Apple Inc. v. Samsung Electronics Co., Ltd. et al

Filing 1535

ORDER DENYING SAMSUNG'S MOTION TO STRIKE PORTIONS OF DR. VELLTURO'S SUPPLEMENTAL EXPERT REPORT, RE: [1420-3] [PUBLIC REDACTED VERSION]. Signed by Judge Lucy Koh on 3/28/14. (lhklc5S, COURT STAFF) (Filed on 3/28/2014)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

United States District Court
For the Northern District of California

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SAN JOSE DIVISION

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APPLE, INC., a California corporation,

)
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Plaintiff and Counterdefendant,
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v.
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SAMSUNG ELECTRONICS CO., LTD., a
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Korean corporation; SAMSUNG
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ELECTRONICS AMERICA, INC., a New York )
corporation; and SAMSUNG
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TELECOMMUNICATIONS AMERICA, LLC, )
a Delaware limited liability company,
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Defendants and Counterclaimants. )
)

Case No.: 12-CV-00630-LHK
ORDER DENYING SAMSUNG’S
MOTION TO STRIKE PORTIONS OF
DR. VELLTURO’S SUPPLEMENTAL
EXPERT REPORT
[PUBLIC REDACTED VERSION]

Samsung moves to strike portions of Apple’s February 17, 2014 Supplemental Expert

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Report of Christopher A. Vellturo, Ph.D. as untimely under Fed. R. Civ. P. 26 and contrary to this

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Court’s prior rulings regarding off-the-market lost profits. See ECF No. 1420-3 (“Mot.”). Apple

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filed an Opposition, and Samsung filed a Reply. See ECF Nos. 1438-3 (“Opp’n”), 1445. Having

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considered the briefing, relevant record, and applicable law, the Court DENIES the Motion for the

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reasons stated below.

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Case No.: 12-CV-00630-LHK
ORDER DENYING SAMSUNG’S MOTION TO STRIKE PORTIONS OF DR. VELLTURO’S SUPPLEMENTAL
EXPERT REPORT

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I.

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BACKGROUND
On February 4, 2014, the parties stipulated to exchange updated sales information for

accused products, as well as “supplemental calculations of damages incorporating” that data. ECF

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Nos. 1235, 1239. On February 17, 2014, the agreed date for exchanging supplemental calculations,

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Apple served Dr. Vellturo’s Supplemental Report addressing Apple’s asserted damages. Samsung

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seeks to strike two aspects of Dr. Vellturo’s Supplemental Report. First, Samsung argues that Dr.

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Vellturo’s new analysis of Apple’s off-the-market lost profits for the ’647 patent contradicts this

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Court’s ruling on damages in a prior case involving Apple and Samsung, No. 11-CV-1846-LHK.

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See Mot. at 2-5; see also Joint Pretrial Statement at 13-14, 22-23 (ECF No. 1336) (noting dispute).

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United States District Court
For the Northern District of California

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Second, Samsung attacks Dr. Vellturo’s attempts to rely on certain new deposition testimony and

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sales information produced after his August 12, 2013 Opening Report. See Mot. at 2 n.1. Apple

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opposes.

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II.

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LEGAL STANDARDS
Samsung moves to strike pursuant to Fed. R. Civ. P. 26, contending that Apple failed to

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timely disclose Dr. Vellturo’s opinions under Rule 26(a)(2). See Mot. at 3. As the moving party,

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Samsung bears the burden of showing a discovery violation has occurred. See, e.g., Dong Ah Tire

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& Rubber Co. v. Glasforms, Inc., No. 06-CV-3359, 2008 WL 4786671, at *2 (N.D. Cal. Oct. 29,

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2008). Once Samsung satisfies that burden, it becomes Apple’s burden to show that Apple’s

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failure to comply with Rule 26 was either justified or harmless. See Yeti by Molly Ltd. v. Deckers

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Outdoor Corp., 259 F.3d 1101, 1106-07 (9th Cir. 2001).

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III.

DISCUSSION

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A.

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On November 7, 2013, in a prior case involving Apple and Samsung, Apple, Inc. v.

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Samsung Electronics Co., Ltd., No. 5:11-CV-1846-LHK (N.D. Cal.) (“Apple I”), this Court

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addressed the parties’ arguments about the proper timing for analyzing Apple’s asserted off-the-

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market (or “blackout”) lost profits—damages corresponding to times when Samsung was allegedly

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infringing but should have been unable to sell the accused products until Samsung had built non-

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Off-the-Market Lost Profits for the ’647 Patent

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Case No.: 12-CV-00630-LHK
ORDER DENYING SAMSUNG’S MOTION TO STRIKE PORTIONS OF DR. VELLTURO’S SUPPLEMENTAL
EXPERT REPORT

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infringing alternatives. The issue presented was whether potential design-arounds must be

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considered beginning on the date of first infringement, or on the date when Samsung first received

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notice of infringement. See Order Re: Design Around Start Dates at 1-2, Apple I (N.D. Cal. Nov.

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7, 2013) (“Apple I Order”). Under the circumstances that the parties presented in Apple I, the

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Court accepted Samsung’s position and ruled that “one would need to begin the analysis at the date

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of first infringement to avoid arbitrarily ignoring actions the infringer could have taken in lieu of

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infringing.” Id. at 5. That ruling reduced Apple’s damages demand in Apple I by $305 million.

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See Opp’n at 4.

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Turning to the present case, Samsung used the same arguments about design-around dates

United States District Court
For the Northern District of California

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to restrict Apple’s damages theories in this second litigation. On October 10, 2013, Samsung filed

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a Daubert motion to exclude Dr. Vellturo’s opinions on off-the-market lost profits. See Samsung

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Mot. to Exclude Ops. at 13 (ECF No. 802-3). In his Opening Report on Apple’s damages theories

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in this case, Dr. Vellturo analyzed off-the-market lost profits based on notice dates, not first

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infringement dates. See Opening Expert Rpt. of Christopher A. Vellturo, Ph.D. (“Vellturo Opening

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Rpt.”) ¶ 306, Tbl. 4. For four of Apple’s five asserted patents, the date of first infringement

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preceded the notice date. See id. By requiring Dr. Vellturo to analyze non-infringing alternatives

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at the earlier dates of first infringement instead of the later notice dates, Apple’s lost profits

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recovery would drop by as much as $

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802-3). In its Daubert motion to exclude Dr. Vellturo’s initial opinions about blackout damages,

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Samsung wielded the same arguments about design-around dates that it asserted in Apple I: “Dr.

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Vellturo’s failure to use the date of first infringement for his lost profits calculations is improper.”

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Id. On February 25, 2014, the Court granted Samsung’s Daubert motion to preclude Dr. Vellturo

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from using “notice dates rather than first-infringement dates in his lost profits analysis” because

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“this Court ruled in favor of Samsung on that issue” in Apple I. Feb. 25, 2014 Order at 2-3 (ECF

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No. 1326).

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. Samsung Mot. to Exclude Ops. at 13 (ECF No.

On February 17, 2014 (after the Apple I Order, and while Samsung’s Daubert motion in the
instant case was pending), Apple served Dr. Vellturo’s Supplemental Report, which now includes
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Case No.: 12-CV-00630-LHK
ORDER DENYING SAMSUNG’S MOTION TO STRIKE PORTIONS OF DR. VELLTURO’S SUPPLEMENTAL
EXPERT REPORT

1

off-the-market lost profits calculations for the ’647 patent using the date of first infringement. For

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the ’647 patent, the current alleged date of first infringement (

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notice date (

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(“Vellturo Supp. Rpt.”) ¶ 5; Vellturo Opening Rpt. ¶ 306, Tbl. 4. Previously, Dr. Vellturo did not

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calculate such damages for the ’647 patent because the notice date preceded infringement. See

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Vellturo Opening Rpt. ¶ 309. Now, by analyzing non-infringing alternatives on the first date of

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infringement instead of the earlier notice date, Dr. Vellturo opines that Apple is entitled to an

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additional $

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¶¶ 4-6; Mot. at 1.

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For the Northern District of California

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) falls after the

). See Supplemental Expert Rpt. of Christopher A. Vellturo, Ph.D.

in off-the-market lost profits for the ’647 patent. See Vellturo Supp. Rpt.

Despite prevailing in the Apple I Order and in its Daubert motion in the instant case,

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Samsung now argues that Dr. Vellturo’s new off-the-market lost profits calculations for the ’647

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patent should be stricken—even though they are based on design-around periods beginning on the

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first infringement date. According to Samsung, the Apple I Order does not require that design-

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arounds be analyzed at the date of first infringement if the notice date is earlier. Mot. at 4-5.

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However, Samsung maintains that the date of first infringement is still the appropriate date for

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Apple’s four other patents for which the date of first infringement precedes the notice date. On the

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other hand, Apple contends that this Court has already held that design-arounds should be analyzed

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as of the first infringement date, and points out that Samsung advocated such a rule but now

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contradicts itself to reduce its potential damages exposure for the ’647 patent. Opp’n at 2-4.

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Samsung’s arguments are unpersuasive. The Court concludes that Dr. Vellturo’s

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supplemental opinions on blackout damages for the ’647 patent are not inconsistent with the Apple

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I Order. In Apple I, this Court held that “potential design arounds ought to be considered as of the

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date of first infringement,” based on the relevant dates and issues presented in that dispute. Apple I

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Order at 10. The Court applied the underlying reasoning of Federal Circuit precedent in

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concluding that “reconstructing the hypothetical market requires one to factor out infringement

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entirely,” and that it is legally improper to “arbitrarily ignor[e] actions the infringer could have

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taken in lieu of infringing.” Id. at 5. Specifically, in Grain Processing Corp. v. American Maize-

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Case No.: 12-CV-00630-LHK
ORDER DENYING SAMSUNG’S MOTION TO STRIKE PORTIONS OF DR. VELLTURO’S SUPPLEMENTAL
EXPERT REPORT

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Products, the Federal Circuit addressed lost profits and stated that “a fair and accurate

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reconstruction of the ‘but for’ market also must take into account, where relevant, alternative

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actions the infringer foreseeably would have undertaken had he not infringed.” 185 F.3d 1341,

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1350-51 (Fed. Cir. 1999).

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However, Grain Processing also confirmed that “[t]he critical time period for determining

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availability of an alternative is the period of infringement for which the patent owner claims

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damages, i.e., the ‘accounting period.’” Id. at 1353 (citation omitted). This is because the lost

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profits inquiry is based on what the patentee would have earned “had the Infringer not infringed.”

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Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S. 476, 507 (1964) (citation omitted); see

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For the Northern District of California

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also Grain Processing, 185 F.3d at 1349 (“To recover lost profits, the patent owner must show

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‘causation in fact,’ establishing that ‘but for’ the infringement, he would have made additional

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profits.” (citing King Instruments Corp. v. Perego, 65 F.3d 941, 952 (Fed. Cir. 1995)).

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Accordingly, the Federal Circuit has held that the relevant time frame for assessing lost profits

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(including the absence of non-infringing alternatives) is during the period of infringement, when

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the infringer made sales that would have otherwise gone to the patentee.

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Contrary to these principles, Samsung now proposes a rule that would require analysis of
potential design-arounds before the infringement period—in this case, on the notice date of
, which precedes the first infringement date of

by over one year. See

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Vellturo Supp. Rpt. ¶ 5. Samsung provides no authority that requires assessing design-arounds

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before infringement even began, when no lost profits could have been available. Indeed, Grain

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Processing counsels that “[w]hen an alleged alternative is not on the market during the accounting

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period, a trial court may reasonably infer that it was not available as a noninfringing substitute at

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that time,” and the infringer “then has the burden to overcome this inference by showing that the

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substitute was available during the accounting period.” 185 F.3d at 1353 (emphases added).

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According to Apple’s allegations, Samsung decided to infringe instead of designing around the

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’647 patent, despite receiving notice more than a year earlier. See Opp’n at 4. As a factual matter,

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Samsung may show that various non-infringing alternatives were developed before Samsung’s first

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Case No.: 12-CV-00630-LHK
ORDER DENYING SAMSUNG’S MOTION TO STRIKE PORTIONS OF DR. VELLTURO’S SUPPLEMENTAL
EXPERT REPORT

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infringement date and were available during the relevant accounting period. See Apple I Order at

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5. However, Samsung provides insufficient justification for holding, as a matter of law, that a

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patentee’s damages expert must consider non-infringing alternatives at a notice date that precedes

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the infringement accounting period.

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Furthermore, under Samsung’s current view, early notice of infringement would make it

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easier for an infringer to avoid liability for lost profits because the infringer could choose to

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infringe and later assert the availability of design-arounds at the earlier notice date, instead of the

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date it first infringed. Also, an infringer could be subject to potentially greater lost profits damages

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if it received notice after infringing, instead of before. Such a rule could create a disincentive for a

United States District Court
For the Northern District of California

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patentee to provide early notice or for an accused infringer to pursue early non-infringing

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alternatives. Indeed, Samsung previously argued that early notice should be encouraged: “If Apple

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were right about the law, the statute intended to encourage early notice would reward not giving

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early notice.” Samsung’s Resp. to Apple’s Statement Regarding Design Around Dates at 5, Apple

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I (ECF No. 2598). Samsung’s current position regarding the ’647 patent runs contrary to this

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principle.

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Moreover, as Apple points out, Samsung vigorously argued that design-around periods

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must begin with the date of first infringement as a matter of law, but now retreats from that

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position to avoid lost profits liability for the ’647 patent. See Opp’n at 2-4. In Apple I, Samsung

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insisted that the proper design-around date is the first infringement date, not the notice date. See

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Samsung’s Mot. to Strike at 3-4, Apple I (ECF No. 2386) (“When calculating lost profits, courts

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look to whether noninfringing design arounds are available starting on the date of first

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infringement—even if it is earlier than the notice date.”); Oct. 10, 2013 Tr. of Proceedings at

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127:3-8, Apple I (ECF No. 2535) (“[F]or lost profits design around starts at the date of first

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infringement. It does not happen at the notice date.”); Samsung’s Resp. to Apple’s Statement

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Regarding Design Around Dates at 2, Apple I (ECF No. 2598) (“Apple’s Improper Methodology Is

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Contrary to Law”); Samsung’s Statement Regarding the Court’s Order, Apple I (ECF No. 2530).

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Case No.: 12-CV-00630-LHK
ORDER DENYING SAMSUNG’S MOTION TO STRIKE PORTIONS OF DR. VELLTURO’S SUPPLEMENTAL
EXPERT REPORT

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Then, after obtaining a favorable ruling on this issue in Apple I, Samsung successfully

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moved in this case to exclude Dr. Vellturo’s opinions in his Opening Report regarding off-the-

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market lost profits based on the notice dates for Apple’s patents, without ever addressing a possible

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exception for the ’647 patent. See Samsung’s Mot. to Exclude Ops. at 13 (ECF No. 802-4) (“This

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is contrary to the law: when calculating lost profits, courts look to whether non-infringing design

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arounds are available starting on the date of first infringement – even if it is earlier than the notice

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date.”); Samsung’s Reply in Supp. of Mot. to Exclude Ops. at 9 (ECF No. 948-4) (“Apple’s efforts

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. . . to justify Dr. Vellturo’s design-around period for his lost profits calculation are contrary to the

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Court’s recent ruling in NDCA I that, as a matter of law, the design-around period must commence

United States District Court
For the Northern District of California

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on the date of the first infringement, not on the notice date.”).

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Neither party has timely raised this issue to the Court, for Apple did not supplement Dr.

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Vellturo’s opinions for the ’647 patent until February 17, 2014, more than three months after the

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Apple I Order. However, it is far too late for Samsung to reverse positions regarding design-around

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dates. Because Samsung has failed to provide a sufficient legal basis for excluding Dr. Vellturo’s

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Supplemental Report in light of the Apple I Order, Samsung’s motion to strike is DENIED with

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respect to opinions on off-the-market lost profits for the ’647 patent.

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B. Reliance on Other Discovery

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In a footnote, Samsung also seeks to preclude Dr. Vellturo from relying on (1) new

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depositions of Google employees, (2) new data about certain accused Apple products, and (3)

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adjustments to reasonable royalty calculations for time periods based on new Samsung product

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data. See Mot. at 2 n.1. Samsung fails to demonstrate that any of these updates are impermissible.

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The parties plainly agreed to supplement their experts’ damages calculations based on

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updated sales information. See ECF No. 1235 at 2 (“The parties agree to exchange supplemental

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calculations of damages incorporating Updated Financial Data . . . .”). Each of Dr. Vellturo’s

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supplementations to which Samsung objects appears to fall within the scope of the parties’

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stipulation. Regarding depositions, Dr. Vellturo identifies two Google depositions that took place

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on August 16, 2013, shortly after his Opening Report, and reserves the ability to cite those

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Case No.: 12-CV-00630-LHK
ORDER DENYING SAMSUNG’S MOTION TO STRIKE PORTIONS OF DR. VELLTURO’S SUPPLEMENTAL
EXPERT REPORT

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materials to “reinforce” his original opinions. See Vellturo Supp. Rpt. ¶ 28 & nn. 22, 23. Thus,

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Dr. Vellturo does not appear to introduce new opinions based on these materials, and the

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depositions that took place seven months ago cannot be a surprise to Samsung. As to new data

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about Apple products, Dr. Vellturo claims to update market share calculations “using methods

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previously disclosed” to account for new numbers, such as “exclud[ing] products for which I

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observe no unit sales by the end of 2013.” Id. ¶¶ 21-25. Dr. Vellturo also updates his reasonable

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royalty conclusions about customers repurchasing smartphones based on Samsung’s newly

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produced data. See id. ¶¶ 14-15. Samsung offers no explanation for why these updates would be

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impermissible uses of new data, particularly given Apple’s representation that these changes

United States District Court
For the Northern District of California

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actually reduce Apple’s asserted damages. See Opp’n at 4 n.3. Accordingly, Samsung’s motion to

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strike these modifications to Dr. Vellturo’s Opening Report is DENIED.

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IV.

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CONCLUSION
For the foregoing reasons, Samsung’s motion to strike portions of Dr. Vellturo’s

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Supplemental Report is DENIED.

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IT IS SO ORDERED.

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Dated: March 28, 2014

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________ ________________________
LUCY H. KOH
United States District Judge

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Case No.: 12-CV-00630-LHK
ORDER DENYING SAMSUNG’S MOTION TO STRIKE PORTIONS OF DR. VELLTURO’S SUPPLEMENTAL
EXPERT REPORT