Intellectual Property > IP Newsflash > Northern District of California Court Excludes Expert’s Apportionment Methodology Due to Double or Triple Counting Revenue Attributable to Certain Features of the Accused Products
24 Aug '16

On August 15, 2016, Judge Orrick of the Northern District of California granted-in-part defendant Sophos’s motion to exclude the testimony of plaintiff Finjan’s damages expert. Sophos urged, among other things, that the expert’s apportionment methodology improperly inflated her royalty base. Specifically, Sophos argued that Finjan’s expert improperly inflated the royalty base by double or triple counting revenue attributable to the “threat engine” and “live protection” features of the accused software products. That is, Finjan’s expert apportioned the royalty base by 28.6 percent (or 2/7) as to both patents-in-suit, even though each patent covered those same two features. “In this way, [the expert] counts the revenue attributable to certain features multiple times in calculating her royalty base such that her total apportionment calculation uses a royalty base that is over 100 percent of the total value of several of the accused products.”

Finjan argued that its expert’s calculations were not unreliable because she calculated the damages on a per-patent basis so that, if any of the patents were invalidated, the jury could still calculate damages specific to each patent. Moreover, Finjan argued that the expert applied a royalty rate to her royalty base to calculate an overall reasonable royalty well below the total revenues for the products. The court, however, was not persuaded. The court stated that “[w]hile [the expert’s] ultimate reasonable royalty calculation is less than the total revenues . . . [the expert’s] method of counting the revenue attributable to certain features multiple times, when those features are covered by multiple patents, is not a reasonable method of counting the value added by the patented features.” The court provided an example that if only 6/12 total features of a particular product are covered by any of the accused patents, and it is assumed that each feature has equal value, then the total value attributed to the patented features cannot exceed 50% of the total product value. But, in Finjan’s case, the expert’s calculations assumed that the combined value attributed to the patented features would exceed the total product value, which would mislead the jury.

The court concluded by granting Finjan leave to amend the expert report and noted that this flaw could be amended, for instance, by creating a flexible damage calculation that reflects the total possible royalty attributable to each patent, but then accounts for overlap in the patents’ covered features to prevent double counting.

Finjan, Inc. v. Sophos, Inc., 3-14-cv-01197 (N.D. Cal. August 15, 2016).