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Phoenix Technologies Ltd. v. VMware, Inc.

United States District Court, N.D. California

May 11, 2017

VMWARE, INC., Defendant.


          HAYWOOD S. GILLIAM, JR. United States District Judge.

         Pending before the Court are the motions in limine filed by Plaintiff Phoenix Technologies, Ltd. (“Phoenix”) and Defendant VMware, Inc. (“VMware”), see Dkt. Nos. 183, 185, 190, 191, 192, 291, 293, as well as several issues raised by the parties in their joint pretrial and charging conference statements and various other filings, see Dkt. Nos. 227, [1] 260, 261, 283, 300, 310, 311, 315, 316, 321, 322, 323. Each motion and nearly every position on every issue is opposed.

         During the pretrial conference and specially-set charging conference, the Court heard arguments on some of the motions in limine and various other issues raised by the parties. See Dkt. Nos. 266, 307. After carefully considering the papers filed in connection with the motions in limine and other issues, as well as the oral arguments made by the parties, the Court GRANTS IN PART and DENIES IN PART the motions in limine and other requests as set forth below. Because of the sheer number of the parties' disputes, the Court must rule here in a streamlined fashion without extensive elaboration.


         A. Motions in Limine to exclude expert testimony

         Phoenix has filed the following motions to exclude expert testimony: First Motion in Limine, Dkt. No. 183 (seeking to exclude the expert testimony of Richard Harry comparing the quantity of source code in the BIOS to the quantity of source code in ESXi and offering Mr. Harry's opinion as to the “overall value” of the Phoenix BIOS); and Third Motion in Limine, Dkt. No. 291 (seeking to exclude the expert testimony and opinions of Julie Davis regarding reasonable royalty damages as based on the wrong hypothetical negotiation date). For its part, VMware has filed the following motions to exclude expert testimony: Third Motion in Limine, Dkt. No. 294 (seeking to exclude the expert testimony and opinions of Matthew Lynde regarding actual damages as based on the wrong hypothetical negotiation date); Fourth Motion in Limine, Dkt. No. 191 (seeking to exclude the expert testimony and opinions of Matthew Lynde regarding actual damages as unduly speculative); and Fifth Motion in Limine, Dkt. No. 192 (seeking to exclude the expert testimony and opinions of Matthew Lynde on infringer's profits).

         Federal Rule of Evidence 702 governs the admission of testimony by expert witnesses. 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. Fed.R.Evid. 702.

         For expert testimony to be admissible, the expert must be qualified, Hangarter v. Provident Life & Acc. Ins. Co., 373 F.3d 998, 1015 (9th Cir. 2004), and the expert's testimony must be “both relevant and reliable, ” Estate of Barabin v. AstenJohnson, Inc., 740 F.3d 457, 463 (9th Cir. 2014) (en banc) (internal marks omitted); see also Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 589 (1993). Rule 702 “contemplates a broad conception of expert qualifications.” Hangarter, 373 F.3d at 1018 (emphasis in original). Courts consider a purported expert's knowledge, skill, experience, training, and education in the subject matter of his asserted expertise. United States v. Hankey, 203 F.3d 1160, 1168 (9th Cir. 2000); see also Fed. R. Evid. 702. “Relevancy simply requires that the evidence logically advance a material aspect of the party's case.” AstenJohnson, 740 F.3d at 463 (internal quotation marks omitted). Finally, reliability requires that an expert's testimony have “a reliable basis in the knowledge and experience of the relevant discipline.” Kumho Tire Co. v. Carmichael, 526 U.S. 137, 149 (1999) (internal quotation marks and brackets omitted).

         To determine whether an expert's testimony is reliable, courts apply a “flexible” inquiry, considering such factors as (1) whether a theory or technique can be tested; (2) whether it has been subjected to peer review and publication; (3) the known or potential error rate of the theory or technique; and (4) whether the theory or technique enjoys general acceptance within the relevant scientific community. However, whether these specific factors are reasonable measures of reliability in a particular case is a matter the law grants the trial judge broad latitude to determine. AstenJohnson, 740 F.3d at 463 (internal quotation marks and citation omitted). For example, courts may also consider whether the expert has unjustifiably extrapolated from an accepted premise to an unfounded conclusion, see General Elec. Co. v. Joiner, 522 U.S. 136, 146 (1997), and whether the expert has adequately accounted for obvious alternative explanations, see Claar v. Burlington N. R.R. Co., 29 F.3d 499, 502 (9th Cir. 1994). Ultimately, “judges are entitled to broad discretion when discharging their gatekeeping function . . . not only [in] decid[ing] whether to admit expert testimony . . . [but also] in deciding how to test an expert's reliability.” Hankey, 203 F.3d at 1168 (emphasis in original)). And the Court notes that some caution is warranted regarding the exclusion of expert evidence on motions in limine: courts should be cognizant that “[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).

         Applying the standards described above to the five motions in limine seeking to exclude expert testimony, see Dkt. Nos. 183, 191, 192, 291, 294, the Court finds that experts Julie Davis, Matthew Lynde, and Richard Harry are qualified and that their testimony meets the reliability and relevance requirements of Rule 702, with two exceptions relating to the testimony of Richard Harry and Ms. Davis' 2005 hypothetical negotiation date, discussed below.

         Specifically, with regard to VMware's Fourth Motion in Limine, the Court finds exclusion of Dr. Lynde's testimony to be unwarranted. While VMware's arguments regarding the reliability of Dr. Lynde's hypothetical license analysis may go to the weight of Dr. Lynde's testimony, they do not constitute grounds for exclusion. VMware's Fourth Motion in Limine is therefore denied.

         Similarly, with regard to VMware's Fifth Motion in Limine, the Court finds that Dr. Lynde's measure of apportionment, which was based in part on the hypothetical amount VMware should have paid for the additional allegedly infringing uses of the BIOS, enabled him to calculate a “reasonable approximation of apportionment of infringer's profits.” Oracle Am., Inc. v. Google Inc., No. C 10-03561 WHA, 2016 U.S. Dist. LEXIS 58302, at *16 (N.D. Cal. May 2, 2016). Given that Phoenix solely seeks damages for infringer's profits attributable to VMware's use of the BIOS in ESXi, for which the parties do not have any real-world license figures, Dr. Lynde necessarily relied in part on a hypothetical value. That hypothetical value was not based, as VMware suggests, on a “counterfactual scenario . . . using a[] [non-infringing] alternative, ” see Dkt. No. 192 at 2, but on Dr. Lynde's reasonable estimation of what VMware would have been required to pay for its allegedly infringing use. In addition, the Court finds that Dr. Lynde used an appropriate apportionment base. Dr. Lynde's infringer's profits analysis was thus reasonable, and VMware's Fifth Motion in Limine is denied.[2]

         Finally, as noted above, there are two exceptions to the Court's denial of the motions in limine relating to expert testimony. First, with regard to Phoenix's First Motion in Limine, the Court finds that Mr. Harry, who has worked for VMware for approximately 10 years, Dkt. No. 194-1 ¶1, is qualified to compare the quantity of source code comprising the BIOS to the quantity of code in ESXi. However, the Court does not find Mr. Harry qualified to opine as to the “relative lack of importance of [the Phoenix] BIOS” or its “overall value” to VMware, as he offers no reliable basis or foundation for reaching that conclusion. The Court will therefore allow Mr. Harry to testify regarding the source code quantity comparison, but not as to the “relative lack of importance” or the “overall value” of the code to VMware.

         Second, the parties' Third Motions in Limine dispute the proper hypothetical negotiation damages date. See Dkt. Nos. 291, 294. While Phoenix's expert Dr. Lynde “focus[ed] on market conditions at the time of a hypothetical negotiation that would have transpired in late 2007, ” Dkt. No. 182-22 ¶ 16, VMware's expert Julie Davis contemplated two different scenarios with hypothetical negotiations that would have taken place in 2005[3] and 2006, see Dkt. No. 181-7 at 27. Ms. Davis first “opine[d] that damages may be determined by ascertaining Phoenix's lost license revenue if the parties' actual September 2005 license negotiations included an express license for the accused products.” Dkt. No. 233 at 1; see also Dkt. No. 181-1 at 27-28. In contrast, Ms. Davis' 2006 and Dr. Lynde's 2007 hypothetical negotiation dates were based on the date each party alleged that VMware first infringed the copyright. See Dkt. Nos. 181-1 at 28, 182-22 ¶ 51.

         Generally, “‘[a]ctual damages' are the extent to which the market value of a copyrighted work has been injured or destroyed by an infringement, ” which “can be awarded in the form of lost profits, [or] hypothetical-license damages.” Oracle Corp. v. SAP AG, 765 F.3d 1081, 1087 (9th Cir. 2014). “To calculate the ‘market value' of the injury to the plaintiff based on a hypothetical-license theory, we look to ‘the amount a willing buyer would have been reasonably required to pay a willing seller at the time of the infringement for the actual use made by [the infringer] of the plaintiff's work.'” Id. (quoting Wall Data Inc. v. L.A. Cnty. Sheriff's Dep't, 447 F.3d 769, 786 (9th Cir. 2006) (internal quotation marks omitted)). In addition, “there is nothing to suggest that [a court] should tie a hypothetical negotiation to a prior infringement no longer at issue.” Applied Med. Res. Corp. v. U.S. Surgical Corp., 435 F.3d 1356, 1364 (Fed. Cir. 2006) (holding that the hypothetical negotiation date for a surgical was device properly based on the infringement by that device, rather than the past infringement by an earlier iteration of the device).

         The proper hypothetical negotiation date here is thus VMware's alleged date of first infringement with regard to ESXi[4]-an event VMware contends occurred in June 2006 and Phoenix contends occurred in December 2007 “at the earliest.”[5] See Dkt. No. 291 at 2. Accordingly, while Ms. Davis' 2005 hypothetical license theory is based on an incorrect hypothetical negotiation date such that it will be excluded, [6] Ms. Davis' 2006 and Dr. Lynde's 2007 hypothetical dates are properly tied to the alleged dates of first infringement and are therefore admissible. To the extent the parties' Third Motions in Limine dispute VMware's actual date of first infringement, that is a question of fact to be decided by the jury. 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.”). The Court therefore denies VMware's Third Motion in Limine, and grants Phoenix's Third Motion in Limine only insofar as it relates to Ms. Davis' 2005 hypothetical negotiation date.

         B. Motions in Limine to exclude other evidence

         Two other motions in limine are before the Court. Phoenix's Second Motion in Limine seeks to exclude a 2015 agreement between VMware and a third-party corporation, in which VMware licensed a “purported [BIOS] replacement” (the “Agreement”). See Dkt. No. 183-13 at 1. Phoenix argues that (1) the Agreement is irrelevant to a damages determination because it postdates the date of infringement and is not “sufficiently comparable to a hypothetical license for Phoenix's BIOS”; (2) VMware's corporate representative was unaware of the Agreement; and (3) the Agreement is unfairly prejudicial and confusing. Id. at 3 (internal quotation marks omitted). In response, VMware contends that the Agreement “is relevant to multiple disputed issues, including the jury's evaluation of . . . non-accused alternatives to the Phoenix BIOS, . . . Phoenix's damages claims, and . . . VMware's estoppel and laches defenses.” Dkt. No. 232 at 2.

         Aside from the requirement that hypothetical negotiation dates must be determined based on the date of first infringement, the Court is unaware of any Ninth Circuit precedent directly addressing whether courts may otherwise consider post-negotiation information when determining a reasonable royalty. However, the Federal Circuit has held that while courts are “not require[d]” to exclude post-infringement evidence when determining a reasonable royalty, post-dated evidence “certainly” may be excluded. Odetics, Inc. v. Storage Tech. Corp., 185 F.3d 1259, 1276-77 (Fed. Cir. 1999). This position has been adopted by at least one court in this Circuit. See Memry Corp. v. Kentucky Oil Tech. N.V., No. C-04-03843 RMW, 2007 WL 4208317, at *11 (N.D. Cal. Nov. 27 2007) (stating that “courts have the discretion to permit consideration of post-negotiation information when formulating a reasonable royalty”). While the Court has some skepticism about the extent to which an agreement from 2015 is indicative of what a hypothetical negotiation would have looked like in 2006 or 2007, such questions go to the weight of that evidence rather than its admissibility. Because the Agreement may be relevant to the parties' damages theories, the Court will not exclude evidence of the Agreement at this stage.

         For its part, VMware's First Motion in Limine seeks to prevent Phoenix from presenting evidence at trial that was not disclosed during discovery, including for example, (1) evidence of “projections”; (2) Phoenix's employees' knowledge of VMware's use of the BIOS; and (3) what Phoenix would have charged for a fully-paid up license in 2005. See Dkt. No. 293. The Court denies this motion without prejudice, and will defer consideration of these potential issues until the objections are tied to particular pieces of evidence.


         The parties raise numerous other pretrial issues, each of which the Court addresses below.

         A. Admissibility of complaint

         Phoenix seeks to preclude VMware from introducing its complaint as an exhibit at trial. See Dkt. No. 227 at 11. Phoenix contends that because it has “narrow[ed] the claims asserted in its Complaint for purposes of trial . . . by streamlining the trial to the infringing ESXi products, ” “[t]he Court should bar VMware from introducing Phoenix's Complaint as evidence or referring to legal theories or legal conclusions in the Complaint that Phoenix does not assert at trial.” Id. at 11-12. In response, VMware argues that “[t]he allegations in the Phoenix complaint are relevant to motive, credibility, and to VMware's defenses, including estoppel and the statute of limitations, ” and amount to judicial admissions. Id. at 14.

         As an initial matter, the Court finds that the allegations contained in Phoenix's complaint do not constitute judicial admissions, as only factual-as opposed to legal-assertions constitute judicial admissions. See Foley v. JetBlue Airways, Corp., No. C10-3882 JCS, 2011 WL 3359730, at *9 (N.D. Cal. Aug. 3, 2011) (“in order to constitute a judicial admission, the party against whom the admission is sought must have admitted a fact.”) (emphasis in original). Second, this issue is closely related to VMware's Second Motion in Limine, which seeks to preclude Phoenix from asserting contentions not disclosed during discovery. See Dkt. No. 187; see also Dkt. No. 227 at 15 (VMware arguing that Phoenix's factual assertions “regarding how certain products infringed” “inform the meaning of certain contractual terms as applied to ESXi, not the least of which is whether ESX and ESXi operate in a different manner for purposes of the contracts.”). However, given the Court's recent order on that motion in limine, see Dkt. No. 325, the Court finds the relevance of Phoenix's complaint to be low. Motive is not an element of any claim or defense in this action. To the extent the complaint may be marginally relevant as to credibility, the Court finds that the potential to confuse the jury and waste time by referring to claims Phoenix does not intend to assert at trial substantially outweighs any such relevance. See Duarte v. Catalina Foothill Sch. Dist. No. 16, CV-12-00844-TUC-JAS, 2014 WL 5094128, at *2 (D. Ariz. Oct. 10, 2014) (denying admission of complaint under Fed.R.Evid. 403 because Plaintiff had voluntarily dismissed one discrimination claim, and “any reference to this dismissed claim at trial is outweighed by Rule 403 considerations.”). The Court will therefore exclude the complaint under Rule 403.

         B. Admissibility of ...

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