SDCA rules on Daubert motions related to both Lost Profits and Reasonable Royalty

In Area 55, Inc. v., Inc., Case No. 11-CV-00145-H-NLS, the Court issued an opinion on July 24, 2012 regarding pending Daubert motions relating to both lost profits and reasonable royalty.

The lost profits issue related to whether the Plaintiff's expert had reached an appropriate conclusion regarding lack of acceptable non-infringing substitutes. The Court noted that the Defendant was challenging the conclusion, not the methodology. The argument was that there was insufficient basis to reach this conclusion, but the Plaintiff argued that there was sufficient basis, namely the expert's discussions with the inventor. The inventor had spoken to the expert about the various alternative products in the marketplace, and had explained why he (the inventor) believed each was inferior in comparison to the patented product. The Court found no issue with this, noting "[a]n expert cannot be an expert in all fields, and it is reasonable to expect that experts will rely on the opinions of experts in other fields as background material for arriving at an opinion." Accordingly, the Court refused to exclude the testimony and invited the Defendant to vigorously cross-examine the expert on the issue of non-infringing substitutes.

The reasonable royalty issue related to how to determine the royalty rate. The expert had calculated the rate as the difference between the patentee's gross margin and the Defendant's revenue share. For this methodology, the Court found no issue, and again invited cross-examination. However, one specific conclusion was found to be inadmissible. The expert had opined that the Defendant would be willing to accept this rate and lose money on every sale, and the Court found that the statements relating to the willingness to lose money were without any sound basis in economic principles.