In the recent case, MLC Intellectual Property, LLC v. Micron Technology, Inc., No. 2020-1413 (August 26, 2021), the United States Court of Appeals for the Federal Circuit heard and decided on MLC’s appeal of the district court’s ruling, from the Northern District of California.
MLC sought to appeal the district court’s orders excluding certain opinions given by MLC’s damages expert. The primary problems the district court found in MLC’s damages experts opinions related to the methodology used to calculate a reasonable royalty, MLC’s failure to disclose and produce key documents related to its damages theory when requested, and the failure to establish comparability between the licenses relied upon and the hypothetical license at issue.
In the calculation of a reasonable royalty, MLC’s damages expert offered opinions based on two different approaches to determine the royalty base: a comparable license approach and the smallest saleable patent practicing unit (“SSPPU”) approach. In the comparable license approach, MLC’s expert included all revenue associated with the accused products, while in the SSPPU approach, only apportioned revenue (limiting the cost of each non-SSPPU to the average selling price of the SSPPU) was included.
To calculate the appropriate royalty rate, MLC’s expert relied upon license agreements with Hynix and Toshiba. Both agreements were lump-sum license agreements for an entire patent portfolio, without a specified running royalty rate. However, MLC’s expert calculated an effective royalty rate of 0.25% in these two agreements, relying upon a “most-favored customer” provision in the Hynix agreement. After consideration of all of the Georgia-Pacific factors, MLC’s expert calculated and applied a royalty rate of 0.375% to the royalty base (in two versions, one from the comparable license approach and the other from the SSPPU approach).
Micron filed a motion in limine to disallow MLC’s expert from deriving a royalty rate of 0.25% from the Hynix and Toshiba agreements. Additionally, Micron filed a motion to exclude portions of MLC’s expert report because MLC failed to disclose information related to its damages theories in responses to interrogatories and during a Rule 30(b)(6) deposition prior to the issuance of MLC’s damages expert report. Finally, Micron filed a Daubert motion based on MLC’s expert’s failure to apportion out the value of non-patented features. The district court granted all three motions.
On the appeal of the district court’s exclusion of MLC’s expert’s opinion that the Hynix and Toshiba agreements reflected a 0.25% royalty rate, the appellate court affirmed the district court’s finding that the MLC expert’s opinion was not based on sufficient facts or data, nor was it the product of reliable principles. Expanding upon this affirmation the appellate court stated the opinion was not sufficiently tied to the evidence presented, especially given that no mathematical analysis was presented to demonstrate the derivation of the 0.25% royalty rate from the lump sum payments in the two agreements.
With respect to the appeal of Micron’s granted motion to strike portions of MLC’s expert’s report, the appellate court determined the district court was within its rights in finding MLC did not properly disclose its claim that the Hynix and Toshiba licenses reflected an effective royalty rate of 0.25%, nor did MLC properly disclose extrinsic documents relied upon by its expert to demonstrate the calculation of the 0.25% royalty rate in the Hynix agreement. Furthermore, the appellate court agreed with the district court that, had this information been properly disclosed, Micron would have been able to seek additional fact discovery on this claim.
Finally, the appellate court affirmed the grant of Micron’s Daubert motion for the exclusion of MLC’s expert’s opinion on a reasonable royalty, based on the failure to apportion. In its opinion, the appellate court stated, “We have repeatedly held that when the accused technology does not make up the whole of the accused product, apportionment is required,” yet MLC’s expert did not apportion through the royalty base nor the royalty rate.[1] MLC’s expert was also found to have not sufficiently established the licenses as comparable, highlighted by the fact that he did not conduct any analysis of comparability and differences between the licensed technology and the accused technology. Without established comparability, the appellate court agreed with the district court that MLC’s expert’s comparable license opinion did not apportion for the value of the patented technology.
The appellate court did not find MLC’s further arguments persuasive, and thus affirmed the underlying district court’s opinions and orders on the three motions excluding MLC’s expert’s opinion on a reasonable royalty.
Link to opinion: http://www.cafc.uscourts.gov/sites/default/files/opinions-orders/20-1413.OPINION.8-26-2021_1825247.pdf
[1] The appellate court disagreed with the district court’s opinion that the only way to apportion is through the royalty base. The appellate court held that apportionment could also be done through the royalty rate.
