EDTX Excludes Lump Sum License Agreements, Allows Expert to Testify About Merits of Inventions


On January 14, 2011, Judge Folsom of the Eastern District of Texas addressed pre-trial damages issues in Lectec Corp. v. Chattem, Inc., Civil Action No. 5:08-CV-130. The patents at issue are directed to medicated patches, and the accused products include "Icy Hot" patches and "Tiger Balm" patches.

First, the plaintiff sought to exclude defendants' damages expert from relying on lump sum settlements. The plaintiff sought reasonable royalty damages based on a running royalty applied on a per-patch basis. The defendants sought a lower running royalty than that proposed by plaintiff, which rate defendants argued was supported by certain lump sum settlement agreements. Defendants contended that the settlement agreements were not used directly to support their proposed royalty rate, but rather that their expert had computed a royalty rate using a Georgia-Pacific analysis and then merely corroborated the expert's conclusion with the "implied royalty rates" from these settlement agreements.

The court agreed with plaintiff and excluded the lump sum agreements. The court concluded that, like the decision in DataTreasury v. Wells Fargo, et al., Civil Action No. 2:06-CV-72 (EDTX), the lump sum settlements could not be introduced at trial to support the per-patch royalty rate. The Lectec court held, moreover, that even though experts may rely on inadmissible evidence, the expert in this case could not testify about lump sum settlement agreements in order to avoid jury confusion and unfair prejudice.

In addition, the Lectec court ruled that plaintiff's expert could present her assumptions concerning the merits of the patented inventions at issue. The court noted that the defendants could test the validity of those assumptions on cross examination and through defendants' own evidence. The court cautioned, however, that plaintiff's expert should not present opinions concerning the merits of the inventions as anything other than assumptions because the expert was not shown to be a technical expert.