Oracle Corporation et al v. SAP AG et al

Filing 1068

Declaration of Tharan Gregory Lanier in Support of 1067 Reply to Opposition/Response Reply Declaration of Tharan Gregory Lanier in Support of Defendants' Renewed Motion for Judgment as a Matter of Law and New Trial Motion filed bySAP AG, SAP America Inc, Tomorrownow Inc. (Attachments: # 1 Exhibit A, # 2 Exhibit B, # 3 Exhibit C, # 4 Exhibit D, # 5 Exhibit E, # 6 Exhibit F, # 7 Exhibit G)(Related document(s) 1067 ) (Froyd, Jane) (Filed on 4/27/2011)

EXHIBIT A

standard is chosen is necessary for consumers to benefit from competition among technologies to
be incorporated into the standard.
Recommendation. Courts should apply the hypothetical negotiation framework
to determine reasonable royalty damages for a patent subject to a RAND
commitment. Courts should cap the royalty at the incremental value of the
patented technology over alternatives available at the time the standard was
chosen.
Courts’ Gatekeeping Role in Reasonable Royalty Damages Cases
Litigants frequently present damages evidence in patent cases to the jury through an
expert witness who offers opinion on the appropriate damage award. The judge acts as a
gatekeeper in determining whether that opinion testimony is sufficiently reliable to be admissible
under Federal Rule of Evidence (FRE) 702. To be reliable, expert testimony must be: (1) based
on sufficient facts or data; (2) the product of reliable principles and methods; and (3) result from
reliable application of those principles and methods to the facts of the case.
Calls for more vigorous judicial gatekeeping excluding unreliable testimony on damages
have received heightened attention in the patent community and generated broad agreement at the
hearings. Such gatekeeping is especially important for achieving accurate awards in the context
of the hypothetical negotiation, which can be difficult for jurors to apply. Panelists maintained,
however, that courts rarely exercise their gatekeeping authority in patent damages matters.
Decisions under Daubert17 that examine only the reliability of an expert’s methodology, without
fully considering whether he reliably applied that methodology to the facts of the case, can result
in admission of improper testimony. The recent Federal Circuit opinion, Uniloc v. Microsoft,18
emphasizes the need for damages experts to tie accepted methodologies to the facts of the
particular case.
Recommendation. In their gatekeeper role of enforcing FRE 702, courts should
test the admissibility of expert testimony on damages by assessing whether it will
reliably assist the trier of fact in determining the amount a willing licensor and
willing licensee would have agreed to as compensation for use of the patented
invention in the infringing product. Courts should not deem evidence as relevant,
reliable and admissible solely because it falls within one of the Georgia-Pacific
factors.

17

Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579 (1993).

18

Uniloc USA, Inc. v. Microsoft Corp., Nos. 2010-1035, 2010-1055, 2011 WL 9738 (Fed. Cir. Jan. 4,
2011).

23

Recommendation. Consistent with FRE 702, courts should require a showing
that a damages expert’s methodology is reliable, that he reliably applies the
methodology to the facts of the case, and that the testimony is based on sufficient
data. Demonstration of a reliable methodology without satisfaction of the other
two prongs should not establish admissibility.
Comparable licenses and averages. The issues surrounding the admissibility of royalty
rates on licenses claimed to be comparable to the hypothetically negotiated license illustrate the
importance of active gatekeeping. Basing reasonable royalty awards on royalty rates in patent
licenses that are “comparable” to the license that would result from the hypothetical negotiation
(or averages of such royalty rates) is a common methodology for setting reasonable royalty
damages. Such evidence can reliably assist the trier of fact in setting the hypothetical negotiation
license only if the patented invention and its infringing use are sufficiently similar to those of the
comparable license. Key attributes in assessing comparability include the technology that is
licensed, the rights licensed (e.g., whether a license covers one patent or several), and the type
and terms of the license (e.g., running royalty or lump sum). In Lucent v. Gateway19 and other
cases, the Federal Circuit has recently applied a more rigorous review of damage awards that
considers whether licenses offered as “comparable” are sufficiently similar to support a jury
verdict.
Recommendation. Courts should admit expert testimony based on comparable
licenses as reliable only upon a satisfactory showing of similarity between the
licensed patent and the infringed patent, and between the non-price terms of the
comparable license and hypothetical license. That showing should be sufficient to
support an inference that the royalty rate for the comparable license provides a
reliable indicator of the royalty that would be reached in the hypothetical
negotiation.
Choosing the Royalty Base: The Entire Market Value Rule
The entire market value rule arose in the context of calculating lost profits damages for a
patent covering a component of a product. The law allows the patentee to recover lost profits
damages based on the entire market value of the product when the patented component is the
“basis for customer demand.” Otherwise lost profits damages will be based only on the value of
the patented component or “apportioned.”
The entire market value rule as developed for lost profits has no corollary in the context
of calculating a royalty by multiplying a royalty base times a royalty rate. There is no amount of
potential damage funds, such as the profits lost on a product, to be entirely awarded or
apportioned. Moreover, the base and rate are closely interrelated. Altering the base in response
to a legal test should result in recalibrating the rate. Nonetheless, courts have imported this rule
into reasonable royalty determinations as a technique for identifying the royalty base.

19

Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301 (Fed. Cir. 2009).

24