Loggerhead Tools, LLC v. Sears Holdings Corporation
MEMORANDUM Opinion and Order Signed by the Honorable John W. Darrah on 9/20/2016. (bg, )
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
LOGGERHEAD TOOLS, LLC,
SEARS HOLDINGS CORPORATION
and APEX TOOL GROUP, LLC,
Case No. 12-cv-9033
Judge John W. Darrah
MEMORANDUM OPINION AND ORDER
Plaintiff LoggerHead Tools, LLC (“LoggerHead”) filed a Second Amended Complaint
(“SAC”) against Defendants Sears Holdings Corporation (“Sears”) and Apex Tool Group, LLC
(“Apex”) (collectively, the “Defendants”), alleging, inter alia, various patent and trademark
violations associated with United States Patents No. 6,889,579 (the “‘579 Patent”) and
No. 7,992,470 (the “‘470 Patent”). Defendant Apex has filed a Motion to Exclude the
Testimony of Christopher J. Bokhart , on the calculation of royalty patent damages and
trade dress damages. For the reasons set forth more fully below, Apex’s Motion  is granted
in part and denied in part.
Dan Brown was awarded the ‘579 Patent in 2005 and the ‘470 Patent in 2011 and is the
founder and President of LoggerHead. (SAC, ¶¶ 10, 11, 13.) Brown founded LoggerHead in
2005 and began selling the Bionic Wrench. (Id. at ¶ 17.)
In 2009, Sears placed an order for
15,000 Bionic Wrench units for sale over the Christmas season. (Id. at ¶ 38.) In 2010, Sears
ordered 75,000 Bionic Wrench units. (Id. at ¶ 39.) Sears and LoggerHead entered into a oneyear supply agreement, which had an effective start date of February 1, 2011, and expired
February 1, 2012. (Id. at ¶ 40.) Sears represented that they would purchase more Bionic Wrench
units in 2012. (Id. at ¶ 47.) In September 2012, Sears announced the “Max Axess Locking
Wrench” (“MALW”) and began retailing the MALW in their stores. (Id. at ¶ 62.) LoggerHead
submitted an expert report by Christopher J. Bokhart on the issue of economic damages.
Under the Federal Rule of Evidence 702, trial courts must determine, as a precondition to
admissibility, whether expert evidence rests on a reliable foundation and is relevant.
Manpower, Inc. v. Ins. Co. of Pennsylvania, 732 F.3d 796, 806 (7th Cir. 2013). “Expert
testimony is admissible when the testimony is reliable and would assist the trier of fact to
understand the evidence or determine a fact at issue in a case.” Lewis v.
CITGO Petroleum Corp., 561 F.3d 698, 705 (7th Cir. 2009) (citing Fed. R. Evid. 702; Daubert
v. Merrell Down Pharmaceuticals, Inc., 509 U.S. 579, 589-91 (1993)). “The proponent of the
expert bears the burden of demonstrating that the expert’s testimony would satisfy the Daubert
standard.” Id. However, “the rule on expert testimony [is] notably liberal.” Krist v.
Eli Lilly & Co., 897 F.2d 293, 298 (7th Cir. 1990).
In assessing the admissibility of proposed expert testimony, the focus “must be solely on
principles and methodology, not on the conclusions that they generate.” Daubert, 509 U.S. at
595. A court must “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). Apex does not challenge Bokhart’s knowledge, skill, experience, training, or education or
the relevancy of Bokhart’s report. Apex does challenge the basis of parts of the report and the
reliability. There is no bright-line reliability test, and the reliability inquiry should be “flexible.”
Kumho Tire Co. v. Carmichael, 526 U.S. 137, 139 (1999). However, there must be “a link
between the facts or data the expert has worked with and the conclusion the expert’s testimony is
intended to support.” United States v. Mamah, 332 F.3d 475, 478 (7th Cir.2003).
Patent Royalty Damages
Upon a finding of infringement, “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. “The patentee bears the burden of proving damages.” Uniloc USA, Inc. v.
Microsoft Corp., 632 F.3d 1292, 1315 (Fed. Cir. 2011). Bokhart assumed a hypothetical
negotiation between the parties. “In litigation, a reasonable royalty is often determined on the
basis of a hypothetical negotiation, occurring between the parties at the time that infringement
began.” Uniloc, 632 F.3d at 1312 (citing Wang Labs. Inc. v. Toshiba Corp., 993 F.2d 858, 86970 (Fed. Cir. 1993)). “Although a reasonable royalty calculation includes some approximation,
the Federal Circuit requires sound economic and factual predicates for that analysis.”
Sloan Valve Co. v. Zurn Indus., Inc., 33 F. Supp. 3d 984, 990 (N.D. Ill. 2014) (internal
quotations and citations omitted).
Several factors are relevant when determining a reasonable royalty:
1. The royalties received by the patentee for the licensing of the patent in suit,
proving or tending to prove an established royalty.
2. The rates paid by the licensee for the use of other patents comparable to the
patent in suit.
3. The nature and scope of the license, as exclusive or non-exclusive; or as
restricted or non-restricted in terms of territory or with respect to whom the
manufactured product may be sold.
4. The licensor's established policy and marketing program to maintain his patent
monopoly by not licensing others to use the invention or by granting licenses
under special conditions designed to preserve that monopoly.
5. The commercial relationship between the licensor and licensee, such as,
whether they are competitors in the same territory in the same line of business; or
whether they are inventor and promoter.
6. The effect of selling the patented specialty in promoting sales of other products
of the licensee; that 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
7. The duration of the patent and the term of the license.
8. The established profitability of the product made under the patent; its
commercial success; and its current popularity.
9. The utility and advantages of the patent property over the old modes or devices,
if any, that had been used for working out similar results.
10. The nature of the patented invention; the character of the commercial
embodiment of it as owned and produced by the licensor; and the benefits to those
who have used the invention.
11. The extent to which the infringer has made use of the invention; and any
evidence probative of the value of that use.
12. The portion of the profit or of the selling price that may be customary in the
particular business or in comparable businesses to allow for the use of the
invention or analogous inventions.
13. The portion of the realizable profit that should be credited to the invention as
distinguished from non-patented elements, the manufacturing process, business
risks, or significant features or improvements added by the infringer.
14. The opinion testimony of qualified experts.
15. The amount that a licensor (such as the patentee) and a licensee (such as the
infringer) would have agreed upon (at the time the infringement began) if both
had been reasonably and voluntarily trying to reach an agreement; that is, the
amount which a prudent licensee ̶ who desired, as a business proposition, to
obtain a license to manufacture and sell a particular article embodying the
patented invention ̶ would have been willing to pay as a royalty and yet be able
to make a reasonable profit and which amount would have been acceptable by a
prudent patentee who was willing to grant a license.
Georgia-Pac. Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970), modified
sub nom. Georgia-Pac. Corp. v. U.S. Plywood-Champion Papers, Inc., 446 F.2d 295 (2d Cir.
1971). In Sloan Valve, this court held that the Georgia-Pacific factors apply as to whether any
factor supports a higher or lower royalty base, but the factors do not add a specific quantitative
figure to the royalty base:
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 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.
Sloan Valve, 33 F. Supp. 3d at 997-98. Courts have “consistently upheld experts’ use of a
hypothetical negotiation and Georgia-Pacific factors for estimating a reasonable royalty.”
i4i Ltd. P’ship v. Microsoft Corp., 598 F.3d 831, 854 (Fed. Cir. 2010).
Bokhart stated that the starting point of negotiations for a per-unit royalty would be
between “$2.88 to $11.07 per unit for the 6-inch [wrench] and between “$3.22 to $12.71 per unit
for the 8-inch [wrench].” (Bokhart Rpt., pps. 36-37). The lower figures are based on
LoggerHead’s lost profits on the Bionic Wrench, and the higher figures are based on Defendants’
gross profits on the MALW. (Id., pps. 36, 37.) Bokhart then opines that, based on the contested
factors, the parties would negotiate to the middle of that range and end at a reasonable royalty of
“$5.00 per unit for the 6-inch wrench and $6.00 per unit for the 8-inch wrench.” (Id., p. 37.)
Apex argues that Bokhart’s royalty damages estimate is overinflated in that Bokhart
included improper factors in determining the lowest amount that LoggerHead would have
accepted. Specifically, Apex argues that Bokhart made unsupported assumptions that
LoggerHead would have sold a Bionic Wrench for every MALW sold 1 and incorrectly included
forms of lost profits in his reasonable royalty calculation, such as: lost or diminished profits on
other LoggerHead customer sales, price erosion, excess manufacturing costs and “other
manufacturing issues,” and loss of goodwill.
The element of lost profits on other LoggerHead customer sales refers to LoggerHead’s
inability to sell or expand sales of the Bionic Wrench to other retailers, such as Home Depot and
Ace Hardware. For this element, Bokhart relied on the deposition of Dan Brown, the president
of LoggerHead, and his testimony that LoggerHead lost out on specific sales to other retailers.
Bokhart has examined economic and factual predicates for the element of lost profits. Bokhart
admits that the damages for this amount cannot be calculated “to a reasonable probability.”
(Bokhart Rpt., p. 54.) However, the fact that he cannot calculate the specific amount of lost
profits goes to weight, not admissibility. See Davis v. Duran, 277 F.R.D. 362, 366 (N.D. Ill.
2011) (“Vigorous cross-examination, presentation of contrary evidence and careful jury
instructions, . . . , are the traditional and appropriate means of attacking shaky but admissible
evidence.”). Further, as discussed below, using price erosion to add a quantitative amount to the
reasonable royalty is impermissible. See Sloan Valve, 33 F. Supp. 3d at 997-98.
This factor is not fully addressed by either party. Regardless, the parties are essentially
the only two suppliers of this particular style of wrench. “In the two-supplier market, it is
reasonable to assume, provided the patent owner has the manufacturing and marketing
capabilities, that it would have made the infringer’s sales.” State Indus., Inc. v.
Mor-Flo Indus., Inc., 883 F.2d 1573, 1578 (Fed. Cir. 1989).
The element of price erosion refers to LoggerHead’s inability to maintain its selling price
to existing customers. For this element, Bokhart looked at Sears’ average retail selling price for
the Bionic Wrench and the MALW and the deposition of Brown. Bokhart admits that he is
“unable to calculate the amount of price erosion to a reasonable probability.” (Bokhart Rpt., p.
55.) However, in his deposition, Bokhart stated that he could show price erosion but not “the full
extent of price erosion.” (Dkt. 341-1, 44:3-5.) Bokhart has examined economic and factual
predicates for the element of price erosion. Any disputes about his inability to calculate price
erosion to a reasonable probability goes to weight and not admissibility. Further, using price
erosion to add a quantitative amount to the reasonable royalty is impermissible.
The element of manufacturing costs refers to cost savings from higher volume production
as well as potential lost sales due to manufacturing lag time for large orders. Bokhart admits
that he is “unable to calculate the extent of excess manufacturing costs to a reasonable
probability.” (Bokhart Rpt., p. 56.) There is no basis for his opinion on manufacturing costs in
the report. There are no stated economic and factual predicates for the effect that manufacturing
costs would have on the reasonable royalty. Bokhart cannot include the “increased
manufacturing costs” in his reasonable royalty analysis.
Loss of Goodwill
The element of loss of goodwill refers to intangible damage to LoggerHead’s brand, and
the positioning of its products as being American, being done by the existence of a cheaper
alternative made overseas. Bokhart admits that he is “unable to quantify the extent of damages
to a reasonable probability.” (Bokhart Rpt., p. 56.) For this element, Bokhart spoke with Brown,
who told Bokhart that the brand had been damaged and that LoggerHead had been contacted by
upset customers. In the case of loss of goodwill, there are no stated economic and factual
predicates for the effect that loss of goodwill would have on the reasonable royalty. There is no
basis for showing how the alleged loss of goodwill translated into lesser sales or what effect it
had on the market. Bokhart cannot include the “loss of goodwill” in his reasonable royalty
Sears as a Party
Apex alleges that it was improper for Bokhart to include Sears as part of the hypothetical
negotiation. Apex also argues that the reasonable royalty should include other retailers to whom
Apex sold or offered to sell the MALW. The reasonable royalty is “determined on the basis of a
hypothetical negotiation, occurring between the parties at the time that infringement began.”
Uniloc, 632 F.3d at 1312 (emphasis added). At the time infringement began, Apex was not
selling the MALW to other retailers, and those other retailers are not parties to this litigation.
Further, Sears reached out to Apex to develop an alternative to the Bionic Wrench, which
resulted in the creation of the MALW. 2 A negotiation at the time of the creation and sale of the
MALW would have included both Sears and Apex. Further, “parties that make and sell an
infringing device are joint tort-feasors with parties that purchase an infringing device for use or
resale” and “[e]ach joint tort-feasor is liable for the full amount of damages (up to a full single
Apex argues that once damages are paid by an infringer, successive infringement only
results in nominal damages. See Stickle v. Heublin, Inc., 716 F.2d 1550, 1562 (Fed. Cir. 1983).
However, this is applicable to the extent that “[a] purchaser of an infringing device for which a
damages award has been paid may use it to the extent it could lawfully have done so had the
infringing manufacturer originally been licensed to make and sell the product in question.”
Odetics, Inc. v. Storage Tech. Corp., 14 F. Supp. 2d 785, 788 (E.D. Va. 1998), aff’d, 185 F.3d
1259 (Fed. Cir. 1999). In this case, there has been no damages award, and neither of the parties
qualifies for nominal damages.
recovery) suffered by the patentee.” Shockley v. Arcan, Inc., 248 F.3d 1349, 1364 (Fed. Cir.
2001) (internal citations omitted).
Bokhart correctly estimated the reasonable royalty based on a hypothetical negotiation
between Plaintiff and Defendants.
Trade Dress Damages
Apex also argues that Bokhart should not be allowed to present evidence for trade dress
damages. This is moot for two reasons. The first is that summary judgment was granted for
Defendants on the trade dress claims. The second is that LoggerHead represents that Bokhart
would not present any evidence on this topic. To that extent, Apex’s Motion is denied as moot.
Apex’s Motion to Exclude the Testimony of Christopher J. Bokhart  is granted in
part and denied in part. Bokhart may not testify as to “increased manufacturing costs” or “loss of
goodwill” in his reasonable royalty analysis.
September 20, 2016
JOHN W. DARRAH
United States District Court Judge
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