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Trading Techs. Int'l, Inc. v. CQG, Inc.

United States District Court, N.D. Illinois, Eastern Division

November 19, 2014

CQG, INC., and CQGT, LLC, Defendants

For Trading Technologies International, Inc., Plaintiff, Counter Defendant: Paul H. Berghoff, LEAD ATTORNEY, McDonnell, Boehnen, Hulbert & Berghoff, Ltd., Chicago, IL; Alan Wayne Krantz, Kirsten L. Thomson, Leif R. Sigmond, Jr., Michael David Gannon, Michelle Lynn McMullen-Tack, S. Richard Carden, McDonnell Boehnen Hulbert & Berghoff LLP, Chicago, IL; Andrea Kay Orth, Brandon J Kennedy, Christopher D Butts, Mcdonnell Boehnen Hulbert & Berghoff Llp, Chicago, IL; George I. Lee, McDonnell, Jennifer M Kurcz, McDonnell, Jeremy E. Noe, McDonnell, Matthew J. Sampson, McDonnell, Paul S. Tully, McDonnell, Boehnen, Hulbert & Berghoff, Ltd., Chicago, IL; Steven F. Borsand, Trading Technologies International, Inc., Chicago, IL.

For CQG, Inc., CQGT, LLC, Defendants, Counter Claimants: Adam Glenn Kelly, Melaina D. Jobs, William J. Kramer, William Joshua Voller, Loeb & Loeb LLP, Chicago, IL; Christopher M Swickhamer, John Anthony Cotiguala, Loeb & Loeb Llp, Chicago, IL; Jared B. Briant, Nina Y. Wang, Faegre Baker Daniels, LLP, Denver, CO; Kara Eve Foster Cenar, Bryan Cave, Chicago, IL; Mariangela M. Seale, Bryan Cave LLP, Chicago, IL.

For Trading Technologies International, Inc., Counter Defendant: Andrea Kay Orth, Kirsten L. Thomson, Michelle Lynn McMullen-Tack, Mcdonnell Boehnen Hulbert & Berghoff Llp, Chicago, IL; Michael David Gannon, McDonnell, Boehnen, Hulbert & Berghoff, Ltd., Chicago, IL; Paul S. Tully, McDonnell Boehnen Hulbert & Berghoff, Chicago, IL.


Sharon Johnson Coleman, United States District Judge.

Before the Court is defendants CQG, Inc., and CQGT, LLC, (" CQG") motion to exclude the testimony of Raymond S. Sims [606] in which CQG moves for exclusion of Trading Technologies International, Inc.'s (" TT") damages expert's testimony pursuant to Federal Rule of Evidence 702 and Daubert v. Merrell Dow Pharms.., 509 U.S. 579, 589, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993), arguing that Sims' dramatically inflates TT's proposed royalty base and royalty rate.[1] For the reasons stated herein, the Court denies the motion.

Legal Standard

Admissibility of expert testimony is within the discretion of the Court, and this Court has " wide latitude in performing its gatekeeping function and determining both how to measure the reliability of expert testimony and whether the testimony itself is reliable." Bielskis v. Louisville Ladder, Inc., 663 F.3d 887, 894 (7th Cir. 2011). " Expert testimony is permitted to assist the trier of fact with technical issues that lay people would have difficulty resolving on their own." Stollings v. Ryobi Technologies, Inc., 725 F.3d 753, 765 (7th Cir. 2013). When assessing the admissibility of expert testimony, courts generally apply four factors: (1) the qualifications of the witness; (2) whether the witness' testimony will assist the trier of fact in determining a relevant issue; (3) whether the testimony is based on sufficient data and reliable principles; and (4) whether the witness reliably applied the principles to the facts of the case. Lees v. Carthage College, 714 F.3d 516, 521-22 (7th Cir. 2013).


Raymond S. Sims is a Vice President of Charles River Associates in its Chicago office, retained by TT to offer opinions on the amount of economic damages suffered by TT due to the alleged infringement by CQG of the patents-in-suit. Charles River Associates is an international business consulting firm focusing on, among other things, intellectual property matters in the context of strategy, licensing, valuation, and litigation consulting. Sims offers the opinions in his report based on his experience as a consultant to a wide variety of business and industrial clients and governmental agencies on matters involving financial and statistical analysis and modeling for the purpose of evaluating the economic impact of business decisions, transactions, and economic events.

CQG moves to exclude Sims' testimony for the following reasons: (1) the " Applicable Trade Approach" is unreliable; (2) the " Alternative Approach" is unreliable; (3) Sims' prescribed monthly minimum royalty is inappropriate; (4) Sims' prescribed royalty rate is inflated excessively; (5) Sims misapplied the Georgia Pacific factors when he examined a hypothetical negotiation between TT and CQG.

A patentee is entitled to " damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer." 35 U.S.C. § 284. Generally, reasonable royalties must be based on the " smallest salable patent-practicing unit." Versata Software, Inc. v. SAP America, Inc. et al., 717 F.3d 1255, 1268 (Fed. Cir. 2013). The exception to the general rule is that royalties may be assessed on the entire market value of the accused product " only where the patented feature creates the basis for customer demand or substantially creates the value of the component parts." Id. The " entire market value" exception is different from an approach that assesses royalties only on infringing sales. Id.

(1) Applicable Trade Approach

The Applicable Trade Approach to assess a royalty base that Sims articulates in his report is reliable. Sims states that because TT's patent does not require that an order is actually filled, only that one is entered, the royalty base should apply to every trade entered in CQG's accused software, along with every trade viewable in the invention. This approach does not apply to every trade entered in every one of CQG's products, but sets as a royalty base only the orders that were entered in or viewable in CQG's accused products. Therefore, this approach includes any order entered in an accused product that was filled on an exchange, but not an order entered in a non-accused product that is filled on an exchange and not viewable by an accused product. Also included in this approach are orders entered on any product that is viewable in an accused product.

CQG argues that Sims' " Applicable Trade Approach" is unreliable and overstates the royalty base because Sims fails to provide the necessary evidence to show that the patented features (e.g., static price column) drove CQG's customer demand for the entire multi-component product. Thus, CQG asserts that Sims' " Applicable Trade Approach" triggers the " entire market value" exception rather than assessing the royalty on the minimum salable patent-practicing unit. This Court disagrees. The " Applicable Trade Approach" as described by Sims does not capture the entire value of a multi-component system, instead it includes only the portion of trades entered, filled, and/or viewable in the accused products.

Sims reviewed TT's previous licensing agreements to formulate his opinions. In TT's previous licensing agreements, the licensees only tracked orders that were actually filled on an exchange instead of tracking all orders entered in the software. Those agreements often approximated the number of orders entered using a multiplier with the number of known orders filled. Here, CQG recorded the number of trades entered through the accused products, so an approximation is likely unnecessary. While this approach may be challenged at trial, Sims' opinions have sufficient basis to allow his testimony.

(2) Alternative Approach

In addition to describing the " Applicable Trade Approach, " Sims provides a hypothetical alternative method of determining damages. In his hypothetical, Sims considers a $0.25 royalty rate for all orders entered, or a higher $1.25 royalty rate on orders executed, resulting in effectively the same total royalty amount because roughly one in five entered orders is actually executed. CQG argues that this alternative approach is unreliable because in eSpeed the royalty rate was only $0.25 and not the $1.25 royalty rate discussed in this approach. Yet, as TT contends, and Sims opines, this higher royalty rate is applied to a smaller subset of trades and therefore the net result is the same. Further, this alternate approach is not intended to be a standalone method of calculating damages. Instead it is meant to show that the Applicable Trade Approach in Sims' report provides a more conservative estimate of damages. The Court declines to exclude Sims' report on this basis.

(3) Monthly Minimum Royalty

Next, CQG argues that Sims' prescribed monthly minimum royalty is inappropriate because it applies to users that had access to, but did not actually enter a trade in that particular month. CQG also argues that a monthly minimum royalty is inappropriate because it is absent from TT's prior license agreements. CQG further contends that in order to impose a monthly minimum royalty on non-traders or traders who used non-accused interfaces to enter orders, Sims must show that the invention drove demand for the entire multi-component product. However, Sims bases his assessment on the assumption that having the accused product as a backup in their system provides a benefit for users that did not actually enter a trade. Sims bases this assumption on the testimony of TT's counsel, Steve Borsand. TT has also included monthly minimum royalties in past license agreements contrary to CQG's assertion. While CQG may ultimately challenge the assumption that having the backup provides a value to customers and thus the weight to be given his opinion, this Court will not exclude Sims' testimony on that basis.

(4) Inflated Royalty Rate

CQG does not dispute that Sims' shows his reasoning behind a $0.20 to $0.25 royalty for each trade entered, but CQG argues that Sims' proposed royalty rate of $1.00 to $1.25 per filled order is unsupported. However, the higher rate is based on a smaller subset of trades and, as CQG states it is based on CQG's data suggesting that the total number of orders placed in allegedly infringing screens is on average five times the number of orders filled. Thus, the net result is the same and Sims has based his analysis on facts in this case. This Court therefore does not find that Sims' opinion unsupported.

(5) Georgia Pacific Factors

Lastly, CQG argues that Sims misapplied the Georgia Pacific factors when he considered a hypothetical negotiation between CQG and TT on the eve of infringement. In Georgia-Pacific Corp. v. United States Plywood Corp., the court articulated fifteen factors to evaluate a reasonable royalty from a hypothetical negotiation on the eve of infringement. 318 F.Supp. 1116, 1120 (S.D.N.Y. 1970). CGQ argues that Sims failed to consider CQG's economic position, specifically with respect to the following five areas: (1) how expensive the royalty rate is; (2) how the royalty would impact CQG's revenues; (3) whether the royalty is justified by the needs and demands of CQG's customers; (4) whether CQG could pass the royalty rate to its customers; and (5) CQG's economic bargaining position. Yet, Sims' report enumerates the Georgia Pacific factors and indicates whether each has an upward, neutral, or downward influence on the royalty rate. Although his analysis does not address the five points that CQG raises here, his report is not without sound basis without those considerations. The Georgia Pacific analysis does not require an expert to specifically quantify the influence of each factor. As one court noted, " Applying the Georgia--Pacific factors is an exercise in imagination, and various tensions have arisen over how to properly write this fiction." BASF Corp. v. Aristo, Inc., (N.D. Ind. June 29, 2012) Here, Sims provides adequate basis for the opinions in his report by analyzing a hypothetical negotiation with references to TT's past licenses and CQG's prior software license agreements with a per-transaction royalty. It is for the jury to decide the correctness of the facts that underlie Sims' opinion. See i4i Ltd. Partnership v. Microsoft Corp., 598 F.3d 831, 856 (Fed. Cir. 2010).

The Court denies CQG's Motion to Exclude the Testimony of Raymond S. Sims [606].


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