In this patent infringement action, Ravgen asserted that Labcorp infringes claims of its 727,720 and 7,332,277 patents (the “’720” and “’277” patents through four cell-free DNA-based tests, each of which are noninvasive prenatal tests (“NIPT”)) and Resolution ctDx Lung Assay (“ctDx”) (a liquid biopsy test for cancer). Labcorp moved to exclude certain opinions of Ravgen’s damages expert.
As explained by the district court, in support of its claims against Labcorp, Mr. Meyer, Ravgen’s damages expert, provided a reasonable royalty opinion based on a Georgia-Pacific hypothetical negotiation analysis. In that analysis, Mr. Meyer relied on several agreements to inform the appropriate royalty, including five Ravgen Agreements that granted licenses to the asserted patents, which each cover NIPT and/or liquid biopsy tests. He also relied on three Sequenom Agreements (the “Sequenom-Quest,” “Sequenom-Mayo,” and “Sequenom-ISIS” Agreements) involving technology comparable to the asserted patents. Based on these Agreements and the apportionment built into the royalties contained in those agreements, Mr. Meyer determined a per-unit royalty for the hypothetical license to Labcorp.
In its motion, Labcorp asserted that the following opinions of Mr. Meyer should be excluded: (1) his calculation of reasonable royalty (up to $290 million) for failure to undertake the legal requirement of apportionment; and (2) his use of and any reference to the Ravgen Agreements in forming his opinions, because they lack sufficient comparability to the hypothetical license. Labcorp asserted that Mr. Meyer effectively invokes the entire market value rule (“EMVR”), as he calculated his reasonable royalty using the revenues attributable to the entire market value of the accused tests and he did so by using the ASP (average sales price) as the royalty base for the accused tests.
The district court disagreed: Mr. Meyer’s analysis based on comparable licenses does not invoke EMVR. It is true that “[o]rdinarily” using net revenue as a royalty base requires proof that the patented technology “creates the basis for customer demand or substantially creates the value of the component parts . . . ” Vectura Ltd. v. Glaxosmithkline LLC, 981 F.3d 1030, 1040 (Fed. Cir. 2020). As Ravgen notes, though, “when a sufficiently comparable license is used as the basis for determining the appropriate royalty, further apportionment may not necessarily be required . . . because a damages theory that is dependent on a comparable license (or a comparable negotiation) may in some cases have ‘built-in apportionment.’”
The district court further explained that: Mr. Meyer’s analysis based on the Ravgen and Sequenom Agreements does not invoke the EMVR. As the Federal Circuit has explained, “[b]uilt-in apportionment effectively assumes that the negotiators of a comparable license settled on a royalty rate and royalty base combination embodying the value of the asserted patent.” Vectura, 981 F.3d at 1041. Therefore, an expert may rely on “the comparable license[s’] royalty rate and royalty base . . . without proving that the [patented technology] was responsible for the entire market value of the accused product.” Id. Mr. Meyer’s analysis does just that—he uses apportionment built into the royalty rate, derived from licenses he determined to be comparable—and thus does not invoke the EMVR.
The district court then concluded that “[a]s in Vectura, because Mr. Meyer’s analysis properly apportions through comparable licenses’ built-in apportionment, it does not invoke the EMVR and its requirements. 981 F.3d at 1041. Accordingly, Mr. Meyer’s analysis relying on the built-in apportionment in the comparable licenses’ royalties employs a reliable methodology of apportionment, does not invoke EMVR, and should not be excluded.”
Ravgen, Inc. v. Laboratory Corp. of America Holdings, Case No. 6:20-CV-00969-ADA (W.D. Tex. Oct. 4, 2022)
The authors of www.PatentLawyerBlog.com are patent trial lawyers at Jeffer Mangels Butler & Mitchell LLP. For more information about this case, contact Stan Gibson at 310.201.3548 or SGibson@jmbm.com.