Chanbond was 1 of 3 summaries in June newsletter, alongside ~Gamevice, Inc. v. Nintendo Co., Ltd., et al 4 & Finjan, Inc v. Juniper Network, Inc.
Despite the pandemic, the number of Daubert Decisions available to analyze in 2020 remained relatively constant with 120. The overall exclusion rate for such decisions—where the Court either granted or partially granted a motion to exclude or limit a damages expert’s testimony—was 40%, down from 48% in 2019. Since 2015, expert testimony has remained more likely to be admissible than inadmissible.
Decisions regarding challenges to the reliability or relevance of the damages expert’s methodology, including lost profits and reasonable royalty, continued to be the most prevalent challenges. In 2020, 73% of decisions included a decision on reliability or relevance, 6% on qualifications, and 44% on other topics such as disclosure issues, missed deadlines, and Rule 403 concerns. Challenges to these other topics were the most successful in 2020 and over the entire period with an exclusion rate of approximately 41%.2
On September 21, 2015, ChanBond, LLC (ChanBond) filed a complaint against Atlantic Broadband Group, LLC (Atlantic Broadband) alleging that Atlantic Broadband infringed three of ChanBond’s patents relating to improving data transmission of wideband distribution systems. The patents-in-suit issued to CBV, Inc. (CBV) between May 2011 and March 2015 and were sold to ChanBond in April 2015. Defendant’s damages expert employed a market approach, among other approaches, to determine reasonable royalty damages resulting from a hypothetical negotiation between the parties in December 2012. This market approach was based on three valuation datapoints: (1) investment solicitations for the technology disclosed in the patents-in-suit; (2) 2014–2015 valuations; and (3) a 2012 offer to sell. ChanBond argued that the datapoints should be excluded because they are not comparable to the hypothetical negotiation and are not based in reliable principles or methods. The first datapoint referred to investment solicitations to fund Z-Band, the owner of the technology disclosed in the patents in suit. In December 2000, approximately 10 years prior to the issuance of the patents-in-suit, Z-Band sought between $2-5 million in venture capital funding and received an offer for $5 million for a minority interest, which it rejected. The expert concluded that the solicitation and rejected offer supported a lump sum royalty in the “mid seven figures,” but ChanBond argued that the expert did not prove comparability to the hypothetical negotiation. Ultimately, the Court found that the solicitations were not comparable to the hypothetical negotiation because they occurred when the patents-in-suit did not yet exist. Moreover, any potential relevance of the datapoint is minimized by the fact that no agreement was reached and the investment opportunity took place 10 to 12 years before the date of the hypothetical negotiation. Therefore, the Court excluded the datapoint as irrelevant and also ruled that the datapoint was prejudicial under Federal Rule of Evidence 403. Defendant’s expert also opined that the 2014–2015 valuations, consisting of two completed transactions and various emails and failed transactions, reflects a reasonable royalty of less than $20 million. The first transaction was CBV’s sale of the patents-in-suit to ChanBond in April 2015, in which ChanBond agreed to pay an upfront fee plus contingent payments based on the outcomes of future patent enforcement litigations. The second transaction was the sale of ChanBond to UnifiedOnline for $5 million and 44.7 million shares of common stock in October 2015, a month after the complaint in this matter was filed. At the time of the second transaction, ChanBond had few assets other than the patents-in-suit and the pending litigation. ChanBond argued that these transactions were not comparable to the hypothetical negotiation, as they valued the potential outcome of the litigation, rather than the value of the patents-insuit. The Court agreed with ChanBond and noted that, while licensing agreements are more comparable than settlement agreements in determining a royalty, estimating a hypothetical negotiation (the outcome of a litigation) is “one step further removed from being comparable than a settlement agreement.” As a result, the Court excluded the datapoint as unreliable and also ruled that the datapoint was prejudicial under Federal Rule of Evidence 403. Finally, Defendant’s expert relied on an unsuccessful 2012 offer to sell the patents-in-suit for “high seven figures” to support a reasonable royalty of the same amount. While the Court determined that the offer was independently relevant to the valuation of the patents-in-suit, and therefore was available as evidence at trial, the offer alone could not serve as the basis for the market approach, and the market approach was excluded. The Court also found that the fact that no company responded to the offer was irrelevant to a reasonable royalty analysis because a hypothetical negotiation assumes willing parties and it would be unfairly prejudicial to the Plaintiff. Notably, the Court was not concerned about excluding the entire market approach, as the expert offered two other damages theories, and the market approach was not essential to Atlantic Broadband’s damages analysis. Court decision on February 4, 2020 Case No. 1:15-cv-00842 filed in the District of Delaware
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