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Motion to Exclude Damage Expert under Daubert Denied Where Expert Relied upon Incremental Profit and Cross-Examination Was Sufficient to Challenge Expert

Plaintiff Alexsam, Inc. (“Alexsam”) alleged infringement of several patents against Best Buy Stores, L.P. (“Best Buy”) that pertain to stored value/debit cards. Best Buy moved to exclude the opinion of Alexsam’s damage expert, James L. McGovern, asserting that Mr. McGovern was applying a “rule of thumb” analysis that had no basis to calculate a reasonable royalty.

After setting out Rule 702 and the Daubert factors, the district court noted that “[t]he Daubert factors might be applicable when assessing the reliability of non-scientific expert testimony, depending upon ‘the particular circumstances of the particular case at issue.’ Kumho Tire Company, Ltd. v. Carmichael, 526 U.S. 137, 150 (1999). This analysis focuses on the reasoning or methodology employed by the expert, not the ultimate conclusion. Watkins, 121 F.3d at 989. The purpose being ‘to make certain that an expert, whether basing testimony upon professional studies or personal experience, employs in the courtroom the same level of intellectual rigor that characterizes the practice of an expert in the relevant field.’ Skidmore v. Precision Printing and Packaging, Inc., 188 F.3d 606, 618 (5th Cir.1999), quoting Kumho Tire, 119 S.Ct. at 1176. Thus, the court ‘must review only the reasonableness of the expert’s use of such an approach, together with his particular method of analyzing data so obtained, to draw a conclusion regarding the specific matter to which the expert testimony is directly relevant.’ American Tourmaline Fields v. International Paper Co., 1999 WL 242690 at *2 (N.D. Tex. Apr.19, 1999), citing Kumho Tire, 119 S.Ct. at 1177.

Best Buy asserted that Mr. McGovern applied a “rule of thumb” analysis that had no basis in fact to calculate a reasonable royalty. Best Buy also asserted that Mr. McGovern purported to use the entire market value to Best Buy’s gift card program rather than to the patented feature which contradicts Federal Circuit law. “According to Best Buy, Mr. McGovern attributes all profits from purchases made with Best Buy gift cards to the cards themselves, without accounting for profits from sales that would have accrued even without the card, and Mr. McGovern attributed all profits from sales involving gift cards to Best Buy’s gift card program generally rather than allocating profits from the purported inventive feature of the asserted patent claims. Best Buy contends Mr. McGovern does not opine or cite to evidence showing the activation of a gift card at a POS device using a BIN (the inventive feature) drives consumer demand for the gift card itself or for the merchandise purchased with the gift card. Best Buy argues the fact that the benefits attributed by Mr. McGovern to the Best Buy card program are also applicable to non-infringing alternatives, such as Pier 1’s gift card program, “underscores that the benefits he references are really attributable to gift cards in general, not to the inventive feature.” Mot. at pg. 11. Finally, Best Buy asserts Mr. McGovern misapplies the entire market value rule by ignoring the smallest saleable unit that includes the patented feature.”

Alexsam asserted that Mr. McGovern did not use a rule of thumb analysis or the entire market value. “[R]ather, he isolates the incremental profit based upon a comparison of systems with and without the patented feature. Alexsam points out that in Alexsam, Inc. v. Pier 1 Imports, Inc., Cause No. 2:08cv15, the Court denied the defendant’s Daubert motion directed to Alexsam’s damages expert’s supposed use of a “rule of thumb” and entire market value rule. (Docket Entry # 237). The Court held the defendant’s arguments regarding alleged use of a 50% “rule of thumb” was more properly addressed as a motion in limine. The Court then stated it would allow the expert to testify on this point after he established “a proper predicate connecting the 50% rate to the facts of this case.” Id. The Court also rejected the defendant’s entire market value rule arguments, asserting the expert’s analysis did not rely on the theory for calculating damages. Id. Even if the Court rules that the 50% number must be excluded, Alexsam asserts Mr. McGovern’s opinion can still be proffered to the jury at trial just as Mr. Swanson’s was in the Pier 1 case. According to Alexsam, Mr. McGovern has established the predicate for the entirety of his opinions. Alexsam relies on Energy Transportation Group, Inc. v. William Demand Holding A/S, 697 F.3d 1342 (Fed. Cir. 2012), asserting even if an expert used a “rule of thumb,” together with other Georgia-Pacific factors, the use of a “rule of thumb” does not irretrievably damage the reasonableness of a damages methodology. Id. at 1357.”

The district court disagreed with Best Buy. “The Court has reviewed Mr. McGovern’s opinion and his asserted bases for it and concludes he utilizes the proper methodology set forth in Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F.Supp. 1116 (S.D. N.Y. 1970). Mr. McGovern relies on the evidence relating to Best Buy and includes an analysis of the incremental profits Best Buy receives from the infringing gift card systems compared to the non-infringing alternatives. The Court is not persuaded Mr. McGovern’s methodology is flawed. Mr. McGovern’s opinions are sufficiently reliable to be admissible under Daubert.”

The district court finally concluded that “[r]egardless, as Daubert itself recognized,”[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. Best Buy’s assertions that Mr. McGovern should have adjusted breakage, float, and lift rates and should quantify how much of the incremental profits per card were attributable to non-patented benefits can be addressed through cross-examination at trial.”

Alexsam, Inc. v. Best Buy Stores L.P., Case No. 2:13-cv-2 (E.D. Tex. May 15, 2013)

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