Via Vadis, LLC et al v. Blizzard Entertainment, Inc.
Filing
229
ORDER DENYING 192 MOTION to Exclude Portions of the Expert Report of Philip Green by Blizzard Entertainment, Inc. Signed by Judge Susan Hightower. (cc3)
Case 1:14-cv-00810-LY Document 229 Filed 12/14/21 Page 1 of 12
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION
VIA VADIS, LLC and
AC TECHNOLOGIES, S.A.,
Plaintiffs
v.
BLIZZARD ENTERTAINMENT, INC.,
Defendant
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CIVIL NO. 1:14-CV-00810-LY
ORDER
Before the Court are Defendant Blizzard Entertainment, Inc.’s Daubert Motion to Exclude
Portions of the Expert Report of Philip Green, filed September 17, 2021 (Dkt. 192), and the
associated response and reply briefs.1 Having considered the written submissions, the applicable
law, the case file as a whole, and the arguments of the parties at a hearing on December 13, 2021,
the Court denies the motion.
I.
Background
Via Vadis and AC Technologies, S.A. (“Plaintiffs”) are the owner and exclusive licensee,
respectively, of U.S. Patent No. RE40,521 (the “’521 Patent”) for a data access and management
system. They accuse Defendant Blizzard Entertainment, Inc. (“Blizzard”) of making video game
distribution software that infringes the ’521 Patent. Amended Complaint, Dkt. 116.
The patent claims asserted by Plaintiffs cover the operations of peer-to-peer networks.
Plaintiffs allege that Blizzard infringed the asserted claims by using the BitTorrent Protocol, a
“peer to peer file distribution protocol that allows multiple networked users to simultaneously
On November 8, 2021, the District Court referred Defendant’s motion to the undersigned for resolution,
pursuant to 28 U.S.C. § 636(b)(1)(A), Federal Rule of Civil Procedure 72, and Rule 1(c) of Appendix C of
the Local Rules of the United States District Court for the Western District of Texas. Dkt. 209.
1
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upload and download segments or pieces of the same file to and from each other.” Dkt. 116 ¶ 14.
Plaintiffs contend that Blizzard used BitTorrent to distribute certain of its video games, including
the World of Warcraft, StarCraft, and Diablo series. Id. ¶ 17.
Blizzard now moves the Court to exclude portions of the report of Plaintiffs’ damages expert,
Philip Green, asserting that “they are based upon unreliable methods and legally insufficient facts,
and because his methodology is not sufficiently tied to the facts of the case.” Dkt. 192 at 4.
Plaintiffs oppose the motion.
II. Legal Standard
In Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 589 (1993), the Supreme Court held
that trial judges must ensure that scientific testimony or evidence is not only relevant, but also
reliable. Subsequently, Rule 702 of the Federal Rules of Evidence was amended to provide that:
A witness who is qualified as an expert by knowledge, skill, experience,
training, or education may testify in the form of an opinion or otherwise 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.
The Rule 702 and Daubert analysis applies to all proposed expert testimony, including
nonscientific “technical” and other “specialized knowledge.” Kumho Tire Co. v. Carmichael, 526
U.S. 137, 141 (1999).
The Supreme Court has interpreted this rule as imposing a “gatekeeping role” on district courts,
tasking them with “ensuring that an expert’s testimony both rests on a reliable foundation and is
relevant to the task at hand.” Daubert, 509 U.S. at 597. Under Daubert, expert testimony is
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admissible only if the proponent demonstrates that (1) the expert is qualified; (2) the evidence is
relevant; and (3) the evidence is reliable. See Moore v. Ashland Chem. Inc., 151 F.3d 269, 276
(5th Cir. 1998); Watkins v. Telsmith, Inc., 121 F.3d 984, 989 (5th Cir. 1997). The overarching
focus of a Daubert inquiry is the “validity and thus evidentiary relevance and reliability—of the
principles that underlie a proposed submission.” Watkins, 121 F.3d at 989 (quoting Daubert, 509
U.S. at 594-95). The reliability prong mandates that expert opinion “be grounded in the methods
and procedures of science and . . . be more than unsupported speculation or subjective belief.”
Johnson v. Arkema, Inc., 685 F.3d 452, 459 (5th Cir. 2012) (citation omitted). “The relevance
prong requires the proponent to demonstrate that the expert’s reasoning or methodology can be
properly applied to the facts in issue.” Id. (internal quotation marks and citation omitted).
Notwithstanding the testing of an expert’s qualification, reliability, and admissibility, “the
rejection of expert testimony is the exception rather than the rule.” FED. R. EVID. 702 advisory
committee’s note to 2000 amendment. “Vigorous cross-examination, presentation of contrary
evidence, and careful instruction on burden of proof are the traditional and appropriate means of
attacking shaky but admissible evidence.” Daubert, 509 U.S. at 596.
The proponent of expert testimony bears the burden of establishing its reliability. Sims v. Kia
Motors of Am., Inc., 839 F.3d 393, 400 (5th Cir. 2016). Because the Daubert test focuses on the
underlying theory on which the opinion is based, the proponent of expert testimony need not prove
that the expert’s testimony is correct, but rather that it is reliable. Moore, 151 F.3d at 276. It is not
the court’s role to “judge the expert conclusions themselves.” Williams v. Manitowoc Cranes,
L.L.C., 898 F.3d 607, 623 (5th Cir. 2018).
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That the gatekeeping role of the judge is limited to excluding
testimony based on unreliable principles and methods is particularly
essential in the context of patent damages. This court has recognized
that questions regarding which facts are most relevant or reliable to
calculating a reasonable royalty are “for the jury.”
Apple Inc. v. Motorola, Inc., 757 F.3d 1286, 1315 (Fed. Cir. 2014), overruled on other grounds by
Williamson v. Citrix Online, LLC, 792 F.3d 1339 (Fed. Cir. 2015); see also Summit 6, LLC v.
Samsung Elecs. Co., 802 F.3d 1283, 1296 (Fed. Cir. 2015) (“But where the methodology is
reasonable and its data or evidence are sufficiently tied to the facts of the case, the gatekeeping
role of the court is satisfied, and the inquiry on the correctness of the methodology and of the
results produced thereunder belongs to the factfinder.”).
III. Analysis
In his expert report, Green opined that the parties would have agreed to a lump sum reasonable
royalty for use of the accused peer-to-peer technology, identified a reasonable royalty range, and
stated that the royalty would be in the upper half of that range. Dkt. 192 at 8 (citing Green Report,
Dkt. 193-1 (sealed) ¶¶ 290, 292). To arrive at the range, Green multiplied a royalty base calculated
from “estimates of the forecasted [cumulative] number of users of the Accused Products from the
perspective of the 2006 hypothetical negotiation” by a royalty rate calculated from the market
value of a “benchmark product.” Id. at 8-9 (footnote omitted). Green then applied a discount factor
to reflect the present value as of the date of the hypothetical negotiation—that is, 2006—and then
applied a range of discount rates. Id. at 9 (citing Green Report, Dkt. 193-1 ¶ 267).
Blizzard seeks to exclude certain of Green’s royalty base opinions, royalty rate opinions, and
opinions relying on or referencing sales or revenue of its games. The Court addresses each in turn.
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A. Royalty Base Opinions
Blizzard’s peer software connected to the BitTorrent swarm as the default mode. Dkt. 201 at
10. Blizzard now distributes its games entirely by content delivery networks (“CDNs”) rather than
peer-to-peer. Blizzard asserts that Green’s royalty base fails to satisfy Daubert because:
Green’s assessment of his royalty base is neither reduced to exclude
users who opted out of the accused peer-to-peer download
functionality of the Accused Products2 and relied upon only the noninfringing CDN direct download functionality, nor does it take into
account the overwhelming evidence that the majority of Blizzard’s
games and updates were delivered by the Accused Products using
the non-infringing CDN direct download functionality. Green also
did not limit this royalty base to account for the fact that the accused
peer-to-peer functionality was disabled for many Blizzard games
beginning in 2014, nor does Green exclude the time-period after
July 2016 when the accused peer-to-peer functionality was
completely removed from all Accused Products.
Dkt. 192 at 9.
1. Download via Content Delivery Networks
First, Blizzard asserts that Green’s award would inappropriately compensate Plaintiffs for noninfringing activity by including in his royalty base “estimated forecasts of users,” including those
who downloaded data directly via CDNs rather than peer-to-peer. Blizzard contends that its user
base must be adjusted to exclude users of the non-infringing CDN systems. Blizzard further argues
that Green’s methodology is faulty because he failed to estimate and exclude Blizzard customers
who turned off the accused peer-to-peer functionality before initiating downloads. Dkt. 204 at 7.
Blizzard contends that Green thus failed to follow the methodology approved by the Federal
Circuit Court of Appeals in Summit 6, on which he purports to rely.
The “Accused Products” are software Blizzard developed, including the Blizzard Downloader, Blizzard
Launcher, Blizzard Agent, and Blizzard’s Battle.net. Dkt. 192 at 6.
2
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Plaintiffs respond that CDN users are properly included in Green’s calculation. In addition to
peer-to-peer distribution by upload and download, Plaintiffs contend, BitTorrent includes
distribution by peers referred to as “seeds,” “Web seeds,” or “HTTP seeds” that have all of the
data to be distributed and only upload. Dkt. 201 at 5-6. Thus, “Blizzard’s CDNs participated in
infringement as Web Seeds/HTTP Seeds, and the Blizzard peers are ‘data storage means’ for the
pieces obtained from the CDNs while connected to the Blizzard swarm.” Id. at 10.
Both parties also make factual arguments addressing the number of Blizzard users who opted
out of Blizzard’s default peer-to-peer functionality. For purposes of Blizzard’s Daubert motion,
the Court agrees with Plaintiffs that the number of Blizzard customers properly included in Green’s
royalty base is a question of fact that will go to the weight to be accorded to Green’s opinions, not
to the correctness of his methodology or the admissibility of his opinions under Daubert. See Micro
Chem., Inc. v. Lextron, Inc., 317 F.3d 1387, 1392 (Fed. Cir. 2003) (“When, as here, the parties’
experts rely on conflicting sets of facts, it is not the role of the trial court to evaluate the correctness
of facts underlying one expert’s testimony.”).
2. Relevant Dates
Blizzard next argues that Green’s award includes damages after Blizzard discontinued the
peer-to-peer functionality feature in its Accused Products. Specifically, Green includes forecasts
of users through December 2021, even though Blizzard “discontinued the accused peer-to-peer
download functionality for some of its most popular games, like World of Warcraft, in September
2014.” Dkt. 192 at 16. All use ceased in July 2016, so no activity infringing Plaintiffs’ method
patent could have occurred after that time, Blizzard argues. Because the ad-free versions of
BitTorrent and BitTorrent product μTorrent were not available in 2006, the time of the hypothetical
negotiation, Blizzard also argues that Green’s benchmark does not follow the methodology of
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i4i Ltd. P’ship v. Microsoft Corp., 598 F.3d 831, 854-56 (Fed. Cir. 2010), and other reasonable
royalty cases.
Plaintiffs respond that forecasted future infringing sales have been included in other lump sum
analyses, hypothesized as of the time infringement began. Dkt. 201 at 13-14. Green addresses the
extent of Blizzard’s anticipated use at the time of the hypothetical negotiation in 2006, Plaintiffs
assert. Id. at 15. “And Blizzard has produced no evidence that in 2006 it forecasted it would stop
using BitTorrent and the patented methods to distribute data in July 2016 or at any time before the
patent expired.” Id. Plaintiffs also contend that it is reasonable to assume that Blizzard’s use would
extend through the life of the patent.
Blizzard contends in reply that Plaintiffs rely on cases in which lump sum awards were based
on existing forecasts generated at or around the time of the hypothetical negotiation,3 whereas
Blizzard did not generate any forecasts of use of the accused peer-to-peer functionality; instead,
Green developed his own forecasts. Blizzard argues that: “There is simply no factual basis for
Green’s departure from the accepted methodology of excluding time periods of non-infringement.”
Dkt. 204 at 8. Blizzard argued at oral hearing that Plaintiffs cite no case lacking an alleged
infringer’s forecast of use at the time of the hypothetical negotiation, while Plaintiffs argued that
no case holds that such a forecast is required.
The parties have not cited a case specifically requiring a contemporaneous use forecast, and
the Court finds that the absence of a contemporaneous use forecast by Blizzard does not render
Green’s methodology unreliable. The Federal Circuit has explained that the hypothetical
3
Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1326-27 (Fed. Cir. 2009); Interactive Pictures Corp.
v. Infinite Pictures, Inc., 274 F.3d 1371, 1384 (Fed. Cir. 2001); Evolved Wireless, LLC v. Apple Inc., 2019
WL 1178517, at *3 (D. Del. Mar. 13, 2019).
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negotiation attempts “to recreate the ex ante licensing negotiation scenario and to describe the
resulting agreement.” Aqua Shield v. Inter Pool Cover Team, 774 F.3d 766, 770 (Fed. Cir. 2014)
(quoting Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1325 (Fed. Cir. 2009)). “In
hypothetical-negotiation terms, the core economic question is what the infringer, in a hypothetical
pre-infringement negotiation under hypothetical conditions, would have anticipated the profitmaking potential of use of the patented technology to be, compared to using non-infringing
alternatives.” Id. How accurately Green recreated what Blizzard may have anticipated about its
future use of BitTorrent in 2006, including the duration of that use, goes to the weight of Green’s
testimony rather than its reliability.
Lucent is not to the contrary. Lucent does not concern the exclusion of evidence under Daubert;
rather, the Federal Circuit found the jury’s damages award not supported by substantial evidence,
stating:
Lucent submitted no evidence upon which a jury could reasonably
conclude that Microsoft and Lucent would have estimated, at the
time of the negotiation, that the patented date-picker feature would
have been so frequently used or valued as to command a lump-sum
payment that amounts to approximately 8% of the sale price of
Outlook.
Id. at 1327. For purposes of Blizzard’s Daubert motion, the Court finds that Green, in the absence
of a use forecast by Blizzard, relied on substantial evidence sufficiently tied to deposition
testimony from Blizzard’s 30(b)(6) witness, John Yaney; certain of Blizzard’s contemporaneous
public statements; and licenses Blizzard has produced in this matter. See Dkt. 202-1 (sealed)
¶¶ 218-30, 270-76. Divergence of Blizzard’s actual use from the forecast may illustrate the element
of approximation and uncertainty inherent in future projections. Interactive Pictures Corp. v.
Infinite Pictures, Inc., 274 F.3d 1371, 1385 (Fed. Cir. 2001) (“Although a trier of fact must have
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some factual basis for a determination of a reasonable royalty, consideration of a hypothetical
negotiation necessarily involves an element of approximation and uncertainty.”) (citation and
internal quotation marks omitted). The Court does not find that Green’s sales forecast is “based
only on speculation and guesswork,” id., and therefore must be excluded. See, e.g., Motorola, 757
F.3d at 1319-20 (“Determinations on admissibility should not supplant the adversarial process;
‘shaky’ expert testimony may be admissible, assailable by its opponent through crossexamination.”) (citation omitted).
B. Royalty Rate Opinions
Green used a royalty rate of $1.58. BitTorrent and μTorrent were free of charge in 2006, the
time of the hypothetical negotiation. In 2016, BitTorrent offered ad-free versions of both for $4.95
per user per year. Blizzard argues that Green’s benchmark is not sufficiently tied to the facts of
this case because it is derived from the $4.95 price charged in 2016, ten years after the hypothetical
negotiation, “to non-Blizzard customers by third-party BitTorrent, Inc. for an ‘ad-free’ version of
the Bit Torrent and μTorrent software clients, which are not accused.” Dkt. 192 at 18.
To arrive at $1.58, Green first reduced the $4.95 price by 20% on the understanding that the
asserted ’521 Patent discloses 80% of the features in each of the two benchmark products. Dkt. 192
at 18. Green further reduced the allocated market price of the benchmark products by multiplying
that figure by Blizzard’s operating margin. Id.
Blizzard argues that Green fails to account for the “ad-free” feature of the benchmark products
added in 2016, long after Blizzard began using them. Blizzard argues that Green’s methodology
thus deviates from i4i, Motorola, and Kaufman v. Microsoft Corp., No. 16-cv-2880 (AKH), 2021
WL 242672 (S.D.N.Y. Jan. 25, 2021), which “involve benchmark products that the accused
infringer developed or purchased or were available around the time of the hypothetical
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negotiations.” Dkt. 204 at 10. Blizzard also argues that Green deviates from accepted methodology
by failing to address how profits would be allocated between Blizzard and Plaintiffs, distinguishing
his methodology from that accepted in Summit 6, 802 F.3d at 1297, in which the parties would
have split the allocated profits evenly to derive the actual reasonable royalty rate. Dkt. 204 at 11.
Plaintiffs respond that Green’s analysis focuses on the market price/allocated profit of the ’521
Patented technology by identifying comparable BitTorrent products in the marketplace,
technically apportioning to the ’521 Patented features, and further apportioning to account for
Blizzard’s costs. Dkt. 201 at 17 (citing Green Report, Dkt. 202-1 (sealed) ¶¶ 244-57). Green
testified that his allocated profit analysis identifies the rate Blizzard would pay to license the
asserted claims, namely, the market rate. Id. at 20. Plaintiffs cite Arctic Cat Inc. v. Bombardier
Recreational Prods. Inc., 876 F.3d 1350, 1369-70 (Fed. Cir. 2017), in which the Federal Circuit
affirmed the district court’s admission of damages testimony that relied on a later-developed
benchmark in a reasonable royalty analysis. Id. at 18.
In Arctic Cat, the Federal Circuit agreed with the district court’s analysis that, to the extent the
defendant found the comparison problematic, “that is a line of attack more appropriately addressed
through cross-examination.” Id. at 1370 (citation omitted). The Court finds the same is true of
Blizzard’s arguments with respect to the fact questions underlying Plaintiffs’ royalty rate here.
C. Game Sales
Finally, the parties agree that Green did not assert convoyed or collateral sales under GeorgiaPacific Factor No. 6,4 which pertains to derivative or convoyed sales. Blizzard asks that “any
“The effect of selling the patented specialty in promoting sales of other products of the licensee; that
existing value of the invention to the licensor as a generator of sales of his non-patented items; and the
extent of such derivative or convoyed sales.” Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp.
1116, 1120 (S.D.N.Y. 1970), modified by Georgia-Pacific Corp. v. U.S. Plywood-Champion Papers, Inc.,
446 F.2d 295 (2d Cir. 1971).
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references to such Blizzard game sales or revenues should be stricken from Green’s testimony.”
Dkt. 204 at 11.
Green states in his report that, “to the extent that effective distribution of Blizzard games and
patches impacted players’ willingness to buy additional games or pay ongoing subscription fees,
Blizzard’s use of the ’521 Patented technology has contributed to Blizzard’s revenues from game
sales.” Dkt. 193-1 (sealed) ¶ 172. Plaintiffs state that Green did not rely on the sales revenues of
Blizzard games in his royalty calculations:
Mr. Green did not assert convoyed or collateral sales, and so
excluding this information on the grounds that it failed to meet
convoyed or collateral sales requirements is improper. Rather,
Mr. Green considered this information in formulating his opinions
and this information is part of the background environment for his
royalty analysis.
Dkt. 201 at 20-21 (footnote omitted). Plaintiffs add in a footnote that: “To the extent there are
concerns about Mr. Green discussing the figures associated with Blizzard’s game sales at trial,
Plaintiffs are willing to meet and confer with Blizzard about their trial presentation of this
information during the pretrial process.” Id. at 21 n.16.
Because Green did not rely on the sales revenues of Blizzard’s games in his royalty calculation,
the Court denies Blizzard’s motion to exclude Green’s opinions that rely on game sales under
Federal Rule of Evidence 703. The Court notes that Blizzard has filed a motion in limine to
preclude Plaintiffs from introducing evidence regarding its video game sales, profits, and revenues,
Dkt. 225 at 7-11, and also may address any such issues through pretrial agreement, as Plaintiffs
have offered.
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IV. Conclusion
For the foregoing reasons, Defendant Blizzard Entertainment, Inc.’s Daubert Motion to
Exclude Portions of the Expert Report of Philip Green (Dkt. 192) is DENIED.
SIGNED on December 14, 2021.
SUSAN HIGHTOWER
UNITED STATES MAGISTRATE JUDGE
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