Saint Lawrence Communications LLC v. ZTE Corporation et al
MEMORANDUM OPINION AND ORDER - granting in part 268 Motion to Exclude. Signed by Judge Rodney Gilstrap on 2/21/2017. (ch, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
ZTE CORP. ET AL.,
Case No. 2:15-cv-349-JRG
MEMORANDUM OPINION AND ORDER
Before the Court is the Motion to Exclude Expert Testimony of Roy Weinstein Under
Daubert (Dkt. No. 268, the “Motion”) filed by Defendant Motorola Mobility LLC (“Motorola”)
and joined by the ZTE Defendants (Dkt. No. 280). For the following reasons, the Court is of the
opinion that the Motion should be GRANTED-IN-PART as explained herein.
Rule 702 provides that an expert witness may offer opinion testimony if (a) the expert's
scientific, technical, or other specialized knowledge will help the trier of fact to understand the
evidence or to determine a fact in issue; (b) the testimony is based on sufficient facts or data; (c)
the testimony is the product of reliable principles and methods; and (d) the expert has reliably
applied the principles and methods to the facts of the case. Fed. R. Evid. 702.
“The inquiry envisioned by Rule 702 is . . . a flexible one,” but, in Daubert, the Supreme
Court held that the Rules also “assign to the trial judge the task of ensuring that an expert's
testimony both rests on a reliable foundation and is relevant to the task at hand.” Daubert v. Merrell
Dow Pharms. Inc., 509 U.S. 579, 594, 597 (1993). “The proponent need not prove to the judge
that the expert's testimony is correct, but she must prove by a preponderance of the evidence that
the testimony is reliable.” Johnson, 685 F.3d at 459 (quoting Moore v. Ashland Chem., Inc., 151
F.3d 269, 276 (5th Cir. 1998) (en banc)). At base, “the question of whether the expert is credible
or the opinion is correct is generally a question for the fact finder, not the court.” Summit 6, LLC
v. Samsung Elecs. Co., Ltd., 802 F.3d 1283, 1296 (Fed. Cir. 2015).
Motorola sets forth a number of grounds to exclude the testimony of Mr. Roy Weinstein,
the damages expert of Plaintiff Saint Lawrence Communications LLC (“SLC”). Specifically,
Motorola argues that Mr. Weinstein (1) improperly increases his calculated royalty rate based on
erroneous settlement and invalidity discounts; (2) arbitrarily determines that five cents is an
appropriate amount to adjust the royalty rate as part of his Georgia-Pacific analysis; (3) improperly
relies on Motorola’s offered rates for a technology portfolio to justify an increase in the
hypothetical royalty rate by five cents; (4) improperly raises the royalty rate by five cents under
Georgia-Pacific Factor 7 to account for the increased scope and duration of the hypothetical
license; and (5) improperly adjusts the hypothetical royalty rate based on SLC licenses negotiated
in the context of litigation in Germany. The Court considers each ground in-turn
First, Motorola takes issue with Mr. Weinstein’s method of accounting for litigation risks
and costs. Mr. Weinstein derives a starting point for the hypothetical royalty rate from a license
between Saint Lawrence and Samsung, a purported FRAND rate. From this point, he increases
the hypothetical royalty to calculate the amount that Motorola might offer in the hypothetical
negotiation if litigation and patent validity were not issues as they were in the Samsung negotiation.
Accordingly, Mr. Weinstein looks to proposals made by LG to SLC in which the former offered a
license subject to quantify a “settlement discount” and “invalidity discount.” He uses these
proposals as support for his adjusting the Samsung royalty upward, accounting for a 50%
“settlement discount” and a 18.25% “invalidity discount.” Motorola argues that Mr. Weinstein’s
reliance on the two LG proposals is flawed, unreliable and not relevant to the hypothetical royalty
in this case. In particular, Motorola points out that the two LG proposals substantially differ from
the ultimate agreement reached by SLC and LG, almost by a factor of ten. In other words, the LG
proposed settlement and invalidity discounts used by Mr. Weinstein to adjust the Samsung royalty
do not reflect any actual settlement or invalidity discounts provided to LG and ultimately agreed
to by SLC.
In light of these facts, Mr. Weinstein’s reliance on the LG proposals is not excludable. See
Pipitone v. Biomatrix, Inc., 288 F.3d 239, 249–50 (5th Cir. 2002) (“The trial court's role as
gatekeeper [under Daubert] is not intended to serve as a replacement for the adversary system . . .
. Thus, while exercising its role as a gate-keeper, a trial court must take care not to transform a
Daubert hearing into a trial on the merits”) (internal quotations omitted). In principle, experts
may increase royalty rates derived from prior licenses to account for discounts attributable to
litigation risks and costs. Motorola’s disagreement primarily lies not with Mr. Weinstein’s
methodology but with the inputs Mr. Weinstein uses. In fact, the sources Mr. Weinstein uses to
justify these inputs is transparent. In other words, Mr. Weinstein’s methodology is “not so opaque
as to be immune from rigorous cross-examination, the ‘traditional and appropriate means of
attacking shaky but admissible evidence.’” PerdiemCo, LLC v. Industrack LLC, 2016 WL
6611488, at *3 (E.D. Tex. Nov. 9, 2016) (quoting Daubert, 509 U.S. at 596). The Court has also
considered and rejected Motorola’s other criticisms concerning Mr. Weinstein’s application of
settlement discounts to the Samsung rate, for example, its argument that the Samsung agreement
does not contain any discounts to be adjusted for. Mr. Weinstein has provided a clear statement in
his report explaining his opinion that the Samsung rate has non-itemized settlement discounts, an
opinion that can be rigorously cross-examined. Motorola also asserts that the existence of a
FRAND obligation precludes any adjustment to the Samsung license’s effective royalty rate to
account for the hypothetical negotiation’s infringement and validity assumptions. However, it
cites no persuasive authority holding that an expert may not adjust FRAND royalty rates to account
for the hypothetical negotiation’s assumption of infringement and validity.
All of Motorola’s criticisms regarding Mr. Weinstein’s opinion on settlement and
invalidity discounts are logical, but they do not justify exclusion under Daubert before trial. They
can be easily understood by a jury and go to the weight and credibility of Mr. Weinstein’s
testimony, not its admissibility, making it improper for the Court to exercise its “gatekeeper” role,
lest it substitute its own judgment for the jury’s. Accordingly, the Court will not exclude Mr.
Weisntein’s testimony on concerning settlement and invalidity discounts.
Second, Motorola argues that Mr. Weinstein’s five cent adjustments upward for certain
Georgia-Pacific factors are arbitrary and unreliable. After starting with a per unit starting royalty
rate from the Samsung license and adjusting that starting rate for litigation risks and costs, Mr.
Weinstein further adjusts the per unit royalty by adjusting the royalty rate in five cent increments
using the Georgia-Pacific framework. Motorola argues that Mr. Weinstein fails to substantiate
why five cents is a reasonable value to apply to the hypothetical reasonable royalty rate.
Again, Motorola’s criticism goes to the weight and credibility of Mr. Weinstein’s
testimony, not admissibility. A reasonable royalty analysis “necessarily involves an element of
approximation and uncertainty,” Lucent Technologies, Inc. v. Gateway, Inc., 580 F.3d 1301, 1325
(Fed. Cir. 2009), and accordingly “[m]athematical precision is not required.” Whitserve, LLC v.
Computer Packages, Inc., 694 F.3d 10, 31 (Fed. Cir. 2012). What is required at the Daubert stage
is that the expert explain “why and generally to what extent the particular factor impacts the royalty
calculation is needed.” Id. Mr. Weinstein does this. The Court generally agrees with SLC that
Mr. Weinstein provides a detailed analysis to account both for his upward and downward
adjustments to the royalty rate under Georgia-Pacific. (See Dkt. No. 310 at 13.) Mr. Weinstein
does not use the same five cent adjustment per factor—for Factors 8, 9, and 10 he reduces the
hypothetical royalty rate by a total ten cents. But even if Mr. Weinstein did weigh the adjustments
to each factor the same way, i.e., he did not detail whether certain factors weighed more heavily than
others, his approach passes muster under Daubert. At bottom, supported by hundreds of paragraphs
in his report, Mr. Weinstein analyzes Georgia-Pacific Factors 1, 2, 7, 8, 9, 10, and 11 to conclude
that a net increase of ten cents to the hypothetical royalty is warranted. The Court has reviewed
Mr. Weinstein’s report and finds his ultimate Georgia-Pacific factor adjustments to be wellsupported by his analysis, with the exception of Factor 7 below.
Third, Motorola challenges Mr. Weinstein’s reliance on rates Motorola stated were
appropriate FRAND rates for its own cellular technology. Georgia-Pacific Factor 2 contemplates
adjustments based on “rates paid by the licensee for use of other patents.” Georgia-Pacific Corp.
v. United States Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970). Motorola objects to
Mr. Weinstein’s use of rates Motorola charges because such rates are not “rates paid” by Motorola.
Ultimately, Motorola’s argument can be easily rejected because it “rests on an incorrect
premise,” i.e., that an expert cannot consider evidence that does not explicitly fall within the
Georgia-Pacific framework. Parthenon Unified Memory Architecture LLC v. Apple Inc., No.
2:15-CV-621-JRG-RSP, 2016 WL 7670833, at *1 (E.D. Tex. Sept. 21, 2016). Such notion has no
support in the law. Id.; Ericsson, Inc. v. D-Link Sys., Inc., 773 F.3d 1201, 1230 (Fed. Cir. 2014)
(“[W]e have never described the Georgia–Pacific factors as a talisman for royalty rate
calculations.”); Whitserve, LLC v. Computer Packages, Inc., 694 F.3d 10, 31 (Fed. Cir. 2012) (“We
do not require that witnesses use any or all of the Georgia–Pacific factors when testifying about
damages in patent cases.”). The real question is whether rates charged by Motorola is relevant
evidence to the hypothetical negotiation. The Court finds that Mr. Weinstein’s report adequately
explains the relevance of this evidence. Accordingly, even if evidence of FRAND rates Motorola
charges for its own cellular technology may not explicitly fall within Factor 2 by its express terms,
it is neither irrelevant nor unreliable evidence. Therefore, it should not be excluded.
Fourth, Motorola argues that Mr. Weinstein improperly “double-count[s]” for the
increased duration of the hypothetical royalty rate. Here, the Court agrees. Applying GeorgiaPacific factor 7, Mr. Weinstein adjusts the hypothetical royalty rate upward by 5 cents to account
for the fact that they hypothetical license would be 2.5 years longer than the Samsung license.
However, he also opines that the hypothetical license would have resulted in a running royalty, as
opposed to a lump sum. A running royalty supposes that the licensee will pay a per unit royalty.
Without additional facts or testimony, a running royalty necessarily accounts for any longer
duration through an increased royalty base.
SLC presents no facts to suggest that in this case, an increased royalty base does not already
fully incorporate any adjustment to be made under Factor 7. SLC argues that the hypothetical
license would provide longer and earlier access to the patented technologies. (Dkt. No. 310 at 13;
Dkt. No. 362 at 4.)
First, the increased royalty base already accounts for the longer access.
Second, SLC’s argument that, in this case, there is additional value to earlier access to the patented
technology is devoid of any factual support. SLC points to paragraphs 285 and 286 of Mr.
Weinstein’s report. The Court has reviewed those paragraphs, and they do not support SLC’s
argument. Rather, they quite clearly state that Mr. Weinstein makes an upward adjustment to the
hypothetical royalty rate “because the license rights valued by Samsung and Motorola (i.e. the
license rights to the Patents-In-Suit) continue for 2.5 years longer under the hypothetical Motorola
license than they do under the Samsung license.” (Dkt. No. 268-2 at 168.) There is simply no
reliable support in the record for SLC’s notion that Motorola might pay more for earlier,
guaranteed access to newer technology. In fact, such notion appears to be contradicted by other
statements in Mr. Weinstein’s report. See Dkt. No. 268-2 at 166 (“I have not identified any
evidence that would cause me to adjust the financial terms of the agreement between Saint
Lawrence and Samsung to account for the difference in the timing of the Samsung negotiation and
the hypothetical negotiation.”).
To be clear, the Court’s determination here that Mr. Weinstein’s royalty rate improperly
double counts is not a broader statement that Georgia-Pacific Factor 7 is per se inapplicable to a
running royalty as a matter of law. There may be circumstances in which an increased royalty
base does not fully account for Factor 7. However, Plaintiff has not marshaled sufficient facts to
show that such is the case here. That is its burden. Moore v. Ashland Chem. Inc., 151 F.3d 269,
276 (5th Cir. 1998). For this reason, Plaintiff’s argument that Motorola provides no legal of factual
authority to support its assertion that Mr. Weinstein double counts, (Dkt. No. 310 at 16), also fails.
The Court disagrees with Plaintiff, as explained above, but in any case, showing inadmissibility is
not Motorola’s burden—the burden of showing admissibility rests with the Plaintiff. Moore, 151
F.3d at 276. Plaintiff has not met its burden and accordingly, Mr. Weinstein may not testify that
an additional 2.5 years on the hypothetical license warrants an increase of 5 cents in his calculated
Fifth, Motorola challenges Mr. Weinstein’s discussion of other SLC licenses negotiated in
the context of litigation in Germany. (Dkt. No. 268 at 17–18.) According to Motorola, these
licenses are unreliable indicators of a FRAND royalty because they are “tainted by the coercive
environment of patent litigation,” specifically, the threat of an injunction in Germany. (Id.) (citing
LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51, 77 (Fed. Cir. 2012).) The Court does
not find Motorola’s challenge meritorious. Mr. Weinstein does not use these licenses as a starting
point for his opinion. Rather, he uses these additional licenses to justify an adjustment of the
hypothetical royalty rate. In doing so, he explicitly takes into account how an injunction could
place have placed pressure on the licensees and affected the rates of these additional licenses. As
with many of its other challenges, Motorola’s argument goes to the weight and not admissibility
of the testimony.
For the reasons stated herein, the Motion (Dkt. No. 268) is GRANTED-IN-PART. The
Motion is GRANTED with respect to opinions that the royalty rate should be increased by five
cents to account for the fact that the Motorola license would be 2.5 years longer. In all other
respects, the Motion is DENIED.
SIGNED this 19th day of December, 2011.
So ORDERED and SIGNED this 21st day of February, 2017.
UNITED STATES DISTRICT JUDGE
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