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)

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

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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). 

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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,
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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.
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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
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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.
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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
[phone]
Email: [e-mail]
Jason W. Wolff
12390 El Camino Real
San Diego, CA 92130
[phone]
Email: [e-mail]
Frank E. Scherkenbach
Proshanto Mukherji
One Marina Park Drive
Boston, MA 02110
[phone]
Email: [e-mail]
Email: [e-mail]
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: [phone]
Facsimile: [phone]
Email: [e-mail]
Email: [e-mail]
Email: [e-mail]
Email: [e-mail]
Email: [e-mail]
Doug W. McClellan
[e-mail]

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WEIL, GOTSHAL & MANGES LLP
700 Louisiana, Suite 1600
Houston, TX 77002
Telephone: [phone]
Facsimile: [phone]
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: [phone]
Facsimile: [phone]
Email: [e-mail]
Email: [e-mail]
Otis Carroll (Bar No. 3895700)
Deborah Race (Bar No. 11648700)
IRELAND, CARROLL & KELLEY, P.C.
6101 South Broadway, Suite 500
Tyler, Texas 75703
Telephone: [phone]
Facsimile: [phone]
Email: [e-mail]
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: [e-mail]
Email: [e-mail]
Email: [e-mail]
Email: [e-mail]

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Eric Hugh Findlay
Brian Craft
Findlay Craft
6760 Old Jacksonville Highway
Suite 101
Tyler, TX 75703
903.534.1100
Email: [e-mail]
Email: [e-mail]
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
[phone]
Email: [e-mail]
Email: [e-mail]
Email: [e-mail]
Email: [e-mail]
Email: [e-mail]
Email: [e-mail]
Eric L. Sophir
SNR Denton
1301 K Street, N.W.
Suite 600, East Tower
Washington, DC 20005-3364
[phone]
Email: [e-mail]
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

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214.474.5070
[e-mail]
[e-mail]
[e-mail]
Proshanto Mukherji
FISH & RICHARDSON P.C.
One Marina Park Drive
Boston, MA 02110
617.542.5070
[e-mail]
Attorneys for Defendant
THE GO DADDY GROUP, INC.
/s/ Sasha G. Rao (w/ permission)
James R. Batchelder (pro hac vice)
[e-mail]
Sasha G. Rao (pro hac vice)
[e-mail]
Mark D. Rowland
[e-mail]
Brandon Stroy (pro hac vice)
[e-mail]
Rebecca R. Hermes (pro hac vice)
[e-mail]
Han Xu (pro hac vice)
[e-mail]
ROPES & GRAY LLP
1900 University Avenue, 6th Floor
East Palo Alto, California 94303-2284
Telephone: [phone]
Facsimile: [phone]
Michael E. Jones (Bar No. 10929400)
[e-mail]
Allen F. Gardner (Bar No. 24043679)
[e-mail]
POTTER MINTON
A Professional Corporation
110 N. College, Suite 500
Tyler, TX 75702
Telephone: [phone]
Facsimile: [phone]
Attorneys for Defendants
GOOGLE INC. AND YOUTUBE LLC
/s/ Christopher M. Joe (w/ permission)
Christopher M. Joe
Brian Carpenter

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Eric W. Buether
Buether Joe & Carpenter
1700 Pacific, Suite 2390
Dallas, TX 75201
214-466-1270
[e-mail]
[e-mail]
[e-mail]
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
[e-mail]
Kate Hutchins
Wilmer Cutler Pickering Hale and Dorr, LLP
399 Park Avenue
New York, NY 10022
212.230.8800
[e-mail]
Donald R. Steinberg
Mark Matuschak
Wilmer Cutler Pickering Hale and Dorr, LLP
60 State Street
Boston, MA 02109
617.526.5000
[e-mail]
[e-mail]
Daniel V. Williams
Jonathan Hardt
Wilmer Cutler Pickering Hale and Dorr, LLP
1875 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
202.663.6012
[e-mail]
[e-mail]
Attorneys for Defendant
STAPLES, INC.

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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

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