First, we need to recall that Judge Alsup put Oracle on a very short leash in allowing it an almost unprecedented third try to file an appropriate damages report:
So where does Cockburn start? Not at the $100 million valuation of the 2006 negotiations where we last left off. No, he starts, as PJ pointed out, by trying to inflate the base number to a point that will get his damages numbers back to an acceptable (to Oracle) level. That's not what he was told to do.
Even when Dr. Cockburn does turn to attempting to allocate values, he does not (according to Google) use any sound method to achieve the allocation. In other words, given a third attempt to get it right, Google believes Oracle has utterly failed again. It is hard to imagine that, having his patience worn thin by Oracle's first two bungled attempts, Judge Alsup will now show any greater patience or acceptance of this third report which is, to a large extent, not responsive to the direction given by the court.
And, as if this weren't bad enough, Oracle now faces losing all of its asserted claims in yet another (the third of seven) patents. On February 7, 2012, the USPTO issued a Final Rejection of claims 1, 5-7, 11-13, 15, and 16 of U.S. patent number 5,966,702. Those rejected claims include all seven (1, 6, 7, 12, 13, 15, 16) asserted by Oracle in this action. Oracle has two months in which to respond to this Final Rejection or it becomes permanent. Moreover, of the four other asserted patents, all of the asserted claims in three of those are also facing a possible final rejection. To date, only the four asserted claims of the '520 patent have been allowed following reexamination, and those are all subject to a limitation stated by Oracle in the reexamination which will likely cause them to not be infringed.
Oracle should think long and hard about whether it wants to persist on the issue of patent infringement or, for that matter, any infringement at all. Those failed settlement discussions probably look a lot more attractive to Oracle right now.
KEKER & VAN NEST LLP
ROBERT A. VAN NEST - #84065
[email]
CHRISTA M. ANDERSON - #184325
[email]
DANIEL PURCELL - #191424
[email]
[address]
[phone]
[fax]
KING & SPALDING LLP
DONALD F. ZIMMER, JR. - #112279
[email]
CHERYL A. SABNIS - #224323
[email]
[address]
[phone]
[fax]
KING & SPALDING LLP
SCOTT T. WEINGAERTNER (Pro Hac Vice)
[email]
ROBERT F. PERRY
[email]
BRUCE W> BABER (Pro Hac Vice)
[address]
[phone]
[fax]
IAN. C. BALLON - # 141819
[email]
HEATHER MEEKER - #172148
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GREENBERG TRAURIG, LLP
[address]
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Attorneys for Defendant
GOOGLE, INC.
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
ORACLE AMERICA, INC.,
Plaintff,
v.
GOOGLE INC.,
Defendant.
Case No. 3:10-cv-03561-WHA
GOOGLE'S NOTICE OF MOTION AND
MOTION TO STRIKE PORTIONS OF
THIRD EXPERT REPORT BY IAIN
COCKBURN AND EXPERT REPORT BY
STEVEN SHUGAN; MEMORANDUM OF
POINTS AND AUTHORITIES IN
SUPPORT THEREOF
Dept.: Courtroom 8, 19th Floor
Judge: Hon. William Alsup
TABLE OF CONTENTS
| I. |
INTRODUCTION |
1 |
| II. |
THE THIRD COCKBURN REPORT |
3 |
| III. |
ARGUMENT |
4 |
| |
A. |
Dr. Cockburn's "independent signifcance" approach
to patent
apportiomnent is based entirely on Dr. Cockburn's say-so and is
a
disguised resurrection of the "25 percent rule" that the Federal
Circuit
struck down in Uniloc |
4 |
| |
B. |
Dr. Cockburn's "group and value" approach to patent
apportionment is
biased and based on inapposite studies of patent value. |
7 |
| |
C. |
Dr. Cockburn failed to apportion the full value of
the copyrights that
would have been included in the 2006 bundle |
11 |
| |
D. |
Dr. Cockburn failed to conduct a claim-by-claim
analysis, and hence
failed to attribute any value to the unasserted claims. |
13 |
| |
E. |
Dr. Shugan's "conjoint" analysis is unreliable,
methodologically
flawed, and the results defy common sense |
14 |
| |
1. |
Conjoint analysis is not an accepted basis for
calculating
damages |
15 |
| |
2. |
The conjoint survey's methodology was flawed and
unreliable |
17 |
| |
a. |
The design of Dr. Shugan's conjoint survey |
17 |
| |
b. |
The conjoint survey's fatal methodological flaws |
17 |
| |
F. |
Dr. Cockburn's econometric analysis and calculation
of market share
are based on inapplicable data and unrealistic assumptions. |
20 |
| |
1. |
Overview of Dr. Cockburn's econometric analysis and
market
share calculations |
21 |
| |
2. |
Dr. Cockburn's econometric analysis is based on
unrepresentative data. |
22 |
| |
3. |
Dr. Cockburn's calculation of market share is based
on
unreasonable assumptions about price and consumer choice. |
23 |
| IV. |
CONCLUSION |
25 |
i
TABLE OF AUTHORITIES
| |
| Federal Cases |
| |
Apple, Inc. v. Motorola, Inc.
No. 11 C 8540 (N.D. Ill.) |
17, 18 |
Boucher v. US. Suzuki Motor Corp.
F.3d 18 (2d Cir. 1996) |
23 |
Fractus, SA. v. Samsung Electronics Co.
N0. 6:09-cv-0203, Dkt. No. 896 (E.D. Tex. April 29, 2011) |
18 |
Johnson Elec. N Am. Inc. v. Mabuchi Motor Am. Corp.
103 F. Supp. 2d 268 (S.D.N.Y. 2000) |
19, 22 |
McLaughlin v. Am. Tobacco Co.
522 F.3d 215 (2d Cir. 2008) |
15, 16 |
Medical Instrumentation and Diagnostics Corp. v. Elekta
AB
No. 397-CV-00271, 2001 WTL 36151641 (S.D. Cal. Dec. 12, 2001) |
23, 25 |
Riles v. Shell Exploration and Prod. Co.
298 F.3d 1302 (Fed. Cir. 2002) |
14, 15 |
Schwab v. Philip Morris USA, Inc.
449 F. Supp. 2d 992 (E.D.N.Y. 2006) |
15 |
Uniloc USA, Inc. v. Microsoft Corp.
632 F.3d 1292 (Fed. Cir. 2011) |
1, 4, 5, 7, 8 |
| |
| Federal Rules |
| |
| FED. R. CIV. P. 23(b) |
15 |
| Federal Rule of Evidence 702 |
22 |
ii
NOTICE OF MOTION AND MOTION TO STRIKE
PLEASE TAKE NOTICE that Defendant Google Inc. ("Goog1e") hereby
moves to exclude portions of the opinions and testimony of Oracle
America, Inc.'s ("Oracle") damages experts Dr. Iain M. Cockburn and
Dr. Steven Shugan. This Motion is based on the following memorandum
of points and authorities in support, the Declaration of David
Zimmer ("Zimmer Decl.") and accompanying exhibits, the entire
record in this matter, and on such evidence as may be presented at
any hearing of this Motion, on a date and at a time to be
detennined by the Court.
Dated: February 17, 2012
KEKER & VAN NEST LLP
By: s/ Robert A. Van Nest
ROBERT A. VAN NEST
Attorneys for Defendant
GOOGLE INC.
1
MEMORANDUM OF POINTS AND AUTHORITIES
I. INTRODUCTION
Oracle's damages expert Dr. Iain Cockburn's third attempt to
formulate a viable damages report remains riddled with fatal
errors. In response to the Court's rejection of his methodology for
separating the value of the patents and copyrights at issue in this
case from the remainder of the licensing bundle at the heart of the
2006 Sun—Goog1e negotiations, Dr. Cockburn now offers two
alternative apportionment methods. Both are legally improper.
First, Dr. Cockburn purports to evaluate the "independent
significance" of the patents-in- suit and copyrights to Google, but
this "analysis" is smoke and mirrors. Dr. Cockburn throws into the
hopper every piece of evidence he can identify showing that Google
considered certain obvious features—speed, memory, and number
of applications—important to a smartphone platform and that
the inventions at issue improve those features. Based on this
evidence as a whole, and without using any quantitative algorithm
or formula, Dr. Cockburn simply concludes that the asserted patents
are worth "at least" an even 25% of the total bundle, and the
copyrights worth exactly half that much. This is a subjective
guess, not an objective methodology; it is not replicable by anyone
other than Dr. Cockburn. Indeed, Dr. Cockburn's "at least" 25%
conclusion effectively tries to resurrect the "25 percent ru1e"
that the Federal Circuit struck down just last year in
Uniloc. Further, Dr. Cockburn admitted at deposition that he
included the caveat "at least" to preserve his flexibility to argue
a much higher percentage to the jury. He flatly stated that, having
calculated the total value of the licensing bundle to be $597.5
million, he might tell the jury that the patents were worth
at least 50% of that total—and that the
copyrights might be so important to Android that they could be
worth 100% of the bundle. This is as unforrned and
speculative as expert testimony can get. It cannot possibly assist
the jury.
Second, Dr. Cockburn's alternative apportionment
methodo1ogy—the "group and value" approach—asked a
group of five Oracle engineers to identify all the mobile
Java-related patents in Sun's 2006 portfolio, separate those
patents into categories, rank the categories in importance, and
then rate each patent's value on a three—point scale. Four of
the five Oracle engineers involved in this process conducted
infringement analyses of the patents-in-suit in preparation for
1
this lawsuit, and admitted in deposition that they spent next to
no time compiling their rankings and were influenced by their prior
work on this case. Further, the engineers did no quantitative
testing to confirm their conclusions, and Mark Reinhold, the Oracle
engineer who headed up the team, admitted there was no way to
translate the engineers' judgment of comparative value into the
hard numbers required for a damages analysis. Dr. Cockburn tries to
paper over this gap with three studies finding that, in general, a
small percentage of issued patents account for a large percentage
of the aggregate value of all patents. But none of these studies
looked at a single company's patent portfolio in a narrow
technology area, such as Sun's mobile Java portfolio, and two of
the three studies evaluated European patents, not U.S. patents. The
studies are Dr. Cockburn's sole basis for concluding that the top
22 patents in the Sun portfolio account for up to 92% of the total
value of the portfolio. With three of the patents-in-suit—the
'104, '205, and '720—placed among the top 22 by the very
engineers who selected litigation patents at the outset, Dr.
Cockburn calculates the value of the six patents-in-suit as falling
in the broad range between 10.2% and 32.7% of the $597.5 million
bundle. Dr. Cockburn has no reasonable basis for this conclusion.
His group and value approach also should be stricken.
Dr. Cockburn's newest opinion has other disqualifying flaws as
well. His apportionment analysis as to the copyrights at issue
fails because he did not value any of the copyrighted material
included in the Sun-Google negotiations other than the remaining 37
API specifications on which Oracle bases its copyright claim. Dr.
Reinhold confirmed at his deposition that Sun and Google were
negotiating for a partnership including a license to
all of Sun's mobile Java related
copyrights—among other things, the source code implementing
the Java virtual machine and all of the class libraries associated
with the APIs. Yet Dr. Cockburn still has no idea what was included
in that universe of copyrights, and made no effort to value any of
the other copyrights besides the APIs. Instead, he simply assumed
that the value of that presently
existing Sun intellectual property was subsumed into the
projected cost of future Sun engineering expenses to
be incurred during a Sun-Google partnership. There is no economic
basis for using projected future engineering costs as a proxy for
fair market value of copyrighted works. Moreover, despite repeated
orders from this Court instructing him to do so, Dr. Cockburn
2
still refuses to value the patents on a claim-by-claim basis.
This is particularly important here, where Oracle initially sued
Google on 132 patent claims. Presumably Oracle had a Rule 11 basis
for asserting all those claims, so all of them must have some value
(even leaving aside the potentially valuable other claims of those
patents that Oracle never asserted). Yet Dr. Cockburn never
separated out the value of the unasserted—or asserted but
abandoned—claims, nor did he deduct the value of the
unasserted claims from the value of the patents-in-suit as a
whole.
Finally, Dr. Cockburn also relies on his own econometric study
and a "conjoint" analysis conducted by another Oracle expert, Dr.
Steven Shugan. Both of these analyses are based on unrealistic
assumptions and suffer from serious methodological flaws. They
should be stricken. And, because Dr. Cockburn's "independent
significance" approach and copyright apportiomnent rely on the
conjoint and econometric analyses, they should be stricken for that
reason as well.
II. THE THIRD COCKBURN REPORT
Dr. Cockburn's third report begins, as his second report did,
with the negotiations Google and Sun conducted in early 2006 for a
technology partnership to develop a mobile smartphone platform. As
before, Dr. Cockburn uses as his monetary starting point Sun's
initial February 2006 demand, which he calculates at $98.7
million, rather than Sun's final demand in April 2006 of
$28 million. February 3, 2012 Cockburn Report ("Cockburn Rep.")
¶¶ 5-6. He then performs the following adjustments:
-
He adjusts the starting point upward by $557.2 million to
account for convoyed sales Sun projected to make as part of its
partnership with Google, resulting in a subtotal of $655.9
million. Id. ¶¶ 37-41.
-
Although Sun's initial demand contained a cap on Sun's ability
to share in Google's revenue from the partnership, he removes that
cap to adjust for Sun's loss of compatibility and control caused by
Google's development of an independent platform. This adjustment
adds a further $27.8 million, leaving the subtotal at $683.7
million. Id.
-
He then apportions the value of the patents and copyrights at
issue in the suit as a percentage of the total. He uses two
alternative apportionment methodologies—the "group and value"
and the "independent significance" approaches. Id.
¶¶ 42-68.
Under the group and value approach, Dr. Cockburn
first adjusts downward by $86.15 million to account for projected
engineering expenses Sun would have incurred as part of a
partnership with Google. Id. ¶ 48. He assumes that this
$86.15 million would have captured the value of (1) all copyrighted
materials other than the APIs at issue, including source code and
Java mobile class libraries;
3
and (2) all Sun engineering know-how and trade secrets.
Id. ¶ 49. Next, he concludes that the JAVA trademark
and Java brand was worth nothing to Google, and performs no further
downward adjustment for that intellectual property. He similarly
assigns no value to the fact that a partnership with Sun would have
given Google access to relationships with OEMs and other Sun
partners. Id. ¶ 50.
This leaves him with a total of $597.5 million, which he
contends accounts for the value of (1) Sun's Java mobile patent
portfolio; and (2) the asserted copyrighted APIs. Id. 11 51.
Based on a qualitative analysis by Oracle engineers, and three
studies regarding the distribution of value among patents
generally, he concludes that the six patents-in-suit are worth
somewhere between 10.2% and 32.7% of the total, or between
$69.5 million and $223.7 million. Id. ¶ 5.
Based on Dr. Shugan's conjoint analysis, which suggests that
consumers value the availability of applications (the Android
feature purportedly enabled by the copyrighted APIs) about half as
much as speed (the Android feature allegedly enabled by the
asserted patents), he sets the value of the copyrights at exactly
half the value of the patents—between 5.1% and 16.4% of the
total, or between $34.7 million and $111.9 million.
Id. ¶¶ 6, 54.
Under the independent significance approach, Dr.
Cockburn evaluates the totality of the evidence as to the
importance of certain performance features to Google and to
consumers, and concludes that the patents are worth "at least" 25%
of the total, or at least $170.9 million. Id.
¶¶ 5, 60-68. Again relying on Dr. Shugan, Dr. Cockburn
values the copyrights at exactly half the value of the patents, or
"at least" 12.5% of the total, or at least $85.5
million. Id. ¶¶ 6, 60-68.
-
Dr. Cockburn then performs further downward adjustments to his
alternative patent calculations to exclude damages for
extraterritorial infringement, past damages for Sun's and Oracle's
failure to mark its products, and damages for non-accused devices.
The results are final patent-damages figures of $17.7 million
to $57.1 million under the group and value approach and
at least $43.7 million under the independent
significance approach. Id. ¶ 5.
-
Accordingly, Dr. Cockburn's alternative total damages figures
for both patent and copyright infringement are (1) between
$52.4 million and $169 million under the group and
value approach (assuming the Court requires all the deductions
described above for extraterritorial infringement, marking, and
non-accused devices); and (2) at least $129.2 million
under the independent significance approach.
III. ARGUMENT
A. Dr. Cockburn's "independent significance" approach to
patent apportionment is
based entirely on Dr. Cockburn's say-so and is a disguised
resurrection of the "25
percent rule" that the Federal Circuit struck down in
Uniloc.
Prior to the Federal Circuit's ruling last year in Uniloc
USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011),
experts often used, and courts frequently approved, the so-called
"25 percent rule," which was "a tool that has been used to
approximate the reasonable royalty rate that the manufacturer of a
patented product would be willing to offer to pay to the patentee
during a hypothetical negotiation." Id. at 1312. Under the
rule, courts would simply assume, as
4
a matter of rough justice, that hypothetical negotiators would
agree to a royalty rate equal to 25 percent of the licensor's
expected profits for a product that incorporates the intellectual
property at issue. Id. at 1312-13. In Uniloc, the
Federal Circuit sounded the death knell for this sort of subjective
approximation, concluding that the "25 percent rule of thumb is a
fundamentally flawed tool for determining a baseline royalty rate
in a hypothetical negotiation." Id. at 1315. It thus held
that "[e]vidence relying on the 25 percent rule of thumb is thus
inadmissible under Daubert and the Federal Rules of
Evidence, because it fails to tie a reasonable royalty base to the
facts of the case at issue." Id.
Unable to rely directly on the 25 percent rule or any similar
rule of thumb, Dr. Cockburn surreptitiously resurrects it through
what he describes as the "independent significance" approach.
Cockburn Rep. ¶¶ 421-459. Under this approach, as he
described it in his deposition, Dr. Cockburn [REDACTED]
Declaration of David Zimmer in Support of Google's Motion to Strike
("Zimmer Decl.") Ex. A (Cockburn Dep.) at 135:6, 137:17-20.
According to his report, the evidence Dr. Cockburn reviewed
included contemporaneous documents regarding the importance and
value to Google of key performance characteristics, contemporaneous
documents regarding the availability of non-infringing
alternatives, Oracle's benchmarking studies, the opinions of Oracle
technical expert John Mitchell and Google technical expert Owen
Astrachan, and the opinions of Oracle's engineers. Cockburn Rep.
¶ 421. Although Dr. Cockburn did not mention them at all in
the "independent significance" approach section of his report, Dr.
Cockburn stated in his deposition that [REDACTED] Zimmer
Decl. Ex. A (Cockburn Dep.) at 135:7-136:21.
In his report, Dr. Cockburn offers no explanation as to how he
gets from this evidentiary
5
miscellany of data to his bottom-line 25% figure. In his
deposition, Dr. Cockburn admitted that he had essentially made up
that number because it felt right to him:
[REDACTED]
Id. at 139:2-18. Incredibly, Dr. Cockburn also admitted
his 25% number was just a floor, and he might well assert an
undisclosed higher number once he gets on the witness stand:
[REDACTED]
Id. at 142:7-143:3 (emphasis added). It gets
worse—Dr. Cockburn also said that he might advise the jury
that the copyrighted APIs could constitute 100% of
the value of the 2006 partnership. Id. at 166:12-20
[REDACTED]
6
[REDACTED]
Not only is Dr. Cockburn's bottom-line apportionment percentage
under the independent significance approach entirely undefined, the
only thing connecting that conclusion to its purported evidentiary
basis is Dr. Cockburn's subjective judgment, which by definition
cannot be replicated or verified by another expert. This is no
different from the guesswork that used to underlie the 25 percent
rule, before the Federal Circuit's ruling in Uniloc. The
Court should not allow Dr. Cockburn to resurrect the 25 percent
rule by [REDACTED]
B. Dr. Cockburn's "group and value" approach to patent
apportionment is biased and
based on inapposite studies of patent value.
In conducting his "group and value" approach, Dr. Cockburn
relied on Dr. Reinhold and four other Oracle engineers to review
Sun's portfolio of 569 mobile Java-related patents. The four
engineers on whom Dr. Reinhold relied had all been
involved in analyzing patents as part of this litigation, and did
not recuse themselves from evaluating any of the patents-in-suit on
which they had worked. Zimmer Decl. Ex. H (Rose Dep.) at
79:14-81:23, 84:24-86:8; Zimmer Decl. Ex. I (Wong Dep.) at
83:15-85:21, 88:1-95:6, 132:18-133:11; Zimmer Decl. Ex. J (Kessler
Dep.) at 68:5-71:11; Zimmer Decl. Ex. K (Plummer Dep.) at
32:22-38:25, 50:25-52:22. The engineers first divided the 569
patents into 22 technology groups. Cockburn Rep. ¶¶
391-92. The engineers then identified four metrics for evaluating
the usefulness of a technology group to a mobile smartphone
platform—operating speed, startup speed, memory footprint,
and security— and ranked the 22 groups according to the four
metrics. Then they tallied up those rankings, with the result being
an aggregate ranking of the usefulness of the 22 groups. Finally,
they separately rated each individual patent on a scale of l to 3
in terms of the benefits each would allegedly provide to a
smartphone platform. Id. ¶¶ 393-94. The rating of
the 569 patents was done over just two days. See, eg.,
Zimmer Decl. Ex. J (Kessler Dep.) at 33:12-34:5. One engineer
[REDACTED] Zimmer Decl. Ex. K
7
(Plummer Dep.) at 37:3-25. The rating was based solely on a
spreadsheet including the title, abstract, inventors and issue or
filing date. See, e.g., Zimmer Decl. Ex. K (Plummer Dep.) at
32:13-21; Zimmer Decl. Ex. J (Kessler Dep.) at 40:6-41:21. It was
therefore inevitable that the engineers would favor the patents
they had already analyzed as part of this case. Christopher
Plummer, one of the engineers, admitted he relied on his previous
work in rating the patents:
[REDACTED]
Zimmer Decl. Ex. K (Plummer Dep.) at 101:25-102:14. The other
engineers admitted having similar knowledge, but claimed it didn't
influence them. See, e.g., Zimmer Decl. Ex. I (Wong Dep.) at
94:25-96:2 [REDACTED] Zimmer Decl. Ex. H (Rose Dep.) at
84:6-13 [REDACTED]
Dr. Cockburn then synthesized these questionable group rankings
and the patent ratings by isolating all the patents in the
purportedly top three technology groups with a "1" rating. The
result was a group of 22 patents that he asserted constitute the
most valuable 4% of Sun's mobile Java portfolio. Cockburn Rep.
¶¶ 397, 408. This group of 22 patents included three of
the patents-in-suit—the '720, '205, and '104. Id.
¶ 397.
But because the engineers' analysis was entirely qualitative,
Dr. Cockburn next faced the challenge of translating these value
comparisons into the hard numbers required for a damages
8
calculation. The Oracle engineers themselves confirm that they
had no technical basis for translating their qualitative judgment
into quantitative valuations. Dr. Reinhold confirmed that the
engineers did no quantitative assessment, and that such an
assessment would require significant and repeated performance
testing of each patent's functionality. Zimmer Decl. Ex. B
(Reinhold Dep.) at 40:8-12, 41:20-42:11, 43:12-25, 47:13-20. Even
then, Dr. Reinhold testified, no quantitative assessment of all the
various patents would be possible given that some patents were
substitutes for, or complements to, others in the portfolio.
Id. at 96:7-97:9; id. at 105 [REDACTED] In the
end, although Dr. Reinhold believed that the patents in the
top-ranked group were each more valuable than any of the patents in
the second-ranked group, he could not offer even a guess as to the
ranking among these top 22 patents. Id. Dr. Reinhold
conveyed this opinion to Dr. Cockburn. Zimmer Decl. Ex. A (Cockburn
Dep.) at 125.
Undeterred, Dr. Cockburn tries to bridge the gap between the
engineers' vague judgments of quality and a quantitative damages
calculation by relying on three surveys of patent value having
nothing to do with the Sun portfolio at issue. Each of these
surveys1
conclude that the distribution of value among patents is highly
skewed, with a handful of patents accounting for a large percentage
of the value of all patents. Id. ¶ 405. Dr. Cockburn
adopted the distributions of patent value described in these
studies and concluded that the top 22 patents in Sun's portfolio
are worth 67.9% to 91.9% of the overall value of the portfolio,
with the six patents-in-suit being worth between 10.2% and 32.7% of
the overall patent portfolio. Id. ¶¶ 408, 412.
The problem with this analysis is that there is no relationship
between the Sun portfolio at issue in this case and the patents
studied in the three surveys. As the Federal Circuit made clear in
Uniloc, "[i]f the patentee fails to tie the theory to the
facts of the case, the testimony must be excluded." 632 F.3d at
1315. Here, Dr. Cockburn's survey model is inapposite to the actual
Sun
9
portfolio at issue here for the following reasons:
-
The Sun portfolio here is owned by a single company. None of the
studies looked at single-owner portfolios at all. See, e.g.,
Zimmer Decl. Ex. A (Cockburn Dep.) at 94:15-95-7, 104:20-105-6. As
Dr. Cockburn admitted about one of the studies, [REDACTED]
Id. at 95:20-12.
-
The Sun portfolio at issue here is confined to a relatively
narrow technology area: mobile smartphone platform software
functionality. None of the studies had any subject-matter
limitation; each of them evaluated every type of patent in every
type of technology area under the sun. See, e.g., id. at
96:5-11 100:24-101:7.
-
The 569 patents in the Sun portfolio were selected deliberately
for relevance to this case by Oracle engineers who also worked on
pre-litigation infringement analyses of the patents-in-suit for
Oracle. By contrast, the patents evaluated in the studies were
randomly selected.
Each of these critical differences means that the patent
populations evaluated in the three studies are likely to have
different distributions of value than the Sun portfolio. Dr.
Cockburn offers nothing to support his assumption that the value
distribution of industry- and company- wide patents is the same as
the value distribution of one software company's portfolio in a
specific technology area.
Further, two of the surveys in Dr. Cockburn's report—the
PatVal and Harhoff studies— looked only at European patents,
and one of those two was confined to only German patents. All 569
Sun patents are U.S. patents. Id. at 95:8-12, 102:2-7. This
is not a trivial difference. The German study recognized that one
of its conclusions would be "surprising" to those familiar with
U.S. patents. Zimmer Decl. Ex. C (Harhoff study) at 1355 ("Some of
the mean values should be surprising to readers familiar with
citation indicators from the US patent system. As reported in a
previous paper (Harhoff et al., 1999), we find that the citation
counts, both in the German and the European system, are
spectacularly low by USPTO standards."). Dr. Cockburn again
provides no support for his assumption that the value distribution
of European patents is the same as that of U.S. patents, and the
text of one of his source studies refutes that assumption.
The lone study in Dr. Cockburn's report that evaluated U.S.
patents—the Barney study— is inapposite because it
calculated patent value according to whether the patentee had paid
the patent-renewal fees over the life of the patents. Zimmer Decl.
Ex. A (Cockburn Dep.) at 105:14-
10
107:19. Dr. Cockburn did not attempt to tie this methodology to
the Sun portfolio by examining whether Sun and Oracle had paid
patent renewal fees for the 569 patents in the portfolio at issue.
Assuming Sun and Oracle did so for all or nearly all 569
patents—and there is no evidence to the contrary—it
would follow, using the logic of the Barney study, that each of
those patents had an approximately equal value.
Despite the vast differences between the patents examined in
these three studies and the 569 Sun patents at issue in this case,
Dr. Cockburn in his deposition [REDACTED] Id. at
107:20-108:2. Instead, Dr. Cockburn simply [REDACTED]
Id. at 99:11-18; see also id. at 100:20-23
[REDACTED] This type of ipse dixit link between
external studies and the facts of this case is inadmissible under
Daubert, as the Supreme Court made clear in General
Electric Co. v. Joiner:
Trained experts commonly extrapolate from existing data. But
nothing in either Daubert or the Federal Rules of Evidence
requires a district court to admit opinion evidence that is
connected to existing data only by the ipse dixit of the
expert. A court may conclude that there is simply too great an
analytical gap between the data and the opinion proffered.
522 U.S. 136, 146 (1997). In this case, the analytical gap
between the three patent value studies and Dr. Cockburn's ultimate
conclusions is cavernous. The Court should strike this
analysis.
C. Dr. Cockburn failed to apportion the full value of the
copyrights that would have
been included in the 2006 bundle.
In addition to using two unreliable patent apportionment
methodologies, Dr. Cockburn failed to make any attempt to value all
of the copyrights that would have been part of the 2006
intellectual property package. Indeed, Dr. Cockburn had no idea
what Java-related copyrights Sun owned at the time of the
hypothetical negotiation, let alone what they were worth.
The Court stated unequivocally in its January 9, 2012 Order that
"[i]f the $100 million in
11
2006 is used as the starting point . . . then a fair
apportionment of the $100 million as between the technology in suit
and the remainder of the technology then offered must be made."
Jan. 9, 2012 Order [Dkt. No. 685] at 8. In the patent context Dr.
Cockburn at least made an attempt to follow the Court's
instructions by apportioning the patents included in the 2006
bundle between the patents in suit and the remainder of Sun's
Java-related patents. In the copyright context, however, Dr.
Cockburn did not even attempt to undertake this analysis. Dr.
Cockburn admitted in his deposition that he did not even know what
Java-related copyrights Sun owned in 2006:
[REDACTED]
Zimmer Decl. Ex. A (Cockburn Dep.) at l53:17-154:3.
Without knowing what copyrighted material was at issue, it was
of course impossible for Dr. Cockburn to apportion all of that
copyrighted material between the 37 APIs at issue and the rest of
the material. As Dr. Cockburn said in his deposition:
[REDACTED] Id. at 161:9-12; see also id. at
161:22-162:2 [REDACTED] Yet there is no reason to think that
there were not other copyrights being considered. Most obviously,
the source code underlying Sun's implementation of the Java virtual
machine is copyrighted, and at least would have been a basis of any
new virtual machine jointly developed by Sun and Google. See
id. at 158:7-159:11 [REDACTED] Because he made no effort
to consider the scope of the copyrights at issue in the 2006
12
negotiations, Dr. Cockburn's analysis does not account for these
or other copyrights that Google would have obtained through the
hypothetical negotiation.
Dr. Cockburn also made no systematic effort to measure the value
of the millions of lines of code in the API libraries that would
have been part of the 2006 bundle. Unlike in the patent context,
Dr. Cockburn never had anyone from Oracle examine the code
libraries to determine their value in relation to the API
specifications. Instead, he simply assumed that, whatever other
copyrights were on the table in the Sun-Google negotiations, their
value would have been subsumed in the operating and
research-and-development expenses Sun projected it would incur as
part of its partnership with Google. Accordingly, Dr. Cockburn
avoids any specific valuation of those copyrighted materials at
all. But Dr. Cockburn has no logical basis for using Sun's
projected future R&D costs (in developing new
intellectual property in a mobile smartphone platfonn partnership
with Google) as a proxy for the value of Sun's
then-existing intellectual property (the copyrighted class
libraries and source code). This analysis falls apart for at least
two reasons. First, Dr. Cockburn confuses cost with value. Consider
the patents-in-suit—it would have cost Sun
nothing in terms of R&D costs to license those patents to
Google in 2006, because those inventions were already developed and
patented. But Dr. Cockburn would contend that the patents have
significant value to Google. Second, Dr. Cockburn is
again mixing apples and oranges, by comparing two entirely distinct
classes of intellectual property—Sun's existing copyrighted
materials that were the subject of the licensing negotiation, on
the one hand, and material that Sun might have developed during a
partnership with Google, on the other.
Dr. Cockburn's conflation of projected cost with actual value,
and his equal treatment of past copyrighted works and different,
future copyrighted works are both efforts to cover up the fact that
he has engaged in no rigorous evaluation of the individual values
of the copyrights in the 2006 licensing bundle. Indeed, as already
discussed, he cannot even identify the components of that bundle.
His copyright apportionment analysis is unreliable and should be
excluded.
D. Dr. Cockburn failed to conduct a claim-by-claim analysis,
and hence failed to
attribute any value to the unasserted claims.
The court has repeatedly emphasized that Dr. Cockburn is
required to calculate Oracle's
13
purported patent damages on a claim-by-claim basis. Jan. 9, 2012
Order [Dkt. N0. 685] at 9-10. Yet Dr. Cockburn has still failed to
do so, asserting that [REDACTED] Cockburn Rep. ¶ 497.
Thus, as the Court ordered before, Dr. Cockburn should be
"precluded from apportioning an asserted patent's value among its
claims at trial." Jan. 9, 2012 Order [Dkt. No. 685] at 9.
More problematic, however, is that Dr. Cockburn fails to
attribute any value to any of the unasserted claims of the
patents-in-suit. In his deposition, Dr. Cockburn [REDACTED]
Zimmer Decl. Ex. A (Cockburn Dep.) at 90:13-18. This raises the
distinct possibility that a portion of the value of some of the
patents-in-suit may be located in claims that Google has not
infringed. As the Court noted in its January 9 Order: "An infringer
of one claim is compelled by law to pay for a license, via the
hypothetical negotiation, for the specific invention represented by
that claim but it is not required to pay for a license for the
other specific inventions not infringed. Therefore, the
hypothetical negotiation must be focused only on negotiating a
compulsory license for each claim infringed, not for the entire
patent." Jan. 9, 2012 Order [Dkt No. 685] at 9. Indeed the idea
that the unasserted claims had no value is belied by Oracle's
actions in this case. At one time, Oracle claimed that Google
infringed 132 claims from 7 patents. See May 3, 2011 Order
[Dkt. No. 131] at 1. Oracle has now limited its patent case to 26
claims from 6 patents. But Oracle must have had a Rule 11 basis for
asserting infringement of the now-abandoned claims by Google, so it
cannot be heard to argue that those claims have no value to Google.
Yet Dr. Cockburn has never tried to isolate the value of those
claims—or other claims that Oracle never asserted—and
deduct the value of the unasserted claims from the remaining value
of the patents-in-suit. Yet again, he has violated the Court's
express instructions and overstated Oracle's damages as a
result.
E. Dr. Shugan's "conjoint" analysis is unreliable,
methodologically flawed, and the
results defy common sense.
In addition to the flaws in his own analysis, Dr. Cockburn
relies on a "conjoint" analysis
14
performed by another Oracle expert, Dr. Steven Shugan. Dr.
Shugan's conjoint study purports to identify a limited number of
smartphone features that consumers find important, then determine
which of those features consumers value most. Then Dr. Shugan
essentially converts the consumers' preference share into projected
market shares—essentially, he concludes that, if 20% of
consumers value application start time more than the other tested
features, an increase in application start time on Android phones
would mean a 20% drop in Android market share. This simplistic
analysis may have some value as a marketing-research tool, but it
is not an accepted method of calculating damages. As far as Google
is aware, no court has ever approved the use of conjoint analyses
in calculating damages.
Even setting aside the problems with conjoint analyses
generally, the particular survey in this case had crippling
methodological flaws, as is shown by the facially absurd responses
it generated. Dr. Shugan's conjoint analysis is unreliable and
would be unhelpful to the jury, and the Court should exclude it.
Similarly, the parts of Dr. Cockburn's report relying on Dr.
Shugan's analysis, primarily his "independent significance" and
copyright apportionment analyses, see Cockburn Rep. ¶
419; Zimmer Decl. Ex. A (Cockburn Dep.) at 135:12-15; 138:9-18;
140:10-142:3, also should be excluded.
1. Conjoint analysis is not an accepted basis for calculating
damages.
Conjoint analysis is a marketing-research tool, not an accepted
method of calculating damages in litigation. Calculation of
reasonable-royalty damages in a patent case "requires sound
economic and factual predicates." Riles v. Shell Exploration and
Prod. Co., 298 F.3d 1302, 1311 (Fed. Cir. 2002). Whatever its
value may be to marketing research, conjoint analyses like Dr.
Shugan's simply lack the reliability required to prove damages with
the "reasonable certainty" required in litigation. See id.;
N.D. CAL. MODEL PATENT JURY INSTRUCTION No. 5.1.
Neither Dr. Shugan nor Dr. Cockburn cite to a single instance
where a court in any jurisdiction has allowed the parties to rely
on "conjoint" analyses to prove damages. Indeed, in one of the few
reported decisions to discuss conjoint analyses, the Second Circuit
reversed a trial court decision that relied on conjoint analysis to
grant a class certification motion under FED. R. CIV. P. 23(b).
McLaughlin v. Am. Tobacco Co., 522 F.3d 215, 234 (2d Cir.
2008), rev'ing sub
15
nom Schwab v. Philip Morris USA, Inc., 449 F. Supp. 2d
992, 1056 (E.D.N.Y. 2006). The plaintiffs in McLaughlin
offered a conjoint survey to establish that they bought "light"
cigarettes because of defendants' misrepresentations that those
cigarettes were healthier than "full-flavored" cigarettes.
Schwab, 449 F. Supp. 2d at 1167. According to plaintiffs'
conjoint expert, 90.1% of class members considered "health
concerns" as a factor in purchasing light cigarettes. Id. at
1048. The trial court cited plaintiffs' conjoint analysis in
finding class-wide reliance, and the court also noted that the
conjoint analysis would "probably be critical in estimation of
damages." Id. at 1126, 1147, 1169. The trial court refused
to exclude the conjoint analysis, and certified a nation-wide class
of "light" smokers. Id. at 1170, 1278.
The Second Circuit reversed. The court found that the conjoint
analysis was insufficient to establish reliance because it failed
to take account of the myriad other factors that may have
influenced class-members' decision to buy light
cigarettes—e.g., taste or "personal style." Id.
at 223. The court sharply criticized the use of conjoint analysis
to prove reliance, stating:
Plaintiffs' expert, Dr. John R. Hauser, claimed that 90.1% of
those who smoked Lights chose to do so because of Lights' alleged
health benefits. But Dr. Hauser came to this conclusion on the
basis of a method that determined whether, all things being
equal, consumers prefer a safer cigarette to a less safe
cigarette. And as plaintiffs conceded at oral argument, no
one who understood this question would prefer a more dangerous
product to a safer one.
Id. at 225 n.6 (internal citations omitted) (emphases
added). Accordingly, the Second Circuit concluded that plaintiffs
had failed to establish damages with "'sufficient precision to
allow a jury award.'" Id. at 232 (quoting and rejecting the
district court's conclusion as to damages).
McLaughlin illustrates the limitations of conjoint
analysis. Conjoint analysis measures consumer preference for
product features; it does not capture how consumers actually behave
when purchasing a product. Consumers' stated preference for a given
feature may be one of many factors a company considers in designing
or launching a new product, but they are not a proxy for market
share. The dearth of opinions discussing use of conjoint analysis
in litigation further suggests that conjoint studies cannot provide
the "reasonable certainty" needed to support a multi-million dollar
damages claim. See July 22, 2011 Order [Dkt. No. 230] at 12
(striking Dr. Cockburn's reliance on the Nash bargaining solution
in part because it "has never been approved
16
by a judge to calculate reasonable royalties in litigation, at
least in the face of objection. This is despite the fact that for
decades it has been lurking in the field of economics.").
2. The conjoint survey's methodology was flawed and
unreliable.
Even assuming that conjoint analysis is reliable enough for
damages calculations—and it is not—Dr. Shugan's survey
in this case was methodologically flawed for at least two reasons.
First, Dr. Shugan's selection of features was driven by the
litigation, and the choice profiles he created do not approximate
real-world purchase conditions. Second, as Dr. Shugan himself
concedes, the survey violated the fundamental premise of conjoint
analysis: that respondents are able to hold constant all product
features other than those tested by the survey.
a. The design of Dr. Shugan's conjoint survey.
Dr. Shugan used a web-based survey to measure the relative
importance to consumers of seven smartphone features: application
multitasking, application startup time, availability of third-party
applications, brand, price, screen size, and voice command
capabilities. Shugan Rep. App. D at 5. The survey asked respondents
to choose between side-by-side comparisons of different smartphone
"profiles." Each profile was a written list of varying levels of
functionality in each of the seven features—e.g., one
phone might be described as (1) an Android phone with (2) a
4.5-inch screen that (3) can run five apps at once (4) with a
startup time of 2 seconds, (5) 300,000 available apps, and (6)
voice dialing and texting (7) available for a sale price of $200.
Respondents were instructed to assume that every feature other than
the seven listed features was the same for each profile. Shugan
Rep. App. E at E12-E20.2.
Dr. Shugan used respondents' selections to rank and measure the
relative importance of the seven features to consumers. He then
plugged these ranked values—referred to in conjoint parlance
as "partworths"—into a statistical software program in order
to assess general consumer preference for an Android phone lacking
the application volume, startup time, and multitasking A 25
capabilities allegedly provided by the patents- and
copyrights-in-suit.
b. The conjoint survey's fatal methodological flaws.
First, Dr. Shugan's selection of allegedly important
smartphone features for the conjoint survey was not driven, as one
would expect, by which features are actually valuable to
17
consumers. Instead, Dr. Shugan selected features that were
important to Oracle's needs in this litigation. He included just
seven features in his smartphone "profiles," and five of those
seven features—all features other than brand and
price—were spoon-fed to him by either Dr. Cockburn or the
Analysis Group, Dr. Cockburn's consulting group. Zimmer Decl. Ex. D
(Shugan Dep.) at 29:22-30:11. Indeed, Dr. Shugan's own "market
research" identifies 36 other features that real- world consumers
actually said they would (or have) considered in purchasing a
smartphone, including such obviously important features as the
associated cellular network, battery life, and keyboard type and
layout. See Shugan Report Ex. 1. Dr. Shugan made no effort,
prior to administering his seven-feature survey, to determine
whether any of the 36 other features he chose to omit were actually
more important to consumers than the seven he actually tested.
Instead, Dr. Shugan's survey ignores those 36 features, and asks
consumers to assume that any feature not specifically listed among
the seven tested features is the same for all phones. But all
phones are not the same in the real world. Forcing consumers to
operate under this assumption undermines the survey's ability to
predict real-world behavior. As Judge Posner noted in a recent
hearing in the Apple v. Motorola case, responding to a
suggestion from counsel for Apple that Apple could measure the
value of a patent through a consumer survey:
I'm not going to ask consumers how they like it. That is a
totally — that is a totally fraudulent way of determining
— I mean, look, you go out and start asking consumers, oh,
this device had X and meant that [a certain feature was enabled,]
would you pay more for that? Of course, they'll say yes, right,
because you're focusing them on some feature.
Zimmer Decl. Ex. E (Transcript of Jan. 23, 2012 Hearing,
Apple, Inc. v. Motorola, Inc., No. 11 C 8540 (N.D. Ill.)) at
22-23; see also id. at 23 ("I'm not going to have competing
experts talking about their marketing surveys. I regard that
evidence as totally worthless."). This flaw in conjoint analysis
renders the results unfit for the demanding task of calculating
actual damages in a multi-million dollar litigation.
Second, Dr. Shugan's study includes the same error this
Court recognized in striking Dr. Cockburn's second report last
month—it measures the value consumers place on certain phone
features as a whole, rather than the incremental benefit to those
features allegedly enabled by the
18
technology at issue. Courts have struck similar consumer surveys
for this reason. See Fractus, S.A. v. Samsung Elecs. Co.,
No. 6:09-cv-0203, Dkt. No. 896 (E.D. Tex. Apr 29, 2011) (excluding
consumer survey data, that "do[es] not measure the value of
Plaintiff s technology, but merely measure[s] the perceived
consumer value of cell phones with any internal antennas" and
concluding that "[s]urvey evidence purportedly demonstrating the
value of intemal antennas not tied directly to Plaintiff's
technology confuses the issues and must be excluded").
Third, the results of the survey clearly show that
respondents were not in fact holding constant all unnamed features.
Dr. Shugan's failure to control for this fact is fatal, because the
ability of conjoint analysis to predict consumer preference for a
specified feature requires the consumer to ignore potential
differences in any unspecified features. Dr. Shugan explained this
fundamental presumption of conjoint analysis in his deposition:
[REDACTED]
Zimmer Decl. Ex. D (Shugan Dep.) at 38:2-25 (emphases
added).
But the proof is in the pudding—and here, almost one
quarter of all respondents claimed that they would prefer a
smartphone costing $200 to a putatively identical
smartphone costing $100. Zimmer Dec. Ex. F (Oct. 24, 2011
Leonard Rep.) at 114.2 No rational person, much less 24% of all
rational people, would prefer to pay $200 for a phone they could
have for $100. The explanation for this apparently nonsensical
result is obvious—survey respondents were not holding
non-specified features constant. Instead, as Dr. Shugan himself
conceded in his reply report, his respondents did the opposite:
[REDACTED]
19
[REDACTED]
Shugan Reply Rep. at 17-18.
Dr. Shugan makes no effort to explain this result other than to
say that we cannot assume that consumers behave rationally because
the purpose of the conjoint analysis was to study consumer
behavior. Id. at 17-18. This circular logic ignores the
premise of Daubert and the Federal Rules of Evidence. The
point is not that Dr. Shugan should have excluded a full quarter of
his respondents as "irrational," but rather that the conclusion
that 24% of survey respondents gave answers that made no sense
proves that the survey design is fundamentally flawed. Courts
routinely recognize that a "common sense" understanding of
real-world consumer behavior is an important check against the
reliability of surveys that produce preposterous results. See
Johnson Elec. N Am. Inc. v. Mabuchi Motor Am. Corp., 103 F.
Supp. 2d 268, 286 (S.D.N.Y. 2000) (striking a survey that, "despite
its dazzling sheen of erudition and meticulous methodology, reaches
a result which any average person could readily recognize as
preposterous"). The results of Dr. Shugan's conjoint analysis are
equally preposterous—not because consumers are irrational in
the real world, but because of glaring flaws in the design of the
survey.
Even if conjoint analysis was a recognized and appropriate
methodology for calculating damages in litigation, which it is not
and never has been, Dr. Shugan has failed to design a conjoint
survey that approximates real-world purchase conditions, and
further created a survey with such fundamental methodological flaws
that it has returned nonsensical results. His survey is too
unreliable to be the basis of a multi-million dollar damages claim.
Dr. Shugan's report—and Dr. Cockburn's reliance upon that
report—should be excluded under Daubert.
F. Dr. Cockburn's econometric analysis and calculation of
market share are based on
inapplicable data and unrealistic assumptions.
Dr. Cockburn's econometric analysis purports to quantify
consumer preferences for some smartphone features over others, but
it draws its data not from the sales prices of mobile phone
carriers who sell the vast majority of mobile phones in the United
States, but rather from sales data for largely second-hand phones
on the eBay auction website. This error is compounded by two
unrealistic assumptions that Dr. Cockburn makes in converting his
econometric analysis to
20
an estimate of market share in a world in which Google had
released a slower version of Android, both of which inflate
Oracle's damages. The Court should exclude this analysis.
1. Overview of Dr. Cockburn's econometric analysis and market
share
calculations.
Dr. Cockburn began with data he acquired of auctions on eBay for
mostly second—hand smartphones. This data included, for each
auction, both (a) the maximum price each bidder would have been
willing to pay for the phone, which he deemed to be the consumer's
"willingness to pay," and (b) the price for which the phone
actually sold. Cockburn Rep. App. C ¶ 13. Collecting
consumers' willingness to pay is possible because eBay bidders are
allowed to enter their maximum bid, and the computer will only bid
the amount necessary to win the auction. Id. ¶ 5. Dr.
Cockburn also collected data from other sources about the
attributes of each phone being auctioned, such as battery life,
storage space, and presence of a camera. Id. ¶ 25.
Based on this data, Dr. Cockburn conducted a regression analysis
to attempt to predict the impact on a consumer's willingness to pay
for a given phone from a change in the phone's features. Id.
¶¶ 29-30. The most important feature was the phone's
"Linpack benchmark," which is one way of measuring a phone's
operating speed. Id. ¶¶ 26-27. Oracle's engineers
attempted to measure the impact the patents-in-suit had on
smartphone performance by measuring the change in the Linpack
benchmark when the patents were disabled. Id. ¶ 37.
Dr. Cockburn then attempted to convert his regression results
into a calculation of smartphone market shares in the world in
which Google released a slower version of Android. To make that
calculation, Dr. Cockburn looked only at eBay bidders who placed
bids on multiple smartphone models. Id. ¶ 39. For each
of these bidders, Dr. Cockburn measured the bidder's so-called
"consumer surplus" for each phone on which each bidder bid.
Id. Consumer surplus is measured by calculating the
difference between the consumer's willingness to pay for each phone
(i.e. the consumer's maximum bid on eBay) and the price at which
each phone sold. Id. n.25. Dr. Cockburn then used his
regression results—specifically the coefficient on the
Linpack benchmark that predicts the impact of a change in the
Linpack benchmark on the consumer's willingness to pay—to
estimate what each consumer's willingness to pay would have been
for
21
the slower version of Android. Id. ¶ 41. Dr.
Cockburn then measured each bidder's adjusted consumer surplus for
the Android phones. Id.
Dr. Cockburn concluded that if the bidder's adjusted Android
consumer surplus remained higher than the consumer surplus for
non-Android phones, that bidder would still buy the Android phone.
If the adjusted Android consumer surplus became lower for the
Android phone than for the non-Android phone, then the bidder would
buy the non-Android phone. And if all consumer surpluses were
negative—i.e. if the consumer's willingness to pay for
non-Android phones and adjusted Android willingness to pay are all
lower than the price at which the phones eventually sold—then
the consumer would not buy a smartphone at all. Id. Based on
his determination of what each consumer would have done if Google
had released a slower version of Android, Dr. Cockburn estimated
what portion of consumers who in reality bought an Android phone
would have switched to some other phone, or no phone at all, then
estimated the effect of those lost sales on Google's Android
revenue. See id. App. D.
2. Dr. Cockburn's econometric analysis is based on
unrepresentative data.
Dr. Cockburn incorrectly and without any support assumes that
the data for smartphone purchases on eBay is representative of the
entire market for smartphones. Courts strike expert testimony when
it is based on unrepresentative and unreliable data. See, e.
g., Johnson Elec., 103 F. Supp. 2d at 283 ("[E]ven where an
expert's methodology is reliable, if the analysis is not based upon
relevant and reliable data, the expert's opinion will be
inadmissible." (citing Joiner, 522 U.S. at 146)).
The vast majority of cell phones in the United States are sold
new, as part of two-year agreements with cell phone carriers like
Verizon or AT&T. Dr. Cockburn makes no effort to show that
people buying unlocked, second-hand phones on eBay have the same
consumer preferences as consumers buying new cell phones as part of
a two-year service agreement. Dr. Cockburn never explains why he
did not attempt to obtain data that measures how most Americans
purchase cell phones, nor did he make any argument as to why the
Court or the jury should assume that eBay customers' consumer
preferences are representative of the general population. As the
Johnson Electric court noted in striking an expert's report,
although "[i]t can
22
be appropriate to utilize market reconstruction to prove
damages, particularly in patent cases ... if [plaintiff] wishes to
reconstruct the micro-motor market, that reconstruction must be
grounded on the most relevant and reliable data
available." Johnson Elec., 103 F. Supp. 2d at 286
(emphasis added). By contrast, "speculative economic analysis must
be rejected." Id. Here, instead of using data from phone
carriers, the way nearly all American consumers purchase cell
phones, Dr. Cockburn took a shortcut by using
non—representative eBay data that he makes no effort to
connect to the actual market for smartphones. Daubert does
not allow such shortcuts.
3. Dr. Cockburn's calculation of market share is based on
unreasonable
assumptions about price and consumer choice.
At least as problematic as Dr. Cockburn's econometric analysis,
if not more, is his effort to translate that econometric analysis
into an estimate for what smartphone market share would have been
had Google released a slower version of Android. Dr. Cockburn's
translation into market share is based on two unrealistic
assumptions that significantly inflate Oracle's damages. These
calculations must be excluded as unreliable. See Boucher v. US.
Suzuki Motor Corp., 73 F.3d 18, 21 (2d Cir. 1996) ("[A]n
expert's testimony should be excluded as speculative if it is based
on unrealistic assumptions."); Medical Instr. & Diagnostics
Corp. v. Elekta AB, No. 397-CV-00271, 2001 WL 36151641 (SD.
Cal. Dec. 12, 2001); see also July 22, 2011 Order [Dkt. No.
230] at 13 (Dr. Cockburn's use of the Nash bargaining solution
"would invite a miscarriage of justice by clothing a fifty-percent
assumption in an impenetrable facade of mathematics").
First, Dr. Cockburn's market share calculation is based
on the incorrect assumption that although every consumer would be
willing to pay less for a slower version of Android, the price of
Android would remain constant. This assumption leads Dr. Cockburn
to significantly overestimate the number of eBay users who would
have chosen not to purchase an Android phone if Google had released
a slower version of Android, which in tum leads Dr. Cockburn to
overestimate Oracle's damages. As described above, Dr. Cockburn
began with each bidder's actual consumer surplus, measured as the
difference between the price that the consumer bid for the phone,
and the price at which the phone sold. He then used his regression
results to calculate the maximum price each consumer would have bid
for the slower version of Android—a number
23
that is smaller than the maximum price the consumer actually
bid. Dr. Cockburn then took this adjusted maximum bid and compared
it to the unadjusted price at which the phone
actually sold to get his adjusted consumer surplus.
In doing so, Dr. Cockburn assumed that if Google released this
slow version of Android, the price for which it would sell on eBay
would be exactly the same price as the current
version of Android. Zimmer Decl. Ex. G (Oct. 17, 2011 Cockburn
Dep.) at 106 [REDACTED] This assumption makes no sense.
Plainly the eBay price of a slower Android would be lower because
an eBay sales price is determined by the second highest bidder,
whose willingness to pay would also decrease. But in measuring the
adjusted consumer surplus of a given bidder, Dr. Cockburn adjusts
the willingness to pay of that bidder while assuming that
price—and hence all other bidders' willingness to
pay—would be the same as under the current, much faster
version of Android. If Dr. Cockburn accounted for the fact that
other bidders' willingness to pay would have similarly decreased in
the world in which Google released a slower Android, he would have
found that far fewer people (if any) would have diverted from
Android to other platforms.
Second, Dr. Cockburn assumed each bidder's choices are
limited to the specific phones on which the bidder bid during a
ten-day window. This unrealistic assumption again leads Dr.
Cockburn to overestimate the number of people who would not have
bought the slower Android phones. In Dr. Cockburn's artificial
world, if a bidder bid on two phones—for example, an Android
phone and an iPhone—-—Dr. Cockburn assumes that those
are the only two phones that consumer would consider
purchasing. If that bidder lost the iPhone auction, and also would
have lost the Android auction based on his or her adjusted
willingness to pay, Dr. Cockburn concludes that that bidder would
not acquire a smartphone at all. Dr. Cockburn ignores
the possibility that the bidder might have gone to a Verizon or
AT&T store to buy a phone, or waited two weeks and then
returned to eBay to try again. This incorrect assumption leads to
bizarre results. According to Dr. Cockburn, out of all the people
who bought Android phones in 2010, over 15% of all
the people who bought Android phones in 2010 would not have
acquired a smartphone at all had Google released
Android without the patents in suit. Cockburn Rep. Ex. C-9
(purporting
24
to show that of the 55.4% of actual Android purchasers who would
not have purchased an Android in the but-for world, 27.4% would
have bought no smartphone).3 This unrealistic result significantly
inflates Oracle's damages. According to Dr. Cockburn, Google's
revenues decrease somewhat when consumers switch from Android to
other platforms because Google still collects downstream revenue,
but Goog1e's revenues from consumers who do not purchase
smartphones at all go all the way to zero. Cockburn Rep. App. D
¶¶ 11-23. Under Dr. Cockburn's model, Google's revenues
take a much bigger hit when a consumer decides not to buy a
smartphone at all, as compared to when a consumer simply switches
to another brand (as would logically be the case in the real
world).
Both of these erroneous assumptions have an obvious inflationary
effect on Oracle's damages numbers. When Dr. Cockburn's errors are
corrected, the results fundamentally undermine his market share
calculations and reveal them to be "unhelpful to the trier of fact
and inadmissible at trial." Medical Instr., 2001 WL
36151641.
IV. CONCLUSION
For all the reasons set forth above, this Court should strike
Dr. Cockburn's third damages report, and further exclude Dr.
Cockburn's econometric analysis and Dr. Shugan's conjoint analysis
under Daubert and its progeny.
Dated: February 17, 2012
KEKER & VAN NEST LLP
By: s/ Robert A. Van Nest
ROBERT A. VAN NEST
Attorneys for Defendant
GOOGLE, INC.
25
|
The three studies are A. Gambardella, P. Giuri & M.
Mariani, The Value of European Patents - Evidence from a Survey
of European Inventors, Final Report of the PatVal EU Project,
January 2005, D. Harhoff, F. Scherer & K. Vopel, Citations,
family size, opposition and the value of patent rights, 32
Research Policy 1343, (September 2003), and J. A. Barney, A
Study of Patent Mortality Rates: Using Statistical Survival
Analysis to Rate and Value Patent Assets, 30 AIPLA Quarterly
Journal, Vol. 30, No. 3, Summer 2002. |
|
Similarly, 26% of the respondents claimed to prefer a phone
with an application startup time of 2 seconds to a phone with
startup time of 0.2 seconds. Id. at 115. |
|
Notably, Dr. Shugan's conjoint analysis does not even allow for
the possibility that an Android user would have purchased no phone
if Google released a slower version of Android. |
