United States District Court, D. Arizona
James A. Teilborg Senior United States District Judge
Pending before the Court is Plaintiff GoDaddy.com LLC (“GoDaddy”)’s Motion to Preclude Testimony of Defendants’ Damages Expert Gregory Smith, (Docs. 266; 292-1 at 2-15). The Court now rules on the mot ion.
GoDaddy moves the Court to exclude the testimony of Defendants’ damages expert, Gregory Smith, as unreliable under Federal Rule of Evidence (“FRE”) 702. (Id.) GoDaddy contends that Mr. Smith’s testimony is unreliable for two reasons: “(1) [Mr.] Smith inappropriately accounted for non-infringing features in his royalty rate analysis rather than apportioning the royalty base, and (2) he applied the entire market value rule without demonstrating that the patented features form the basis of consumer demand as required by binding Federal Circuit precedent.” (Id. at 1). According to GoDaddy, “[t]he law is clear that there is only one scenario where a patentee may use the entire market value of an accused product as its royalty base without further apportioning that base, as Smith did, which is: under the [entire market value rule] . . .” (Doc. 286 at 4). Because GoDaddy believes Mr. Smith did not satisfy the entire market value rule (“EMVR”)’s requirements, it contends “that should be the end of the inquiry.” (Id.)
In response, RPost insists that Mr. Smith “unequivocally” did not apply the EMVR because the Accused Products are the smallest saleable unit (“SSU”). (Doc. 279 at 2). According to RPost, the Federal Circuit has not defined a particular formula for apportioning damages for SSU products, and Mr. Smith properly followed the Federal Circuit-endorsed apportionment factors outlined in Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F.Supp. 1116 (S.D.N.Y. 1970). (Id.) Specifically, RPost insists that the Federal Circuit has never held that a royalty base must be apportioned to account for non-infringing elements in lieu of the corresponding royalty rate. (Id. at 6). Further, RPost contends that the Accused Products are not multi-component products, but that the Accused Products, “as a whole, ” infringe its patents. (Id. at 13). Nonetheless, by “apportioning” the operating margin of the Accused Products to obtain the royalty rate, RPost argues that “Mr. Smith calculate[d] a rate that reflects the patented technology’s contribution to the profitability of the accused products.” (Id. at 1).
The question before the Court is relatively straightforward: did Mr. Smith calculate damages using a methodology that is consistent with Federal Circuit precedent? There are two general methods for determining infringement compensation: (1) the lost profits method, which estimates a patentee’s lost income due to the alleged infringement, or (2) the application of a reasonable royalty rate to a royalty base. See Lucent Techs. Inc. v. Gateway, Inc., 580 F.3d 1301, 1324 (Fed. Cir. 2009). In this case, Mr. Smith calculated RPost’s damages using the reasonable royalty method. See (Doc. 292-1 at 29).
II. Legal Standards
A. Expert Opinion Testimony
In patent infringement litigation, regional circuit law controls the Court’s analysis for issues not unique to patent law. See LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51, 66 (Fed. Cir. 2012). Thus, the Court’s decision to admit expert testimony in a patent case follows the law of the regional circuit. See Micro Chem., Inc. v. Lextron, Inc., 317 F.3d 1387, 1390-91 (Fed. Cir. 2003).
FRE 702 governs the admissibility of expert testimony and provides as follows:
A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if:
(a) the expert’s scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue;
(b) the testimony is based on sufficient facts or data;
(c) the testimony is the product of reliable principles and methods; and
(d) the expert has reliably applied the principles and methods to the facts of the case.
Fed. R. Evid. 702. In Daubert v. Merrell Dow Pharmaceuticals, Inc., the Supreme Court of the United States held that FRE 702 imposes an obligation upon trial courts to “ensure that any and all scientific testimony or evidence admitted is not only relevant, but reliable.” 509 U.S. 579, 589 (1993). Thus, FRE 702 cloaks trial courts with the role of gatekeeper to determine, pursuant to FRE 104(a), whether expert testimony “both rests on a reliable foundation and is relevant to the task at hand.” Id. at 592. “It is the proponent of the expert who has the burden of proving admissibility.” Lust v. Merrell Dow Pharms., Inc., 89 F.3d 594, 598 (9th Cir. 1996).
Daubert, which concerned the admission of expert testimony based upon scientific studies, enumerated several nonexclusive factors that a trial court may use to determine whether testimony based upon scientific knowledge is sufficiently reliable. These factors include whether the “theory or technique has been subjected to peer review and publication, ” “the known or potential rate of error, ” “the existence and maintenance of standards controlling the technique’s application, ” and whether the technique has been generally accepted in the relevant scientific community. Daubert, 509 U.S. at 593-94. Nevertheless, the Supreme Court hinted that a trial court’s gatekeeping obligation under FRE 702 extended to all forms of expert testimony, not just those concerning scientific knowledge. See Id. at 590 n.8 (“Our discussion is limited to the scientific context because that is the nature of the expertise offered here.”). The Court emphasized that the inquiry was “a flexible one” with “[i]ts overarching subject” as “the scientific validity and thus the evidentiary relevance and reliability-of the principles that underlie a proposed submission.” Id. at 594-95.
In Kumho Tire Co. v. Carmichael, the Supreme Court clarified that a trial court’s gatekeeping obligation indeed applies to all expert testimony, even if, for example, that testimony is based upon experiential or other non-scientific knowledge. 526 U.S. 137, 147 (1999). Although a trial court may find the factors enumerated in Daubert to be “appropriate for use in determining the reliability of challenged expert testimony” even for testimony based upon other than scientific knowledge, id. at 152, it is not constrained to such questions. The trial court has “considerable leeway in deciding in a particular case how to go about determining whether particular expert testimony is reliable.” Id. at 152. Thus, “where such testimony’s factual basis, data, principles, methods, or their application are called sufficiently into question . . . the trial judge must determine whether the testimony has ‘a reliable basis in the knowledge and experience of [the relevant] discipline.’” Id. (quoting Daubert, 509 U.S. at 592).
A trial court must do more than ensure that expert testimony is reliable, however; it must also ensure that such testimony is relevant to an issue in the case. FRE 702 “requires a valid . . . connection to the pertinent inquiry as a precondition to admissibility.” Daubert, 509 U.S. at 591-92. As the rule states, the proposed testimony must “help the trier of fact to understand the evidence or to determine a fact in issue.” Fed.R.Evid. 702. “Federal judges must . . . exclude proffered scientific evidence under [FRE] 702 and 403 unless they are convinced that it speaks clearly and directly to an issue in ...