Case 6:11-cv-00492-RWS-KNM Document 961 Filed 09/13/17 Page 1 of 6 PageID #: 22667
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF TEXAS
`TYLER DIVISION
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`NETWORK-1 TECHNOLOGIES, INC.
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`v.
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`ALCATEL-LUCENT USA, INC., ET AL.
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`§
`§
`§ CIVIL ACTION NO. 6:11-cv-492-
`§ RWS-KNM
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`§
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`Before the Court is Plaintiff’s Motion to Exclude Certain Opinions and Testimony of
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`ORDER
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`Hewlett Packard Company’s (“HP”) Damages Expert Ambreen Salters. Doc. No. 815. The Court
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`held a hearing on this Motion on June 1, 2017. The Motion is DENIED.
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`BACKGROUND
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`Plaintiff Network-1 Technologies, Inc. (“Network-1”) accuses Defendants1 of infringing
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`U.S. Patent No. 6,218,930 (“the ‘930 Patent”). Hewlett Packard Company (“HP”) offers the
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`testimony of Salters, who opines on the damages amount owed by HP to Plaintiff.2 Plaintiff moves
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`to exclude certain opinions of Ambreen Salters, as unreliable.
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`APPLICABLE LAW
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`Daubert Motion
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`Under Federal Rule of Evidence 702, a witness who is qualified as an expert by knowledge,
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`skill, experience, training or education may testify in the form of an opinion or otherwise if: (a)
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`the expert’s scientific, technical, or other specialized knowledge will help the trier of fact to
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`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
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`understand the evidence or to determine a fact in issue; (b) the testimony is based on sufficient
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`facts or data; (c) the testimony is the product of reliable principles and methods; and (d) the expert
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`has reliably applied the principles and methods to the facts of the case.
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`The trial judge has a gate-keeping role to ensure that expert testimony is relevant and
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`reliable. Daubert v. Merrill Dow Pharm., Inc., 509 U.S. 579 (1993). Indeed, “[t]he proponent [of
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`the expert testimony] need not prove to the judge that the expert’s testimony is correct, but she
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`must prove by a preponderance of the evidence that the testimony is reliable.” Moore v. Ashland
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`Chemical, Inc., 151 F.3d 269, 276 (5th. Cir. 1998). “The reliability prong [of Daubert] mandates
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`that expert opinion ‘be grounded in the methods and procedures of science and . . . be more than
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`unsupported speculation or subjective belief.’” Johnson v. Arkema, Inc., 685 F.3d 452, 459 (5th
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`Cir. 2012) (quoting Curtis v. M & S Petroleum, Inc., 174 F.3d 661, 668 (5th Cir. 1999)).
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`Factors to consider in determining whether a proposed expert’s methodology is
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`scientifically valid or reliable are:
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`(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.
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`See Daubert, 509 U.S. at 593–95. A court must decide whether the Daubert factors are
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`appropriate, use them as a starting point, and then ascertain if other factors should be considered.
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`Hathaway v. Bazany, 507 F.3d 312, 318 (5th Cir. 2007).
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`In Kumho Tire Company, Limited v. Carmichael, the Supreme Court applied the Daubert
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`principles to technical or specialized expert testimony. 526 U.S. 137 (1999). The Court explained
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`that the overarching goal of Daubert’s gate-keeping requirement is to “ensure the reliability and
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`2
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`relevancy of expert testimony. It is to make certain that an expert, whether basing testimony upon
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`professional studies or personal experience, employs in the courtroom the same level of intellectual
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`rigor that characterizes the practice of an expert in the relevant field.” Id. at 152. A trial court has
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`the discretion to exclude expert testimony if there is “simply too great an analytical gap” between
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`the expert’s reasoning and the conclusion. Gen. Elec. Co. v. Joiner, 522 U.S. 136, 146 (1997).
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`“At base, ‘the question of whether the expert is credible or the opinion is correct is
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`generally a question for the fact finder, not the court.’” Eidos Display, LLC v. Chi Mei Innolux
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`Corp., No. 6:11-CV-201-JRG, 2017 WL 1079441, at *2 (E.D. Tex. Mar. 22, 2017) (quoting
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`Summit 6, LLC v. Samsung Elecs. Co., Ltd., 802 F.3d 1283, 1296 (Fed. Cir. 2015)). “Under Rule
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`702, the question is whether the expert relied on facts sufficiently related to the disputed issue.”
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`i4i Ltd. P’ship v. Microsoft Corp., 598 F.3d 831, 856 (Fed. Cir. 2010), aff’d, 564 U.S. 91 (2011).
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`“To properly carry this burden, the patentee must ‘sufficiently [tie the expert testimony on
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`damages] to the facts of the case.’” Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1315–16
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`(Fed. Cir. 2011) (citation omitted). “Questions about what facts are most relevant or reliable to
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`calculating a reasonable royalty are for the jury.” i4i Ltd. P’ship, 598 F.3d at 856. “The jury [is]
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`entitled to hear the expert testimony and decide for itself what to accept or reject.” Id.
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`“Daubert and Rule 702 are safeguards against unreliable or irrelevant opinions, not
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`guarantees of correctness.” Id. at 854. Also, the “existence of other facts . . . does not mean that
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`the facts used failed to meet the minimum standards of relevance or reliability.” Id. at 855–56.
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`For example, “any reasonable royalty analysis necessarily involves an element of approximation
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`and uncertainty.” Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1325 (Fed. Cir. 2009)
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`(citation and internal quotation omitted).
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`3
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`DISCUSSION
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`I.
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`Salters’s Royalty Calculations Based on HP’s Purported Incremental Profits
`from PoE Chips (¶¶ 129–138; 142, 146)
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`Salters opines that based on HP’s purported incremental profits on the sale of PoE chips
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`attributable to the ‘930 Patent, the appropriate royalty amount would be $415,000. Doc. No. 815,
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`Ex.1 (“Salters’s Report) at 44. In so opining, Salters isolates HP’s fixed operating costs on the
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`accused products from variable costs. Id. at ¶ 136. Specifically, she treats half of HP’s operating
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`expenses other than research and development (field selling, marketing, administration) as fixed
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`(“50% rule of thumb”). Id.
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`Plaintiff argues that Salters’s reliance on this 50% rule of thumb is impermissible under
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`Daubert because it is not tied to the facts of this case, and is justified only by ipse dixit, i.e., her
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`own experience. Doc. No. 815 at 12. Plaintiff concludes that Salters’s calculated royalty is
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`unreliable. Id. Plaintiff urges the Court to strike this calculation and resulting reasonable royalty.
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`Id.
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`HP notes that in arriving at her apportionment calculation, Salters cites to “StoneTurn
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`Workpaper 11” as a source of support. Doc. No. 845 at 2. HP notes that in StoneTurn Workpaper
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`11, Salters references the evidence she relied upon in arriving at her apportionment profit
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`calculation: (1) an income statement prepared by HPE, showing revenue and expenses for HP’s
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`Switching Business Segment, which sells the accused network devices (“HPE Shreadsheet”); and
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`(2) the deposition testimony of Mark Thompson, HPE Director of Product Line Management for
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`Campus Switching, a corporate witness for HPE. Id. at 2–3.
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`Specifically, HP highlights Thompson’s testimony that “other expenses”—such as field
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`selling, marketing, and administrative—were allocated, meaning HP allocated those expenses
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`based on revenue. Doc. No. 845 at 3 (citing Ex. C, Thompson Depo. at 49:9–23). HP argues that
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`4
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`although this testimony supports Salters’s decision to treat these “other expenses” or allocated
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`costs as 100% variable, she chose a more conservative 50% approach, which benefits Plaintiff.
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`Id. at 4.3 Plaintiff does not dispute this. Doc. No 815 at 12 (“. . . Salters purports to isolate HP’s
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`fixed operating costs on the accused products (which do not reduce incremental profits) from
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`variable costs (which do).”) (emphases added).
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`HP also notes that the HPE Spreadsheet reflects the fact that the absolute dollar amounts
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`of these “other expenses” did not remain constant (fixed), while the costs as a percentage of total
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`sales were inconsistent (variable). Doc. No. 845 at 4. HP concludes that this supports Salters’s
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`decision to treat these allocated expenses as variable. Id.
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`Plaintiff's concerns regarding Salters's testimony goes to its weight, not admissibility. As
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`Plaintiff concedes, “[t]he dispositive question is: did Ms. Salters rely on anything other than her
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`own ‘experience’—i.e., actual evidence tied to the facts of this case—to conclude that 50% of
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`HP’s non-R&D operating expenses (e.g., field selling, marketing and administrative) are fixed
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`costs?” Doc. No. 884 at 2. The answer is yes. Salters admits that she relies on her experience as
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`an economist in applying the 50% rule of thumb, and that she does not have sufficient detail to
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`fully understand the variable and fixed components of these operating expenses. 4 However,
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`Salters’s decision to treat 50% of the allocated operating costs as variable is based on Thompson’s
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`deposition testimony and on the HPE Spreadsheet. Both support sources reflect the facts of this
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`case, and are cited in Salters’s Report. See Salters’s Report at ¶¶ 135–136
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`At the Hearing, Plaintiff’s counsel challenged Ms. Salters’s conclusion that these “other
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`expenses” in the HPE spreadsheet are variable, merely based on the fact they fluctuate annually.
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`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.
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`5
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`Case 6:11-cv-00492-RWS-KNM Document 961 Filed 09/13/17 Page 6 of 6 PageID #: 22672
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`H’ring Tr., Doc. No. 931, at 18–20. Plaintiff’s Reply Brief also argues that Thompson’s testimony
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`that the amount of HP’s expense are “actual amounts” and “allocated amounts” is irrelevant to
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`whether costs are fixed or variable. Doc. No. 884 at 3 n.3. However, to the extent Plaintiff
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`disagrees with the accuracy of Salters’s decision to treat the fluctuating numbers in the spreadsheet
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`as variable costs, or her decision to be conservative by treating only 50% of the operating costs as
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`variable based on Thompson’s deposition testimony, these concerns are best addressed through
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`vigorous cross examination at trial, not wholesale exclusion. These concerns, as well as the other
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`concerns Plaintiff has raised in the briefing, go to the weight, not admissibility of Salters’s
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`testimony.
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`II.
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`Salters’s Opinion Applying the IEEE’s 2015 Definition of a “Reasonable
`Rate” (¶¶ 32–35 and ¶ 126)
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`Plaintiff next argues that the Court should exclude portions of Salters’s testimony that
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`apply the 2015 Patent Policy definition of “reasonable rates” to the 2003 LOA. Doc. No. 810 at
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`4–5. Plaintiff’s argument mirrors the argument from its Motion to Exclude the Testimony of
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`Juniper’s Damages Expert Alan Ratliff. Compare Doc. No. 809 with Doc. No. 815. The Court
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`denies this part of the Motion for the same reasons it denies Plaintiff’s Motion to Exclude the
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`Testimony of Alan Ratliff. See Doc. No. 958.
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`CONCLUSION
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`For the reasons stated above, the Motion is DENIED. Doc. No. 815.
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`6
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`So ORDERED and SIGNED this 13th day of September, 2017.
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