United States District Court, D. Delaware
E. Farnan, Katharine L. Mowery, RICHARDS, LAYTON &
FINGER, P.A., Wilmington, DE; Lawrence J. Gotts, Saswat
Misra, LATHAM & WATKINS LLP, Washington, D.C.; Kevin L.
Mallen, LATHAM & WATKTNS LLP, New York, NY; Gabriel S.
Gross, LATHAM & WATKINS LLP, Menlo Park, CA; Stephanie N.
Solomon (argued), QUINN EMANUEL URQUHART & SULLIVAN, LLP,
New York, NY; David S. Benyacar, Daniel L. Reisner, ARNOLD
& PORTER KAYE SCHOLER LLP, New York, NY. Attorneys for
M. Katona, Christina M. Belitz, POLSINELLI PC, Wilmington,
DE; Robert Reckers, David Morehan, SHOOK, HARDY & BACON
LLP, Houston, TX; Christine A. Guastello, Jordan T. Bergsten
(argued), Colman D. McCarthy, Thomas M. Patton, SHOOK, HARDY
& BACON LLP, Kansas City, MO. Attorneys for Defendants.
ANDREWS, U.S. DISTRICT JUDGE.
before the Court are Defendants' motion to exclude expert
testimony of Mr. Brett Reed and Mr. Regis Bates (D.I. 260),
and Plaintiffs motion to exclude expert testimony of Dr. Alan
Cox (D.I. 263). I have reviewed the parties' briefing and
related papers. (D.I. 261, 264, 286, 291, 305, 308, 334,
336). I heard oral argument on March 7, 2019.
TC Technology LLC ("TC Tech") filed this action on
March 10, 2016, alleging that Defendants Sprint Corporation
and Sprint Spectrum, L.P. (collectively, "Sprint")
infringed U.S. Patent No. 5, 815, 488 ("the '488
patent") with certain wireless services on its LTE
network. (D.I. 1).
was established by cable companies Time Warner Cable LLC
("TWC") and Cox Communications, Inc.
("Cox"). (D.I. 317 ¶ 6). In December 2011,
Sprint sued TWC and Cox, among others, for infringement of
its Voice over Internet Protocol ("VoIP") patents.
(D.I. 162 at 2; D.I. 172 at 2). In March 2012, TWC and Cox
formed TC Tech. (D.I. 317 ¶ 6). TC Tech then purchased
the '488 patent from CableLabs, a consortium of U.S.
cable companies. (Id. ¶¶ 5-6). In March
2017, Sprint won a jury verdict against TWC. Sprint
Commc'ns Co. L.P. v. Time Warner Cable, Inc., 2017
WL 978107, at *1 (D. Kan. Mar. 14, 2017). Sprint later
settled its suit against Cox and Cox sold its 50% ownership
interest in TC Tech to TWC. (D.I. 265, Ex. D ¶ 103 &
Rule of Evidence 702 sets out the requirements for expert
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 trial court has "the task of
ensuring that an expert's testimony both rests on a
reliable foundation and is relevant to the task at
hand." Daubert v. Merrell Dow Pharms. Inc., 509
U.S. 579, 594, 597 (1993).
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
By means of a so-called "Daubert hearing,"
the district court acts as a gatekeeper, preventing opinion
testimony that does not meet the requirements of
qualification, reliability and fit from reaching the jury.
Schneider ex rel. Estate of Schneider v. Fried, 320
F.3d 396, 404-05 (3d Cir. 2003) (footnote and internal
citations omitted). At base, "the question of whether the
expert is credible or the opinion is correct is generally a
question for the fact finder, not the court." Summit
6, LLC v. Samsung Elecs. Co., Ltd., 802 F.3d 1283, 1296
(Fed. Cir. 2015). Indeed, "[v]igorous cross-examination,
presentation of contrary evidence, and careful instruction on
the burden of proof are the traditional and appropriate means
of attacking shaky but admissible evidence."
Daubert, 509 U.S. at 596.
MR. REED'S DAMAGES TESTIMONY
Reed, TC Tech's damages expert, takes three separate
approaches to estimating a reasonable royalty. The first
approach ("Approach One") is based on the cost
savings to Sprint of using LTE versus 3G. The second approach
("Approach Two") is based on Sprint's demands
in its prior litigation against TWC ("Sprint v.
TWC). The third approach ("Approach Three") is
based on "announced" industry royalty rates. (D.I.
262, Ex. A). Sprint moves to exclude Mr. Reed's testimony
under each of the three approaches. In addition, Sprint
argues that none of Mr. Reed's estimated royalties are
admissible in view of the '488 patent's acquisition
price of $300, 000. (D.I. 260, 261). For the following
reasons, Sprint's motion is GRANTED with
respect to Approaches Two and Three. The rest of the motion
Approach One-Cost Savings
following reasons, Sprint's motion is
DENIED with respect to Approach One.
One "addresses a reasonable royalty based on how much
money Sprint would have lost if it was not able to launch LTE
until the ['488] patent expired in September 2015, and
how the parties would have agreed to split the anticipated
gains." (D.I. 262, Ex. A at 96). In other words,
Approach One "is a comparative analysis of Sprint's
costs and revenues in a hypothetical world in which Sprint
did not have the ability to do LTE (and so offered primarily
a 3G service) to the real world events in which Sprint
offered LTE beginning in July 2012." (Id., Ex.
I at 119-20). Mr. Reed uses that framework to obtain an
initial cost savings range from $7.99 billion to $8.46
billion. (Id., Ex. A at 114). He then excludes
two-thirds as attributable to "downlink"
functionality on the assumption that the '488 patent only
relates to "uplink" functionality. (Id. at
115-20). He excludes 22% of the remaining one-third as being
attributable to the unpatented aspects of uplink.
(Id. at 120-21). Lastly, he allocates 64% to 74% of
what remains to Sprint, based on how the parties to the
hypothetical negotiation would have split the cost savings.
(Id. at 121-32). The net result is a reasonable
royalty range of $540 million to $792 million. (Id. at
argues that Approach One is inadmissible for failing to
apportion damages. Where the accused service has patented and
unpatented features, "[t]he essential requirement is
that the ultimate reasonable royalty award must be based on
the incremental value that the patented invention adds to the
end [service]." Ericsson, Inc. v. D-Link Sys.,
Inc., 773 F.3d 1201, 1226 (Fed. Cir. 2014). In
Sprint's view, Mr. Reed fails to apportion in two ways.
First, Mr. Reed fails to exclude the value of LTE as an
industry-wide standard. (D.I. 261 at 7-9). Second, Mr. Reed
fails to exclude the value of LTE attributable to unpatented
technologies. (Id. at 9-14).
Value of LTE as an Industry-Wide Standard
asserts, "By following the industry-wide trend of
adopting LTE, Sprint benefited from a global LTE ecosystem.
But any value to Sprint of adopting the de facto
industry-wide standard must be separated from the value of
any technological contribution of the '488 patent to the
standard." (D.I. 261 at 8 (internal citation and
emphasis omitted)). Sprint thus argues that Mr. Reed fails to
apportion because he never considers the value contributed by
the patented technology to the LTE standard. Rather, Mr. Reed
begins his analysis by calculating the total cost savings to
Sprint of implementing LTE. (Id. at 8-9).
argues that apportionment is inherently included in Mr.
Reed's cost savings analysis. (D.I. 291 at 7-8). TC Tech
relies on Prism Techologies LLC v. Sprint Spectrum
L.P., 849 F.3d 1360 (Fed. Cir. 2017). In Prism,
the Federal Circuit found the district court properly
admitted damages evidence based on Sprint's cost savings.
Specifically, the costs Sprint "would have incurred if
it had chosen not to infringe." Prism, 849 F.3d
at 1375. The Federal Circuit rejected Sprint's argument
that "Prism's approach was insufficiently tied to
the 'footprint' of the invention." Id.
Although a patentee must carefully tie proof of damages to
the claimed invention's footprint in the market place,
that requirement for valuing the patented technology can be
met if the patentee adequately shows that the defendant's
infringement allowed it to avoid taking a different, more
costly course of action. A price for a hypothetical license
may appropriately be based on consideration of the costs and
availability of non-infringing alternatives and the potential
Id. at 1376 (internal citations and quotation marks
omitted); see also Powell v. Home Depot U.S.A.,
Inc., 663 F.3d 1221, 1240 (Fed. Cir. 2011)
("Reliance upon estimated cost savings from use of the
infringing product is a well settled method of determining a
reasonable royalty." (quoting Hanson v. Alpine
Valley Ski Area, Inc., 718 F.2d 1075, 1090-81 (Fed. Cir.
1983)). Notably, argument at trial was limited to one
specific noninfringing alternative, which was the basis of
Prism's cost savings analysis. Id.
makes clear that damages may be based on cost savings from a
defendant's infringement without an independent analysis
of the claimed invention's "footprint in the market
place." See 849 F.3d at 1375-76. As such, I see
no problem with Mr. Reed's reliance on cost savings
generally. His analysis, however, also assumes that without
infringement, "Sprint did not have the ability to do LTE
(and so offered primarily a 3G service)." (D.I. 262, Ex.
I at 119-20). Thus, the key issue is whether Mr. Reed
properly concludes that Sprint's infringement
"allowed it to avoid taking [the] different, more costly
course of action" of offering 3G rather than LTE.
See Prism, 849 at F.3d at 1376. In other words, does
Mr. Reed have a reliable basis for finding that Sprint had no
noninfringing alternative to implement LTE?
Reed relies on testimony from TC Tech's technical expert,
Mr. Bates. Mr. Reed states, "Based on my conversations
with ... Mr. Bates, ... I understand that the '488 patent
was a critical technology for achieving uplink with the LTE
network during the damages period, and uplink technology is a
necessary element of Sprint's entire LTE network."
(D.I. 262, Ex. A at 14). In his expert report, Mr. Bates
explains why he believes the '488 patent claims the
uplink functionality of Sprint's LTE network, and why he
found there was no noninfringing alternative for that
functionality. (D.I. 262, Ex. P ¶¶ 205-208). He
also provides substantial testimony rebutting the two
noninfringing alternatives proposed by Sprint's experts.
(Id. ¶¶ 209-274). Thus, I believe Mr.
Bates provides a reliable basis for Mr. Reed to assume that
Sprint had no noninfringing alternative to implement LTE at
the time of the hypothetical negotiation. Therefore, I find
Mr. Reed's cost savings analysis is not excludable for
failure to apportion . damages.
Value of LTE Attributable to Unpatented Technologies
makes two arguments related to Mr. Reed's alleged failure
to apportion out the value of unpatented technologies. First,
Sprint argues that Mr. Reed improperly calculates the cost
savings from implementing the entire LTE standard as opposed
to its patented features. (D.I. 2671 at 9-10). Second, Sprint
argues that Mr. Reed improperly calculates the portion of
uplink value attributable to the '488 patent.
(Id. at 11-14).
first argument is unavailing. It is simply a different way of
making the same argument as in the preceding section. By
using the cost savings analysis to calculate the incremental
value of LTE over 3G, Mr. Reed presumably excludes the value
of features common to both. (See D.I. 291 at 8).
Sprint argues that Mr. Reed fails to identify and quantify a
"particular technological contribution of the '488
patent" to the LTE standard. But, as discussed, an
expert may apply a cost savings analysis without
independently tying "proof of damages to the claimed
invention's footprint in the market place."
Prism, 849 F.3d at 1376.
second argument addresses Mr. Reed's efforts to further
apportion the cost savings to the value of the '488
patent. Mr. Reed "first apportion[s] the entire cost
savings to a portion of LTE reasonably associated with uplink
capabilities, and then apportion[s] [the remainder] to the
specific contribution of the '488 Patent within the
upload functionality." (D.I. 262, Ex. A at 115). In the
first step, Mr. Reed divides the total cost savings between
the value attributable to uplink and downlink, finding 33%
attributable to uplink. (Id. at 118-20). In the
second step, Mr. Reed divides the remaining 33% between the
value attributable to patented features and "certain
aspects of uplink that do not involve the transfer of
data," finding 78% attributable to the '488
patent's claimed invention. (Id. at 121).
first argues that Mr. Reed fails to apportion for unpatented
LTE components such as "routers, signaling gateways, and
things that happen in an IP network," because he assumes
uplink and downlink are the only two features of an LTE
network. (D.I. 261 at 10-11). Again, Mr. Reed excludes the
value of such features by determining the incremental cost
savings between LTE and 3G. (See D.I. 291 at 8
(citing D.I. 262, Ex. I at 119-20 ("In such an analysis,
general features of a data or cell phone service that are
common to both 3G and 4G [LTE]... would all already be
accounted for since I am examining only the incremental
benefit of offering an LTE network."))).
next argues that Mr. Reed relies on insufficient evidence to
determine the portion of uplink associated with the patented
technology. (D.I. 261 at 11). Mr. Reed bases his
apportionment on Mr. Bates' technical expert opinion:
I understand that there is an important aspect of uplink
capability associated with LTE overhead, which should also be
viewed as independent of the capabilities associated with the
'488 patent. I understand from my discussion with Mr.
Bates that LTE overhead refers to certain aspects of uplink
that do not involve the transfer of data, such as aspects of
the physical uplink control channel ("PUCCH") which
conveys control information such as a channel quality
indication and uplink scheduling requests. Based on technical
input from Mr. Bates, I understand that it is appropriate to
further allocate approximately 21% to 23% of LTE uplink
capability to LTE overhead, leaving 78% of uplink LTE
apportioned to technology associated with the '488
(D.I. 262, Ex. A at 120). In his reply report, Mr. Reed
clarifies that he relies on specific portions of Mr.
Bates' infringement report. (Id., Ex. I at
126-27 & n.314 (citing id., Ex. I ¶¶
352-354)). Sprint argues that Mr. Bates provides insufficient
support for Mr. Reed's opinion, because he did not
conduct "any analysis to quantify how much of LTE's
improved uplink capability resulted from the '488
patent's claimed invention." (D.I. 261 at 11 (citing
D.I. 262, Ex. J at 226:6-10, 226:14-19, 228:12-16)).
not find Sprint's argument persuasive. Sprint cites to
Mr. Bates' deposition testimony, which merely shows that
he did not measure certain particular improvements identified
by Sprint. (E.g., D.I. 262, Ex. J at 226:14-19
("Q: And you didn't quantify to what extent the
methods of the '488 [patent] might improve the spectral
efficiency of an LTE network versus other types of
networks.... [A:] No.")). I believe Mr. Bates provides
sufficient explanation in his infringement report and Mr.
Reed properly relies on Mr. Bates' opinions to apportion
the uplink value attributable to the '488 patent. Mr.
Bates' alleged failure to conduct specific measurements
goes towards the weight of Mr. Reed's testimony, which
can be addressed on cross-examination.
last argument returns to Mr. Reed's apportionment between
uplink and downlink. Mr. Reed relies in part on an article in
PCMag magazine. The article ranked network providers such
that the overall rating was weighted by 40% download speed,
20% upload speed, and 40% other factors related to network
reliability. (D.I. 262, Ex. A at 118-19, Tab M16). Sprint
argues that Mr. Reed's reliance on PCMag is unreliable
because (1) there is no evidence that PCMag measured the
value of "upload [uplink] data services" as opposed
to uplink speed, (2) there is no evidence that PCMag relied
on "sound economic or technical analysis rather than the
arbitrary decision of a magazine author or editor," and
(3) Mr. Reed ignored the 40% weighted to other factors. (D.I.
261 at 12-14).
first argument is unpersuasive. This step of Mr. Reed's
analysis apportions for the value of uplink generally. Mr.
Reed's second step then apportions for the value of
uplink "data services." Further, TC Tech argues,
"The whole objective of the PCMag analysis is to provide
an overall ranking to consumers of the best wireless data
networks, based on a weighting of the features they care most
about." (D.I. 291 at 13 & n.13). The focus on speed
reflected that "speed [was] the key feature that
consumers demanded in a wireless network in the applicable
timeframe" and a "key benefit" of the patented
technology. (Id.). Mr. Reed appears to rely on the
speed tests to estimate how consumers valued uplink versus
downlink functionality. (D.I. 262, Ex. A at 116-19). I think
that is a permissible use of the PCMag article.
second argument is directly contrary to Mr. Reed's
testimony. Mr. Reed explains why he chose to rely on the
PCMag tests, as well the tests' underlying methodology:
First, the PCMag tests are rigorous. The PCMag testers travel
to 30 major cities along U.S. and Interstate highways,
stopping at smaller cities along the way. In doing so, they
take more than 80, 000-90, 000 individual tests of the speed
and reliability of mobile networks. Second, PCMag is a
neutral, third party industry observer, which has conducted
tests over many years and [publicly] disclosed its weighting
methodology for its rankings of cellular carriers.
Importantly, Sprint monitored the PCMag tests, considered
PCMag's findings, and responded to PCMag's results.
(D.I. 262, Ex. I at 123-24). Mr. Reed sufficiently justifies
his reliance on PCMag. There is no factual basis for
Sprint's suggestion that PCMag relied on "the
arbitrary decision of a magazine author or editor."
third argument also fails. As discussed, Mr. Reed already
apportioned out general network features in his ...