United States District Court, D. Delaware
MEMORANDUM OPINION AND ORDER
WILLIAM C. BRYSON, UNITED STATES CIRCUIT JUDGE.
the Court is Plaintiff Sonos, Inc.'s Motion for Leave
to Submit the Second Supplemental Expert Report of Michael E.
Tate, Dkt. No. 457. The Court previously struck Mr.
Tate's reasonable royalty analysis. Dkt. No. 427. Because
Mr. Tate's supplemental report again fails to properly
apportion reasonable royalty damages, Sonos's motion is
Tate's original expert report, he calculated royalty
rates for the patented features based on a report by KPMG and
multiplied those rates by the total revenue derived by
D&M from the sale of all of its HEOS products, except for
those products on which Sonos was seeking damages under a
lost profits theory.
Court held that Mr. Tate's royalty base failed to
properly apportion damages to only the accused features, and
therefore violated the entire market value rule. That rule
allows a patentee to assess damages based on the entire
market value of a product only where the patented feature
creates the basis for customer demand. Lucent Techs.,
Inc. v. Gateway, Inc., 580 F.3d 1301, 1336 (Fed. Cir.
2009). If the patentee cannot “demonstrate that
‘the entire value of the whole machine, as a marketable
article, is properly and legally attributable to the patented
feature, '” the patentee must provide
“evidence tending to separate or apportion the
defendant's profits and the patentee's damages
between the patented feature and the unpatented
features.” Uniloc USA, Inc. v. Microsoft
Corp., 632 F.3d 1292, 1318 (Fed. Cir. 2011) (quoting
Garretson v. Clark, 111 U.S. 120, 121 (1884)).
Tate's second supplemental report fails either to provide
evidence that apportions the profits between patented and
unpatented features or to demonstrate that the entire value
of the products in question is attributable to the patented
feature. Although Mr. Tate acknowledged the Court's
ruling that his royalty base must reflect “the value of
the allegedly infringing features in relation to the product
as a whole, ” Second Supplemental Expert Report of
Michael E. Tate (“Suppl. Tate Report”), Dkt.
No. 457-1, Ex. A at 2, Mr. Tate's attempt to comply does
not satisfy the requirements of apportionment.
Sonos summarizes in its motion papers, “the Second
Supplemental Expert Report of Michael E. Tate simply takes
Mr. Tate's earlier reasonable royalty analysis and
reduces the royalty base to the revenue from D&M's
least expensive accused product, the HEOS 1.” Dkt. No.
457. In his “First Apportionment Factor, ” Mr.
Tate attempts to “account for additional,
non-patented features and componentry associated with higher
priced products.” Suppl. Tate Report at 12. He
continues: “From March 2014 to December 2016, the
average revenue per unit earned by D&M from the sale of
the accused HEOS 1 product (D&M's least expensive
accused product) was $121.82. Based on the HEOS 1 revenue, I
have apportioned (reduced) D&M's accused revenue of
$12.7 million (which is subject to a reasonable royalty) to
$5.8 million.” Id. (footnote omitted).
Tate's analysis misses the point regarding the
apportionment requirement and the basis for the Court's
previous ruling. Calculating a reasonable royalty based on
the least expensive accused product still predicates damages
on the entire market value of the product. Because the
stringent requirements for calculating damages based on a
product's entire market value were not met in this case,
Mr. Tate's use of that metric is improper.
HEOS 1 product contains numerous features not covered by the
patents-in-suit. Mr. Tate makes no attempt to separate the
value of the patented features from the value of the
unpatented features in the HEOS 1 device. Nor has Mr. Tate
made any attempt to show that the entire value of the HEOS 1
device is driven exclusively by the patented features. As the
Court wrote in its previous memorandum opinion and order on
this issue, Federal Circuit case law makes clear that
“damages awarded for patent infringement ‘must
reflect the value attributable to the infringing features of
the product, and no more.'” Commonwealth Sci.
& Indus. Research Organisation v. Cisco Sys., Inc.,
809 F.3d 1295, 1301 (Fed. Cir. 2015) (quoting Ericsson,
Inc. v. D-Link Sys., Inc., 773 F.3d 1201, 1226 (Fed.
Cir. 2014)). And, in the absence of proper apportionment, a
patentee may use the entire market value of an accused
product as the royalty base only when the patentee has proved
that “the presence of that [patented] functionality is
what motivates consumers to buy [the multi-component product]
in the first place.” LaserDynamics, Inc. v. Quanta
Computer, Inc., 694 F.3d 51, 68 (Fed. Cir. 2012). It is
insufficient to show that a feature is “valuable,
important, or even essential” to the multi-component
accused device; a patentee must show that the patented
feature “alone drives the market for” the
product. Id. Without any analysis of the value of
the patented features as a subset of the multitude of
features present in the HEOS 1, and without any analysis
justifying the use of the entire market value of the accused
product, Mr. Tate's analysis is inadmissible.
the rationale underlying Mr. Tate's proposed reliance on
D&M's revenue per unit on its least expensive accused
product is not explained in his report, it appears that he
has regarded the effective reduction in the accused revenue
resulting from that calculation as constituting apportionment
because it reflects a reduction in the amount that he
previously cited. While an apportionment would certainly
produce a reduction, that does not mean that a reduction
necessarily constitutes apportionment. Nothing in Mr.
Tate's report reflects an apportionment directed to the
role of the patented features in driving demand for the
hearing on the parties' summary judgment and
Daubert motions, Sonos's counsel stated that
“I don't think that's a large difference in
money between what [D&M has] proposed as the royalty rate
and what we had. I think for that we would be okay accepting
their royalty rate.” Dkt. No. 457-1, Ex. B at
136:19-23. As suggested at the hearing, Sonos may rely on
D&M's proposal for the reasonable royalty. Sonos may
not, however, present evidence or ...