CDCA excludes reasonable royalty testimony due to unreliable license analysis

On April 21, 2014, Judge Guilford of the Central District of California issued an opinion on Daubert motions. The case is Universal Electronics, Inc. v. Universal Remote Control, Inc., Case No. SA-CV 12-00329 AG (JPRx). The parties had filed several motions to exclude evidence on a wide array of issues. One motion of interest relates to plaintiff's damages expert's opinions on reasonable royalty. The expert, Frank Bernatowicz, had reached a "baseline" royalty rate of 3% using allegedly comparable licenses as a benchmark. Defendant moved to exclude the royalty opinions contending that Bernatowicz's license analysis was flawed. The court agreed and excluded Bernatowicz's testimony on reasonable royalty damages.

Defendant argued that the licenses were not technically or economically comparable on three grounds: (1) the agreements did not cover the patent at issue (the '906 patent); (2) the agreements resulted from litigation and the expert did not account for the differences from the hypothetical negotiation; and (3) the licenses had a greater geographic and subject matter scope from the hypothetical license, some covering the world and another 21 patents. The court reviewed the expert's opinion and concluded that, in 22 pages, the expert had not compared the '906 patent to the agreements and did not account for technological and economic differences. Slip op. at 19.

The court also concluded that Bernatowicz had not accounted for the litigation impact on the licenses in question. The court did cite a passage from his report where he provided a "list of factors" he "could have analyzed when evaluating the licenses," but noted that his report did not contain any such analysis. Slip op. at 20. Instead, observed the court, Bernatowicz simply assumed the litigation licenses represented "the lowest royalty rate or the 'floor' for compensation ...." Id. (quoting the report). The court recognized that litigation licenses are not per se irrelevant (citing ResQNet), but held in this case that Bernatowicz and plaintiff had not proven the comparability.

Another factor noted by the court was that some of the licenses covered two other patents in suit, but not the '906 patent. According to the court, in the context of lost profits, plaintiff did much to distinguish one of those patents from the '906 patent, and now could not turn that around and argue comparability here.

Finally, the court dismissed the plaintiff's argument that Bernatowicz had considered key materials. The court stated that plaintiff had cited not authority that mere consideration of materials, without supporting analysis, was sufficient to avoid exclusion.