation before finally settling on 10 percent, the midpoint of that range ...." Slip op at 3. Judge Posner cited several flaws in Greene's methodology and conclusions:

• Greene failed to identify the six licenses or explain why they were most relevant and could not identify the licenses at the Daubert hearing.
• Some of the license agreements licensed the patent-in-suit (and continuations) for applications that may not relate to the specific patent claims at issue.
• Each of the licenses covered multiple patents, not just the patent-in-suit, but Greene did not determine the percentage of royalty rates attributable to the patent-in-suit.

As stated above, Judge Posner concluded that it was arbitrary to use the midpoint of a range that was derived from disparate licenses for unknown different inventions, where the selected licenses were unknown. Judge Posner also rejected Greene's attempt to argue there were no noninfringing alternatives to which Promega could have turned because Greene offered no estimate of Promega's lost profits had it stopped making the product or the amount Life Tech could have extracted by licensing the patent to Promega. The court thus excluded any testimony by Greene on royalty rate. Note: Judge Posner also considered whether to allow Promega's expert to testify on the rate. Promega's expert had concluded the rate should be 2% or slightly higher. Judge Posner concluded this was a "concession" and questioned the relevance of testimony on a conceded fact, but he reserved judgment on the issue and asked for additional briefing.