On August 26 the Federal Circuit issued its opinion in MLC Intellectual Property, LLC v. Micron Technology, Inc., a patent case we have been following because it attracted three amicus briefs. Judge Stoll authored the panel’s opinion, which relates to damages law and the exclusion of expert testimony seeking to present a reasonable royalty analysis. This is our opinion summary.
MLC Intellectual Property sought interlocutory review of the district court’s orders excluding certain opinions of MLC’s damages expert. The case was argued before Judges Newman, Reyna, and Stoll. As mentioned, Judge Stoll authored the panel’s opinion. In it, she provided background on the case:
MLC sued Micron for infringing certain claims of U.S. Patent No. 5,764,571. The ’571 patent, titled ‘Electrically Alterable Non-Volatile Memory with N-bits Per Cell,’ describes methods of programming multi-level cells. . . . On appeal, MLC only asserts claim 30 of the ’571 patent against Micron. . . Micron manufactures and sells NAND flash wafers and packages. Flash memory is a type of non-volatile memory, and NAND flash memory is a low-cost, high-density memory option. As such, NAND flash memory is considered the standard for storage-related applications. . . . In his expert report, MLC’s damages expert, Michael Milani, first provided his understanding of the technology relevant to the ’571 patent. . . Mr. Milani opined that by 2006, the NAND flash market had become a commodity market, with competitors mainly competing on price . . . Mr. Milani attempted to reconstruct the hypothetical negotiation between MLC and Micron. Mr. Milani began by opining that the hypothetical negotiation date occurred in the fourth quarter of 2006, around the time that Micron first began selling the accused devices. He further opined that the compensation period began on August 12, 2008, six years prior to the filing of the complaint, and continued through the expiration of the ’571 patent on June 9, 2015.
. . . Mr. Milani opined on two separate approaches for determining the royalty base: (1) a comparable license approach and (2) the smallest saleable patent practicing unit (SSPPU) approach. . . Mr. Milani next considered each of the factors set out in Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970), to determine an appropriate royalty rate.
Micron filed a motion in limine to preclude Mr. Milani . . . reflecting a 0.25% royalty rate. In addition, Micron moved to strike portions of Mr. Milani’s expert report under Rule 37 of the Federal Rules of Civil Procedure as being based on facts, evidence, and theories that MLC disclosed for the first time in Mr. Milani’s expert report. Micron had asked for MLC’s damages theories . . . during fact discovery . . . and during a Rule 30(b)(6) deposition of a corporate designee. Finally, Micron filed a Daubert motion, seeking to exclude Mr. Milani’s reasonable royalty opinion for failure to apportion out the value of non-patented features. The district court granted all three motions.
Judge Stoll first highlighted that when the court reviews “damages in patent cases, we apply regional circuit law to procedural issues and Federal Circuit law to substantive and procedural issues pertaining to patent law.” The court then proceeded to address MLC’s challenges of “all three of the district court’s exclusion orders.”
Judge Stoll stated that the district judge “[a]s a gatekeeper . . . was required ‘to ensure that any and all scientific testimony or evidence admitted is not only relevant, but reliable.’” And, here, “the district court properly determined that Mr. Milani’s ‘testimony about . . . a 0.25% royalty rate [was] not ‘based on sufficient facts or data.’” The court held that “Mr. Milani’s testimony that he understood” case law permitted “use a 0.25% royalty” was “not sufficiently tethered to the evidence presented.”
The court further explained that, “under Rule 37(c)(1) of the Federal Rules of Civil Procedure,” “when ‘a party fails to provide information or identify a witness as required . . . the party is not allowed to use the information or witness to supply evidence . . . unless the failure was substantially justified or is harmless.” Applied here, explained the court, “where MLC had failed to disclose in discovery all of the evidence that Mr. Milani relied on in support of” his opinion, “he could not opine that the license reflected a 0.25% royalty rate.”
Judge Stoll went on to explain that the court affirmed “the district court’s grant of Micron’s Daubert motion to exclude Mr. Milani’s expert opinion on reasonable royalty for failure to apportion.” Judge Stoll explained that, “when the accused technology does not make up the whole of the accused product, apportionment is required. . . even where the proposed royalty base is the smallest saleable patent practicing unit.” Ultimately, the “combination of royalty base and royalty rate must reflect the value attributable to the infringing feature of the product, and no more.” In this case, Judge Stoll indicated that “the sole asserted claim is claim 30 . . . and the accused technology does not make up the whole.” Consequently, “the district court did not abuse its discretion in granting Micron’s Daubert motion.”
As a result of its analysis, the Federal Circuit “affirm[ed] the district court’s orders precluding MLC’s damages expert from characterizing certain license agreements as reflecting a 0.25% royalty, opining on a reasonable royalty rate when MLC failed to produce key documents and information directed to its damages theory when requested prior to expert discovery, and opining on the royalty base and royalty rate where the expert failed to apportion for non-patented features.”