SDTX issues two orders precluding plaintiff's expert from testifying on reasonable royalty


In WesternGeco LLC v. ION Geophysical Corp., Case No. 4:09-CV-1827 (SDTX), the court issued an opinion on July 16, 2012 and another opinion on July 19, 2012 excluding the plaintiff's expert from testifying on reasonable royalty damages. The two opinions were directed at different defendants. The plaintiff was accusing a number of "surveys" conducted using defendants' products.

In the first opinion, the court concluded that the expert's hypothetical negotiation scenario was flawed concerning defendant ION:

[T]he Court cannot assume, as WG's counsel has urged, that ION, in a hypothetical negotiation with WG, would have taken a risk on the infringement question and agreed to a huge, profit-eliminating (and even revenue eliminating) royalty obligation for itself. As a matter of law, no such risk can be taken in a hypothetical negotiation in which infringement is deemed known. With knowledge of validity and infringement, such a financially catastrophic agreement would have been totally unreasonable. The court in Georgia-Pacific acknowledged the proposition that negotiators in hypothetical negotiations must be deemed to act reasonably: "The primary inquiry, often complicated by secondary ones, is what the parties would have agreed upon, if both were reasonably trying to reach an agreement." Georgia-Pacific, 318 F. Supp. at 1121 (quoting Faulkner v. Gibbs, 199 F.2d 635, 639 (9th Cir. 1952) (internal quotation marks omitted). Even putting case law aside, any unreasonable negotiating approach must be rejected, since the ultimate goal is to arrive at what the statute terms a "reasonable royalty." Mr. Sims's methodology inherently arrives at an unreasonable result, and one to which no reasonable negotiator for ION could possibly have agreed. The Court therefore grants ION's motion to exclude Mr. Sims's testimony on reasonable royalty.

In this first opinion, the court also considered defendant's motion to preclude the expert from testifying about lost profits. The plaintiff raised a number of objections that the court found better directed to cross-examination and denied the motion in part. It did, however, grant the motion on one of the disputed surveys sales on the ground that the plaintiff had not tendered a bid for this particular survey and that, accordingly, the plaintiff could not legitimately argue that this survey would have been won by plaintiff in a reconstructed market.

The second opinion (July 19) is short and to the point and focused on defendant Fugro and plaintiff's expert's failure to apportion the value of the patented and unpatented features of the accused surveys. Although according to the court Fugro's arguments overlapped considerable with ION's arguments, they were not identical. The court concluded that the expert's "methodology in determining Fugro's reasonable royalty is highly flawed and would not be helpful to a jury." The court was particularly concerned by the expert's failure to offer any "opinion at all on the allocation of the values between patented and unpatented features of the surveys" and was concerned about the profit figures used by the expert. Accordingly, the court excluded the expert from testing about reasonable royalty damages as to Fugro.