Order Denying Adobe's Renewed Motion to Exclude Expert Testimony, Digital Reg of Texas, LLC v. Adobe Systems, Inc., 12-cv-1971 (Judge Claudia Wilken)
One of the most vexing areas of patent law is how many opportunities an expert should get to present a new expert theory after the expert's original theory was excluded on a Daubert motion. A new order from Judge Wilken in Digital Reg of Texas, LLC v. Adobe Systems, Inc., provides some guidance on how much leeway that damages experts, at least, should get under such circumstances. Judge Wilken's order also provides guidance on what constitutes a methodology issue (subject to Daubert) versus a credibility issue (subject to cross-examination at trial).
In Digital Reg of Texas, LLC, the plaintiff's damages expert's theories had been rejected because Judge Wilken had determined that the expert: (1) had used unreliable industry-wide data to impute piracy savings, (2) had used an improper fifty-fifty profit split to determine the royalty rate, and (3) had not apportioned the royalty base.
After the damages expert revised his opinions, Adobe again moved to strike the opinions, but this time Judge Wilken found that the report passed muster.
Judge Wilken first addressed the issue of whether it was reliable for the plaintiff's expert to apportion the royalty base to thirty percent of revenue. The expert had used 30% because he found that Apple, Microsoft, and Valve (which sells video games over its Steam network) all sell applications online and collect thirty percent of revenue. Adobe argued that that the app store comparison was apples to oranges with Adobe's own accused DRM software.
Judge Wilken acknowledged that there was "some merit" to Adobe's argument, but ruled that Adobe waited too long to raise it. In particular, Adobe could have and should have raised the argument in its first Daubert motion, as the plaintiff's expert applied the same thirty percent apportionment theory in his first report, but Adobe had not challenged that aspect of the report. Adobe had previously challenged the damages expert opinion on the basis that the expert had inflated the royalty rate to cancel out the effect of the apportioning the royalty base. Adobe had not challenged the apportionment, just the corresponding royalty rate. Following the Court's original Daubert order, the damages expert did not insert any additional information into her analysis. Because Adobe did not challenge the apportionment the first time around, Judge Wilken refused to exclude the apportionment on the second challenge and ruled that Adobe would be entitled to question the expert's analysis through cross-examination.
Adobe also argued that the expert's royalty base was improper because it included revenues from the Adobe product AMT, even though the court had granted a motion in limine excluding any evidence relating to AMT. Plaintiff countered that Adobe did not produce the financial data that would have allowed plaintiff to remove the AMT revenues from the overall base. Judge Wilken found that Adobe's criticism went to the weight of the expert's testimony, not to the expert's methodology.
Adobe also attacked the credibility of expert's 2.5 % royalty rate because he effectively used the same 2.5% rate across each of the three expert reports he submitted, which included different royalty bases and methodologies. Judge Wilken acknowledged that his perpetual conclusion of the same 2.5% royalty rate, regardless of revenue base or methodology, was "troubling." Nonetheless, Judge Wilken held that it was fodder for cross-examination, not exclusion, and she ruled that Adobe would be permitted to impeach the expert using his prior reports, even though they were otherwise excluded.
Judge Wilken's Order also touched on the admissibility of an RPX license in the proceeding. RPX is a subscription-based entity that will negotiate licenses with patent plaintiffs on behalf of its subscribers. The plaintiff sought to present an RPX license at trial through its expert, but Judge Wilken determined that the plaintiff would not be permitted to do so because the RPX license would appear inflated since it was on behalf of a pool of RPX subscribers rather than an individual licensee. Judge Wilken did permit the damages expert to mention the fact that Intuit, which was one of the RPX subscribers, had taken a license to the patent in suit through the RPX license.
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