Microsoft Corporation v. Corel Corporation et al, No. 5:2015cv05836 - Document 221 (N.D. Cal. 2017)
Court Description: ORDER GRANTING 169 COREL'S MOTION TO EXCLUDE CERTAIN OPINIONS OF PLAINTIFF'S DAMAGES EXPERT. Signed by Judge Edward J. Davila on 12/11/2017. (ejdlc2S, COURT STAFF) (Filed on 12/19/2017)
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1 2 3 4 5 6 7 8 9 10 United States District Court Northern District of California 11 12 UNITED STATES DISTRICT COURT 13 NORTHERN DISTRICT OF CALIFORNIA 14 SAN JOSE DIVISION 15 16 MICROSOFT CORPORATION, Case No. 5:15-cv-05836-EJD Plaintiff, 17 v. 18 19 COREL CORPORATION, et al., Defendants. ORDER GRANTING DEFENDANTS’ MOTION TO EXCLUDE CERTAIN OPINIONS OF PLAINTIFF'S DAMAGES EXPERT Re: Dkt. No. 169 20 21 22 Defendants Corel Corporation and Corel Inc. move to exclude certain opinions of Plaintiff 23 Microsoft Corporation’s damages expert under Fed. R. Evid. 702. Corel’s motion will be granted. 24 25 26 27 28 I. BACKGROUND On March 30, 2017, Microsoft submitted the report of its damages expert, Ambreen Salters. Defs.’ Mot. to Exclude Certain Opinions of Pl.’s Damages Expert (“Mot.”) Ex. A Case No.: 5:15-cv-05836-EJD ORDER GRANTING DEFENDANTS’ MOTION TO EXCLUDE CERTAIN OPINIONS OF PLAINTIFF'S DAMAGES EXPERT 1 1 (“Salters Report”), Dkt. No. 169-2. Corel has not submitted a rebuttal report or a damages report 2 of its own. Pl.’s Opp’n to Defs.’ Mot. to Exclude (“Opp’n”) 2, Dkt. No. 185. In her report, Salters adopted the “hypothetical negotiation” approach to “ascertain the 3 4 royalty upon which the parties would have agreed had they successfully negotiated a license 5 agreement just before the infringement began.” Id. Salters based her royalty analysis on a 6 “design-around” theory, under which she estimated the amount it would have cost Corel to design 7 around the utility patents that Microsoft asserts in this case. Id. at 2–3; Mot. 1. Corel now moves 8 under Fed. R. Evid. 702 to exclude two parts of Salters’s report relating to (1) the hypothetical 9 cost to Corel to design around Microsoft’s asserted patents and (2) the implementation of her 10 United States District Court Northern District of California 11 proposed alternative non-infringing designs. Id. 1–2. II. LEGAL STANDARD Fed. R. Evid. 702 provides that a qualified expert may testify if “(a) the expert’s scientific, 12 13 technical, or other specialized knowledge will help the trier of fact to understand the evidence or 14 to determine a fact in issue; (b) the testimony is based on sufficient facts or data; (c) the testimony 15 is the product of reliable principles and methods; and (d) the expert has reliably applied the 16 principles and methods to the facts of the case.” In Daubert v. Merrell Dow Pharmaceuticals, Inc., 17 509 U.S. 579, 589 (1993), the Supreme Court held that Rule 702 requires the district court to act 18 as a gatekeeper to “ensure that any and all scientific testimony or evidence admitted is not only 19 relevant, but reliable.” 20 III. DISCUSSION Salters’s Use of Microsoft’s Cost Estimates 21 A. 22 Salters calculated Microsoft’s damages on the basis of the “hypothetical negotiation” 23 approach, under which “the parties are presumed to be a willing licensor and a willing licensee 24 negotiating a reasonable royalty for the patents-in-suit at a time when infringement first began.” 25 Opp’n 6 (citing Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301 (Fed. Cir. 2009)). As part of 26 her analysis, Salters considered Corel’s “design-around” cost, which is the amount of money Corel 27 28 Case No.: 5:15-cv-05836-EJD ORDER GRANTING DEFENDANTS’ MOTION TO EXCLUDE CERTAIN OPINIONS OF PLAINTIFF'S DAMAGES EXPERT 2 1 would need to spend to build a non-infringing alternative to the software features embodied in 2 Microsoft’s patents. Mot. 3; Opp’n 3, 6. Corel agrees that the “hypothetical negotiation” 3 methodology is an appropriate way to calculate reasonable royalties. Opp’n 6–7. In her report, Salters describes two possible damages scenarios: 4 5 multiplied by the time it would take a Microsoft engineer to write the code. 6 7 10 Scenario 2: Corel would spend $300,000. This is the cost of a Corel engineer multiplied by the time it would take a Microsoft engineer to write the code. 8 9 Scenario 1: Corel would spend $600,000. This is the cost of a Microsoft engineer Mot. 3. Here, Corel moves to exclude Scenario 1. Corel does not challenge Salters’s estimates of United States District Court Northern District of California 11 the time or money that it would spend under either scenario. Defs.’ Reply in Support of Mot. to 12 Exclude (“Reply”) 5, Dkt. No. 194. Nor does Corel challenge the accuracy of Salters’s 13 calculations. Id. Rather, Corel argues there is no basis for Salters to rely on Microsoft’s 14 engineering costs as a measure of damages. Id. Salters’s methodology assumes that Corel and 15 Microsoft would behave as economically rational actors in a hypothetical licensing negotiation. 16 Salters Report ¶ 50. Corel argues that Salters “provides no ‘sufficient facts or data’ ” to support 17 her position that Scenario 1 “would have been considered by Corel in this hypothetical 18 negotiation.” Reply 5 (citing Fed. R. Evid. 702(b)). “[I]t is hard to imagine,” Corel argues, “why 19 Corel would hire a Microsoft engineer, when Ms. Salters conceded Corel’s own engineers could 20 design around the asserted patents, at half the cost.” Id. at 6 (emphasis in original). Because Salters 21 does not explain why Corel would have considered Scenario 1 in the hypothetical negotiations, 22 Corel argues, Scenario 1 lacks a sufficient factual basis and must be excluded. Id. 23 Microsoft responds that Corel refused to provide “design-around cost information during 24 discovery.” Pl.’s Opp’n to Defs.’ Mot. to Exclude (“Opp’n”) 7, Dkt. No. 185. Because Salters 25 could not get cost information from Corel, she decided to speak with Microsoft engineers to 26 determine the amount of time they would take to implement the design-around code. Id. at 8. She 27 28 Case No.: 5:15-cv-05836-EJD ORDER GRANTING DEFENDANTS’ MOTION TO EXCLUDE CERTAIN OPINIONS OF PLAINTIFF'S DAMAGES EXPERT 3 1 multiplied that number by the cost of Microsoft engineers, which amounted to roughly $600,000 2 (as described in Scenario 1). She then “performed an alternative calculation using Microsoft’s time 3 estimates multiplied by Corel’s engineering costs,” which amounted to roughly $300,000 (as 4 described in Scenario 2).1 Salters presents Scenario 2 as “a potential data point the jury may wish to consider” 5 6 when evaluating damages. Id. at 8–9. The report states, without further explanation, that 7 “Microsoft and Corel would have considered the estimated design-around cost of $600,000, or in 8 the alternative, $300,000.” Salters Report ¶¶ 82, 117. At her deposition, Salters was unable to 9 explain why Corel would rationally pay more than its own design-around costs. Salters Dep., Dkt. No. 169-3 at 36–38. She argues (as Microsoft argues here) that she had no choice but to rely on 11 United States District Court Northern District of California 10 Microsoft’s time estimates because Corel’s witnesses could not provide a comparable estimate of 12 Corel’s engineering time. Id. at 36. That argument fails for two reasons. First, if Microsoft 13 believed that Corel provided insufficient information about Corel’s design-around time estimates, 14 Microsoft could have conducted discovery on that issue; and if Microsoft believed Corel’s 15 responses to those discovery requests were inadequate, Microsoft could have moved to compel. 16 Second, in any event, Salters’s report does not explain why Scenario 1 would be an economically 17 rational choice for Corel in a hypothetical licensing negotiation. Salters Report ¶ 50. As such, the Court finds that Scenario 1 must be excluded under Fed. R. Evid. 702. See 18 19 Gen. Elec. Co. v. Joiner, 522 U.S. 136, 146 (1997) (“[N]othing in either Daubert or the Federal 20 Rules of Evidence requires a district court to admit opinion evidence that is connected to existing 21 data only by the ipse dixit of the expert. A court may conclude that there is simply too great an 22 analytical gap between the data and the opinion proffered.”). Salters’s Estimate of the Cost of Designing Around the ’980 Patent 23 B. 24 Salters based her report on non-infringing alternative designs proposed by Microsoft’s 25 26 27 28 1 The parties agree that the time of a Microsoft engineer costs twice as much as the time of a Corel engineer. Case No.: 5:15-cv-05836-EJD ORDER GRANTING DEFENDANTS’ MOTION TO EXCLUDE CERTAIN OPINIONS OF PLAINTIFF'S DAMAGES EXPERT 4 1 technical expert, Dr. Daniel Menasce. Salters Report ¶ 78. Dr. Menasce described two designs 2 that would avoid infringing the asserted claims of the ’980 patent. Menasce Report ¶¶ 47–48, Dkt. 3 No. 169-4. First, Dr. Menasce proposed a “manual selection” design, in which the user would 4 manually select the range of cells to be added together. Id. ¶ 47. Second, he proposed a “separate 5 pane” design, in which the sum would be displayed in a separate pane instead of in the user’s 6 chosen cell. Id. ¶ 48. Dr. Menasce’s report states that either design, on its own, would constitute a 7 non-infringing alternative. Id. ¶¶ 47–48 (“[A] non-infringing alternative” would be the manual 8 selection design, and “[a]nother non-infringing alternative” would be the separate pane design) 9 (emphasis added). 10 In her report, Salters estimates that the cost of designing around the ’980 patent would be United States District Court Northern District of California 11 $150,000 (for a Microsoft engineer) or $75,000 (for a Corel engineer). Mot. 3. She based this 12 figure on the amount of time it would take a Microsoft engineer to implement the manual selection 13 design that Dr. Menasce proposed. Salters Report ¶¶ 78–79. That portion of her report does not 14 mention the separate pane design. In her deposition, however, Salters said that her cost estimate 15 was based on the time it would take a Microsoft engineer to implement a combination of the two 16 designs that Dr. Menasce proposed. Mot. 5–6 (quoting Salters’s deposition testimony). 17 Corel argues that Salters’s estimate of the cost of designing around the ’980 must be 18 excluded because it is not supported by “sufficient facts or data.” Mot. 6–7; see also Fed. R. Evid. 19 702(b). The Court agrees. Dr. Menasce’s report is clear that the “manual selection” and “separate 20 pane” designs are separate, independent alternatives to the design embodied in the asserted claims 21 of the ’980 patent. Menasce Report ¶¶ 47–48. Salters admits, however, that her computation is 22 based on the amount of time it would take a Microsoft engineer to implement both designs in 23 combination. Salters Dep. 28:13–29:5. As such, Salters’s cost estimate must be excluded because 24 it does not accurately represent the cost of implementing a non-infringing alternative to the design 25 embodied in the ’980 patent. 26 27 28 Case No.: 5:15-cv-05836-EJD ORDER GRANTING DEFENDANTS’ MOTION TO EXCLUDE CERTAIN OPINIONS OF PLAINTIFF'S DAMAGES EXPERT 5 1 2 3 IV. CONCLUSION Corel’s motion to exclude opinions of Ambreen Salters, Microsoft’s damages expert, is GRANTED to the extent discussed above. 4 5 6 7 8 IT IS SO ORDERED. Dated: December 11, 2017 ______________________________________ EDWARD J. DAVILA United States District Judge 9 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Case No.: 5:15-cv-05836-EJD ORDER GRANTING DEFENDANTS’ MOTION TO EXCLUDE CERTAIN OPINIONS OF PLAINTIFF'S DAMAGES EXPERT 6
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