NJ court refuses to strike plaintiff's expert's report that equated lost profits and reasonable royalty damages even though defendant contended the expert failed to conduct a separate analysis for the two types of damages

On April 25, 2011, Judge Hochberg of the District of New Jersey issued a five part opinion. Three of the five parts are directly relevant to damages.

First, the court denied defendant's motion to exclude plaintiff's expert testimony where plaintiff's expert found the reasonable royalty rate equal to the amount of lost profits. In re Gabapentin, Case No. 00 Civ. 2931 (D.N.J. , Apr. 25, 2011). Defendants argued that plaintiff's expert analysis was "improper [...] because he [] failed to undertake a separate analysis to calculate a reasonable royalty than he used to calculate lost profits." Plaintiff's expert analysis stated that "based on his review of contemporaneous documents and his analysis of the parties' expectations, the hypothetical negotiation between Plaintiffs as licensors and Defendants as licensees would have produced no mutually agreed upon price range in which the parties could have negotiated[.]" Judge Hochberg held that analysis was consistent with the "holdings of several courts[.]" Id. Specifically, the court indicated that the "willing licensor/willing licensee" model is an "inaccurate, and even absurd, characterization when...the patentee does not wish to grant a license." Rite-Hite. V. Kelley Co., 56 F.3d 1538, 1554 (Fed. Cir. 1995).

Second, the court established that plaintiff's expert testimony failed the "fit" requirement of Daubert. The expert significantly changed the methodology of analysis used in his reply report as compared with his initial report. A rounding protocol that "adhered to the language of the patent" was used in the original report. Subsequently, plaintiff's expert changed that rounding protocol in his reply report, nearly doubling the result found in the original calculations. Discussing this change, the court exclaimed it as "breathtaking and plac[ing] the methodology [...] into question." The court held that "[t]he only proper purposes of a reply report are to rebut issues raised in opposing expert reports and to buttress existing analyses."

Lastly, the court decided that the plaintiff's expert used an unreliable method and overstated his findings. Plaintiff's expert claimed that it was more likely than not "that 100% of [samples] meet the 20 ppm limitation because 'more that 50%' of [the samples] meet the limitation[.]" The court held that this testimony was "insufficiently grounded in any proper scientific method to be reliable."