Court Permits Evidence from Damages Expert that Relies on Forward Citation Analysis, Comparable Settlement Agreements, and Preference for Lump Sum Agreements

Authored by D. Brian Kacedon; Rhianna L. Lindop, Ph.D.; and John C. Paul

Abstract

Determining the right amount of damages in patent infringement cases often involves complex analyses provided by damages experts. When requested, courts will exclude an expert’s report or testimony where it is unreliable. A District Court in Pennsylvania recently denied the litigants’ requests to exclude each other’s expert reports for determining reasonable royalty damages. According to the court, the license agreements and the experts’ methods for calculating damages were reliable for the purposes they cited.

Background

Damages for patent infringement are typically based a reasonable royalty for the infringer’s use of the patented technology. In most cases, the litigants submit evidence of a an appropriate royalty by using experts who review and testify on factors relevant to the reasonable royalty, including rates paid by licensees for patents comparable to the patent in suit and the portion of profits that should be credited to the invention rather than non-patented elements of the product. Once a party submits its expert’s report on a reasonable royalty, the other party may challenge that report and ask the court to exclude it from the case if the expert’s methods or the data the expert relies on are unreliable.

In Comcast v. Sprint, Comcast and Sprint each accused the other of infringing their respective text-messaging (SMS) and multimedia messaging (MMS) patents. Both parties filed expert reports to support the reasonable royalty damages they were claimed they were entitled to for the other party’s infringement, and both parties challenged the reliability of the other experts’ report.

In particular, Comcast argued that the method Sprint’s expert used to estimate the value of an asserted patent was discredited by a recent case and publication. Specifically, Comcast criticized the use by Sprint’s expert of a "forward citation analysis," which "is a method of estimating the value of a particular patent based on the number of times the patent is cited by later patents." Comcast also argued that the circumstances of the license agreements that Sprint’s expert cited were not comparable to the patent or the dispute at issue. Thus, the expert could not rely on those agreements to establish the value of a reasonable royalty or that Comcast favored a lump-sum agreement. For its part, Sprint argued that Comcast’s expert report was unreliable because it used an improper method to determine the value attributable to the infringing features of the accused products.

The Comcast Decision

The court denied both parties’ requests to exclude the other party’s expert report. Reviewing Comcast’s argument that a "forward citation analysis" was an unreliable method to estimate the value of an asserted patent, the court found that the case Comcast cited did not actually discredit the method, and that other cases, publications, and studies had endorsed the method since the 1990s. The court held that a single academic paper was not sufficient to rebut decades of literature supporting the method used by Sprint’s expert.

Next, the court addressed Comcast’s argument that Sprint’s expert improperly relied on a licensing agreement between Sprint and another company because the agreement was a settlement agreement, and therefore not comparable to a voluntary hypothetical negotiation. The court disagreed with Comcast, finding many similarities between the Sprint agreement and a hypothetical negotiation—the patents were technologically similar, the agreement involved a lump-sum payment, and it involved a non-exclusive license agreement.

Finally, the court addressed Comcast’s argument that Sprint’s expert report should be excluded because it cited three Comcast license agreements to show that Comcast preferred lump-sum licenses to running royalties. Comcast argued that the license agreements cited by Sprint’s expert were not comparable to a hypothetical negotiation to license the asserted patent. The court disagreed with Comcast again, stating that Sprint’s expert report appropriately cited the Comcast licenses for the limited purpose of showing that Comcast favored a lump-sum license agreement. After addressing each of the arguments against Sprint’s damages expert report, the court denied Comcast’s request.

The court went on to address Sprint’s argument against Comcast’s expert report. Sprint argued that Comcast’s expert report was unreliable because counting the components, features, or the lines of code involving the infringing features of the accused products was not a reliable method of determining the value attributable to the asserted patent. The court disagreed, stating that there was more than one reliable method for estimating a reasonable royalty, and that Sprint presented one method and Comcast proposed another.

Strategy and Conclusion

This case illustrates that courts are willing to allow litigants to use of different types of evidence—including forward citation analysis, settlement agreements, and preference for lump sum agreements—in determining reasonable royalty damages as long as the methodology applied is sufficiently reliable. Litigants can draw broadly from the types of evidence to submit to prove a reasonable royalty and should carefully consider the reliability of the methodologies and evidence they rely on in arguing damages issues and that the methodology and evidence is appropriately comparable the situation in the case being litigated.

Further Information

The decision in Comcast Cable Communications LLC, v. Sprint Communications Company, LP can be found here.