Order Granting Motion to Exclude Expert Opinions and Testimony, Open Text S.A. v. Box, Inc. et al., Case No. 13-cv-04910 (Judge Jon Tigar)
There are many permissible ways for an expert to come up with a damages number, but they need to be expressed according to a clear methodology. That was the overall takeaway from Judge Tigar's order excluding the opinions of Krista Holt regarding the reasonable royalty defendant Box should pay if found to infringe plaintiff Open Text's patents on file synchronization. After holding a thorough Daubert hearing, Judge Tigar concluded that Holt's damages method was a "black box," which prevented Court, jury, and opposing counsel from understanding or testing how the data drove her conclusions. Judge Tigar also faulted Holt's proposed opinions for using third-party licenses after she had rejected them as non-comparable and for her handling of apportionment.
The major problem with Holt's opinions, the Court found, was the lack of explanation about how her discussion of valuation methods, including the Georgia-Pacific factors, led to her conclusion that a 15% royalty rate was appropriate. For example, Holt opined on whether each Georgia-Pacific factor would have an "Upward," "Downward," or 'Neutral" impact on the royalty rate, but she had not tried to quantify the effect of each factor. Judge Tigar characterized Holt's analysis as a "completely impressionistic and qualitative mix" from which she had extracted the precise 15% rate, with "no formula, method, or calculation, however approximate" to justify the figure. Comparing Holt's analysis to the damages opinion that Judge Koh excluded in GPNE Corp. v. Apple, Judge Tigar found Holt's opinion similarly flawed.
In excluding Holt's opinion on royalty rate, Judge Tigar was careful to explain that the problem was not that Holt's qualitative factors were improper considerations but that she had not spelled out the link between her inputs and her final conclusion. Judge Tigar noted that "the Federal Circuit's precedents leave room for 'more than one reliable method for estimating a reasonable royalty'" and that mathematical precision is not required. He further recognized that some weaknesses in an expert's analysis are fodder for cross-examination rather than a basis for exclusion. But because Holt had simply cited her "experience" to justify her royalty rate, a jury could not see how the pieces fit together nor could opposing counsel test her reasoning in cross-examination.
Judge Tigar also found that Holt's methodology was an end-run around Federal Circuit decisions like Uniloc and VirnetX. Those decisions had rejected the approach of deriving a royalty rate by picking a starting point based on industry-wide data (instead of case-specific facts) and varying it upwards or downwards using the Georgia-Pacific factors. Holt had done the same thing, except without disclosing her starting point.
Another flaw in Holt's opinions related to apportionment. OpenText is accusing the Box Edit software as infringing. Holt applied a royalty base that took into account the the full value paid by Box's business enterprise customers who had installed Box Edit software, without comparing the accused Box Edit feature to the product as a whole (which supports a number of other features that are not accused of infringing). Because this analysis failed to consider usage and importance of the accused feature relative to the software as a whole, Judge Tigar found that it set the royalty base artificially high and that "the royalty rate would need to do the work." But Holt had been unable to explain whether or how her royalty rate was apportioned, despite repeated inquiry by the Court during the Daubert hearing.
Judge Tigar also precluded Holt from testifying about other licenses she discussed in her report or the 3-45% "bargaining range" they purportedly established, because both she and Open Text's counsel stated she had affirmatively rejected the licenses as non-comparable. The order made clear that Ms. Holt could not discuss the licenses as "background" evidence either, concluding that they were simply irrelevant.
Exclusion of damages expert testimony often leaves the losing party wondering, "What now?" Judge Tigar addressed that as well: recognizing that trial is a week away, he left the door open for Open Text to present other testimony from Holt, but only after he reviewed and ruled on their written proffer of possible testimony. Alternatively, Judge Tigar suggested that the parties consider stipulating to the $250,000 fully paid-up lump sum proposed by Box's expert as a reasonable way of resolving the damages issue.
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