Friday, March 20, 2009
Oh Microsoft, Microsoft, Moderation Please: Rhode Island Seemingly Applies Frye In Microsoft Patent Infringement Trial
Here's a quick recap of the recent opinion of the United States District Court for the District of Rhode Island in Uniloc USA, Inc. v. Microsoft, 2009 WL 691204 (D.R.I. 2009): Expert damages testimony in patent infringement cases is unreliable, but it should be admissible because it is generally accepted.
Uniloc involves Uniloc Singapore Private Limited's claim that Microsoft's Product Activation technology ("MPA") in software products such as Windows and Office infringes Claims 12 and 19 of Uniloc's U.S. Patent 5,490,216 ('216 patent). According to Uniloc, this infringement was willful; according to Microsoft, it has an invalidity defense, and the '216 patent is unenforceable based on inequitable conduct. But none of these arguments were the basis for the court's recent ruling. Instead, the court was addressing Microsoft's motion to preclude Uniloc's damages expert from testifying at trial. And the result is an opinion both colorful and troubling.
his testimony is unreliable because his damage calculation is based on an unfounded and arbitrary valuation figure that assumes MPA's independent value is $10 per activation. Second, Microsoft takes issue with Mr. Gemini's reliance on the so-called "25% rule of thumb" which it describes as a "junk science" method for calculating royalty rates.
In addressing this argument, the District Court found that
the world of damage calculation in a patent case is constructed on a fictional foundation that resembles the make believe world of "Second Life." If a jury finds Microsoft has infringed Uniloc's patent, it will be called upon to determine what a reasonable royalty would be. It will be asked to do this by envisioning a fictional or "hypothetical" negotiation wherein these two parties-or rather their perfectly reasonable avatars-are transported back in time to negotiate a royalty. They do this with appropriate attention to the so-called Georgia-Pacific factors....Microsoft claims Mr. Gemini's methodology for concocting the reasonable royalty is just not "good science." But this is like saying Alice did not serve Earl Gray at her tea party. Maybe so, but in this fictional world it is close enough because the starting premise, as discussed below, is at least arguably grounded in the evidence and the rule of thumb calculation and the Georgia-Pacific factors are so widely accepted. If these premises are acceptable (which they seem to be) then the only issue is whether Mr. Gemini is qualified (which he is) and has he accurately performed his task (he has).
In further explaining why Gemini's "rule of thumb" testimony would be admissible at trial, the District Court noted that
[a]lthough the concept of a "rule of thumb" is perplexing in an area of the law where reliability and precision are deemed paramount, the reliability inquiry is a "flexible one...." "The '25% Rule' has been accepted as a proper baseline from which to start [a royalty] analysis...." There has been considerable criticism of the rule,...much of which is well reasoned. However, the rule's widespread and general acceptance in the field suggests that the reasonableness of Mr. Gemini's reliance on it in fashioning his opinion is a matter that more properly goes to weight as opposed to admissibility.
Moreover, the court also noted that Microsoft argued that "the 25% rule is only designed to serve as a starting point for a damage calculation and that because Mr. Gemini does not deviate from the rule this approach is result oriented and unreliable." The District Court similarly rejected this claim, finding that
[w]hile Mr. Gemini's apparent rote application of, the 25% rule is enough to raise an eyebrow, his expert report reveals that he considered many factors in forming his opinion. Again, Microsoft may rely on cross examination and other tools of the adversary process to address the weaknesses in this testimony.
My reaction to this opinion is that it feels to me like an opinion issued in 1992. Of course, in 1992, federal courts were using Frye v. United States, 293 F. 1013 (D.C. 1923), to admit expert opinion testimony as long as it was based upon reasoning/methodology that had general acceptance in the relevant scientific community. The following year, the Supreme Court issued Daubert v. United States, 509 U.S. 579 (1993), in which it found that Frye no longer rules the federal court roost and that courts must make "a preliminary assessment of whether the reasoning or methodology underlying the testimony is scientifically valid, and of whether that reasoning or methodology properly can be applied to the facts in issue."