EDTX rejects arguments that expert should have included sunk costs and did not apportion


The Eastern District of Texas, in Affinity Labs of Texas, LLC v. Ford Motor Co., Civil Action No. 1-12-CV-580 (Judge Ron Clark) (Aug. 22, 2013) (Doc. No. 201), denied a motion to exclude testimony from expert Carl Degan. Ford contended there were two deficiencies in Degan's opinions: (1) his failure to factor sunk engineering costs into his profitability analysis; and (2) his failure to apportion.

On the first issue, Degan had offered opinions under Georgia-Pacific, including factor 8, which addresses "[t]he established profitability of the product made under the patent; its commercial success; and its current popularity." Degan, however, had failed to include Ford's engineering costs into the profitability calculus for the accused products. According to Ford this was a fatal flaw: "Ford argues that when the total engineering costs of the SYNC systems are taken into account, Ford actually loses money on them, rather than the $78 dollar margin calculated by Mr. Degen." Slip op. at 3. The court disagreed: "The exclusion of the design costs is not inappropriate in calculating per-unit profitability, as sunk engineering costs are separate from the incremental costs of each unit. Even Ford's own 30(b)(6) witness, Mr. Jablonski, differentiated between the sunk engineering costs and the per unit production costs. [Degen's Expert Report, Doc. # 141-4, ¶ 104]. While engineering costs certainly play a role in the hypothetical negotiation of a reasonable royalty, that can be developed during both direct and cross examination and is not a basis to exclude Mr. Degen's report." Slip op. at 3-4.

The court also rejected Ford's argument that Degan's opinions were flawed because he failed to apportion for the value of the patented feature to the accused product: "In this case, Mr. Degen calculated a figure for apportionment based on Ford's consumer research studies. He did not attempt to ascribe all of the profit margin to patented technology, nor did he create his number out of whole cloth. Rather, based on the studies of usage, hedetermined what he considers to be a valid percentage of apportionment. Ford is, of course, welcome to address its issues with Mr. Degen's calculations on cross-examination." Slip op. at 4-5.