CARNEGIE MELLON UNIVERSITY v. MARVELL TECHNOLOGY GROUP, LTD. et al
Filing
451
MEMORANDUM OPINION indicating that, for reasons stated more fully within, Defendants' Motion to Exclude the Opinions of Catherine M. Lawton (Docket No. 367 ) is granted, in part, and denied, in part, in accord with the preceding discussion. Th e motion is granted to the extent that Ms. Lawton may not testify to total revenue, total profit, or total margin, except to start her analysis. The motion is denied in all other respects, such that Ms. Lawton may refer to the total number of sales, total apportioned revenue, average price per chip, operating profit per chip, and apportioned profit per chip in making her calculations. The parties shall meet and confer and submit a proper limiting instruction in accord with this Opinion and the following Order. Signed by Judge Nora Barry Fischer on 8/24/12. (jg)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
CARNEGIE MELLON UNIVERSITY,
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Plaintiff,
v.
MARVELL TECHNOLOGY GROUP, LTD.,
and MARVELL SEMICONDUCTOR, INC.,
Defendants.
Civil No. 09-290
Judge Nora Barry Fischer
MEMORANDUM OPINION
Presently pending before the Court is a motion filed by Defendants Marvell Technology
Group, Ltd., and Marvell Semiconductor, Inc. (collectively, “Marvell”) to exclude the proffered
expert testimony of Ms. Catharine M. Lawton. (Docket No. 367). Plaintiff Carnegie Mellon
University (“CMU”) opposes this motion. (Docket No. 395). The Court heard argument on the
motion during its hearing on July 10 and 11, 2012. (Docket No. 433). Although Ms. Lawton
was present in the courtroom during the hearing, CMU opted not to call her to testify. (Docket
No. 440 at 98). The motion is now ripe. For the following reasons, Marvell’s motion [367] is
GRANTED, in part, and DENIED, in part.
I.
BACKGROUND1
a. Factual Summary
This is a patent infringement action in which CMU alleges that Marvell has infringed two
of its patents, U.S. Patent Nos. 6,201,839 (the “‘839 Patent”) and 6,438,180 (the “‘180 Patent”)
1
As the parties are well aware of the factual and procedural background of this case, the Court
will limit its discussion to the background necessary for the resolution of the current motion. For
further detail regarding same, see Docket Nos. 306, 337, and 441.
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(collectively, the “CMU Patents”).
The patents-in-suit are generally directed to sequence
detection in high density magnetic recording devices, and more specifically, to high density
magnetic recording sequence detectors. See ‘839 Patent 1:20-23. Both patents claim priority to
a May 9, 1997 provisional application. See ‘839 Patent; ‘180 Patent. The ‘180 Patent is a
continuation-in-part of the ‘839 Patent. See ‘180 Patent.
Although much of the scope and contours of Marvell’s alleged use are still disputed, it is
clear that Marvell used the accused technology throughout its so-called “sales cycle.”2 The sales
cycle involves testing of both computer programs and manufactured chips, and CMU accuses
Marvell of infringement during this design and testing stage. If a sales cycle is successful, it
culminates with a “design win,” whereby Marvell makes mass sales of chips that allegedly
perform the patented methods.
CMU seeks a reasonable royalty for Marvell’s alleged infringement throughout this
process. To that end, CMU proffers Ms. Lawton as its damages expert. Ms. Lawton has
produced a massive report. (See Docket No. 367-2).
b. Ms. Lawton
Ms. Lawton is a Director at the Berkeley Research Group, LLC (“BRG”), which is an
international consulting firm that specializes in, among other things, strategy issues related to
complex litigation. (Id. at 1). She has over twenty-six years of experience advising clients on
various damages issues, including intellectual property infringement damages, and related topics.
(Id. at 1-2). She has acted as a damages expert in other intellectual property cases. (Id. at 2).
2
The Court only briefly summarizes the alleged sales cycle here.
description, see Docket No. 441.
2
For a more detailed
The underlying theme of Ms. Lawton’s report is that Marvell considered CMU’s
technology “must have.” (See id. at 14). All told, she concludes that a running royalty of $0.50
per unit should be applied to Marvell’s sales of the Accused Chips at issue. (Id.).
Given the size of Ms. Lawton’s report, it comes as no surprise that she has left very few,
if any, stones unturned.
She has considered the possibility of an established royalty, and
correctly found none. (See Docket No. 449 at 4-6). After reaching this conclusion, Ms. Lawton
engaged in an extremely detailed Georgia-Pacific analysis in order to reach her opinion on a
reasonable royalty for the case. (Docket No. 367-2 at 368-540).
II.
LEGAL STANDARD
Under Rule 702 of the Federal Rules of Evidence, a court may permit an expert to offer
opinion testimony only if such testimony “will assist the trier of fact” and “(1) the testimony is
based upon sufficient facts or data, (2) the testimony is the product of reliable principles and
methods, and (3) the witness has applied the principles and methods reliably to the facts of the
case.” FED.R.EVID. 702. “The district court acts as a gatekeeper tasked with the inquiry into
whether expert testimony is ‘not only relevant, but reliable.’” IP Innovation L.L.C. v. Red Hat,
Inc., 705 F.Supp.2d 687, 689 (E.D. Tex. 2010) (Rader, J.) (quoting Daubert v. Merrell Dow
Pharms., Inc., 509 U.S. 578, 589 (1993)). Testimony that does not meet the standard set forth in
Rule 702 must be excluded.
In a patent infringement action, a successful plaintiff is entitled to “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 (2006). Two forms of compensation are authorized by § 284: lost profits and
reasonable royalty damages. Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1324 (Fed.
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Cir. 2009). Because CMU does not manufacture or sell products that practice the claimed
methods, it is not entitled to lost profits.
“A reasonable royalty contemplates a hypothetical negotiation between the patentee and
the infringer at a time before the infringement began.” Red Hat, 705 F.Supp.2d at 689 (citing
Hanson v. Alpine Valley Ski Area, Inc., 718 F.2d 1075, 1078 (Fed. Cir. 1983)). The hypothetical
negotiation presumes that both the patentee and the accused infringer are willing parties to the
negotiation, and also assumes that the patent was valid, enforceable, and infringed. GeorgiaPacific Corp. v. U.S. Plywood Corp., 318 F.Supp. 1116, 1120 (S.D.N.Y. 1970). The GeorgiaPacific case sets out a series of factors that may be relevant to the analysis of a reasonable
royalty. Id.
III.
ANALYSIS
Marvell’s challenge to Ms. Lawton’s report can be generally divided into four parts. The
first issue Marvell raises is Ms. Lawton’s purported use of the entire market value rule. (Docket
No. 368 at 6-10). The second is that her apportionment analysis is unreliable. (Id. at 11-13).
Next, Marvell claims that Ms Lawton relied on an irrelevant powerpoint slide, which renders her
opinion unreliable. (Id. at 13-16). Finally, Marvell throws the proverbial “kitchen sink” at Ms.
Lawton’s report, raising five short, independent disputes with various aspects of her report. (Id.
at 17-19). CMU counters all of these arguments. (See Docket No. 395 at 1-2). The Court will
now address the arguments raised, in turn.
a. Entire Market Value Rule
The entire market value rule requires a patentee to “prove that the patent-related feature is
the basis for customer demand.” Lucent Technologies, Inc. v. Gateway, Inc., 580 F.3d 1301,
1336 (Fed. Cir. 2009) (internal quotations omitted). This does not mean that the patent-related
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feature is the only feature, but simply that it is the one that drives demand. TWM Mfg. Co., Inc.
v. Dura Corp., 789 F.2d 895, 901 (Fed. Cir. 1986) (The entire market value rule allows recovery
“based on the value of an entire apparatus containing several features, when the feature patented
constitutes the basis for customer demand.”). Put another way, the entire market value rule
applies when the patented feature “substantially create[s] the value of the component parts.”
Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1318 (Fed. Cir. 2011).
Marvell takes the position that there is no evidence of record that indicates that the
patented method drives customer demand or creates the value of the relevant components.3
(Docket No. 368 at 6). Marvell points, for example, to the fact that any read channel contains a
number of components that are unrelated to the patented feature, and Ms. Lawton acknowledges
as much. (Id. at 7 (citing Docket Nos. 367-2 at 509; 367-1 at 34:19-35:2)).
CMU counters that Ms. Lawton actually did not apply the entire market value rule,
despite reference to same. (See Docket No. 395 at 9 (citing Docket No. 367-2 at 510-11) (“it is
my opinion based on the facts of this case that the Entire Market Value Rule exception is
applicable, however, to be conservative, I am not utilizing it to calculate damages.”) (emphasis in
document)). Ms. Lawton testified that her reasonable royalty analysis is “clearly predicated on
the apportioned value.” (Docket No. 396-6 Ex. 14 at 311-13). Thus, CMU argues that exclusion
of her testimony on this basis would be in error.
The Court agrees with CMU. Ms. Lawton has clearly steered away from the entire
market value rule, and as such, her opinion is not based on same. That is not to say, however,
that she may openly state that she believes the rule applies, that a wider range of damages are
therefore available, and then close by saying the she is being “conservative” by not applying the
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Ms. Lawton takes a different tack, pointing to Dr. Bajorek’s Report, along with other evidence,
to support her conclusion on market value. (See Docket No. 367-2 at 508-509).
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entire market value rule. After argument, it appears that this is Marvell’s concern: that Ms.
Lawton will testify that she could have applied the entire market value rule, but instead opted to
apply a more “conservative” analysis (and still arrive at a conclusion that Marvell owes CMU
$734 million or more). (See Docket No. 440 at 171-72 (“Ms. Lawton should not be able to tell a
jury that, in her opinion, the entire market value rule applies, but she’s being conservative by not
applying it.”).
Marvell calls the Court’s attention to the Uniloc case, wherein the Federal Circuit
addressed a scenario that is facially similar to the instant one. In that case, Uniloc “said it would
not base a royalty calculation on the entire market value of the products.” Uniloc, 632 F.3d at
1319. It then proceeded to offer Microsoft’s $19.28 billion total revenue as a “check” in
determining reasonableness by showing the reasonableness of the asserted 2.9% royalty. Id.
Uniloc then belittled Microsoft’s expert’s calculation, which was “only .0003% of total
revenue.” Id. at 1318. At trial, the expert referenced a prepared pie chart comparing Microsoft’s
total revenue with the amount of the proposed reasonable royalty. Id.
Microsoft argued that Uniloc had actually applied the entire market value rule through:
(1) Uniloc’s expert’s pie chart; (2) Uniloc’s expert’s comparison of his calculated royalty to the
total revenue Microsoft earned through the accused products; and (3) Uniloc’s belittlement of
Microsoft’s proposed royalty. Id. The district court agreed with Microsoft, noting that Uniloc
had conceded that the entire market value rule was not applicable. Id. at 1319.
The instant case is not entirely on all fours with Uniloc. As Judge Payne of the Eastern
District of Texas recognized, an apportionment analysis needs to start somewhere, and simply
starting with the total operating profit does not inherently invoke the entire market value rule.
See PACT XPP Technologies, AG v. Xilinx, Inc., Civ. No. 07-563, 2012 WL 1666390, *2 (E.D.
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Tex. May 11, 2012) (overruling objection based on entire market value because, even though the
plaintiff admitted that its expert’s analysis “starts with the average sales price,” the expert
“apportioned the average sales price.”).
In the Court’s view, Uniloc and PACT work together. To this Court’s reading, the
problem which Uniloc addressed was inappropriately tainting the jury’s understanding of the
damages in the case by comparing potentially appropriate calculations with much greater
revenue figures in an effort to lend credence to its “reasonable” royalty. As the Federal Circuit
noted, and the district court before it, “[t]he [total revenue] cat was never put back into the bag
even by Microsoft’s cross-examination” of the expert. Uniloc, 632 F.3d at 1320. PACT did not
involve a comparison of the sort made in Uniloc, and Judge Payne found no issue with the
expert’s reference to average sales price. PACT, 2012 WL 1666390 at *2.
To this end, the Court finds that Ms. Lawton has not applied the entire market value rule
simply by referencing Marvell’s total operating profit on a per-unit basis. Instead, she has used
the average operating profit as a starting point for her apportionment analysis. (See Docket No.
367-2 at 505). Simple reference to average operating profits for the purpose of showing a
starting point is justified, so long as the testimony does not lapse into statements that tend to
show how “reasonable” a royalty is when compared to a much larger amount. See Uniloc, 632
F.3d at 1319. Ms. Lawton’s testimony at her deposition effectively shows that some reference to
revenues, margins and values is necessary to formulate a reasonable royalty. (See Docket No.
396-6 Ex. 14 at 83-86). Hence, Ms. Lawton’s testimony will not be excluded on the grounds that
she used the entire market value rule, because she has not done so.
However, in order to ensure that the comparative bias observed in Uniloc does not arise
here, the Court will order the parties to meet and confer and submit a proposed limiting
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instruction in accord with this Court’s opinion and with Uniloc. The instruction shall ensure that
Ms. Lawton’s testimony does not go into total revenue, total profit, or total margin (“the total
numbers”) of the accused chips, except to start her analysis. Thereafter, she may refer to the
total number of sales, total apportioned revenue, average price per chip, operating profit per chip,
and apportioned profit per chip in making her calculations. The Court does not read Uniloc as
foreclosing the use of these figures, and indeed, a number of them are necessary for her to testify
coherently on the issue of damages, while the “total numbers” – with the exception of total sales
– may serve only to taint the jury.
b. Apportionment
Marvell next challenges Ms. Lawton’s apportionment analysis on two grounds. First,
Marvell asserts that Ms. Lawton’s analysis is based “on a very small number of chips.” (Docket
No. 368 at 11). Marvell claims that her analysis of 2,735 chips should not be extrapolated to
1,468,067,339 chips. (Id. at 12). Second, Marvell argues that Ms. Lawton’s attribution of the
entire purported price premium is in error because there are “81 improvements” in the new
(accused) chips as compared to their predecessors. (Id. at 12-13 (emphasis in brief)).
CMU’s rebuttal to the first point is that Ms. Lawton’s analysis actually included
approximately 354,000 chips, both accused and non-accused. (Docket No. 395 at 15). In
addition, CMU posits that any attack on the sufficiency of the evidence relied upon by Ms.
Lawton is a question best left to the jury. (Id. (citing Walker v. Gordon, 46 Fed. Appx. 691, 695
(3d Cir. 2002) (“[d]eterminations regarding the weight to be accorded, and the sufficiency of, the
evidence relied upon by the proffered expert, are within the sole province of the jury.”)). CMU
also observes that Ms. Lawton’s analysis is “based on all available data points.” (Id. at 16
(emphasis removed)). CMU next argues that the “experts agree that there would have been one
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negotiation … and that the licensing terms would have been for use of the CMU invention
regardless of its specific implementation.” (Id. (emphasis added)). Finally, CMU points to
several facts that purportedly contradict Marvell’s position.
In light of CMU’s responses, the Court does not find Marvell’s arguments persuasive.
Each one is, effectively, directed towards the evidence upon which Ms. Lawton relied. Marvell
and CMU, respectively, have pointed to evidence that contradicts or supports her opinions. The
Court will now leave to counsel the task of cross examination and to the jury the task of
determining which set of facts is correct. Thus, the Court will not exclude any of Ms. Lawton’s
testimony on the basis of her apportionment analysis.
c. Marvell’s Powerpoint Presentation
Marvell next challenges Ms. Lawton’s use of an internal Marvell document which
references a proposed internal 3% royalty rate on “substantial key functionality.” (Docket No.
368 at 13-17). This document is, on its face, not a license agreement. Ms. Lawton, however,
uses the document as a “starting point” in her hypothetical negotiation analysis. (Docket No.
367-2 at 518). CMU argues that Marvell has taken the document out of the context in which it
appears in Ms. Lawton’s report, and that it is not of such import as Marvell would assign to it.
(Docket No. 395 at 17).
The Court views this document as somewhat akin to the DSSC Agreements, against
which use CMU railed in its motion to exclude the testimony of Marvell’s damages expert,
Creighton Hoffman. Mr. Hoffman relied upon the clearly distinguishable DSSC Agreements –
without explanation – but the Court did not exclude his testimony because those agreements
arguably show a “discernible link to the claimed technology.” (Docket No. 449 at 7 (citing
ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860, 870 (Fed. Cir. 2010)). The distinction here is
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that the internal royalty has no discernible link to the patents-in-suit, is not an actual license, and
even if it was, would not be between two similarly-situated entities, which Ms. Lawton
acknowledged was a requirement for Georgia-Pacific Factor 2. (See Docket No. 376-2 at 517).
That is not to say that her reliance on this document makes the rest of her report
inherently unreliable, as Marvell would have it. As CMU observes, Ms. Lawton’s “Negotiation
Outcome” (Docket No. 367-2 at 537-38) is merely illustrative. (Docket No. 395 at 17). As Ms.
Lawton stated at her deposition, her overall analysis is independent of the illustration. (Docket
No. 396-6 Ex. 14 at 15-16). Her opinion is still supported by substantial evidence, and the Court
denies Marvell’s motion on this basis.
d. Marvell’s Alleged Indicia of Unreliability
In Marvell’s final challenge, it takes a “kitchen sink” approach. It argues that Ms.
Lawton ignored the DSSC Agreements in her analysis, that she improperly relied upon the 25%
rule of thumb, that her “excess profits” analysis is flawed based on the evidence, that she failed
to account for the simulation programs separately from the accused chips, and that Ms. Lawton
improperly predicated her analysis on sales, rather than use.
The Court finds none of these arguments persuasive. First, as the Court explained in its
opinion on CMU’s motion attacking Mr. Hoffman’s opinion (Docket No. 449), the DSSC
Agreements are obviously distinguishable from the end result of the hypothetical negotiation. To
the extent that Ms. Lawton believes them irrelevant, she is entitled to that opinion – just as Mr.
Hoffman is entitled to the belief that they are relevant. Ms. Lawton considered the DSSC
Agreements and found that they do not offer guidance in determining a reasonable royalty in this
case. (Docket No. 367-2 at 515-16). It is not the Court’s place to question such a determination,
for that is the realm of the jury. Walker, 46 Fed. Appx. at 695. To the extent that Ms. Lawton
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believes the DSSC Agreements are irrelevant, while Mr. Hoffman believes they are not, the
Court notes that the Rules do not allow it “to exclude an expert’s testimony on the ground that
the court believes one version of the facts and not the other.”
Fed.R.Evid. 702, 2000
Amendments. Hence, to the extent that there is a dispute as to the similarities between the DSSC
Agreements and the license resulting from the an hypothetical negotiation, the Court is not to
exclude an expert because of a dispute over the relevance of underlying facts.
Moreover, in accord with Rule 26(a)(2)(B)(i)-(ii), all that Ms. Lawton’s report is required
to say is that she has considered the licenses and, in her opinion, they are not relevant. See
Fed.R.Civ.P. 26(a)(2)(B)(i) (requiring expert to provide “a complete statement of all opinions the
witness will express and the basis and reasons for them”); id. at (B)(ii) (requiring the witness to
list “the facts or data considered by the witness in forming [her opinions]”). Marvell has had,
and will again have, an opportunity to question Ms. Lawton on her opinion. (See Docket No.
396-6 Ex. 14 at 191-194).
Although Uniloc rejected use of the 25% rule of thumb, it rejected the rule “because it
fails to tie a reasonable royalty base to the facts of the case at issue.” Uniloc, 632 F.3d at 1315.
Ms. Lawton’s report cites evidence that CMU actually uses a 25% or 33% rule in negotiations.
(See Docket No. 367-2 at 362 n. 2348). Her reference to a rule that is tied to the facts of the case
does not run afoul of Uniloc, even if it appears to do so on its face.
Marvell’s dispute with Ms. Lawton’s excess profits analysis is another instance of a
factual dispute. Whether Marvell’s designated 30(b)(6) witness’s statement is sufficient to
support a conclusion that Marvell’s “target” margin is 50% is a question once again best left for
the jury. Walker, 46 Fed. Appx. at 695. CMU is also correct that Ms. Lawton’s excess profits
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valuation is not an analysis of the accused technology, but serves as part of her apportionment
analysis. (See Docket No. 367-2 at 505 (citing her own analysis of Marvell’s sales & profits)).
Next, Marvell contends that Ms. Lawton’s report is inappropriately based on the
assumption that both Group I and Group II claims are infringed, and as such, both Marvell’s
simulations and chips are implicated.
The Court has granted summary judgment of non-
infringement on the Group II claims (Docket No. 443), so there will be no need of any testimony
to address same.
Finally, the Court has addressed the underlying principles of Marvell’s fifth argument.
(See Docket No. 441 (rejecting Marvell’s arguments regarding extraterritorial activity and
licensed use)). The Court is not persuaded on this basis. Accordingly, Ms. Lawton’s opinions
stand.
IV.
CONCLUSION
For the foregoing reasons, Marvell’s motion [367] is GRANTED, in part, and DENIED,
in part, in accord with the preceding discussion. The motion is granted to the extent that Ms.
Lawton may not testify to total revenue, total profit, or total margin, except to start her analysis.
The motion is denied in all other respects, such that Ms. Lawton may refer to the total number of
sales, total apportioned revenue, average price per chip, operating profit per chip, and
apportioned profit per chip in making her calculations. The parties shall meet and confer and
submit a proper limiting instruction in accord with this Opinion and the following Order.
s/ Nora Barry Fischer
Nora Barry Fischer
United States District Judge
Date: August 24, 2012
cc/ecf: All counsel of record.
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