WONDERLAND NURSERYGOODS CO., LTD. v. THORLEY INDUSTRIES, LLC

Filing 185

MEMORANDUM OPINION. Signed by Judge Mark R. Hornak on 10/30/15. (bdb)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA

WONDERLAND NURSERYGOODS CO.,
LTD.,
Plaintiff,

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v.

Judge Mark R. Hornak

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THORLEY INDUSTRIES LLC (d/b/a
4MOMS),

Civil Action No. 2:13-cv-00387

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Defendant.

MEMORANDUM OPINION
Mark R. Hornak, United States District Judge

This is (still) a patent case about a baby crib. On August 28, 2015 this Court issued an
Opinion on various Motions for Summary Judgment and Motions in Limine.

Soon after,

Wonderland petitioned the Court to reconsider one aspect of its opinion: the exclusion of
Wonderland's damages expert, Michael Chase.

This court has reconsidered the issue, but

reaches the same conclusion. As such, Wonderland's Motion for Reconsideration is denied.
The purpose of a motion for reconsideration "is to correct manifest errors of law or fact
or to present newly discovered evidence." Harsco Corp. v. Zlotnicki, 779 F.2d 906, 909 (3d
Cir.1985).

"Accordingly, a judgment may be altered or amended if the party seeking

reconsideration shows at least one of the following grounds: (1) an intervening change in the
controlling law; (2) the availability of new evidence that was not available when the court
granted the motion ... or (3) the need to correct a clear error of law or fact or to prevent manifest
injustice." Max's Seafood Cafe ex rel. Lou-Ann, Inc. v. Quinteros, 176 F.3d 669, 677 (3d Cir.
1999).

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Wonderland asserts that there has been an intervening change in the law, ECF 138 at 5,
but its arguments to this end really speak to the third ground for reconsideration-the need to
correct an error in the prior opinion. 1 Wonderland cites two district court cases that, it says,
show that an apportionment procedures is not required under a "cost impact" methodology2 :

Apple, Inc. v. Samsung Electronics. Co. Ltd., Case No. 11-CV-01846-LHK, 2014 WL 549324
(N.D. Cal. Feb. 7, 2014) 3 and Sentius Int'l, LLC v. Microsoft Corp., No. 5:13-CV-00825-PSG,
2015 WL 451950, at *1 (N.D. Cal. Jan. 27, 2015). These cases may aid this Court's assessment
of whether there was a "clear error of law or fact" in the August 28 1h opinion, but they do not
represent "an intervening change in the controlling law." Quinteros, 176 F.3d at 677. For one,
both cases were decided at the time the Court issued its August 28, 2015 Opinion. Further, both
cases are district court opinions; while this court will consider the decisions of its fellow district
courts-even decisions rendered outside of our own Circuit, as these two were-it is not bound
by their holdings or conclusions, so they are not "controlling law."
As such, this Court is left to consider only whether the August 28, 2015 opinion contains
a "clear error of law or fact" or causes "manifest injustice." Simply put, the Court must decide
whether it was really wrong before. I do not think that I was.
Wonderland's primary contention is that the cost impact approach utilized by the
excluded expert involves a "reliable damages methodology." And, indeed, on this point and to

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Wonderland does not assert that there is any newly available evidence. We agree.

2 We should be clear about what that means. A cost impact method of calculating damages assesses how much it
would cost for the (assumed) infringing party to cease its unlawful action and reenter the market with a noninfringing alternative product. Apportionment is a process used to identify the specific value of the patented feature
itself, apart from the whole value of the product using the patented feature.

This district court opinion dealt with a series of post-trial motions, including a challenge to Samsung's damages
expert. Later, other rulings of the Apple court were appealed and considered by the Federal Circuit. This
subsequent Federal Circuit Opinion, Apple, Inc. v. Samsung Electronics. Co. Ltd., 786 F.3d 983 (2015), does not
discuss any issues relevant to the present Motion for Reconsideration.

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that extent, they are correct. A "reasonable royalty" damages calculation contemplates the price
at which a patent holder would license the use of its product to a would-be-infringer at a time
before the infringement began. Riles v. Shell Exploration & Prod. Co., 298 F.3d 1302, 1311

(Fed. Cir. 2002). The cost impact approach can be relevant to this inquiry because--at a time
before the infringement begins-there may not be any economically-driven reason for a wouldbe-infringer to pay more than the cost of redesigning its product and putting a similar noninfringing product on the market. 4 See Brandeis Univ. v. Keebler Co., No. 1: 12-CV-01508, 2013
WL 5911233, at *6 (N.D. Ill. Jan. 18, 2013) (Posner, J.) ("[Defendant] would not have paid a
royalty higher than the cost to it of switching to a noninfringing substitute.") In this way, a cost
impact analysis can provide a relevant data-point for the jury to consider when detemtining the
reasonable royalty rate that would be reached in a hypothetical negotiation (namely, the approach
provides an estimated maximum amount that the infringing party would agree to in a
hypothetical negotiation, and thus an upper bound to the reasonable royalty rate).
However, as this Court is often required to remind parties, two things may very well be
true at the same time. It may well be true that an expert's cost impact approach can be useful to
a jury determining reasonable royalty damages in some situations; however, it is also true that
the Federal Circuit instructs this court "that in any case involving multi-component products,
patentees may not calculate damages based on sales of the entire product, as opposed to the
smallest salable patent-practicing unit, without showing that the demand for the entire product is

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For example, imagine that Waldo holds a patent on some feature and Timothy wants to put a product on the market
that contains this feature as a non-essential component. Timothy has two options before infringement begins. First,
Timothy could redesign his product and put a non-infringing product on the market for $R. Otherwise, Timothy
could negotiate with Waldo and seek a license to use Waldo's patented feature for $N. {This is the hypothetical
negotiation contemplated in the "reasonable royalty" calculation.) There may be no economic reason for Timothy to
ever pay an amount, N, that is greater than R. That is, there is no fiscally obvious reason for Timothy to pay a
royalty amount greater than the cost of redesigning its product into a non-infringing product. Thus, if one can
determineR, the cost of redesign, then Waldo and Timothy would know that a reasonable royalty price rea•;hed in a
hypothetical negotiation, N, would likely be less than R.

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attributable to the patented feature." LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d
51, 67-68 (Fed. Cir. 2012). See also Virnet.X, Inc. v. Cisco Sys., Inc., 767 F.3d 1308, 1326 (Fed.
Cir. 2014) ("No matter what the form of the royalty, a patentee must take care to seek only those
damages attributable to the infringing features."); Versata Software, Inc. v. SAP Am., Inc., 717
F.3d 1255, 1268 (Fed. Cir. 2013) cert. denied, 134 S. Ct. 1013 (2014) ("A patentee may 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"). Here, there is no contention that Wonderland's patent drives demand for or composes
the substantial value of Thorley's Breeze product. Thus, even if a cost impact approach is a
reasonable component of a damages analysis in some situations, this Court must still exclude Mr.
Chase's testimony if, in his damages calculation, he considers the value of the whole product,
rather than just the patented feature itself.
As explained in the Court's August 28, 2015 Opinion, Mr. Chase's analysis does just
that.

Again, "[a] 'reasonable royalty' contemplates a hypothetical negotiation between the

patentee and the infringer at a time before the infringement began." Riles, 298 F.3d at 1311.
Rather than focusing on this ex-ante value of the patent, however, Mr. Chase analyzes the expost value of the patent by considering the inventory that Thorley acquired after infringement
began. 5 Essentially, his analysis considers the value of the inventory that Thorley would be left
holding, but unable to sell, because of the patent enforcement-and as such, the amount that
Thorley would be willing to pay for a license so that it is able to sell this acquired inventory.
ECF 81-1 at 25. Herein lies the problem. Mr. Chase values this inventory in terms of whole
product units, rather than the patented component features. While this makes general sense as

5

Mr. Chase does recognize, however, that "[f]or the units [of inventory] subject to intervening rights, Wonderland is
not entitled to damages." ECF 81-2 at 9.

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part of an ex-post valuation, it does not adequately isolate the value of the patented feature itself.
Thus, in failing to account for the price Thorley would pay for a license before the infringement
began (and instead analyzing the price Throley would pay for a license after it acquired its nonexempt inventory) Mr. Chase runs afoul of the well-established rule that a patentee may "seek
only those damages attributable to the infringing features." VirnetX, 767 F.3d at 1326. As such,
his testimony must be excluded. 6
Of final note, this Court rejects Wonderland's argument that Mr. Chase should still be
allowed to testify about the Georgia Pacific factors and as a rebuttal damages witness. ECF 138
at 16. Mr. Chase's Georgia Pacific analysis was conducted in furtherance of and as part of his

It is worth noting that Apple and Sentius-the two primary cases cited by Wonderland-are quite consistent with
this analysis.
In Apple, the defendants did not argue that the expert's "methodology does not require apportionment"-as
Wonderland argues here, ECF 138 at 5; instead, the Apple defendants accepted the apportionment requirement and
contended that plaintiffs' expert failed to provide sufficient evidence of this apportionment. Apple Inc., 2014 WL
549324 at *6. After analyzing the expert's methodology, the Court found that the expert "sufficiently accounted for
the patented and unpatented features in proposing a royalty rate to the jury," in part because her cost impact analysis
examined "the costs to [defendants] of being out [of] the market long enough to design around the patents in this
case." !d. Had Mr. Chase limited himself to an ex-ante analysis of the cost of designing around the patents used in
Thorley's allegedly infringing crib design, he too might have fulfilled the apportionment requirements. However,
Mr. Chase went beyond this and also examined the costs that Thorley would incur as a result of the excess crib
inventory that it would be unable to sell. In doing so he took account of more than just "the patents in this case," !d.;
he accounted for the whole of the final products, in contravention of the Federal Circuit's clear instructions. The
law surrounding Apple and this Opinion are the same: an expert must apportion royalty damages by accounting for
the relative value of the patented features vis-a-vis the unpatented features in the product. What differs are the facts:
the Apple expert labored to make this apportionment, while Wonderland's expert did not.
Similarly, in Sentius the Court did not hold that experts employing a cost impact approach need not employ
an apportionment procedure, but instead, that the damage expert's methodology sufficiently accounted for only the
value of the patented features. Sent ius Int'l, LLC, 2015 WL 451950, at *9-11. Unlike Mr. Chase's analysis, the
Sentius expert calculated the revenue and profit that defendant would have lost if, ex-ante, "it had not included the
accused ... features in its accused products." !d. at *9. In other words-unlike here-the expert opined that the
patented feature drove demand for the product among some subset of consumers. As such, without the patented
feature, some quantity of the product in Sentius would never have been sold. Therefore, it was proper to account for
the full value of this quantity ofthe product (a percentage ofthe whole), because the value of the patent in this
quantity is the same as the value of the product itself-that is, the profits and revenue associated with the sales of
these products would never have been realized without the inclusion of the patented feature. !d. at 11. This analysis
differs from Mr. Chase's. In the present case, no subset of the accused product's demand was driven by the
inclusion ofthe patented feature. Thus, ex-ante, there is no quantity of cribs in which the value ofthe patented
feature equates to the value of the product. Ex-post there might be, because the inclusion of the patented feature
prevents the sale of the whole product at all, but as discussed above, this ex-post analysis is the wrong frame of
reference.
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larger cost impact analysis. This testimony must stand or fall together, whether on direct or in
rebuttal, and here, for the reasons discussed above, it falls.
An appropriate Order will issue.

Mark R. Hornak
United States District Judge

Dated: October 30, 2015
cc: All counsel of record

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