I/P Engine, Inc. v. AOL, Inc. et al
Opposition to 301 MOTION in Limine #2 to Exclude Evidence of Entire Market Value of Accused Products and of Defendants' Size, Wealth and Overall Revenues filed by I/P Engine, Inc.. (Attachments: # 1 Exhibit 1, # 2 Exhibit 2, # 3 Exhibit 3)(Sherwood, Jeffrey)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF VIRGINIA
I/P ENGINE, INC.,
Civ. Action No. 2:11-cv-512
AOL, INC. et al.,
I/P ENGINE’S OPPOSITION TO
DEFENDANTS’ MOTION IN LIMINE #2
In classic sword/shield fashion, Defendants attempt to preclude I/P Engine from making
any reference at trial to Defendants’ size, wealth, and overall revenue, or to the market value of
the accused products. But Defendants repeatedly argue in their damage expert report that
Google’s size, wealth and commercial success would have been a significant factor during the
hypothetical negotiations and damages analysis in this case. And evidence of Defendants’
earnings is relevant to the assessment of a reasonably royalty.
Defendants’ damages expert, Dr. Ugone, opines that Google’s wealth, size and
commercial success would have given it an advantage in negotiating a license with Lycos during
the hypothetical negotiation period. He also argues that any value to Google from using the
patented inventions would have been minimal considering, among other things, its commercial
success. And in its Daubert Motion against Dr. Becker (I/P Engine’s damages expert), Google
argues that its size, wealth and commercial success distinguishes it from licensees of certain
agreements that Dr. Becker relied upon in support of his reasonable royalty determination.
Indeed, in his expert report, Dr. Ugone relies on Google’s size and commercial success in his
analysis of Georgia-Pacific factors 5, 8, 9, 10, 11, 13 and 15.
Notwithstanding this obvious contradiction, Defendants do not identify any specific
evidence or testimony discussing Google’s size, wealth, commercial success or revenue that they
are seeking to exclude. As is clear from the above, Defendants apparently do not seek a blanket
exclusion of any reference to Google’s size, wealth and success. Rather, Defendants appear to
be asking the Court to preclude I/P Engine from referencing the fact that Google has received
of revenue from the Accused Products during the time period of
infringement. As shown below, evidence of Google’s size, wealth and the commercial success,
including the total amount of revenue of the accused products is relevant to an appropriate
damages analysis, including the commercial relationship between Google and the patentee
(Georgia-Pacific factor 5); the established profitability of the patented product and its
commercial success (Georgia-Pacific factor 8); Google’s negotiating position with the licensors
of comparable licenses asserted by the parties’ damages experts (Georgia-Pacific factor 12); as
well as the revenue base apportionment analysis by I/P Engine’s damages expert (GeorgiaPacific factor 13).
Google’s Size, Wealth and Commercial Success Are Relevant To The
Evidence of Google’s size, wealth and commercial success are relevant to the damages
analysis. For example, Google’s size, wealth and commercial success are relevant (as
acknowledged by Google’s damages expert) to the commercial relationship between it and
Lycos, the patentee at the time. The commercial relationship between the licensor and licensee
is the fifth Georgia-Pacific factor. See Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F.
Supp. 1116, 1120 (S.D.N.Y. 1970). Toward that end, in discussing Google’s and Lycos’
negotiation position, Google’s damages expert testified that Lycos would have “acknowledged . .
. that Google had
and that Google’s
Exh. 1 (Rebuttal Expert Report Of
Keith R. Ugone, Ph.D (“Ugone Rpt.”). at ¶¶ 67, 75).] I/P Engine’s damages expert, Dr. Becker,
likewise considers the relative size of the parties in weighing the fifth Georgia-Pacific factor.
[Exh. 2 (Expert Report Of Stephen L. Becker, Ph.D. (“Becker Rpt.”) at ¶¶ 92-96).]
Google’s size and wealth is also relevant for establishing its negotiating position with
respect to the licensors of “comparable licenses” advanced in this case. For example, Defendants
argue in their Motion To Exclude The Testimony Of Stephen L. Becker that:
Dr. Becker has conceded that . . . Marchex, Inc., eXact Advertising LLC, and
Interchange Corp. – were all in radically different negotiating positions against
Overture than Google would have been in a hypothetical negotiation with Lycos.
Yet, Dr. Becker did not account for these differences when he relied on the
Overture agreements. For example, Dr. Becker concedes that eXact, Interchange,
and Marchex were “much smaller companies” than Google. Dr. Becker testified
that Google’s size would have made it “a more attractive licensee to Lycos
than Marchex represented to Overture” and that this “would have given it an edge
in the negotiation.”
[Dkt. No. 320 at 21 (Defendants’ Memorandum In Support Of Their Motion To Exclude The
Testimony Of Stephen L. Becker) (internal citations omitted; emphasis added), Exh. 3.]1 In fact,
Dr. Ugone relied upon Google’s size and commercial success in his analysis of seven of the
fifteen Georgia-Pacific factors. [Exh. 1 (Ugone Rpt. Appx. A).] For example, when discussing
Georgia-Pacific factor 8 (the established profitability of the patented products and its
commercial success), he opines:
I/P Engine’s response to that motion (filed simultaneously with this response) explains why this
argument is not a proper Daubert motion, but rather should be a cross-examination issue.
[Id. Appx. A, at 7.] He further stated that “[a]t the hypothetical negotiation,
analysis of Georgia-Pacific factors 9 and 10
; factor 11
and factor 15
Id. Appx. A, at 8, 9, 11, 15.]
Defendants’ claim that Google’s size and success are “totally irrelevant” to the issues in
this case is belied by their own repeated reliance on Google’s size and commercial success to
support their damages positions. Defendants cannot properly seek to use Google’s size and
success as a sword, and at the same time seek to shield itself from having I/P Engine use that
same information to support its own damages analysis, or to rebut Defendants’ damages theory.
Evidence of Google’s Earnings From Its Use of the Accused System is
Defendants ask (at 2) that I/P Engine be precluded from referring to Defendants’ “overall
(including daily, quarterly, or yearly) revenues” of the accused products, Google AdWords,
AdSense for Search (including AOL’s Search Marketplace and all Defendants’ use of AdSense
for Search), and AdSense for Mobile Search. In other words, Defendants do not want the jury to
hear evidence that the measure of damages should be no less than a reasonable royalty of
earnings attributable to Defendants’ infringement. Defendants’ motion disregards 35 U.S.C. §
Upon finding for the claimant the court shall award the claimant damages adequate to
compensate for the infringement, but in no event less than a reasonable royalty for the use
made of the invention by the infringer . . . .
This motion, if granted, would violate Georgia Pacific and black-letter law on how patent
damages are calculated, and would improperly limit Dr. Becker’s damages opinion and I/P
Engine’s damages claim.
Contrary to Defendants’ assertion, I/P Engine has plenty of admissible evidence that the
patented technology forms a substantial basis of the consumer demand of the accused products.
Dr. Becker has analyzed a wide range of Defendants’ documents, and concluded that Google’s
own documents reflect that the infringing system
Exh. 2 (Becker Rpt. at ¶¶ 174-176, n. 235-239).] Relying
upon Google’s own documents showing this incremental increase, as well as Google’s total
revenues for the accused system, Dr. Becker apportions the royalty base on a quarterly basis to
determine the incremental revenue achieved by Google from using the infringing systems. [Exh.
2 (Becker Rpt. at Exh. SLB-18).] This analysis is entirely consistent with Federal Circuit case
law regarding the computation of a reasonable royalty. See, e.g., Uniloc USA, Inc. v. Microsoft
Corp., 632 F.3d 1292, 1318-1321 (Fed. Cir. 2011); Lucent Techs. v. Gateway, Inc., 580 F.3d
1301, 1336-39 (Fed. Cir. 2009); ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860, 869 (Fed. Cir.
Defendants’ request to preclude I/P Engine from making any reference to Google’s size,
commercial success and the revenues of the accused products would severely restrict I/P Engine
from supporting its damages case. Dr. Becker should be able to opine on his apportionment of
the royalty base. The motion, if granted, would be tantamount to a summary judgment ruling on
damages, because Dr. Becker would precluded from explaining how he determined the
incremental revenue base, how the infringing functionalities have contributed to Google’s overall
revenue, and the commercial success of the accused products. These are fundamental tenets of
his opinion, and are required under Georgia Pacific.
Defendants dispute Dr. Becker’s apportionment opinion, asserting that Google’s success
is attributable to factors other than the accused products. For example, Dr. Ugone opines:
[Exh. 1 (Ugone Rpt. Appx. A, at 7).] Dr. Ugone also stated:
[Id.] Defendants thus have conceded that evidence of Google’s total revenues are relevant. The
appropriate way for Defendants to address Dr. Becker’s opinions is through vigorous cross-
examination, not to claim that the relevance of the evidence is outweighed by some unexplained
prejudicial effect. But arguing that Defendants made too much money from their infringement,
so that evidence should be excluded, is not credible.
This is not the same situation that the Federal Circuit was concerned about in either the
Uniloc or Lucent cases relied upon by Defendants. The Court found that the damages experts in
those cases had asserted no basis between the infringing component and the demand for the
accused product. Unlike Uniloc, Dr. Becker is not seeking to use the revenue of the accused
products as a reasonableness check without any claim that those revenues are connected to the
demand for the infringing product. Neither is he applying a lower royalty rate to the overall
revenue of the accused products in a speculative attempt to determine an incremental value of the
infringing systems, as the damages expert attempted in Lucent. Dr. Becker is carefully tying the
proof of the damages to the claimed invention. See ResQNet.com, 594 F.3d at 869.
The Federal Circuit has made clear that consideration of the overall revenue of an
accused product may play an important role in calculating a reasonable royalty as long as the
calculation fairly accounts for the proportion of the base represented by the infringing
Simply put, the base used in a running royalty calculation can always be the value
of the entire commercial embodiment, as long as the magnitude of the rate is
within an acceptable range (as determined by the evidence). Indeed, all running
royalties have at least two variables: the royalty base and the royalty rate.
Microsoft surely would have little reason to complain about the supposed
application of the entire market value rule had the jury applied a royalty rate of
0.1% (instead of 8%) to the market price of the infringing programs. Such a rate
would have likely yielded a damages award of less than Microsoft's proposed $6.5
million. Thus, even when the patented invention is a small component of a much
larger commercial product, awarding a reasonable royalty based on either sale
price or number of units sold can be economically justified.
Lucent, 580 F.3d at 1338-39. Likewise, in Rembrandt Data Techs., LP, v. AOL, LLC., No. 1:08cv-1009, 2009 WL 2242624 (E.D. Va. June 17, 2009), the court denied defendant’s motion to
exclude the testimony of the plaintiff’s damage expert. Defendant argued that the expert relied
on flawed methodology when calculating the reasonable royalty of the alleged patents because
he considered the “end-user H-P products that contain the accused device without satisfying the
entire market value rule.” Id. at *1. The court denied the motion, finding that the methodology
was not flawed, and did not implicate the entire market value rule. Id. Instead, the court found
that “[the expert’s] report discloses that he has employed recognized methods of loss
calculation.” Id. Similarly, Dr. Becker has employed recognized methods to apportion the
incremental revenue attributable to the infringing system.
Defendants’ Motion Is Both Vague And Overbroad In That It Fails To
Identify The Discrete Evidence It Seeks To Preclude
Motions in limine are intended to enable the court to preclude specific items of evidence.
They are not intended to permit entire topics or unspecific items, which may, or may not, be
offered during trial. TVT Records v. Island Def Jam Music Group, 250 F. Supp. 2d 341, 344-45
(S.D.N.Y. 2003) (“the parties seek to employ their in limine motions as preemptive weapons
with which they endeavor to strike in shotgun fashion whole topics and sources of prospective
evidence, out of context and before any specific objection against its proper backdrop is raised
… the Court deems them impermissible.”). Yet, that is exactly what Defendants attempt to do
here, by failing to identify any specific documents or lines of testimony that they seek to exclude.
Instead, Defendants seek to restrict reference to such broad and nebulous concepts as “size,”
“wealth,” and “overall revenue.” There is no notice of what evidence Defendants intend to
sweep into this category. The fact that Defendants repeatedly rely on evidence of Google’s size,
wealth, commercial success, and revenues illustrate that Defendants are trying to have it both
For the reasons discussed above, Defendants’ Motion in Limine #2 should be DENIED.
Dated: September 27, 2012
By: /s/ Jeffrey K. Sherwood
Donald C. Schultz (Virginia Bar No. 30531)
W. Ryan Snow (Virginia Bar No. 47423)
CRENSHAW, WARE & MARTIN PLC
150 West Main Street
Norfolk, VA 23510
Jeffrey K. Sherwood (Virginia Bar No. 19222)
Frank C. Cimino, Jr.
Kenneth W. Brothers
Dawn Rudenko Albert
Charles J. Monterio, Jr.
DICKSTEIN SHAPIRO LLP
1825 Eye Street, NW
Washington, DC 20006
Counsel for Plaintiff I/P Engine, Inc.
CERTIFICATE OF SERVICE
I hereby certify that on this 27th day of September, 2012, the foregoing OPPOSITION
TO DEFENDANTS’ MOTION IN LIMINE #2, was served via the Court’s CM/ECF system
on the following:
Stephen Edward Noona
Kaufman & Canoles, P.C.
150 W Main St
Norfolk, VA 23510
Quinn Emanuel Urquhart & Sullivan LLP
50 California Street, 22nd Floor
San Francisco, CA 94111
Robert L. Burns
Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
Two Freedom Square
11955 Freedom Drive
Reston, VA 20190
Cortney S. Alexander
Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
3500 SunTrust Plaza
303 Peachtree Street, NE
Atlanta, GA 94111
/s/ Jeffrey K. Sherwood