Summary
rejecting Daubert challenge to expert's lost profits opinions where "[t]he record shows that [the parties] directly compete for sales"
Summary of this case from Pelican Int'l, Inc. v. Hobie Cat Co.Opinion
Civil Action No.12-cv-11758
09-22-2014
EVERLIGHT ELECTRONICS CO., LTD., and EMCORE CORPORATION, Plaintiffs/Counter-Defendants, v. NICHIA CORPORATION, and NICHIA AMERICA CORPORATION, Defendants/Counter-Plaintiffs, v. EVERLIGHT AMERICAS, INC., Defendant.
ORDER DENYING EVERLIGHT'S DAUBERT MOTION TO PRECLUDE THE EXPERT TESTIMONY OF NICHIA'S TECHNICAL AND DAMAGES EXPERT [#312], AND GRANTING IN PART AND DENYING IN PART NICHIA'S MOTION TO EXCLUDE THE TESTIMONY OF EVERLIGHT'S TECHNICAL AND DAMAGES EXPERTS [#314]
Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579 (1993).
I. INTRODUCTION
Everlight Electronics Co., Ltd. (hereinafter "Everlight") filed the instant action seeking a declaratory judgment of non-infringement, invalidity and unenforceability of Nichia Corporation's (hereinafter "Nichia") patents, the '925 Patent and the '960 Patent. Nichia filed Counterclaims against Everlight for direct and indirect infringement of its patents-in-suit.
Presently before the Court are the following motions: (1) Everlight's Daubert Motion to Preclude the Expert Testimony of Dr. Uwe Happek, Dr. E. Fred Schubert, and John C. Jarosz, filed on June 30, 2014; (2) Nichia's Motion to Exclude the Expert Testimony of Dr. Eric Bretschneider and W. Christopher Bakewell, also filed on June 30, 2014.
These matters are fully briefed and a hearing was held on September 12, 2014. For the reasons that follow, the Court will deny Everlight's Daubert Motion to Preclude the Expert Testimony of Dr. Happek, Dr. Schubert and Mr. Jarosz, and will grant Nichia's Motion to Exclude some of the Expert Testimony of Dr. Eric Bretschneider, and will deny Nichia's Motion to Exclude the testimony of W. Christopher Bakewell.
II. LAW & ANALYSIS
A. Everlight's Daubert Motion
1. Dr. Schubert
Everlight moves to exclude the infringement opinions and testimony of Dr. Schubert, a tenured professor in the Department for Electrical, Computer, and Systems Engineering at Rensselear Polytechnic Institute. Dr. Schubert has significant expertise in the field of LED technology and has published various works in the field of LEDs. Everlight does not move to exclude Dr. Schubert's infringement opinions based on qualification or relevance. Rather, Everlight's complaints with respect to Dr. Schubert's expert opinions center upon his purported failure to provide a detailed limitation-by-limitation analysis demonstrating how each Accused Product infringes the asserted claims. Upon consideration of the parties' oral and written submissions, and Dr. Schubert's Opening Expert Report, the Court concludes there is no legitimate basis to invoke its gatekeeping role to exclude Dr. Schubert's infringement opinions.
A party offering an expert's opinion bears the burden of establishing the admissibility of such opinion by a preponderance of the evidence. Nelson v. Tennessee Gas Pipeline Co., 243 F.3d 344, 251 (6th Cir. 2001). Expert testimony is admissible only if it satisfies the requirements of Rule 702 of the Federal Rules of Evidence, which states:
A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if:Fed. R. Evid. 702. The district court must determine whether the expert's testimony meets three requirements: (1) the expert witness must be qualified by "knowledge, skill, experience, training or education," (2) the proffered testimony is relevant and "will assist the trier of fact to understand the evidence or to determine a fact in issue," and (3) the testimony is reliable in that it is based on scientific, technical or other specialized knowledge. Fed. R. Evid. 702; In re Scrap Metal Antitrust Litigation, 527 F.3d 517, 529 (6th Cir. 2008).
(a) the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue;
(b) the testimony is based on sufficient facts or data;
(c) the testimony is the product of reliable principles and methods; and
(d) the expert has reliably applied the principles and methods to the facts of the case.
As to the third requirement, the Daubert court set forth the factors to be considered in determining whether to admit expert testimony as reliable. Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 593-94 (1993). The factors include: (1) whether the expert's theory has been tested; (2) whether the expert's theory "has been subjected to peer review and publication;" (3) whether there is a "known or potential rate of error" and "standards controlling" the particular technique and whether it has been generally accepted within the pertinent community. Id.; see also Kumho Tire Co. v. Carmichael, 526 U.S. 137, 149 (1999).
The factors are neither definitive, nor exhaustive, and may or may not be pertinent to the assessment in any particular case. Kumho Tire, 526 U.S. at 141. As such, the trial court has broad latitude to determine whether these factors are reasonable measures of reliability in a particular case. Id. at 153; see also In re Scrap Metal, 527 F.3d at 529 (noting that the test for reliability is "'flexible,' and the Daubert factors do not constitute a definitive checklist or test and may not be dispositive in every case.") "[N]othing in either Daubert or the Federal Rules of Evidence requires a district court to admit opinion evidence which is connected to existing data only by the ipse dixit of the expert. A court may conclude that there is simply too great an analytical gap between the data and the opinion proffered." GE v. Joiner, 522 U.S. 136, 146 (1997). However, "rejection of expert testimony is the exception, rather than the rule . . . ." In re Scrap Metal, 527 F.3d at 530.
In his opening report, Schubert indicated that due to the "large number of products at issue" he split all of the Accused Products into three groups sharing common features and provided representative claim charts for each group of asserted claims and an Analysis Chart identifying the complete list of Accused Products with phosphor information for each Accused Product, along with the specific patent claims infringed and the supporting documentation for each product. See Dkt. No. 326, Ex. J., Expert Report of E. Fred Schubert.
As to the '925 Patent, Schubert explained:
204. Claims 1-3, 5-9, and 23 of the '925 Patent relate to LEDs using a nitride compound semiconductor and a phosphor including a garnet fluorescent material. The Everlight Accused Products accused of infringing claims 1-3, 5-9, and 23 of the '925 Patent include at least one YAG or TAG-based phosphor. Products with only TAG-based phosphors are accused under the doctrine of equivalents. Set forth below are representative claim charts for the asserted claims, including an element-by-element analysis of exemplary YAG and TAG-based Accused Products for each of these claims. The infringement analysis set forth below applies to all of the YAG and TAG-based Accused Products. My Analysis Chart identifies the complete list of the YAG and TAG-based Accused Products identified to date, as well as the specific claims asserted and the supporting documentation for each product.Id. at 77-82, ¶204. Schubert similarly described his infringement opinions concerning all of the Accused Products accused of infringing claims 1, 2, 4 and 8-13 of the '960 Patent. See id., at 93-11, ¶213.
Contrary to Everlight's assertions, Scubert's expert report and Analysis Chart provide a detailed limitation-by-limitation analysis for all of the Accused Products. For example, Schubert's representative claim charts regarding the '925 Patent state that the Accused Products include LEDs with the common features of (1) YAG or TAG-based phosphors, (2) combined with a nitride compound (InGaN) semiconductor chip, and provide corresponding exemplary product information. A review of his Analysis Chart demonstrates that for each Accused Product falling within this group, Schubert provides the name and type of phosphor used, as well as the name of the semiconductor chip used, all of which are of type "InGaN."
Additionally, the Court finds no merit with respect to Everlight's claim that Dr. Schubert's infringement opinions are conclusory. For instance, Everlight complains that Dr. Schubert's Analysis Chart fails to provide any explanation on phosphor concentration or how it was measured for the Accused Products with respect to the products Dr. Schubert grouped in the "All Increasing Concentration Accused Products" group. To the contrary, Dr. Schubert provided a detailed analysis of phosphor concentration with respect to this group of Accused Products in his expert report:
All Increasing Concentration Accused Products show a phosphor concentration that increases from the surface of a resin that contains the phosphor toward the light emitting component, or the concentration of phosphor increases from the light emitting component toward the resin surface infringe claim1.See id. 96-97. Moreover, Dr. Schubert's Analysis Chart indicates the test results for each Accused Product in this group.
For example, the SEM cross-sectional for the EHP-A09CT31H-PU5/5670/TR sample shows that concentration of the phosphor increases from the surface of the resin towards the blue-light emitting InGaN-based LED chip. Ex. 78. Technical Analysis Report of EHP-A09CT31H-PU5/5670/TR.
Lastly, the Court rejects Everlight's argument that Dr. Schubert's methodology is unreliable based on the fact that he did not check all of the boxes in the chart himself and one purported inconsistency with respect to a line item out of hundreds of thousands of entries. Such issues go to the weight to be accorded Dr. Schubert's testimony, not to its admissibility. As such, based on the foregoing considerations, the Court denies Everlight's request to exclude Dr. Schubert's infringement opinions.
2. Dr. Happek
Here again, Everlight does not move to exclude Dr. Happek's testimony based on lack of qualification or irrelevance, rather Everlight challenges the reliability of Dr. Happek's infringement conclusions. Dr. Happek is a tenured Professor of Physics at the University of Georgia specializing in LED technologies, including phosphor technology and analysis. Everlight argues that Dr. Happek did not participate in, supervise, or observe the experiments upon which he offers opinions. Rather, he relied on Technical Analysis Reports prepared by the litigation consulting firm, TAEUS International Corporation ("TAEUS"), in conjunction with another outside laboratory, Insight Analytical Labs ("IAL"), which performed the testing on the Accused Products. Everlight maintains that Dr. Happek did not receive the raw data nor verify what he did receive contained all of the testing results. Everlight complains that Dr. Happek is nothing more than a conduit for hearsay evidence prepared by TAEUS and IAL. Lastly, Everlight asserts that it has been prevented from assessing the qualifications or methodologies used because Nichia failed to disclose TAEUS and IAL as experts as required under the Federal Rules of Civil Procedure.
Everlight's criticisms contravene the record. Contrary to Everlight's arguments, Dr. Happek testified that IAL performed the experiments under his supervision and following his protocol. See Dkt. No. 326, Ex. D, Happek Dep. Tr. at 263, 279-80. He also had access to the raw data on a server maintained by TAEUS. Id. at 287. Dr. Happek was not required to supervise the ministerial work involved in actually preparing and imaging each sample. Astra Aktiebolag v. Andrx Pharms . Inc., 222 F. Supp.2d 423, 491-92 (S.D.N.Y. 2002). Everlight's own authority, Therasense, Inc. v. Becton, Dickinson and Co., Nos. 04-02123, 04-03327, 04-03732, 05-03117, 2008 WL 2323856, at *2 (N.D. Cal. May 22, 2008) supports Dr. Happek's reliance on IAL and TAEUS. The Therasense court explained:
To be sure, there will be times when an expert can work directly with client representatives to run tests and to develop facts and reasonably rely on the results in expressing an opinion at trial. For example, if an expert chooses not to conduct a copper-zinc test himself, he might supervise qualified professionals employed by the client to do so.Id.
Lastly, Everlight's protestations concerning an inability to test the methodologies and qualifications of TAEUS and IAL appear disingenuous considering it has been on notice that Dr. Happek was relying on these firms since December of 2013, at the time Everlight could have sought discovery from these entities.
Based on the foregoing considerations, the Court does not find Everlight's challenges to be appropriate for Rule 702 Daubert purposes, rather Everlight's arguments go to the weight to be afforded to Dr. Happek's analysis and conclusions, not its admissibility. As such, Everlight's request to exclude the testimony of Dr. Happek is denied.
3. Mr. Jarosz
Everlight seeks to exclude Mr. Jarosz's lost profits and reasonable royalty damages opinions arguing that Mr. Jarosz failed to use reliable methodologies. Mr. Jarosz opines that Nichia is owed $4.6 to $6.8 million in lost profits damages, as well as a reasonable royalty of 5% for the sales Nichia cannot receive lost profits damages on. Mr. Jarosz calculated the total patent damages to be $5,898,379.00.
Mr. Jarosz is an economist and Managing Principal of Analysis Group, Inc., an economic, financial and strategy consulting firm that provides research and analysis in a variety of business litigation and regulatory settings. Mr. Jarosz specializes in intellectual property valuation, monetary relief assessment and the economics of commercial success. Everlight first argues that Mr. Jarosz's lost profits opinions do not adequately demonstrate demand for the patented products because Nichia's LED products are not sufficiently similar to the Accused Products in terms of price or performance.
When an expert is called to opine on damages, his or her testimony must be rooted in "sound economic and factual predicates." Riles v. Shell Exploration & Prod. Co., 298 F.3d 1302, 1311 (Fed. Cir. 2002). The test for lost profits is set forth in Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152 (6th Cir. 1978). Under Panduit, the patentee must show: (1) Demand for the patented products; (2) absence of non-infringing alternatives; (3) manufacturing and marketing capability to exploit the demand; and (4) the amount of lost profit. Id. at 1156. The patent owner must show that "but for" the infringement, it would have made the infringer's sales." BIC Leisure Prods., Inc. v. Windsurfing Int'l Corp., 1 F.3d 1214, 1218 (Fed. Cir. 1993).
Mr. Jarosz reached his lost profits conclusions by relying on the Panduit factors, beginning with his analysis of the demand for products practicing Nichia's technology. Mr. Jarosz ultimately concluded that Nichia would have made 22.5% to 37% of the Accused Product sales made by Everlight in the United States. Jarosz also assessed Nichia's manufacturing capabilities.
Everlight complains that Mr. Jarosz failed to consider the types of LED products offered by the parties and the prices at which those products are sold. While Mr. Jarosz's analysis with respect to price differences could be stronger, that goes to weight rather than admissibility. Mr. Jarosz considered the types of LED products sold by the parties and further analyzed the extent to which the parties compete for sales of white LEDs. See Dkt. No. 326, Ex. N., Mr. Jarosz Initial Report at 4-6, 17-19, 20-21, 60; Ex. O, Mr. Jarosz Fourth Report at 3-6.
Everlight primarily relies on BIC Leisure Prods., Inc. v. Windsurfing Int'l Corp. in support of its position. 1 F.3d 1214 (Fed. Cir. 1993). The BIC Leisure patentee sold high-end surfboards that fell within the classification for competition level surfboarders and manufactured using the less efficient "rotomolding process." Id. at 1216. The accused products were low-end, entry level surfboards made using the more efficient "blowmolding process." Id. The BIC Leisure court ultimately concluded that the patent owner failed to show "but for" causation because the infringer's "entry level" surfboards were different in terms of price, product characteristics and marketing channels. Id. at 1219.
Here, Everlight maintains that Mr. Jarosz's conclusions run afoul of the holding in BIC Leisure because Mr. Jarosz failed to consider that the parties' products are not sufficiently similar in price and product characteristics. While the Court concludes that Mr. Jarosz's conclusions with respect to the pricing disparities could have been more detailed considering there is factual support in the record suggesting that the prices of the Accused Products are 40% less than Nichia's lowest priced products, the instant matter is nonetheless distinguishable from BIC Leisure because the products in BIC Leisure were so different in terms of price and manufacturing process, they could not be competitors for the same sales. Here, the parties products are not so extremely different. The record shows that Nichia and Everlight directly compete for sales.
Everlight's challenges concerning Mr. Jarosz's reliance on worldwide white LED market data and his non-infringing alternatives opinions are inappropriate at this stage of the proceedings and should be raised during cross examination, not through Rule 702. Because the Court is also denying Nichia's Daubert Motion with respect to Mr. Bakewell's testimony, Everlight will be permitted to put on its own damages theory to the jury. Everlight's request to exclude Mr. Jarosz's expert testimony concerning lost profits damages is denied.
Everlight further complains that Mr. Jarosz's reasonable royalty analysis is impermissibly based on non-comparable portfolio license agreements. Everlight maintains that Mr. Jarosz's conclusion that a reasonable royalty is 5% rests on flawed reasoning because it relies on licenses that grant rights far greater than the patents-in-suit.
The Federal Circuit has instructed that agreements that contain licenses to the patents-in-suit, are "highly probative." LaserDynamics, Inc. v. Quanta Computer, Inc., 695 F.3d 51 (Fed. Cir. 2012) ("Actual licenses to the patented technology are highly probative as to what constitutes a reasonable royalty for those patent rights because such actual licenses most clearly reflect the economic value of the patented technology in the marketplace.") Id. (citing ResQNet.com, Inc. v. Lansa, 594 F.3d 860 (Fed. Cir. 2010)).
Everlight's reliance on ResQNet is misplaced because "none of the [ResQNet] licenses even mentioned the patents in suit or showed any other discernible link to the claimed technology." ResQNet, 594 F.3d 870. Here, each of the 16 agreements relied upon by Mr. Jarosz is directed to at least one of the patents-in-suit or directed to the claimed LED technology. Moreover, the licenses at issue in ResQNet were "re-bundling" licenses which included licenses to a number of other items like software, source code, training and marketing services. While it is true that none of the sixteen (16) agreements relied on by Mr. Jarosz are directed solely to the '925 Patent, they are related to the '925 Patent family. As such, the Court cannot conclude that Mr. Jarosz's testimony will not assist the jury. Everlight's criticisms concerning the relevance of the sixteen (16) licensing agreements should be raised during cross examination; they do not support outright exclusion of the subject testimony.
The cases of Dataquill Ltd. v. High Tech Computer Corp, 887 F. Supp. 2d 999 (S.D. Cal. 2011) and NetAirus Techs., LLC v. Apple, Inc., No. 10-03257, 2013 U.S. Dist. LEXIS 184514 (C.D. Cal. Oct. 23, 2010), relied on by Everlight likewise fail to support Everlight's position. The Dataquill and NetAirus Techs courts excluded the expert testimony not solely because it was based on "portfolio" license agreements, but also because it was based on agreements that had significant differences between the licensing parties and the litigation parties, as well as substantial differences between the licensed technology and the patented technology at issue in the cases. NetAirus, 2013 U.S. Dist. LEXIS 18514, at *19-21 (finding the license agreements were directed to a pool of standard essential patents directed to a different standard than the asserted patents); Dataquill, 887 F.Supp.2d at 1023-24 (finding that the subject HTC agreements were licenses from other "industry heavyweights," rather than licensors more similarly situated to the patentee, and the agreements also covered a range of varying technologies that was broader than the asserted patent).
Everlight's remaining arguments concerning Mr. Jarosz's opinions on the nexus between Nichia's commercially successful products and the claimed invention are without merit. Mr. Jarosz was entitled to rely on Schubert's expert opinion that the embodiments practice the patents-in-suit. Apple Inc. v. Motorola Inc., 757 F.3d 1286, 1321 (Fed. Cir. 2014) ("Consistent with Rule 703, patent damages experts often rely on technical expertise outside of their field when evaluating design around options or valuing the importance of the specific, infringing features in a complex device."). Moreover, Everlight provides no authority for its claim that Mr. Jarosz was required to perform an element by element comparison of the embodiments and the claims of the patents-in-suit. Here again, Everlight's challenges are premature and inappropriate for Rule 702 gatekeeping purposes. Therefore, based on the foregoing considerations, the Court declines to exclude Mr. Jarosz's reasonable royalty opinions.
B. Nichia's Daubert Motion
1. Dr. Bretschneider's Non-Infringement Opinions Regarding the "Nitride Compound Semiconductor" Claim Limitation of the '925 Patent
In the present motion, Nichia does not attack Dr. Bretschneider's opinions concerning the semiconductor limitation based on purported lack of qualification or lack of relevance. Rather, Nichia seeks to exclude Dr. Bretschneider's opinions based on his purported unreliable methodology. Dr. Bretschneider possesses a Ph.D in Chemical Engineering and is a member of the University of Florida Department of Chemical Engineering Advisory Board. Dr. Bretschneider indicates in his report that he has experience with MOCVD hardware design, MOCVD process development, LED package design and design of LED lighting fixtures.
Nichia argues that Dr. Bretschneider's conclusions that the Accused Products do not satisfy the nitride semiconductor limitation because they contain dopants or impurities should be excluded because Dr. Bretscheider failed to apply this Court's claim construction. See Quality Edge v. Rollex Corp, No. 1:10-cv-278, 2013 U.S. Dist. LEXIS 90773, *39-40 (W.D. Mich. Jun. 28, 2013). Conversely, Everlight argues that Dr. Bretschneider's opinions faithfully applied the Court's claim construction. Everlight maintains that Dr. Bretschneider's "opinions are not premised on the presence of 'dopants;' they are premised on Nichia's flawed testing techniques, or EDX testing which only detects elements present at a fraction of a percent or more."
Expert testimony should be precluded when it does not rest on a reliable foundation and is not "relevant to the task at hand." Daubert, 509 U.S. at 597. An expert should not be permitted to offer testimony on infringement or validity that does not follow the court's claim construction ruling. LP Matthews LLC v. Bath & Body Works, Inc., 458 F. Supp.2d 198, 210 (D. Del. 2006) ("to the extent that the court's claim construction and related decisions are inconsistent with the opinions expressed in their respective expert reports, such opinions will not be admitted at trial.").
Claim 1 of the '925 Patent states in relevant part:
A light emitting device, comprising a light emitting component . . . ; wherein said light emitting component comprises a nitride compound semiconductor represented by the formula IniGajAlkN where . . . i+j+k = 1 . . . .The Court construed the light-emitting component claim limitation to mean: "[C]omprises a nitride compound semiconductor represented by the formula IniGajAlkN, where i is greater than or equal to zero, j is greater than or equal to zero, and k is greater than or equal to zero and where i plus j plus k equals one." See Dkt. No. 129 at 14. The Court further opined that the "semiconductor materials contain dopants or impurities as described in examples 1, 9 and 11 of the '925 Patent." Id. at 13.
Contrary to Nichia's argument, Dr. Bretschneider's opinion concerning the semiconductor limitation does not contravene this Court's claim construction. Dr. Bretschneider expressly stated that he relied on this Court's claim construction in his report. Moreover, the Court tends to agree with Everlight that Dr. Bretschneider's opinion challenges Nichia's EDX testing, which did not detect the presence of Indium in the Accused Products, despite the fact that Dr. Schubert opined that Indium is present in the Accused Products. As such, Dr. Bretschneider opined that "[i]f the relatively low level of indium in the accused products is significant in the context of the '925 claims, then other elements at the same or higher levels would also be significant."
Here, Nichia merely disagrees with Dr. Bretschneider's application of the Court's claim construction to his analysis of the Accused Products. Such challenges are a matter for the jury during cross examination because "the application of the Court's claim construction to the accused products is a question of fact for the jury." Tesco Corp. v. Weatherford Int'l Inc., 750 F. Supp.2d 780, 796 (S.D. Tex. 2010); see also Power Integrations, Inc. v. Fairchild Semiconductor Int'l, Inc., 763 F. Supp. 2d 671, 695 (D. Del. 2010) ("The implications of the Court's constructions are matters on which the parties' experts may opine, and may disagree."). As such, the Court declines to exclude Dr. Bretschneider's opinions concerning the nitride semiconductor limitation.
2. Dr. Bretscheidner's Opinions Regarding Enablement of the Markush Group Phosphor Limitations in the '925 Patent
Nichia argues that Dr. Bretschneider's opinions regarding enablement of the Markush group phosphor limitation should be excluded because: (1) Dr. Bretschneider is not an expert in phosphor synthesis and (2) his opinions concerning enablement are legally irrelevant.
Nichia first asserts that Dr. Bretschneider's education and experience in the general field of chemical engineering is insufficient as a matter of law to qualify him to offer opinions concerning phosphor synthesis. Dr. Bretschneider has never held a single position or published any papers relating to phosphor synthesis and he has never synthesized a garnet phosphor. As such, Dr. Bretschneider lacks the "special skill, knowledge or experience" concerning phosphor synthesis and therefore cannot be qualified as an expert on this topic. The Court, in performing its gatekeeper role, should also limit expert testimony to the area of the expert's expertise. Sundance, Inc. v. Demonte Fabricating Ltd., 550 F.3d 1356, 1363 (Fed. Cir. 2008).
In support of its theory that Dr. Bretschneider is unqualified to offer expert opinion on phosphor synthesis, Nichia points to the fact that Dr. Bretschneider's opinions directly contradict the opinions of Everlight's other expert, Dr. Martin Wilding, whom Dr. Bretschneider acknowledged is more qualified in the field of garnet phosphor synthesis. Specifically, Dr. Wilding opined that one of ordinary skill in the art could have synthesized garnet phosphors as described in Example 8 of the '925 Patent. However, Dr. Bretschneider opined that Example 8 could not have been made by a person of ordinary skill in the art at the time of the invention. Nichia maintains that Dr. Bretschneider's disagreement with Dr. Wilding without providing any reasoning for the disagreement shows that Dr. Bretschneider's testimony will be both unhelpful and unreliable.
Nichia also argues that even if this Court were to permit Dr. Bretschneider to testify concerning enablement of the Markush group, his opinion should be precluded because it is legally irrelevant. First, Dr. Bretschneider's assertion that claims 1 and 23 of the '925 Patent are not enabled because GAG, LAG, and YIG cannot be formed as garnet structures is irrelevant because the unambiguous claim language excludes compositions that do not form garnets. Claim 1 of the '925 Patent recites a light emitting device comprising a phosphor that contains a "garnet fluorescent material." Dr. Bretschneider admitted that this limitation excludes compositions that do not form a garnet fluorescent material. As such, his opinion that these compositions do not form garnets is legally irrelevant to the enablement analysis because it is based on compositions outside the scope of the claims.
The Court tends to agree with Nichia and concludes that Dr. Bretschneider's enablement opinion concerning the Markush group claim limitation must be excluded. Dr. Bretschneider's expertise in the broad field of chemical engineering does not qualify him to opine and offer testimony in all areas of the chemical engineering field. Shreve v. Sears, Roebuck & Co., 166 F. Supp. 2d 378, 392 (D. Md. 2001) ("[A]n expert who is a mechanical engineer is not necessarily qualified to testify as an expert on any issue within the vast field of mechanical engineering. Unless he is to testify only to general engineering principles that any mechanical engineer would know, the engineer must posses 'some special skill, knowledge or experience,' concerning the particular issue before the court.") (internal citation omitted). While Dr. Bretschneider is trained as a chemical engineer and has experience in the general area of semiconductors and LEDs, he does not possess the requisite "special skill, knowledge or experience" concerning phosphor synthesis. Oglesby v. General Motors Corp, 190 F.3d 244, 250 (4th Cir. 1999) (excluding testimony of engineer with no specialized experience or expertise evaluating automobile manufacturing processes or the strength of plastic automobile components). Therefore, Dr. Bretschneider's opinions concerning enablement of the Markush group claim limitation are inadmissible and the Court will grant Nichia's Daubert Motion with respect to Dr. Bretschneider's enablement opinions related to the Markush group claim limitation only.
3. Mr. Bakewell's Opinions Regarding Lost Profits Damages
Nichia seeks to exclude Mr. Bakewell's opinion that lost profits damages are inappropriate in this case. Specifically, Mr. Bakewell opines that Nichia and Everlight operate in different segments of the market-Everlight in the low power level market and Nichia in the higher power market-thus there is an absence of direct competition for the "lost sales" owing to Everlight's purported infringement. Mr. Bakewell is a Managing Director of Duff & Phelps, LLC, an international consulting firm specializing in financial advisory services. Mr. Bakewell is primarily responsible for providing consulting services involving valuation and related issues in connection with technology-rich business and intellectual property. Mr. Bakewell earned a B.S. degree from Bradley University in Illinois and earned an MBA degree from the University of Maryland. He also is an Accredited Senior Appraiser in Business Valuation.
Nichia does not challenge Mr. Bakewell's qualifications nor does Nichia argue that Mr. Bakewell's anticipated testimony is irrelevant. Rather, Nichia asserts that Mr. Bakewell's analysis is unreliable. Nichia maintains that Mr. Bakewell's opinions do not rely on objective data and are unreliable because there is no "standard" governing how to properly categorize products by power levels.
Similar to Everlight's arguments challenging Mr. Jarosz's testimony, Nichia's arguments with respect to Mr. Bakewell's lost profits opinions are more appropriate for cross examination and not this Court's gatekeeping function under Rule 702. Both parties have confused credibility and accuracy of the competing experts' damages opinions with their reliability. See In re Scrap Metal, 527 F.3d at 529. Nichia's arguments demonstrate that entitlement to, and the amount of, lost profits damages is an issue with numerous unresolved factual issues. It would be inappropriate for this Court to "exclude [either Mr. Jarosz's or Mr. Bakewell's] testimony on the ground that the court believes one version of the facts and not the other." Id. (citing Fed. R. Evid. 702 advisory committee's note, 2000 amend.) (noting that a reliable expert opinion is supported by "appropriate validation" and the court's role is not to determine whether the opinion is correct but whether it "rests upon a reliable foundation, as opposed to . . . unsupported speculation.")
Upon review of Mr. Bakewell's Rebuttal Report, the Court cannot conclude his opinions lack the requisite reliable foundation. In reaching his conclusion that lost profit damages are not appropriate in this case, Mr. Bakewell looked at not only the power levels, but also the application in which the LED is used. See Dkt. 325, Ex. 16 at ¶¶ 78-85. Mr. Bakewell's opinions are not based solely on a report authored by Strategies Unlimited ("SU"), which defined low, mid and high power LEDs is incorrect. In addition to relying on Nichia's documents, Mr. Bakewell also relied on a 2012 industry report from YOLE Development. Nichia cannot dispute the SU and YOLE Development industry reports are relied on by damages experts since Nichia's own damages expert relies on industry reports prepared both by SU and YOLE Development.
Mr. Bakewell analyzed both Nichia's products and the Accused Products. He opined that 72.5% of the Accused Product sales were attributable to the sale of a particular type of LED-an SMD type B LED-sold in applications such as handheld device keypads, on/off indicators and control indicators. He further concluded that Nichia makes virtually no sales in these applications, rather Nichia's sales are predominantly in indoor lighting, automotive instrument panels, automotive lighting, and signboard advertisement. Mr. Bakewell also relied in part on Nichia's documents which identified key competitors in various applications. Moreover, there is record evidence that Mr. Bakewell did not arbitrarily select a definition for low power LEDs as Dr. Bretschneider confirmed that this definition of low power was reasonable.
Lastly, Nichia's complaints that Mr. Bakewell only analyzed a subset of the Accused Products are appropriate for cross-examination on accuracy and the weight to be accorded to Mr. Bakewell's conclusions. Rule 702 exclusion is inappropriate under the circumstances. Thus, Nichia's Motion to Exclude Mr. Bakewell's lost profits damages opinion is denied.
4. Mr. Bakewell's Opinions Concerning Reasonable Royalty Damages
Nichia also seeks to exclude Mr. Bakewell's opinions concerning reasonable royalty damages. First, Nichia asserts that Mr. Bakewell's use of the Entire Market Value Rule ("EMVR") is divorced from the facts of the case and contrary to precedent. Specifically, Mr. Bakewell opines that the inventive aspects of the patents-in-suit are directed towards the improvements relating to the phosphor. Conversely, Nichia asserts that both the phosphor and the LED chip are integral to the claimed combinations of the patents-in-suit, therefore neither can be characterized as an "unpatented component." Nichia maintains that by ignoring the LED component recited in the claims, Mr. Bakewell does not comply with the Federal Circuit's requirement of tying damages to the claimed invention.
The Federal Circuit has explained that:
Where small elements of multi-component products are accused of infringement, calculating a royalty on the entire product carries a considerable risk that the patentee will be improperly compensated for non-infringing components of that product. Thus, it is generally required that royalties be based not on the entire product, but instead on the 'smallest saleable patent-practicing unit.' The entire market value rule is a narrow exception to this general rule.LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51, 67 (Fed. Cir. 2012). The exception to the traditional requirement that royalties be based on the "smallest saleable unit" is the "entire market value rule." Versata Software, Inc. v. SAP Am., Inc., 717 F.3d 1255, 1268 (Fed. Cir. 2013). The entire market value rule exception is only available when the patentee demonstrates that "the patented feature drives the demand for an entire multi-component product . . . ." Laser Dynamics, 694 F.3d at 67. It is not enough to merely show the patented technology is "valuable, important or even essential to" the use of the product. Id. at 68.
Here, Mr. Bakewell relied on Dr. Bretschneider to conclude that the smallest salable unit relates only to a portion of the LED package, specifically the use of a garnet phosphor to alter the wavelength of the prior art blue LED. "Consistent with Rule 703, patent damages experts often rely on technical expertise outside of their field when evaluating design around options or valuing the importance of the specific, infringing features in a complex device." Apple Inc. v. Motorola Inc., 757 F.3d 1286, 1321 (Fed. Cir. 2014). While Mr. Bakewell should have explained in detail the basis for Dr. Bretschneider's opinion in this regard, this does not automatically require exclusion. Here, there is a question of fact as to whether the patented features drive demand for the entire LED package. A complete LED package contains other features such as electrical, optical, thermal and mechanical components that are not related to the inventive aspects of the patents-in-suit. While Nichia and Mr. Jarosz disagree with Mr. Bakewell's and Dr. Bretscheneider's conclusion that the inventive aspect of the patents-in-suit relate to the addition of a garnet phosphor to the prior art blue LED, and raise some compelling arguments concerning the factual bases upon which the opinions rely, such issues go to the weight to be accorded to the testimony as opposed to its reliability.
Next, Nichia complains that Mr. Bakewell's reliance on the 2002 Nichia-Osram Settlement Agreement renders his opinion unreliable because he failed to properly account for the circumstances giving rise to the 2002 agreement. Under the terms of the agreement, OSRAM agreed to pay a $1 million lump sum payment for the use of the '925 Patent's technology. As such, Mr. Bakewell opines that a reasonable royalty to compensate Nichia "is no more than $1 million from the date of the hypothetical negotiation (i.e., April 2006) through the statutory lives of the patents-in-suit."
Nichia argues that it was error for Mr. Bakewell to only consider this one agreement, when the parties produced fifty-five (55) license agreements in this case and Mr. Jarosz found sixteen (16) to be directly relevant to the hypothetical negotiation, and further concluded the remaining thirty-nine (39) agreements provided some, but lesser relevance to the hypothetical negotiation. Specifically, Mr. Bakewell opined that: "[A] 2002 agreement between Nichia and OSRAM includes a unique provision that focuses on the '925 patent, even ascribing a specific value to the '925 patent and related rights. It is highly probative of a reasonable royalty in this case."
In his report, Mr. Bakewell explains that he reviewed all of the license agreements produced by the parties, but found the OSRAM settlement agreement was the only relevant agreement to the hypothetical negotiation. Mr. Bakewell delineates in detail his reasons for concluding the other agreements are inappropriate for the hypothetical negotiation. While Nichia disagrees with Mr. Bakewell's conclusions in this regard, its disagreement does not mean his analysis is unreliable. Moreover, Mr. Bakewell did not ignore the fact that the OSRAM settlement agreement was a global resolution of numerous lawsuits. Rather, he expressly noted this factor, as well as discussed other considerations for evaluating the $1 million lump sum payment in relation to the patents-in-suit, including differences in market share between Everlight and OSRAM, the relevant damages period in this case compared to the OSRAM agreement and consideration of the '960 Patent.
Nichia relies on AVM Technologies, LLC v. Intel Corp., 927 F. Supp.2d 139 (D. Del. 2013), where the court excluded expert damages testimony that was based on one litigation settlement agreement. Id. at 140. However, the expert in AVM Technologies was relying on a single litigation settlement agreement that did not involve the same patent at issue in the AVM Technologies case. Id. As such, the court concluded that: "Whereas multiple settlement agreements might show a pattern, a single settlement agreement on a different patent without any analysis of the settlement context is not a reliable method for calculating damages." Id. at 144. AVM Technologies is also distinguishable because the expert failed to explain why other license agreements were irrelevant. Id. This is unlike the instant matter where Mr. Bakewell explained his reasoning for excluding all of the parties' licensing agreements save for the OSRAM agreement.
Here again, Nichia's arguments are not appropriate for Rule 702 gatekeeping purposes, rather they go to the weight to be accorded to Mr. Bakewell's reasonable royalty conclusions. Therefore, the Court likewise declines to exclude his reasonable royalty opinions.
III. CONCLUSION
For the foregoing reasons, Everlight's Daubert Motion to Preclude the Expert Testimony of Dr. Happek, Dr. Schubert and Mr. Jarosz [#312] is DENIED.
Nichia Defendants' Motion to Exclude the Expert Testimony of Eric Bretschneider and W. Christopher Bakewell [#314] is GRANTED IN PART AND DENIED IN PART.
SO ORDERED. Dated: September 22, 2014
/s/Gershwin A Drain
GERSHWIN A. DRAIN
UNITED STATES DISTRICT JUDGE