Federal Trade Commission v. Qualcomm Incorporated

Filing 975

Order by Judge Lucy H. Koh Denying 799 Motion to Exclude Expert Reports of Richard Donaldson. (lhklc2S, COURT STAFF) (Filed on 12/10/2018)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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SAN JOSE DIVISION

United States District Court
Northern District of California

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FEDERAL TRADE COMMISSION, et al.,

Case No. 17-CV-00220-LHK

Plaintiffs,

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ORDER DENYING DEFENDANT'S
MOTION TO EXCLUDE EXPERT
REPORTS OF RICHARD L.
DONALDSON

v.

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QUALCOMM INCORPORATED, et al.,

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Defendants.

Re: Dkt. No. 799

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Before the Court is Defendant Qualcomm Incorporated’s (Qualcomm”) motion to exclude

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the expert reports of Richard L. Donaldson. ECF No. 799. Having considered the parties’ briefs,

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the relevant law, and the record in this case, the Court DENIES Qualcomm’s motion.

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I.

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LEGAL STANDARD
Federal Rule of Evidence 702 allows admission of “scientific, technical, or other

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specialized knowledge” by a qualified expert if it will “help the trier of fact to understand the

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evidence or to determine a fact in issue.” Fed. R. Evid. 702. Expert testimony is admissible

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pursuant to Rule 702 if it is both relevant and reliable. Daubert v. Merrell Dow Pharms., Inc., 509

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U.S. 579, 589 (1993). An expert witness may provide opinion testimony if: (1) the testimony is

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DONALDSON

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based upon sufficient facts or data; (2) the testimony is the product of reliable principles and

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methods; and (3) the expert has reliably applied the principles and methods to the facts of the case.

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Fed. R. Evid. 702.

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When considering expert testimony offered pursuant to Rule 702, the trial court acts as a

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“gatekeeper” by “making a preliminary determination that the expert’s testimony is reliable.”

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Elsayed Mukhtar v. Cal. State Univ., Hayward, 299 F.3d 1053, 1063 (9th Cir. 2002). In Daubert,

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the United States Supreme Court identified “four factors that may bear on the analysis”: (1)

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whether a theory or technique can be and has been tested; (2) whether the theory or technique has

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been subjected to peer review and publication; (3) the known or potential rate of error; and (4)
whether the theory is generally accepted in the scientific community. Murray v. S. Route Maritime

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United States District Court
Northern District of California

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SA, 870 F.3d 915, 922 (9th Cir. 2017) (citing Daubert, 509 U.S. at 593-94). However, the Ninth

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Circuit has explained that “the reliability analysis remains a malleable one tied to the facts of each

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case” and that the “Daubert factors are exemplary, not constraining.” Id. The Ninth Circuit has

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also stated that “[i]t is important to remember that the factors are not ‘equally applicable (or

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applicable at all) in every case,’” and that “[a]pplicability ‘depend[s] on the nature of the issue, the

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expert’s particular expertise, and the subject of his testimony.’” Id. (first quoting Daubert v.

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Merrell Dow Pharm., Inc., 43 F.3d 1311, 1317 (9th Cir. 1995), then quoting Kumho Tire Co. v.

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Carmichael, 526 U.S. 137, 150 (1999)) (third alteration in original).

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“Because of the fluid and contextual nature of the inquiry, district courts are vested with

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‘broad latitude’ to ‘decid[e] how to test an expert’s reliability’ and ‘whether or not [an] expert’s

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relevant testimony is reliable.’” Id. (quoting Kumho Tire, 526 U.S. at 152-53) (alterations and

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emphasis in original). Thus, the Court “may permissibly choose not to examine factors that are not

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‘reasonable measures of reliability in a particular case.’” Id. (quoting Kumho Tire, 526 U.S. at

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153); see also id. at 924 (“District courts have broad range to structure the reliability inquiry and

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may choose not to comment on factors that would not inform the analysis.”).

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Moreover, the inquiry into admissibility of expert opinion is a “flexible one,” where
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ORDER DENYING DEFENDANT'S MOTION TO EXCLUDE EXPERT REPORTS OF RICHARD L.
DONALDSON

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“[s]haky but admissible evidence is to be attacked by cross examination, contrary evidence, and

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attention to the burden of proof, not exclusion.” Primiano v. Cook, 598 F.3d 558, 564 (9th Cir.

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2010) (citing Daubert, 509 U.S. at 594, 596). “Under Daubert, the district judge is ‘a gatekeeper,

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not a fact finder.’ When an expert meets the threshold established by Rule 702 as explained in

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Daubert, the expert may testify and the jury decides how much weight to give that testimony.” Id.

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(quoting United States v. Sandoval-Mendoza, 472 F.3d 645, 654 (9th Cir. 2006)).

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II.

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DISCUSSION
Qualcomm moves to exclude Donaldson’s opinions on four grounds. First, Qualcomm

argues Donald’s opinions “are nothing more than his improper speculation regarding the
subjective intent and motivations of the parties to specific licensing negotiations to which Mr.

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Northern District of California

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Donaldson was not privy.” ECF No. 799 (“Mot.”) at 1. Second, Qualcomm attacks Donaldson’s

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methodology of interpreting six licensing negotiations among hundreds of others “without any

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independent methodology as to why his narrow sample is representative.” Id. Third, Qualcomm

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argues that there are “a number of variables that factor into any licensing negotiation,” but

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Donaldson fails to control for them. Id. at 8. Fourth, Qualcomm believes that Donaldson’s

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experience with his former employer, Texas Instruments (“TI”), does not give him sufficient basis

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to opine on component-level licensing in the cellular industry. Id. at 1-2. The Court addresses each

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argument in turn.

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Donaldson’s Opinions Regarding the Intent and Motivations of Parties to
Licensing Negotiations are Not Improper Speculation
Qualcomm argues that Donaldson’s opinions regarding licensing negotiation are
“speculation concerning the subjective intent and motivation of certain third parties who
negotiated license agreements with Qualcomm.” Mot. at 4. The Federal Trade Commission
(“FTC”) argues that Donaldson is permissibly relying upon the statements of other fact witnesses
to arrive at his conclusions. ECF No. 868 at 16 (“Opp.”). The FTC has the better argument here.
“The U.S. Supreme Court recognized in Daubert that ‘[u]like an ordinary witness, an

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expert is permitted wide latitude to offer opinions, including those that are not based on firsthand
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knowledge or observation.’” In re Arris Cable Modem Consumer Litig., 327 F.R.D. 334, 363

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(N.D. Cal. 2018) (quoting Daubert, 509 U.S. at 592). In fact, “[a]n expert is of course permitted to

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testify to an opinion formed on the basis of information that is handed to rather than developed by

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him—information of which he lacks first-hand knowledge and which might not be admissible in

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evidence no matter by whom presented.” Id. (quoting In re NJOY, Inc. Consumer Class Action

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Litig., 120 F. Supp. 3d 1050, 1071 (C.D. Cal. 2015)). Moreover, Fed. R. Evid. 703 states that “[a]n

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expert may base an opinion on facts or data in the case that the expert has been made aware of . . .

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.” (emphasis added).

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Here, Donaldson permissibly relied upon the testimony of third parties negotiating licenses
with Qualcomm to arrive at his opinions regarding licensing negotiations. In his deposition,

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Northern District of California

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Donaldson noted that he “accept[ed] that what . . . [the third parties] testified to was true.” ECF

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No. 868-2 at 117:22-23. In fact, Qualcomm does not dispute that Donaldson was relying on third

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party testimony—Qualcomm’s reply brief contends that Qualcomm’s licensees “can speak for

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themselves at trial.” ECF No. 896 at 4 (“Reply”). Under Arris, Donaldson is permitted to form an

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opinion about Qualcomm’s licensing practices based on third party testimony regarding those

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practices. Similarly, in Sementilli v. Trinidad Corp., the Ninth Circuit found admissible a doctor’s

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opinion in a slip and fall case even though the doctor did not personally conduct an examination of

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the slip and fall plaintiff. 155 F.3d 1130, 1134 (9th Cir. 1998). The Ninth Circuit held that the

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doctor’s “opinions and inferences were based on his review of medical records, as well as his

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knowledge, experience, training and education.” Id. Like the doctor in Sementilli, Donaldson may

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rely upon his own knowledge, experience, training and education to form opinions as to

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Qualcomm’s licensing practices based on third party evidence presented to him. To the extent that

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Qualcomm believes Donaldson’s conclusions and interpretations of this third party testimony are

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incorrect, Qualcomm may cross-examine Donaldson at trial.

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Donaldson Did Not Improperly Base His Opinions on a Handful of License
Negotiations
Qualcomm argues that Donaldson impermissibly “reviewed a limited number of
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documents, handpicked by the FTC and which concern negotiations with only six . . . [original

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equipment manufacturers (“OEMs”)],” then opined on all of Qualcomm’s negotiations with

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hundreds of other OEMs. Mot. at 7. The FTC responds by pointing out that Donaldson based his

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opinions on Qualcomm’s licensing practices on a review of hundreds of contemporaneous

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documents and the sworn testimony from nearly 40 witnesses, including those from key OEMs, in

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this action. Opp. at 1. Thus, Donaldson’s methodology is not unreliable. Here, the FTC is correct.

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There is “no authority for the proposition that an expert must independently sort through

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all of the discovery in a case in order to determine the relevant evidence. Such a rule would be

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incredibly costly and time consuming for the expert, who necessarily would be duplicating the

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United States District Court
Northern District of California

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work that the attorneys in the case had already performed.” Arris, 372 F.R.D. at 364.
Here, as the FTC mentioned, Donaldson conducted a broad review of many different

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documents produced in the action, including a look at Qualcomm’s standard “Subscriber Unit

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License Agreement.” ECF No. 965 at ¶ 37 (“Donaldson Rep.”). Donaldson notes that “Qualcomm

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has signed

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evidence in the record from other OEMs, at least one other modem chip maker, and Qualcomm

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itself, that supports the conclusion that Qualcomm’s no license no chips policy has a material

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impact on Qualcomm’s licensing arrangements with OEMs.” Id. at ¶ 162; see also Donaldson

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Rep. Ex. B (listing all the documents, discovery responses, testimony, among others, that

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Donaldson relied upon). Moreover, emphasizing the breadth of the testimony he reviewed,

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Donaldson testified at his deposition that examples of other licensing negotiations beyond what he

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cited would not “offset the direct sworn testimony of the people who actually were affected by the

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[no license no chips] policy.” ECF No. 868-2 at 119:9-11. Thus, Qualcomm’s claim that

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Donaldson founded his opinions only upon a review of the negotiations with 6 OEMs that the FTC

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selected for him is disingenuous. If Qualcomm believes that Donaldson “failed to consider

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relevant evidence of record or formed opinions based on unreliable data,” then Qualcomm has an

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opportunity to cross-examine Donaldson on his methodology. Arris, 327 F.R.D. at 364.

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licenses with this basic structure.” Id. Donaldson also “reviewed

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ORDER DENYING DEFENDANT'S MOTION TO EXCLUDE EXPERT REPORTS OF RICHARD L.
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Donaldson’s Testimony is Sufficiently Founded in His Experience
Qualcomm argues that Donaldson identifies numerous variables relevant to a licensing
negotiation, but “he makes no effort to assess or control for any of them.” Mot. at 8. Thus,
according to Qualcomm, Donaldson’s opinions are not based on sufficient facts or data and do not
result from the application of a reliable methodology to these facts or data. Id. The FTC responds
by identifying Donaldson’s extensive experience as a licensing professional and arguing that such
experience-based testimony does not necessitate the rigors of scientific testing or peer review.
Opp. at 7-8. Again, the FTC’s argument prevails.
Regarding whether Donaldson’s testimony is a result of a reliable methodology or based
on sufficient facts or data, the Court notes that the Daubert factors implicated in assessing this part
of the rule are not directly applicable here. Donaldson’s testimony does not involve testing a
theory, peer review, an error rate, or whether a theory is generally accepted in the scientific
community. Kumho Tire held that “Daubert’s list of specific factors neither necessarily nor
exclusively applies to all experts or in every case.” 526 U.S. at 141. Rather, Donaldson is relying
on his experience as a licensing professional to opine about Qualcomm’s no license no chips
policy and Qualcomm’s licensing negotiation practices.
“The advisory committee’s note to Rule 702 states that experience-based expert testimony
is reliable if the expert ‘explain[s] how that experience leads to the conclusion reached, why that
experience is a sufficient basis for the opinion, and how that experience is reliably applied to the
facts.’” United States v. Vesey, 338 F.3d 913, 917 (8th Cir. 2003) (quoting Fed. R. Evid. 702, 2000
Advisory Committee Notes); see also Lucido v. Nestle Purina Petcare Co., 217 F. Supp. 3d 1098,
1102 (N.D. Cal. 2016) (stating the same); Perez v. Seafood Peddler of San Rafael, Inc., 2014 WL
2810144, at *1 (N.D. Cal. June 20, 2014) (same); Kurihara v. Best Buy Co., Inc., 2009 WL
10692779, at *8 (N.D. Cal. Oct. 14, 2009) (same).
Here, Donaldson has sufficiently demonstrated how his experience leads to his
conclusions, why his experience is a sufficient basis for his opinions, and how that experience is
reliably applied to the facts. Donaldson worked at TI for 31 years as a “licensing executive and
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patent attorney, retiring in 2000 as Senior Vice President and General Patent Counsel.” Donaldson

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Rep. at ¶ 2. He explains that the semiconductor business, including the sale of chips, comprised

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the vast majority of TI’s revenues, and that TI’s semiconductor products were used in a variety of

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consumer products, including cellphones. Id. at ¶ 3. He further notes that “TI’s patent licensing

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strategy in the 1980s and 1990s, which I led, has been credited with having a profound effect on

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the way technology companies, and in particular semiconductor companies, utilized their patent

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portfolios to obtain fair value for the use of their patented technology by other companies. I

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defined those strategies, which the TI Board approved, and then I led the implementation of the

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strategies.” Id. at ¶ 8. Based on this experience, Donaldson then reviewed the voluminous amount
of materials provided to him, as aforementioned. For instance, Donaldson reviewed case law,

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Northern District of California

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discovery responses, testimony, depositions, and Qualcomm documents. Id. Ex. B. He then

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formed his opinions “based on the foregoing personal experience and . . . [his] understanding of

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the views and conduct of industry participants as it relates to licensing in the semiconductor and

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computer industries.” Id. at ¶ 13.

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In Primiano v. Cook, the Ninth Circuit rejected the notion that simply because there was no

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objective source of information relied upon by an expert to come to the expert’s conclusions, that

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meant the expert’s conclusions were excludable. 598 F.3d 558, 563, 568 (9th Cir. 2010). The

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Primiano court held that a physician’s testimony about his expectations regarding the performance

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of a prosthetic elbow was allowable in spite of the physician’s lack of reliance on data or

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published methodologies. Id. at 567-68. This evidence was allowed because the physician

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permissibly relied upon his background and experience. Id. at 567.

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Here, Donaldson has used his experience as a patent license negotiator to opine on topics

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relating to that very subject area. He arrives at his conclusions with this experience in hand and

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after reviewing the available facts. Therefore, the Court deems Donaldson’s opinions in his expert

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reports sufficiently reliable to be admissible even though they may not be founded in scientific

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data or fact.

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Donaldson’s Opinions on the Viability of Component-Level Licensing Are Based
Upon Sufficient and Reliable Evidence
Qualcomm asserts that Donaldson’s opinions on the viability of component-level licensing

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should be excluded on two grounds. First, Qualcomm contends that Donaldson’s expert report

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contradicts his deposition testimony regarding licensing at the device level. In his deposition,

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Donaldson states that industry practice is to “take licenses at the device level.” ECF No. 905-3 at

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283:21. However, Donaldson’s expert report discloses that he “disagree[s] with Qualcomm’s

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argument that there is an established industry practice of licensing cellular SEPs [(“standard

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essential patents”)] only at the handset level.” Second, Qualcomm claims that Donaldson “offers

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no valid basis for his opinion that licensing at the chip level by Qualcomm would be ‘viable’ or
‘feasible’” because his experience at TI is not comparable to Qualcomm’s situation because

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Qualcomm’s patent portfolio is larger in size and scope.

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The FTC responds by noting that first, the FTC mischaracterized Donaldson’s testimony

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regarding the feasibility of multi-level (i.e. chip and device-level) licensing. Donaldson’s opinions

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“are presented for the purpose of responding to Qualcomm’s argument that a multi-level licensing

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program would be impracticable or infeasible . . . .” Opp. at 11. Second, the FTC argues that

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Qualcomm’s semiconductor business and licensing program is very similar to the semiconductor

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industry in which TI participated, so Donaldson’s experience would translate well to opining on

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the subject.

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First, as to the discrepancy between Donaldson’s testimony at his deposition and his expert

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report, Qualcomm tellingly fails to cite to any case law standing for the proposition that the

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discrepancy is sufficient ground to exclude part of an expert report. “[T]he possibility that an

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expert may be impeached is not a reason to exclude an opinion under Daubert.” BladeRoom Grp.

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v. Facebook, Inc., 2018 WL 1611835, at *3 (N.D. Cal. Apr. 3, 2018). If there are discrepancies

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between Donaldson’s trial testimony and his expert report or deposition testimony, then

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Qualcomm has the opportunity to impeach him at trial. Exclusion of Donaldson’s expert report

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under Daubert is not the correct route to take as it would sweep too broadly.

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Second, as to Qualcomm’s claim that Donaldson is not qualified to opine about the

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feasibility of multi-level licensing by Qualcomm because Qualcomm’s patent portfolio is larger in

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size and scope, the Court finds that this argument lacks merit. In his rebuttal expert report,

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Donaldson analogizes between the cellphone industry and the semiconductor industry:

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Both industries involve a highly complex end-user device, made up
of numerous technical components, the features of which drive
consumer demand. During the time that I was at TI, for example,
features such as processor speed and DRAM capacity were driving
the market for end-user computer devices. This is analogous to how
Qualcomm claims the technology contributed by its cellular SEPs
drive the value of end-user handsets. . . . It is my opinion that
semiconductor licensing programs, such as the one I implemented at
TI, address almost all of the characteristics found in cellular
technology – patented features of critical components contribute to
the performance and success of an end-product.

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ECF No. 905-2 at ¶¶ 33-34. Moreover, Donaldson explains that based on his personal experience

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at TI, he was easily able to categorize TI’s patent portfolio into two groups: chip patents and

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system patents.1 Donaldson Rep. at ¶ 166. Thus, Donaldson has established how his experience

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leads to his conclusions regarding multi-level licensing, why his experience at TI is a sufficient

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basis for his opinions, and how that experience is reliably applied to Qualcomm. See Vesey, 338

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F.3d at 917 (“[E]xperience-based expert testimony is reliable if the expert explain[s] how that

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experience leads to the conclusion reached, why that experience is a sufficient basis for the

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opinion, and how that experience is reliably applied to the facts” (internal quotation marks

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omitted)).

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Qualcomm contends in a footnote in its motion that “Donaldson’s testimony of practices at TI
should also be excluded because they comprise undisclosed fact testimony,” and that Qualcomm is
prejudiced by not being able to review TI licensing agreements Donaldson relies upon. Mot. at 11
n.3. This is not a reason to exclude Donaldson’s testimony of practices at TI because first,
Qualcomm had the opportunity to depose Donaldson regarding his experiences at TI. Second,
Donaldson must necessarily explain his experiences at TI to form the foundation for his expert
opinions in his reports. Otherwise, Donaldson would not be able to explain why he is qualified as
an expert in the areas he opines about in his reports. See, e.g., General Elec. Co. v. Wilkins, 2012
WL 5398407, at *2 (E.D. Cal. Nov. 2, 2012) (“[W]ith respect to Dr. Chambers’ opinions that are
purportedly based only on his personal experiences, the Court declines to disqualify Dr. Chambers
as an expert on these matters. Mitsubishi and Mr. Wilkins may contest the weight that should be
given to such opinions by attacking the factual basis for Dr. Chambers’ opinions during crossexamination.”).
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ORDER DENYING DEFENDANT'S MOTION TO EXCLUDE EXPERT REPORTS OF RICHARD L.
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III.

CONCLUSION
For the foregoing reasons, Qualcomm’s motion to exclude the expert reports of Richard L.

Donaldson is DENIED.
IT IS SO ORDERED.

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Dated: December 10, 2018
______________________________________
LUCY H. KOH
United States District Judge

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United States District Court
Northern District of California

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