Plaintiff alleged that Defendant’s operating systems infringe two patents directed to software programs that monitor and manage computer networks and the devices, such as routers and switches, which run those networks. As damages for the alleged infringement, Plaintiff sought a reasonable royalty, and its damages expert developed two methods to calculate an appropriate royalty. For both methods, Plaintiff’s damages expert applied a series of apportionments in an attempt to limit the damages to the value attributable to the asserted patents. In each case, he relied, at least in part, on several apportionment percentages provided by Plaintiff’s technical expert, which varied between 33 percent and 70 percent, depending on the accused product or feature.
Defendant moved to exclude Plaintiff’s damages expert’s reasonable royalty opinions as well as the apportionment opinions provided by Plaintiff’s technical expert. Defendant argued that the apportionment percentages that the technical expert offered, and the damages expert relied upon, were based on vague, qualitative notions, lacking underlying support and a reliable methodology. Plaintiff countered that the apportionment percentages were reliable because its technical expert based them on a number of factors, including: (1) industry research (including Defendant’s own statements); (2) the expert’s knowledge and understanding of the accused devices and Defendant’s network operating systems; (3) the expert’s experience and specialized expertise in computer networking and security; and (5) the expert’s knowledge of the nature and function of routers and switches.
The court agreed with Defendant. The court did not suggest that Plaintiff’s technical expert lacked the expertise to provide technical opinions relating to apportionment, or that the factors he considered were not relevant. Instead, the court focused on the precise apportionment percentages that the technical expert provided and concluded that he had not disclosed his methodology for arriving at those particular numbers. Specifically, the court noted that, because the technical expert did not explain how he arrived at the particular apportionment percentages, such as 33 percent, the figures appeared to have been “plucked out of thin air.” The court concluded that “[s]uch vague, qualitative descriptions, without some indication as to the weight or value attributed to each feature, are insufficient to support [Plaintiff’s technical expert’s] specific apportionment conclusions.” And because the technical expert’s apportionment opinions were unreliable, the court concluded that Plaintiff’s damages expert’s apportionment opinions were also unreliable.
As a backstop, Plaintiff sought leave to serve a supplemental damages report to address the deficiencies in the opinions of its experts, but the court declined the request. The court noted that the “sheer volume of deficiencies” would necessitate new damages theories and methodologies, weighing against supplementation. The court also recognized that Plaintiff had multiple opportunities to submit “sufficient testimony,” but failed to do so.
Practice Tip:
When conducting an apportionment analysis for damages, it may not be sufficient for a damages expert to rely on a technical expert’s opinion for the relative value of an invention. In particular, if the technical expert is quantifying the relative value of an invention, the expert should disclose a reliable methodology for arriving at apportionment percentages, and those percentages should be supported by a quantitative economic analysis.
NetFuel, Inc. v. Cisco Sys., No. 5:18-cv-2352-EJD (N.D. Cal. Mar. 10, 2020) (Davila, J.)