throbber
1:17CV687
`
`
`FILED UNDER SEAL
`
`IN THE UNITED STATES DISTRICT COURT
`FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
`
`
`
`OPTOLUM, INC.
`
`
`
`Plaintiff,
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`v.
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`
`
`
`CREE, INC.,
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`
`
`
`Defendant.
`
`)
`)
`)
`)
`)
`)
`)
`)
`)
`
`
`MEMORANDUM OPINION AND ORDER
`ADDRESSING EXPERT WITNESS AND DAUBERT MOTIONS
`(Docs. 193, 197, 199)
`
`OSTEEN, JR., District Judge
`
`Presently before this court are Defendant Cree, Inc.’s
`(“Cree”) motion to exclude certain testimony of William B.
`Scally, (Doc. 193); Defendant Cree’s motion to exclude certain
`testimony of Charles McCreary, (Doc. 197), and Plaintiff
`OptoLum, Inc.’s (“OptoLum”) motion to exclude certain testimony
`of Dr. Eric Bretschneider, (Doc. 199). Although these issues may
`be moot as a result of the jury’s verdict, the parties are
`entitled to consider this court’s reasoning in full for purposes
`of any Motion for Judgment as a Matter of Law or appeal.
`I. FACTUAL AND PROCEDURAL BACKGROUND
`
`Plaintiff and Defendant are companies that produce lighting
`products using light-emitting diodes (“LEDs”). (Amended
`
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`Complaint (Doc. 32) ¶¶ 12, 20, 22-23, 29.)1 Plaintiff seeks to
`enforce U.S. Patents 6,831,303 (the “‘303 Patent”), and
`7,242,028 (the “‘028 Patent”) in this action (together, the
`“Patents”). (Id. ¶¶ 25-27.)
`
`Both parties plan to present evidence at trial through
`expert witnesses. Relevant to this order, Plaintiff has offered
`William Scally as an expert on a reasonable royalty for
`Defendant’s alleged infringement. (Scally Report (Doc. 299).)
`Plaintiff has also offered Charles McCreary as an expert to
`testify about Defendant’s alleged infringement. (McCreary Report
`(Doc. 212-2).) Defendant has offered Dr. Eric Bretschneider as
`an expert to rebut Mr. McCreary’s infringement opinion.
`(Bretschneider Am. Report (Doc. 201-3).)
`
`Defendant moved to exclude certain testimony of Mr. Scally,
`(Doc. 193), and submitted a brief in support of its motion.
`(Mem. of Cree, Inc. in Supp. of Daubert Mot. Precluding Certain
`Testimony of William B. Scally (“Def.’s Scally Br.”) (Doc.
`194).) Plaintiff responded, (OptoLum, Inc.’s Opp’n to Cree,
`Inc.’s Daubert Mot. to Exclude Certain Testimony of William B.
`Scally (“Pl.’s Scally Resp.”) (Doc. 205)); and Defendant
`
`
`1 All citations in this Memorandum Opinion and Order to
`documents filed with the court refer to the page numbers located
`at the bottom right-hand corner of the documents as they appear
`on CM/ECF.
`
`
`
`-2-
`
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`replied, (Doc. 216). Defendant also moved to exclude certain
`testimony of Mr. McCreary, (Doc. 197), and submitted a brief in
`support of its motion. (Mem. of Cree, Inc. in Supp. of its
`Daubert Mot. to Exclude Certain Testimony of Charles McCreary
`(“Def.’s McCreary Br.”) (Doc. 198).) Plaintiff responded,
`(OptoLum, Inc.’s Opp’n to Cree, Inc.’s Mot. to Exclude Certain
`Testimony of Charles McCreary (“Pl.’s McCreary Resp.”) (Doc.
`209)), and Defendant replied, (Reply Mem. of Cree Inc. in Supp.
`of its Daubert Mot. to Exclude Certain Testimony of Charles
`McCreary (“Def.’s Scally Reply”) (Doc. 217)).
`
`Plaintiff moved for leave to file a surreply, (Pl.’s Mot.
`and Mem. for Leave to File a Surreply in Opp’n to Cree Inc.’s
`Daubert Mot. to Exclude Certain Testimony of Charles McCreary
`(Doc. 219)). Defendant responded to Plaintiff’s motion for leave
`to file a surreply, (Doc. 222), and Plaintiff replied, (Doc.
`225).
`
`Plaintiff moved to exclude certain testimony of
`Dr. Bretschneider, (Doc. 199), and submitted a brief in support
`of its motion, (OptoLum, Inc.’s Mem. in Supp. of its Mot. to
`Exclude Certain Testimony of Dr. Eric Bretschneider (“Pl.’s
`Bretschneider Br.”) (Doc. 200)). Defendant responded, (Def.
`Cree, Inc.’s Mem. in Opp’n to Pl. OptoLum, Inc.’s Mot. to
`Exclude Certain Testimony of Dr. Eric Bretschneider (“Def.’s
`
`
`
`-3-
`
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`Bretschneider Resp.”) (Doc. 203)); and Plaintiff replied, (Doc.
`215).
`
`On October 8, 2021, this court held an evidentiary hearing
`on the parties’ motions to exclude certain expert testimony.
`(Minute Entry 10/08/2021.)
`II. ANALYSIS
`Federal Rule of Evidence 702 provides:
`A witness who is qualified as an expert by knowledge,
`skill, experience, training, or education may testify
`in the form of an opinion or otherwise if:
`
`(a) the expert’s scientific, technical, or other
`specialized knowledge will help the trier of fact
`to understand the evidence or to determine a fact
`in issue;
`
`(b) the testimony is based on sufficient facts or data;
`
`(c) the testimony is the product of reliable principles
`and methods; and
`
`(d) the expert has reliably applied the principles and
`methods to the facts of the case.
`
`Fed. R. Evid. 702. In Daubert v. Merrell Dow. Pharms., Inc., 509
`U.S. 579 (1993), the Supreme Court clarified “that it is the
`duty of the trial court to perform the gatekeeping function with
`respect to expert testimony: ‘the trial judge must ensure that
`any and all scientific testimony or evidence admitted is not
`only relevant, but reliable.’” United States v. Prince-Oyibo,
`320 F.3d 494, 498 (4th Cir. 2003) (quoting Daubert, 509 U.S. at
`589). The Supreme Court in Daubert provided a list of
`-4-
`
`
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`non-exclusive factors a court should consider in assessing the
`reliability of expert testimony: (1) whether the particular
`scientific theory “can be (and has been) tested”; (2) whether
`the theory “has been subjected to peer review and publication”;
`(3) “the known or potential rate of error”; (4) the existence
`and maintenance of standards controlling the technique’s
`operation; and (5) whether the technique has achieved general
`acceptance in the relevant scientific or expert community.
`Daubert, 509 U.S. at 591.
`A.
`Motion to Exclude Certain Testimony of Mr. Scally
`Defendant moves to exclude certain testimony of Mr. Scally
`for three reasons: (1) Mr. Scally included a 5% “incremental
`value” to Defendant’s brand in addition to the royalty rate for
`infringement; (2) Mr. Scally did not apportion his damages
`calculation; and (3) his opinion is based on unreliable facts.
`(Def.’s Scally Br. (Doc. 194) at 6-7.)
`Mr. Scally opines “that a reasonable royalty equal to at
`least 10% of the net sales revenue generated through the sale of
`the accused Cree LED light bulbs represents the proper form of
`damages in this matter.” (Scally Report (Doc. 299) at 6.)
`Mr. Scally further states in his report that “Cree expected that
`the benefit from the technology would extend beyond the Accused
`Products by enabling Cree to build a company-wide brand and thus
`
`
`
`-5-
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`boost overall company sales. This incremental value is
`considered in my calculation of the 10% royalty rate[.]” (Id.)
`He thus concludes that “Cree would have been willing to pay an
`incremental rate of at least 5% in order to leverage the Accused
`Products to build the broader Cree brand, suggesting a final
`negotiated royalty rate of at least 10%.” (Id. at 67.)
`In a patent infringement suit, damages shall “in no event
`[be] less than a reasonable royalty for the use made of the
`invention by the infringer, together with interest and costs as
`fixed by the court.” 35 U.S.C. § 284. The Federal Circuit has
`explained that, in “litigation, a reasonable royalty is often
`determined on the basis of a hypothetical negotiation, occurring
`between the parties at the time that infringement began.” Uniloc
`USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1312 (Fed. Cir.
`2011) (citing Wang Labs. Inc. v. Toshiba Corp., 993 F.2d 858,
`869–70 (Fed. Cir. 1993)). “A comprehensive (but unprioritized
`and often overlapping) list of relevant factors for a reasonable
`royalty calculation appears in Georgia-Pacific Corp. v. United
`States Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970).”
`ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860, 868-69 (Fed.
`Cir. 2010) (internal citation omitted).
`The Federal Circuit’s embrace of the Georgia-Pacific
`factors reflects that an expert must rely on evidence “tied to
`
`
`
`-6-
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`the relevant facts and circumstances of the particular case at
`issue and the hypothetical negotiations that would have taken
`place in light of those facts and circumstances at the relevant
`time.” Uniloc USA, 632 F.3d at 1318.
`1.
`Incremental Value
`Defendant argues that “[t]his add-on brand development
`Incremental Rate is unreliable” because it “accounts for value
`other than the value that the patents-in-suit allegedly
`contributed to the Accused Products.” (Def.’s Scally Br. (Doc.
`194) at 19-20.) Plaintiff argues that it was reliable for
`Mr. Scally to consider the value of the use of the technology to
`Defendant beyond the technology itself. (Pl.’s Scally Resp.
`(Doc. 205) at 7.) Plaintiff cites Georgia-Pacific Factor 11 –
`the extent to which the infringer has made use of the invention;
`and any evidence probative of the value of that use – in support
`of that argument. (Id.)
`Georgia-Pacific Factor 11 “informs the court and jury about
`how the parties would have valued the patented feature during
`the hypothetical negotiation.” Lucent Techs., Inc. v. Gateway,
`Inc., 580 F.3d 1301, 1333 (Fed. Cir. 2009). “In doing so, Factor
`11 relies on evidence about how much the patented invention has
`been used. Implicit in this Factor is the premise than an
`
`
`
`-7-
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`invention used frequently is generally more valuable than a
`comparable invention used infrequently.” Id.
`Mr. Scally’s report relies on a number of assumptions in
`defining the hypothetical royalty negotiation. Notably to the
`analysis contained herein, Mr. Scally recognized that success by
`Cree in the sale of LED lightbulbs required hitting a specific
`price point, which he identified as $10.00. (Doc. 299 at 32.)
`Furthermore, Mr. Scally also assumed that the hypothetical
`license was non-exclusive. (Id. at 34.) Finally, Mr. Scally
`acknowledged that the look of the Cree bulbs, similar to
`traditional incandescent bulbs, was critical to the success of
`the product. (Id. at 50.)
`Against the facts assumed by Mr. Scally as a basis for the
`hypothetical negotiation as to a royalty payment, Mr. Scally
`opined, inter alia, that the sale of LED bulbs by Defendant
`resulted in an increase in “brand value” resulting from the sale
`of the accused products. (Id. at 57.) In turn, the sale of the
`infringing LED bulbs placed “significant upward pressure” on the
`hypothetical negotiated royalty rate. (Id. at 61-62.) As a
`result, Mr. Scally concluded that there was an incremental value
`of the patents to Defendant in building its brand, and that
`Defendant would hypothetically pay in royalty 5% for that
`
`
`
`-8-
`
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`factor, (id. at 62), resulting in a total royalty amount of 10%.
`Defendant challenges this 5% brand value calculation.
`During Mr. Scally’s deposition, he admitted that the 5%
`incremental rate accounts for value other than the value the
`patents contributed to the accused products. Mr. Scally stated
`that “brand” was something he considered in assessing the
`incremental value, and that he viewed “brand” as “something
`other than being able to make, use, and sell the accused
`lightbulbs.” (Scally Dep. (Doc. 196-2) at 35-36.)
`
`Q.
`Okay. So the value of the brand was
`something other than being able to make, use and sell
`the accused lightbulbs? Correct?
`
`
`
`MR. MISIC: Objection.
`
`
`A.
`Yes. It was something else.
`
`
`
`BY MR. HARPER:
`
`
`Q.
`Okay. And that something else was what you
`have labeled brand? Right?
`
`
`
`MR. MISIC: Objection.
`
`
`A.
`Yes.
`
`
`
`BY MR. HARPER:
`
`
`Q.
`And that 5 percent was a straight addition
`to the existing – to the 5 percent that you determined
`for the rest of the factors of your analysis? Correct?
`
`
`
`MR. MISIC: Objection.
`
`
`A.
`Yes. It is incremental.
`
`(Id. at 36.)
`
`
`
`-9-
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`
`
`Plaintiff’s argument that under Georgia-Pacific Factor 11,
`Mr. Scally can consider the value of the Patents on Cree’s
`overall brand and its effect on Cree’s products other than the
`accused products appears contrary to the Federal Circuit’s
`interpretation of Georgia-Pacific Factor 11. In Lucent
`Technologies, the Federal Circuit interpreted Factor 11 as
`considering how often the accused products were used by the
`infringer, not – as Plaintiff contends – how the patented
`technology affected the use of an infringer’s other products or
`overall brand. See Lucent Techs., 580 F.3d at 1333. Because a
`plaintiff is entitled to damages only related to infringing
`activities, it is inappropriate for Mr. Scally to include in his
`damages calculation any value the Patents conferred on Cree’s
`overall brand or its products other than the accused products.
`See Power Integrations, Inc. v. Fairchild Semiconductor Int’l,
`Inc., 904 F.3d 965, 977 (Fed. Cir. 2018) (“A patentee is only
`entitled to a reasonable royalty attributable to the infringing
`features.”); see also Enplas Display Device Corp. v. Seoul
`Semiconductor Co., 909 F.3d 398, 411-12 (Fed. Cir. 2018)
`(vacating a jury’s damages award where the only evidence
`supporting the damages award was testimony from a damages expert
`that included non-infringing device sales in the royalty
`calculation).
`
`
`
`-10-
`
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`While there may be circumstances under which a “brand value
`increase” might be a factor in assessing a reasonable royalty,
`this court finds that Mr. Scally’s testimony does not meet the
`threshold requirements of Daubert and Federal Rule of Evidence
`104 with respect to an opinion that brand value increase
`supports an upward royalty rate of 5%.
`Federal Rule of Evidence 702 requires expert testimony be
`based on “sufficient facts or data,” “the product of reliable
`. . . methods,” and that the expert reliably apply “the
`principles and methods to the facts of the case.” Fed. R. Evid.
`702(b)-(d). Additionally, Federal Rule of Evidence 104 requires
`a trial court to determine whether these elements are met by a
`preponderance of the evidence before admitting expert testimony.
`Fed. R. Evid. 104(a). This court finds the brand value damage
`calculation is not based on sufficient facts, and there is
`insufficient data to support the opinion.
`Mr. Scally presents information from both Cree and third
`parties that the sale of the infringing LED bulbs helped Cree
`build its “brand.” While there may be certain logical force to
`Scally’s analysis in assessing damages – that increase in brand
`value recognized by Cree through the sale of the infringing
`bulbs should be captured as damages – this court finds
`
`
`
`-11-
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`Mr. Scally’s conclusion in determining a reasonable royalty rate
`not supported by the assumptions and facts.
`First, Mr. Scally’s opinion is about a reasonable royalty
`arising from a hypothetical negotiation entered into prior to
`infringement. (Doc. 299 at 28.) However, the brand value
`calculation is based on facts and assumptions that occurred in a
`market not affected by, or that even addressed, a hypothetical
`non-exclusive licensing agreement. Mr. Scally’s data is based
`upon hindsight, that is, Defendant’s sales of infringing
`products and brand development in the absence of a non-exclusive
`license from OptoLum. Mr. Scally never explains how or why a
`hypothetical negotiation prior to infringement would take into
`consideration an increase in brand value from the use of a non-
`exclusive license from OptoLum or the relationship between a
`non-exclusive license and brand development in establishing the
`parameters of a hypothetical negotiation. Mr. Scally
`acknowledges Cree’s success, if any, with respect to sales, were
`the result of a specific price point and the look of the bulb
`Cree developed. Resultingly, the principle applied – the
`calculation of a hypothetical reasonable royalty agreed-upon
`prior to infringement – is based upon post-infringement success
`on facts derived from the absence of a hypothetical licensing
`agreement and the payment of a royalty. While the “brand value”
`
`
`
`-12-
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`increase might otherwise be compelling as a measure of wrongful
`profits, Mr. Scally’s damage calculation is, as it must be,
`based on a hypothetical reasonable royalty.
`Second, Mr. Scally offers no data or support to suggest any
`brand success could have been derived from product sales arising
`from a hypothetical non-exclusive license in the same way and
`manner that those sales occurred without a license agreement.
`That in turn makes it speculative that any brand success Cree
`may have realized from sales without a non-exclusive license
`agreement are probative of what facts or factors Cree or OptoLum
`might have hypothetically considered in negotiating a royalty
`with a component of brand value using a non-exclusive licensing
`agreement. It appears to this court that Mr. Scally’s opinion -
`that brand value increase would have put upward pressure on the
`likely negotiated royalty - is entirely speculative. Mr. Scally
`offers no assumptions or facts to explain how a hypothetical,
`non-exclusive license negotiation would have been impacted by
`potential brand value increases or, more significantly, how
`those facts in turn would have impacted the calculation of a
`hypothetical reasonable royalty. Instead, Mr. Scally seems to
`assume, without explanation or support, that any brand value
`increases realized in the absence of a licensing agreement would
`have been recognized in a similar fashion during the
`
`
`
`-13-
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`hypothetical negotiation prior to infringement. This
`determination should not be based on “a hindsight evaluation of
`what actually happened, but on the basis of what the parties to
`the hypothetical license negotiations would have considered at
`the time of negotiations.” Hanson v. Alpine Valley Ski Area,
`Inc., 718 F.2d 1075, 1081 (Fed. Cir. 1983).
`Third, even assuming that Plaintiff’s interpretation of
`Georgia-Pacific Factor 11 is correct under certain
`circumstances, Mr. Scally fails to explain how or why the
`trademark contract he used for guidance – the G.E./Safety Quick
`contract and the Hoover/Capstone Industries contract – apply to
`the hypothetical royalty negotiation between OptoLum and Cree.
`No data, facts, or analysis are provided to explain whether the
`value of the trademark licenses is derived from total sales,
`non-exclusive licenses, unique products, ownership of
`technology, or anything else. The analysis appears to rely
`exclusively on “brand name,” (Scally Report (Doc. 299) at 62),
`without any analysis of the parameters of the hypothetical
`negotiation, including the effect, if any, of the technology on
`
`
`
`-14-
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`subject to a non-exclusive license instead of ownership of the
`technology.2 (Id.)
`
`Mr. Scally’s royalty calculation includes a 5% “increase in
`brand value” that is not based on relevant facts or data and has
`not been shown to reliably apply the principles and methods to
`the facts of this case. A proffer of expert testimony must be
`reliable and may not be based on belief or speculation. Daubert,
`509 U.S. at 592-93. Mr. Scally’s opinion that the hypothetical
`calculation would have included a 5% increase for brand value
`should be excluded.
`2.
`Entire Market Value Rule
`This court further finds that Mr. Scally’s damages opinion
`should not be excluded as a matter of law for failure to
`apportion.
`“The entire market value rule is a narrow exception to
`[the] general rule” that “royalties be based not on the entire
`product, but instead on the ‘smallest salable patent-producing
`unit.’” LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d
`51, 67 (Fed. Cir. 2012) (quoting Garretson v. Clark, 111 U.S.
`
`
`2 Mr. Scally, in discussing brand development, quotes Cree
`extensively regarding the importance of Cree’s technology. (See,
`e.g., Scally Report (Doc. 299) at 24 (“Cree itself called the
`introduction of the Filament Tower™ ‘game-changing’[.]”); and
`id. at 59 (“[L]eading with innovation and building the Cree
`brand were the first and second priorities.”).)
`-15-
`
`
`
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`120, 121 (1884)). In other words, “[t]he entire market value
`rule allows for the recovery of damages based on the value of an
`entire apparatus containing several features, when the feature
`patented constitutes the basis for customer demand.” Lucent
`Techs., 580 F.3d at 1336 (quoting TWM Mfg. Co. v. Dura
`Corp., 789 F.2d 895, 901 (Fed. Cir. 1986)). The entire market
`value rule is derived from Supreme Court precedent requiring
`that “[t]he patentee . . . must in every case give evidence
`tending to separate or apportion the defendant’s profits and the
`patentee’s damages between the patented feature and the
`unpatented features, and such evidence must be reliable and
`tangible, and not conjectural or speculative.” Garretson, 111
`U.S. at 121. The Supreme Court explained that “the entire value
`of the whole machine, as a marketable article, [must be]
`properly and legally attributable to the patented feature.” Id.
`“Under the entire market value rule, if a party can prove that
`the patented invention drives demand for the accused end
`product, it can rely on the end product’s entire market value as
`the royalty base.” Commonwealth Sci. & Indus. Rsch. Organisation
`v. Cisco Sys., Inc., 809 F.3d 1295, 1302 (Fed. Cir. 2015)
`(emphasis added) (quoting LaserDynamics, 694 F.3d at 67).
`
`
`
`-16-
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`The entire market value rule is “a demanding alternative to
`[the] general rule of apportionment.” Power Integrations, 904
`F.3d at 977 (citation omitted).
`
`If the product has other valuable features that
`also contribute to driving consumer demand — patented
`or unpatented — then the damages for patent
`infringement must be apportioned to reflect only the
`value of the patented feature. This is so whenever the
`claimed feature does not define the entirety of the
`commercial product. In some circumstances, for
`example, where the other features are simply generic
`and/or conventional and hence of little distinguishing
`character, such as the color of a particular product,
`it may be appropriate to use the entire value of the
`product because the patented feature accounts for
`almost all of the value of the product as a whole.
`
`Id. at 978 (citation omitted).
`In Power Integrations, the royalty rate was premised on the
`patent’s frequency reduction feature as driving consumer demand
`for the infringer’s controller chips. Id. The plaintiff
`presented evidence that the frequency reduction feature was
`“essential to many customers,” and “that some customers asked
`for the [patented] feature, that products with the [patented]
`feature outsold other products, and that technical marketing
`materials promoted the [patented] feature.” Id. Further, both
`parties agreed that the accused products contained other
`valuable features. Id.
`The Federal Circuit held that it is not enough to
`affirmatively prove that the patented feature is essential, or
`
`
`
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`that the product would not be commercially viable without the
`patented feature, or that customers would not purchase the
`product without the patented feature. Id. at 978-79. Instead,
`the patentee must prove that the other features do not cause
`consumers to purchase the accused product. Id. at 979-80. The
`patented feature must be the “sole driver of customer demand.”
`Id. at 979. The court in Power Integrations then explained how a
`patentee proves the patented feature drives demand:
`Where the accused infringer presents evidence that its
`accused product has other valuable features beyond the
`patented feature, the patent holder must establish
`that these features do not cause consumers to purchase
`the product. A patentee may do this by showing that
`the patented feature “alone motivates customers to
`purchase [the infringing product]” in the first place.
`
` Id. (quoting LaserDynamics, 694 F.3d at 69). Because the patent
`owner “did not meet its burden to show that the patented feature
`was the sole driver of consumer demand,” the Federal Circuit
`vacated the damage award. Id. at 979-80; see also Lucent Techs.,
`580 F.3d at 1337-38 (reversing the district court’s decision
`where the jury applied the entire market value rule because
`“Lucent did not carry its evidentiary burden of proving that
`anyone purchased Outlook because of the patented method” where
`“Lucent’s damages expert conceded that there was no ‘evidence
`that anybody anywhere at any time ever bought Outlook . . .
`because it had a date picker’”).
`
`
`
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`Plaintiff argues the patented technology enables the
`
`features of the Cree products that drove demand, and that
`therefore the entire market value rule is appropriate. (Pl.’s
`Scally Resp. (Doc. 205) at 15.) Defendant has presented evidence
`that the value of the technology should not be subject to the
`entire market value rule because features such as omni-
`directional light, similar form to incandescent bulbs, and price
`point were the features which drove demand. (Scally Report (Doc.
`299) at 30.) On the other hand, Plaintiff has forecast evidence
`that the Filament Tower™ is “game changing” and allowed “LED
`bulbs to be introduced at a retail price point that gave
`consumers a reason to switch to LED lighting.” (Id. at 24.)
`Mr. Scally’s report identifies a statement from Cree’s corporate
`marketing department that describes “the Filament Tower™
`technology as an ‘elegant solution’ that not only . . . but also
`created the traditional ‘omni-directional’ light of incandescent
`A-type bulbs.” (Id. at 45.) Mr. Scally’s report also notes that
`Cree has said “Cree LED Filament Tower™ Technology represents a
`breakthrough in LED bulb design. It provides an optically
`centered and balanced light source within a real glass bulb that
`is nearly indistinguishable from a traditional incandescent
`filament.” (Id. at 52.) Cree’s own statements, as cited by
`Mr. Scally, support Plaintiff’s contention that the Filament
`
`
`
`-19-
`
`Case 1:17-cv-00687-WO-JLW Document 357 Filed 12/14/21 Page 19 of 42
`
`

`

`Tower™ enabled the customer demand. This court is therefore
`unable to find, as a matter of law, that Plaintiff will be
`unable to show that the infringing technology is subject to the
`entire market value rule.
`3.
`Facts Underlying Mr. Scally’s Opinion
`This court further finds that Mr. Scally’s damages opinion
`is based on data sufficiently tied to the facts of this case.
`Defendant argues that Mr. Scally should not be permitted to
`testify because his opinion is based on information not tied to
`the facts of this case. (Def.’s Scally Br. (Doc. 194) at 31-43.)
`Specifically, Defendant contests Mr. Scally’s reliance on (1) a
`; (2) Degnan & Horton Survey; (3) Licensing
`Economics Review article; (4) RoyaltySource licenses; (5) prior
`Cree licenses; and (6) a sensitivity analysis. (Id.)
`
`First, regarding Mr. Scally’s consideration of the
`, Defendant argues it is unacceptable to
`. (Id. at
`use a party’s
`31-32.) However, Defendant misconstrues Mr. Scally’s use of the
`. Unlike Defendant’s assertion, Mr. Scally
` but
`did not use the
`rather as consideration of Georgia-Pacific Factor 1 – the
`royalties received by the patentee for the licensing of the
`patents-in-suit, proving or tending to prove an established
`
`
`
`-20-
`
`Case 1:17-cv-00687-WO-JLW Document 357 Filed 12/14/21 Page 20 of 42
`
`

`

`royalty. (Scally Report (Doc. 299) at 34.) Here, Mr. Scally
`noted that the asserted patents have never been licensed but
`that
`
`
`
`
` (Id.) Mr. Scally goes on to note
`that because OptoLum has never licensed the asserted patents and
`because
`
`
`
` (Id.) Essentially, Mr. Scally noted the
` and then explained why
`prior
` as neutral. This court finds Mr. Scally
`he valued
`provided sufficient reasoning for his reliance on
`
` and his analysis was sufficiently tied to the
`facts of this case. Therefore, this court finds Mr. Scally’s
`opinion should not be excluded because he relied in part on the
`
`Second, Defendant contests Mr. Scally’s reliance on the
`Degnan & Horton survey because Mr. Scally does not know the
`technologies, licenses, and parties on which the survey is
`based. (Def.’s Scally Br. (Doc. 194) at 32-35.) Plaintiff
`responds that in considering Georgia-Pacific Factor 12 – the
`portion of the profit or the selling price that may be customary
`in the particular business or in comparable businesses to allow
`
`
`
`-21-
`
`Case 1:17-cv-00687-WO-JLW Document 357 Filed 12/14/21 Page 21 of 42
`
`

`

`for the use of the invention or analogous inventions – Mr.
`Scally reasonably relied on publicly available information in
`marketing surveys. (Pl.’s Scally Resp. (Doc. 205) at 21.)
`
`“[T]o establish a reasonable royalty, the ‘licenses relied
`on by the patentee in proving damages [must be] sufficiently
`comparable to the hypothetical license at issue in suit.’”
`Virnetx, Inc. v. Cisco Sys., Inc., 767 F.3d 1308, 1330 (Fed.
`Cir. 2014) (quoting Lucent Techs., 580 F.3d at 1325). Although
`“alleging a loose or vague comparability between different
`technologies or licenses does not suffice,” LaserDynamics, 694
`F.3d at 79, the Federal Circuit “ha[s] never required identity
`of circumstances[.]” Virnetx, 767 F.3d at 1330. Rather, the
`Federal Circuit has “long acknowledged that ‘any reasonable
`royalty analysis necessarily involves an element of
`approximation and uncertainty.’” Id. (quoting Lucent Techs., 580
`F.3d at 1325).
`
`For example, in Virnetx, the Federal Circuit held the
`district court did not abuse its discretion in allowing the
`damages expert to rely on licenses that were either related to
`the actual patents-in-suit or were drawn to related technology.
`Id. The Federal Circuit noted that the differences between the
`licenses and the hypothetical negotiation between the parties
`
`
`
`-22-
`
`Case 1:17-cv-00687-WO-JLW Document 357 Filed 12/14/21 Page 22 of 42
`
`

`

`were presented to the jury, who ultimately determined the
`relevancy of those licenses. Id.
`In Mr. Scally’s report, he relies on the Degnan & Horton
`Survey for evidence of licensing rates depending on whether the
`technology is “revolutionary,” a “major improvement,” or a
`“minor improvement.” (Scally Report (Doc. 299) at 64.) Based on
`Cree’s own statements that the technology was “game-changing,”
`Mr. Scally considered the technology would at least be
`considered a “major improvement.” (Id.) This court finds the
`Degnan & Horton Survey is sufficiently tied to the facts of this
`case. Mr. Scally used the survey as evidence of the range of a
`reasonable royalty for patented technology that is a major
`improvement. Mr. Scally relied on Cree’s own statements to
`reasonably determine the technology was at least a major
`improvement over prior LED lightbulbs. Therefore, this court
`finds Mr. Scally’s opinion should not be excluded because he
`relied in part on the Degnan & Horton survey.
`Third, Defendant argues the Licensing Economic Review
`article is not sufficiently tied to the facts of this case.
`(Def.’s Scally Br. (Doc. 194) at 35-37.) As part of Mr. Scally’s
`consideration of Georgia-Pacific Factor 12, Mr. Scally relied on
`a Licensing Economics Review article on royalty rates from
`twenty-eight years’ worth of licensing agreements, broken down
`
`
`
`-23-
`
`Case 1:17-cv-00687-WO-JLW Document 357 Filed 12/14/21 Page 23 of 42
`
`

`

`by industry. (Scally Report (Doc. 299) at 63-64.) Mr. Scally
`noted the median royalty rate f

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