NexStep, Inc. v. Comcast Cable Communications, LLC

Filing 364

MEMORANDUM OPINION. Signed by Judge Richard G. Andrews on 11/17/2021. (nms)

Case 1:19-cv-01031-RGA Document 364 Filed 11/17/21 Page 1 of 7 PageID #: 30219

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

NEXSTEP, INC.,

Plaintiff;

Civil Action No. 19-1031-RGA

v.
COMCAST CABLE COMMUNICATIONS,
LLC,
Defendant.

MEMORANDUM OPINION
Philip A. Rovner, Jonathan A. Choa, POTTER ANDERSON & CORROON LLP, Wilmington,
DE; Paul J. Andre, Lisa Kobialka, James Hannah, KRAMER LEVIN NAFTALIS & FRANKEL
LLP, Menlo Park, CA; Jonathan S. Caplan, Aaron M. Frankel, Marcus A. Colucci, KRAMER
LEVIN NAFTALIS & FRANKEL LLP, New York, NY;
Attorneys for Plaintiff.
Jack B. Blumenfeld, Brian P. Egan, Andrew M. Moshos, MORRIS, NICHOLS, ARSHT &
TUNNELL LLP, Wilmington, DE; William F. Lee, Sarah Beigbeder Petty, Kate Saxton,
WILMER CUTLER PICKERING HALE AND DORR LLP, Boston, MA; Amy Kreiger
Wigmore, WILMER CUTLER PICKERING HALE AND DORR LLP, Washington, DC; Mary
(Mindy) V. Sooter, Nora Q.E. Passamaneck, WILMER CUTLER PICKERING HALE AND
DORR LLP, Denver, CO;
Attorneys for Defendant.
November 17, 2021

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/s/ Richard G. Andrews
ANDREWS, U.S. DISTRICT JUDGE:
Before me is Comcast’s motion to strike NexStep’s new damages theories. (D.I. 317). I
heard oral argument via teleconference on September 17, 2021. After reviewing Comcast’s
letter (D.I. 318), NexStep’s response (D.I. 321), and the documents discussed at oral argument,
which are available as exhibits to D.I. 326, I indicated that I would grant Comcast’s motion.
(D.I. 363). This opinion provides a fuller explanation of my decision.
I.

BACKGROUND
Plaintiff NexStep filed this lawsuit against Defendant Comcast, alleging infringement of

several patents relating to personal computing devices and services. The parties cross-moved for
summary judgment and to exclude the opposing party’s expert reports. (D.I. 196, 197). On
September 16, 2021, I issued an order granting Comcast’s motion to exclude the expert opinion
of NexStep’s expert, Mr. Reading, regarding the hypothetical negotiation of cost savings
associated with the Customer Troubleshooting Patents. (D.I. 314).
The next day—the Friday before the trial—the parties met and conferred regarding
NexStep’s damages theories. (D.I. 318 at 1). Subsequently, Comcast filed a motion to strike
new damages theories (D.I. 317) with a letter in support (D.I. 318) claiming that at the meet and
confer, “NexStep was unable to identify what the new alleged royalty rate would be.” (Id. at 1).
On Friday afternoon, NexStep responded with a description of its damages theory. (D.I.
321). NexStep proposed that NexStep’s CEO, Dr. Stepanian, would give fact testimony that
NexStep’s business plan during the relevant timeframe identified a 30% royalty rate for the
Customer Troubleshooting patents and Mr. Reading would give an expert opinion “establishing
what the cost savings would be and the parties’ positioning at the hypothetical negotiation.”
(D.I. 321 at 1, 4).
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The parties disputed the extent to which the facts and theories underlying NexStep’s
proposed damages case were disclosed during discovery. The issue is whether NexStep met the
disclosure requirements of Rule 26, and, if not, whether I should nevertheless allow the evidence
at trial under Rule 37(c)(1).
II.

LEGAL STANDARD
Rule 26(a)(1)(A)(iii) of the Federal Rules of Civil Procedure provides for initial

discovery disclosures including:
a computation of each category of damages claimed by the disclosing party—who must
also make available for inspection and copying as under Rule 34 the documents or other
evidentiary material, unless privileged or protected from disclosure, on which each
computation is based, including materials bearing on the nature and extent of injuries
suffered[.]
Rule 26(a) “does expressly require an initial computation and disclosure of the evidence that will
be relied on to the full extent the patent plaintiff could or should know of it.” Brandywine
Commc’ns Techs., LLC v. Cisco Sys., Inc., 2012 WL 5504036 at *2 (N.D. Cal. Nov. 13, 2012).
“If a party fails to provide information or identify a witness as required by Rule 26(a) …,
the party is not allowed to use that information or witness to supply evidence on a motion, at a
hearing, or at a trial, unless the failure was substantially justified or is harmless.” Fed. R. Civ. P.
37(c)(1). The decision to exclude testimony at trial is a “decision peculiarly within the discretion
of the trial judge.” DCK TTEC, LLC v. Postel Indus., Inc., 602 F. App'x 895, 898 (3d Cir. 2015)
(internal citations omitted). In the Third Circuit, courts consider the Pennypack factors to
determine whether exclusion of evidence is appropriate: “(1) the prejudice or surprise in fact of
the party against whom the excluded witnesses would have testified, (2) the ability of that party
to cure the prejudice, (3) the extent to which waiver of the rule against calling unlisted witnesses
would disrupt the orderly and efficient trial of the case or other cases in the court, and (4) bad
faith or willfulness in failing to comply with the district court's order.” Konstantopoulos v.
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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)).
III.

DISCUSSION
Comcast argued that NexStep failed to meet its Rule 26 disclosure requirements because

NexStep had not previously identified a 30% royalty rate. (D.I. 318 at 1-2). Comcast also
argued that NexStep should be precluded from offering Dr. Stepanian’s testimony because
NexStep represented in interrogatories that the damages theory would be a matter of expert
testimony, not testimony from a fact witness. (Id. at 2). Finally, Comcast asserted that NexStep
could not offer any of Mr. Reading’s opinions regarding the hypothetical negotiation based on
my September 16th order. (Id. (citing D.I. 196)).
NexStep responded that a business plan slide deck supporting a 30% royalty rate was
included in NexStep’s response to Comcast’s Interrogatory No. 2. That interrogatory “related to
the earliest making, using, selling, offering for sale, and disclosure” of the inventions at issue.
(D.I. 321 at 3; see D.I. 326-1 Ex. 3 at 19). Part of the response to the interrogatory, dated
November 27, 2020, was by citation to documents pursuant to Rule 33. One such cited
document was the slide deck. The slide deck—along with the rest of Interrogatory No. 2—was
then incorporated by reference in the response, dated December 23, 2020, to Interrogatory No. 9,
requesting NexStep’s damages documents. (D.I. 326-1, Ex. 6 at 9 (“NexStep incorporates by
reference its response to Interrogatory No. 2 regarding the benefits of the technology of the
Asserted Patents.”). Furthermore, NexStep argued that Comcast had the opportunity to depose
Dr. Stepanian regarding his licensing efforts and failed to ask about the business plan slide deck.
(D.I. 326 at 4). Finally, NexStep asserted that my September 16th order only struck a portion of
Mr. Reading’s report. (Id. at 3-4).

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The Federal Circuit recently considered Rule 26 disclosure of damages in MCL Intell.
Prop., LLC, v. Micron Tech., Inc., 10 F.4th 1358 (Fed. Cir. 2021). In that case, the district court
struck portions of an expert report because the plaintiff, MCL, failed to disclose “what it
believed was an appropriate royalty rate, that it believed the Hynix and Toshiba licenses reflect a
0.25% royalty rate, and the extrinsic evidence on which [the expert] relied in support of his
belief.” Id. at 1369.
The Federal Circuit found that the district court erred in its finding that Plaintiff had not
produced the licenses but upheld the district court’s decision as “well within its discretion”
because, despite the production of the licenses, there was no way for defendant to know that the
licenses reflected a .25% royalty rate. Id. at 1370. In short, the district court did not err in
requiring the plaintiff’s Rule 26(a) damages disclosure to include the royalty rate and the factual
underpinnings of the rate. Cf. Shanghai Weiyi Int'l Trade Co. v. Focus 2000 Corp., 2017 WL
2840279, at *4 n.8 (S.D.N.Y. June 27, 2017) (requiring the plaintiff to “provide sufficient detail
to explain its calculations for each category of damages claimed, to identify the documents or
other evidentiary materials that provided the bases for the calculations, … and to tie each step of
its calculation to the specific documents or other evidentiary materials that support it.” (cleaned
up)).
In the case at hand, NexStep proposed a new hypothetical negotiation theory on the last
business day—a Friday—before trial. The previous hypothetical negotiation started at an
arbitrary 50/50 split (which I excluded, D.I. 314) and was adjusted to a 40% royalty rate based
on the expert’s consideration of the Georgia Pacific factors. (See D.I. 216 Ex. V ¶ 379). Under
NexStep’s new theory, the hypothetical negotiation would be determined based on NexStep’s
plan for a 30% royalty based on factual testimony and the jury’s consideration of an appropriate

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adjustment based on expert testimony about the Georgia Pacific factors. 1 (D.I. 321). NexStep
argued that each piece of the new damages theory was disclosed in some fashion—the slide
deck 2 was incorporated by reference into the damages interrogatory and Comcast had the
opportunity to depose Dr. Stepanian about his licensing efforts. (D.I. 326 at 2-4). Despite this
piecemeal disclosure, I find that NexStep did not meet the disclosure requirements of Rule 26(a).
NexStep failed to “to tie each step of its calculation to the specific documents or other
evidentiary materials that support it.” Shanghai Weiyi Int'l Trade Co., 2017 WL 2840279, at *4
n.8 (cleaned up). It is not as though NexStep provided alternative damages theories, and the
exclusion of one leaves another one to be litigated. NexStep simply has cobbled together a new
theory using some parts of the old theory and some parts that were previously ignored by both
sides.
The Pennypack factors counseled in favor of my decision to exclude NexStep’s damages
theory under Rule 37(c)(1). There was no bad faith on NexStep’s part, but the inclusion of such
evidence would have been prejudicial to Comcast and Comcast would have been unlikely to be
able to cure that prejudice. Comcast had been preparing to respond to an expert’s opinion on
NexStep’s royalty rate, not factual testimony. Allowing the new theory would have meant that
Comcast could not have obtained targeted discovery around the factual basis of the theory. See
Agence France Presse v. Morel, 293 F.R.D. 682, 686 (S.D.N.Y. 2013) (noting that courts have
precluded plaintiffs’ damages theories “where a party's failure to disclose its damages theory in a

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I have serious doubts that NexStep’s proposal could provide sufficient evidence that would lead
to a jury verdict that could be upheld. The 30% royalty rate—which essentially appears to be a
number plucked out of thin air and written by Dr. Stepanian into a business plan—could
represent what Dr. Stepanian wanted. What about what Comcast wanted, though? Without
expert testimony, there is no basis for a starting point to which an expert can apply the Georgia
Pacific factors. Without a starting point, talking about adjustments makes no sense.
2
The relevant pages of the slide deck are at D.I. 326-1, Ex. 2 at 248 & 256 of 268.
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timely manner prevented its adversary from pursuing discovery targeted at that theory.”). It is
irrelevant that Comcast could have asked Dr. Stepanian pertinent questions at his deposition.
Comcast had no reason to ask questions about a theory that NexStep had not yet thought of or
disclosed. Further, NexStep’s new theory would require the jury to speculate about the ultimate
royalty rate based on testimony from NexStep’s witnesses, and Comcast should have had the
opportunity to prepare and present its own witnesses in rebuttal. The orderly and efficient trial
of the case had already been disrupted, as, instead of one trial with liability and damages, we
tried the liability portion since there was no possibility of ameliorating the prejudice to Comcast
the weekend before trial. Thus, I found that exclusion was appropriate under Rule 37(c)(1).
IV.

CONCLUSION
An appropriate order will issue.

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