Bally Technologies, Inc. v. Business Intelligence Systems Solutions, Inc.

Filing 106

ORDER that Defendant Business Intelligence Systems Solutions, Inc.s (BIS2") Emergency Motion to Compel 77 81 in regard to Request for Production No. 57 is denied, without prejudice to Defendant renewing its motion as to this request if it can demonstrate a factual basis as to why discovery regarding licensing agreements for other patents is relevant to its defense. Signed by Magistrate Judge George Foley, Jr on 8/30/11. (Copies have been distributed pursuant to the NEF - ECS)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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BALLY TECHNOLOGIES, INC.

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Plaintiff,
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vs.
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BUSINESS INTELLIGENCE SYSTEMS
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SOLUTIONS, INC.
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Defendant.
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_________________________________________ )

Case No. 2:10-cv-00440-PMP-GWF
ORDER
Emergency Motion to Compel the
Deposition of Richard Haddrill
- #77, 81

This matter is before the Court on Defendant Business Intelligence Systems Solutions,

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Inc.’s (“BIS2") Emergency Motion to Compel the Deposition of Richard Haddrill and the 30(b)(6)

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Depositions of Bally Technologies, Inc. (“Bally”) (#77, #81), filed on August 8, 2011; Plaintiff

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Bally’s Opposition to BIS2's Emergency Motion to Compel (#91), filed on August 15, 2011; and

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BIS2's Reply in Support of Motion to Compel (#96), filed on August 18, 2011.

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The Court has ruled on, or the parties have resolved their disputes, on all but one of the

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issues raised in Defendant BIS2's motion to compel. The remaining issue concerns

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BIS2's motion to compel Bally to respond to Request for Production No. 57 which requests:

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All documents that relate to any actual or potential license agreement,
including without limitations, cross-licenses, agreements of nonassertion, covenants not to sue, acquisition agreements, and other
types of agreements, and/or negotiation for such that relates to or
involves any Plaintiff patents, including without limitation, all
documents relating to communications concerning any such license
agreement or negotiation. (emphasis added)

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Motion to Compel (#77, #81), Exhibit 1.

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Bally objected to this request on the grounds that it is vague, ambiguous, overly broad,

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unduly burdensome and not limited to scope and time. Motion to Compel (#77, #81), Exhibit 2. In

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its motion to compel, BIS2 did not attempt to limit the scope of this request or otherwise justify it,

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other than to state: “Bally’s own actions prove that these documents are highly relevant. Bally

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insisted that BIS2 produce such documents and used several such documents from BIS2's

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production as exhibits during depositions last month.” Motion to Compel (#77, #81), p. 11.

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In response to this statement, Bally stated in its opposition: “The problem with BIS2's

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argument is that it assumes Bally has not produced any agreements between Bally and its customers

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for the Business Intelligence products. In fact, Bally has produced the agreements between Bally

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and its customers. This could have been explained to BIS2 rather simply had there been a proper

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meet and confer.” Opposition (#92), p. 19.

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In reply, BIS2 argues that Request No. 57 “is directly relevant to determining an established

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royalty rate within the relevant market.” BIS2 cities American Original Corp. v. Jenkins Food

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Corp., 774 F.2d 459, 464 (Fed.Cir. 1985) for the proposition that in the absence of any existing

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royalty rate, “royalties paid by others for use of a comparable patent in the industry” was relevant

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to establishing a reasonable royalty.” Reply (#97), p. 8. (Emphasis added by the Court). At the

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hearing on this motion, BIS2's counsel stated that Bally should be required to produce documents

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relating to licenses issued by it for “comparable patents in the industry.”

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American Original was not a discovery case. The Federal Circuit in that case affirmed the

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district’s trial determination of a reasonable royalty based on license agreements for a comparable

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patent. In upholding the district court’s reliance on such evidence, the court stated:

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The district court pointed out that since American had not licensed
the Marvin patent, there was no existing royalty rate. It therefore
“turn[ed] to the best evidence of what a reasonable royalty would
produce–that is, royalties paid by others for use of a comparable
patent in the industry.” That was the amount, the court concluded,
that “a licensee such as defendants and a licensor, such as plaintiff,
would have agreed upon, at the time the infringement began....” The
court stated that “the Carlson patent was a similar or comparable
system, and one used by many in the industry. The sum paid by
plaintiff to Carlson, by defendants to Carlson, and by others to
Carlson, are evidence of what a fair royalty would be. These were
negotiated sums in arms length transactions.”

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American Original obviously stands for the proposition that evidence regarding license
agreements for a comparable patent may be admitted where the patent-in-suit has not been licensed
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and there is no established royalty rate.

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In Resqnet.Com, Inc. v. Lansa, Inc., 594 F.3d 860, 869 (Fed.Cir. 2010), the court noted that

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“a comprehensive (but unprioritized and often overlapping) list of relevant factors for a reasonable

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royalty calculation appears in Georgia-Pacific Corp. v. United States Plywood Corp., 318 F.Supp.

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1116, 1120 (S.D.N.Y. 1970).” In limiting the district court’s use of those factors, the Federal

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Circuit stated:

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“Determining a fair and reasonable royalty is often ... a difficult
judicial chore, seeming often to involve more the talents of a conjurer
than those of a judge.” Fromson v. Western Litho Plate & Supply
Co., 853 F.2d 1568, 1574 (Fed.Cir.1988). Still, a reasonable royalty
analysis requires a court to hypothesize, not to speculate. Id. at 1575.
At all times, the damages inquiry must concentrate on compensation
for the economic harm caused by infringement of the claimed
invention. See, e.g., Aro Mfg. Co. v. Convertible Top Replacement
Co., 377 U.S. 476, 507, 84 S.Ct. 1526, 12 L.Ed.2d 457 (1964)
(“[T]he present statutory rule is that only ‘damages’ may be
recovered.”).
Thus, the trial court must carefully tie the proof of damages to the
claimed invention’s footprint in the market place. . . .

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Resqnet.Com, 594 F.3d at 869.

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The court further stated:

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The first Georgia–Pacific factor requires considering past and
present royalties received by the patentee “for the licensing of the
patent in suit, proving or tending to prove an established royalty.”
318 F.Supp. at 1120 (emphasis added). By its terms, this factor
considers only past and present licenses to the actual patent and the
actual claims in litigation. This court has long required district courts
performing reasonable royalty calculations to exercise vigilance when
considering past licenses to technologies other than the patent in suit.
See Lucent, 580 F.3d at 1329 (“[A] lump-sum damages award [based
on a reasonable royalty] cannot stand solely on evidence which
amounts to little more than a recitation of royalty numbers, one of
which is arguably in the ballpark of the jury’s award, particularly
when it is doubtful that the technology of those license agreements is
in any way similar to the technology being litigated here.”)

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This Court recognizes that relevancy under Fed.R.Civ.Pro. 26(b) is broadly construed and

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that in order to be discoverable, information need not be admissible at trial so long as it is

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reasonably calculated to lead to the discovery of admissible evidence. On the other hand, the court

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may deny or limit discovery if the burden and expense of the proposed discovery outweighs its
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likely benefit. Rule 26(b)(2)(C)(iii). Evidence regarding Bally’s licensing agreements involving

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similar patented technologies may be relevant and lead to the discovery of admissible evidence if

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the subject patents-in-suit have not been licensed or there is reason to believe that Bally’s licenses

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of the subject patents did not involve arms length business transactions that reflect the actual value

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of the patents in the market place.

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BIS2's very sketchy motion to compel fails to persuade this Court, even under the liberal

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standard of Rule 26, that it should order Bally to produce documents relating to other Bally owned

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patents subject to the vague limitation to “comparable patents in the industry.” Bally states in its

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opposition, which is also scant on factual detail, that it has produced the agreements between Bally

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and its customers for “the Business Intelligence products.” If this means that Bally has produced

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actual license agreements, negotiated at arms- length, regarding the patents-in-suit, then that is the

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best evidence on which to establish a reasonable royalty rate. To the extent that Bally has not

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already disclosed all license agreements for the patents-in-suit, then it should do so. BIS2 has not

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shown, however, that license agreements involving other patents are sufficiently relevant to be

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discoverable. Accordingly,

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IT IS HEREBY ORDERED that Defendant Business Intelligence Systems Solutions,

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Inc.’s (“BIS2") Emergency Motion to Compel (#77, #81) in regard to Request for Production No.

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57 is denied, without prejudice to Defendant renewing its motion as to this request if it can

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demonstrate a factual basis as to why discovery regarding licensing agreements for other patents is

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relevant to its defense.

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DATED this 30th day of August, 2011.

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______________________________________
GEORGE FOLEY, JR.
United States Magistrate Judge

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