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Plastic Omnium Advanced Innovation and Research v. Donghee America, Inc.

United States District Court, D. Delaware

May 22, 2018

PLASTIC OMNIUM ADVANCED INNOVATION AND RESEARCH, Plaintiff,
v.
DONGHEE AMERICA, INC. and DONGHEE ALABAMA, LLC, Defendants.

          Chad S.C. Stover and Regina S.E. Murphy, BARNES & THORNBURG LLP, Wilmington, DE Robert C. Mattson, Eric W. Schweibenz, Frank J. West, Vincent K. Shier, Christopher Ricciuti, Sasha S. Rao, and Michael D. West, OBLON, MCCLELLAND, MAIER & NEUSTADT, L.L.P., Alexandria, VA Attorneys for Plaintiff.

          Philip A. Rovner and Jonathan A. Choa, POTTER ANDERSON & CORROON LLP, Wilmington, DE Alyssa Caridis and Andrew J. Kim, ORRICK. HERRINGTON & SUTCLIFFE LLP, Los Angeles, CA Vickie Feeman, ORRICK, HERRINGTON & SUTCLIFFE LLP, Menlo Park, CA Nicholas H. Lam, ORRICK, HERRINGTON & SUTCLIFFE LLP, New York, NY Attorneys for Defendants.

          MEMORANDUM OPINION

          STARK, U.S. DISTRICT JUDGE

         Pending before the Court in this patent infringement action are Defendants Donghee America, Inc. and Donghee Alabama, LLC's ("Donghee'* or "Defendants") Daubert Motion to Exclude the Testimony of David A. Haas (D.I. 219) and Donghee's Motion for Summary Judgment (D.I. 223).

         I. BACKGROUND

         Plaintiff Plastic Omnium Advanced Innovation and Research ("Plastic" or "Plaintiff) filed suit against Donghee on March 23, 2016, alleging infringement of seven U.S. patents. (See D.I. 1) On August 24, 2016, Plastic amended its complaint to assert infringement of eight U.S. patents: U.S. Patent Nos. 6.814, 921 (the "'921 patent"), 6, 866, 812 (the "'812 patent"), 7, 166, 253 (the '"253 patent"), 8, 122, 604 (the '"604 patent"), 8, 163, 228 (the '"228 patent"), 9, 079, 490 (the '"490 patent"), 9, 399, 326 (the '"326 patent"), and 9, 399, 327 (the '"327 patent"). (See D.I. 14) On October 23, 2017, the parties stipulated to dismissal of the '604 patent. (See D.I. 195) The parties filed the pending motions on February 2, 2018. A hearing on the motions was held on April 3. 2018. (See D.I. 298 ("Tr.")) At the April 3 hearing, the parties informed the Court that Plastic has withdrawn its infringement allegations for the '228 patent. (See Tr. at 4-5, 70) The parties stipulated to dismissal of the '228 patent on April 17, 2017. (See D.I. 297) Therefore, the Court will not consider motions directed to that patent, as they are moot.

         II. LEGAL STANDARDS

         A. Daubert Motion

         In Daubert v. MerrellDow Pharm., Inc., 509 U.S. 579, 597 (1993), the Supreme Court explained that Federal Rule of Evidence 702 creates "a gatekeeping role for the [trial] judge" in order to "ensur[e] that an expert's testimony both rests on a reliable foundation and is relevant to the task at hand." The rule requires that expert testimony "help the trier of fact to understand the evidence or to determine a fact in issue." Fed.R.Evid. 702(a). Expert testimony is admissible only if "the testimony is based on sufficient facts or data, " "the testimony is the product of reliable principles and methods, " and "the expert has reliably applied the principles and methods to the facts of the case." Fed.R.Evid. 702(b)-(d).

         There are three distinct requirements for admissible expert testimony: (1) the expert must be qualified; (2) the opinion must be reliable; and (3) the expert's opinion must relate to the facts. See generally Elcockv. Kmart Corp., 233 F.3d 734, 741-46 (3d Cir. 2000). Rule 702 embodies a "liberal policy of admissibility." Pineda v. Ford Motor Co., 520 F.3d 237, 243 (3d Cir. 2008). Motions to exclude evidence are committed to the Court's discretion. See In re PaoliR.R. YardPCB Litig., 35 F.3d 717, 749 (3d Cir. 1994).

         B. Summary Judgment Motion

         Under Rule 56(a) of the Federal Rules of Civil Procedure, "[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." The moving party bears the burden of demonstrating the absence of a genuine issue of material fact. See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574. 585-86 (1986). An assertion that a fact cannot be - or, alternatively, is - genuinely disputed must be supported either by "citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials, " or by "showing that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact." Fed.R.Civ.P. 56(c)(1)(A) & (B). If the moving party has carried its burden, the nonmovant must then "come forward with specific facts showing that there is a genuine issue for trial." Matsushita, 475 U.S. at 587 (internal quotation marks omitted). The Court will "draw all reasonable inferences in favor of the nonmoving party, and it may not make credibility determinations or weigh the evidence." Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150 (2000).

         To defeat a motion for summary judgment, the nonmoving party must "do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586; see also Podobnik v. U.S. Postal Sen'., 409 F.3d 584, 594 (3d Cir. 2005) (stating party opposing summary judgment "must present more than just bare assertions, conclusory allegations or suspicions to show the existence of a genuine issue") (internal quotation marks omitted). The "mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment;" a factual dispute is genuine only where "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). "If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Id. at 249-50 (internal citations omitted): see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (stating entry of summary judgment is mandated "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial"). Thus, the "mere existence of a scintilla of evidence" in support of the nonmoving party's position is insufficient to defeat a motion for summary judgment; there must be "evidence on which the jury could reasonably find" for the nonmoving party. Anderson, 477 U.S. at 252.

         III. DISCUSSION

         A. Donghee's Daubert Motion

         Donghee moves to exclude Plastic's damages expert's opinion in its entirety, based on several grounds. Plastic's damages expert, David Haas, ''concluded that the appropriate compensation for [Donghee's] infringement of all of the Patents-in-Suit would be a total reasonable royalty of $9" per fuel tank. (D.I. 221 Ex. A at 6) In reaching this conclusion, Mr. Haas "categorized the asserted patents into three technology groupings" - Core TSBM Technology, Deformable Pipe Technology, and Rivet Snapping Technology - and applied the 15 Georgia-Pacific factors to determine what reasonable royalty rate the parties would have agreed to at the time of the hypothetical negotiation for each group. (Id. at 6, 24) The hypothetical negotiation construct "attempts to ascertain the royalty upon which the parties would have agreed had they successfully negotiated an agreement just before infringement began, " by presuming that the parties are both willing to enter into a license with each other and that the patents are valid, enforceable, and infringed. Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301. 1324-25 (Fed. Cir. 2009).

         Mr. Haas determined that the hypothetical negotiation would have occurred as early as 2012 or as late as January 2014, and that the reasonable royalty rate and total damages would be the same regardless of which date within this period is selected. (D.I. 221 Ex. A at 24-25) Based on his analysis, Mr. Haas concluded that reasonable royalties would be $5 per unit for the Core TSBM Technology (the '921, '812, and '253 patents), $2 per unit for the Deformable Pipe Technology (the '228 patent), and $2 per unit for the Rivet Snapping Technology (the '490, '326, and '327 patents). (Id. at 7)

         Donghee identifies several issues with Mr. Haas's opinions. The Court will consider each in turn.

         1. Sufficiency of Facts and Data Underlying Opinions

         Donghee first argues that "Mr. Haas'[s] royalty rate opinions are not justified by, nor based on, sufficient facts or data, " referring particularly to two pieces of evidence on which Mr. Haas relies. (D.I. 220 at 4)

         Donghee asserts that Mr. Haas's $9 total royalty (including the $2 royalty for the Rivet Snapping Technology) is not justified by his reliance on a license for one foreign patent having a royalty rate of $1. (See Id. at 5) This relates to the Georgia-Pacific factor of "[t]he royalties received by the patentee for the licensing of the patent in suit, proving or tending to prove an established royalty." Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F.Supp. 1116, 1120 (S.D.N.Y. 1970), modified sub nom. Georgia-Pac. Corp. v. U.S. Plywood-Champion Papers, Inc., 446 F.2d 295 (2d Cir. 1971). "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." LaserDynamics, Inc. v. Quanta Comput., Inc., 694 F.3d 51, 79 (Fed. Cir. 2012).

         Since there were no actual licenses to any of the seven asserted patents, Mr. Haas reviewed the next best thing: a license for a European patent that is the foreign equivalent to a U.S. patent from which the asserted "326 and "327 patents are continuations. (See D.I. 221 Ex. A at 30) That license, dated July 1, 2013, was executed between Plastic's predecessor, Inergy Automotive Systems ("Inergy"), and Kautex Textron GmbH & Co KG ("Kautex"), and licensed a European patent related to rivet snapping for 0.75 euros (then equivalent to $0.98) per product manufactured, sold, or delivered. (See Id. at 30-31) Recognizing that the license has some limited comparability, as it is for one non-asserted patent, Mr. Haas opined that "a reasonable royalty rate for the asserted Rivet Snapping Technology patents would need to be higher than the approximately $1 per unit royalty'" agreed to in the Kautex license, because (1) that license granted rights to one patent not in suit but related to Rivet Snapping Technology, (2) that license benefitted Plastic by validating the technology, and (3) Plastic invested deeply in the technology whereas Donghee did "not have similar R&D costs." (Id. at 32-33, 35, 45)

         The Court finds Mr. Haas's opinions with respect to the Kautex license, together with the rest of his analysis under the Georgia-Pacific factors, are sufficiently related to the facts of the case. Donghee's reliance on ePlus, Inc. v. Lawson Software, Inc.. 764 F.Supp.2d 807 (E.D. Va. 2011), for its argument that Mr. Haas arbitrarily "doubles" the $1 Kautex license royalty rate "with absolutely no explanation, '" is unpersuasive. (D.I. 220 at 5-6) In ePlus, the expert first determined a baseline royalty rate under factor 1 based on an improper review of minimally probative settlement licenses that involved improperly converting lump sum royalties into per unit royalties and using an inappropriate royalty base, and then arbitrarily doubling that baseline royalty rate. See ePlus, 764 F.Supp.2d at 814-15. Here, Mr. Haas appropriately considered the totality of the evidence in connection with all 15 Georgia-Pacific factors in determining a $2 rate for the Rivet Snapping Technology.

         Second, Donghee argues it is inappropriate for Mr. Haas to rely on Inergy's "unaccepted proposal" to Kautex "for a worldwide cross license of dozens of patents, " particularly as there is no evidence that this proposal was ever communicated to Kautex. (D.I. 220 at 6) As part of his factor 1 analysis, Mr. Haas considered an April 30, 2009 Inergy slide deck regarding the status of discussions between Inergy and Kautex with respect to their patent portfolios. (See D.I. 221 Ex. A at 33-36) (citing Ex. D) The deck demonstrates that Plastic "contemplated a balancing royalty rate of 2.5% of revenue" for its TSBM patent portfolio "in addition to a royalty-free license to Kautex's NGFS patents, '' because Plastic believed its TSBM portfolio was stronger than Kautex's NGFS portfolio. (Id. at 33-34) Mr. Haas discussed several additional distinguishing characteristics between the contemplated cross-license and the hypothetical license, including that the cross-license was never executed, the negotiation was for a worldwide license, design-around costs, and the possible collaboration between the parties. (See Id. at 34-35) Thus, Mr. Haas concluded that a hypothetical license to the TSBM technology would have a royalty rate higher than 2.5%. (See Id. at 36) Donghee argues that Mr. Haas's opinions regarding this contemplated royalty offer should be excluded, because offers - particularly if never conveyed - have little value. (See D.I. 220 at 7-9) Further, the contemplated offering was a cross-license for worldwide rights to a large number of technologies and patents, and the source of the information is biased. (See id.)

         The Court is not persuaded by Donghee's position. Donghee's reliance on MiiCs & Partners, Inc. v. Funai Elec. Co., Ltd., 2017 WL 6268072, at *4 (D. Del. Dec. 7, 2017), is misplaced because in that case there was evidence a rejected offer may have been artificially inflated, particularly because it was made in anticipation of litigation. See also Whitserve, LLC v. Comput. Packages, Inc., 694 F.3d 10, 29-30 (Fed. Cir. 2012) (noting "proposed licenses may have some value for determining a reasonable royalty in certain situations, " but "[t]heir evidentiary value is limited" because "patentees could artificially inflate the royalty rate by making outrageous offers"). In 2009, at the time of this offer, Inergy and Kautex were discussing a cooperation agreement, a situation quite distinct from anticipation of litigation. Donghee's criticisms can be adequately addressed through cross-examination and the presentation of competing evidence. See i4i Ltd. P 'ship v. Microsoft Corp., 598 F.3d 831, 852 (Fed. Cir. 2010) ("When the methodology is sound, and the evidence relied upon sufficiently related to the case at hand, disputes about the degree of relevance or accuracy (above this minimum threshold) may go to the testimony's weight, but not its admissibility.*'). "These disagreements go to the weight to be afforded the testimony and not its admissibility." ActiveVideo Networks, Inc. v. Verizon Commc'ns, Inc., 694 F.3d 1312, 1333 (Fed. Cir. 2012).

         2. Relevance of Expected Damages from Litigation

         Donghee further argues that Mr. Haas's opinion - that doubling the 2.5% unconsummated royalty rate to 5% is supported by the 2009 Inergy slide deck, which states that damages from litigation would be "~ twice a negotiated royalty rate?" (D.I. 221 Ex. D at ¶ 00185935; D.I. 242 Ex. B at 210) - should be excluded because "the premise of the hypothetical negotiation is to determine what the parties would have agreed to outside the threat of litigation." (D.I. 220 at 9-10) (emphasis in original) The Court agrees with Donghee.

         Since Mr. Haas purports to use the hypothetical negotiation framework, which presumes that the asserted patents are valid and infringed and that the licensor and licensee are willing to enter into a license agreement, it is improper for Mr. Haas to inflate (let alone double) a royalty rate on the basis that damages may be larger in litigation. See ResQNet.com, Inc. v. Lansa, Inc.,594 F.3d 860, 872 (Fed. Cir. 2010) (acknowledging that "hypothetical reasonable royalty ...


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