Brocade Communications Systems, Inc. et al v. A10 Networks, Inc. et al

Filing 998

ORDER RE SCOPE OF RETRIAL by Judge Paul S. Grewal denying 986 Motion ; denying 991 Motion to Strike (psglc2, COURT STAFF) (Filed on 5/15/2013)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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United States District Court
For the Northern District of California

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SAN JOSE DIVISION

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BROCADE COMMUNICATIONS SYSTEMS, )
INC., ET AL.,
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Plaintiffs,
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v.
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A10 NETWORKS, INC., ET AL.,
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Defendants.
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Case No.: C 10-3428 PSG
ORDER RE: SCOPE OF NEW TRIAL
(Re: Docket Nos. 986, 991)

Before the court are a motion brought by A10 Networks, Inc. (“A10”) to exclude patent

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damages evidence from Brocade Communications Systems, Inc., et al (“Brocade”) and to enter

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judgment on the damages and a motion brought by Brocade to strike A10’s request. Having

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considered the parties’ papers and arguments, the court DENIES both motions.

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The court first addresses Brocade’s motion to strike. Brocade argues that A10 improperly
seeks reconsideration of the court’s January 10, 2013 order and various Daubert determinations

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before the original trial. The court disagrees. Rather than a mere rehash of its earlier efforts,
A10’s present motion seeks to exclude Brocade’s patent damages evidence because the evidence

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Case No.: C 10-03428 PSG
ORDER

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impermissibly conflicts with the court’s January 10 order. 1 This is a distinction with a difference.
The court therefore will consider the motion.
Turning to A10’s request, A10 specifically moves to exclude from the upcoming retrial

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evidence from Brocade’s damages expert James Malackowski (“Malackowski”). Relying on the

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court’s January 10 order vacating the first jury’s patent damages award and setting a new trial, A10

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asserts that Malackowski’s testimony is no longer admissible, if it ever was. In that order, the court

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found that Brocade had not provided substantial evidence from which a reasonable jury could find
that the implementations of GSLB and HA on which Brocade owns the asserted patents drive

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For the Northern District of California

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consumer demand for A10’s infringing product. 2 Because Brocade had not made that showing, the

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court determined that Brocade could not rely on the Entire Market Value Rule (“EMVR”) and so

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also could not rely on A10’s entire revenue from its AX series product as the royalty base for its

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reasonable royalty damages estimates. 3 The court also found that Brocade failed to provide

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sufficient evidence to show that the AX Series was the “smallest saleable unit” of the specific
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implementations of the GSLB and HA features protected by Brocade’s patents, and so Brocade’s
reliance on the entire revenues from the AX Series had to be the result of an EMVR theory. 4

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Because of its findings in the reasonable royalty context, the court further determined that

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Brocade could not rely on the EMVR in the lost profits context. 5 Relying on DePuy Spine, Inc. v.

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Medtronic Sofamor Danek, Inc., 6 the court nevertheless found that Brocade had presented

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sufficient evidence to support the first two factors of a Panduit theory for lost profits, specifically

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See Docket Nos. 667, 845.

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See Docket No. 845.

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See id.

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See id.

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See id.

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567 F.3d 1314 (Fed. Cir. 2009); see also Presidio Components Inc. v. Am. Technical Ceramics
Corp., 702 F.3d 1351, 1360 (Fed. Cir. 2012).
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ORDER

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demand for a directly competing product and an absence of non-infringing alternatives. 7 The court

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did not discuss the other two Panduit factors because it determined that the jury’s damages award

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entries needed to be vacated in any event because they were irreconcilable and problematic in light

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of the lack of substantial evidence for an EMVR theory of a reasonable royalty. 8

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Following the court’s order, the parties entered into a stipulation regarding the scope of
evidence to be presented at the new trial. 9 The stipulation provides:

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[T]he entire record of the July 16 Trial shall be deemed admissible; subject to, (a) all prior
objections and rulings are hereby preserved, and (b) the parties reserve objections to any
particular piece of evidence or testimony under FRE 401-403 as may pertain to which
evidence is properly presented in light of the scope of the Retrial. New evidence, other than
new testimony of the live expert witnesses . . . , shall not be permitted. No opinions beyond
the scope of the Parties’ prior expert reports, or beyond the testimony given by the experts
during the July 16 trial, as they relate to the Retrial, are permitted to be offered during
direct examinations. 10

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For the Northern District of California

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In the stipulation, A10 noted its objection to “any retrial of the [intentional interference with

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contractual relations] punitive damages claim along with the patent damages claim, and intends to

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present a motion to the Court on that subject,” and both parties agreed that at the pretrial

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conference, “the Court may rule upon any pretrial motions and/or objections (including but not

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limited to the limiting impact, if any, of the JMOL order).” 11

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A10 now asserts that because of that agreement and the court’s January 10 order finding
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Brocade’s evidence insufficient to support any EMVR theory, Brocade has no evidence from
which to provide a viable theory of lost profits or reasonable royalty damages. A10 thus seeks

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See Docket No. 845

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See id.

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See Docket No. 906.

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Id.

Id. In an order dated April 29, 2013, the court agreed with A10 that a retrial of the punitive
damages was not warranted. See Docket No. 935.
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ORDER

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entry of judgment in the amount of zero dollars because, according to A10, Brocade cannot satisfy

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its burden to show damages. In the alternative, A10 is willing to consent to entry of the lump sum

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amount of royalty damages to which its expert testified in the original trial.

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The court notes that A10 is equally obligated to the restrictions of the stipulation to which it
seeks to bind Brocade. And so A10 has waived any admissibility challenges to Brocade’s patent
damages other than objections on Fed. R. Evid. 401, 402, or 403 grounds. The court therefore does

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not consider any Fed. R. Evid. 702 challenges to the patent damages evidence.
As for those challenges that A10 may pursue, the court finds that Brocade’s patent damages

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For the Northern District of California

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evidence is at the very least relevant to its damages theories. As described above, the court did not

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find that Brocade failed to produce substantial evidence of any lost profits theory, only that it could

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not rely on the EMVR in the lost profits context. A10 maintains that Brocade still must apportion

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the profits. A10’s argument is appealing, but it has not cited any Supreme Court or Federal Circuit

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case requiring an apportionment when a patentee claims lost profits based on Panduit. Nor do any
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of the cases it does cite arise in the context of a Panduit-based lost profits claim. 12 To the extent

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that Brocade’s patent damages evidence supports a non-EMVR lost profits theory, the unfair

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prejudice does not substantially outweigh the probative value, as required for exclusion under Rule

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403.

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A10 cites Rite-Hite Corp. v. Kelly Co., 56 F.3d 1538, 1549 (Fed. Cir. 1995), in which the Federal
Circuit addressed the EMVR in the lost profits context and indirectly referenced apportionment in
its discussion of the need to show consumer demand to pursue an EMVR theory in lost profits. In
Rite-Hite, the court also discussed how Panduit satisfied the “but for” causation a patentee must
show to recover lost profits from an infringing product that directly competed with the patentee’s
product. See id. at 1546-47. The other case A10 cites, Uniloc USA, Inc. v. Microsoft Corp, 632
F.3d 1292, 1318 (Fed. Cir. 2011), addressed apportionment in the EMVR context, but did not
discuss either lost profits generally or Panduit specifically.
Panduit is an alternative theory of establishing lost profits, see Presidio Components Inc., 702 F.3d
at 1360, DePuy Spine, 567 F.3d at 1331, and A10 has not provided case law that supports its
argument that under that theory, apportionment is necessary. The Federal Circuit very recently
opined that the Panduit factors “place no qualitative requirement on the level of demand necessary
to show lost profits,” see Versata Software, Inc. v. SAP America, Inc., --- F.3d --- (Fed. Cir. 2013),
thus suggesting that apportionment – at least as consumer demand stands as a way of showing
apportionment – is unnecessary under Panduit.
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Case No.: C 10-03428 PSG
ORDER

As for the reasonable royalty theory, the court admits it is confused why Brocade agreed to

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limit itself to the evidence and record of the first trial when the court already determined that it

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could not satisfy either the smallest-saleable-unit doctrine or the EMVR with the evidence it

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presented there. Brocade suggests that Malackowski can use the same evidence and opinions and

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somehow come into compliance with both limits on damages recovery because, Uniloc USA, Inc.

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v. Microsoft Corp. 13 and LaserDynamics, Inc. v. Quanta Computer, Inc. 14 notwithstanding,

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Malackowski’s theory passes muster under Lucent Technologies, Inc. v. Gateway, Inc. 15 In Lucent,
the Federal Circuit stated that “the base used in a running royalty calculation can always be the

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For the Northern District of California

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value of the entire commercial embodiment, as long as the magnitude of the rate is within an

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acceptable range (as determined by the evidence).” 16 In Uniloc and LaserDynamics, separate

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three-judge panels seemingly disavowed this language, with the LaserDynamics court observing

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that “it is generally required that royalties be based not on the entire product, but instead on the

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‘smallest salable patent-practicing unit’” and so “the requirement to prove that the patented feature
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drives demand for the entire product may not be avoided by the use of a very small royalty rate.” 17

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Acting en banc or otherwise, the Federal Circuit has not, however, overruled Lucent’s holding

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regarding the use of a small royalty rate with an entire apparatus’s revenues.

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According to Brocade, its theory does not run afoul of Uniloc or LaserDynamics because it

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is not relying on the EMVR but rather on a presentation that the AX Series is the smallest saleable

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unit and so it may still rely permissibly on the entire revenue from its sales as the royalty base. The

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court has its doubts, given its previous holding that in the first trial Brocade did not established that
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632 F.3d 1292 (Fed. Cir. 2011).

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694 F.3d 51 (Fed. Cir. 2012).

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580 F.3d 1301 (Fed. Cir. 2009).

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Id. at 1338-39.

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694 F.3d at 67; see also Uniloc, 632 F.3d at 1320.
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Case No.: C 10-03428 PSG
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the AX Series is the smallest saleable unit and also because, even if it is, another, second, EMVR
or apportionment analysis may be necessary. 18
But given the Federal Circuit’s variety of opinions, the court cannot say at this point that

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Malackowski’s testimony presents such unfair prejudice that it substantially outweighs any

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probative value to Brocade’s case for damages. The court therefore will not exclude all evidence

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of patent damages given the statutory requirement of an award of reasonable royalty damages upon
a finding of infringement 19 and given that Brocade has suggested it can use the same evidence and
avoid conflicting with the court’s January 10 order. But the court cautions Brocade to heed the

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For the Northern District of California

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Federal Circuit’s warning in Uniloc regarding the introduction of a product’s entire revenue

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without a corresponding showing that the EMVR is appropriate. The court has its doubts, but is

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willing to give Brocade an opportunity to present a theory that can survive the Federal Circuit’s

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directives and this court’s order.

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Having determined that the retrial will go forward as scheduled, the court turns to other
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disputes the parties raised in their pretrial papers. First, Brocade and A10 dispute whether the

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parties must read their transcript designations from the first trial into the record or whether they

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simply can supply the jury with a binder of transcripts. The court agrees with A10 that providing

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the jury with binders of transcripts is problematic. But the court does not agree that the only other

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option is to read the transcripts into the record. The court thus changes the terms of the parties’

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stipulation to allow them either to read the transcripts into the record or to present live witnesses

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See AVM Tech., LLC v. Intel Corp., Case No. 10-610-RGA, 2013 WL 126233, at *3 (D. Del.
Jan. 4, 2013) (“The use of a saleable unit that is greater than the patented feature is going to
introduce Uniloc error when the patented feature is a ‘date picker’ whether the saleable unit is a
computer loaded with ‘Outlook’ or simply ‘Outlook.’”).

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See 35 U.S.C. § 284 (“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, together with interest and costs as fixed by the court.”).
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Case No.: C 10-03428 PSG
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who may testify within the scope of their testimony from the first trial. Accordingly, the parties

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shall have two extra hours to present their respective cases for a total of eight hours per side.

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As to Brocade’s blanket Fed. R. Evid. 703 challenge to A10’s desire to publish

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inadmissible evidence on the grounds that its expert relied on the materials, the court will

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determine the propriety of the publications on an exhibit-by-exhibit basis. The parties agreed at the

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pretrial conference to meet and confer regarding objections to exhibits and transcript designations.

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As the court ordered then and repeats now, the parties shall submit no later than Thursday, May 16,
2013, their narrowed list of exhibit and transcript designation objections. They shall also submit

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For the Northern District of California

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with those objections electronic and hard copy versions of the exhibits and transcript designations

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for the court to review. Per the parties’ stipulation, the court will consider only Fed. R. Evid. 401,

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402, or 403 objections to the admissibility of the evidence and will consider Fed. R. Evid. 703

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challenges only as to material not previously published to the jury in the first trial.

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Along with the exhibits and transcript designations, the parties also shall provide to the
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court by Thursday, May 17, 2013 an update regarding the dispute over the neutral statement to be

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read during jury selection and presumably as part of the jury instructions. If a dispute remains, the

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parties shall submit their proposed statements along with a one-page, single-spaced brief detailing

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their arguments and objections.

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IT IS SO ORDERED.
Dated: May 15, 2013

_________________________________
PAUL S. GREWAL
United States Magistrate Judge

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Case No.: C 10-03428 PSG
ORDER