Delaware Court Partially Excludes Plaintiff’s and Defendant’s Damages Expert Opinions Due to Methodology and Support Issues

Bayer Healthcare LLC v. Baxalta Inc., et al., Case No. 16-CV-1122-RGA (U.S.D. Del., Jan. 25, 2019)

Delaware District Court denied portions of both plaintiff’s and defendants’ damages expert opinions after each side sought to exclude the opposing party’s expert testimony.

Plaintiff contended that Defendants’ damages opinion 1) failed to fully incorporate the assumption that the patent is valid and infringed, 2) included an arbitrary apportionment analysis lacking economic foundation, and 3) failed to demonstrate that the comparability of licenses relied upon to the hypothetical negotiation-based license.  On the arguments related to infringement and apportionment, the court disagreed with Plaintiff.  However, the court agreed with Plaintiff that some portions of Defendant’s expert’s opinions did not properly include an assumption of infringement and accordingly excluded portions of the expert’s opinions.  On the issue of license comparability, the court rejected the Plaintiff’s argument regarding technical comparability but agreed with its arguments on economic comparability and excluded Defendants’ damages expert’s comparable license opinion.

Defendants argued to exclude portions of Plaintiff’s damages expert’s testimony due to the Plaintiff’s expert 1) use of the Nash Bargaining Solution without tying the analysis to the particular facts and circumstances in the instant case and 2) failure to properly apportion damages.  The court sided with Defendants on the first issue finding that the expert’s analysis failed to tie the facts and circumstances of the case to the analysis and excluded the expert’s reasonable royalty rate opinion, which was based on the Nash Bargaining Solution.  On the second argument regarding apportionment, the court found Plaintiff’s expert’s analysis adequately reliable and appropriately connected to the facts and circumstances of the case and admitted the expert’s reasonable royalty opinion.

In December 2016, Bayer Healthcare LLC (“Bayer” or “Plaintiff”) filed suit against Baxalta Inc., Baxalta US Inc., and Nektar Therapeutics (“Baxalta” or “Defendants”) alleging infringement of Bayer’s U.S. Patent No. 9,364,520 (“’the 520 patent”) related to a protein factor essential to blood clotting when an injury has occurred. (1) Both sides sought to exclude the opposing experts’ opinions on numerous bases.

Bayer sought exclusion of Baxalta’s damages expert for failure 1) to assume a valid and infringed patent, 2) to perform a proper apportionment, and 3) to demonstrate technical and economic comparability of licenses.

Assumption of Validity and Infringement

Bayer contended that Baxalta’s damages expert failed to fully incorporate a fundamental assumption that the patent is valid and infringed, arguing that Baxalta’s damages expert based his analysis on Defendants’ technical expert’s assertions that the patent-at-issue provides little incremental value over prior art.

On the point of validity, the court disagreed, finding that Defendants’ damages expert’s testimony is not “inconsistent with the assumption that the ‘520 patent is valid”(2)  but “that the patent ‘makes at most a small ‘improvement’ to the prior art,’ and thus the parties to the hypothetical negotiation ‘would have accorded little or no value to the ‘520 patent compared to prior art.’” (3)  The court also noted, “Validity does not define a patent’s economic value–a patent can be valid yet offer little economic value over existing inventions.  Thus … damages may require technical comparisons between claimed invention and prior art.”(4)

Regarding the assumption of infringement, the court did find that portions of Defendants’ damages expert’s testimony was “inconsistent with the assumption of infringement” based on the court’s claim construction and accordingly excluded the related portions of the expert’s opinions.(5)

Apportionment

Bayer also argued that Baxalta’s damages expert’s apportionment analysis was arbitrary and lacking in economic foundation.(6) The court, however, found that the expert “provided sufficient evidence to show that he applies reliable methods to the facts of this case to support” (7) the apportionment analysis.  The court also noted that Bayer’s arguments were issues of weight and credibility better addressed through cross-examination.

Comparability of Licenses

Bayer further maintained that Baxalta’s damages expert failed to demonstrate that the licenses relied upon were technically and economically comparable to the license to which the parties would have agreed in the hypothetical negotiation.

On the issue of technical comparability, Bayer contended that the expert’s criteria for selecting comparable licenses was overly broad and referenced Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1327-32 (Fed. Cir. 2009) and M2M Solutions LLC v. Enfora, Inc., 167 F Supp. 3d 665 (D. Del. 2016).  In response, the court noted that in both of these cases, “the parties failed to even identify the relevant technology in the asserted patent and the prior licenses.”  (8) In this matter, however, the court found that Baxalta’s expert met the standard under Daubert regarding technical comparability by identifying the relevant field of manufacturing and describing “the specific manufacturing technology in each of the prior licenses.”  (9)

Regarding economic comparability, Bayer maintained that a license resulting from the hypothetical negotiation would be a “non-exclusive, running royalty license between competitors.” (10) It argued that Baxalta’s damages expert’s four selected licenses were not comparable to the hypothetical license in that only one of the selected licenses was non-exclusive, only two were between competitors, and none included a running royalty.

The court acknowledged the strength of Bayer’s argument regarding the running royalty license that would result from the hypothetical negotiation and the lump sum licenses used by Baxalta’s expert.  Citing Lucent, the court noted, “‘Significant differences exist between a running royalty license and a lump-sum license.’”(11) However, provided some basis for comparability can be demonstrated, such lump sum licenses can still be relevant to a running royalty damages analysis.

After reviewing the payment terms of the licenses used by Baxalta’s damages expert, the court found that the expert failed “to show ‘some basis for comparison’ to rely on the selected licenses to support his running royalty opinion” (12) and excluded the expert’s comparable license opinion.

Baxalta also sought to exclude portions of Bayer’s damages expert’s opinions due to the expert’s failure to tie his Nash Bargaining Solution analysis to case facts and to perform an appropriate apportionment analysis.

Failing to Tie Methodology to Case Facts

Citing VirnetX, Inc. v. Cisco Sys., Inc., 767 F.3d 1308, 1325, 1333-34 (Fed. Cir. 2014), Baxalta argued that Bayer’s expert use of the Nash Bargaining Solution without tying the analysis to the particular facts and circumstances in this case essentially turned the Nash Bargaining Solution into “a ‘rule of thumb’ inadmissible under Daubert.”  (13) In response, Bayer cited AstraZeneca AB v. Apotex Corp., 782 F.3d 1324, 1332-33 (Fed. Cir. 2015) in which the Federal Circuit upheld the district court’s affirmation of the use of a 50/50 profit split to determine royalty damages.

In this matter, Bayer’s damages expert performed an analysis to determine the maximum and minimum royalty rates based on an incremental profit analysis and then, under his assumption that the parties to the hypothetical negotiation would have had equal bargaining power, concluded that the reasonable royalty would be the midpoint between the maximum and minimum incremental profits amounts. Bayer argued that this methodology is not employing the Nash Bargaining Solution but rather an analysis under “the Georgia-Pacific framework to account for the similar size and sophistication of the negotiation parties, which indicates equal bargaining power.” (14)

The court, however, sided with Baxalta stating the expert’s “50/50 split analysis is materially identical to the excluded testimony in  VirnetX. [Plaintiff’s expert] invokes the Nash Bargaining Solution without establishing the necessary Nash premises. Instead of applying the 50/50 split to the incremental profits directly, like the expert in VirnetX, [Plaintiff’s expert] applies the split to a range of royalty rates, with the upper bound based on the incremental profits. See VirnetX, 767 F.3d at 1331-34. I do not think that changes the admissibility analysis. [Plaintiff’s expert’s] use of a range of royalty rates does not cure his failure to tie the Nash premises to the facts of this case.  Therefore, [Plaintiff’s expert’s] opinion that a reasonable royalty rate is ‘the mid-point of the bargaining range’ is excluded, including any subsequent opinions that rely on that mid-point rate.” (15)

Apportionment

Second, Baxalta claimed that Bayer’s damages expert did not properly apportion damages.  In his analysis, Bayer’s expert calculated the difference in profits between the infringing product and a prior generation product considered almost identical absent the infringing features.  Baxalta argued that apportioning down to the product was not sufficient but rather further apportionment should be performed to account for the non-infringing features of each product.  The court disagreed, however, finding Bayer’s expert’s “apportionment analysis sufficiently reliable and related to the facts of this case,” (16) and did not exclude the expert’s reasonable

Author(s): Krista L. Santino   

Editor(s):  Barry L. Bell   

Cases Referenced:

Bayer Healthcare LLC v. Baxalta Inc. et al.,

Case No. 16-cv-1122-RGA (D. Del. Jan. 25, 2019)

Lucent Techs., Inc. v. Gateway, Inc.,

580 F.3d 1301, 1327-32 (Fed. Cir. 2009)

M2M Solutions LLC v. Enfora, Inc.,

167 F. Supp 3d 665 (D. Del. 2016)

VirnetX, Inc. v. Cisco Sys., Inc.,

767 F.3d 1308, 1325, 1333-34 (Fed. Cir. 2014)

AstraZeneca AB v. Apotex Corp.,

782 F.3d 1324, 1332-33 (Fed. Cir. 2015)

1 Complaint, Bayer Healthcare LLC v. Baxalta Inc., et al., Case No. 16-CV-1122-RGA (U.S.D. Del.), Dec. 5, 2016; Memorandum Order, Bayer Healthcare LLC v. Baxalta Inc., et al., Case No. 16-CV-1122-RGA (U.S.D. Del.), Jan 25, 2019, at 4.

2 Memorandum Order, Bayer Healthcare LLC v. Baxalta Inc., et al., Case No. 16-CV-1122-RGA (U.S.D. Del.), Jan. 25, 2019, at 4.

3 Id. at 4.

4 Id. at 4.

5 Id. at 5.

6 Id. at 6.

7 Id. at 7.

8 Id. at 9.

9 Id. at 9.

10 Id. at 9.

11 Id. at 10.

12 Id. at 11.

13 Id. at 12.

14 Id. at 14.

15 Id. at 15–16.

16 Id. at 18.

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