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Expert Is Not Permitted to Testify to Alternate Hypothetical Negotiation Dates Where No Hypothetical Negotiation Was Conducted for those Alternate Dates

After the parties submitted expert reports in this patent infringement action, Ford objected to Eagle Harbor’s damage expert’s expected testimony and demonstratives. Ford objected to Eagle Harbor’s evidence because it involved multiple dates of possible infringement and the damage expert only calculated his royalty rate based on one possible date of first infringement.

As the district court explained, “[i]n his report, Mr. Wagner provides that, for the alleged infringement by Ford’s SYNC system, ‘the hypothetical negotiation date is on or around 2007 Q2.’ . . . Mr. Wagner’s trial exhibits, however, disclose three other possible dates for the date of first infringement. . . . These additional dates are based on the issuance of two of the continuation patents–the ‘739 Patent and the ‘119 Patent–and the possibility that Eagle Harbor’s damages may be limited for failure to mark. The new dates are March 23, 2010, August 17, 2010, and August 23, 2011. Mr. Wagner did not provide a hypothetical negotiation for any of these new dates.”

The district court concluded that this was a fundamental flaw. “This is a fundamental flaw and is improper as a matter of law because it undermines Mr. Wagner’s methodology. Therefore, the Court sustains Ford’s objection and excludes any reasonable royalty Mr. Wagner may offer for any date other than the second quarter of 2007.”

The district court further explained that “[w]hile it may be true that the parties could have been in the same bargaining position in 2011 as they were in 2007, this assumption is pure speculation. In fact, Mr. Wagner documents significant changes that occurred in the market during the period of infringement such as Ford’s revenue per unit, the contribution cost per unit, and the commercial success of the allegedly infringing product.”

The district court also rejected Eagle Harbor’s argument that there was no prejudice to Ford. “The issue, however, is that Mr. Wagner should have conducted a hypothetical negotiation for each possible date of first infringement. In that sense, Ford is highly prejudiced because Mr. Wagner only disclosed a quarter of what was required and the error cannot be fixed by merely supplying a different royalty base. Moreover, this is a flaw that cannot be cured by cross-examination.”

Accordingly, the new evidence was excluded from the trial.

Eagle Harbor Holdings, LLC v. Ford Motor Co., Case No. C11-5503 BHS (W.D. Wash. March 2015)

The authors of are patent trial lawyers at Jeffer Mangels Butler & Mitchell LLP. For more information about this case, contact Stan Gibson at 310.201.3548 or