Expert Witness Profiler

Tag: Hypothetical negotiation

  • Economics Expert Witness’ Testimony Limited Because His Zero Damages Opinion is Irrelevant

    Economics Expert Witness’ Testimony Limited Because His Zero Damages Opinion is Irrelevant

    Plaintiff I-Mab Biopharma (“I-Mab” or “Plaintiff”) brought trade secret misappropriation claims against Defendants Inhibrx, Inc. (“Inhibrx”) and Brendan Eckelman (“Dr. Eckelman” and collectively with Inhibrx, “Defendants”). 

    Plaintiff asserted that Defendants misappropriated nine trade secrets (that correspond to molecules designed to treat cancer) that are referred to herein as Trade Secret 1, Trade Secret 2, Trade Secret 4, Trade Secret 5, Trade Secret 6, Trade Secret 7, Trade Secret 8, Trade Secret 9 and Trade Secret 10. 

    Plaintiff sought to exclude three categories of Defendants’ damages expert Dr. Richard Manning‘s opinions.

    Economics Expert Witness

    Dr. Richard Manning’s expertise includes economic valuation and damages, intellectual property, breach of contract, fraud, and other commercial litigation. He provides testimony and consultation in all these areas and on securities litigation, tax, antitrust and competition, and public policy.

    Get the full story on challenges to Richard Manning’s expert opinions and testimony with an in-depth Challenge Study. 

    Discussion by the Court

    A. Manning’s reliance on the “Book of Wisdom” doctrine

    Under the reasonable royalty framework of damages permitted under the Defend Trade Secrets Act, parties rely upon a hypothetical negotiation analysis to “attempt to ascertain the royalty upon which the parties would have agreed had they successfully negotiated an agreement just before [misappropriation] began.” The hypothetical negotiation must attempt to “recreate the ex ante licensing negotiation scenario and to describe the resulting agreement.” 

    However, the analysis “permits and often requires a Court to look to events and facts that occurred thereafter and that could not have been known to or predicted by the hypothesized negotiators.” Facts that post-date the hypothetical negotiation may sometimes be relied upon in a reasonable royalty analysis as part of the “Book of Wisdom.”

    Plaintiff asserted that Manning’s opinions based on events that occurred years after the date of the hypothetical negotiation in November 2021 should be excluded because he improperly utilizes the Book of Wisdom. According to Plaintiff, while the Book of Wisdom would permit an expert to rely on post-negotiation evidence to demonstrate a party’s actual state of mind in November 2021, Manning does not rely on such evidence in this way—and instead improperly uses it to replace the inquiry into what the parties would have anticipated.

    Plaintiff asserted that Manning improperly used the Book of Wisdom with respect to two types of post-negotiation evidence: (1) evidence regarding Inhibrx’s decision to terminate INBRX-105 in January 2024 (“opinions relating to INBRX-105’s termination”) and (2) changes at I-Mab that took place in 2022 through 2024 (“opinions relating to later-occurring events at I-Mab”).

    1. Opinions relating to INBRX-105’s termination

    Parties’ Position

    Defendants argued that it would be nonsensical to use I-Mab’s information to modify INBRX-105 when doing so would require starting over on manufacturing and toxicity development to support an entirely new IND application and filing that new application with the FDA.

    The Court refused to exclude Manning’s opinions relating to INBRX-105’s termination for two main reasons. First, as Defendants point out, it was Plaintiff’s damages expert who initially opined about INBRX-105’s termination, stating that it “does not change the parties’ perspectives and negotiating positions as of a hypothetical negotiation in November 2021.”  As a general matter, it is of course appropriate for an expert’s rebuttal report to respond to another expert’s opinions. And Manning does just that in at least certain of the challenged portions of his report.

    Beyond that, Plaintiff’s argument is that at the time of the hypothetical negotiation, Defendants viewed INBRX-105 “as having significant value” and therefore the decision to terminate the program in January 2024 does not reflect what the parties were thinking in November 2021 (and thus Manning’s related opinions must be excluded). But Defendants are of course permitted to point to evidence to rebut the notion that they viewed INBRX-105 as having significant value in November 2021. Indeed, Defendants point out that Plaintiff’s own experts opine that leading up to the hypothetical negotiation, Inhibrx was concerned about INBRX-105’s likelihood of success.

    Court’s Decision

    In that vein, Defendants argued that Manning’s opinions relating to INBRX-105’s termination are consistent with Defendants’ views in November 2021 that there was much uncertainty regarding the development of INBRX-105. The Court concluded that it was not an improper use of the Book of Wisdom. In the end, it will be up to the jury to ultimately decide, based on all of the evidence, how Defendants viewed the INBRX-105 program at the time of the hypothetical negotiation. 

    Opinions relating to later occurring events at I-Mab

    Plaintiff also moved to exclude Manning’s reliance on changes at I-Mab that occurred after the November 2021 hypothetical negotiation, including its decreasing stock price in 2022, termination of its partnership with AbbVie in September 2023 and I-Mab’s restructuring in April 2024; Plaintiff argued that this was improper use of the Book of Wisdom. 

    The two paragraphs at issue in Manning’s rebuttal report discuss I-Mab’s termination of its partnership with AbbVie and related decreasing stock price, and they are clearly responding to points made by Plaintiff’s experts regarding I-Mab’s partnership with AbbVie. Similarly, the two paragraphs at issue in Manning’s supplemental report relate to I-Mab’s restructuring and respond to points made by Plaintiff’s damages expert regarding this event.

    The Court, once again, held that it is proper for Manning to respond to opinions raised by Plaintiff’s experts.

    Manning’s opinion regarding “actual damages”

    The DTSA provides that damages for misappropriation may be quantified in two ways: (1) damages for actual loss plus unjust enrichment or (2) a reasonable royalty.

    Manning opined that he cannot rule out the conclusion that Plaintiff’s “actual damages” are zero (the “zero damages opinion”). Plaintiff argued that Manning’s zero damages opinion should be excluded as irrelevant because Plaintiff’s damages claims are not based on actual loss, and even if Plaintiff’s actual damages were zero, Plaintiff would still be entitled to a reasonable royalty. 

    The Court agrees with Plaintiff that Defendants ignored the “actual words” that Manning used, as he did not opine in the zero damages opinion that Plaintiff’s “reasonable royalty damages” are zero (nor do Defendants point to anywhere else in Manning’s report where he opined that Plaintiff’s reasonable royalty damages should be zero). Nor did Defendants explain why an opinion that Plaintiff’s “actual damages . . . are zero” should be interpreted to actually mean that Plaintiff’s “reasonable royalty damages are zero.” 

    Moreover, the Court agreed with Plaintiff that Manning does not seem to provide any facts or analysis in support of the zero damages opinion.

    Held

    Plaintiff sought to exclude three categories of Dr. Richard Manning’s opinions. The third category was about Manning’s alternative damages theory but the Court reserved decision on the third category until it resolved Plaintiff’s motion to exclude the opinions of Roland Newman. One of Plaintiff’s arguments is that Manning’s alternative damages theory should be excluded because Manning relied only on a conversation with Newman in support. The Court granted this portion of Plaintiff’s Daubert motion regarding Manning’s opinions.

    In conclusion, the Court granted in part and denied in part the Plaintiff’s motion to exclude Manning’s opinions.

    Key Takeaway:

    Manning did not improperly utilizes the Book of Wisdom. Also, it is of course appropriate for an expert’s rebuttal report to respond to another expert’s opinions. And Manning does just that in at least certain of the challenged portions of his report. However, Manning’s zero damages opinion was excluded as the Court agreed with Plaintiff that Manning does not seem to provide any facts or analysis in support of the zero damages opinion.

    Case Details:

    Case Caption: I-Mab Biopharma V. Inhibrx, Inc. Et Al
    Docket Number: 1:22cv276
    Court: United States District Court, Delaware
    Order Date: October 17, 2024
  • Intellectual Property Valuation Expert Witness Reasonable Royalty Analysis Deemed Deficient

    Intellectual Property Valuation Expert Witness Reasonable Royalty Analysis Deemed Deficient

    Judge Joshua Wolson of Delaware District Court noted that, “Economists love assumptions. One joke recites that a physicist, a chemist, and an economist find themselves on a desert island with a single can of food. The physicist offers to calculate the force needed to use a coconut to open the can. The chemist offers to make a solution that will eat through the can’s top. The economist tells them they are making it too complicated and just to assume a can opener.”

    Economic assumptions are very crucial when it comes to assessing patent damages, especially the one which assumes that both the infringer and patent holder participated willingly in negotiating a license right before the infringement began. Yet some participants are more willing than others in this hypothetical negotiation.

    The Plaintiff, Wirtgen America, Inc. possessed patents that provided it with a competitive edge over one of its main rivals, the Defendant, Caterpillar, Inc. Wirtgen claimed that Caterpillar had been involved in the manufacture, use, sale, and/or importation of specific road milling machines within the United States. These machines were claimed to incorporate Wirtgen’s patented technology, thus infringing the Asserted Patents.

    Wirtgen had asserted nearly 20 claims across 7 patents, all related to road construction equipment-primarily cold planers- but they covered a range of varied features. The ‘309 Patent disclosed road building machines capable of adjusting the machine’s height relative to the frame or chassis. Similarly, the ‘530 and ‘972 Patents disclosed road construction machines equipped with a drum, adjustable ground supports, and lifting sensors. The ‘641 Patent disclosed a method for working ground surfaces with a milling drum, including raising the drum off the ground. Furthermore, the ‘788 and ‘474 Patents disclosed road construction machines that are height-adjustable for milling depth or slope. Lastly, the ‘268 Patent disclosed aspects of the drive train in a road construction machine.

    Wirtgen presented the expert testimony of Pallavi Seth, who provided an estimation of a reasonable royalty that Caterpillar would have paid to Wirtgen if they had engaged in a hypothetical negotiation before the first alleged infringement. Seth supported his estimate by referencing evidence indicating Wirtgen’s reluctance to license its patents to Caterpillar, even under favorable terms, citing Wirtgen’s history of not licensing its patents to Caterpillar in the past.

    Seth utilized a willing licensor/willing licensee framework to estimate the highest amount that would ensure Caterpillar found the agreement profitable (otherwise known as Caterpillar’s maximum willingness to pay or “MWP”) and the lowest amount that would ensure Wirtgen found the agreement profitable (otherwise known as Wirtgen’s minimum willingness to accept or “MWA”). He defined Caterpillar’s MWP as the expected incremental profits earned from utilizing the Asserted Patents, and Wirtgen’s MWA as the profits it anticipates to lose should Caterpillar practice the Asserted Patents. The difference between Wirtgen’s MWA and Caterpillar’s MWP equaled the “joint surplus value” in Seth’s analysis.

    Wirtgen’s MWA was determined to be its lost profits resulting from infringement. These lost profits consisted of both potential sales of machines as well as sales of spare and replacement parts associated with those machines, which Wirtgen would have had the opportunity to make if Caterpillar had not allegedly infringed the Asserted Patents.

    Seth suggests that the joint surplus value may not entirely relate to the Asserted Patents, so she apportioned it to isolate the incremental value contributions of those patents to the accused products. She apportioned the joint surplus value using an apportionment rate derived from a count of family-level forward patent citations. The Rubinstein bargaining model is a framework used to analyze bargaining situations between two parties over the division of a surplus using which she divided the apportioned joint surplus value between the parties. Finally, she calculated damages by adding Wirtgen’s split of the apportioned joint surplus value to Wirtgen’s MWA. Wirtgen’s MWA accounted for approximately 95% of her total damages figure.

    Seth asserted that the method for calculating Wirtgen’s MWA would remain consistent regardless of which patents the jury found Caterpillar infringed, although the actual amount of the MWA might vary due to different patents being in effect at different times. However, she acknowledged during her deposition that she did not conduct any patent-by-patent apportionment while calculating the MWA.

    The Defendant filed a motion to exclude the testimony of Pallavi Seth deeming her reasonable royalty analysis deficient.

    Intellectual Property Valuation Expert Witness

    Dr. Pallavi Seth is a Principal at The Brattle Group, Inc. and serves as the Co-Chair of Brattle’s Intellectual Property practice. With a Ph.D. in Economics from Boston College and an B.A. in Economics and Mathematics, magna cum laude, from Mount Holyoke College. Her expertise lies in applying economic principles to intricate business litigation matters and public policy, particularly in the realm of intellectual property. Seth’s professional experience at Brattle, an international consulting firm specializing in business consulting and litigation support, underscores her proficiency in this domain.

    Discussion by the Court

    A reasonable royalty, on the other hand, is often “based upon a hypothetical negotiation between the patentee and the infringer when the infringement began.” Nonetheless, “given the great financial incentive parties have to exploit the inherent imprecision in patent valuation, courts must be proactive to ensure that the testimony presented—using whatever methodology—is sufficiently reliable to support a damages award.” Apportionment requires that “a patentee must take care to seek only those damages attributable to the infringing features.” The Federal Circuit requires that “to be admissible, all expert damages opinions must separate the value of the allegedly infringing features from the value of all other features.” 

    The entire market value rule “is a narrow exception” to the rule of apportionment. It states that if it can be shown that the patented feature drives the demand for an entire multi-component product, a patentee may be awarded damages as a percentage of revenues or profits attributable to the entire product.”

    The Court acknowledged that a patent owner, having prevailed on liability, may receive a reasonable royalty or lost profits, but not both for the same infringing units.

    The Court observed that Seth failed to properly apportion her reasonable royalty analysis as required by law. She combined Wirtgen’s MWA with the joint surplus value in order to calculate the royalty payment, but only apportioned the joint surplus value, neglecting to apportion Wirtgen’s MWA/lost profits. Consequently, she set a 95% of her damages figure in a way that included the value of all the other features in the machines. This approach was deemed impermissible for not invoking the entire market value rule.

    In her reasonable royalty calculation, Seth was allowed to consider the profits on sales Wirtgen might lose by granting a license, with lost profits potentially playing a significant role in determining the ultimate reasonable royalty figure. However, Seth’s approach to lost profits posed a problem because it did not isolate the value of the allegedly infringing features from the value of all other features. Therefore, the issue stemmed from Seth’s use of unapportioned lost profits.

    Seth’s apportionment approach was considered inconsistent even in comparison to the cases cited by Wirtgen. Typically, when a expert conducts a lost profit analysis as per the factors outlined in  Panduit Corp. v.Stahlin Bros. Fibre Works, 575 F.2d 1152, 1156 (6th Cir. 1978), and then incorporates that analysis into the reasonable royalty rate calculation, it may naturally address apportionment concerns. Alternatively, an examination of licenses to comparable technology could also serve to address this issue.

    The Court further observed that Seth did not utilize the Panduit factors to determine her lost profits figure, nor could she rely on comparable licenses due to Wirtgen’s lack of prior patent licensing. While it was acceptable that she did not use the Panduit factors or comparable licenses, in their absence, she was required to find another suitable method to apportion her damage award considering the specifics of this case.

    Seth attempted to address the requirement for apportionment through her analysis of Georgia-Pacific’s Factor 13, as mentioned in the case Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970), but her attempt was deemed inadequate. While she acknowledged the rule of apportionment in her analysis, noting that the Accused Product as a whole incorporated value from other patents, know-how, human capital, and raw materials, in addition to the value contributed by the technology embodied by the Asserted Patents, she only passingly suggested that the sales data she relied on already accounts for apportionment. However, without a more thorough analysis, it remained unclear how machine sales data could account for apportionment. Wirtgen’s counsel was unable to provide a satisfactory explanation during the hearing. Merely mentioning apportionment in discussing the thirteenth Georgia-Pacific factor did not ensure that Seth properly apportioned her damages, nor did it render her analysis admissible.

    Caterpillar conducted an analysis of several of Wirtgen’s patents around the time of the hypothetical negotiation. For some patents, Caterpillar concluded that it had no workaround, causing significant harm to its market position due to its inability to provide the patented technology. However, for the ‘309 Patent, Caterpillar determined it could develop a workaround in a shorter time frame and at a relatively low cost. Seth’s approach, assuming Wirtgen’s MWA to be its lost profits and setting it as a damages floor, failed to consider that patents like the ‘309 Patent were less valuable to Caterpillar. Apportionment could have addressed this issue.

    Wirtgen’s counsel defended Seth’s work by asserting that she conducted a hypothetical negotiation of Wirtgen’s entire patent portfolio. However, this approach was flawed because the portfolio consisted of unrelated patents covering different features of the machines. Furthermore, the hypothetical negotiation should have only included patents that the jury found infringed, rather than the entire portfolio. Seth’s approach thus raised the possibility of awarding damages for features that the jury did not find to be infringing.

    A failure to apportion impacts admissibility, not weight. If Wirtgen prevails on liability, it will be entitled only to a damage award which captures “the value of what was taken” meaning the patented technology. Given that 95% of Seth’s damages figure consists of unapportioned lost profits, admitting this evidence risked skewing the damages horizon for the jury. 

    Wirtgen proposed the possibility of Seth still being able to testify. However, the Court stated that it hadn’t received Seth’s revised expert report nor had it been able to fully analyze the excerpts provided to assess the merits of Wirtgen’s request. Consequently, the Court did not outright reject the possibility of Seth testifying on matters not addressed in the current opinion, but it also did not explicitly approve it.

    The Court concluded that Seth’s assumption that Wirtgen would have been a reluctant licensor, while reasonable, led her to award Wirtgen all of its lost profits without determining if any particular patented technology justified such a recovery. This failure to apportion and ensure that Wirtgen would only receive the benefit of its patented technologies in her damages analysis resulted in her analysis violating governing Federal Circuit precedent and requiring exclusion. Wirtgen was instructed to disclose any parts of Seth’s opinion it believed could withstand this analysis to Caterpillar promptly, with any remaining disputes to be resolved at the final pretrial conference.

    Held

    The Court granted the Defendant Caterpillar, Inc.’s Motion to Exclude Certain Expert Testimony of Pallavi Seth’s damages opinion. Further the Court asserted that Wirtgen must disclose to Caterpillar which parts of Seth’s expert report it intends to offer at trial by February 6, 2023, at 3 p.m. EST. Any disputes may be raised at the final pretrial conference on February 8, 2024, after the parties meet and confer.

    The Court has not arrived on an outcome for this case since the remaining issues involved in this case still await resolution.

    Key Takeaways

    Wirtgen’s expert, Pallavi Seth, estimated a reasonable royalty that Caterpillar would have paid to Wirtgen in a hypothetical negotiation, supported by evidence of Wirtgen’s reluctance to license its patents. However, Seth’s failure to adequately apportion the damages, particularly in considering lost profits, raised significant concerns. She attributed a substantial portion of the damages to Wirtgen’s lost profits without ensuring whether or not they were specifically related to the patented technologies. The Court observed that Seth’s approach violated governing Federal Circuit precedent, necessitating the exclusion of her testimony. Seth’s reliance on a hypothetical negotiation involving Wirtgen’s entire patent portfolio, rather than just the patents found to be infringed, further complicated the issue. Without proper apportionment, admitting the damages analysis risked biasing the jury’s assessment.

    Case Details

    Case Caption Wirtgen Am., Inc. v. Caterpillar, Inc.
    Docket Numer 1:17cv770
    Court United States District Court, Delaware
    Citation 2024 U.S. Dist. LEXIS 19468
    Order Date February 05, 2024