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St. Lawrence Communications LLC v. ZTE Corp. (2)

Area of Law:

Patent Law

Grounds:

Defendant Motorola moved to exclude the testimony of Mr. Roy Weinstein, Plaintiff’s damages expert, on the grounds that Mr. Weinstein:1) Improperly increases his calculated royalty rate based on erroneous settlement and invalidity discounts; 2) Arbitrarily determines that five cents is an appropriate amount to adjust the royalty rates as part of his Georgia-Pacific analysis; 3) Improperly relies on Motorola’s offered rates for a technology portfolio to justify an increase in the hypothetical royalty rate by five cents; 4) Improperly raises the royalty rate by five cents under Georgia-Pacific Factor 7 to account for the increased scope and duration of the hypothetical license; and 5) Improperly adjusts the hypothetical royalty rate based on St. Lawrence’s licenses negotiated in the context of litigation in Germany

Outcome:

Granted-in-part

Analysis:

First, Defendant Motorola challenged Mr. Weinstein’s method of calculating royalty rate that accounts for litigation risk and costs.  Slip op. at 2.  Mr. Weinstein’s approach involved taking the starting point of the hypothetical royalty rate from a license between St. Lawrence and Samsung and then increasing it to account for discounts, specifically “settlement discount” and “invalidity discount” that he derived from an offer St. Lawrence received from LG.  Id. at 2-3.  The court rejected Defendant Motorola’s argument that the inputs that Mr. Weinstein used are inappropriate.  Id. at 3.  The court held that the inputs Mr. Weinstein used are transparent, and while Defendant Motorola’s criticism of Mr. Weinstein picking-and-choosing data for his calculation are logical, they don’t justify exclusion under Daubert before trial as they can be easily understood by a jury and go to the weight and credibility of the expert.  Id. at 4.

Second, Defendant Motorola challenged that Mr. Weinstein’s five cent adjustments upward for certain Georgia-Pacific factors are arbitrary and unreliable, as Mr. Weinstein has failed to substantiate why it is a reasonable value to apply in this case.  Slip op. at 4.  The court again held that Defendant Motorola’s criticism should go to the weight/credibility of Mr. Weinstein’s testimony, not its admissibility.  Id. at 4.  The court noted that under Daubert, the expert must explain “why and generally to what extent the particular factor impacts the royalty calculation.”  Id. at 5.  Mr. Weinstein did just that by providing detailed analysis for multiple factors, supported by hundreds of paragraphs on his report.  Id.

Third, Defendant Motorola challenged Mr. Weinstein’s use of rates that Motorola stated were appropriate for their technology, not the rates paid by Motorola, and thus does not fall within Georgia-Pacific Factor 2 that relates to “rates paid by licensee for use of other patents.”  Slip op. at 5.  The court held that this attack rests on an incorrect premise, i.e. that an expert cannot consider evidence that does not expressly fall within the Georgia-Pacific framework.  Id.   The court opined that the real question here is relevance, and it was adequately explained in Mr. Weinstein report.  Id. at 6.  Thus, the court refused to exclude Mr. Weinstein opinion by holding that it is neither irrelevant, nor unreliable.  Id.

Fourth, Defendant Motorola argued that Mr. Weinstein improperly “double-counts” for the increased duration of the hypothetical royalty rate under Factor 7 of Georgia-Pacific.  Slip. op at 6.  Mr. Weinstein raised the royalty by 5 cents to account for longer term compared to the Samsung license that the rate was based on, but at the same time noted that the royalty would be running.  Id.  The court agreed with Motorola.  Id.  The court reasoned that a running royalty necessarily accounts for any longer duration.  Id.  The court further held that St. Lawrence presented no facts to suggest that the royalty base does not already fully incorporate any adjustment under Factor 7.  Id. at 7.

Fifth, Defendant Motorola challenged Mr. Weinstein’s discussion of other SLC licenses negotiated in the context of different litigation in Germany.  Slip op. at 8.  Defendant Motorola argued that those licenses are unreliable indicators of the royalty rate, as they were “tained by the coercive environment of patent litigation,” and specifically the threat of injunction.  Id.  The court disagreed, as Mr. Weinstein did not use those licenses as a starting point for his opinion; he rather utilized them to justify an adjustment to the royalty rate and in fact took into account the effect of an injunction.  Id.  The court refused to exclude this portion of Mr. Weinstein’s opinion, as this argument goes to the weight, not admissibility of the testimony.  Id.