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Gpne Corp. v. Apple, Inc.

United States District Court, N.D. California, San Jose Division

April 16, 2014

GPNE CORP., Plaintiff,
v.
APPLE, INC., Defendant.

ORDER RE GPNE AND APPLE'S MOTIONS TO EXCLUDE EXPERT TESTIMONY AND APPLE'S MOTION TO STRIKE EXPERT REPORT AND INFRINGEMENT CONTENTIONS [REDACTED VERSION]

LUCY H. KOH, District Judge.

Plaintiff GPNE Corp. ("GPNE") brings this action for patent infringement against Defendant Apple Inc. ("Apple"). GPNE alleges that Apple infringes U.S. Patent Nos. 7, 555, 267 ("267 Patent"), 7, 570, 954 ("954 Patent"), and 7, 792, 492 ("492 Patent") (collectively, "Patents-in-Suit"). Apple now moves to exclude the expert testimony of Michael Dansky and Esmael Dinan, and GPNE moves to exclude the expert testimony of Paul Meyer. For the following reasons, Apple's motion to exclude Mr. Dansky's testimony is GRANTED, Apple's motion to exclude Mr. Dinan's testimony is DENIED, and GPNE's motion to exclude Mr. Meyer's testimony is DENIED.

I. PROCEDURAL BACKGROUND

On July 1, 2011, GPNE filed a Complaint in the District of Hawaii against Apple, as well as Barnes & Noble, Sharp Company, and several other defendants. See GPNE v. Amazon.com, Inc., Case No. 11-CV-00426 JMS RLP (D. Haw. 2011). Subsequently, the District Court in Hawaii severed the GPNE's cases against each of the defendants in the Hawaii action and transferred several of the separate actions to the instant Court. See id., ECF Nos. 246, 295; GPNE Corp. v. Nokia Corp., Case No. 12-CV-00250 SOM RLP, ECF No. 14; GPNE Corp. v. Pantech Co., Ltd. and Pantech Wireless, Inc., Case No. 12-CV-00251 SOM RLP, ECF No. 10. After the actions against the instant Defendants were transferred to the Northern District of California, this Court related the cases. See GPNE v. Apple, Inc., Case No. 12-CV-2885 LHK PSG, ECF No. 35 (N.D. Cal. 2012).

After holding a tutorial and claim construction hearing on June 6, 2013, this Court issued an order construing disputed claim terms. See ECF No. 87. On October 16, 2013, GPNE, in compliance with the Court's Case Management Order, see ECF No. 98, limited the case to the following ten asserted claims: claims 19 and 22 of the 954 Patent, claims 13, 18, 30, 31, 39, and 42 of the 267 Patent, and claims 37 and 44 of the 492 Patent. ECF No. 107. Along with Apple's summary judgment motion, Apple filed Daubert motions to exclude the testimony of GPNE's experts Mr. Dansky and Dr. Dinan, see ECF Nos. 184-4 ("Dansky Mot."), 188 ("Dinan Daubert Mot."), as well as a motion to strike Dr. Dinan's expert report and one of GPNE's infringement contentions, see ECF No. 189 ("Mot. to Strike"). GPNE filed a motion to exclude the testimony of Apple's damages expert Mr. Meyer. See ECF No. 186-4 ("Meyer Mot."). The parties filed oppositions and replies to all motions. See ECF Nos. 205-4 ("Dansky Opp."), 224-4 ("Dansky Reply"), 198-4 ("Dinan Daubert Opp."), 221 ("Dinan Daubert Reply"), 207-4 ("Meyer Opp."), 226-4 ("Meyer Reply"), 215-1 ("Strike Opp."), 222 ("Strike Reply"). The Court held a hearing on the summary judgment motions and the motions addressed in this order on April 3, 2014.

II. LEGAL STANDARD

A. Daubert Standard

Federal Rule of Evidence 702 allows admission of "scientific, technical, or other specialized knowledge" by a qualified expert if it will "help the trier of fact to understand the evidence or to determine a fact in issue." Expert testimony is admissible pursuant to Rule 702 if it is both relevant and reliable. Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 589 (1993). 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 Federal Rule of Evidence 702, the trial court acts as a "gatekeeper" by assessing the soundness of the expert's methodology to exclude junk science. Estate of Barabin v. AstenJohnson, Inc., 740 F.3d 457, 463 (9th Cir. 2014); see Kumho Tire Co. v. Carmichael, 526 U.S. 137, 147-48 (1999); Gen. Elec. Co. v. Joiner, 522 U.S. 136, 142 (1997); Daubert, 509 U.S. at 589-90. An expert witness may provide opinion testimony if: (1) the testimony is based upon sufficient facts or data; (2) the testimony is the product of reliable principles and methods; and (3) the expert has reliably applied the principles and methods to the facts of the case. Fed.R.Evid. 702; see Sundance, Inc. v. DeMonte Fabricating Ltd., 550 F.3d 1356, 1360 (Fed. Cir. 2008). Under Daubert, courts consider (1) whether a theory or technique "can be (and has been) tested;" (2) "whether the theory or technique has been subjected to peer review and publication;" (3) "the known or potential rate of error;" and (4) whether there is "general acceptance" of the methodology in the "relevant scientific community." Daubert, 509 U.S. at 593-94.

The inquiry into admissibility of expert opinion is a "flexible one, " where "[s]haky but admissible evidence is to be attacked by cross examination, contrary evidence, and attention to the burden of proof, not exclusion." Primiano v. Cook, 598 F.3d 558, 564 (9th Cir. 2010) (citing Daubert, 509 U.S. at 594, 596). "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." Id. (quoting United States v. Sandoval-Mendoza, 472 F.3d 645, 654 (9th Cir. 2006)).

B. Georgia-Pacific Factors

Both parties' damages experts undertake an analysis using the Georgia-Pacific factors to propose a reasonable royalty as damages for Apple's alleged infringement of the Patents-in-Suit. Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F.Supp. 1116, 1120 (S.D.N.Y. 1970). The Georgia-Pacific factors are used in the "hypothetical negotiation" approach to determining a reasonable royalty. The hypothetical negotiation approach "attempts to ascertain the royalty upon which the parties would have agreed had they successfully negotiated an agreement just before infringement began." Lucent Technologies, Inc. v. Gateway, Inc., 580 F.3d 1301, 1324 (Fed. Cir. 2009). "The hypothetical negotiation tries, as best as possible, to recreate the ex ante licensing negotiation scenario and to describe the resulting agreement." Id. at 1325.

The Georgia-Pacific factors are a non-exhaustive list of fifteen factors for experts to consider in determining what reasonable royalty would result from the hypothetical negotiation. See Georgia-Pacific, 318 F.Supp. at 1120. Examples of Georgia-Pacific factors are "[t]he royalties received by the patentee for the licensing of the patent in suit, proving or tending to prove an established royalty" (Factor 1), "[t]he established profitability of the product made under the patent; its commercial success; and its current popularity" (Factor 8), and "[t]he portion of the realizable profit that should be credited to the invention as distinguished from non-patented elements, the manufacturing process, business risks, or significant features or improvements added by the infringer" (Factor 13). Id.

III. DISCUSSION

This order concerns five motions: (1) Apple's motion to exclude Mr. Dansky's expert testimony, (2) GPNE's motion to exclude Mr. Meyer's expert testimony, (3) Apple's motion to exclude Dr. Dinan's expert testimony, (4) Apple's motion to strike Dr. Dinan's expert report, and (5) Apple's motion to strike a change in GPNE's infringement contentions. The Court addresses each in turn.

A. Apple's Motion to Exclude Mr. Dansky's Testimony

Mr. Dansky's damages theory first uses financial documents produced in discovery to calculate Apple's average net incremental profit per device that Mr. Dansky attributes to the device's cellular capability. Although Apple disagrees with Mr. Dansky's profit calculation, Apple does not challenge that calculation for the purposes of this Daubert motion. Mr. Dansky's profit calculation yields an average net incremental profit per device for cellular capability of $86.[1] In the next step, which is the subject of Apple's Daubert motion, Mr. Dansky recites a number of qualitative factors-generally indicating the importance of 3G and 4G cellular technology-before simply concluding that Apple and GPNE would agree to a per unit royalty of $1 per accused device.

Specifically, Mr. Dansky largely bases his analysis on GPNE's technical expert's conclusion that GPNE's patents are essential to the standard. See ECF No. 201-11, Susser Decl. Ex. I, Dinan Expert Report ¶¶ 17-19 (assuming that the accused devices pass conformance test demonstrating that the accused devices are compatible with the standard); see also ECF No. 241, 4/3/14 Hearing Tr. at 21:6-14 (explaining that Dr. Dinan had to assume conformance tests were passed because he was not allowed to view them under the protective order, and that another expert, Neil Burkett, was retained to view the conformance tests). Relying on the GPNE patents' alleged essentiality, Mr. Dansky asserts that "GPNE's Patents-in-Suit were fundamental to [cellular connectivity] capability" because "Apple had no ability to design around GPNE's patents and sell devices that operated on the GPRS, EDGE, and/or LTE networks."[2] Dansky Expert Report at 86. Mr. Dansky then recites a list of reasons why cellular technology in general is valuable and concludes that, because Apple allegedly could not make and sell its cellular devices without a license to GPNE's patents, GPNE's patents are therefore valuable. The following list outlines Mr. Dansky's full explanation for his determination that, starting with Mr. Dansky's calculation that Apple derives $86 per unit in profit from cellular connectivity, Apple would agree to pay GPNE $1 per unit for a license to GPNE's specific patents.

• "Apple's marketing of the iPhone 3G had touted the value of the patented technology... iPhone 3G supports Wi-Fi, 3G and EDGE networks and automatically switches between them to ensure the fastest possible download speeds. The new iPhone 3G also makes it easier to multitask with simultaneous voice and data communications ...." ECF No. 184-5, Dansky Expert Report, at 85 (emphasis in original, meant to emphasize where Apple's marketing materials refer to GPNE's technology).
• "Apple had no ability to design around GPNE's patents and sell devices that operated on the GPRS, EDGE, and/or LTE networks. A lost license, beginning in June 2009, would have had a devastating impact on Apple's iPhone business and caused Apple to be able to sell only WiFi-capable iPads in 2010."

Id. at 86.

• "Apple's follow-on sales of accessories, downloads, and warranties would also be at risk. Since many of Apple's customers are follow-on customers who have already bought one Apple device and often continue to buy Apple devices based on the performance of the currently owned products, a lost sale of the original device would cascade through its business."
Id.
• "GPNE would have to be cognizant that the royalty rate in a license to Apple could have implications for its license rates offered to other infringers/competitors in the market."
Id. at 87.
• One dollar per accused unit "is only a fraction of its overall profit earned on an infringing device."
Id.
• "In order to compete, Apple products needed to be compliant with GPRS, EDGE, and LTE standards, and the Patents-in-Suit are required for operability on those networks."
Id. at 87-88.
• "Nielsen reported in July 2011, that 12% of the purchasers of an iPad Wi-Fi 3G specifically stated that having cellular connectivity as an alternative to WiFi was a main driver of their intent to purchase."
Id. at 88.
• "Whether the customers "planned" to use the data network or not, the unit when turned on is in constant contact with the data network. Many more could be expected to activate their cellular data plans, since they paid an ...

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