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Game Over when Expert Fails to Use Correct Claim Construction

The US Court of Appeals for the Federal Circuit concluded that a district court did not abuse its discretion in striking expert testimony where the testimony did not rely on an agreed and court-adopted claim construction. Treehouse Avatar LLC v. Valve Corp., Case No. 22-1171 (Fed. Cir. Nov. 30, 2022) (Lourie, Reyna, Stoll, JJ.)

Treehouse owns a patent that describes a “method of collecting data from an information network in response to user choices of a plurality of users navigating character-enabled network sites on the network.” Valve owns two video games. To play the games, a user downloads the software onto a computer. The software contains data, images, sounds, text and characters. Treehouse sued Valve for patent infringement based on the operation of the accused video games. During the district court proceeding, both parties adopted the interpretation of the term “character enabled (CE) network sites” (CE limitation) that the Patent Trial & Appeal Board reached in a previous inter partes review. Despite the agreed-upon and court-adopted construction for the CE limitation, Treehouse’s infringement expert submitted a report that applied plain and ordinary meaning.

Valve filed a motion to strike portions of the expert’s testimony that relied on the plain and ordinary meaning of the term. Valve also filed a motion for summary judgment of noninfringement while this motion to strike was pending. Treehouse’s opposition appeared to concede that Valve was entitled to summary judgment if Valve’s motion to strike was granted, stating that “assuming that [the expert’s] testimony is not stricken, this portion of Valve’s motion should be denied.” The district court struck every paragraph of the expert’s report that Valve requested and granted Valve summary judgment of noninfringement. Treehouse appealed.

The Federal Circuit found that the district court did not abuse its discretion in striking portions of Treehouse’s expert report that did not address the claim construction of the CE limitation agreed upon by the parties and the district court. Treehouse argued that an expert report that does not recite an agreed claim construction remains admissible as long as the opinions expressed in the report are not inconsistent with that construction. The Court rejected Treehouse’s argument, explaining that “the grant of a motion to strike expert testimony is not improper when such testimony is based on a claim construction that is materially different from the construction adopted by the parties and the court.” The Court further explained that when a trial court has adopted a construction that the parties requested and agreed upon, any expert theory that does not rely upon that agreed-upon construction is suspect. The Court thus concluded that the district court did not abuse its discretion in striking the portions of the expert’s report that applied a “plain and ordinary meaning” of the CE limitation instead of the parties’ agreed-upon construction. In the absence of any admissible expert testimony by Treehouse regarding infringement of the CE limitation, the Court found that the district court properly granted summary judgment of noninfringement.




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Damage Expert Testimony Excluded for Failure to Disclose Evidence and to Apportion

The US Court of Appeals for the Federal Circuit affirmed a district court’s decision to preclude a damage expert from characterizing license agreements and opining on a reasonable royalty rate where the sponsoring party failed to produce key documents and to apportion for non-patented features. MLC Intellectual Property, LLC v. Micron Technology, Inc., Case No. 20-1413 (Fed. Cir. Aug. 26, 2021) (Stoll, J.)

MLC sued Micron for infringing claims of a patent relating to programing multi-level memory cells. In his expert report, MLC’s damage expert, Michael Milani, attempted to reconstruct the hypothetical negotiation. Milani opined on two separate approaches to determining the royalty base: A comparable license and the smallest saleable patent practicing unit.

Milani considered each of the Georgia-Pacific factors to determine a reasonable royalty rate. He determined that a Hynix Semiconductor license agreement was relevant, notwithstanding that it required a lump sum payment for a non-exclusive license to a patent portfolio containing the asserted patent rather than a royalty rate. Milani relied on a most favored customer provision that contemplated Hynix paying less for the patents if the licensor granted a license at a royalty rate of less than 0.25% to any new licensee to arrive at his royalty rate. Milani applied this rate to another lump sum agreement MLC had with Toshiba Corporation. To support his opinion, Milani relied on extrinsic evidence, including summaries of negotiations involving the asserted patent and another alleged infringer and letters and memorandums with other licensees—all contemplating a 0.25% royalty rate. Micron moved to exclude Milani’s testimony.

Micron filed a motion in limine to preclude Milani from mischaracterizing the license agreements as reflecting a 0.25% royalty rate. Micron moved to strike portions of Milani’s expert report under Fed. R. Civ. Pro. 37 as based on facts, evidence and theories that MLC disclosed for the first time in its damage expert report. Micron further filed a Daubert motion, seeking to exclude Milani’s reasonable royalty opinion for failure to apportion out the value of non-patented features. The district court granted all three motions.

The district court rejected Milani’s reliance on the most favored customer provision in the Hynix agreement for the 0.25% royalty rate, finding that the provision did not apply the rate to the lump sum nor did it provide any insight into how the lump sum was calculated. The district court also determined that Milani did not base his testimony on sufficient facts or data, and his opinion was not the product of reliable principles and methods. Finally, the district court found that MLC did not disclose the extrinsic evidence relied on by Milani to reflect the 0.25% rate, and therefore MLC could not rely on that evidence. Lastly, the district court determined that there was no evidence supporting Milani’s opinion that the 0.25% rate apportioned non-patented features of the accused products. MLC filed an interlocutory appeal.

The Federal Circuit found that Milani’s testimony relating to the 0.25% royalty rate rested on an inference from the most favored customer clause that went [...]

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