United States District Court, D. Delaware
RICHARD G. ANDREWS, District Judge.
Presently before the Court are LSI Corporation and Agere Systems LLC's Motion Pursuant to F.R.E. 702 to Exclude Certain of Plaintiff's Expert Opinions (D.I. 296) and Plaintiff MOSAID Technologies Inc.'s Motion for Reconsideration of the Court's Decision to Exclude Plaintiff's Cost of Capital (D.I. 389). The issues have been fully briefed. (D.I. 297, 310, 318, and 425). For the reasons stated below, LSI/Agere's motion is granted and MOSAID's motion for reconsideration is denied.
Federal Rule of Evidence 702 sets out the requirements for expert witness testimony and 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: (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.
FED. R. EVID. 702. The Third Circuit has explained:
Rule 702 embodies a trilogy of restrictions on expert testimony: qualification, reliability and fit. Qualification refers to the requirement that the witness possess specialized expertise. We have interpreted this requirement liberally, holding that "a broad range of knowledge, skills, and training qualify an expert." Secondly, the testimony must be reliable; it "must be based on the methods and procedures of science' rather than on subjective belief or unsupported speculation'; the expert must have good grounds' for his o[r] her belief. In sum, Daubert holds that an inquiry into the reliability of scientific evidence under Rule 702 requires a determination as to its scientific validity." Finally, Rule 702 requires that the expert testimony must fit the issues in the case. In other words, the expert's testimony must be relevant for the purposes of the case and must assist the trier of fact. The Supreme Court explained in Daubert that "Rule 702's helpfulness' standard requires a valid scientific connection to the pertinent inquiry as a precondition to admissibility." Schneider ex rel. Estate of Schneider v. Fried, 320 F.3d 396, 404 (3d Cir. 2003) (footnote and internal citations omitted).
Applying the above framework makes it clear that the Defendants' motion must be granted and the proposed expert testimony excluded. MOSAID's expert witness, Dr. O'Brien, utilized unreliable principles and methods and his expert opinion is based on insufficient facts and data. For the same reasons, MOSAID's motion for reconsideration is denied.
The dispute before the Court arose out of MOSAID's January 2007 acquisition of certain patents from Agere (which later merged with LSI) in a highly competitive bidding process. (D.I. 297 at 5). Agere assigned the acquired patents to MOSAID under the terms of the 2007 Patent Assignment Agreement ("2007 PAA"), and Section 5.1(f) of this agreement contained a "non-exhaustive" list of entities that did not have a license agreement with Agere for the patents included in the 2007 PAA. Id. Lenovo was listed as one of these unlicensed entities. The Court, however, has found that Lenovo was licensed at the time of the 2007 PAA, and that this misrepresentation by Agere constituted a breach oft he 2007 PAA. (D.I. 255 at 10-11). Damages are the only issue remaining for determination.
A. Dr. O'Brien's Testimony
Dr. O'Brien seeks to opine on the damages suffered by MOSAID-specifically lost profits and the expected return on its investment-as a result of LSI/Agere's breach. Dr. O'Brien states that, but-for Agere's misrepresentation to MOSAID that Lenovo was unlicensed, MOSAID would have been able to reach a license deal with Lenovo and that lost profits are appropriate to compensate MOSAID for Lenovo's potential royalty payments to MOSAID. Dr. O'Brien further explains that MOSAID used a 20% cost of capital to evaluate its investment in acquiring the patents through the 2007 PAA. (D.I. 310 at 11-12).
Support for Dr. O'Brien's opinion can be found largely, if not exclusively, in a MOSAID document titled the "Final Business Case, " which "is an unbiased assessment that was prepared without the contemplation of litigation and is the best evidence to determine MOSAID's state of mind and investment requirements at the time the parties entered in to the 2007 PAA." (/d. at 12). The Final Business Case provides support for several central assumptions that form the basis for Dr. O'Brien's damages opinion. These assumptions include the fact that "20% of Lenovo's products receive their Wi-Fi capability from Atheros, an unlicensed chip supplier" and that MOSAID "would have been able to license Lenovo in the fourth quarter of 2010 without litigation." ( Id. at 6-7). These assumptions, along with others contained in the Final Business Case, were not independently verified by Dr. O'Brien,  and indeed MOSAID's best argument for their reliability seems to be that the assumptions in the Final Business Case are "the best evidence" of what "would have occurred" if a "hypothetical licensing negotiation" took place between MOSAID and Lenovo. ( Id. at 7 (emphasis added)). This justification falls short of the reliability standard set by Federal Rule of Evidence 702.
When faced with similar facts, the Third Circuit excluded expert testimony based on a business planning document. See ZF Meritor, LLC v. Eaton Corp., 696 F.3d 254, 291 (3d Cir. 2012). In ZF Meritor, "the core" of the expert's damages testimony was based on a strategic business plan. Id. The court explained that "experts often rely on business plans in forming damages estimates, " but the expert's "reliance on the [business plan] in this case was improper because he did not know either the qualifications of the individuals who prepared the [business plan] estimates or the assumptions upon which the estimates were based." Id. The court qualified this by noting that, "In some circumstances, an expert might be able to rely on the estimates of ...