Eolas Technologies Incorporated v. Adobe Systems Incorporated et al

Filing 1033

REPLY to Response to Motion re 903 SEALED MOTION Defendants' Motion to Exclude Expert Testimony of Roy Weinstein filed by Adobe Systems Incorporated, Amazon.com Inc., CDW Corporation, Citigroup Inc., Google Inc., J.C. Penney Corporation, Inc., Staples, Inc., The Go Daddy Group, Inc., Yahoo! Inc., YouTube, LLC. (Healey, David)

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  UNITED STATES DISTRICT COURT EASTERN DISTRICT OF TEXAS TYLER DIVISION EOLAS TECHNOLOGIES, INC. AND THE REGENTS OF THE UNIVERSITY OF CALIFORNIA, Plaintiffs, v. Civil Action No. 6:09-CV-446 LED JURY TRIAL DEMANDED ADOBE SYSTEMS INC., ET AL., Defendants. DEFENDANTS’ REPLY IN SUPPORT OF DEFENDANTS’ DAUBERT MOTION TO EXCLUDE EXPERT TESTIMONY OF ROY WEINSTEIN (DKT. NO. 903)     TABLE OF CONTENTS I.  Eolas Cannot Justify Testimony About the Nash Bargaining Solution or Bilateral Monopoly before the Jury ......................................................................................................................... 1  A.  A Hypothetical Negotiation Cannot Be Based On Speculation About Another Hypothetical Negotiation .................................................................................................. 1  B.  Eolas’ Reference to Academic Papers Cannot Trump Federal Circuit Law ..................... 1  C.  The “Bilateral Monopoly” Premise for NBS Does Not Exist Here .................................. 3  D.  NBS Presents a Question of Law for the Court................................................................. 4  II.  Eolas’ Other Arguments in Opposition to the Motion are Wrong .......................................... 4  III.  Litigation Settlements Should Not Be Admitted ..................................................................... 5    ii     TABLE OF AUTHORITIES Page(s) CASES Amakua Dev. LLC v. Warner, No. 05-CV-3082, 2007 U.S. Dist. LEXIS 49952 (N.D. Ill. July 10, 2007) ...............................2 eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006) ...................................................................................................................3 Grand River Enters. Six Nations v. King, No. 02-CV-5068, 2011 U.S. Dist. LEXIS 27424 (S.D.N.Y. Mar. 17, 2011) ............................2 Lucent Techs. v. Gateway, Inc., 580 F.3d 1301 (Fed. Cir. 2009)......................................................................................1, 2, 4, 5 Moore v. Ashland Chemical Inc., 151 F.3d 269 (5th Cir. 1998) .....................................................................................................4 Oracle Am., Inc. v. Google Inc., No. 10-CV-3561, 2011 U.S. Dist. LEXIS 80280 (N.D. Cal. July 22, 2011) .........................2, 3 ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860 (Fed. Cir. 2010)........................................................................................1, 2, 4, 5 Robert Bosch LLC v. Pylon Manufacturing Corp., Slip Op. No. 2011-1096 (Fed. Cir. Oct. 13, 2011) ....................................................................3 Sanofi-Aventis Deutschland GmbH v. Glenmark Pharms., Inc., USA, No. 07-CV-6855, 2011 U.S. Dist. LEXIS 10512 (D.N.J. Feb. 3, 2011) ...............................2, 3 Uniloc v. Microsoft, 632 F.3d 1293 (Fed. Cir. 2011)..........................................................................................1, 2, 4 OTHER AUTHORITIES Gordon V. Smith and Robert L. Parr, INTELLECTUAL PROPERTY: VALUATION, EXPLOITATION AND INFRINGEMENT DAMAGES, Chapter 22 (John Wiley & Sons 2005) ...........2 iii     I. Eolas Cannot Justify Testimony About the Nash Bargaining Solution or Bilateral Monopoly before the Jury A. A Hypothetical Negotiation Cannot Be Based On Speculation About Another Hypothetical Negotiation The Federal Circuit has made clear in Lucent, ResQnet.com, and Uniloc1 that the “hypothetical negotiation” must be solidly grounded in the facts of the case, not further hypotheticals or “rules of thumb.” Eolas nevertheless argues that, just as the Georgia-Pacific test cannot be criticized even though it is “hypothetical,” the Nash Bargaining Solution (“NBS”) cannot be criticized for being “hypothetical.” But this argument was expressly rejected by Uniloc’s holding that a “rule of thumb” based on an abstract model has no place in patent damages analysis. NBS, like the “25% Rule,” bases its “hypothetical” on a hypothetical starting point—a bilateral monopoly resulting in a 50-50 profit split. The problem is that NBS hypothetical is not connected to the facts of each accused infringer’s or the patentee’s circumstances. Indeed, the fact that Mr. Weinstein applies NBS to different Defendants in the same way to reach the same result, shows that NBS as used here is only the “25% Rule” recast as the “50% Rule.” A hypothetical negotiation may not be based on another hypothetical; it must be grounded in fact. B. Eolas’ Reference to Academic Papers Cannot Trump Federal Circuit Law Eolas offers academic literature discussing NBS, as well as reference to a Nobel Prize to Mr. Nash for related academic work. But this recitation of papers is no different in principle than the rejected justification for the “25% Rule.” The “25% Rule” purported to be based on a study of patent licenses by its author Robert Goldsheider: For forty years the “rule” was supported by papers in the legal literature and licensing professionals, endorsed by economists, and used by                                                              1  Lucent Techs. v. Gateway, Inc., 580 F.3d 1301 (Fed. Cir. 2009); ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860 (Fed. Cir. 2010); Uniloc v. Microsoft, 632 F.3d 1293 (Fed. Cir. 2011).  1     courts in patent cases. See generally Gordon V. Smith and Robert L. Parr, INTELLECTUAL PROPERTY: VALUATION, EXPLOITATION AND INFRINGEMENT DAMAGES, Chapter 22 (John Wiley & Sons 2005). Nonetheless, the Federal Circuit held that the “25% Rule” was effectively an arbitrary “rule of thumb,” and could not be a basis for calculating patent damages. The literature and past endorsement of the “25% Rule” shows this material cannot trump Federal Circuit law. NBS has only been vetted “post-Uniloc” in detail by one opinion, which rejected NBS’ use in the patent damage analysis. Oracle Am., Inc. v. Google Inc., No. 10-CV-3561, 2011 U.S. Dist. LEXIS 80280 (N.D. Cal. July 22, 2011). NBS has no history of being accepted in the software licensing industry generally, or the licensing of patents alleged against internet browsers or of “interactive website content.” NBS has not been used by Eolas or any Defendant in licensing their own patents or in licensing other companies’ patents. Certainly, Eolas points to no evidence establishing that NBS has been used to resolve real-world commercial disputes in the Internet industry. The absence of any evidence of its use in the relevant industry dooms the theory to failure and should preclude it from going to the jury in this case. See Uniloc, supra n. 1. The cases relied on by Eolas do not support its position. The first two cases cited are offpoint: Grand River Enters. Six Nations v. King, No. 02-CV-5068, 2011 U.S. Dist. LEXIS 27424 (S.D.N.Y. Mar. 17, 2011) is not a patent case. Amakua Dev. LLC v. Warner, No. 05-CV-3082, 2007 U.S. Dist. LEXIS 49952 (N.D. Ill. July 10, 2007), pre-dated Lucent, ResQnet.com, and Uniloc—and further the use of NBS was not contested in that case by either party. The third case cited by Eolas, Sanofi-Aventis Deutschland GmbH v. Glenmark Pharms., Inc., USA, No. 07-CV6855, 2011 U.S. Dist. LEXIS 10512 (D.N.J. Feb. 3, 2011), is an ANDA case between a generic drug-maker and the “brand name” manufacturer—a situation that resembles a “bilateral monopoly” in both the injunctive remedies and the number of market participants (generally two parties, 2     the “brand” and the “generic”)—and ANDA has its own additional rules of exclusivity separate from the Patent Act. In Sanofi-Aventis, the district court found that NBS was tied to the facts of the case by evidence presented by the plaintiff and its expert. In contrast, the large number of Defendants, the multiple configurations of their products and processes, the different types of “browsers” and “interactive website content,” and the willingness of Eolas to license its patents, show that the software case here is dramatically different from the ANDA case in Sanofi-Aventis. Judge Alsup’s detailed analysis in Oracle Am. v. Google, supra, is on point and persuasive in its analysis of NBS as an unacceptable starting point for a hypothetical negotiation. This is especially so where there is no “bilateral monopoly” as in Sanofi-Aventis. C. The “Bilateral Monopoly” Premise for NBS Does Not Exist Here Eolas concedes that the bilateral monopoly premise of NBS is used by Mr. Weinstein to provide context for application of the theory, but does not tie that context or premise to the facts of this case. Eolas does not directly compete with any Defendant, nor does it appear to seek anything other than money. And there is no showing by Eolas that the injunction needed to create the “bilateral monopoly” would likely issue. The Federal Circuit expressly held on October 13, 2011 in Robert Bosch LLC v. Pylon Manufacturing Corp., Slip Op. No. 2011-1096, that there are no presumptions or shortcuts for proof of irreparable harm or other elements for injunctive relief: “We … confirm that eBay jettisoned the presumption of irreparable harm as it applies to determining the appropriateness of injunctive relief.” Slip Op. at 10. Rather, under eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006), the question of whether an injunction is appropriate is fact intensive. Unlike Sanofi-Aventis, where the district court found that the facts supported the use of NBS in that ANDA case between two competitors, here no facts are presented by Mr. Weinstein to justify the concept of a bilateral market or the use of NBS. 3     D. NBS Presents a Question of Law for the Court Eolas’ protests that once NBS is shown as a general proposition to be accepted in the academic and scientific community, Daubert is satisfied, and the remaining complaints by the Defendants present questions for cross-examination and of weight for the jury. Eolas is wrong: This is a question of law for the Court. Daubert does not permit introduction of a theory, no matter how lauded, where it is contrary to the law governing the case: Lucent, ResQnet.com and Uniloc. Procedurally, this court must conduct a preliminary fact-finding and make an assessment of not only whether the reasoning or methodology underlying the testimony is scientifically valid, but also “whether that reasoning or methodology properly can be applied to the facts in issue.” See Moore v. Ashland Chemical Inc., 151 F.3d 269, 276 (5th Cir. 1998) (quoting Daubert, 509 U.S. at 592-93). This requires some objective, independent validation of the expert’s methodology. Id. The expert’s assurances that he has utilized generally accepted scientific methodology is insufficient. Id. Eolas, not Defendants, bears the burden of proof on this issue. Id. Eolas’ response is devoid of facts sufficient to make the required showing. Defendants cannot be put in the position of having to cross-examine Mr. Weinstein before the jury to show his opinion is not consistent with controlling case law. NBS may be a praiseworthy thesis in other contexts or in the abstract, but is not admissible here. II. Eolas’ Other Arguments in Opposition to the Motion are Wrong Defendants showed that Eolas has not properly apportioned its damages. This problem was highlighted by Eolas’s own recent motion for reconsideration or interlocutory appeal of a key claim construction. Certain accused software or methods for “interactive website content” would likely have been removed from the case if the Court held to its original construction: Hence, the unusual request by a plaintiff to pursue an interlocutory appeal despite the resulting 4     long delay of trial (there would be no reason to do so otherwise). Eolas argues that Mr. Weinstein does not need to parse the different ways different Defendants implement the inventions or to what extent they make use of them, but Eolas’ own prior motion practice shows that not all of the accused products are the same, and would not make use of Eolas’ technology (if at all) to the same degree (or portion). Apportionment is required by Lucent and ignored by Mr. Weinstein. III. Litigation Settlements Should Not Be Admitted In the absence of an ability to rely on NBS, Eolas may attempt to rely on its litigation settlements to provide a basis for Mr. Weinstein’s opinion. But while the non-monetary license terms of prior settlements by Eolas do provide substantive defenses—as shown by Mr. Weinstein’s own reduction of damages to account for the Microsoft and Apple settlements2—the pricing and economic bargains in these agreements are not admissible here, since these terms come from settlements. Moreover, these agreements are very different in terms of technology, terms, and impact on the settling parties (as well as their customers). Indeed, they would not meet the test for comparability under Lucent or ResQnet.com even if they were admissible. For example, the Microsoft settlement includes the IE browser and Windows operating system; most Defendants do not make a browser and none make an accused operating system; and the Microsoft settlement was for significantly more (in some cases, a hundred times more) than the amount Mr. Weinstein seeks from most Defendants. These unique bargains are irrelevant to prove value in light of the disparate motives of the individual settling parties, their disparate accused products, and their economic realities; and their terms are inadmissible for Eolas to prove damages.                                                              2   The full scope of the releases remains in dispute, but it is not disputed that these licenses have an impact on the accused royalty base. Adobe has also complained that the Sun/Oracle license was ignored by Eolas and Mr. Weinstein in their damages calculation because this release has the impact of licensing or exhausting Eolas’ patents as to Adobe’s accused products. 5     Dated: October 17, 2011 Respectfully submitted, /s/ David J. Healey FISH & RICHARDSON P.C. David J. Healey Texas Bar No. 09327980 1221 McKinney Street, Suite 2888 Houston, TX 77010 (713) 652.0115 Email: healey@fr.com Jason W. Wolff 12390 El Camino Real San Diego, CA 92130 (858) 678.4705 Email: wolff@fr.com Frank E. Scherkenbach Proshanto Mukherji One Marina Park Drive Boston, MA 02110 (617) 542.5070 Email: scherkenbach@fr.com Email: mukherji@fr.com Attorneys for Defendant ADOBE SYSTEMS INCORPORATED /s/ Edward R. Reines(w/ permission) Edward R. Reines Jared Bobrow Sonal N. Mehta Aaron Y. Huang Andrew L. Perito WEIL, GOTSHAL & MANGES LLP 201 Redwood Shores Parkway Redwood Shores, CA 94065 Telephone: (650) 802-3000 Facsimile: (650) 802-3100 Email: Edward.reines@weil.com Email: jared.bobrow@weil.com Email: sonal.mehta@weil.com Email: aaron.huang@weil.com Email: Andrew.perito@weil.com Doug W. McClellan doug.mcclellan@weil.com 6     WEIL, GOTSHAL & MANGES LLP 700 Louisiana, Suite 1600 Houston, TX 77002 Telephone: (713) 546-5000 Facsimile: (713) 224-9511 Jennifer H. Doan Texas Bar No. 08809050 Joshua R. Thane Texas Bar No. 24060713 Haltom & Doan Crown Executive Center, Suite 100 6500 Summerhill Road Texarkana, TX 75503 Telephone: (903) 255-1000 Facsimile: (903) 255-0800 Email: jdoan@haltomdoan.com Email: jthane@haltomdoan.com Otis Carroll (Bar No. 3895700) Deborah Race (Bar No. 11648700) IRELAND, CARROLL & KELLEY, P.C. 6101 South Broadway, Suite 500 Tyler, Texas 75703 Telephone: (903) 561-1600 Facsimile: (903) 581-1071 Email: fedserv@icklaw.com Attorneys For Defendants AMAZON.COM, INC. and YAHOO! INC. /s/ Thomas L. Duston (w/ permission) Thomas L. Duston Julianne Hartzell Scott A. Sanderson Anthony S. Gabrielson Marshall Gerstein & Borun 233 S. Wacker Drive 6300 Willis Tower Chicago, IL 60606 312.474.6300 Email: tduston@marshallip.com Email: jhartzell@marshallip.com Email: ssanderson@marshallip.com Email: agabrielson@marshallip.com 7     Eric Hugh Findlay Brian Craft Findlay Craft 6760 Old Jacksonville Highway Suite 101 Tyler, TX 75703 903.534.1100 Email: efindlay@findlaycraft.com Email: bcraft@findlaycraft.com Attorneys for Defendant CDW LLC /s/ Edwin R. DeYoung (w/ permission) Edwin R. DeYoung Roger Brian Cowie Galyn Dwight Gafford Michael Scott Fuller Roy William Hardin Jason E. Mueller Locke Lord LLP 2200 Ross Ave. Suite 2200 Dallas, TX 75201 (214) 740.8500 Email: edeyoung@lockelord.com Email: rcowie@lockelord.com Email: ggafford@lockelord.com Email: sfuller@lockelord.com Email: rhardin@lockelord.com Email: jmueller@lockelord.com Eric L. Sophir SNR Denton 1301 K Street, N.W. Suite 600, East Tower Washington, DC 20005-3364 (202) 408.6470 Email: eric.sophir@snrdenton.com Attorneys for Defendant CITIGROUP INC. /s/ Proshanto Mukherji (w/ permission) Thomas M. Melsheimer Neil J. McNabnay Carl Bruce John Lane FISH & RICHARDSON P.C. 1717 Main Street Suite 5000 Dallas, TX 75201 8     214.474.5070 melsheimer@fr.com mcnabnay@fr.com bruce@fr.com Proshanto Mukherji FISH & RICHARDSON P.C. One Marina Park Drive Boston, MA 02110 617.542.5070 mukherji@fr.com Attorneys for Defendant THE GO DADDY GROUP, INC. /s/ Sasha G. Rao (w/ permission) James R. Batchelder (pro hac vice) james.batchelder@ropesgray.com Sasha G. Rao (pro hac vice) sasha.rao@ropesgray.com Mark D. Rowland mark.rowland@ropesgray.com Brandon Stroy (pro hac vice) brandon.stroy@ropesgray.com Rebecca R. Hermes (pro hac vice) rebecca.hermes@ropesgray.com Han Xu (pro hac vice) han.xu@ropesgray.com ROPES & GRAY LLP 1900 University Avenue, 6th Floor East Palo Alto, California 94303-2284 Telephone: (650) 617-4000 Facsimile: (650) 617-4090 Michael E. Jones (Bar No. 10929400) mikejones@potterminton.com Allen F. Gardner (Bar No. 24043679) allengardner@potterminton.com POTTER MINTON A Professional Corporation 110 N. College, Suite 500 Tyler, TX 75702 Telephone: (903) 597-8311 Facsimile: (903) 593-0846 Attorneys for Defendants GOOGLE INC. AND YOUTUBE LLC /s/ Christopher M. Joe (w/ permission) Christopher M. Joe Brian Carpenter 9     Eric W. Buether Buether Joe & Carpenter 1700 Pacific, Suite 2390 Dallas, TX 75201 214-466-1270 Chris.Joe@BJCIPLaw.com Eric.Buether@BJCIPLaw.com Brian.Carpenter@BJCIPLaw.com Attorneys for Defendant J.C. PENNEY CORPORATION, INC. /s/ Michael Ernest Richardson (w/ permission) Michael Ernest Richardson Beck Redden & Secrest 1221 McKinney Suite 4500 Houston, TX 77010 713.951.6284 mrichardson@brsfirm.com Kate Hutchins Wilmer Cutler Pickering Hale and Dorr, LLP 399 Park Avenue New York, NY 10022 212.230.8800 kate.hutchins@wilmerhale.com Donald R. Steinberg Mark Matuschak Wilmer Cutler Pickering Hale and Dorr, LLP 60 State Street Boston, MA 02109 617.526.5000 don.steinberg@wilmerhale.com mark.matuschak@wilmerhale.com Daniel V. Williams Jonathan Hardt Wilmer Cutler Pickering Hale and Dorr, LLP 1875 Pennsylvania Avenue, N.W. Washington, D.C. 20006 202.663.6012 daniel.williams@wilmerhale.com jonathan.hardt@wilmerhale.com Attorneys for Defendant STAPLES, INC. 10     CERTIFICATE OF SERVICE The undersigned hereby certifies that a true and correct copy of the above and foregoing document has been served on October 17, 2011 to all counsel of record who are deemed to have consented to electronic service via the Court’s CM/ECF system per Local Rule CV-5(a)(3). /s/ David J. Healey________________ David J. Healey 11  

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