Vectura Limited v. GlaxoSmithKline LLC et al
Filing
272
MEMORANDUM OPINION. Signed by Judge Richard G. Andrews on 3/26/2019. (nms)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
VECTURA LIMITED,
Plaintiff;
V.
Civil Action No. 16-638-RGA
GLAXOSMITHKLINE LLC and GLAXO
GROUP LIMITED,
Defendants.
MEMORANDUM OPINION
Kelly E. Farnan and Christine D. Haynes, RICHARDS, LAYTON, & FINGER, P.A.,
Wilmington, DE; Dominick A. Conde, Christopher P. Borello, Brendan M. O'Malley, and
Damien N. Dombrowski, VENABLE LLP, New York, NY, attorneys for Plaintiff.
Jack B. Blumenfeld and Jeremy A. Tigan, MORRIS , NICHOLS, ARSHT & TUNNELL LLP,
Wilmington, DE; Martin J. Black, Kevin M. Flannery, Robert Ashbrook, and Sharon K.
Gagliardi, DECHERT LLP, Philadelphia, PA; Blake B. Green, DECHERT LLP, Austin, TX,
attorneys for Defendants.
March
1)p , 2019
Currently pending before the Court is Plaintiffs motion to exclude the testimony of
William 0. Kerr, Ph.D. (D.I. 129). The parties have full y briefed the issues. (D.1. 129, 139, 160).
At oral argument on the parties' summary judgment motions, I requested further briefing. (Hr'g
Trans. at 95:20-25). The supplemental briefing was completed on March 25, 2019. (D.I. 256,
258, 265, 266). After full consideration of the parties' briefing, Plaintiffs motion is GRANTEDIN-PART and DENIED-IN-PART.
I.
BACKGROUND
Plaintiff Vectura Limited sued Defendants GlaxoSmithKline LLC and Glaxo Group
Limited on July 27, 2016 alleging infringement of U.S. Patent Nos. 8,303 ,991 ("the '991 patent")
and 8,435,567 ("the ' 567 patent"). (D.1. 1). Plaintiff has narrowed its infringement allegations to
claim 3 of the ' 991 patent and claim 3 of the ' 567 patent ("the Asserted Claims"). The patents-insuit "relate to pharmaceutical compositions for inhalation and methods of making them." (D.I. 82
at 1). The asserted claims are dependent claims that only cover compositions where the additive
is magnesium stearate. (D.I. 195 at 9).
Before this litigation, the parties had entered a license agreement on August 5, 2010 ("the
2010 Agreement"). (D.I. 256 at 6; D.I. 258 at 5). The 2010 Agreement included a covenant not
to sue for certain of Plaintiffs patents and patent applications ("the Non-Assert Patents"),
including the patents-in-suit. (D.1. 256 at 7; D.I. 258 at 5). The 2010 Agreement provided
Defendants "with an option to license Non-Assert Patents by identifying or 'nominating' them on
or before July 31, 2016." (D.I. 256 at 7; D.I. 258 at 5). On July 26, 2016, Defendants formally
notified Plaintiff under the 2010 Agreement that they declined to exercise the option and thereby
terminated both the covenant not to sue and the option to license. (D.I. 256 at 7; D.I. 258 at 6-7).
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II.
LEGALSTANDARD
Federal Rule of Evidence 702 sets out the requirements for expert witness testimony and
states:
A witness who is qualified as an expert by knowledge, skill,
experience, training, or education may testify in the form of an
opinion or otherwise if: (a) the expert' s scientific, technical, or other
specialized knowledge will help the trier of fact to understand the
evidence or to determine a fact in issue; (b) the testimony is based
on sufficient facts or data; (c) the testimony is the product of reliable
principles and methods; and (d) the expert has reliably applied the
principles and methods to the facts of the case.
Fed. R. Evid. 702. The Third Circuit has explained:
Rule 702 embodies a trilogy of restrictions on expert testimony:
qualification, reliability and fit.
Qualification refers to the
requirement that the witness possess specialized expertise. We have
interpreted this requirement liberally, holding that a broad range of
knowledge, skills, and training qualify an expert. Secondly, the
testimony must be reliable; it must be based on the "methods and
procedures of science" rather than on "subjective belief or
unsupported speculation"; the expert must have "good grounds" for
his or her belief. In sum, Daubert holds that an inquiry into the
reliability of scientific evidence under Rule 702 requires a
determination as to its scientific validity. Finally, Rule 702 requires
that the expert testimony must fit the issues in the case. In other
words, the expert's testimony must be relevant for the purposes of
the case and must assist the trier of fact. The Supreme Court
explained in Daubert that Rule 702' s "helpfulness" standard
requires a valid scientific connection to the pertinent inquiry as a
precondition to admissibility.
By means of a so-called "Daubert hearing," the district court acts as
a gatekeeper, preventing opinion testimony that does not meet the
requirements of qualification, reliability and fit from reaching the
jury. See Daubert ("Faced with a proffer of expert scientific
testimony, then, the trial judge must determine at the outset,
pursuant to Rule 104(a) of the Federal Rules of Evidence whether
the expert is proposing to testify to (1) scientific knowledge that (2)
will assist the trier of fact to understand or determine a fact in
issue.").
2
Schneider ex rel. Estate of Schneider v. Fried, 320 F.3d 396, 404-05 (3d Cir. 2003) (cleaned up). 1
III.
DISCUSSION
Plaintiff asserts that Dr. Kerr's opinion should be excluded for two reasons: 1) he used an
incorrect hypothetical negotiation date, and 2) he failed to provide an opinion based on the correct
2016 hypothetical negotiation date. (D.I. 129 at 2). Defendants argue that 2013 is the proper date
for the hypothetical negotiation, and in the alternative, that Dr. Kerr's reasonable royalty opinion
does not change if the hypothetical negotiation was in July 2016. (D.I. 139 at 6-7).
A. The Hypothetical Negotiation Date
One measure of damages for patent infringement is a reasonable royalty. Georgia-Pacific
Corp. v. US. Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970) provides a multitude of
factors influencing the determination of the reasonable royalty. One factor is the hypothetical
negotiation between the parties. Id.
[T]he hypothetical negotiation or the 'willing licensor-willing licensee' approach[]
attempts to ascertain the royalty upon which the parties would have agreed had they
successfully negotiated an agreement just before infringement began .... In other
words, if infringement had not occurred, willing parties would have executed a
license agreement specifying a certain royalty payment scheme. The hypothetical
negotiation also assumes that the asserted patent claims are valid and infringed.
Lucent Techs. , Inc. v. Gateway, Inc., 580 F.3d 1301, 1324-25 (Fed. Cir. 2009). The date of the
hypothetical negotiation may be determined as a matter of law. 2 See Boston Sci. Corp. v. Cordis
Corp., 777 F. Supp. 2d 783, 791-94 (D. Del. 2011 ). Here, the parties do not dispute that the
accused product was first sold in October 2013, that the parties executed the 2010 Agreement
1
The Court of Appeals wrote under an earlier version of Rule 702, but subsequent amendments to it in 2011 were not
intended to make any substantive change.
2
While neither of the parties have explicitly moved for summary judgment on the date of the hypothetical negotiation,
Plaintiff's motion requires that I determine the appropriate date on which the hypothetical negotiation occurred as a
prerequisite to detennining whether or not Dr. Kerr' s opinion is based on an incorrect date. Moreover, the notice
requirement under Federal Rule of Civil Procedure 56(t) has been met by both my statements at oral argument that I
intended to detennine the issue, and the opportunity for the parties to file further briefing on the issue.
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which included a covenant not to sue, and that the covenant not to sue expired on July 26, 2016
when Defendants formally notified Plaintiff that they declined to exercise the option. (D.I. 129 at
2; D.I. 256 at 6-7; D.I. 258 at 5-7, 8 n.2).
The parties dispute the date of the hypothetical negotiation.
Plaintiff asserts that the
hypothetical negotiation would have occurred in July 2016 when the 2010 Agreement expired.
(D.I. 129 at 4-5). Defendants argue that the hypothetical negotiation would have occurred in
October 2013 because the agreement is irrelevant to whether or not the sales were infringing. (D.I.
139 at 8-9; D.I. 258 at 3 n.2). At oral argument, I requested that the parties provide further briefing
on (1) the exact date of the hypothetical negotiation, assuming it took place in 2016, and (2) the
impact of that date on Defendants' ability to argue that at the hypothetical negotiation, they would
have been able to exercise the option that they actually declined to exercise. (Hr' g Trans. 95:2025).
Plaintiff asserts that the correct date of the hypothetical negotiation occurs "after the July
26, 2016 termination of both" the covenant not to sue and the option to license the patents-in-suit.
(D.I. 256 at 5). Plaintiff argues an earlier date "would enable Dr. Kerr to improperly argue that
the parties could have continued their preexisting, actual agreement[] without considering any
negotiation." (Id. at 9). Defendants argue that if the hypothetical negotiation occurs in July 2016
it would occur on or before July 25, 2016 or the "eve of infringement." (D.I. 258 at 7-8, 8 n.2).
Defendants further argue that the date of the hypothetical negotiation does not alter the influence
of the 2010 agreement, but note that they do "not argue that [they] could merely exercise the[]
License Option in the hypothetical negotiation on or before July 25, 2016." (Id. at 11).
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I agree with Plaintiff that the proper date for the hypothetical negotiation occurred in July
2016. However, I agree with Defendants that the proper date is July 25, 2016 rather than a date
after infringement began.
First, 35 U.S.C. § 271(a) provides that "whoever without authority makes, uses, offers to
sell, or sells any patented invention within the United States ... during the term of the patent
therefor, infringes the patent." (emphasis added). As defined by § 271(a), the practice of a
patented invention is only infringement when done without authority. Defendants argue that a
time-limited covenant not to sue, like the one in the 2010 Agreement, does not "authorize" the
practice of a patented invention, but merely delays the patentee's right to seek damages. (DJ. 139
at 8). The Federal Circuit has noted, however, "a patentee, by license or otherwise, cannot convey
an affirmative right to practice a patented invention by way of making, using, selling, etc.; the
patentee can only convey a freedom from suit." TransCore, LP v. Elec. Transaction Consultants
Corp., 563 F.3d 1271 , 1275 (Fed. Cir. 2009). In other words, "a non-exclusive patent license is
equivalent to a covenant not to sue" and vice versa; "both are properly viewed as ' authorizations. "'
Id. at 1275-76 (citing cases). As the covenant not to sue included the patents-in-suit once they
issued, and was executed before the accused product was first sold, Defendants were authorized
to practice the patents-in-suit, and thus no infringement could occur until the covenant expired on
July 26, 2016.
Second, "[t]he hypothetical-negotiation approach to calculating reasonable-royalty
damages 'attempts to ascertain the royalty upon which the parties would have agreed had they
successfully negotiated an agreement just before infringement began."' Prism Techs. LLC v.
Sprint Spectrum L.P., 849 F.3d 1360, 1375-76 (Fed. Cir. 2017) (quoting Lucent Techs., 580 F.3d
at 1324) (emphasis added); see also VirnetX, Inc. v. Cisco Sys., Inc., 767 F.3d 1308, 1326 (Fed.
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Cir. 2014). Thus, the proper date for the hypothetical negotiation as a matter of law is July 25,
2016, the day before the covenant not to sue expired and infringement began.
However, regardless of the date of the negotiation, Defendants may not argue that they
could exercise the option to license the patents-in-suit in the hypothetical negotiation. Any such
argument would be improper as a matter of law. 3 The hypothetical negotiation is an arms-length
negotiation between a willing licensor and a willing licensee. Lucent, 580 F.3d at 1324-25 (one
measure of infringement compensation is "the reasonable royalty [the patentee] would have
received through arms-length bargaining"); see also AstraZeneca AB v. Apotex Corp., 782 F.3d
1324, 1330 (Fed. Cir. 2015). While real world circumstances may be considered, they may not
replace the hypothetical negotiation or impact the willingness of either the licensee or licensor.
See, e.g. , Conceptus, Inc. v. Hologic, Inc., 771 F. Supp. 2d 1164, 1179-80 (N.D. Cal. 2010)
(hypothetical negotiation is a "counterfactual exercise"); Cummins-Allison Corp. v. SBM Co. , Ltd.,
584 F. Supp. 2d 916, 918 (E.D. Tex. 2008) (explaining "[t]he problem with . . . basing the royalty
calculation entirely on a 'real world' view of the hypothetical negotiation"); Tektronix, Inc. v.
United States, 552 F.2d 343 , 349 (Ct. Cl. 1977) (the hypothetical negotiation "does not depend on
the actual willingness of the parties"). In other words, for the hypothetical negotiation to be at
arms-length, neither party can come to the table with one arm tied behind its back. Allowing
Defendants to argue that the option was on the table at the hypothetical negotiation would
impermissibly skew the results of the hypothetical negotiation, just as "litigation itself can skew
the results of the hypothetical negotiation." ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860, 872
3
I understand from Defendants' representations at oral argument and in the supplemental briefing that they do not
plan to assert to the jury that the option could be exercised at the hypothetical negotiation. (D.1. 258 at 11). I will, of
course, hold Defendants to this representation at trial.
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(Fed. Cir. 2010). Thus, neither Defendants nor Dr. Kerr may argue that the option to license the
patents-in-suit could be exercised at the hypothetical negotiation.
B. Dr. Kerr's Opinion Is Excluded in Part
As the date of the hypothetical negotiation is July 25, 2016 as a matter of law, Dr. Kerr's
opinions to the contrary will be excluded. (D.I. 259-1 , Ex. H
,r,r 59, 75-76).
Furthermore, Dr.
Kerr's opinions suggesting that the option could be exercised in the hypothetical negotiation will
be excluded for the reasons stated above. (Id.
,r,r 41, 58, 62). 4
Plaintiff asserts that Dr. Kerr's reasonable royalty opinion should be excluded in its entirety
because 1) it is based on an incorrect date of the hypothetical negotiation and 2) it violates Federal
Rule of Civil Procedure 26(a)(2)(B)(i)-(ii) because he never explicitly recited a July 2016 date in
his expert report. (D.I. 129 at 2, 7). Defendants assert that even if 2013 is the incorrect date, Dr.
Kerr's reasonable royalty opinion does not change if the hypothetical negotiation was in July 2016.
(D.I. 139 at 7). More specifically, Defendants assert that Plaintiff has not identified "any aspect
of Dr. Kerr's analysis that is dependent on a hypothetical negotiation date of October 2013 ." (Id.).
First, I do not find that the entirety of Dr. Kerr' s opinion is based upon the 2013 date. Dr.
Kerr testified at his August 3, 2018 deposition that his opinions would apply equally to a July 2016
hypothetical negotiation date. (D.I. 259-1 , Ex. G at 108:23-109:20, 111 :9-22). Moreover, Dr.
Kerr' s opinions do not appear to be intrinsically dependent on his original assertion of the 2013
4
Paragraph 41 will be excluded in its entirety. The following sentence from~ 58 will be excluded: "One outcome
involves a continuation of the 2010 Agreement between the parties, based on exercise of the options included in that
agreement." (DJ. 259-1 , Ex. H ~ 49).
The following sentences from~ 62 will be excluded: "At the time of the hypothetical negotiation, the parties
would have known that the NP License Option they agreed to in 20 IO would allow them to continue to operate without
any new negotiations. As such, the 2010 Agreement sets the upper bound to the terms of a reasonable royalty. The
option could have been exercised by GSK at the time of the hypothetical negotiation and royalty payments begun after
the transition date. Had GSK simply exercised this option, Vectura would have received royalties as described under
the original 2010 Agreement." (D.I. 259-1 , Ex. H ~ 62).
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date. Plaintiffs challenge to Dr. Kerr' s opinions based on a failure to account for certain changes
in circumstances goes to the weight and credibility of his opinions, not their admissibility.
Therefore, the Court will not exclude Dr. Kerr' s opinions under Rule 702. Plaintiff may challenge
Dr. Kerr's conclusions at trial through cross-examination and the presentation of contrary
evidence.
Second, Dr. Kerr' s opinions will not be excluded for violating Rule 26(a). In determining
whether a violation of Rule 26(a) was substantially justified or harmless, courts consider the
following factors: (1) the importance of the information withheld; (2) the prejudice or surprise to
the party against whom the evidence is offered; (3) the likelihood of disruption of the trial; (4) the
possibility of curing the prejudice; (5) the explanation for the failure to disclose; and (6) the
presence of bad faith or willfulness in not disclosing the evidence (the "Pennypack factors"). See
Konstantopoulos v. Westvaco Corp. , 112 F.3d 710, 719 (3d Cir. 1997) (citing Meyers v. Pennypack
Woods Home Ownership Ass'n, 559 F.2d 894, 904-05 (3d Cir. 1977)). It bears emphasis that
"exclusion of critical evidence is an 'extreme' sanction, not normally to be imposed absent a
showing of willful deception or flagrant disregard of a court order by the proponent of the
evidence." In re Paoli R.R. Yard PCB Litig. , 35 F.3d 717, 791-92 (3d Cir.1994) (internal quotation
marks omitted). The determination of whether to exclude evidence is committed to the discretion
of the Court. See id. at 749.
Dr. Kerr testified at his deposition on August 3, 2018 that the opinions in his report would
apply to a 2016 hypothetical negotiation date for the same reasons they applied to a 2013 date.
(D.I. 259-1 , Ex. G at 108 :23-109:20, 111:9-22). Plaintiff was able to further question Dr. Kerr
about those opinions at that time. Trial is scheduled to begin on April 29, 2019. I determine that
there is little surprise or prejudice to Plaintiff if Dr. Kerr' s opinions are permitted at trial. Neither
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is there a risk of disruption to the trial by permitting his opinions. Any prejudice that may have
existed was cured by the ability of Plaintiffs counsel to further question Dr. Kerr about his
opinions at the deposition. Finally, there is no evidence of bad faith or willful deception on the
part of Defendants. Therefore, the Pennypack factors weigh heavily in favor of admission and I
will not exclude the remainder of Dr. Kerr' s reasonable royalty opinions.
IV.
CONCLUSION
For the foregoing reasons, Plaintiffs Motion is GRANTED as to paragraphs 41 , 59, 75-
76, the second sentence of paragraph 58, and the first four sentences of paragraph 62 of Dr. Kerr' s
report and DENIED as to all else.
An accompanying order will be entered.
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