Conclusion Not Tethered to the Facts Gets Expert Witness Excluded

Analyzing damages requires expert witnesses to not only look at the applicable factors but also to carefully tie those factors to the conclusions they draw, the U.S. Federal Circuit Court noted in a patent infringement appeal, finding that a district court erred when it failed to exclude the opinion of the plaintiff's damages expert who "plucked" a royalty rate from nowhere.

In Exmark Mfg. Co. v. Briggs & Stratton Power Products Group, LLC, No. 2016-2197 (Fed. Cir. Jan. 12, 2018), ExMark sued Briggs & Stratton for allegedly infringing its U.S. patent for a lawn mower having improved flow control baffles, the metal part of a mower deck that directs air flow and grass clippings to the side shoot while cutting. The combination of curved, straight and curved baffles were claimed to significantly improve the quality of the grass cut and allow the mower to go faster in heavy grass.

The jury found that Briggs & Stratton willfully infringed Exmark's patent with its original mower design, but not with its redesigned mowers, awarding Exmark $24 million in damages. The district court granted enhanced damages based on Briggs willfull infringement, doubling the jury's award.

Denied its request for a new trial on damages, Briggs appealed, arguing in part that the district court erred in not excluding the opinion of Exmark's damages expert witness, Melissa A. Bennis, a CPA and an expert witness on damages in patent infringement cases. Briggs argued that Bennis' opinion:

• erroneously uses the sales price of the mowers as the royalty base instead of the sales price of the flow control baffles;
• failed to adequately explain how she arrived at her proposed 5% royalty rate.

The Circuit Court disagreed on the first and agreed on the latter. Apportionment, based on the incremental value that the patented invention adds to the end product, can be addressed in a variety of ways. The Circuit Court noted that it had held in the past that “by careful selection of the royalty base to reflect the value added by the patented feature [or] … by adjustment of the royalty rate so as to discount the value of a product's non-patented features; or by a combination thereof.”

The district court had also found difficulty with Briggs's argument on apportionment as its own damages expert, like Exmark's Bennis, "uses the entire accused lawn mowers as a base for his own damages analysis."[See pg 3, Exmark Mfg. Co. v. Briggs & Stratton Power Products Group, LLC, 8:10CV187 US D. Neb.]

As well, the Circuit Court found that the patent was for a mower with an improved flow control baffle, not a patent for an improved baffle, making the selection all the more appropriate.

The Circuit Court did however find substance in Briggs' argument on Bennis' failure to adequately explain how she arrived at her proposed 5% royalty rate.

Bennis used the standard Georgia-Pacific¹ reasonable royalty analysis in her opinion, which has been recognized, the Circuit Court said, "as one possible way to assess royalty apportionment in patent infringement matters." (The Georgia-Pacific analysis "takes into account of the importance of the inventive contribution in determining the royalty rate that would have emerged from the hypothetical negotiation.")

While Bennis did discuss each of the Georgia-Pacific factors in her opinion, the Circuit Court found nowhere in her report where she tied those factors to the 5% royalty rate "or explain how she calculated a 5% royalty rate using these factors." Damages experts, the court emphasized, "must not only analyze the applicable factors, but also carefully tie those factors to the proposed royalty rate." Superficial recitation of the factors cannot support a verdict.

The Circuit Court pointed specifically to problems with Bennis' analysis under Georgia-Pacific factor thirteen — the portion of realized profits attributable to non-patented elements — in which she acknowledged that "other elements of the mowers affect sales and profits of the mowers, including durability, reliability, brand position, dealer support, and warranty", but she made no analysis on the impact of those elements on her suggested 5% royalty rate.

Bennis acknowledged that Briggs had patents on other mower components, but dismissed their value without any supporting facts, opining that they did not relate to the "paramount" element, the quality of the cut. The Circuit Court was "skeptical" that these other patented components bore no relation to the overall value of the mowers, and even if they did not, "the expert was required to support her opinion to that effect with sound economic reasoning."

The Circuit Court found Bennis' opinion "devoid of any analysis tying either the evidence or the specific Georgia-Pacific factors to the proposed 5% royalty rate."

Exmark defended Bennis' proposed royalty rate as it was only a small fraction of Exmark's profits on its mowers, Bennis' relied on quantitative market valuation evidence and Briggs' selling value documents which detailed Briggs' valuation of its mower's components.

The Circuit Court disagreed that a low royalty rate supported a reasonable royalty opinion, but "even assuming she properly considered this record evidence, she failed to explain how the evidence factored into the proposed royalty rate. She merely addressed the Georgia-Pacific factors in light of the facts and then plucked the 5% royalty rate out of nowhere."

The Circuit Court vacated the jury award and remanded the case for a possible new trial, based substantially on the erroneous expert opinion.