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Realtime Data LLC v. Netapp, Inc.

United States District Court, E.D. Texas, Tyler Division

November 16, 2017

REALTIME DATA LLC, Plaintiff,
v.
NETAPP, INC., SOLIDFIRE, LLC, Defendants.

          MEMORANDUM OPINION AND ORDER

          JOHN D. LOVE, UNITED STATES MAGISTRATE JUDGE.

         Before the Court is Defendant NetApp and SolidFire's (Collectively “NetApp”) Daubert Motion to Exclude Testimony by Mr. Stephen Dell. (Doc. No. 234.) Plaintiff Realtime filed a Response (Doc. No. 244) and Sur-Reply, (Doc. No. 249), and NetApp filed a Reply. (Doc. No. 247.)

         BACKGROUND

         Realtime alleges that NetApp infringes certain claims of six U.S. Patents. The Asserted Patents generally relate to different systems and methods of data compression. Specifically, Realtime alleges that NetApp's ONTAP software and products and services running ONTAP, AltaVault; and Solidfire compression products and services, including the SolidFire all-flash storage system products infringe the Asserted Claims of the Asserted Patents. (Doc. Nos. 33, 235-2 at ¶ 2 (“Dell's Rep.”).)

         Realtime has designated Mr. Stephen Dell as a Damages Expert in this matter. Id. Mr. Dell opines that Realtime is entitled to a reasonable royalty due to NetApp's sales of the Accused Products. Dell's Rep. ¶ 89. Mr. Dell found that there is “a functional relationship [] between the Accused Products and services and maintenance offerings that are tied to sale of the Accused Products.” Id.

         LEGAL STANDARD

         Rule 702 provides that an expert witness may offer opinion testimony if (a) the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue; (b) the testimony is based on sufficient facts or data; (c) the testimony is the product of reliable principles and methods; and (d) the expert has reliably applied the principles and methods to the facts of the case. Fed.R.Evid. 702.

         The Rules also “assign to the trial judge the task of ensuring that an expert's testimony both rests on a reliable foundation and is relevant to the task at hand.” Daubert v. Merrell Dow Pharms. Inc., 509 U.S. 579, 594, 597 (1993). “The relevance prong [of Daubert] requires the proponent [of the expert testimony] to demonstrate that the expert's ‘reasoning or methodology can be properly applied to the facts in issue.'” Johnson v. Arkema, Inc., 685 F.3d 452, 459 (5th Cir. 2012) (quoting Curtis v. M & S Petroleum, Inc., 174 F.3d 661, 668 (5th Cir. 1999)). “The reliability prong [of Daubert] mandates that expert opinion ‘be grounded in the methods and procedures of science and . . . be more than unsupported speculation or subjective belief.'” Johnson, 685 F.3d at 459 (quoting Curtis, 174 F.3d at 668)).

         In assessing the “reliability” of an expert's opinion, the trial court may consider a list of factors including: “whether a theory or technique . . . can be (and has been) tested, ” “whether the theory or technique has been subjected to peer review and publication, ” “the known or potential rate of error, ” “the existence and maintenance of standards, ” and “general acceptance” of a theory in the “relevant scientific community.” Daubert, 509 U.S. at 593-94; see also Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 150 (1999) (“Daubert makes clear that the factors it mentions do not constitute a ‘definitive checklist or test.'”); U.S. v. Valencia, 600 F.3d 389, 424 (5th Cir. 2010). “The proponent need not prove to the judge that the expert's testimony is correct, but she must prove by a preponderance of the evidence that the testimony is reliable.” Johnson, 685 F.3d at 459 (quoting Moore v. Ashland Chem., Inc., 151 F.3d 269, 276 (5th Cir. 1998) (en banc)). At base, “the question of whether the expert is credible or the opinion is correct is generally a question for the fact finder, not the court.” Summit 6, LLC v. Samsung Elecs. Co., Ltd., 802 F.3d 1283, 1296 (Fed. Cir. 2015).

         DISCUSSION

         Defendants move to exclude Mr. Dell's damages opinions on three bases: (1) Mr. Dell calculates the wrong royalty base by including non-patented software/hardware service and maintenance offerings; (2) Mr. Dell's apportionment analysis is speculative and unreliable; and (3) Mr. Dell's hypothetical negotiation is impermissibly immutable. (Doc. No. 234.)

         I. Dell's Calculation of the Royalty Base

         NetApp argues that Mr. Dell calculated the wrong royalty base because the calculation “assumes a royalty base that encompasses both the accused products and NetApp's revenues from software/hardware service and maintenance offerings.” (Doc. No. 234 at 4.) NetApp maintains that by including the convoyed sales of non-patented products, Mr. Dell must satisfy the three factors of the entire market value rule (“EMVR”). Id. Realtime argues that NetApp misstates the requirements because courts have allowed using convoyed sales of non-patented products for a royalty base calculation. (Doc. No. 244 at 1.)

         In a reasonably royalty analysis, damages must be tied “to the claimed invention's footprint in the marketplace.” ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860, 869 (Fed. Cir. 2010). Thus, “where multi-component products are involved, the governing rule is that the ultimate combination of royalty base and royalty rate must reflect the value attributable to the infringing features of the product, and no more.” Ericsson, Inc. v. D-Link Sys., Inc., 773 F.3d 1201, 1226 (Fed. Cir. 2014) (citing VirnetX, Inc. v. Cisco Sys., Inc., 767 F.3d 1308, 1326 (Fed. Cir. 2014)). When the accused products have both patented and non-patented features, the damages analysis requires an apportionment analysis in order to determine the value added by such features. To determine the royalty base, “the patentee should [] base[] its damages on ‘the smallest salable infringing unit with close relation to the claimed invention.” VirnetX, 767 F.3d at 1327 (citing Cornell University v. Hewlett-Packard Co., 609 F.Supp.2d 279, 287-88 (N.D.NY. 2009)). ...


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