Positive Technologies Inc. v. Sony Electronics Inc et al

Filing 386

ORDER SETTING BRIEFING AND HEARING ON DISCOVERY DISPUTE (Illston, Susan) (Filed on 12/3/2012)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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POSITIVE TECHNOLOGIES, INC.,

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Plaintiff,

United States District Court
For the Northern District of California

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No. C 11-02226 SI
ORDER SETTING BRIEFING AND
HEARING ON DISCOVERY DISPUTE

v.
SONY ELECTRONICS, INC.; DELL, INC.;
ASUS COMPUTER INTERNATIONAL;
AMAZON.COM, INC.; BARNES & NOBLE,
INC.; and KOBO INC.,
Defendants.

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Currently before the Court is a joint motion by defendants Amazon and Barnes & Noble for a

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protective order barring discovery of sales information for non-accused products. Dkt. 375. By this

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order, the Court hereby sets the matter for briefing and a hearing as discussed below.

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Plaintiff Positive Technologies Inc. (“Positive”) has alleged infringement of its patents relating

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to electrophoretic displays used in e-books. See generally Compl. Positive currently seeks discovery

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of sales information for certain non-accused products, including e-content, accessories, and services,

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which either require accessing the accused products or which are sold to complement the accused

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products. Defendants Amazon and Barnes & Noble argue that because the non-accused product

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discovery Positive seeks is only remotely related to any reasonable royalty analysis, the burden should

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be on Positive to show why this discovery is necessary for its damages analysis. According to

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defendants, for any reasonable royalty base that uses the non-accused products as part of that base

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calculation, plaintiffs must establish that the entire-market-value-rule (“EMRV”) applies. To apply the

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EMRV “the patentee must prove that the patent-related feature is the basis for customer demand.”

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Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1336 (Fed. Cir. 2009).

Positive argues that non-accused product discovery is imperative to calculate its reasonable

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royalty rate, not to the reasonable royalty base calculation. Positive notes that it has never asserted that

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it seeks non-accused product discovery as part of a reasonable royalty base calculation. Such discovery

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is necessary here, Positive claims, pursuant to Georgia-Pacific factor six (“GP6 ”), which examines “the

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effect of selling the patented specialty in promoting sales of other products of the licensee; the existing

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value of the invention to the licensor as a generator of sales of his or her nonpatented items; and the

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extent of which derivative or convoyed sales.” Georgia-Pacific Corp. v. United States Plywood Corp.,

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318 F. Supp. 1116, 1120 (S.D.N.Y. 1970), modified and aff’d, 446 F.2d 295 (2d. Cir. 1971). GP6,

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Positive argues, is used in calculating the royalty rate, which “is not to be confused with the application

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United States District Court
For the Northern District of California

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off the [EMRV] to the royalty base.” Minks v. Polaris Indus., Inc., 546 F.3d 1364, 1372 n.6 (Fed. Cir.

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2008).

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The Court tentatively agrees with Positive’s position. Positive has made a showing that the

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confidential sales information for the non-accused products is discoverable because it is essential to

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Positive’s reasonable royalty rate calculation, as part of its damages analysis. See Implicit Networks,

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Inc. v. Juniper Networks, Inc., No. C 10-04324 SI (N.D. Cal. July 23, 2012). First, Positive seeks non-

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accused product discovery in order to calculate a reasonable royalty rate, which is sometimes defined

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as a percentage that is multiplied by the dollar amount of infringing sales of the accused product – the

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royalty base – in order to arrive at a reasonable royalty damages sum. See Lucent, 580 F.3d at 1338-39

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(citing Raymond T. Nimmer & Jeff Dodd, Modern Licensing Law § 7:5 (2008)). Although Positive has

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not precisely defined these terms in this case, generally such discovery is permissible under Federal

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Rule of Civil Procedure 26. Accordingly, the Court rejects defendants’ preferred discovery standard,

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that plaintiffs must demonstrate “likelihood of such non-accused sales being allowed into evidence at

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trial.” Dkt. 375 at 1. Second, even if Positive seeks discovery of non-accused products to use as part

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of its calculation of the reasonable royalty base, such discovery may be permissible depending on the

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nature of the royalty base at issue. Defendants’ view that plaintiff must establish that the EMRV applies

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in order to use “any royalty base” that relies on non-accused product discovery (Dkt. 375 at 1, emphasis

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added) appears improperly restrictive. As Positive notes, EMRV is one of several potential methods

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for determining the royalty base. Presumably, though Positive does not say so, Positive could employ
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some other method for affixing a royalty base, such as the amount of sales of the accused product that

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contains the infringing patent. More importantly, here, Positive has said that it does not seek this

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discovery based on any EMRV analysis.
However, upon preliminary review, the discovery Positive seeks appears to be broader than what

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is merited by Positive’s damages argument. For example, to the extent Positive seeks gross sales and

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revenue information about non-accused products, Positive’s request appears overly broad. However,

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other requests, such as those requests for documents relating to any relationship between selling the

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accused devices and sales of non-accused products, appear to be justified by Positive’s damages

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argument. The latter type of request appears to be related to Positive’s royalty rate position – that there

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United States District Court
For the Northern District of California

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is some relationship between the inclusion of Positive’s patented technology in the accused products and

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sales of non-accused products. The trouble here, as defendants Amazon and Barnes & Noble observe,

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is that Positive has not come forward with a more detailed damages position that would enable the Court

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to resolve this dispute. While it is clear that some discovery of non-accused products may be justified

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here, Positive has only provided hints at how it intends to use the information it seeks.

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Accordingly, the Court hereby DIRECTS Positive to file a brief, no longer than 10 pages, due

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no later than December 7, 2012, discussing with more precision, the scope of the information sought,

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its damages position(s), and how or whether that information is related to that position(s). Defendants

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Amazon and Barnes & Nobles may file a reply no later than December 14, 2012, also not to exceed

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10 pages. The Court will hear argument on the matter on December 21, 2012, at 9am.

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IT IS SO ORDERED.

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Dated: December 3, 2012
SUSAN ILLSTON
United States District Judge

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