Digital Reg of Texas, LLC v. Adobe Systems Incorporated et al

Filing 663

ORDER by Judge Claudia Wilken DENYING ADOBES 639 RENEWED MOTION TO EXCLUDE THE EXPERT TESTIMONY OF MR. PARR. (granting ( 636 , 638 ) Administrative Motions to File Under Seal.) (ndr, COURT STAFF) (Filed on 8/27/2014)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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DIGITAL REG OF TEXAS, LLC,

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Plaintiff,
v.

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ADOBE SYSTEMS, INC.,

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Defendant.

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No. C 12-1971 CW
ORDER DENYING
ADOBE’S RENEWED
MOTION TO EXCLUDE
THE EXPERT
TESTIMONY OF MR.
PARR (Docket No.
636, 638, 639)

________________________________/

United States District Court
For the Northern District of California

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In this patent infringement case, the Court previously

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granted Defendant Adobe Systems, Inc.’s motion to exclude the

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expert opinion of Mr. Parr, Plaintiff Digital Reg of Texas, LLC’s

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damages expert.

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Court excluded Mr. Parr’s testimony because he: (1) used

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unreliable industry-wide data to impute piracy savings, (2) used

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an improper fifty-fifty profit split to determine the royalty

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rate, and (3) did not apportion the royalty base.

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permitted Mr. Parr “to submit a revised damages report curing only

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the problems identified in this order,” warning that if he relied

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“on any additional information on any point,” and his report was

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again deficient, the Court would preclude him from testifying and

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allow only Adobe’s damages expert to testify.

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challenges Mr. Parr’s revised report.

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renewed motion to exclude Mr. Parr’s testimony.

See Docket No. 632 (Order on MIL’s) at 1-11.

Id.

Id.

The

The Court

Adobe now

The Court DENIES Adobe’s

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Adobe raises three issues with the revised report.

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Adobe contends that Mr. Parr apportioned the royalty base to

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thirty percent using unreliable data.

First,

Mr. Parr relied on data

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points from three companies: (1) Apple, which charges thirty

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percent of sales revenue to distribute and deliver apps to third

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parties via its App Store, (2) Microsoft, which charges thirty

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percent of sales revenue to distribute its Windows Store apps, and

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(3) Valve, which charges thirty percent of sales revenue to

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distribute and deliver electronic content for third parties via

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its Steam Store.

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are distinct from Digital Reg’s Digital Rights Management (DRM)

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software, which prevents unauthorized access to software.

Adobe argues that these content delivery fees

While

United States District Court
For the Northern District of California

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Adobe’s argument may have some merit, Adobe could have raised it

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much earlier.

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Circuit case law requires apportionment if the patented feature

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does not drive demand and, if so required, he would apportion the

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revenue base at thirty percent based on Apple, Microsoft, and

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Valve’s data suggesting that thirty percent is the standard rate

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for game distribution in the industry.

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Upon Adobe’s original motion, the Court found the alternative

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analysis improper because Mr. Parr’s apportionment was illusory --

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although he decreased the royalty base to thirty percent of

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revenue, he increased the royalty rate by a proportional amount,

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arriving at the same final damages award.

In his first report, Mr. Parr noted that Federal

First Parr Rep. ¶ 185-87.

Order on MIL’s at 9.1

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See also First Parr Rep. ¶ 188 (“If the Court for this case
requires that a subdivision of revenues be used to more narrowly
define a royalty base attributed to the DRM invention, I believe
the appropriate revenue base might properly be estimated as 30%
. . . a conversion must be applied to equate the royalty
percentage of the previous Digital Reg and Adobe agreements which
contemplated a royalty based on the entire value of the accused
products . . . As a result, a royalty rate of 8.33% (2.5%/.3) must
be applied to the $13.23 million to arrive at the appropriate
damages of $1,102,500”).
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In his revised report, Mr. Parr apportioned the royalty base at

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thirty percent pursuant to the same analysis, but did not increase

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the royalty rate by a proportional amount.

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¶ 106.

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the previous requested amount.

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Parr did not insert any additional information into his analysis.

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Because Adobe did not challenge the analysis underlying the thirty

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percent apportionment the first time around, and the Court did not

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rule on that basis, Digital Reg had no reason or leave amend that

Revised Parr Rep.

This resulted in a damages award that is thirty percent of
Following the Court’s order, Mr.

United States District Court
For the Northern District of California

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analysis.

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Mr. Parr’s entire testimony, it would be unfair to do so on this

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undisclosed basis after the revised report has been served and

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trial has already begun.

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on cross-examination.

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Accordingly, even if it were a valid reason to exclude

Adobe may question Mr. Parr’s analysis

Second, Adobe takes issue with Mr. Parr’s use of the same

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royalty base as he did in his first report.

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Adobe’s separate motion in limine to exclude evidence of AMT from

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the case because it was not an accused product.

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that the royalty base still includes revenue from AMT.

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Reg disagrees, stating that Adobe never produced AMT financial

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information, which was the reason for the motion to compel which

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was denied by Magistrate Judge Westmore.

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12-13.

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technologies embedded within Adobe Acrobat Professional: LiveCycle

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Rights Management and Activation/AMT/ALM.

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has been eliminated, the jury could find that Adobe Acrobat

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Professional infringes through incorporation of LiveCycle Rights

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Management, which would justify the award of damages on that

The Court granted

Adobe alleges
Digital

See Order on MIL’s at

Moreover, Digital Reg explains that it accused two

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If the latter theory

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product.

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base (such as the contention that they do not represent Adobe’s

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alleged use of DRM technology) which go to the weight of the Mr.

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Parr’s testimony and not the propriety of his methodology.

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Adobe raises other problems with Digital Reg’s royalty

Third, Adobe attacks the credibility of Mr. Parr’s

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methodology, which yielded the same royalty rate regardless of the

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inputs he used.

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fifty profit split of imputed piracy savings (ten to fourteen

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percent) along with the application of other factors, to arrive at

In his first report, Mr. Parr assumed a fifty-

United States District Court
For the Northern District of California

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a 2.5% royalty rate.

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indicated that it was inclined to exclude Mr. Parr’s report, in

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part because of the fifty-fifty profit split and the unjustified

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use of industry-wide data to impute the piracy savings of Adobe.

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Before the Court issued its written order, Digital Reg drafted an

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unauthorized second report by Mr. Parr, which removed the fifty-

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fifty profit split analysis and relied instead on licenses by

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Symantec and EA that had not been introduced previously, again

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arriving at a 2.5% royalty rate.

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issued its order on the motions in limine, noting the existence of

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the second report and advising that the amounts of the EA and

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Symantec settlements could not be used2 because Digital Reg did

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not seek leave to amend diligently.

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After the Court’s order, Mr. Parr then published a third report,

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which adopted the thirty percent apportionment of the royalty base

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present in his earlier report.

At the motions in limine hearing, the Court

See Docket No. 630.

The Court

See Order on MIL’s at 10 n.6.

Regarding the royalty rate, he

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The amount of the unexercised option to license granted to
DRM/SiteScape also may not be used in the damages calculation.
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removed the fifty-fifty profit analysis, instead relying upon the

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royalty rates of various licensing agreements: Adobe’s plugin

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agreement and Digital Reg’s agreements with Intuit, Macrovision,

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and RPX, an entity which bundles patent rights and licenses them

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to members.

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calculated a 2.5% royalty rate.

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of the same 2.5% royalty rate, regardless of inputs or

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methodology, is troubling.

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question the accuracy of his methodology, Adobe may cross examine

Using these distinct data points, Mr. Parr again
Mr. Parr’s perpetual conclusion

Because his prior reports call into

United States District Court
For the Northern District of California

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Mr. Parr about his prior reports for the limited purpose of

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impeachment.

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1101, 1109 (9th Cir. 1983) (holding that district court should

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have allowed defendant to impeach expert witness with his prior

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deposition statement); Wipf v. Kowalski, 519 F.3d 380, 386 (7th

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Cir. 2008) (“As a general rule, there is certainly nothing

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problematic about asking an expert about materials he has read

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that relate to an issue at trial.”).

See Fed. R. Evid. 613; Wood v. Stihl, Inc., 705 F.2d

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Regarding the RPX Agreement, while the Court found that it

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was not comparable because it licensed multiple patents to over

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120 members,3 it is relevant because, if any of Digital Reg’s

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licensees were members, it might have depressed the value of those

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licenses.

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Agreement was considered only to the extent that it affected

According to Digital Reg, the amount of the RPX

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ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860, 872 (Fed.
Cir. 2010) (the expert “must consider licenses that are
commensurate with what the defendant has appropriated. If not, a
prevailing plaintiff would be free to inflate the reasonable
royalty analysis with conveniently selected licenses without an
economic or other link to the technology in question.”).
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Intuit’s royalty rate because Intuit is a member.

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revised report is ambiguous on the matter.

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royalty rate of the $13.35 million RPX Agreement to be 7.85%.

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Revised Parr Rep. ¶ 79.

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Agreement demonstrates the patents have high value of over $13

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million, the royalty rate is difficult to determine.

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04.

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considered the RPX Agreement royalty rate, while the second part

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shows he did not.

Mr. Parr’s

He calculates the

He then states that, although the RPX

Id. ¶¶ 103-

The first part of Mr. Parr’s revised report suggests that he

To be clear, Mr. Parr may not refer to the RPX

United States District Court
For the Northern District of California

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Agreement for any other reason other than the fact that Intuit was

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an RPX member.

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which forbade any mention of the high dollar amounts associated

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with the RPX Agreement because it would “skew the jury’s

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perception of a reasonable royalty.”

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avoid confusion, the amounts paid under the RPX Agreement are

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hereby stricken from Mr. Parr’s revised report.

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To do otherwise would violate the Court’s order,

Order on MIL’s at 12.

To

In sum, Mr. Parr’s revised report cures the threshold

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problems identified in the Court’s order.

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permitted to testify.

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the patents-in-suit for an amount larger than the other licenses.

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He may opine that Intuit was a member of RPX, which may have

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affected its royalty rate negotiations with Digital Reg.

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not, however, mention the actual amounts or royalty rates paid

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under the RPX Agreement.

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prior reports to the extent that they impeach his methodology and

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credibility.

Mr. Parr will be

He may testify that RPX licensed some of

He may

Mr. Parr may be questioned about his

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Adobe’s corresponding motion to seal (Docket No. 638) and

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Digital Reg’s motion to seal Mr. Parr’s revised damages report
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(Docket No. 636) are GRANTED because the majority of these

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documents reference confidential financial information of Adobe

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and third parties.

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IT IS SO ORDERED.
Dated: 8/27/2014
CLAUDIA WILKEN
United States District Judge

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United States District Court
For the Northern District of California

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