`
`IN THE UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF TEXAS
`TYLER DIVISION
`
`
`NETWORK-1 TECHNOLOGIES, INC.
`
`
`v.
`
`
`ALCATEL-LUCENT USA, INC., ET AL.
`
`§
`§
`§ CIVIL ACTION NO. 6:11-cv-492-
`§ RWS-KNM
`§
`§
`§
`
`
`
`
`
`
`Before the Court is Plaintiff’s Motion to Exclude Certain Opinions and Testimony of
`
`ORDER
`
`Hewlett Packard Company’s (“HP”) Damages Expert Ambreen Salters. Doc. No. 815. The Court
`
`held a hearing on this Motion on June 1, 2017. The Motion is DENIED.
`
`BACKGROUND
`
`
`
`Plaintiff Network-1 Technologies, Inc. (“Network-1”) accuses Defendants1 of infringing
`
`U.S. Patent No. 6,218,930 (“the ‘930 Patent”). Hewlett Packard Company (“HP”) offers the
`
`testimony of Salters, who opines on the damages amount owed by HP to Plaintiff.2 Plaintiff moves
`
`to exclude certain opinions of Ambreen Salters, as unreliable.
`
`APPLICABLE LAW
`
`Daubert Motion
`
`
`
`Under Federal Rule of Evidence 702, 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
`
`
`1 The remaining Defendants in this case are: Hewlett Packard Enterprise Company; Hewlett-Packard Company (“HP
`Defendants” or “HPE Defendants”) and Juniper Networks, Inc. (“Juniper”).
`2 On May 1, 2017, Network-1 filed a notice stating that HP has withdrawn certain challenged opinions from Salters’s
`Report. Doc. No. 842. This Order thus only addresses the remaining disputes.
`1
`
`
`
`
`
`Case 6:11-cv-00492-RWS-KNM Document 961 Filed 09/13/17 Page 2 of 6 PageID #: 22668
`
`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.
`
`
`
`The trial judge has a gate-keeping role to ensure that expert testimony is relevant and
`
`reliable. Daubert v. Merrill Dow Pharm., Inc., 509 U.S. 579 (1993). Indeed, “[t]he proponent [of
`
`the expert testimony] need not prove to the judge that the expert’s testimony is correct, but she
`
`must prove by a preponderance of the evidence that the testimony is reliable.” Moore v. Ashland
`
`Chemical, Inc., 151 F.3d 269, 276 (5th. Cir. 1998). “The reliability prong [of Daubert] mandates
`
`that expert opinion ‘be grounded in the methods and procedures of science and . . . be more than
`
`unsupported speculation or subjective belief.’” Johnson v. Arkema, Inc., 685 F.3d 452, 459 (5th
`
`Cir. 2012) (quoting Curtis v. M & S Petroleum, Inc., 174 F.3d 661, 668 (5th Cir. 1999)).
`
`
`
`Factors to consider in determining whether a proposed expert’s methodology is
`
`scientifically valid or reliable are:
`
`(1) whether the expert’s theory can be or has been tested;
`(2) whether the theory has been subject to peer review and publication;
`(3) the known or potential rate of error of the technique or theory when
`applied;
`(4) the existence and maintenance of standards and controls; and
`(5) the degree to which the technique or theory has been generally accepted
`in the scientific community.
`
`See Daubert, 509 U.S. at 593–95. A court must decide whether the Daubert factors are
`
`appropriate, use them as a starting point, and then ascertain if other factors should be considered.
`
`Hathaway v. Bazany, 507 F.3d 312, 318 (5th Cir. 2007).
`
`In Kumho Tire Company, Limited v. Carmichael, the Supreme Court applied the Daubert
`
`principles to technical or specialized expert testimony. 526 U.S. 137 (1999). The Court explained
`
`that the overarching goal of Daubert’s gate-keeping requirement is to “ensure the reliability and
`
`
`
`2
`
`
`
`Case 6:11-cv-00492-RWS-KNM Document 961 Filed 09/13/17 Page 3 of 6 PageID #: 22669
`
`relevancy of expert testimony. It is 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.” Id. at 152. A trial court has
`
`the discretion to exclude expert testimony if there is “simply too great an analytical gap” between
`
`the expert’s reasoning and the conclusion. Gen. Elec. Co. v. Joiner, 522 U.S. 136, 146 (1997).
`
`“At base, ‘the question of whether the expert is credible or the opinion is correct is
`
`generally a question for the fact finder, not the court.’” Eidos Display, LLC v. Chi Mei Innolux
`
`Corp., No. 6:11-CV-201-JRG, 2017 WL 1079441, at *2 (E.D. Tex. Mar. 22, 2017) (quoting
`
`Summit 6, LLC v. Samsung Elecs. Co., Ltd., 802 F.3d 1283, 1296 (Fed. Cir. 2015)). “Under Rule
`
`702, the question is whether the expert relied on facts sufficiently related to the disputed issue.”
`
`i4i Ltd. P’ship v. Microsoft Corp., 598 F.3d 831, 856 (Fed. Cir. 2010), aff’d, 564 U.S. 91 (2011).
`
`“To properly carry this burden, the patentee must ‘sufficiently [tie the expert testimony on
`
`damages] to the facts of the case.’” Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1315–16
`
`(Fed. Cir. 2011) (citation omitted). “Questions about what facts are most relevant or reliable to
`
`calculating a reasonable royalty are for the jury.” i4i Ltd. P’ship, 598 F.3d at 856. “The jury [is]
`
`entitled to hear the expert testimony and decide for itself what to accept or reject.” Id.
`
`“Daubert and Rule 702 are safeguards against unreliable or irrelevant opinions, not
`
`guarantees of correctness.” Id. at 854. Also, the “existence of other facts . . . does not mean that
`
`the facts used failed to meet the minimum standards of relevance or reliability.” Id. at 855–56.
`
`For example, “any reasonable royalty analysis necessarily involves an element of approximation
`
`and uncertainty.” Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1325 (Fed. Cir. 2009)
`
`(citation and internal quotation omitted).
`
`
`
`
`
`3
`
`
`
`Case 6:11-cv-00492-RWS-KNM Document 961 Filed 09/13/17 Page 4 of 6 PageID #: 22670
`
`DISCUSSION
`
`I.
`
`Salters’s Royalty Calculations Based on HP’s Purported Incremental Profits
`from PoE Chips (¶¶ 129–138; 142, 146)
`
`
`
`
`Salters opines that based on HP’s purported incremental profits on the sale of PoE chips
`
`attributable to the ‘930 Patent, the appropriate royalty amount would be $415,000. Doc. No. 815,
`
`Ex.1 (“Salters’s Report) at 44. In so opining, Salters isolates HP’s fixed operating costs on the
`
`accused products from variable costs. Id. at ¶ 136. Specifically, she treats half of HP’s operating
`
`expenses other than research and development (field selling, marketing, administration) as fixed
`
`(“50% rule of thumb”). Id.
`
`
`
`Plaintiff argues that Salters’s reliance on this 50% rule of thumb is impermissible under
`
`Daubert because it is not tied to the facts of this case, and is justified only by ipse dixit, i.e., her
`
`own experience. Doc. No. 815 at 12. Plaintiff concludes that Salters’s calculated royalty is
`
`unreliable. Id. Plaintiff urges the Court to strike this calculation and resulting reasonable royalty.
`
`Id.
`
`
`
`HP notes that in arriving at her apportionment calculation, Salters cites to “StoneTurn
`
`Workpaper 11” as a source of support. Doc. No. 845 at 2. HP notes that in StoneTurn Workpaper
`
`11, Salters references the evidence she relied upon in arriving at her apportionment profit
`
`calculation: (1) an income statement prepared by HPE, showing revenue and expenses for HP’s
`
`Switching Business Segment, which sells the accused network devices (“HPE Shreadsheet”); and
`
`(2) the deposition testimony of Mark Thompson, HPE Director of Product Line Management for
`
`Campus Switching, a corporate witness for HPE. Id. at 2–3.
`
`Specifically, HP highlights Thompson’s testimony that “other expenses”—such as field
`
`selling, marketing, and administrative—were allocated, meaning HP allocated those expenses
`
`based on revenue. Doc. No. 845 at 3 (citing Ex. C, Thompson Depo. at 49:9–23). HP argues that
`
`
`
`4
`
`
`
`Case 6:11-cv-00492-RWS-KNM Document 961 Filed 09/13/17 Page 5 of 6 PageID #: 22671
`
`although this testimony supports Salters’s decision to treat these “other expenses” or allocated
`
`costs as 100% variable, she chose a more conservative 50% approach, which benefits Plaintiff.
`
`Id. at 4.3 Plaintiff does not dispute this. Doc. No 815 at 12 (“. . . Salters purports to isolate HP’s
`
`fixed operating costs on the accused products (which do not reduce incremental profits) from
`
`variable costs (which do).”) (emphases added).
`
`HP also notes that the HPE Spreadsheet reflects the fact that the absolute dollar amounts
`
`of these “other expenses” did not remain constant (fixed), while the costs as a percentage of total
`
`sales were inconsistent (variable). Doc. No. 845 at 4. HP concludes that this supports Salters’s
`
`decision to treat these allocated expenses as variable. Id.
`
`
`
`Plaintiff's concerns regarding Salters's testimony goes to its weight, not admissibility. As
`
`Plaintiff concedes, “[t]he dispositive question is: did Ms. Salters rely on anything other than her
`
`own ‘experience’—i.e., actual evidence tied to the facts of this case—to conclude that 50% of
`
`HP’s non-R&D operating expenses (e.g., field selling, marketing and administrative) are fixed
`
`costs?” Doc. No. 884 at 2. The answer is yes. Salters admits that she relies on her experience as
`
`an economist in applying the 50% rule of thumb, and that she does not have sufficient detail to
`
`fully understand the variable and fixed components of these operating expenses. 4 However,
`
`Salters’s decision to treat 50% of the allocated operating costs as variable is based on Thompson’s
`
`deposition testimony and on the HPE Spreadsheet. Both support sources reflect the facts of this
`
`case, and are cited in Salters’s Report. See Salters’s Report at ¶¶ 135–136
`
`
`
`At the Hearing, Plaintiff’s counsel challenged Ms. Salters’s conclusion that these “other
`
`expenses” in the HPE spreadsheet are variable, merely based on the fact they fluctuate annually.
`
`
`3 In its Reply Brief, Plaintiff argues that there is no such testimony from Thompson to accompany this assertion in the
`brief. Doc. No. 884 at 3. However, both HP’s Response Brief Salters’s Report cite to/reference Thompson’s
`deposition testimony. See Salters’s Report at ¶ 135, n. 259; Doc. No. 845 at 2.
`4 Salters’s Report at ¶¶ 136; Doc. No. 845 at 4.
`
`
`
`5
`
`
`
`Case 6:11-cv-00492-RWS-KNM Document 961 Filed 09/13/17 Page 6 of 6 PageID #: 22672
`
`H’ring Tr., Doc. No. 931, at 18–20. Plaintiff’s Reply Brief also argues that Thompson’s testimony
`
`that the amount of HP’s expense are “actual amounts” and “allocated amounts” is irrelevant to
`
`whether costs are fixed or variable. Doc. No. 884 at 3 n.3. However, to the extent Plaintiff
`
`disagrees with the accuracy of Salters’s decision to treat the fluctuating numbers in the spreadsheet
`
`as variable costs, or her decision to be conservative by treating only 50% of the operating costs as
`
`variable based on Thompson’s deposition testimony, these concerns are best addressed through
`
`vigorous cross examination at trial, not wholesale exclusion. These concerns, as well as the other
`
`concerns Plaintiff has raised in the briefing, go to the weight, not admissibility of Salters’s
`
`testimony.
`
`II.
`
`Salters’s Opinion Applying the IEEE’s 2015 Definition of a “Reasonable
`Rate” (¶¶ 32–35 and ¶ 126)
`
`Plaintiff next argues that the Court should exclude portions of Salters’s testimony that
`
`apply the 2015 Patent Policy definition of “reasonable rates” to the 2003 LOA. Doc. No. 810 at
`
`4–5. Plaintiff’s argument mirrors the argument from its Motion to Exclude the Testimony of
`
`Juniper’s Damages Expert Alan Ratliff. Compare Doc. No. 809 with Doc. No. 815. The Court
`
`denies this part of the Motion for the same reasons it denies Plaintiff’s Motion to Exclude the
`
`Testimony of Alan Ratliff. See Doc. No. 958.
`
`CONCLUSION
`
`For the reasons stated above, the Motion is DENIED. Doc. No. 815.
`
`6
`
`So ORDERED and SIGNED this 13th day of September, 2017.
`
`