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Sonix Technology Co., Ltd. v. Publications International

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

November 8, 2017

SONIX TECHNOLOGY CO., LTD., Plaintiff,
v.
PUBLICATIONS INTERNATIONAL, et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          AMY J. ST. EVE, DISTRICT COURT JUDGE

         Defendants Publications International, Ltd. (“PIL”), SD-X Interactive, Inc. (“SD-X”), Encyclopaedia Britannica, Inc. (“Britannica”), and Herff Jones, Inc. (“Herff Jones”) have moved to bar the testimony of Plaintiff Sonix Technology Co.'s (“Sonix”) damages expert Dr. Patrick Kennedy pursuant to the Federal Rules of Evidence and Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993). For the following reasons, the Court, in its discretion, grants in part without prejudice and denies in part Defendants' motion. Plaintiff must file Dr. Kennedy's supplemental report explaining the hypothetical negotiation date he is using and the basis for his conclusion that regardless of which hypothetical negotiation date is used, namely, October 2009 or March 2010, his reasonable royalty analysis would remain the same. Dr. Kennedy's supplemental report is due before November 18, 2017. Defendants' supplemental rebuttal report, limited to this issue, is due before December 1, 2017.

         PROCEDURAL BACKGROUND

         On March 8, 2013, PIL and SD-X filed a lawsuit seeking declaratory judgment of non-infringement and invalidity of United States Patent No. 7, 328, 845 (“the ‘845 patent”), against Sonix, the owner of the ‘845 patent. On March 18, 2013, Sonix, a Taiwanese company that designs and develops integrated circuits and related products, filed the present lawsuit involving the same occurrence. Rather than pursue service of a Taiwanese defendant, PIL and SD-X moved to voluntarily dismiss their action, which the district court granted on May 9, 2013. PIL and SD-X filed an answer in the present lawsuit on April 25, 2013. On September 17, 2013, Sonix filed a First Amended Complaint adding Herff Jones and Britannica as named Defendants.

         The ‘845 patent, entitled “Method for Producing Indicators and Processing Apparatus and System Utilizing the Indicators, ” issued on February 12, 2008 and is directed to the use of graphical indicators (e.g., a matrix of small dots) affixed to the surface of an object and negligible to the human eye that provide information, beyond the visual text and images on the object's surface, that is retrievable through an electronic system. The ‘845 patent describes a method for producing visually negligible dot patterns - referred to as “graphical indicators” - affixed to a surface (e.g., the page of a book), that overlap and co-exist, but do not interfere, with the main information on the surface of the object (e.g., visual text and images). By the time Sonix filed this lawsuit in March 2013, the ‘845 patent had undergone two ex parte reexaminations before the United States Patent and Trademark Office (“PTO”) - both resulting in the issuance of Ex Parte Reexamination Certificates on December 27, 2011 and December 26, 2012. The ‘845 patent was also subject to litigation that the parties settled and voluntarily dismissed in June 2011. See Sonix Tech. Co., Ltd. v. VTech Elecs. N. Am., LLC, 10 C 8291 (N.D. Ill. June 25, 2011).

         In July 2015, Defendants filed a motion for summary judgment pursuant to Federal Rule of Civil Procedure 56(a) arguing that the ‘845 patent was invalid and non-infringed. In December 2015, the Court granted Defendants' summary judgment motion on the ground that the ‘845 patent was invalid for indefiniteness. Specifically, the Court concluded that the claim term “visually negligible” was subjective, that the claim language did not provide guidance on its meaning, and that the written description did not provide a person of ordinary skill in the art “with a meaning that is reasonably certain and defines objective boundaries as to the scope of ‘visually negligible' as used in the ‘845 Patent.

         In early 2016, Sonix appealed to the United States Court of Appeals for the Federal Circuit. The Federal Circuit reversed the determination of indefiniteness and the judgment of invalidity on the ground that the term “visually negligible” was not indefinite. The Federal Circuit specifically concluded that the claim term “visually negligible” was not purely subjective because “the question of whether something is ‘visually negligible' or whether it interferes with a user's perception…involves what can be seen by the normal human eye.” Sonix Tech. Co., Ltd v. Publications Int'l, Ltd., 844 F.3d 1370, 1378 (Fed. Cir. 2017). Further, the Federal Circuit concluded that although “visually negligible” is “a term of degree, ” what “can be seen by the normal human eye” is an “objective baseline through which to interpret the claims.” Id. In sum, the Federal Circuit held “that ‘visually negligible' is not a purely subjective term and that, on this record, the written description and prosecution history provide sufficient support to inform with reasonable certainty those skilled in the art of the scope of the invention.” Id. at 1381. The parties are now proceeding to trial.

         DEFENDANTS' DAUBERT MOTION

         Sonix has submitted Dr. Patrick Kennedy as its expert on damages. As discussed in detail below, Dr. Kennedy's May 5, 2015 expert report details his damages opinion based on the hypothetical negotiation approach to calculating reasonable royalty damages. See, e.g., Prism Techs. LLC v. Sprint Spectrum L.P., 849 F.3d 1360, 1375 (Fed. Cir. 2017). Defendants have submitted Mr. David J Harkavy, who has a Masters Degree in Finance and is a Director at the Claro Group, as their expert rebuttal witness regarding damages. In the present Daubert motion, Defendants challenge Dr. Kennedy's expert opinions arguing that he did not calculate a hypothetical negotiation date, but instead assumed that the negotiation took place at some point in 2010, and that based on this foundational issue, the remainder of his analysis is invalid. Defendants also argue that Dr. Kennedy did not calculate a separate hypothetical negotiation date for each Defendant.

         DR. KENNEDY'S QUALIFICATIONS

         Turning to Dr. Kennedy's qualifications, in 1986, he graduated summa cum laude from the University of California, San Diego with a B.A. in Economics. During his time at the University of California, San Diego, Dr. Kennedy received the Seymour E. Harris Economic Award for being the top economics student at the university. Dr. Kennedy continued to graduate school, and, in 1992, he graduated from Stanford University with a Ph.D. in Economics. While working on his Ph.D., Dr. Kennedy was a teaching assistant for a macroeconomics course and a lecturer in financial economics.

         From 1992 to 1995, Dr. Kennedy was an Economist for the Board of Governors of the Federal Reserve System in Washington, D.C. In 1995, Dr. Kennedy became the Director of Economic Research for International Securities Group, Inc. From 1996 to 2006, Dr. Kennedy worked for BMB Mack Barclay, Inc. (“Mack Barclay”), an expert services firm, where he became a shareholder in 1998. After the global expert services and consulting firm LEGG acquired Mack Barclay, Dr. Kennedy began working for LECG, where he became Managing Director in 2008. Presently, Dr. Kennedy is the Managing Director for Torrey Partners, an economic, forensic accounting, and valuation services firm headquartered in San Diego. As the Managing Director of Torrey Partners, Dr. Kennedy provides analysis, consultation, and opinions in business and dispute contexts, including discovery assistance, causation analysis, feasibility analysis, damage quantification, and testimony in federal and state courts.

         Additionally, Dr. Kennedy holds numerous licenses and professional memberships. He belongs to the American Economic Association, the National Association for Business Economics, the National Association for Forensic Economics, and the Licensing Executive Society. Dr. Kennedy is also an Economic Leadership Board Member for the University of California, San Diego. Furthermore, he has served as an expert witness in numerous patent and intellectual property cases. See, e.g., Immersion Corp. v. Samsung Electronics, Ltd. (2:17-cv-0572, E.D. Tex.); Innovative Display Technologies v. Hewlett Packard (2:13-cv-0524, E.D. Tex.); Carucel Investments, L.P. v. Novatel Wireless, Inc. (16-cv-118-H, S.D. Cal.); Wal-Mart Stores, Inc. v. Cuker Interactive, LLC (5:14-cv-5262, W.D. Ark.); Fortinet, Inc. v. Sophos, Inc. (13-cv-5831-EMC, N.D. Cal.); HM Electronics, Inc. v. R.F. Tech., Inc. (12-cv-2884-BAS, S.D. Cal.); Plew v. Limited Brands, Inc. (1:08-cv-3741, S.D.N.Y.).

         LEGAL STANDARDS

         I. Federal Rule of Evidence 702 and Daubert

         “In Daubert v. Merrell Dow Pharmaceuticals, Inc., the Supreme Court explained that Rule 702 requires the district court to serve in a gatekeeping role and make ‘a preliminary assessment of whether the reasoning or methodology underlying the testimony is scientifically valid.'” Haley v. Kolbe & Kolbe Millwork Co., 863 F.3d 600, 611 (7th Cir. 2017) (quoting Daubert, 509 U.S. at 592-93). In short, “Daubert requires the district court to act as an evidentiary gatekeeper, ensuring that an expert's testimony rests on a reliable foundation and is relevant to the task at hand.” Krik v. Exxon Mobil Corp., 870 F.3d 669, 674 (7th Cir. 2017). Although the Seventh Circuit reviews “the district court's application of Daubert [] de novo, ” if “the court adhered to the Daubert framework, then its decision on admissibility is reviewed for abuse of discretion.” Estate of Stuller v. United States, 811 F.3d 890, 895 (7th Cir. 2016).

         A district court's evaluation of expert testimony under Daubert does not “take the place of the jury to decide ultimate issues of credibility and accuracy.” Lapsley v. Xtek, Inc., 689 F.3d 802, 805 (7th Cir. 2012). Once it is determined that “the proposed expert testimony meets the Daubert threshold of relevance and reliability, the accuracy of the actual evidence is to be tested before the jury with the familiar tools of ‘vigorous cross-examination, presentation of contrary evidence, and careful instruction on the burden of proof.'” Id. (quoting Daubert, 509 U.S. at 596). A district court's inquiry under Daubert is a flexible one and district courts have wide latitude in performing this gate-keeping function. See Kumho Tire Co. v. Carmichael, 526 U.S. 137, 141, 119 S.Ct. 1167, 143 L.Ed.2d 238 (1999). “‘[T]he key to the gate is not the ultimate correctness of the expert's conclusions, '” rather, “‘it is the soundness and care with which the expert arrived at her opinion[.]'” C.W. ex rel. Wood v. Textron, Inc., 807 F.3d 827, 834 (7th Cir. 2015) (citation omitted). “[T]he proponent of the evidence must establish that the expert's testimony is reliable (and relevant) by a preponderance of the evidence.” United States v. Saunders, 826 F.3d 363, 368 (7th Cir. 2016).

         II. Patent Infringement Damages

         “When a patent is infringed, the 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.'” Whitserve, LLC v. Computer Packages, Inc., 694 F.3d 10, 26 (Fed. Cir. 2012) (quoting 35 U.S.C. § 284). Put differently, a “patent owner, having prevailed on liability, may receive a reasonable royalty or lost profits, but not both for the same infringing units.” Asetek Danmark A/S v. CMI USA Inc.,852 F.3d 1352, 1362 (Fed. Cir. 2017). “A reasonable royalty may be calculated using one of two baselines, ” namely, “an established royalty” or “upon the supposed result of hypothetical negotiations between the plaintiff and defendant.” Versata Software, Inc. v. SAP Am., Inc.,717 F.3d 1255, 1267 (Fed. Cir. 2013) (citation and quotation marks omitted). The hypothetical ...


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