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Acceleration Bay LLC v. Activision Blizzard Inc.

United States District Court, D. Delaware

September 4, 2019

ACCELERATION BAY LLC, Plaintiff,
v.
ACTIVISION BLIZZARD INC., Defendant.

          MEMORANDUM OPINION

         Presently before me are Plaintiffs Motion to Exclude Opinions of Catharine M. Lawton (D.I. 647), Defendant's Motion in Response to Acceleration Bay's Damages Proffer (D.I. 650), and Defendant's Motion to Strike Supplemental Expert Damages Report (D.I. 651). I resolve these motions as follows.

         I. Background

         Acceleration Bay LLC ("Acceleration") filed suit against Activision Blizzard Inc. ("Activision") on June 17, 2016. (D.I. 1). It alleges that certain versions of Activision's World of Warcraft ("WoW"), Call of Duty ("CoD"), and Destiny video games infringe its patents. (Id.). I scheduled this case for a jury trial to start on October 29, 2018. (D.I. 545). That trial did not happen, however, as it was unclear on the eve of trial whether Plaintiff had an admissible damages case. (D.I. 619 (describing the sequence of events that led me to continue the trial)). I postponed the trial indefinitely, pending resolution of the cloud of issues hanging over Plaintiffs case. (D.I. 613).

         Following the cancellation of trial, I issued an order allowing Plaintiff a final opportunity to present an admissible damages case. (D.I. 619 at 2). I granted Plaintiff permission to supplement its expert reports and allowed Defendant a chance to respond. (Id.). Plaintiff later requested that it be allowed to submit a report from a new damages expert, Mr. Russell Parr, rather than supplementing its earlier expert's report. (D.I. 630). I permitted Plaintiff to submit such a report with the caveat that I may limit the report depending on its contents. (Id. at 3 n. 1).

         In his report, Mr. Parr opines on seven royalties derived using three approaches: cost savings, revenue-based, and user-based. The following chart provides a summary of those opinions:

No.

Title

Equation

Amount in Millions

Inputs:

Dr. Valerdi

Boeing/

Panthesis

License

Survey

1 Cost Savings:

Licensing History

$ 2.4 Billion x 12% $288.30 Y Y
2 Cost Savings: Rate of Return $2.54 Billion x 12% $304 Y Y[1]
3 Cost Savings:

Replacement Cost of Capital

$2.4 Billion x 5.9% $141.70 Y
4 [Alt.] Cost

Savings: Replacement Cost of Capital

$2.4 Billion x 5.9% x 2 $283.50 Y
5 Cost Savings:

Maintenance Costs

$132 Million x 2 $264.80 Y

6 Revenue-Based $4.5 Billion x 57% x 12% $305
Y Y
7 User-Based $57 x 12% x 57% x 61 Million $240 Y Y

         II. Legal Standards

         A. Daubert

         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 or 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.
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. See Daubert ("Faced with a proffer of expert scientific testimony, then, the trial judge must determine at the outset, pursuant to Rule 104(a) of the Federal Rules of Evidence whether the expert is proposing to testify to (1) scientific knowledge that (2) will assist the trier of fact to understand or determine a fact in issue.").

Schneider ex rel. Estate of Schneider v. Fried, 320 F.3d 396, 404-05 (3d Cir. 2003) (cleaned up).[2]

         B. Motions to Strike

         Federal Rule of Civil Procedure 37(c)(1) provides, "If a party fails to provide information . . . as required by Rule 26(a) or (e), the party is not allowed to use that information ... to supply evidence on a motion, at a hearing, or at trial, unless the failure was substantially justified or is harmless." To determine whether a failure to disclose was harmless, courts in the Third Circuit consider the Pennypack factors: (1) the prejudice or surprise to the party against whom the evidence is offered; (2) the possibility of curing the prejudice; (3) the potential disruption of an orderly and efficient trial; (4) the presence of bad faith or willfulness in failing to disclose the evidence; and (5) the importance of the information withheld. Konstantopoulos v. Westvaco Corp., 112 F.3d 710, 719 (3d Cir. 1997) (citing Meyers v. Pennypack Woods Home Ownership Ass 'n, 559 F.2d 894, 904-05 (3d Cir. 1977)). "[T]he exclusion of critical evidence is an 'extreme' sanction, not normally to be imposed absent a showing of willful deception or 'flagrant disregard' of a court order by the proponent of the evidence." Id. The determination of whether to exclude evidence is within the discretion of the district court. Id.

         III. Analysis

         Defendant moves to strike Mr. Parr's report or, in the alternative, to exclude large portions of Mr. Parr's report on Daubert grounds. I will grant Defendant's motion to strike in two significant respects: (1) I will strike Mr. Parr's reliance on Dr. Valerdi for "cost savings" opinions and (2) I will strike Mr. Parr's use of certain Activision surveys as the grounds for apportioning the royalty base. I recognize that exclusion of those two aspects of Mr. Parr's report leaves Plaintiff with no intact damages theories. For completeness, however, I address each of Defendant's other Daubert arguments and Defendant's motion to strike Mr. Parr's entire report. I also address Plaintiffs motion to exclude certain opinions of Defendant's damages expert.

         A. Defendant's Motion to Exclude Mr. ...


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