C. Mr. Gemini's Reasonable Royalty Analysis is Proper
Mr. Gemini's report includes a calculation of a reasonable royalty, which is the minimum basis for damages guaranteed to a patentee under 35 U.S.C. § 284. Mr. Gemini's reasonable royalty analysis follows a well-accepted methodology for determining a reasonable royalty, namely applying the Georgia Pacific factors to the facts of this case in a hypothetical negotiation at the time infringement began.
The Federal Circuit has held that "[t]he amount of damages based on a reasonable royalty is an issue of fact." Micro Chem., Inc. v. Lextron, Inc., 317 F.3d at 1394. "The correct measure of damages is a highly case specific and fact-specific analysis." Hebert v. Lisle Corp., 99 F.3d 1108, 1119 (Fed. Cir. 1996). The Federal Circuit has also stated that a reasonable royalty may be measured as a percentage of a variety of different numbers. See, e.g., Fromson, 853 F.2d 1568, 1578 (Fed. Cir. 1988) ("The royalty may, for example, be measured as a percentage of Western's gross or net profit dollars, or as a set amount per infringing plate sold, or as a percentage of the gross or net price received for each infringing plate"). "The hypothetical negotiation tries, as best as possible, to recreate the ex ante licensing negotiations scenario and to describe the resulting agreement. In other words, if infringement had not occurred, willing parties would have executed a license agreement specifying a certain royalty payment scheme." Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1324 (Fed. Cir. 2009). The hypothetical negotiation "necessarily involves an element of approximation and uncertainty." Id. at 1326.
The Federal Circuit has consistently approved of an experts use of a hypothetical negotiation utilizing the Georgia Pacific factors to estimate a reasonably royalty. See, e.g., Micro Chem., Inc., 317 F.3d at 1393. Mr. Gemini has addressed each of these factors in his report. Like its arguments concerning Mr. Gemini's lost profit analysis, Interwoven again challenges Mr. Gemini's conclusions. However, these conclusions do not undermine Mr. Gemini's well-reasoned methodology and relate to the weight or Mr. Gemini's testimony, not its admissibility. Interwoven may challenge his conclusions at trial and present contrary evidence through its own experts. Ultimately, Interwoven's arguments rest on a fundamental misunderstanding of the analysis performed by Mr. Gemini.
1. Mr. Gemini's Royalty Base was Proper Because the TeamSite Platform and LiveSite Products use the Patented Technology
Interwoven argues that Mr. Gemini uses an improper royalty base under LaserDynamics, Inc. v. Quanta Comp., Inc., 694 F.3d 51, 67-68 (Fed. Cir. 2012), because Mr. Gemini has not identified the smallest salable patent practicing unit and has thus failed to apportion the damages to that part of the TeamSite and LiveSite products that use the patented technology. However,
the entire market value rule does not apply in this scenario and, even if it does, the patented technology drives the demand for the Teamsite and LiveSite products.
As stated above, the Federal Circuit has stated that the reasonable royalty may be measured as a percentage of any variety of different numbers, including the gross or net price from each infringing product. See Fromson, 853 F.2d at 1578-1579. The entire market value rule is a "narrow exception to the general rule that royalties are awarded based on the smallest salable patent-practicing unit." Versita 2013 U.S. App. LEXIS 8838, at *31-32 (citing LaserDynamics, Inc., 94 F.3d at 67). It applies if an infringer sells a patented product, but the patent only relates to a part of the product sold. Id. If this is the case, a patent owner can only claim damages on the entire market value of the product sold, if "the patent-related feature is the basis for customer demand.'" Lucent Techs., Inc., 580 F.3d at 1336 (citing Rite-Hite, 56 F.3d at 1549).
Here, Mr. Gemini did not apply the entire market value theory. The whole of Interwoven's Teamsite and LiveSite products use the patented technology, and Mr. Gemini has cited advertising materials that support this conclusion. (Valdetaro Decl., Exhibit 6 ¶ 10; Gemini Decl., Exhibit 7, ¶¶ 33, 53, 62-64). Thus, contrary to Interwoven's arguments, Mr. Gemini has identified the "smallest salable practicing unit." Therefore, Mr. Gemini need not have apportioned damages.
However, even though Mr. Gemini has not applied the entire market value theory in his calculations, he has assumed that the patented technology drives the demand for TeamSite and LiveSite. (Gemini Decl., Exhibit 7, ¶¶ 32-33, 53). This assumption is supported by the facts and data in this case. (Valdetaro Decl., Exhibit 7, ¶ 10).
As Interwoven duly noted in its motion, Mr. Gemini's testimony was similarly challenged in Dataquill Ltd. v. High Tech Comp. Corp., 887 F.Supp 2d 999, 1027-28 (S.D. Cal. 2011). Case3:10-cv-04645-RS Document177 Filed06/03/13
There, the defendant argued that the entire market value rule was not sufficiently addressed in Mr. Gemini's report because Mr. Gemini did not tie the patented feature to the basis for customer demand. Id. The court found that Mr. Gemini cited articles showing that the patented feature was important to the defendant's ability to compete in the market, and this was sufficient evidence from which a jury could find that the entire market value rule had been satisfied. Id. Therefore, the court declined to exclude his testimony using the total revenue of the accused products as the royalty base. Id. Here, Mr. Gemini has done just that. As provided above, he has based his testimony on the importance of the patented features to customer demand for the accused products.
Interwoven also cites IP Innovation LLC v. Red Hat, Inc., 705 F. Supp. 2d 687 (E.D. Tex. 2010) to attack Mr. Gemini's analysis. Judge Rader, Chief Judge of the Federal Circuit and sitting by designation as the presiding judge, preliminarily excluded opinions that applied the entire market rule because he found the supporting evidence to be insufficient. Id. at 689-90. However, the court invited additional evidence and a revised report. Id. at 691. Eventually, Mr. Gemini did testify at trial, so Interwoven's citation does little to discredit Mr. Gemini's report.
For these reasons, Mr. Gemini's use of the total revenue from TeamSite and LiveSite sales is proper and admissible.
