You can’t make applesauce out of oranges — and experts may not cook up opinions with contrary facts. In Lighting Defense, the patent damages expert opined that in a “hypothetical negotiation,” the parties would have agreed to a running per-unit royalty license. The expert based his opinion solely upon actual lump-sum licenses. There were no preexisting running-rate licenses to support his opinion. The law invites the litigants to offer opinions about what willing parties would have agreed to in a license agreement just before infringement began. LaserDynamics, Inc. v. Quanta Comput., Inc.,694 F.3d 51, 67 (Fed. Cir. 2012). Opinions typically take the structure of either a lump-sum payment or a per-unit running royalty. Damages experts routinely use actual license agreements to support their damages theory.
The inestimable philosopher Yogi Berra sagely observed that “in theory there is no difference between theory and practice. In practice there is.” Wisdom from the winningest baseball catcher in history. Ten World Series rings, one flash for each finger, demonstrate the primacy of practice. Legal practice is no different. In theory, an objective application of the law mandates that a Daubert inquiry “be [made] solely on principles and methodology, not on the conclusion that they generate.” Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579 (1993). In practice, “[t]he inquiry is a ‘flexible one.’” Lighting Def. Grp., No. 2:22-cv-01476, slip op. at 3 (quoting Daubert, 509 U.S. at 594). But where judges set the bar on admissibility varies.
Trial courts are gatekeepers. They must sift the wheat from the chaff, deciding whether to let an expert opinion be admitted. An admissible expert opinion should have (1) sufficient facts, (2) reliable principles and (3) a reliable application of the principles to the facts. What one judge finds to be excludable as “unreliable nonsense” may be “impeachable,” but admissible, to another. Id. (quoting Alaska Rent-A-Car v. Avis Budget Grp., Inc., 738 F.3d 960, 969-70 (9th Cir. 2013)).
Whether a particular trial court is willing to exclude expert testimony is affected by the court’s philosophy of judging. Many judges follow the public policy of seeking to objectively judge, by themselves, the application of law to the facts. They appreciate that commerce is facilitated with predictable legal risks and minimized litigation costs. The expert in the law — the judge — decides whether an expert’s opinion is within the ballpark of reason. Courts that lean more toward an anti-Federalist view, however, trust more in the collective wisdom of a jury. They incline toward admitting everything, and then letting the jury sort it all out. The anti-Federalist view acknowledges the limits of reason and the temptations of power. In practice, it gives the jury a populist check upon monopolies, including patents.
In Lighting Defense, the plaintiff’s expert proffered a damages opinion based on a running royalty structure. However, all 23 actual licenses had involved lump-sum payments. The expert did not explain sufficiently the gap between the difference in structure in practice and what would have happened under his theory. The court therefore found the expert’s opinion to be “based upon unsound factual predicates, untethered from the facts of this case, and therefore unreliable as a whole.” Consequently, the court excluded the expert’s opinion. The court aptly crystallized the issue as one of determining admissibility. “Basically, the judge is supposed to screen the jury from unreliable nonsense opinions, but not exclude opinions merely because they are impeachable.” (quoting Alaska Rent-A-Car v. Avis Budget Grp., Inc., 738 F.3d 960, 969-70 (9th Cir. 2013)). “Shaky but admissible evidence is to be attacked by cross examination, contrary evidence, and attention to the burden of proof, not exclusion.”
In theory, a lump sum and a running-rate royalty could be equivalent in value. In practice, running-rate royalty opinions can set the table for larger verdicts. Lump-sum settlements often are set to avoid the costs of litigation. A running-rate royalty effectively burdens profits on an ongoing basis. Every quarter is a hit to profits. Defendants tend to favor the certainty of one-off lump sums, and plaintiffs favor a running-rate royalty. Opinions vary.
Had the expert’s opinion slipped through, cross-examination would have been great fun. There were 23 previous lump-sum settlements. The expert excluded 16 of them for reasons the court found dubious. His opinion was based on the seven remaining lump-sum settlements. He found that the parties in this case would have agreed on a running-rate royalty settlement. “Mr. Expert, you opined that a running per-unit royalty is appropriate in this case, correct? But the first license that you based your opinion on was a lump-sum license, wasn’t it? And the second was also a lump-sum deal, right? And the . . . . As was the seventh settlement that you based your opinion on, true? They all were lump-sum licenses, weren’t they? But your opinion is that this time— the eighth time — the plaintiff would have settled instead for a running-rate deal?” In theory, you strike out batters by throwing strikes. But Yogi Berra would not have called for pitches in the strike zone every single time. In practice, that’s a way to give up a home run.
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