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Carnegie Mellon University v. Marvell: Marvell Loses Motion to Exclude Damage Expert Testimony That Included Price and Profit Margin on Chips Where Damage Expert Did Not Rely Upon Entire Market Value Rule

With a trial pending in late November in this patent infringement action, Marvell Technology Group, LTD (“Marvell”) moved to strike Carnegie Mellon University’s (“CMU”) expert report on damages. Specifically, Marvell asserted that the expert’s reference to overall price, profit or margin of the chips accused of infringement in the litigation was irrelevant and highly prejudicial in light of the Federal Circuit’s recent decision in LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51 (Fed. Cir. 2012). CMU opposed the motion asserting that LaserDynamics did not impact the damage expert because the expert’s royalty calculation was not based on the entire market value, which was at issue in LaserDynamics.

The patents-in-suit are directed to sequence detection in high density magnetic recording devices, specifically high density magnetic recording sequence detectors. CMU asserted that Marvell infringed the patents-in-suit throughout its “sales cycle,” which involves testing of both computer programs and manufactured chips. As explained by the district court, if a sales cycle is successful, it culminates with a “design win” and Marvell makes mass sales of chips that then allegedly perform the patented methods. CMU sought a reasonable royalty for Marvell’s alleged infringement throughout the entire process.

CMU’s expert asserted that Marvell considered that the technology was a “must have” and went through a detailed Georgia-Pacific analysis. As a result of this analysis, the expert concluded that a running royalty rate of $0.50 per unit should be applied to Marvell’s sales of the accused chips.

After reviewing Fed.R.Evid. 702 and the standards for determining a reasonable royalty rate, the district court turned to analyzing recent developments under the entire market value rule. As explained by the district court, “[t]he entire market value rule requires a patentee to ‘prove that the patent-related feature is the basis for customer demand.’ Lucent Technologies, Inc. v. Gateway, Inc., 580 F.3d 1301, 1336 (Fed. Cir. 2009) (internal quotations omitted). This does not mean that the patent-related feature is the only feature, but simply that it is the one that drives demand. TWM Mfg. Co., Inc. v. Dura Corp., 789 F.2d 895, 901 (Fed. Cir. 1986) (The entire market value rule allows recovery ‘based on the value of an entire apparatus containing several features, when the feature patented constitutes the basis for customer demand.’). Put another way, the entire market value rule applies when the patented feature ‘substantially create[s] the value of the component parts.’ Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1318 (Fed. Cir. 2011).”

The district also explained the Federal Circuit’s recent decision in LaserDynamics. “LaserDynamics Inc. v. Quanta Computers, 694 F.3d 51, 67 Fed. Cir. 2012) further confirmed that the entire market value rule is a narrow exception to the general rule that royalties are based not on the entire product, but instead on the ‘smallest salable patent-practicing unit.’ In LaserDynamics, the Plaintiff’s expert had calculated the royalty rate for an optical disk drive (“ODD”) based on the total sales of laptops without presenting any evidence to prove that the ODD drove the sales of the laptop or that there was a need to base the rate on that figure. Id. at 68-69. ‘If it can be shown that the patented feature drives the demand for an entire multi-component product, a patentee may be awarded damages as a percentage of revenues or profits attributable to the entire product.’ (Id. at 67) The Court in LaserDynamics, disapproved the use of the total market value rule, when total values ‘only served to make a patentee’s proffered damages amount appear modest by comparison, and to artificially inflate the jury’s damages calculation.’ (Id. at 68) (quoting Uniloc, 632 F.3d at 1319-20)”

Turning to the expert report at issue, the district court noted both parties acknowledge that the expert did not use the entire market value rule to calculate the royalty rate. Instead, Marvell asserted that any mention of any figures related to entire price, profit, margin or any aggregation of these figures must be excluded under LaserDynamics. The district court disagreed. “In doing so, Marvell overlooks the facts that LaserDynamics rejected the calculation of a royalty based on the total market value rule, when there was no evidence to show that the initial figures had any ‘demonstrated correlation to the value of the patented feature alone.’ 694 F.3d at 68. The Court there found that Plaintiff’s expert had offered ‘no evidence that this feature alone motivates consumers to purchase a laptop computer, such that the value of the entire computer can be attributed to the patented disc discrimination method’ and that his apportionment rate ‘appear[ed] to have been plucked out of thin air…with no credible economic analysis to support that conclusion.’ 694 F.3d at 69.”

The district court found that there was in fact evidence that the patents-in-suit are “must have” technology in this case. “Here there is purported evidence that the patents-in-suit are considered ‘must have’ technology. (See Docket Nos. 367-2 at 14; 591 at 113). LaserDynamics therefore supports the Court’s Summary Judgment decision that Uniloc does not ‘foreclose[e] the use of these figures, and indeed, a number of them are necessary for [Ms. Lawton] to testify coherently on the issue
of damages.’ (Docket No. 451). As noted some reference to revenues, margins and values is necessary to explain and formulate a reasonable royalty.”

Nonetheless, the district court did put limits on CMU’s expert. “Still, a reasonably royalty analysis ‘requires a court to hypothesize, not to speculate’ and this Court must ‘carefully tie proof of damages to the claimed invention’s footprint in the market place.’ LaserDynamics, 694 F.3d at 67 (quoting, Inc. v. Lansa, Inc., 594 F.3d 860, 869 (Fed. Cir. 2010)). To that end, CMU may offer evidence, including these figures, to calculate their reasonably royalty only as long as the Court finds such evidence ‘reliable and tangible, and not conjectural or speculative’ at trial. LaserDynamics, 694 F.3d at 67 (citing Garretson v. Clark, 111 US 120, 121 (1886)).”

Carnegie Mellon University v. Marvell Technology Group, LTD, et al., Case No. 09-290 (W.D. Penn. Nov. 5, 2012)

The authors of are patent trial lawyers at Jeffer Mangels Butler & Mitchell LLP. We represent inventors, patent owners and technology companies in patent licensing and litigation. Whether pursuing patent violations or defending infringement claims, we are aggressive and effective advocates for our clients. For more information contact Stan Gibson at 310.201.3548 or