Days Corporation v. Lippert Components Inc

Filing 274

OPINION AND ORDER DENYING 246 Motion to Exclude Expert Opinion of John Bone. Signed by Judge Philip P Simon on 3/28/22. (mlc)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
SOUTH BEND DIVISION

DAYS CORPORATION,
Plaintiff,
vs.
LIPPERT COMPONENTS, INC. and
INNOVATIVE DESIGN
SOLUTIONS, INC.
Defendants.

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CAUSE NO. 3:17CV208-PPS /MGG

consolidated with
INNOVATIVE DESIGN
SOLUTIONS, INC.,
Plaintiff,
vs.
DAYS CORPORATION,
Defendant.

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CAUSE NO. 3:17CV327-PPS/MGG

OPINION AND ORDER

John Bone is a damages expert for Innovative Design Solutions, Inc. in this patent
infringement case. Bone has offered an opinion on what constitutes a reasonable
royalty to IDS for infringement by Days of IDS’s Patent No. 6,584,385 (the ‘385 Patent)
for a Vehicle Leveling Assembly. Now before me is Days’ motion to exclude Bone’s
expert opinion. Bone offers an opinion that a reasonable royalty is X dollars per

controller for the system, based on the use of Y dollars as the cost to manufacture each
controller unit.1 Days argues that Bone’s opinion should be excluded because it is based
on unreliable evidence, because Bone improperly bootstraps a lost profit calculation to
his computation of a reasonable royalty, and because Bone doesn’t take into account the
impact of my rulings about a second patent. I find the motion unpersuasive.
Analysis Based on Unreliable Evidence?
Days contends that “[w]hile Days is not contesting Mr. Bone’s credentials to act
as a damages expert in this case, his opinion should be excluded nonetheless as he relies
upon speculative and unsupported information to calculate IDS’ reasonable royalty
damages and is thus unreliable.” [DE 249 at 8.] A reasonable royalty “may be based
upon an established royalty, if there is one, or if not, upon the supposed result of
hypothetical negotiations” between the parties. Rite-Hite Corp. v. Kelly Co., Inc., 56 F.3d
1538, 1554 (Fed.Cir. 1995). Days concern is with Bone’s use of Y as the manufacturing
cost of each controller unit. In his deposition, Bone identifies the source of that cost
figure as John Manfreda, the Chief Technologist of Lippert Components, Inc. and
former employee of IDS. [DE 185 at 192 (191:3-18).] Days argues that Manfreda’s
deposition testimony renders the cost figure unreliable.
I think Days is off base. The deposition testimony Days relies on (DE 249 at 14)
indicates that Manfreda doesn’t remember talking to Bone, but Bone apparently does

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The actual figures are not significant to the analysis required by the motion before me, and I
use X and Y to continue to preserve the confidentiality the parties have afforded these figures to this point
in the litigation.

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remember obtaining the cost figure from Manfreda. This is not a basis for excluding
Bone’s testimony. Neither is Days’ reliance on Bone’s testimony that he “had no
knowledge of the sales terms or revenue received from clients.” [DE 249 at 9.] As IDS
points out, manufacturing costs are a different matter than sales and revenue. [DE 256
at 3.] Days does not point to any testimony in which Manfreda disclaims knowledge of
the information Bone says Manfreda relayed, and on which Bone reasonably relied.
Seeking Lost Profits through the Back Door?
Days’ next argument fares no better. Days cites Rodime PLC v. Seagate Technology,
Inc., 174 F.3d 1294, 1308 (Fed.Cir. 1999), for the proposition that a party may not
“bootstrap evidence of its lost profits back into the case by reference to reasonable
royalties.” [DE 249 at 10.] After stating his “Royalty rate conclusion,” Bone observes
that “IDS would not have agreed to a royalty rate less than the profit it would expect to
lose from a license to Days.” [DE 249-1 at 57.] This rather obvious statement does not
demonstrate that Bone’s reasonable royalty calculation is merely “a lost profit
calculation recharacterized as a reasonable royalty,” as Days suggests. [DE 249 at 10.]
Although Days has selected a pithy quote from Rodime, the case is
distinguishable. There Rodime was attempting to obtain lost profits in addition to a
reasonable royalty after having “elected to forego lost profits as a measure of damages
in favor of reasonable royalties.” Rodime, 174 F.3d at 1307. The Federal Circuit was
merely approving the district court’s exclusion of evidence of lost profits presented as
“consequential damages” sought by Rodime on top of a reasonably royalty. In that
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context, Rodime did “not seek to inform the circumstances of the hypothetical
negotiation as part of its computation of a reasonable royalty.” Id. at 1308.
The Federal Circuit has recognized that there is “more than one reliable method
for estimating a reasonable royalty.” Summit 6, LLC v. Samsung Electronics Co., Ltd., 802
F.3d 1283, 1296 (Fed.Cir. 2015). One recognized method, “the analytical method,”
involves consideration of “the infringer’s projections of profit for the infringing
product.” Id. at 1296. Consideration of the profits the patent holder is giving up by
licensing the patent to another is a reasonable factor, among many. Rite-Hite, 56 F.3d at
1555. The Federal Circuit has approved admission of an expert’s reasonable royalty
analysis that determined end points of the bargaining range for the hypothetical
negotiation by considering a maximum royalty rate based on the incremental profits the
licensee would expect to earn from use of the patent, and a minimum royalty rate from
the profits the patentholder would expect to lose by granting the license. Bayer
Healthcare LLC v. Baxalta Inc., 989 F.3d 964, 984 (Fed. Cir. 2021).
The fifteen factors identified in Georgia-Pacific Corp. v. U.S. Plywood Corp., 318
F.Supp. 1116, 1120 (S.D.N.Y. 1970), have become standard considerations in a
reasonable royalty analysis,2 and Bone’s report reflects his understanding and
consideration of them all. [DE 249-1 at 38-59 .] Days fails to demonstrate that Bone’s
reasonable royalty assessment was improperly hijacked by a lost profits analysis.

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See, e.g., Exmark Mfg. Co. Inc. v. Briggs & Stratton Power Products Group, LLC, 879 F.3d 1332,
1348-49 (Fed. Cir. 2018).

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Consideration of the ‘924 Patent
Finally, Days contends that Bone’s reasonable royalty analysis is flawed because
it is based on Days licensing both the ‘385 Patent and the ‘924 Patent, but the claims of
infringement of the ‘924 Patent have been removed from the case based on summary
judgment rulings. [DE 249 at 12-13.] Days says: “Now that IDS can no longer proceed
under the ‘924 Patent, Mr. Bone’s opinion overstates a reasonable royalty that would
have been agreed to by the parties.” [Id. at 13.] In response, IDS points out that Bone’s
report accounts for this contingency and provides a reasonable royalty opinion for the
‘385 Patent only. [DE 256 at 10-11, citing DE 249-1 at 7, n.8, and 99.] Days’ reply merely
argues why it believes Bone’s analysis overlooks the impact of “important features of
the ‘924 Patent.” [DE 262 at 12.] This is clearly an issue of the weight of Bone’s
opinions, not their admissibility.
Conclusion
Days’ challenges to damages expert John Bone’s reliance on a particular cost of
manufacture figure and to his reference to IDS’s lost profits provide no basis for
excluding Bone’s testimony as to a reasonable royalty. Neither does Days’ contention
that my previous rulings concerning infringement of a second patent render Bone’s
opinions overstated and “irrelevant.” [DE 249 at 13.] Days’ motion to exclude Bone’s
opinion will be denied.
ACCORDINGLY:

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Days Corporation’s Motion to Exclude Expert Opinion of John Bone [DE 246] is
DENIED.
SO ORDERED this 28th day of March, 2022.

/s/ Philip P. Simon
United States District Judge

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