United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
ST. EVE, DISTRICT COURT JUDGE
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.
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
‘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).
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.
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
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.
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.
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.
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.).
Federal Rule of Evidence 702 and Daubert
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).
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
Patent Infringement Damages
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 ...