ORDER DENYING MOTION TO EXCLUDE EXPERT REPORT OF DR. STEPHEN PROWSE Re: Docket No. 502

PAUL S. GREWAL, Magistrate Judge.

Another patent case on the eve of trial, another Daubert motion to strike a patent damages expert's testimony. The undersigned only recently observed that such motions have become a routine affair in patent litigation.1 And yet, as routine as the motion has become, skilled experts continue to fashion new theories prompting additional lines of attacks. In short, no two motions are quite the same.

In the latest installment of this serial, the patentee and its allies seize upon a particularly interesting section of the Federal Circuit's analysis in LaserDynamics, Inc. v. Quanta, Inc.2 In that section, the Circuit suggests that in certain cases, the record might support a relatively straightforward way to avoid the restrictions of the entire market value rule in a Section 284 reasonable royalty analysis: a lump-sum payment.3 Consistent with this suggestion, Defendants Technology Properties Limited, Patriot Scientific Corporation, and Alliacense, Limiteds' (collectively "TPL") expert Dr. Stephen Prowse looks to the 100 or so licenses to the patents-in-suit struck by TPL. Dr. Prowse eschews any reliance on the so-called "analytical method."4 Instead, he offers the opinion that in the hypothetical negotiation that would have predated the infringement giving rise to this litigation, Plaintiffs HTC Corporation and HTC America (collectively "HTC"), too, would have agreed to an approximately $10M lump-sum payment.

HTC nevertheless cries foul. The heart of HTC's complaint is that, in calculating the value the lump sum, Dr. Prowse returns to the entire revenue of its accused mobile phones for his estimate even as he acknowledges there is no evidence that any of claimed inventions is the basis of demand for the phones. And thus, says HTC, Dr. Prowse's professed reliance on a lump-sum structure is nothing more than a ruse to avoid the entire market value rule ("EMVR") and the Federal Circuit's increasingly demanding standards surrounding it. HTC separately challenges Dr. Prowse's efforts to "tier" the existing TPL licenses to weigh what HTC would have paid here in light of the assumption in any hypothetical negotiation that the patents-in-suit are valid and infringed.

With little to guide its analysis beyond the single sentence in LaserDynamics, the court is not persuaded that Dr. Prowse's analysis is so methodologically flawed that it must be kept from the jury.

Here's why. Lump sums are one species of the broader genus of reasonable royalties, running royalties being another. Depending on the certainty of the market opportunity, the cash constraints of the licensee, the licensor's appetite for risk and superior insight into the utility of the patented invention, the parties' competitive posture, and undoubtedly other factors, a lump sum structure might better reflect what the hypothetical negotiation would produce.5 Especially where, as here and in LaserDynamics, the patentee itself consistently and regularly negotiated lump sum payments with its licensees, there is even more reason to believe that the parties would have agreed to a lump sum to allow the licensee to infringe.6

And so if a lump sum payment is reasonably assumed to be the result of the hypothetical negotiation that begs the next question: how would the parties have figured out what that lump sum would have been? According to Dr. Prowse, here TPL and its licensees regularly estimated the anticipated revenue of the entire licensed product in arriving at a bottom line number.7 Given this record, the court cannot say Dr. Prowse's estimate is so unreliable as to violate the norms of Fed. R. Evid. 702. In Lucent, the Federal Circuit at least suggested that so long as an expert does not openly invite the jury to "speculate" about the future, she may opine on the magnitude of the lump sum payment by "estimating" what the total royalty would be based on a running royalty on the accused product as a whole.8 The Circuit did not suggest, and has not since suggested, that such as estimate is appropriate only where the demand requirement of the EMVR is satisfied. Two considerations are critical. The first is that there is evidence in the record in this case that this is what TPL and its licensees did over and over again.9 The second is not to use lump sum agreements that bear little resemblance to the hypothetical license in terms of patents licensed and field of use.10

While HTC raised hackles about the licenses TPL relies on, the present situation is hardly analogous to the circumstances in Lucent and other recent cases before the Circuit. For example, in Lucent, there was no attempt to compare the subject matter of the patents licensed in the other agreements.11 Here, there is no dispute that while the other agreement did license broader rights, those rights included the very same patents asserted against HTC. The licensor was none other the TPL, the same licensor here. While the other agreements did involve broader geographic rights than just those of the United States, so long as this broader scope is accounted for, the agreements may still be properly considered.12 Perhaps this explains why HTC's own damages expert agreed that the agreements were comparable.13

As for the "tiering," or weighting, of the so-called comparable agreements, TPL rightly points out that the Circuit has repeatedly held that the presumption of validity and infringement can result in an increase royalty.14 Whatever flaws there are in Dr. Prowse's approach can be drawn out through vigorous cross-examination.

Whether any of this will persuade the jury remains unclear. That is not the issue before the court. What is clear is that the jury should get the opportunity to hear this evidence, look Dr. Prowse in the eye, and give his testimony whatever weight it deems appropriate.

HTC's motion is DENIED.

IT IS SO ORDERED.