DDE excludes lump sum opinion where allegedly comparable licenses used running royalties


On March 11, 2013, Judge Andrews of the District of Delaware issued an opinion in XpertUniverse, Inc. v. Cisco Systems, Inc., Civil Action No. 09-157-RGA (Doc. No. 647), granting Cisco's Daubert motion to exclude opinions by plaintiff's damages expert (Walter Bratic) concerning a lump sum reasonable royalty award for alleged patent infringement. (The case also involved other claims for fraud and breach of contract.)

Bratic based his opinion on a Georgia Pacific hypothetical negotiation and concluded that Cisco would have paid a $32.5M lump sum for a license to the two patents-in-suit. He opined that Cisco would have paid 50% of $65M he stated was invested to develop a computer system that could stand as a proxy for the plaintiff's technology. He used two license agreements he considered comparable and found they established a running royalty range of 3-5%.

The court concluded that the parties would not have agreed to a lump sum reasonable royalty, and more specifically to the $32.M advanced by Bratic. Applying the 3-5% range to the sales of accused products--$937,000 total sales would have yielded a running royalty of $38k to $65k. According to the court, "Bratic provides no basis for comparison between these amounts and his $32 million amount. Nor does he provide any explanation as to how the two running royalty agreements are probative of his $32 million lump sum payment. Nor does he provide any expectation of how often the patented technology would be used by consumers. In fact, the parties at the hypothetical negotiation would be aware that [plaintiff] never sold a single product and Cisco's sales have totaled less than $1 million. Bratic's numerous methodological flaws are thrown into sharp relief by his conclusion: $32 million in a lump sum royalty on $937,000 in sales of accused products simply makes no sense." Slip op. at 5-6 (citations and footnote omitted).

The court also observed that Bratic had tried to support his lump sum award by citing a "vision selling strategy" implemented by Cisco and its convoyed sales. But the court found the evidence on which Bratic relied to be lacking in foundation and faulty for other reasons. The court concluded there was insufficient data or information to opine that the parties would have agreed on a lump sum royalty.

Finally, the court was not persuaded by Bratic's use of the computer system as a proxy. The testimony on which Bratic relied was insufficient to support the $65M starting figure. Moreover, the company that developed the system spent only $22M on actual development; the remainder of the $65M was for other work.