S.D. Fla. Excludes Evidence of Pre-Litigation Negotiations and Allows Evidence of Prior Litigations and Hypothetical Negotiations

The Southern District of Florida, Judge Kevin Michael Moore presiding, in Prisua Engineering Corp v. Samsung Electronics Co., Ltd., Civil Action 16-cv-21761-KMM (S.D. Fla. Feb. 13, 2017), issued a pre-trial order regarding reasonable royalty rate evidence: (i) excluding evidence of a licensing fee to the extent it was obtained from pre-litigation negotiations; (ii) excluding evidence of Samsung's net worth; and (iii) allowing evidence of Samsung's prior litigation as a basis for calculating a reasonable royalty. The Court also denied the parties 'Daubert motions:  holding (i) Priusa's expert's consideration of pre-suit licensing negotiations was proper; (ii) Priusa's challenge to "post-hypothetical evidence" went to weight not admissibility; and (iii) Samsung's expert's consideration of lump-sum licensing agreements was proper even though Prisua was not seeking a lump sum.

Evidence of Prisua's Proposed Licensing Fee

Samsung moved to exclude, as hearsay, evidence of a pre-litigation licensing negotiation between the parties during which Prisua proposed a $0.09 royalty rate. Prisua argued the rate was "one of several considerations supporting Mr. Leather's [Priusa's expert's] reasonable royalty calculation" and that "licensing agreements are admissible in patent infringement cases when the expert has relied on them in calculating a reasonable royalty rate[.]" Slip Op. at 6. In response, Samsung "clarified that it [was] not moving to exclude Mr. Leathers's use of the rate from the licensing agreement but instead moves to preclude Priusa from relying on the licensing negotiations[.]" Id. (emphasis added). In excluding the evidence, Judge Moore noted, "there was no licensing agreement—Prisua merely proposed a licensing fee agreement which Samsung declined." Id. (emphasis added). "To the extent Mr. Leathers supports the $0.09 licensing fee by relying on licensing negotiations, Mr. Leathers may not do so. Mr. Leathers may rely on a $0.09 licensing fee calculation if derived from sources other than Prisua's pre-litigation offer." Id.

In a Daubert motion, Samsung again challenged Mr. Leather's two alternative reasonable royalty computations, arguing that his calculated royalty rate was "based solely upon Prisua's self-serving estimation of its own value during the course of pre-suit licensing negotiations." Id. at 25. Prisua argued the rate was only partially based on pre-suit licensing negotiations and that the rate "is the exact amount Samsung agreed to pay ArcSoft for licensing of the accused infringing … application." Id. Denying the motion, the Court noted "Samsung's arguments speak to weight rather than admissibility." Id.

Evidence of Samsung's Net Worth

Samsung moved to exclude evidence of its "total net worth, total revenues, and total profits" arguing it was "irrelevant, highly prejudicial, and likely to mislead the jury." Id. at 7. Prisua's countered that Samsung's financial information "is highly relevant and admissible to prove its damages." Id. Granting Samsung's motion, the Court held that Prisua "failed to articulate how Samsung's net worth is relevant to damages calculations[.]" Id.

References to other Litigation Involving Samsung

Samsung also moved to exclude references to other litigation involving Samsung as hearsay. Id. at 9. Priusa's expert, Mr. Leathers, considered Samsung's prior litigation as part of his reasonable royalty calculation. The Court noted, "an expert is permitted to base his opinion on facts or data which would otherwise be inadmissible, such as hearsay, if other experts in the particular field would reasonably rely on those kinds of facts or data in forming an opinion." Id. at 10. The Court found the information admissible, pointing out that courts have allowed experts conducting reasonable royalty calculations "to analyze prior litigation resulting in settlement and license agreements under certain limited circumstances." Id. at 10-11.

Prisua's Daubert motion on Samsung's Damages Expert

Prisua moved to exclude testimony of Samsung's expert, Mr. Lettiere, because: "(1) (1) Mr. Lettiere's analysis is improperly predicated on information unknown at the time of the hypothetical negotiation; (2) Mr. Lettiere improperly relies on unrelated litigation settlements; (3) Mr Lettiere unduly relies on the ArcSoft Licensing Agreements; and (4) Mr. Lettiere improperly relies on the market approach in calculating damages." Id. at 18.

Hypothetical Negotiation

The court noted that "a reasonable royalty calculation depends on the particular facts of each case and where there is a lack of 'evidence of royalties in the marketplace, this court accepts evidence about hypothetical results of hypothetical negotiations between the patentee and the infringer (both hypothetically willing) at the time the infringement began.'" Id. at 19 (citing Mahurkar v. C.R. Bard, Inc. 79 F.3d 1572, 1579 (Fed. Cir. 1996)). The facts regarding the date of the hypothetical negotiation here are not disputed, but Mr. Lettiere considered evidence about the alleged use of the patented technology after that date. Samsung argued the evidence was properly considered under the "Book of Wisdom" doctrine. The court agreed saying Priusa's challenge went to weight not admissibility, citing Sinclair Ref. Co. v. Jenkins Petrol. Process Co., 289 U.S. 689, 697-98 (1933) and Lucent Techs., Inc., v. Gateway, Inc., 580 F.3d 1301, 1333 (Fed. Cir. 2009). Id.

Unrelated Litigation Settlements

Prisua moved to exclude Mr. Lettiere's consideration of unrelated prior settlement agreements as irrelevant. Id. at 20. Prisua also argued that the settlements in the cases relied upon were entered into following the initiation of litigation, not just the threat of litigation, citing Cornell University v. Hewlett-Packard Co., 2008 WL 11274580 (N.D.N.Y. May 8, 2008). The court denied the motion without prejudice.

Reliance Upon ArcSoft Licensing Agreements

Prisua moved to exclude Samsung's "reliance upon a series of licensing agreements between Samsung and ArcSoft memorializing Samsung's acquisition of software used to implement [the patented technology] … in calculating a reasonable royalty rate" because: (1) they are lump sum agreements, where Priusa is not seeking a lump sum royalty; and (ii) "Mr. Lettiere fails to explain how he reached his ultimate conclusion." Id. at 21. The Court rejected Priusa's, "[t]he Court is persuaded that the ArcSoft Licensing Agreements—which directly relate to the allegedly infringing technology—are relevant and the probative value of Mr. Lettiere's related testimony outweighs the risk of prejudice." Id at 22.

Reliance Upon the Market Approach

Prisua also moved to exclude Mr. Lettiere's opinion because it relies too heavily on the market approach (and the first two Georgia-Pacific factors) and does not consider other relevant Georgia-Pacific factors. Id. at 22.  Priusa also argues that Mr. Lettiere improperly relies on "a secondary source pertaining to trademark infringement damages instead of reasonable royalties in a patent infringement suit." Id. at 22-23.

"The hypothetical negotiation, also known as the ‘willing licensor-willing licensee' approach, is a method of ascertaining "the royalty upon which the parties would have agreed had they successfully negotiated an agreement just before infringement began.'" Id. at 23 (citing Lucent Techs. v. Gateway). "The first two [Gerogia-Pacific] factors address: (1) the royalties received by the patentee for the licensing of the patent in suit; and (2) the rates paid by the infringer for the use of other patents comparable to the patent in suit." Id.

The Court reviewed Mr. Lettiere's expert report and noted that he in did analyze all fifteen factors. Id. Turning to Mr. Lettiere's citation to a secondary source, the Court noted that Priusa questioned Mr. Lettiere on this topic at his deposition, and Mr. Lettiere was able to explain why he relied on the secondary source.Id. at 23-24. Priusa's motion to exclude evidence related to the market approach was denied. Id. at 24.