$300 Million Reasonable Royalty Damages Claim Falls to Daubert

By Maggie Tamburro

The U.S. District Court for the District of Delaware recently addressed a costly expert issue involving damages in a patent infringement case:  Whether expert testimony which relies solely on a prior settlement agreement as a basis for proving reasonable royalty damages is reliable and therefore admissible under the established law of Daubert and FRE 702.

The opinion, which involved reasonable royalty damages of up to $300 million, is important for patent litigators to heed, whether seeking to prove or defend against reasonable royalty damages.  In a Memorandum Opinion dated February 21, the Honorable Richard G. Andrews ruled that the testimony of the plaintiff’s reasonable royalty damages expert was unreliable, inadmissible, and therefore must be excluded in its entirety – complete with a discussion shedding significant light on why the expert’s testimony failed in this instance.

The Case and Reasonable Royalty Damages

The case involved claims of patent infringement brought by plaintiff AVM Technologies, LLC against defendant Intel Corporation.  In order to prove reasonable royalty damages, plaintiff proposed to offer testimony from its expert opining that it was entitled to reasonable royalty damages of “$150 to $300 million ‘or more.’”

As a basis for making the damage determination, plaintiff’s expert sought to rely solely on a 2009 settlement agreement allegedly entered into by the defendant in another patent infringement case – which plaintiff claimed involved a different but comparable technology.

As part of the damage determination, plaintiff’s expert concluded that the technology disclosed and claimed in the patent which was the subject of the 2009 settlement agreement “was not as important to [defendant’s] commercial interests” as that of the patent at issue in this case.  The expert therefore concluded “'the lump sum to be paid by [defendant] for a paid-up license’” under the patent at issue should be higher than the patent that was the subject of the 2009 settlement agreement.

Following a full Daubert hearing, the court ruled that the expert’s proposed testimony regarding reasonable royalty damages was unreliable and must be excluded.

The Court’s Ruling

In its ruling, the court noted the following as dispositive for excluding the expert’s testimony:

  • The expert’s opinion relied on only one settlement agreement in its analysis. The court noted that multiple settlement agreements might indicate a pattern; however, “a single settlement agreement on a different patent without any analysis of the settlement context is not a reliable method for calculating damages.”
  • The expert’s opinion was unsupported by methodology adequately explaining how the 2009 settlement agreement, standing alone, could act as the basis for a conclusion about the “hypothetical negotiation” regarding the patent at issue.
  • The judge found no analysis of the litigation that led to the 2009 settlement agreement relied on by the expert in forming his opinion, stating “Without analysis of the litigation, the conclusion cannot be based on ‘sound economic and factual predicates.’”   The judge noted that, even if he were to assume “a single settlement agreement on a comparable technology could be the basis for a reliable conclusion,” a contention the court found dubious, “[the expert’s analysis] falls short of what would be necessary for such a conclusion.”
  • Plaintiff asserted that case precedent allows damages to be based upon “a single license agreement, or a single settlement agreement for the patent-in-suit, or a single license agreement for comparable technology.” However, the judge ruled that expanding precedent to allow a claim to be based on a single settlement agreement involving comparable technology simply amounted to a “bridge too far.”

What The Expert’s Testimony Lacked

Although the judge questioned whether a single settlement agreement on a similar technology could ever act as the basis for a reliable conclusion as to the amount of reasonable royalty damages, the judge provided some insight regarding what a court might seek in the way of the expert’s analysis - and conversely what the expert’s testimony lacked.

As the judge pointed out, the expert report failed to take into account specific factors in the underlying litigation that might have affected the value of the settlement amount, for example, whether willfulness (and therefore treble damages) was at issue, whether sanctions had been imposed, or whether either of the parties to the prior litigation had agreed to dispute resolution.

Can an Inventor’s Testimony Save the Day?

The plaintiff also sought to have a co-inventor testify as to damages, but following a motion in limine challenging the testimony, the judge excluded the testimony, finding it both unreliable and not timely disclosed.

With regard to the inventor’s testimony concerning damages, the judge refused to allow it, concluding the calculations involved with the determination of reasonable royalty damages are “the province of expert analysis,” and that much of the co-inventor’s testimony in that regard would be an improper expert opinion.

As such, the court limited the inventor’s testimony to facts and information within his personal knowledge, and specifically precluded any testimony about what the inventor might have speculatively done in hypothetical negotiations.

In Sum – Recent Precedent and an Unanswered Question

The case provides recent precedent fresh out of the District Court of Delaware that every patent litigator and damage expert should know:  A single settlement agreement involving a comparable technology in a different patent has the potential to be unreliable and inadmissible to prove the amount of reasonable royalty damages in a patent infringement suit in thatforum.

But the case leaves perhaps an unanswered question:  Had the plaintiff’s expert provided in his report and testimony a thorough analysis of the litigation underlying the single settlement agreement, including all of the factors that might have affected the settlement amount that involved the comparable technology, would the judge have found that it met sufficient reliability requirements under Daubert and FRE 702 to make it to the jury?

What other factors in underlying litigation, if any, do you think might have saved the expert’s report?

The case and Memorandum Opinion is AVM Technologies, LLC v. Intel Corporation, Civil Action No. 10-610-RGA (D.Del. Feb. 21, 2013).

Maggie Tamburro

Maggie Tamburro

Maggie Tamburro is an attorney and writer who holds a Juris Doctor from The John Marshall Law School and a Bachelor of Arts from the University of Texas. She was admitted to the Illinois Bar in 1994 and Florida Bar in 1999 and has significant experience in legal research, editing, and writing. Maggie is active her in local community, holding various publicly appointed civic board positions.

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