The opinion of the court was delivered by: Marilyn L. Huff, District Judge United States District Court
ORDER GRANTING IN PART AND DENYING IN PARTDEFENDANTS' DAUBERT MOTION TO EXCLUDE PLAINTIFF'S DAMAGES EXPERTS [Doc. No. 495, 641]
On October 23, 2012, Defendants filed a Daubert motion to exclude MPT's damages experts. (Doc. No. 495) On November 6, 2012, MPT filed its response in opposition. (Doc. No. 597.) On November 13, 2012, Apple and LG filed their reply. (Doc. No. 625.) On November 17, 2012, MPT filed a notice of supplemental damages expert reports. (Doc. No. 638.) On November 19, 2012, Apple and LG filed a supplemental brief in support of their motion. (Doc. No. 641.) On November 20, 2012, the Court held a hearing on the matter. Christopher Mathews, Frederick Lorig, Sidford Brown, and Diane Hutnyan appeared for MPT. Justin Barnes, Kelly Hunsaker, Michael Tyler, Lara Garner, Richard Sterba, and Michael McKeon appeared for Apple and LG. Sarita Venkat appeared for Apple. For the reasons below, the Court GRANTS IN PART and DENIES IN PART Apple and LG's Daubert motion.
On December 20, 2010, Plaintiff Multimedia Patent Trust ("MPT") filed a complaint for patent infringement against Defendants Apple, Inc. ("Apple"), LG*fn1 , and Canon.*fn2 (Doc. No. 1, Compl.) The complaint alleges that Defendants are liable for infringement of one or more of three patents related to video compression technology: U.S. Patent Nos. 4,958,226 ("the '266 Patent"), 5,227,878 ("the '878 Patent"), and 5,136,377 ("the '377 Patent") (collectively the "Patents-in-Suit"). (Id.) On March 21, 2011, Apple, LG, and Canon filed their answers. (Doc. Nos. 38-39, 41.) On November 9, 2012, the Court granted Canon's motion for summary judgment of its affirmative defense of patent exhaustion, removing Canon as a Defendant from this case. (Doc. No. 608 at 9-10.)
I. Legal Standard for a Daubert Motion to Exclude Expert Testimony
A district court's decision to admit expert testimony under Daubert in a patent case follows the law of the regional circuit. Micro Chem., Inc. v. Lextron, Inc., 317 F.3d 1387, 1390-91 (Fed. Cir. 2003). When considering expert testimony offered pursuant to Rule 702, the trial court acts as a "gatekeeper" by "making a preliminary determination of whether the expert's testimony is reliable." Elsayed Mukhtar v. Cal. State Univ., Hayward, 299 F.3d 1053, 1063 (9th Cir. 2002); see Kumho Tire Co. v. Carmichael, 526 U.S. 137, 150 (1999); Daubert
v. Merrell Dow Pharms., Inc., 509 U.S. 579, 597 (1993). Under Rule 702 of the Federal Rules of Evidence, a court may permit opinion testimony from an expert only if such testimony "will assist the trier of fact" and "(1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case."
"The test for reliability [of expert testimony] is flexible and depends on the discipline involved." Wagner v. Cnty. of Maricopa, 2012 U.S. App. LEXIS 23631, at *14 (9th Cir. Nov. 16, 2012). "Under Daubert, the district judge is 'a gatekeeper, not a fact finder.' When an expert meets the threshold established by Rule 702 as explained in Daubert, the expert may testify and the jury decides how much weight to give that testimony." Primiano v. Cook, 598 F.3d 558, 564-65 (9th Cir. 2010); see also Micro Chem., 317 F.3d at 1392 ("When . . . 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."). "'[T]he test under Daubert is not the correctness of the expert's conclusions but the soundness of his methodology.'" Primiano, 598 F.3d at 564. "Shaky but admissible evidence is to be attacked by cross examination, contrary evidence, and attention to the burden of proof, not exclusion." Id. (citing Daubert, 509 U.S. at 594, 596); accord i4i Ltd. P'ship v. Microsoft Corp., 598 F.3d 831, 856 (Fed. Cir. 2010).
Whether to admit or exclude expert testimony lies within the trial court's discretion. GE v. Joiner, 522 U.S. 136, 141-42 (1997); United States v. Calderon-Segura, 512 F.3d 1104, 1109 (9th Cir. 2008). The Ninth Circuit has explained that "[a] trial court not only has broad latitude in determining whether an expert's testimony is reliable, but also in deciding how to determine the testimony's reliability." Mukhtar v. Cal. State Univ., 299 F.3d 1053, 1064 (9th Cir. 2002).
II. Legal Standards for Calculating Patent Damages
"Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court."
35 U.S.C. § 284. Two alternative methods exist for calculating damages in a patent case; they "are the patentee's lost profits and the reasonable royalty he would have received through arms-length bargaining." Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1324 (Fed. Cir. 2009). MPT does not contend that it is entitled to lost profits. [See Doc. No. 495-1, Declaration of Justin Barnes, Exs. A, C.] Accordingly, damages is this case should be calculated by determining the reasonable royalty MPT would have received through arms-length negotiation. See Lucent, 580 F.3d at 1324.
To calculate the reasonable royalty, patentees generally consider a hypothetical negotiation, in which the asserted patent claims are assumed valid, enforceable, and infringed, and attempt "to ascertain the royalty upon which the parties would have agreed had they successfully negotiated an agreement just before infringement began." Lucent, 580 F.3d at 1324-25; see also Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1554 n.13 (Fed. Cir.1995) (en banc). This hypothetical negotiation "necessarily involves an element of approximation and uncertainty." Lucent, 580 F.3d at 1325; see also Fromson v. Western Litho Plate & Supply Co., 853 F.2d 1568, 1574 (Fed. Cir. 1988) ("Determining a fair and reasonable royalty is often . . . a difficult judicial chore, seeming often to involve more the talents of a conjurer than those of a judge"). "Still, a reasonable royalty analysis requires a court to hypothesize, not to speculate." ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860, 869 (Fed. Cir. ...