Mondis Technology Ltd. v. LG Electronics, Inc., et. al., 2:07cv565 (E.D. Tex. 6/14/11)
Judge: Chad Everingham
Holding: Motion To Strike Expert GRANTED IN PART
Across the square, the Mondis v. LG case is getting underway this morning in Judge Ward's court following jury selection Monday. In between trying chicken processing plant lawsuits this week (seriously - chicken farmers sat outside the federal courthouse in Marshall protesting their treatment by Pilgrim's Pride - here's a link to a TV new story on the case) Judge Everingham had hearings on more of the pending motions in this case, and on Monday issued an opinion on the challenges to the plaintiff's damages expert.
"[T]he essential arguments by each defendant," Judge Everingham wrote, "can be broken down into three parts: (1) Dr. Magee cannot use the “entire market value rule”; (2) Dr. Magee cannot triple the “standard” royalty to account for uncertainty; and (3) various licenses are neither comparable nor reliable."
First, the Court held that "under the facts of this case," (it says that more than once) Dr. Magee may use the entire market value of the accused products in calculating the reasonable royalty because it is economically justified. The defendants argued that Dr. Magee cannot apply the “entire market value rule” in this case because the patented feature of the accused product has not been shown to provide the basis for the customer demand. "Indeed," Judge Everingham observed, "the fact that the patented feature does not provide the basis for the customer demand is largely undisputed." But he believed that Dr. Magee should be permitted to offer opinion regarding the reasonable royalty based on the entire market value of the accused products because Plaintiff contended that is the industry standard and that nearly every comparable license in this case is based on a percentage of the total accused product (or licensed product) sales price. "This is a case where it is “economically justified” to base the reasonable royalty on the market value of the entire accused product," he concluded, noting that the defendants' royalty analysis was based on licenses that used the entire value of the accused products. Defendants' position was that the defendants can use the entire market value of the accused products for their damages analysis, but that the Plaintiff could not.. he noted. "If this rule were absolute, then it would put Plaintiff in a tough position because on one hand, the patented feature does not provide the basis for the customer demand, but on the other hand, the most reliable licenses are based on the entire value of the licensed products."
The Court concluded that "[u]nder the facts in this case, Plaintiff may base its reasonable royalty analysis on the entire value of the accused products, despite not showing the accused features provide the basis of the customer demand. In this Court's view, Federal Circuit jurisprudence regarding the “entire market value rule” allows for this result, and further, Federal Circuit damages jurisprudence encourages this result by placing a large emphasis on comparable licenses of the patents-in-suit."
Second, "[b]ecause Federal Circuit law allows for the fact that real world licenses might be greatly reduced for uncertainty, the Court will allow Dr. Magee to opine that the “standard royalty rates” would be tripled if infringement and validity were established."
[A]lthough the jury may find that there should be no tripling of the standard rates, there is nothing inherently wrong with Dr. Magee giving an opinion that the rates should be increased for the lack of “uncertainty.” The licenses at issue all appear to be executed before litigation (or at least before there was an adjudication regarding validity and infringement). At that time, the parties executed the license in the “real-world” with uncertainty regarding the validity of the patents and infringement of the licensed products. In the hypothetical negotiation, however, the patent is assumed to be valid and the accused products are assumed to infringe. Therefore, as compared to the “real-world” in which the licenses to the patents-in-suit were negotiated, the patentee in the “hypothetical-world” is in a better bargaining position. How much better is debatable, but that decision is for the fact-finder. Accordingly, it is rational and economically sensible, due to this fact alone, that the patentee in the “hypothetical-world” may receive a more favorable royalty rate than in the “real-world.”
(Emphasis mine). Not only was it rational and economically sensible, but there was also a recent Federal Circuit opinion on the point. Judge Everingham noted this week's opinion from the Federal Circuit in Spectralytics, Inc. v. Cordis Corp., Case No. 2009-1564 & 2010-1004, slip op. at 18 (Fed. Cir. June 13, 2011), in which that court recognized that a patent may be less valuable at an earlier time (i.e., when it reflects a “deep discount”) when there is uncertainty as to its validity or infringement. "Further, the court in Spectralytics stated that the weight to be given to this type of evidence is a task for the jury." (Emphasis mine).
Finally, the defendants challenged various licenses and other evidence relied on by Dr. Magee for his opinions. Judge Everingham granted this motion as to several licenses, but denied it as to positions taken during licensing negotiations when used as evidence of the expert's “tripling” theory. Defendants argued that these are merely “puffing” statements made during negotiation, but the Court concluded that was more properly a matter for cross-examination. "This evidence is supportive of Dr. Magee's view that the real-world standard rates were deeply discounted. The evidence also supports Dr. Magee's view concerning the extent to which the license rates were discounted for uncertainty."