Tinnus Enterprises, LLC et al v. Telebrands Corporation et al
Filing
467
REDACTED MEMORANDUM OPINION AND ORDER re 419 Defendants' Motion to Exclude Plaintiffs' expert Alan Ratliffs Opinion on Damages. Signed by Magistrate Judge John D. Love on 4/3/2019. (rlf)
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
TYLER DIVISION
TINNUS ENTERPRISES, LLC, ZURU
LTD., ZURU, INC., ZURU, LLC, ZURU
PTY LTD., ZURU UK LTD.,
Plaintiffs,
v.
TELEBRANDS CORPORATION, BED
BATH
&
BEYOND
INC.,
BULBHEAD.COM, LLC,
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CIVIL ACTION NO. 6:15-CV-00551-RWS
Defendants.
REDACTED MEMORANDUM OPINION AND ORDER
Before the Court is Defendants’ Telebrands Corporation (“Telebrands”), Bed Bath &
Beyond Inc. (“Bed Bath”), and Bulbhead.com LLC (“Bulbhead”) (collectively “Defendants”)
Motion to Exclude Plaintiffs’ expert Alan Ratliff’s Opinion on Damages. (Doc. No. 419.)
Plaintiffs Tinnus Enterprises, ZURU Ltd., ZURU Inc., ZURU LLC, ZURU PTY Ltd., and
ZURU UK Ltd. (collectively “Plaintiffs”) filed a response (Doc. No. 434), to which Defendants
filed a reply (Doc. No. 452). For the reasons stated herein, Defendants’ Motion (Doc. No. 419) is
DENIED.
BACKGROUND
On June 9, 2015, Plaintiffs ZURU Ltd. and Tinnus filed the instant action against
Defendants Telebrands and Bed Bath1 (collectively “Defendants”) alleging infringement of U.S.
Patent No. 9,051,066 (“the ’066 Patent”). Shortly after the filing of this case, the Court issued an
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Prometheus Brands, LLC was subsequently dismissed and Defendant Bulbhead was added. (Doc. Nos. 25, 227.)
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injunction preventing Telebrands from selling its accused water balloon products—Balloon
Bonanza. (Doc. Nos. 66, 84, 91.) This case then proceeded through claim construction, numerous
discovery disputes, contempt proceedings, and up to dispositive motions and pretrial. At that
point in time, concurrent proceedings at the Patent Trial and Appeal Board (“PTAB”) concluded
and the PTAB issued a final written decision holding that the asserted claims of the ’066 Patent
were invalid as indefinite. The decision of the PTAB was appealed to the Federal Circuit and
Defendants asked the Court to stay the case. This Court ultimately stayed this case on January
24, 2017, pending appeal of the PTAB’s decision. (Doc. No. 308.) On June 7, 2018, the parties
filed notices informing the Court of the Federal Circuit’s decision reversing and remanding the
PTAB’s final written decision. (Doc. Nos. 332, 333.) The Court therefore lifted the stay in this
case and held a status conference to discuss resuming this action. (Doc. No. 334.) At the status
conference, the parties raised issues that needed to be resolved before proceeding to trial,
including claim construction, estoppel, venue, and standing.
This case has since been proceeding on an expedited schedule for trial. (Doc. No. 382.)
On March 5, 2019, the parties filed their dispositive and/or Daubert motions. (Doc. Nos. 394,
395, 396, 397, 398, 399, 400, 401, 402, and 403.) The Court denied the motions, directing the
parties to meet and confer and re-file the remaining motions by March 15, 2019. (Doc. No. 411.)
The Court instructed the parties that each re-filed motion should begin with “a paragraph
explaining why the motion is timely, which issues the Court has previously resolved, and what
specific issues remain for the Court to resolve prior to trial.” Id. at 4. Accordingly, Defendants
re-filed the instant motion. (Doc. No. 419.)
LEGAL STANDARD
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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 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 relevance prong [of Daubert] requires the
proponent [of the expert testimony] to demonstrate that the expert’s ‘reasoning or methodology
can be properly applied to the facts in issue.’” Johnson v. Arkema, Inc., 685 F.3d 452, 459 (5th
Cir. 2012) (quoting Curtis v. M & S Petroleum, Inc., 174 F.3d 661, 668 (5th Cir. 1999)). “The
reliability prong [of Daubert] mandates that expert opinion ‘be grounded in the methods and
procedures of science and . . . be more than unsupported speculation or subjective belief.’”
Johnson, 685 F.3d at 459 (quoting Curtis, 174 F.3d at 668).
In assessing the “reliability” of an expert’s opinion, the trial court may consider a list of
factors including: “whether a theory or technique . . . can be (and has been) tested,” “whether the
theory or technique has been subjected to peer review and publication,” “the known or potential
rate of error,” “the existence and maintenance of standards,” and “general acceptance” of a
theory in the “relevant scientific community.” Daubert, 509 U.S. at 593–94; see also Kumho
Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 150 (1999) (“Daubert makes clear that the factors it
mentions do not constitute a ‘definitive checklist or test.’”); U.S. v. Valencia, 600 F.3d 389, 424
(5th Cir. 2010). “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.”
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the scope of Mr. Ratliff’s report in questioning him during his deposition and suggest that such
cross-examination by Defendants at trial would open the door to Mr. Ratliff’s answers. Id. at 15.
I.
Zuru Ltd.’s Costs
Defendants contend that Mr. Ratliff’s opinions are a proxy to recover Zuru Inc.’s profits
because his costs for the profit margin are Zuru Inc.’s costs. (Doc. No. 419, at 9.) Defendants
contend this proxy is so because Mr. Ratliff’s Ltd.-specific incremental profit margin assumes
that Zuru Ltd. would have the same costs as Zuru Inc. Id. at 10. Defendants contend that this
assumption is an unreliable fiction because there is “no dispute that INC manufactured the
product, incurred the costs of goods sold, and handled shipping and other costs to fulfill orders.”
Id. Plaintiffs contend that an attack on an expert’s assumptions, like Mr. Ratliff’s cost
assumptions, go to the credibility of the expert’s testimony, not the admissibility. (Doc. No. 434,
at 8.) Further, Plaintiffs contend that Mr. Ratliff properly calculated the profit margin for Zuru
Ltd. by starting with sales to Wal-Mart and subtracting the costs of goods sold. Id. at 9. Plaintiffs
contend that Mr. Ratliff explained that “ZURU Ltd.’s cost of goods sold was not independent of
ZURU Inc.’s cost of goods sold or cost of manufacturing since it was the manufacturing and
marketing entity.” Id. at 9.
Mr. Ratliff’s cost assumptions are not a basis to exclude his testimony in this instance.
Oddly, Defendants attack Mr. Ratliff’s cost assumption for Zuru Ltd. as being the same as Zuru
Inc. and note that there is “no dispute that INC manufactured the product, incurred the costs of
goods sold, and handled shipping and other costs to fulfill orders.” (Doc. No. 419, at 9.) This
suggests that Mr. Ratliff may in fact be overcompensating the costs and expenses attributable to
Zuru Ltd. If indeed Mr. Ratliff’s assumption of costs and/or expenses for Zuru Ltd. is high, then
his Zuru Ltd. profit margin is artificially low. While the Court has excluded Zuru Ltd.’s recovery
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of Zuru Inc.’s lost profits, Mr. Ratliff’s assumption regarding costs does not violate the spirit of
that order. (Doc. Nos. 368, 379.) Moreover, Mr. Ratliff has explained why he believes Zuru
Ltd.’s incremental costs would have been the same as Zuru Inc.’s. (Doc. No. 434-4, at 95:22–
96:21.) Mr. Ratliff’s assumption and explanation regarding these costs does not subject his
opinions to exclusion. Rather, the Court agrees that Defendants’ challenge goes to the weight of
his testimony. Accordingly, the Court finds no basis to exclude Mr. Ratliff’s opinions on Zuru
Ltd.’s profit margin.
II.
Mr. Ratliff’s $ Royalty and Alleged New Opinions
Defendants next contend that Mr. Ratliff originally opined that the result of the
hypothetical negotiation would be a minimum royalty of
%. (Doc. No. 419, at 11.)
Defendants contend that, in his supplemental report, Mr. Ratliff relies on Ms. Mowbray’s
testimony from the Tinnus II trial to support the position that Zuru Ltd. would never have
accepted less than a $ per unit royalty to license the patents-in-suit, creating an upper boundary
on the reasonable royalty. Id. Defendants contend that this new upper boundary should be
excluded because it is an improper attempt to “launder the unreliable opinions of a party witness
through an expert.” Id. Along these lines, Defendants contend that Mr. Ratliff offered new
opinions not contained in his report during his deposition when he explained how his royalty
number and Ms. Mowbray’s number were different and how that range can be considered by the
jury. Id. at 13. Plaintiffs contend that Mr. Ratliff has not changed his royalty opinion in this
matter and merely relies on testimony from the Tinnus II trial as an additional basis for his
opinion of a
% minimum royalty. (Doc. No. 434, at 12–13.) Plaintiffs contend that any
response outside the scope of Mr. Ratliff’s report was intentionally solicited by Defendants and
therefore opened the door to the subject matter. Id. at 15.
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Here, the specific statement Defendants identify to strike in Mr. Ratliff’s supplemental
report is as follows: “based on ZURU’s actual experience and issues with Telebrands in the
marketplace, ZURU would never accept less than $ per unit to license the patents-in-suit to
Telebrands, representing ZURU’s profit, as an upper boundary on the reasonable royalty.” (Doc.
No. 419, at 11.) As an expert, Mr. Ratliff is allowed to rely on statements he personally
observed, including Ms. Mowbray’s prior testimony. See Factory Mut. Ins. Co. v. Alon USA
L.P., 705 F.3d 518, 523 (5th Cir. 2013) (“[e]xpert witnesses may base opinions on facts or data
that the expert ‘has been made aware of or personally observed.’”) (citing Fed.R.Evid. 703).
Moreover, Mr. Ratliff used this information to confirm his understanding and equate his alreadyestablished royalty opinions, not to form the basis of a new opinion. Indeed, as Defendants
suggest “Mr. Ratliff does not even share the opinion that Ms. Mowbray’s $ per unit figure
represents a reasonable royalty.” Id. at 12. Thus, the suggestion of this contradiction
demonstrates that Mr. Ratliff’s opinions are ripe for cross-examination. Accordingly, the Court
declines to strike Mr. Ratliff’s opinions on this basis.
As to the contention that Mr. Ratliff intends to offer opinions outside of his expert report,
the Court finds no basis to preemptively strike Mr. Ratliff’s opinions. Indeed, the record reflects
that the testimony in question was provided in response to Defendants’ questioning of Mr. Ratliff
during his deposition. See Doc. No. 419, at 13, citing Ratliff Deposition (cited herein as Doc. No.
434-4), at 129:15–130:18. Furthermore, the parties will provide the Court with copies of all
expert reports prior to the start of trial and the Court can appropriately take up any objections to
expert opinion being outside the scope during the course of testimony at trial.
CONCLUSION
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For the reasons stated herein, Defendants’ Motion (Doc. No. 419) is DENIED. Within
seven (7) days of the issuance of this Order, the parties shall file a notice with the Court as to
whether this Order can be unsealed, or request appropriate redaction.
So ORDERED and SIGNED this 3rd day of April, 2019.
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