Holding: When a damages expert employs a facially reliable apportionment methodology grounded in evidence and tied to the claimed invention’s incremental value, challenges to data selection, assumptions, or modeling choices ordinarily go to weight, not admissibility.
Willis owns US Patent No. 8,454,186, which is directed to pre-lit artificial trees that include decorative lighting. The claimed trees have modular, separable trunk portions that are both mechanically and electrically connectable to each other so that electrical power can be provided to the lighting regardless of the rotational orientation of the trunk portions. Willis sued Polygroup for infringing four separate patents. After many IPRs, claim 15 of the ‘186 Patent is the only claim left at issue. Claim 15 requires that the trunk connectors of the first and second tree portions form coaxial trunk connectors.
At trial, the jury found that Polygroup infringed the ‘186 Patent and awarded Willis over $42M in damages at a royalty rate of $4 per tree sold by Polygroup. Polygroup moved for JMOL that claim 15 was obvious and asked for a new trial on damages, alleging that Willis’ damages expert’s testimony was unreliable. The district court denied both of these motions.
The Federal Circuit addressed both of these issues on appeal. As to the issue of obviousness, Polygroup argued that a coaxial barrel connector would have been obvious to the problem of powering LEDs in artificial trees, as these connections were available and would have been well known to a person skilled in the art at the time of invention. However, the prior art included an alignment feature that would have required substantial reconfiguration if the coaxial connector recited in claim 15 were to be included. In view of this, the Federal Circuit found that the jury’s finding of nonobviousness was supported by substantial evidence.
The Federal Circuit also upheld the district court’s denial of Polygroup’s motion for a new trial on damages. When determining a reasonable royalty, damages must be apportioned to account for the value of the patented features, rather than the value of the accused product as a whole. Polygroup argued that since dependent claim 10 was found to be unpatentable, the apportioned value from claim 15 should be limited to only the incremental value of the coaxial barrel connectors. Willis argued that the apportioned value of claim 15 should reflect the value added to the claim as a whole, that the coaxial barrel connectors allow the mechanical and electrical connections to be made simultaneously.
Under Federal Rule of Evidence 702, the court plays an important gatekeeping role in assessing admissibility of expert testimony to ensure that the admitted testimony is relevant and reliable. However, Rule 702 draws a distinction between admissibility to be decided by the court and weight and credibility to be determined by the jury. Sufficiency of an expert’s basis and the application of the expert’s methodology are questions of weight, not questions of admissibility.
When determining a reasonable royalty for patent damages, there is necessarily some element of approximation and uncertainty. Assumptions regarding market conditions, technological value, and bargaining positions must be made. Therefore, an expert’s determination of a reasonable royalty is not an exact measure, but an informed estimate. The Georgia-Pacific factors help to guide this estimate using quantitative and qualitative evidence rather than providing an exact formula that must be followed. Therefore, a reasonably royalty analysis may come up with a range of possible outcomes for a hypothetical negotiated royalty rate rather than a precise value. Opposing experts may reach different conclusions, but this does not mean that one estimated royalty rate is unreliable. It is up to the jury to determine which rate is most reliable.
Polygroup argued that Ms. Riley’s expert testimony should have been excluded because she did not adequately explain her testimony to the jury. However, this goes to the admissibility of the expert testimony, which is to be determined by the court. Once the testimony is found to be reliable, that testimony does not become unreliable because the opposing party believes the testimony should be presented to the jury differently.
The Federal Circuit upheld the district court’s decision to admit Ms. Riley’s income‑based apportionment analysis, concluding that her methodology, though imperfect, was sufficiently reliable and grounded in evidence to go to the jury. Riley calculated an incremental profit for both Willis’s One Plug Trees and Polygroup’s Quick Set Trees by comparing products that used coaxial connectors with similar products that did not and filtered out non‑coaxial models. She averaged across product lines to account for variations in features. Polygroup argued that she failed to isolate the value of coaxial connectors, relied on quoted rather than realized prices, ignored customer negotiations, and did not control for premium features, but the Federal Circuit found that these arguments challenged the weight of the evidence rather than admissibility.
Ms. Riley also used a market-based apportionment analysis based on five comparable licenses to produce an estimated reasonable royalty. Polygroup argued that these licenses were not comparable because some of the licenses covered multiple patents other than the ‘186 Patent and some did not include the ‘186 Patent, also one of the licenses had a lower royalty rate than the estimate provided by Ms. Willis. However, the district court found that none of these issues made Ms. Willis’ testimony unreliable. Although Ms. Willis could have given more detail, reasonable minds could have disagreed as to whether these licenses were comparable. Polygroup could have cross-examined Ms. Willis regarding any of these issues to provide further elaboration but did not take advantage of that opportunity.
Ms. Willis combined her determination of a reasonable royalty between $4.30-$20 based on the income approach and between $2-$5 using the market approach to produce a final estimated range of $2-$20. She then used the Georgia-Pacific factors to select a final estimate of $5 per tree. In her testimony, Ms. Willis stated that she considered all of the factors, but only emphasized at trial those she considered most significant. These factors included the competitive commercial relationship between Willis and Polygroup; the commercial success of the patented feature; and the advantages of using the patent feature. Although these are only qualitative factors, there is no rule stating that purely qualitative arguments cannot support a reasonable royalty award.
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