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Forget About Seeking a Reasonable Royalty—Court Affirms Order Excluding Damages Theory for Flash Memory Patent

| Nima Zargari, Ph.D.Andrew Morrell, Ph.D.

MLC INTELLECTUAL PROPERTY, LLC v. MICRON TECHNOLOGY, INC.

Before Newman, Reyna, and Stoll.  Appeal from the United States District Court for the Northern District of California.

Summary: When relying upon lump sum payments in a prior license agreement to support a reasonable royalty rate, explanation as to how the royalty rate is derived from the lump sum payment is needed, the theory and underlying facts/documents should be disclosed before expert discovery, and apportionment between patented and non-patented features must be considered absent reliance on a comparable license.

MLC sued Micron for infringement of a patent directed to flash memory storage.  Micron moved to (1) preclude MLC’s damages expert from characterizing prior license agreements as reflecting a specific royalty rate; (2) strike the damages expert’s report for the untimely disclosure of a reasonable royalty opinion; and (3) exclude the damages expert’s reasonable royalty opinion for failing to apportion the value of non-patented features.  The district court granted each of Micron’s requests and certified the orders for interlocutory appeal.

The Federal Circuit affirmed, holding that the district court did not abuse its discretion in limiting MLC’s evidence of damages.  With respect to the expert’s opinion that prior license agreements reflected a specific royalty rate, the Federal Circuit observed that each license agreement was for a lump-sum payment, neither explicitly contained the royalty rate that the expert claimed was “understood” from the agreements, and the proposed royalty rate was not derived from the lump-sum payments.  Concerning the district court’s decision to strike the expert’s opinion as to a reasonable royalty as untimely, the Federal Circuit observed that MLC failed to identify the factual basis of its reasonable royalty theory during fact discovery and rejected MLC’s argument that it was not obligated to do so in response to contention interrogatories or questioning during deposition.  Last, the Federal Circuit affirmed the district court’s exclusion of the reasonable royalty theory for failure to apportion.  The Court observed that the accused technology did not make up the whole of the accused product and the expert’s royalty theory did not rely upon an exception to the need to apportion, such as when a comparable license is relied upon.

Editor: Paul Stewart