International Business Machines Corporation v. Groupon, Inc.
Filing
303
MEMORANDUM OPINION re pending motions. Signed by Judge Leonard P. Stark on 6/8/18. (ntl)
IN THE UNITED ST ATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
INTERNATIONAL BUSINESS
MACHINES CORPORATION,
Plaintiff,
C.A. No. 16-122-LPS-CJB
V.
GROUPON, INC. ,
Defendant.
David E. Moore, Bindu A . Palapura, Stephanie E. O ' Byme, POTTER ANDERSON &
CORROON LLP, Wilmington, DE
John M. Desmarais, Karim Z. Oussayef, Laurie N. Stempler, Robert C. Harrits, Brian D. Matty,
Michael Matulewicz-Crowley, DESMARAIS LLP, New York, NY
Attorneys for Plaintiff International Business Machines Corporation.
John G. Day, Andrew C. Mayo, ASHBY & GEDDES , Wilmington, DE
J. David Hadden, Saina S. Shamilov, Phillip J. Haack, Sapna Mehta, FENWICK & WEST LLP,
Mountain View, CA
Attorneys for Defendant Groupon, Inc.
MEMORANDUM OPINION
June 8, 2018
Wilmington, Delaware
ST
, U.S. District Judge:
Plaintiff International Business Machines Corporation ("IBM") filed suit against
Defendant Groupon, Inc. ("Groupon") on March 2, 2016, alleging infringement of U.S . Patent
Nos. 5,796,967; 7,072,849; 5,961 ,601 ; and 7,631 ,346. Ajurytrial is scheduled to begin on July
16, 2018.
Presently before the Court are the parties ' summary judgment and Daubert motions. (D.I.
208, 211 , 214, 217, 219, 222, 226) Briefing on the pending motions was completed on March
28, 2018. (See, e.g., D.I. 218,223 , 243 , 244, 269,275) The Court heard oral argument on April
24, 2018. (See D.I. 294 ("Tr.")) This Opinion solely addresses the parties ' Daubert motions.
(D.I. 217, 222) For the reasons stated below, the Court will deny both parties ' Daubert motions.
I.
LEGAL STAND ARDS
In Daubert v. Merrell Dow Pharm., Inc., 509 U. S. 579, 597 (1993), the Supreme Court
explained-that Federal Rule of Evidence 702 creates "a gatekeeping role for the [trial] judge" in
order to "ensur[ e] that an expert' s testimony both rests on a reliable foundation and is relevant to
the task at hand." The rule requires that expert testimony "help the trier of fact to understand the
evidence or to determine a fact in issue." Fed. R. Evid. 702(a). There are three distinct
requirements for admissible expert testimony: (1) the expert must be qualified; (2) the opinion
must be reliable; and (3) the expert' s opinion must relate to the facts. See generally Elcock v.
Kmart Corp. , 233 F.3d 734, 741-46 (3d Cir. 2000). Hence, expert testimony is admissible only if
"the testimony is based on sufficient facts or data," "the testimony is the product of reliable
principles and methods," and "the expert has reliably applied the principles and methods to the
facts of the case." Fed. R. Evid. 702(b)-(d). Rule 702 embodies a "liberal policy of
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admissibility." Pineda v. Ford Motor Co., 520 F.3d 237,243 (3d Cir. 2008). Motions to exclude
evidence are committed to the Court' s discretion. See In re Paoli R .R. Yard PCB Litig., 35 F.3d
717, 749 (3d Cir. 1994).
III.
DISCUSSION
A.
Groupon's Motion to Exclude Testimony of Dr. Jerry Hausman
Groupon requests that the Court exclude the opinions of IBM's damages expert, Dr. Jerry
Hausman, because his opinions are not based on sufficient data or reliable principles. According
to Groupon, Dr. Hausman' s opinion is "flawed in three principle ways:" (1) he bases his
calculations on Groupon' s total revenue from sales of goods and services when such revenue is
driven through demand for the actual goods and services, not any alleged infringing technology,
and such goods and services are not covered by the patents-in-suit; (2) he apportions his
calculations by arbitrary "usage percentages;" and (3) he applies an adjusted EBITDA (earnings
before interest, taxes, depreciation, and amortization) margin, resulting in a damages claim that
"has no basis in economics or reality." (D.I. 218 at 1-2)
IBM responds that Dr. Hausman, in forming his opinion, "relied on Groupon-produced
data, testimony from Groupon's witnesses, and documents Groupon provides to the SEC and its
investors." (D.I. 244 at 4) Moreover, IBM insists that Dr. Hausman' s calculations are based on
Groupon' s profits, not revenues, from the accused instrumentalities, and that such profits were
calculated from data produced by Groupon. (Id. at 4 & n.7) According to IBM, Groupon's
disagreements with how Dr. Hausman came to his conclusions "are grounds for crossexamination, not exclusion." (Id.)
The Court agrees with IBM. First, simply because Dr. Hausman may have employed
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different methods as a damages expert in prior cases does not establish that his method here is
unreliable and should be excluded. Moreover, Dr. Hausman used "accused" revenues rather than
"total" revenues (see D .I. 244 at 1-2 & n.1 ; D .I. 218 at 3), and based his opinion on data
Groupon produced (see D.l. 246-1 Ex. 4 at 10-12; id. Ex. 5 at 120-23, 179-81). In his report, Dr.
Hausman explained how he calculated such revenue - "[f]or transactions where Groupon acts as
a marketing agent, revenue is equal to ' the purchase price received from the customer less an
agreed upon portion of the purchase price paid to the featured merchant,' and for transactions
where Groupon sells merchandise directly to customers, revenue is equal to 'the purchase price
received from the customer."' (Id. Ex. 1 ,i 70; see also id. Ex. 1 Exhibit 10) Dr. Hausman then
based his reasonable royalty calculations on "revenue excluding other gross billings, which
excludes revenue from sources such as advertising and commissions." (Id. Ex. 1 ,i 70; see also
id. Ex. 1 Exhibits 4, 4.1, 10)
While Groupon' s revenue is based on sales of goods and services unrelated to the patentsin-suit, the Court does not find Dr. Hausman's theory - that such transactions are only possible
when the accused instrumentalities are functioning properly - to warrant exclusion. (See id. at 5)
" [E]stimating a reasonable royalty is not an exact science" and "there may be more than one
reliable method for estimating a reasonable royalty." Summit 6, LLC v. Samsung Elecs. Co. , 802
F.3d 1283, 1296 (Fed. Cir. 2015). Dr. Hausman provides adequate support for each of his
methods and reasonably ties his calculations to the facts. While Groupon attacks Dr. Hausman's
apportionment by use percentages, Groupon recognizes that those numbers come from IBM's
expert, Dr. Schmidt- whose opinions Groupon has not challenged. (See Tr. at 115; see also D.l.
244 at 10) Groupon' s concerns with the various metrics Dr. Hausman employs - e.g. , use of
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adjusted EBITDA and arbitrary split of profits - may be addressed on cross-examination.
B.
IBM's Motion to Exclude Testimony of
Mr. James Malackowski and Dr. Jon Weissman
IBM seeks to exclude the testimony of Groupon's damages and technical experts, Mr.
James Malackowski and Dr. Jon Weissman, respectively, regarding non-infringing alternatives,
contending their opinions are not supported by sufficient facts. (D.I. 223 at 1) Specifically,
IBM asserts that neither expert demonstrated that any of the six alleged non-infringing
alternatives were on the market during the period of infringement, and neither did either expert
demonstrate that such alternatives were available and acceptable. (Id. at 5-7) IBM additionally
contends that Mr. Malackowski did not reliably apply his "Cost Approach" because he failed to
analyze the costs or risks of using the proposed alternatives. (Id. at 8)
Groupon responds that Dr. Weissman explained that each non-infringing alternative was
well-known before Groupon launched its system. (D.I. 243 at 6-7; see id. at 7 ("Groupon already
employs it.")) As the technology was already in existence and well-known, Groupon contends
that "Dr. Weissman - with decades of experience in distributed systems - is qualified to opine on
the technologies at issue" and "did not need to test these basic and routine web technologies to
know that they would work." (Id.) Similarly, Groupon contends that Mr. Malackowski
accounted for the costs and risks of implementing different technology in his cost approach and
was not required to detail a specific accounting in finding such costs and risks to be minimal.
(Id. at 9) (citing Carnegie Mellon Univ., 2012 WL 3686736, at *5 (W.D. Penn. Aug. 24, 2012))
The Court agrees with Groupon. Dr. Weissman explained the various non-infringing
alternatives in detail, specifying how Groupon could implement each alternative - and, hence,
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how they were available and acceptable. (See D.I. 245 Ex. 1 at ,r,r 339, 341-43 , 353-54, 360-63)
Moreover, IBM does not dispute that Mr. Malackowski is entitled to rely on Dr. Weissman' s
opinion (as long as Dr. Weissman' s opinion is not stricken). (See D.I. 269 at 5) IBM' s concerns
go to the weight of Mr. Malackowski' s and Dr. Weissman' s opinions and may be addressed on
cross-examination.
IV.
CONCLUSION
For the reasons stated above, the Court will deny the parties ' motions. An appropriate
Order follows.
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