Sloan Valve Company v. Zurn Industries, Inc. et al

Filing 739

MEMORANDUM Opinion and Order Signed by the Honorable Amy J. St. Eve on 3/26/2014:Mailed notice(kef, )

IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

SLOAN VALVE COMPANY,

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Plaintiff,
v.
ZURN INDUSTRIES, INC., and
ZURN INDUSTRIES, LLC,
Defendants.

Case No. 10-cv-00204

MEMORANDUM OPINION AND ORDER
AMY J. ST. EVE, District Court Judge:
Zurn Industries, Inc. (“Zurn”) has moved to exclude the testimony of Sloan Valve
Company’s (“Sloan”) expert, Richard Bero. For the reasons discussed below, the Court grants
Zurn’s motion.
BACKGROUND
This is a patent infringement case involving U.S. Patent No. 7,607,635, entitled “Flush
Valve Handle Assembly Providing Dual Mode Operation” (the “‘635 Patent”). The ‘635 Patent
“relates to flush valves for use with plumbing fixtures such as toilets, and more specifically to
improvements in the bushing of the actuating handle assembly that will provide for userselectable, dual mode operation of the flush valve.” (‘635 Patent, col. 1, ll. 6-10.) The
improvement is a mechanism that allows a user to select one of two flush volumes based on the
direction of actuation of the handle: a full flush volume to evacuate solid waste from the bowl or
a reduced flush volume to remove liquid waste.

Sloan filed this lawsuit against Zurn Industries, Inc. and Zurn Industries, LLC alleging
infringement. During expert discovery, Sloan disclosed Richard Bero as its expert on the issue
of compensatory damages. Sloan asked Mr. Bero to “determine damages in the form of a
reasonable royalty and to quantify price erosion damages.” (R. 620-3, 4/5/2013 Bero Rebuttal
Report, p. 3.) Mr. Bero opined that Sloan is entitled to a per-unit royalty rate of $106 per
Accused Product for a total of $7.8 million. In his rebuttal report, he further opined that Sloan
has incurred price erosion damages of approximately $2.3 million for the period beginning after
the complaint was filed. (Id.) At his Daubert hearing, however, Mr. Bero presented recalculated price erosion damages of $1.2 million. (3/11/14 Bero Hearing Tr. at 10:9-16.) Mr.
Bero contends that Sloan is entitled to compensatory damages of $9 million before accounting
for pre-judgment interest. Zurn now seeks to exclude Mr. Bero’s opinions.
LEGAL STANDARD FOR DAUBERT MOTIONS
“The admissibility of expert testimony is governed by Federal Rule of Evidence 702 and
the Supreme Court’s opinion in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579,
113 S. Ct. 2786, 125 L. Ed. 2d 469 (1993).” Lewis v. Citgo Petroleum Corp., 561 F.3d 698, 705
(7th Cir. 2009). Rule 702 provides, in relevant part, that “[i]f scientific, technical or other
specialized knowledge will assist the trier of fact[,] . . . a witness qualified as an expert by
knowledge, skill, experience, training or education, may testify thereto in the form of an
opinion. . . .” Id. See also Happel v. Walmart Stores, Inc., 602 F.3d 820, 824 (7th Cir. 2010).
Under the expert-testimony framework, courts perform the gatekeeping function of
determining whether the expert testimony is both relevant and reliable prior to its admission at
trial. See id.; Power Integrations, Inc. v. Fairchild Semiconductor Intern., Inc., 711 F.3d 1348,
1373 (Fed. Cir. 2013); United States v. Pansier, 576 F.3d 726, 737 (7th Cir. 2009) (“To

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determine reliability, the court should consider the proposed expert’s full range of experience
and training, as well as the methodology used to arrive [at] a particular conclusion.”). In doing
so, courts “make the following inquiries before admitting expert testimony: first, the expert must
be qualified as an expert by knowledge, skill, experience, training, or education; second, the
proposed expert must assist the trier of fact in determining a relevant fact at issue in the case;
third, the expert’s testimony must be based on sufficient facts or data and reliable principles and
methods; and fourth, the expert must have reliably applied the principles and methods to the facts
of the case.” Lees v. Carthage College, 714 F.3d 516, 521-22 (7th Cir. 2013); see also Stollings
v. Ryobi Tech., Inc., 725 F.3d 753, 765 (7th Cir. 2013); Power Integrations, 711 F.3d at 1373;
Pansier, 576 F.3d at 737.
In assessing the admissibility of an expert’s testimony, the Court’s focus “must be solely
on principles and methodology, not on the conclusions they generate.’” Winters v. Fru-Con,
Inc., 498 F.3d 734, 742 (7th Cir. 2007) (quoting Chapman v. Maytag Corp., 297 F.3d 682, 687
(7th Cir. 2002)). See also Stollings, 725 F.3d at 765. “The goal of Daubert is to assure that
experts employ the same ‘intellectual rigor’ in their courtroom testimony as would be employed
by an expert in the relevant field.” Jenkins v. Bartlett, 487 F.3d 482, 489 (7th Cir. 2007)
(quoting Kumho Tire, 526 U.S. 137, 152, 119 S. Ct. 1167, 143 L. Ed. 2d 238 (1999)). “A
Daubert inquiry is not designed to have the district judge take the place of the jury to decide
ultimate issues of credibility and accuracy.” Lapsley v. Xtek, Inc., 689 F.3d 802, 805 (7th Cir.
2012).

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ANALYSIS
I.

Mr. Bero is Qualified to Testify as an Expert in This Case
Zurn does not challenge Mr. Bero’s qualifications to testify as an expert in this case, but

the Court nevertheless summarizes them. Mr. Bero is a certified public accountant, a certified
valuation analyst, and the President and Managing Director of The BERO Group. (R. 620-1,
1/28/2013 Bero Report at 4.) Mr. Bero received a bachelor’s of business administration in
accounting and finance from the University of Wisconsin-Madison. (R. 620-2, Bero CV, p.1.)
Mr. Bero has “analyzed economic damages and accounting and financial issues in a variety of
litigation matters concerning areas such as patent infringement, trademark infringement,
copyright infringement, trade secrets, breach of contract, dealership disputes and construction
disputes” and has testified as an expert more than 100 times. (Bero Rep. at 4-5.) Mr. Bero has
also given presentations and published articles on reasonable royalty damages, the entire market
value rule, and other patent damages issues through various organizations and publications.
(Bero CV, p. 2-6.)
II.

Mr. Bero’s Opinions Regarding a Reasonable Royalty Rate
A.

Reasonable Royalty Standard

By statute, the “court shall award the claimant damages adequate to compensate for the
infringement but in no event less than a reasonable royalty for the use made of the invention by
the infringer, together with interest and costs as fixed by the court.” 35 U.S.C. § 284.
“Awarding damages through litigation attempts to assess ‘the difference between [the patentee’s]
pecuniary condition after the infringement, and what his condition would have been if the
infringement had not occurred.’” Lucent Technologies, Inc. v. Gateway, Inc., 580 F.3d 1301,
1324 (Fed. Cir. 2009) (citing Yale Lock Mfg. Co. v. Sargent, 117 U.S. 536, 552, 6 S. Ct. 934, 29

4 

L. Ed. 954 (1886)). The patentee bears the burden of proving its damages. Whitserve, LLC v.
Computer Packages, Inc., 694 F.3d 10, 26 (Fed. Cir. 2012); Crystal Semiconductor Corp. v.
Tritech Microelectronics Int.’l, Inc., et al., 246 F.3d 1336, 1353 (Fed. Cir. 2001). “Two
alternative categories of infringement compensation are the patentee’s lost profits and the
reasonable royalty he would have received through arms-length bargaining.” Lucent, 580 F.3d at
1324.
Several ways exist to calculate a reasonable royalty. One method is known as the
analytical method, which focuses on the infringer’s projections of profit for the infringing
product. Id. (citing TWM Mfg. Co. v. Dura Corp., 789 F.2d 895, 899 (Fed. Cir. 1986)). Another
method is to base the calculation on an established royalty, if there is one. Versata Software, Inc.
v. SAP America, Inc., 717 F.3d 1255, 1267 (Fed. Cir. 2013).

If there is not an established

royalty, a reasonably royalty may be calculated based on the supposed result of hypothetical
negotiations between the plaintiff and defendant. Id. The hypothetical negotiation “attempts to
ascertain the royalty upon which the parties would have agreed had they successfully negotiated
an agreement just before infringement began.” Lucent, 580 F.3d at 1324. One type of royalty
resulting from the hypothetical negotiation is the running royalty license, in which “the amount
of money payable by the licensee to the patentee is tied directly to how often the licensed
invention is later used.” Id. at 1326. “When a hypothetical negotiation would have yielded a
running royalty, the classic way to determine the reasonable royalty amount is to multiply the
royalty base, which represents the revenue generated by the infringement, by the royalty rate,
which represents the percentage of revenue owed to the patentee.” Whitserve, 694 F.3d at 27.
Although a reasonable royalty calculation includes some approximation, “the Federal Circuit
requires ‘sound economic and factual predicates’ for that analysis.” IP Innovation LLC v. Red

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Hat, Inc., 705 F. Supp. 2d 687, 689 (E.D. Tex. 2010) (citing Riles v. Shell Exploration & Prod.
Co., 298 F.3d 1302 (Fed. Cir. 2002)).
Reasonable royalty damages “must be awarded ‘for the use made of the invention by the
infringer.’” Laserdynamics v. Quanta Computer Inc., 694 F.3d 51, 66-67 (Fed. Cir. 2012)
(quoting 35 U.S.C. § 284). “Where small elements of multi-component products are accused of
infringement, calculating a royalty on the entire product carries a considerable risk that the
patentee will be improperly compensated for non-infringing components of that product.” Id.
Thus, courts generally require “that royalties be based not on the entire product, but instead on
the ‘smallest salable patent-practicing unit.’” Id. (citing Cornell Univ. v. Hewlett-Packard Co.,
609 F. Supp. 2d 279, 283, 287-88 (N.D.N.Y. 2009)).
The entire market value rule is an exception to the rule requiring apportionment. The
entire market value rule applies if the patentee proves that the “patented feature creates the ‘basis
for customer demand’ or ‘substantially create[s] the value of the component parts.’” Uniloc
USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1318 (Fed. Cir. 2011) (citing Lucent Techs. v.
Gateway, Inc., 580 F.3d 1301, 1324 (Fed. Cir. 2009) and Rite-Hite Corp. v. Kelley Co., 56 F.3d
1538, 1549-50 (Fed. Cir. 1995)). Put another way, the patentee may assess damages based on
the entire market value of the patented product if it can show that “the patented feature drives the
demand for an entire multi-component product.” Laserdynamics, 694 F.3d at 67 (citing RiteHite, 56 F.3d at 1549).
B.

Mr. Bero’s Reasonable Royalty Analysis

Mr. Bero based his reasonable royalty analysis on a hypothetical negotiation between
Sloan and Zurn based on the fifteen factors set forth in Georgia-Pacific Corp. v. The U.S.

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Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970.). (Bero Rep. at 41.)1 These factors “are
meant to provide a reasoned economic framework” for the hypothetical negotiation. Whitserve,
694 F.3d at 27. Mr. Bero asserts that he “opines on damages in the form of a running royalty.”
(Bero Rebuttal Rep. at 12.)
Mr. Bero acknowledges that “royalty amounts are typically determined by starting with a
royalty base and multiplying the base by a royalty rate.” (Bero Rep. at 43.) Mr. Bero asserts that
to determine the royalty base in this case, the entire market value rule applies, because “Sloan’s
patented technology has driven the market for the Accused Products, whether the dual-flush
manual valves or replacement handles, and is the basis for customer demand.” (Id.) Mr. Bero
asserts that “customers specifically chose to purchase the manual dual flush valves or handles as
opposed to other products without the patented technology such as manual single-flush valves,
more expensive automatic flush valves, or lower volume 1.28 gpf flush valves without the dualflush capability and the larger water volume flush option.” (Id.) Mr. Bero then claims that
although the entire market value rule applies, the total revenue from the sale of the accused
products does not represent the full value of the patented product because it does not account for
the value of sales of collateral goods and of Sloan’s pricing considerations. Thus, Mr. Bero

1

 These factors are: (1) royalties the patentee has received for licensing the patent to others; (2) rates paid by the 
licensee for the use of comparable patents; (3) the nature and scope of the license (exclusive or nonexclusive, 
restricted or nonrestricted by territory or product type); (4) any established policies or marketing programs by the 
licensor to maintain its patent monopoly by not licensing others to use the invention or granting licenses under 
special conditions to maintain the monopoly; (5) the commercial relationship between the licensor and licensee, 
such as whether they are competitors; (6) the effect of selling the patented specialty in promoting sales of other 
products of the licensee; (7) the duration of the patent and license term; (8) the established profitability of the 
product made under the patent, including its commercial success and current popularity; (9) the utility and 
advantages of the patent property over old modes or devices; (10) the nature of the patented invention and the 
benefits to those who have used the invention; (11) the extent to which the infringer has used the invention and 
the value of that use; (12) the portion of profit or of the selling price that may be customary in that particular 
business to allow for use of the invention or analogous inventions; (13) the portion of the realizable profit that 
should be credited to the invention as opposed to its non‐patented elements; (14) the opinion testimony of 
qualified experts; and (15) the results of a hypothetical negotiation between the licensor and licensee.  Georgia‐
Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970). 

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contends, the proper royalty base is not the revenue that the accused product generated, but
rather the number of infringing products sold by Zurn. (Id., at 43-44.)
In determining his royalty rate, Mr. Bero does not apply a percentage of the revenues
generated by infringement. Rather, he applies a dollar figure to multiply by the number of
infringing products sold by Zurn. (Id. at 44.) Mr. Bero explains that in reaching this figure, he
considers the Georgia-Pacific factors both quantitatively and qualitatively. (Id.) He asserts that
his quantitative analysis is based upon “the income valuation approach” which “considers the
amount of profit that is attributable to the invention and/or the increased profits derived from the
invention.” (Id.) Mr. Bero adds that in considering the income approach, the “overriding
consideration is that Sloan would be directly licensing away its profits on its Patented Products
and collateral sales as well as subjecting itself to ongoing pricing pressure on its Patented
Products from Zurn that otherwise would not exist.” (Id. at 45.)
Mr. Bero calculates that at the time of the hypothetical negotiation, $141 per Accused
Product unit was Sloan’s floor – that is, the lowest price it was willing to accept – for its
expected royalty rate per unit. (Bero Rebuttal Rep. at 56-57.) This price includes the profits
Sloan would have made on (1) the sale of the patented manual dual flush valve packages and
handles; (2) the sale of collateral products (i.e., replacement diaphragm kits, urinal valves, and
faucets); and (3) additional profits Sloan would have made by increasing its prices without
Zurn’s presence in the market, which Bero calls the “price effect.” (Bero Rep. at 47-50; Bero
Rebuttal Rep. at 55-57.) The table below breaks down the amount that Bero attributes to each
category in reaching his $141 price.

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Component

2006 weighted
profit

2006-2012
weighted profit

Product profit

$35

$28

Collateral profit

$35

$40

Price effect

$71

$92

$141

$160

Total

Note: Any minor differences are due to rounding.

(Bero Rebuttal Rep. at 57.)
Mr. Bero bases his inclusion of the profit from collateral goods on Georgia-Pacific
Factor #6, which considers “the effect of selling the patented specialty in promoting sales of
other products of the licensee; the existing value of the invention to the licensor as a generator of
sales of its non-patented items; and the extent of such derivative or convoyed sales.” (Bero Rep.
at 46.) Mr. Bero cites his conversations with Sloan executives in support of his statement that
“Sloan knew its manual dual-flush valves were specified, were sold with other collateral
products, and also drove the sales of those other products.” (Id.)
Mr. Bero bases his inclusion of the “price effect” on Georgia-Pacific Factor #5, which
considers “the commercial relationship between the licensor and the licensee, such as, whether
they are competitors in the same territory in the same line of business; or whether they are
inventor and promoter.” (Id. at 47.) Mr. Bero asserts that this “pricing effect is based on Sloan’s
initial and subsequent pricing being lower than its intended pricing.” (Id. at 48.)
Conversely, Mr. Bero found that Zurn’s ceiling – the most it would be willing to pay –
for a royalty payment entering the hypothetical negotiation was $60 per Accused Product unit.
(Bero Rebuttal Rep. at 57-58.) Mr. Bero opined that in entering into such a license, “Zurn would
be unwilling to pay a royalty amount more than the profits it would expect to make if no license
was entered into.” (Bero Rep. at 50.)

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Mr. Bero identified the difference in Sloan’s floor of $141 and Zurn’s ceiling of $60 as
the “negotiation gap.” (Id. at 53.) Mr. Bero then identified the midpoint of this range, $100 per
Accused Product, as the starting point for the hypothetical negotiation. (Bero Rebuttal Rep, p.
58.) Mr. Bero opined that this “mid-point represents a quantitative starting point to which the
qualitative factors can apply.” (Bero Rep. at 54.) Mr. Bero then addressed “the qualitative
factors within the Georgia-Pacific framework,” and concluded that $106 per Accused Product
more accurately reflects the reasonable royalty rate due to the competitive relationship between
Sloan and Zurn (Georgia-Pacific Factor #5) and Sloan’s intent on maintaining its Patented
Technology for its own use rather than licensing to a direct competitor (Georgia-Pacific Factor
#4). (Bero Rebuttal Rep. at 59.)
Based on his $106 per-unit royalty rate, Mr. Bero ultimately concludes that Sloan’s
reasonable royalty damages from October 16, 2006 through October 2013 are approximately
$7.8 million. (Id.)
C.

Mr. Bero’s Methodology Is Flawed

There are several problems with Mr. Bero’s analysis and methodology in determining his
reasonable royalty damages amount. The Court addresses them in turn.
1.

Patented Invention

Zurn argues that Mr. Bero fails to limit his per-unit royalty rate to the value attributable
to the patented invention. (R. 558, Zurn Mem. at 7.) Zurn specifically contends that Mr. Bero
fails to apportion the profits earned on the accused product between the patented and unpatented
features and that this oversight renders his analysis flawed as a matter of law. (Id.) In support,
Zurn notes that Sloan’s patented products and Zurn’s accused products include features that are
not covered by the ‘635 Patent, including toilet bowls and related accessories. (Id. at 8.) Mr.

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Bero acknowledges that the patented and accused products “are comprised of manual dual-flush
flushometer toilet valves, ‘packages’ (comprising toilet valves, bowls, and related accessories),
and handles.” (Bero Rep. at 7.) He reports that Sloan’s patented sales are represented by the
following shares: valves (71%), packages (1%), and handles (28%). (Id., p. 15-16.) The
following percentages represent Zurn’s accused sales: valves (61%), packages (16%), and
handles (23%). (Id. at 23.)
(i)

Valves

Sloan asserts that the patented invention is the entire flush valve, and that the manual dual
flush valve is the “smallest salable patent-practicing unit.” (R. 618, Resp. at 10-11; ‘635 Patent,
claims 1-5, 29-30, 31.) Thus, Sloan contends, the proper damages calculation includes Zurn’s
sales of such dual mode flush valves. (Resp. at 11.) Sloan has presented credible evidence that
the manual dual flush valve is the patented product and the “smallest salable patent-practicing
unit.” Indeed, the ‘635 Patent is entitled “Flush Valve Handle Assembly Providing Dual Mode
Operation.” (‘635 Patent.) Further, Zurn has not introduced any evidence that the patented
product was marketed in a smaller unit.
Zurn argues that consumers purchase manual dual flush valves for many general reasons,
not just because of the dual flush capability. (Mem. at 12.) Zurn, for example, contends that
consumers care about factors such as price, brand, loyalty to the manufacturer’s representative,
and the ability of the valve to evacuate the bowl. (Mem. at 11-12.) More specifically, Zurn
asserts that consumers purchase manual dual flush valves because they are sold with an
antimicrobial handle. In support, Zurn cites testimony from John Aykroyd, Sloan’s Vice
President of Business Development and 30(b)(6) witness, that Sloan advertises that its dual flush

11 

product has an antimicrobial handle and that a customer has told him that he considered the
antimicrobial handle to be an important element of the product. (Mem. at 12-13.)
In response, Sloan contends that Mr. Bero relies on credible evidence to conclude that the
patented technology forms the basis for purchasers’ demand for manual dual flush products.
(Resp. at 16.) Specifically, Sloan identifies testimony that the manual dual flush valve has
succeeded in the market due to its patented water-saving technology and that Zurn’s advertising
for its manual dual flush valve highlights the importance of the dual flush capability. (Id.) Sloan
further cites testimony that the sole difference between a manual single flush valve and a manual
dual flush valve is the patented technology. (Id.) Sloan asserts that its antimicrobial handle is
not an essential or primary feature, and that it is optional on all of Sloan’s dual flush products.
(Id. at 17.) In addition, Sloan points out that the Aykroyd testimony Zurn cites pertains to a
single sale to a school and that it merely states that the antimicrobial handle feature was
“important.” (Id.)
Zurn argues that the evidence upon which Mr. Bero relies fails to satisfy the entire market
value rule. It asserts that “patentees must prove the basis for customer demand through
econometric studies, admissible customer surveys, regression analyses, or other fact-based
evidence of demand sensitivities.” (Mem. at 11.) This, however, is not the standard for
satisfying the entire market value rule. The Federal Circuit requires “sound economic proof of
the nature of the market and likely outcomes” in all damages calculations. Grain Processing
Corp. v. American Maize-Products Co., 185 F.3d 1341, 1350 (Fed. Cir. 1999). The Federal
Circuit also instructs that the evidence “must be reliable and tangible, and not conjectural or
speculative.” Uniloc 632 F.3d at 1319 (quoting Garretson, 111 U.S. at 121). The entire market
value rule does not require the specific studies that Zurn suggests. Further, the Federal Circuit

12 

case that Zurn cites in support, Laserdynamics, is distinguishable and does not establish a brightline evidentiary standard that requires more than what Uniloc instructs. In Laserdynamics, the
plaintiff’s royalty calculation was as a percentage of revenues from a laptop computer that
included many other patents, and the court found that the expert’s methodology “appears to have
been plucked out of thin air…” Laserdynamics, 694 F.3d at 69.
Zurn also contends that because the patented invention is “merely an improvement over
manual single flush valves,” the rule of apportionment required Mr. Bero to “limit his reasonable
royalty rate to the portion of the total profits on sales of MDF valves that is properly attributable
to the value of the improvement the patented invention has added to the usefulness of the manual
single flush valve.” (Mem. at 8-9.) Zurn asserts that the “value of the improvement” is the
increased amount that a consumer would be willing to pay for a MDF valve over a manual single
flush valve. (Id. at 9.) Thus, rather than the $35 per unit that Sloan attributes to its patented
product profit, Zurn argues that the maximum per unit royalty rate is the difference in price
between an MDF valve and a manual single flush valve – approximately $9 in this case. (Id. at
9.) The only case Zurn cites in support is Garretson v. Clark, 111 U.S. 120, 121 (1884). In that
case, the patent was for an improvement on an existing product, “and not an entirely new
machine or contrivance.” Id. Here, the ‘635 Patent is for “a dual mode flush valve.” (‘635
Patent, abstract.) Although a consumer might consider this dual mode flush valve an improved
product compared to prior art flush valves, it is an entirely new product that Sloan marketed to
the public. Further, as the Federal Circuit has explained, Garretson was decided “before a
contemporary appreciation of the economics of infringement damages” and the case was really
about the entire market value rule. Lucent Techs., 580 F.3d at 1336-37. Zurn’s unsupported
“premium paid” damages argument is unpersuasive.

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Sloan presents a credible argument and evidence that the patented technology is the basis
for a consumer’s willingness to pay a premium for a manual dual flush valve over the manual
single flush valve, because in all respects other than the patented technology, the single flush
valve is identical to the dual flush valve. Sloan contends that a customer would have no reason
to pay a $12 premium for the manual dual flush valve unless it sought the benefits of the
patented technology. (Resp. at 17-18.) The Court finds that Mr. Bero’s analysis regarding
manual dual flush valves to be sufficiently reliable.
(ii)

Packages & Handles

Mr. Bero’s analysis with respect to “packages” and “handles” is not as straightforward.
Mr. Bero acknowledges that the “packages include “toilets and related accessories.” Sloan
argues that the entire market value rule does not apply and that it was not required to apportion
damages because Mr. Bero bases his royalty on the number of units the defendant sold, and not
Zurn’s revenues. (Resp. at 13, n. 10.) The only case Sloan cites in support of this position is
Ericsson, Inc. v. D-Link Corp., et al., 2013 WL 2242444 (E.D. Tex., May 21, 2013.) What
Ericsson actually says is that the expert’s analysis did not implicate the entire market value rule
because he limited his revenue base to “the contribution of the asserted patents to the end
products” rather than simply the “market value of the end products.” Ericsson, 2013 WL
2242444 at *3. Mr. Bero makes no such distinction. Instead, he opines that Sloan is entitled to a
reasonable royalty for each sale of Zurn’s accused “packages” and “handles.”
Sloan also contends that “only a small portion of Sloan’s and Zurn’s sales of dual flush
valves (1% and 16%, respectively) were made as part of such “packages.” (Resp. at 13.) This
argument is unpersuasive. It does not matter that only a small portion of Sloan’s and Zurn’s
sales of manual dual flush valves were made as part of “packages.” If Sloan and Mr. Bero

14 

cannot identify supporting evidence that the manual dual flush valve drove the demand for the
“packages” it cannot seek to recover damages for the full value of the packages.
Finally, Sloan argues that Bero does not base his damages calculation on the revenues
from the sale of packages, but rather on the number of packages sold, and that he attributes a
lower profit to the sales of packages than he does to the sales of dual flush valves alone. (Resp.
at 13 n.10.) This, however, is indistinguishable from Sloan’s argument that it was not required to
apportion damages because Mr. Bero bases his royalty on the number of units the defendant sold,
and not Zurn’s revenues. The Court has already dismissed that argument.
Thus, Sloan’s last opportunity to include the full value of the “packages” is by way of the
entire market value rule. Although Sloan contends that the entire market value rule does not
apply2, it argues that if it did apply, “the evidence would amply support a jury finding that the
patented dual flush technology was the basis for customer demand for the MDFVs and handles
Zurn sold.” (Resp. at 14.) Sloan, however, does not address packages and handles in its analysis
of customer demand, it only addresses dual flush valves as the basis for customer demand. (Id.
at 14-18.) This omission may have been for good reason, because the entire market value rule
does not apply to packages and handles.
“The entire market value rule allows a patentee to assess damages based on the entire
market value of the accused product only where the patented feature creates the ‘basis for
customer demand’ or ‘substantially creates the value of the component parts.’” Uniloc USA, Inc.
v. Microsoft Corp., 632 F.3d 1292, 1318 (Fed. Cir. 2011). Here, Sloan concedes that “the
patented invention is the entire flush valve.” (Resp. at 10.) This does not include toilet bowls,

2

 On this point, Sloan’s position conflicts with Mr. Bero’s, who opines that “in the matter at hand, the Entire 
Market Value Rule would apply.”  (Bero Rep. at 43.) 

15 

handles3, or other related accessories. Further, the Federal Circuit advises that for the entire
market value rule to apply, “all the components must be analogous to components of a single
assembly or be parts of a complete machine, or they must constitute a functional unit.” RiteHite, 56 F.3d at 1550. That is not the case here. Sloan’s and Zurn’s MDF valves are clearly
individual products that do not constitute a functional unit in combination with toilets, handles,
and “related accessories.” This is evidenced by the fact that Sloan and Zurn sold 71% and 61%
of their MDF valves, respectively, independent of packages and handles. (Bero Rep. at 23.)
Although neither party provides an explanation for why they sold MDF valves as part of
“packages,” it is not enough that they did so for business reasons. The Federal Circuit does not
extend liability to include items that were sold with the infringing device “only as a matter of
convenience or business advantage.” Rite-Hite, 56 F.3d at 1550.
Sloan has not presented any evidence that entitles it to the full value of the accused
packages and handles that Zurn sold. It must apportion the value of the MDF valves sold as part
of such packages and handles – a task that should not be too onerous considering that the
majority of the MDF valves were sold individually.
2.

Collateral Products

Zurn argues that Mr. Bero improperly includes profits from the sale of non-patented
collateral products (i.e., replacement diaphragm kits, urinal valves, and faucets) in his reasonable
royalty calculation. Mr. Bero relies on the testimony of Sloan executives Jim Allen (Co-CEO),
John Aykroyd (Vice-President, Business Development), and Bill Madison (National Sales
Manager) for his assumption that Sloan’s MDF valves drove the sales of these other products
and opines that Sloan could have reasonably estimated these collateral sales. (Bero Rep. at 46.)

3

 With respect to handles, Bero states only “the handle is a retrofit product that can be sold for, and used on, 
existing toilet valves and sells for lower prices than the valves and packages.”  (Bero Rep. at 15.) 

16 

Mr. Bero bases his inclusion of the value of “non-patented items” on Georgia-Pacific Factor #6,
which advises consideration of: “the effect of selling the patented specialty in promoting sales of
other products of the licensee; the existing value of the invention to the licensor as a generator of
sales of his non-patented items; and the extent of such derivative or convoyed sales.” GeorgiaPacific, 318 F. Supp. at 1120. Mr. Bero estimated Sloan’s additional collateral product profits
based on his analysis of the investigation of Quest Consultants International, Ltd. (Bero Rep. at
48.) Mr. Bero states that this investigation “appears to be consistent with Sloan and reasonable
industry expectations in 2006 and subsequent years.” (Id.)
Mr. Bero calculated the value of these collateral goods at $35 per accused product unit –
an amount that equals the value of his calculation for the sale of the patented product. Zurn
argues that Mr. Bero improperly applies Georgia-Pacific by including the entire amount of his
estimate of Sloan’s lost sales on collateral goods in his reasonable royalty rate. Zurn contends
that although the Georgia-Pacific factors apply qualitatively – meaning that experts analyze
whether each factor supports a higher or lower royalty rate – they do not apply quantitatively to
add a specific figure to the royalty base. (Mem. at 17; R. 642, Reply at 9.) The Court agrees.
The Federal Circuit explains that the proper application of the Georgia-Pacific methodology is to
explain “the effect each factor would have on a negotiated royalty.” Micro Chem., Inc. v.
Lextron, 317 F.3d 1387, 1393 (Fed. Cir. 2003). In Micro Chem., the Federal Circuit upheld the
trial court’s ruling that the patentee “could not include sales of non-patented items in the royalty
base but could demonstrate that those sales were relevant in determining a reasonable royalty,”
and found that the proper application by the expert was to opine that the factor would “increase”
the reasonably royalty. Id.; see also Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co. Ltd.,
No. Civ. A. 88-1814-MA, 1993 WL 1510657 (D. Mass. Apr. 27, 1993) (“Convoyed sales are a

17 

factor to be considered in determining a reasonable royalty. They do not create a separate sum
on which the royalty is calculated.”) (citations omitted). The Committee Comments to the
Seventh Circuit’s jury instruction on determining a reasonable royalty also indicate that this is
the proper application of the Georgia-Pacific factors. Comment 2 states, “[t]ypically, patent
damages experts will review each of the Georgia-Pacific factors and testify as to whether each
factor supports a higher royalty rate, a lower rate or is neutral.” Seventh Circuit Civil Jury
Instruction No. 11.4.4, n. 2. Further, Mr. Bero’s own scholarship indicates that his “quantitative”
calculation of the collateral goods is improper. In a paper that Mr. Bero co-authored, he wrote,
“the [Georgia-Pacific] factors are essentially comprised of both quantitative and qualitative
elements. Quantitative factors essentially are those that provide a quantified royalty rate to
consider, and the qualitative factors are the remainder, although they do in some instances
incorporate sales and profit figures.” (Zurn Hearing Ex. 14 at 7.) Mr. Bero then identified
Factor #6 as “qualitative” and explained, “the process logically starts by considering the
quantitative factors. The qualitative factors, then, can be considered in refining the royalty rate
and damages analysis.” (Id. at 8.)
What Mr. Bero deems as Sloan’s “royalty rate” is actually a royalty base. Chief Judge
Rader has explained that “[c]alculation of a reasonably royalty … requires determination of two
separate quantities – a royalty base, or the revenue pool implicated by the infringement, and a
royalty rate, the percentage of that pool ‘adequate to compensate’ the plaintiff for that
infringement.” Cornell Univ. v. Hewlett-Packard Co., 609 F. Supp. 2d 279, 286 (S.D.N.Y.
2009). Further, “these quantities, though related, are distinct. An over-inclusive royalty base
including revenues from the sale of non-infringing components is not permissible simply because
the royalty rate is adjustable.” Id. Mr. Bero has done exactly that – he has created an over-

18 

inclusive royalty base by including all revenues from the estimated sales of non-infringing
components.
Sloan contends that this is not a lost profits calculation, but Mr. Bero’s deposition
testimony concedes that it essentially is:
Q:

[I]f you included 100 percent of the profit from the sale of collateral
products in your lost profit – I mean in your reasonable royalty analysis,
how is that any different from seeking lost profits on the collateral sales?

A:

How is it different?

Q:

Correct.

A:

It’s from a – I mean the numbers would be the same.

Q:

Correct.

A:

But it’s a royalty analysis as opposed to a lost profits analysis.

(R. 558-5, 3/1/13 Bero Dep. Tr. at 73:23-74:11.) Sloan is not able to recover lost profits on the
sale of collateral goods by way of the entire market value rule either. When determining
royalties, the entire market value rule “requires adequate proof of three conditions: (1) the
infringing components must be the basis for customer demand for the entire machine including
the parts beyond the claimed invention; (2) the individual infringing and non-infringing
components must be sold together so that they constitute a functional unit or are parts of a
complete machine or single assembly of parts; and (3) the individual infringing and noninfringing components must be analogous to a single functioning unit.” Cornell, 609 F. Supp. 2d
at 286-87 (internal citations omitted). Although Sloan cites evidence that the manual dual flush
valve generates demand for the non-infringing collateral goods, it fails to cite any evidence that
the infringing products and non-infringing products constituted a single functioning unit. Sloan
argues that the entire market value rule does not apply here because Mr. Bero uses the number of

19 

infringing products as his base, rather than the revenue pool. (Resp. at 13.) As described above,
Sloan’s legal argument is unpersuasive (supra, p. 14) and the Court finds that Mr. Bero did in
fact use a revenue pool as his royalty base (supra, p. 17). Mr. Bero, therefore, cannot include the
value of lost sales of collateral goods in his reasonable royalty rate.
3.

“Price Effect”

Mr. Bero attributes more than half of his reasonable royalty rate, $71, to what he calls the
“price effect.” (Bero Rebuttal Rep. at 57.) As Mr. Bero describes it, “the pricing effect is based
on Sloan’s initial and subsequent pricing being lower than its intended pricing. In the event
Sloan could have sold its valves at the intended higher prices, and Sloan expected higher prices
without Zurn in the market, these otherwise higher prices are additional profits Sloan would have
been licensing out and are attributable to the Accused Products.” (Bero Rep. at 48.) Mr. Bero
bases his understanding that “Sloan believes it would have been selling its Patented Products
(valves) at higher prices at the same volumes if Zurn had not been in the market” on the opinions
of Sloan executives, John Aykroyd and Jim Allen, and Sloan expert Julius Ballanco. (Id. at 1920; 48.)
Zurn’s challenge to Mr. Bero’s “price effect” is intertwined with its challenge to Mr.
Bero’s price erosion analysis. (Mem. at 19-20; Reply at 15-20.) Zurn argues that to include the
“price effect” in his royalty rate calculation, Mr. Bero “was obligated, as a matter of law, to
conduct a scientific analysis of price elasticity.” (Mem. at 19 (citing Crystal Semiconductor, 246
F.3d at 1359-60).) Zurn also contends that these price erosion damages are a form of lost profits
and that Sloan bears the burden of proving that but for infringement (1) it would have sold its
product at higher prices and (2) the quantity it would have sold at the higher prices. (Id.) Zurn
contends that Mr. Bero did not satisfy this burden.

20 

The first problem with Mr. Bero’s inclusion of the “price effect” in his reasonably royalty
analysis is that he does not have the proper foundation to conclude that Sloan would have made
every sale that Zurn did at its intended higher price. The Court previously excluded Mr.
Ballanco’s, Mr. Aykroyd’s and Mr. Allen’s opinions on price erosion. (R. 663, R. 719.) At his
Daubert hearing, Mr. Bero recognized this and tried to opine that Sloan would not have suffered
any reduction in sales at its intended price. He tried to base this opinion on the following factors:
(1) the customers who purchased Zurn’s accused product did so for its water saving benefit, (2)
Zurn’s customers were already willing to pay a premium for the dual flush valve; (3) there were
not acceptable alternatives to the dual flush valve; and (4) the water savings would be
significantly higher than Sloan’s intended premium. (Hrg. Tr. at 101-103.) In support, Mr. Bero
referred to a newsletter he cited in a footnote in his original expert report. (Bero Rep. at 14.)
The newsletter noted that Purdue University installed Sloan MDF valves in two of its bathrooms
and found that the valves paid for themselves within a year. Mr. Bero’s reliance on this article to
support the assumption that Sloan would not have suffered any loss in sales volume at its
intended higher price fails. Mr. Bero did not include any of this analysis in either of his two
reports and he has not performed any economic or market studies on the effect of water savings
on consumer price sensitivity. Further, the lone reference to this newsletter in Mr. Bero’s report
came in the introductory section that provided general background information on Sloan’s
patented product. (Bero Rep. at 13-14.) Mr. Bero did not cite it at all when he addressed the
“price effect.”
In addition, Mr. Bero’s inclusion of the “price effect” in the reasonable royalty
calculation suffers from the same flaw as his inclusion of the lost profits from collateral goods.
Bero bases his inclusion of the price effect in his reasonable royalty calculation on Georgia-

21 

Pacific Factor #5, which considers “the commercial relationship between the licensor and
licensee, such as whether they are competitors.” As he did in his collateral goods estimate, Mr.
Bero misapplies this factor by applying it quantitatively rather than qualitatively. (Supra, pp. 1518.)
Finally, in addition to comprising approximately half of the royalty price that Mr. Bero
calculates Sloan would be willing to accept, the “price effect” is twice as large as the value that
Mr. Bero attributes to the patented product. Mr. Bero is attempting to use the label “price effect”
to cover what appears to be lost profits. Mr. Bero states, “[t]he pricing effect is based on Sloan’s
initial and subsequent pricing being lower than its intended pricing . . . these otherwise higher
prices are additional profits Sloan would have been licensing out and are attributable to the
Accused Products.” (Bero Rep. at 48.) As Mr. Bero acknowledged, Sloan is not able to recover
lost profits during the time period before the patent issued. (Hrg. Tr. at 29:1-16.)
As with Mr. Bero’s inclusion of collateral goods in his reasonable royalty analysis, the
Court finds that Mr. Bero’s methodology for including a price effect of $71 per accused unit in
what he calls his royalty rate is unreliable. For these reasons, Mr. Bero cannot include the “price
effect” in his reasonable royalty analysis.
4.

Negotiation Gap

Zurn next challenges Mr. Bero’s starting point for the hypothetical negotiation at $100 -the midpoint between Mr. Bero’s estimate of Sloan’s price floor and Zurn’s price ceiling -- as
improperly and arbitrarily splitting the difference between the two parties’ assumed positions.
(Mot. At 17-18.) In Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1318 (Fed. Cir. 2011),
the Federal Circuit rejected an expert’s opinion regarding a reasonable royalty because it found

22 

that his starting point for the hypothetical negotiation was based on an “arbitrary, general rule,
unrelated to the facts of th[e] case.”
Neither Sloan nor Mr. Bero provides a credible response to Zurn’s argument that Mr.
Bero’s midpoint calculation is arbitrary and unreliable. Sloan asserts that Mr. Bero’s calculation
of Sloan’s floor of $141 was his “quantitative analysis” and that he then “qualitatively
determined that the fair starting point of a hypothetical negotiation was the midpoint of $100.”
(Resp. at 24-25.) This argument, however, is at odds with Mr. Bero’s own statement that “the
mid-point represents a quantitative starting point to which the qualitative factors can apply.”
(Bero Rep. at 54.) Regardless, how Sloan and Mr. Bero choose to characterize his determination
is inconsequential. Neither Sloan nor Mr. Bero offer any justification for why $100 is a fair,
reasonable, or economically sound starting point, especially considering that Mr. Bero also
determined that $60 was the maximum price Zurn would be willing to pay for such a license.
Mr. Bero’s sole basis for using $100 as the starting point is that it is the midpoint between his
estimates of Sloan’s and Zurn’s positions. (Bero Hearing Tr. at 218:18-21.) Although Mr. Bero
maintains that his methodology was not arbitrary, his explanation is lacking: “what I’m doing is
– I’m analyzing the data $141 versus $60. And this number is right in between. And if you’re
going to start a negotiation, why wouldn’t you use the midpoint as a reasonable starting point?
It’s not arbitrary.” (Id. at 219:10-15.) Zurn is correct that Mr. Bero does not provide any
economic analysis tied to the relevant facts to support this determination, and this failure is fatal
to this element of Mr. Bero’s calculation. See Laserdynamics, 694 F.3d at 69 (“This complete
lack of economic analysis to quantitatively support the one-third apportionment echoes the kind
of arbitrariness of the ‘25% Rule’ that we recently and emphatically rejected from damages
experts, and would alone justify excluding Mr. Murtha’s opinions in the first trial.”).

23 

5.

Mr. Bero’s Methodology

In addition to the problems with the underlying elements of his analysis, Mr. Bero’s
methodology, in general, is flawed and unreliable. Mr. Bero asserts that he “opines on royalty
damages in the form of a running royalty.” (Bero Rebuttal Rep. at 12.) Mr. Bero, however, does
not invoke the “classic way to determine” the running reasonable royalty amount, which is to
“multiply the royalty base, which represents the revenue generated by the infringement, by the
royalty rate, which represents the percentage of revenue owed to the patentee.” Whitserve, 694
F.3d at 27. Rather than using the revenue generated by infringement as his base, Bero simply
used the number of infringing units that Zurn sold. Further, he does not actually apply a royalty
rate, or a percentage of the revenue generated by the infringing units. By identifying the base as
the number of infringing units and the rate as a dollar figure, Bero’s royalty amount incorporates:
(1) the full value of Sloan’s lost profits based on the number of infringing products that Zurn
sold; (2) the full value of collateral goods that Mr. Bero asserts would have been sold with the
patented product; and (3) additional lost profits that Mr. Bero opines Sloan would have made if
Zurn had not sold a competing product in the marketplace. Despite acknowledging that lost
profits were not available to Sloan during the entire time that Sloan was entitled to damages
(Bero Hearing Tr. at 29:5-7), Bero still attempts to include lost profits by incorporating them in
his reasonable royalty calculation.
In contrast to the Federal Circuit’s guidance in Whitserve, Mr. Bero asserts that the first
“prevalent basic form[] of a running royalty … uses the number of units for a royalty base and a
dollar amount per unit as the royalty rate.” (Bero Rebuttal Rep. at 12.) Mr. Bero, however, does
not cite to any case law or precedent in support of this assertion. In his rebuttal report, Mr. Bero
cites only one case, Multimedia Patent Trust v. Apple, Inc., et al., 2012 WL 5873711 (S.D. Cal.,

24 

Nov. 20, 2012), that calculates a running royalty from a base of the number of infringing units
and a rate of a certain number of dollars per unit. (Bero Rebuttal Rep. at 12.) This case,
however, does not support Mr. Bero’s analysis. In Multimedia, the plaintiff’s running royalty
rate was $1.50 per unit. Multimedia, 2012 WL 5873711 at *3. Although the running royalty rate
in this case was a dollar figure per unit, the plaintiff’s expert testified that $1.50 per unit would
be approximately 0.25% of one defendant’s accused product revenue and approximately 0.78%
of the other defendant’s accused product revenue. Id. Thus, Sloan could still calculate the
running royalty rate based on the defendant’s infringing revenue – and only a small fraction of
that revenue. In addition, as described above, Mr. Bero’s inclusion of collateral goods and the
“price effect” in his royalty base is improper and unreliable. (Supra, pp. 16-17.) He does not
identify any case law to support his methodology and his own scholarship contradicts it.
The Court is cognizant that “an infringer’s net profit margin is not the ceiling by which a
reasonable royalty is capped.” Douglas Dynamics, LLC v. Buyers Products Co., 717 F.3d 1336,
1346 (Fed. Cir. 2013). Further, the Court is aware that the Federal Circuit has stated that the
royalty amount need not be less than the price of the infringing unit. Rite-Hite Corp. v. Kelley
Co., Inc., 56 F.3d 1538, 1555 (Fed. Cir. 1995) (citing Stickle v. Heublein, Inc. 716 F.2d 1550,
1563 (Fed. Cir. 1983)). But here, Mr. Bero’s methodology is unreliable and it bears no
resemblance to a reasonable royalty analysis. What Mr. Bero effectively did is create an
expansive royalty base without applying a royalty rate to that base.
For the foregoing reasons, the Court finds Mr. Bero’s reasonable royalty analysis
unreliable.

25 

D.

Price Erosion Damages

In his report, Mr. Bero stated, “I understand that Sloan may be entitled to price erosion
damages beginning the date the complaint was filed, January 13, 2010. To the extent that Sloan
is entitled to such price erosion damages, I have quantified the amount of price erosion damages
over and above the amount of the pricing effect already included in the royalty rate.” ( Bero
Rep. at 59.) Mr. Bero initially determined that the total amount of Sloan’s price erosion damages
was $4.3 million. (Id. at 61.) After adjusting for the amount already included in the “price
effect,” Mr. Bero initially calculated that the remaining price erosion damages were
approximately $2.1 million (Bero Rep. at 59), but subsequently amended his calculation and
concluded that Sloan’s price erosion damages were $2.3 million. (Bero Rebuttal Rep. at 60.) At
his Daubert hearing, Mr. Bero further reduced his price erosion figure to $1.22 million after
accounting for the competition from 1.28 gpf valves on new construction projects. (Bero
Hearing Tr. at 133-134.)
Zurn’s challenge to Mr. Bero’s price erosion damages calculation is the same as its
challenge to Mr. Bero’s “price effect” calculation. Zurn argues that Mr. Bero was “obligated, as
a matter of law, to conduct a scientific analysis of price elasticity.” (Mem. at 19, citing Crystal
Semiconductor, 246 F.3d at 1359-60. Zurn also contends that a patentee who seeks price erosion
damages bears the burden of proving that (1) but for infringement it would have sold its product
at higher prices and (2) the quantity it would have sold at the higher prices. (Id.) Zurn overstates
the Federal Circuit’s instruction in Crystal Semiconductor and Ericsson, Inc. v. Harris Corp.,
352 F.3d 1369 (Fed. Cir. 2003). The Federal Circuit has not created a per se rule requiring “a
scientific analysis of price elasticity.” Instead, the Federal Circuit requires “credible economic
analysis” or “sound economic proof” to prove price erosion damages. Crystal Semiconductor,

26 

246 F.3d at 1357; Ericsson, 352 F.3d at 1378. In Crystal, the Federal Circuit acknowledged that,
although rare, there are inelastic markets where consumers would purchase a product at identical
rates even when the price increases. 246 F.3d at 1359. In Ericsson, the court affirmed a
damages award of price erosion even though the patentee’s expert did not conduct an “elasticity
calculation” because he had established barriers to entry into the market. 352 F.3d at 1378.
According to Sloan, the relevant market here is a two-supplier market – Sloan and Zurn –
and that no non-infringing alternatives exist. (Resp. at 28.) Sloan contends, therefore, that if
Sloan had followed its initial plan and charged a higher price for its manual dual flush valves,
customers would have had no acceptable non-infringing alternatives, and would have purchased
Sloan’s manual dual flush valves at Sloan’s higher price. (Id.) Sloan argues that in such a
market, it does not need to present any economic analysis of consumer price sensitivity. (Id.) In
its briefing and in Mr. Bero’s reports, the only basis that Sloan identified as proof that customers
would have paid Sloan’s intended higher price was the now-excluded opinion testimony of Mr.
Ballanco, Mr. Aykroyd, and Mr. Allen.
There are numerous problems with Sloan’s arguments. Foremost, is its reliance on the
excluded opinion testimony that Sloan would have sold its MDF valves at its intended higher
price without suffering any reduction in sales volume. As described above (Supra, pp. 19-21),
Mr. Bero’s attempt at his Daubert hearing to get around this foundation problem by citing to the
water savings associated with MDF valves fails because he never previously discussed this in his
price erosion analysis and because he never presents any “credible economic analysis” or “sound
economic proof” that consumers would have purchased Sloan’s MDF valves at its intended
higher price as the Federal Circuit requires. Such a task would have been made more difficult by
Mr. Bero’s admission that MDF valves are not a necessity and that there is a price point at which

27 

the customers who bought the MDF valve would forego it for an alternative product. (Bero
Hearing Tr. at 178:25-179-5.)
Another problem with Mr. Bero’s price erosion analysis is his contradictory opinions
regarding the 1.28 gpf manual valves. Bero asserted in his reports and Sloan argued in its
response brief that the 1.28 gpf manual valve was not an acceptable alternative product to the
MDF valve. But at his Daubert hearing, Mr. Bero conceded that the 1.28 gpf manual valve is an
acceptable alternative, at least on new construction projects. (Id. at 134-137.) Mr. Bero’s
explanation for why he made this concession and amended his price erosion analysis is puzzling
to say the least. He explained that he changed his analysis because of the Court’s rulings
excluding the testimony of Mr. Ballanco, Mr. Aykroyd, and Mr. Allen. (Id. at 134:3-16.) As
Zurn alludes in its post-hearing submission, the 1.28 gpf valve is unrelated to that excluded
opinion testimony. (R. 727, Zurn Post-Hearing Brief at 2.) Although Sloan does not present any
explanation for why the Court should consider this very late amendment to Mr. Bero’s analysis,
the Court does note that his concession regarding 1.28 gpf valves further weakens Sloan’s
argument that price erosion damages apply here because it was a two-supplier market with no
acceptable alternative non-infringing products. While this contradiction alone might raise only
an issue for cross-examination, given the foundational problems, the Court grants this aspect of
the Daubert motion.
For these reasons, Mr. Bero may not testify regarding his price erosion analysis.

28 

CONCLUSION
For the reasons discussed above, the Court grants Zurn’s Motion to Exclude Testimony
of Richard Bero.

Dated: March 26, 2014

ENTERED:

AMY J. ST. EVE
United States District Court Judge

29