Damages Opinion Related to FRAND Excluded Due to Lack of Supporting Evidence

The Eastern District of Texas, Tyler Division, Magistrate Judge K. Nicole Mitchell presiding, in Network-1 Techs., Inc. v. Alcatel-Lucent USA, Inc.,[1] Civil Action 6:11-cv-492-RWS-KNM (E.D.TX Sept. 21, 2017) granted-in-part Plaintiff's motion to exclude certain opinions of Defendant Hewlett-Packard Company's ("HP") F/RAND licensing expert M. Ray Perryman. The patent-at-issue relates to remotely powering access equipment over an Ethernet network, an act which is essential for practicing certain IEEE standards. Under Rule 702 of the Federal Rules of Evidence, as well as the Daubert standard, the Court analyzed Plaintiff's motion to exclude HP's expert's opinions on 1) royalty stacking; 2) applying definitions from an IEEE document to its patent policy; 3) patent hold-up; and 4) influence of the threat of an injunction on past licenses. Due to a lack of supporting evidence, the Court excluded Perryman's opinions, with the exception that Perryman would be allowed to apply the definitions from an IEEE document to Plaintiff's patent policy.

The Court found Perryman's opinions on royalty stacking were unreliable and therefore inadmissible because his opinions were not "sufficiently tied to the facts of this case." Unlike the situation in Core Wireless Licensing S.A.R.L. v. Apple where there was evidence that numerous specific royalty demands had been made and Apple considered royalty stacking in real-world licensing negotiations, here HP "identified no evidence that it has received requests for multiple royalties, or that it considers royalty stacking in real-world licensing negotiations." While Plaintiff did not challenge "the veracity of Perryman's royalty stacking opinions, nor the qualifications of Perryman," the Court excluded Perryman's testimony on royalty stacking because Plaintiff rightfully challenged whether Perryman's testimony was sufficiently tied to the facts of the case (i.e., "Plaintiff has questioned the reliability of Perryman's testimony") and "reliability is a prerequisite to admissible testimony under Rule 702."

Regarding Perryman's use of definitions, the Court refused to Perryman's testimony that applied the 2015 Patent Policy definition of "reasonable rate" to the 2003 Letters of Assurance ("LOA"), noting this same issue was resolved for the same reasons in a prior order (Dkt. 958). The prior order addressed Plaintiff's motion to exclude testimony of Defendant Juniper's damages expert, where the Court noted, "Plaintiff challenges the accuracy of [Defendant's expert's] reliance on the 2015 Patent Policy to inform the present damages analysis. This is a concern that goes to the weight of [Defendant's expert's] testimony, not its admissibility." The Court pointed to "evidence that the purpose of the 2015 Patent Policy was '€˜to provide greater clarity on issues that have divided standard essential patent owners standard impelmenters in recent years'" and held that because "there is at least a basis in fact to associate the 2015 Patent Policy's definition of ‘reasonable terms' with the 2003 LOA definition of '€˜reasonable rates' … [the] inclusion of the 2015 Patent Policy in [the expert's] 'comparable license' approach is sufficiently tied to the facts of the case."

Regarding the patent hold-up opinions, the Court excluded Perryman's opinions because they are not sufficiently tied to the facts of the case, similar to the problem identified with Perryman's stacked royalty opinion. Perryman's opinion explains how owners of standard-essential patents ("SEPs") are known to exploit their position by demanding excessive royalties and that courts have lowered the royalties in these situations. "However, Defendant has not presented evidence or suggested that patent hold-up is a problem in this case," citing a Federal Circuit case addressing this same shortcoming (Ericsson, Inc. v. D-Link Sys., Inc.). Without some evidence that patent hold-up is an issue in the case, Perryman's opinion was deemed unreliable.

Finally, the Court found Perryman's opinion regarding the impact of a possible injunction on past licenses unreliable, again due to lack of "supporting evidence." "The sole source of support for Perryman's opinions that Network-1's settlement agreements have been influenced by the threat of injunction is the Original and Amended Complaints in the instant case. Perryman cites to no evidence suggesting that any of Network-1's settlement agreements were actually influenced by the threat of litigation." Further, "Perryman, in his deposition, admitted that he has not seen any evidence that Network-1 suffered irreparable harm in any of its past cases, or that Network-1 could not be compensated by money damages in its past cases." The Court excluded Perryman's testimony: "Perryman may not opine that Network-1's licenses have been influenced by the threat of injunctive relief."

[1] Additional defendants include Alcatel-Lucent Holdings, Inc., NEC Corp., NEC Corp. of Am., Sony Corp., Sony Corp. of Am., Sony Elecs., Allied Telesis Holdings KK, GarrettCom Inc., Hewlett Packard Enterprise Co., HP Development Co., Motorola Solutions, Inc., Transition Networks, Inc., Axis Commc'ns, Inc., Allide Telesis, Inc., Avaya Inc., Axis Commc'ns AB, Dell Inc., HP Inc., Huawei Techs. Co., Ltd., Huawei Techs. USA Inc., Juniper Networks, Inc., Polycom, Inc., Samsung Elecs. Am., Inc., Samsung Elecs. Co., Ltd., and ShoreTel, Inc.