Apple’s Efforts to Bar Patent Damages Expert Witnesses Denied by U.S. Judge

Case:

Emblaze Ltd. v. Apple Inc., No. 5:11–cv–01079–PSG, U.S. District Court, Northern District California; June 25, 2014

Background:

Plaintiff Emblaze, Ltd. is a publicly held Israeli corporation with a worldwide business in development and marketing of innovative, high-tech technologies and products. It claims defendant Apple, Inc. violates its ‘473 patent, which encompasses methods for real-time broadcasting over a network, such as over the Internet. Emblaze developed the technology and has used it in its products. This live streaming technology allows transmission of live audio and video to multiple devices, does not require devoted streaming servers, adjusts to different bandwidths, and allows reliable streaming, even through firewalls. The technology was first demonstrated in 1998.

Emblaze alleges that Apple uses, sells and/ or imports a wide range of devices incorporating HTTP live streaming technology (HLS) that have been and can be used for real-time broadcasting and that infringe claims of the ‘473 patent in violation of 35 U.S. Code § 271.

Patent Damages Expert Witnesses:

Emblaze presented patent damages expert witnesses Catharine Lawton and David Teece. Lawton used the income approach to value the additional gross profit margin on each of the accused Apple products from the date Apple’s HLS was included. This calculation served as a “high end” starting point for the reconstruction of the hypothetical royalty rate, because the accused products include non-patented features.

Lawton then used the Georgia–Pacific factors to conclude that the rate paid for comparable patents supported minimum royalty rates of between $.10 to $3.10 per accused product unit. Lawton concluded that the facts of this case supported a $2.00 per unit royalty for hardware and a 1% royalty for software and application revenue.

Tecce’s opinion addressed the convergence between computing and communications, network effects in software, and the implications of digital convergence and network effects for licensing the ‘473 patent.

Apple moved to exclude the patent damages expert witnesses testimony under Daubert v. Merrell Dow Pharm., Inc. (509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 [1993]).

Admissibility of Patent Damages Expert Witnesses:

U.S. Magistrate Judge Paul S. Grewal for the Northern District of California found that wholesale exclusion of Lawton’s testimony was not warranted. He limited the scope of her testimony.

The magistrate rejected Apple’s argument that Lawton used an inadmissible base consisting of Apple’s unapportioned, additional gross margin following Apple’s introduction of HLS in June 2009. The magistrate said Lawton plainly used a base of every unit of the accused infringing product, not the incremental gross margin Apple complained about.

Further, Lawton’s “all infringing unit” base is not methodologically flawed, the magistrate said.

“Apple does not cite to a single case suggesting that the royalty base of a hypothetical negotiation must be limited to units deemed to directly infringe,” the magistrate said. “Such a rule makes especially little sense in cases like this one, where indirect infringement by the defendant is alleged and the bulk of the direct infringement alleged is that of third parties.”

Apple also argued that Lawton used no discernable or reliable methodology, stating that Lawton’s reliance on “incomparable licenses or litigation demands” in her rate calculation and the fact that Lawton performed “no specific math” in her rate estimate. The magistrate found that Lawton analyzed licenses and demands for the use of other patents she concluded were comparable to the hypothetical license at issue here among other Georgia–Pacific factors.

“Although Apple remains well within its rights to question whether these other licenses and demands are indeed comparable, that ultimate question must be resolved by the jury, not this court,” the magistrate said.

The magistrate did bar Lawton from engaging in any emotional appeals. Apple argued that Lawton engaged in naked “Apple bashing.”

Regarding Tecce, the magistrate said his opinions are restricted to the general opinion in his report. Rule of Evidence 702 permits general principles testimony without substantive connection to the facts of a case, the magistrate noted.