Plaintiff owner of copyright in “Java,” a software platform, brought suit against defendant owner of Android, a competing software platform designed for mobile computing devices, claiming infringement of its patents and copyrighted works related to incremental improvements to the efficiency and security of the Java system. In support of the alleged damages asserted in the action, plaintiff offered the first expert report of Dr. Iain M. Cockburn, a professor of finance and economics at Boston University. The court rejected Dr. Cockburn’s first damages report for failing to apportion the value of the asserted claims and instead using the total value of Java and Android in calculating damages. In its substitute damages report, plaintiff’s expert calculated patent and copyright damages using the lost license fee approach, attempting to determine what defendant would have paid to license the use of the copyrights at issue in a hypothetical negotiation with plaintiff. Defendant moved to strike, raising several objections to the revised report, and the court denied the motion, in part, finding, among other things, that plaintiff’s calculation of a hypothetical licensing fee was not speculative under the Supreme Court’s holding in Daubert v Merrel Dow Pharmaceuticals, Inc.
In objecting to plaintiff’s export report, defendant argued that the hypothetical negotiation approach cannot be used to calculate the lost license fee because any hypothetical negotiation would be excessively speculative under Daubert as plaintiff would never license an incompatible version of Java to competitors and would not have done so with defendant. The court disagreed.
In determining the admissibility of plaintiff’s expert report, the court noted that an expert witness may provide opinion testimony if (1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case. In the context of copyright infringement, instructed the court, the hypothetical license fee approach - what a willing buyer would have been reasonably required to pay to a willing seller for the owner’s work - is a non-speculative, factual basis to value a license for an incompatible version of Java. In overruling defendant’s objections, the court found that the export report, which started with the real-world negotiations between plaintiff and defendant for a compatible Java, and thereafter adjusted that amount up to compensate for the incompatibility, was not speculative under Daubert.
The court also rejected defendant’s contention that plaintiff’s report erred by using $100 million as a starting point for the hypothetical negotiation, instead of $28 million, which was the amount in a draft agreement proposed by plaintiff in 2006 for a “broad technology partnership” between the parties. Although a jury may eventually reject the premise and reasonable experts could have honest differences of professional opinion on this point, stated the court, the expert’s decision not to use the $28 million draft agreement as the starting point was within the bounds of reason. Similarly, the court found that plaintiff’s upward adjustment of his starting point to account for lost convoyed sales that was expected based on contemporaneously created business plans projecting revenue was not improper under Daubert because the expert’s quantitative analysis was based on sufficiently reliable financial projections.
Although the court previously stated a strong view that the patent hypothetical negotiation should use $100 million as a starting point and then make adjustments, the court concluded that plaintiff’s expert report failed to apportion that $100 million offer properly between the 26 claims in suit versus all other items in the 2006 offer. The court emphasized that the report failed to account for the fact the modern Android represents some Java know-how, some technology owned by strangers to the litigation, and a fair dose of defendant’s own engineering. Accordingly, the court held that the report’s opinions on apportionment and calculations based on apportionment should be stricken.
Finally, the court found that the report erred by not separating copyright damages for two categories of copyrighted material asserted in the action: the lines of Android source code and the structure, arrangement, and selection of the Application Programing Interfaces (API). Accordingly, the court held that if defendant is found not liable for infringing the selection, arrangement, and structure of the API packages, then the report’s copyright damages analysis would be inapplicable.