Argument Recap / Panel Activity

As we have been reporting, last week the Federal Circuit heard oral argument in four cases that attracted amicus briefs. In one of the patent cases, MLC Intellectual Property LLC v. Micron Technology, Inc., the Federal Circuit reviewed a district court’s rulings related to damages law and expert testimony. This is our argument recap.

Fabio E. Marino argued for MLC. He began his argument by giving three reasons why the district court’s holding should be reversed. First, he argued, “it was error to exclude evidence of how the comparable licenses were negotiated under the parol evidence rule.” Second, he contended, “it was abuse of discretion to exclude expert opinions rooted in established methodologies and intimately tied to the facts of this case.” Third, he asserted, Federal Rule of Civil Procedure 37 “does not justify excluding a timely-filed expert report.”

As Marino began to provide more details related to the point about the parol evidence rule, Judge Stoll interjected. She began by stating that “the [district] court held that there was an overstatement by your expert, Mr. Milani, regarding [prior license agreements including one the parties called the Hynix agreement], and specifically whether those reflected or used a 0.25% rate.” She then questioned Marino on how he would “respond to that [holding], because there seems to be a number of statements in the expert report itself . . . [that] suggest that in fact your expert said that he was understanding that the rate applied in those license agreements [was] 0.25% [and used that understanding] to calculate [a] lump sum.” Notably, Judge Stoll asserted that this point was “more important than the parol evidence point.” Marino responded that this issue relates to the argument that the district court committed an abuse of discretion. In particular, he argued that “this court specifically set the boundaries for the district court” to review expert opinions, and “essentially said that the [district] court cannot question factual underpinnings of the expert’s conclusion.”

Judge Stoll continued to press Marino on the methodology used by MLC’s expert in coming to his understanding of the license agreement in question. In particular, Judge Stoll asked, “What is the accepted methodology in the field of damages experts or economists that allow you to look at a favored customer clause and think that it was actually used to compute [a] lump sum?” Judge Stoll explained that she had a problem with the expert’s determination “that 0.25% was the rate that was used in the Hynix and [a] Toshiba license agreement.” Marino clarified “the way the experts analyzed that fact.” He explained that they “look[ed] not at the Hynix agreement itself, but to see what that agreement with the [most favored customer] clause obligated DTG, the licensee, to do in the hypothetical negotiation, which is to demand 0.25% rate.” Moreover, according to Marino, “they also looked at other evidence of DTG, the same licensor, of . . . negotiating both with Hynix and with Toshiba and with Micron, [given that] all three of those negotiations occurred at the same time.” In addition, Marino noted, “one of the other pieces of evidence that the expert looked at was the actual demand letter DTG sent to Micron, [where] in fact DTG demanded 0.25% from Micron applied to worldwide sales.”

Judge Reyna similarly expressed doubts over the methodology of MLC’s expert. He first asked Marino to “[forget] for a second that the documents you are talking about were not produced on a timely basis—that’s also a big hill you have to climb in my view.” Then Judge Reyna asked, “What’s the methodology?” Judge Reyna noted that “the [district] court as a gatekeeper says that the methodology was not reasonable.” In response, Marino first argued against Judge Reyna’s contention that the documents were not produced on a timely basis. Then Marino answered the methodology question. In particular, he asserted that “the methodology was to evaluate the negotiations that led to the comparable licenses to understand how that lump sum number had been determined, [to] look at all the demands that the licensor made (they all consistently demanded 0.25% applied to worldwide sales [and] that is in the record), and [to] then conclude, I believe reasonably, that the licensor . . . would have in fact demanded the same royalty from Micron because we have that letter where they made that demand.” Marino noted, however, that “the expert did not say that the license document itself reflects the 0.25 rate other than in the [most favored customer] clause.”

Ruffin B. Cordell argued for Micron. He began by arguing that this court has repeatedly reminded patentees that they must apportion any demand for royalty damages to claimed inventions in the marketplace such that the royalty “reflects the actual value attributable to the infringing feature of the product and no more.” Moreover, according to Cordell, “the law also universally holds that the parties must disclose the evidence and positions that they will present at trial.” Cordell contended that, “absent following those basic rules, the litigation falls into chaos.” According to Cordell, “that is essentially what happened here, and that is what led to the [district court judge] to enter the orders that she did.”

Judge Stoll asked Cordell what he thinks “is the downside to a patent owner when required to identify the specific damages theories before the exchange of expert reports—I mean, do parties ever provide a specific royalty rate in response to interrogatories during fact discovery?” Cordell quickly responded “absolutely.” According to Cordell, “the local rules in the Northern District of California were amended in 2017 to make clear that those kind of damages disclosures have to be done right at the outset.” In particular, Cordell asserted, “current Rule 26(a)(1)(A)(iii) requires that your initial disclosures include those kinds of information, and the policy there is very clear that we want parties to know far in advance of committing significant resources to a case what is at stake; it informs the settlement discussions, and it informs the resources that will be devoted to a case.” Cordell argued that “the downside is non-existent, frankly.”

Judge Reyna chimed in to asked Cordell “who provided the agreements in this case?” Cordell responded that “MLC produced them, ultimately.” Cordell expounded further on this point. Cordell argued that “they were certainly in the possession of MLC in 2018 when they sat for their [Federal Rule of Civil Procedure] 30(b)(6) deposition.” Moreover, according to Cordell, “they had long been in possession of MLC.” Cordell noted, however, that MLC “said they did not have any facts to form the royalty rate.” In particular, he argued, “with respect to the Hynix and Toshiba agreements that formed so much of their case, they said that MLC could not infer a royalty rate from those agreements.”

Judge Stoll asked a question about the scope of the claims at issue in this case. She noted that “MLC argues that the scope of the claims here is commensurate with the accused products . . . and because of this the use of the smallest saleable patent practicing unit is appropriate.” She asked for Micron’s response to that position, and whether MLC had argued that below. According to Cordell, “there is no evidence to show claim 30, the only claim at issue here, in any shape or form reflects the entirety” of the smallest saleable patent practicing unit. Cordell argued that “what claim 30 talks about is a simple programming sequence where reference voltages are used in a multi-cell.” Cordell asserted that it “is a part of the operation of these devices no doubt, but a very small part.”

In rebuttal, Marino quickly noted that “Claim 30 is an apparatus claim, not a method claim.” In regard to the patent local rules point, Marino argued “there were no patent local rules that applied to this case, certainly with respect to damages, as counsel said they were enacted after the fact.” Marino contended that this point was “extremely relevant;” “it distinguishes the cases that Micron relies on because the patent local rules, as this court has recognized, do create additional discovery obligations that go beyond Rule 26.” Moreover, according to Marino, “that was simply not the case here,” and “MLC disclosed the information it had when it had it.”

Judge Stoll asked one brief question during rebuttal regarding claim 30. She asked whether MLC agreed “that claim 30 is the only claim at issue.” Marino responded that “it is the only claim that is left in the case.”

In conclusion, Marino submitted that MLC’s expert “opinion was eminently reasonable.” Marino argued MLC “had the unusual circumstance of where the same licensor contacted three direct competitors and offered them the same exact deal.” According to Marino, “Toshiba took the deal for $25 million, Hynix went for $21 million, and the evidence that Mr. Milani would have presented at trial was $19–21 million, perfectly in line with those negotiations.”

We will keep track of this case and report on its disposition.