Case 1:15-cv-00807-RGA Document 217 Filed 01/08/19 Page 1 of 11 PageID #: 6114
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF DELAWARE
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`ALARM.COM, INC. and ICN
`ACQUISITION, LLC,
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`Plaintiffs;
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`V.
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`SECURENET TECHNOLOGIES LLC,
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`Defendant.
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`Civil Action No. 15-807-RGA.
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`MEMORANDUM OPINION
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`Mary B. Matterer and Kenneth L. Dorsney, MORRIS JAMES LLP, Wilmington, DE; Ian R.
`Liston, WILSON SONSINI GOODRICH & ROSATI, P.C., Wilmington, DE; James C. Yoon,
`Ryan R. Smith (argued), Christopher D. Mays, and Mary A. Procaccio-Flowers, WILSON
`SONSINI GOODRICH & ROSATI, Palo Alto, CA, attorneys for Plaintiffs.
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`Jack B. Blumenfeld and Stephen J. Kraftschik, MORRIS, NICHOLS, ARSHT & TUNNELL
`LLP, Wilmington, DE; Erik B. Milch and Frank Pietrantonio, COOLEY LLP, Reston, VA; Rose
`Whelan (argued), and Naina Soni, COOLEY LLP, Washington, DC, attorneys for Defendant.
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`January_{, 2019
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`Case 1:15-cv-00807-RGA Document 217 Filed 01/08/19 Page 2 of 11 PageID #: 6115
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`~~:
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`Currently pending before the Court is Defendant's Motion to Exclude Opinions of Brett
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`Reed. (D.I. 173). The parties have fully briefed the issues. (D.I. 174, 187, 197). The Court
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`heard oral argument on December 3, 2018. (D.I. 208). After considering the parties' briefing
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`and argument, the Court GRANTS-IN-PART and DENIES-IN-PART Defendant's Motion.
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`I.
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`Background
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`Plaintiffs' predecessor-in-interest iControl Networks, Inc. filed this suit against
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`Defendant SecureNet Technologies LLC on September 11, 2015. (D.I. 1). The suit asserted
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`United States Patent Nos. 7,855,635 ("the '635 patent"), 8,473,619 ("the '619 patent"),
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`8,478,844 ("the '844 patent"), and 8,073,931 ("the '931 patent"). (D.I. 1 'if'if 3-7). The patents(cid:173)
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`in-suit are generally related to integrating an alarm system with an external security network and
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`other interfaces. ('635 patent, abstract; '619 patent, abstract; '844 patent, abstract; '931 patent,
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`abstract).
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`On June 23, 2016, Plaintiffs Alarm.com and ICN Acquisition (collectively "Plaintiffs")
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`entered into an Asset Purchase Agreement with iControl Networks to purchase the patents-in(cid:173)
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`suit. (D.I. 177 at 209). PlaintiffICN is a wholly-owned subsidiary of Plaintiff Alarm.com. (D.I.
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`186 'if 2). On March 8, 2017, Plaintiff ICN completed its acquisition of the patents-in-suit. (D.I.
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`177 at 209,255). On March 29, 2017, the Court substituted Alarm.com and ICN for iControl as
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`Plaintiffs in this action. (D.I. 28). Defendant filed a Motion to Exclude Opinions of Brett Reed
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`on October 30, 2018. (D.I. 173).
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`II.
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`Legal Standard
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`Federal Rule of Evidence 702 sets out the requirements for expert witness testimony and
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`states:
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`1
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`A witness who is qualified as an expert by knowledge, skill,
`experience, training, or education may testify in the form of an
`opinion or otherwise if: (a) the expert's scientific, technical, or other
`specialized knowledge will help the trier of fact to understand the
`evidence or to determine a fact in issue; (b) the testimony is based
`on sufficient-facts or data; ( c) the testimony is the product of reliable
`principles and methods; and ( d) the expert has reliably applied the
`principles and methods to the facts of the case.
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`Fed. R. Evid. 702. The Third Circuit has explained:
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`Rule 702 embodies a trilogy of restrictions on expert testimony:
`qualification, reliability and fit. Qualification refers to the
`requirement that the witness possess specialized expertise. We have
`interpreted this requirement liberally, holding that a broad range of
`knowledge, skills, and training qualify an expert. Secondly, the
`testimony must be reliable; it must be based on the "methods and
`procedures of science" rather than on "subjective belief or
`unsupported speculation"; the expert must have "good grounds" for
`his or her belief. In sum, Daubert holds that an inquiry into the
`reliability of scientific evidence under Rule 702 requires a
`determination as to its scientific validity. Finally, Rule 702 requires
`that the expert testimony must fit the issues in the case. In other
`words, the expert's testimony must be relevant for the purposes of
`the case artd must assist the trier of fact. The Supreme Court
`explained in Daubert that Rule 702's "helpfulness" standard
`requires a valid scientific connection to the pertinent inquiry as a
`precondition to admissibility.
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`By means of a so-called "Daubert hearing," the district court acts as
`a gatekeeper, preventing opinion testimony that does not meet the
`requirements of qualification, reliability and fit from reaching the
`jury. See Daubert ("Faced with a proffer of expert scientific
`testimony,. then, the trial judge must determine at the outset,
`pursuant to Rule 104( a) of the Federal Rules of Evidence whether
`the expert is proposing to testify to (1) scientific knowledge that (2)
`will assist the trier of fact to understand or determine a fact in
`issue.").
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`Schneider ex rel. Estate of Schneider v. Fried, 320 F.3d 396, 404-05 (3d Cir. 2003) (cleaned
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`up).1
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`III. Discussion
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`A. Mr. Reed's Lost Profits Opinion
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`Defendant requests that the Court exclude 1) the entirety of Mr. Reed's lost profits
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`opinion due to defects in his analysis of the manufacturing and marketing prong of Panduit, or
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`2) Mr. Reed's opinion as to Plaintiff Alarm.corn's entitlement to its lost profits prior to Plaintiff
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`ICN's acquisition of the patents-in-suit. (D.I. 174 at 7). Plaintiffs respond that Mr. Reed's lost
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`profits opinion should not be excluded because 1) Defendant's challenge to Mr. Reed's Panduit
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`analysis goes to the weight of the evidence and 2) his opinion merely addresses alternative lost
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`profits scenarios without purporting to determine the date from which Plaintiff Alarm.com is
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`legally entitled to claim lost profits. (D.I. 187 at 12-13).
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`i. Marketing and Manufacturing Prong of Panduit
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`Defendant asserts that Mr. Reed improperly assessed the marketing and manufacturing
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`prong of Panduit by failing to consider the constraints on third-party dealers in converting
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`customers from SecureNet to Alarm.com. (D.I. 174 at 7-8). Further, Defendant asserts that Mr.
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`Reed's report is internally inconsistent in assessing these barriers. (Id.). Plaintiffs assert that
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`Defendant's challenge goes to the weight of Mr. Reed's opinion. (D.I. 187 at 13-14).
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`I agree with Plaintiffs. Defendant's challenge to Mr. Reed's assessment of the marketing
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`and manufacturing prong goes to the weight and credibility of his opinion, not its admissibility.
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`Therefore, the Court will not exclude Mr. Reed's lost profits opinion in its entirety. Defendant
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`1 The Court of Appeals wrote under an earlier version of Rule 702, but the recent amendments to it were not
`intended to make any substantive change.
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`3
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`may challenge Mr. Reed's conclusions at trial through cross-examination and the presentation of
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`contrary evidence.
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`ii. Lost Profits Before March 8, 2017
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`As explained in the summary judgment opinion, Plaintiff Alarm.com, as a matter of law,
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`may not recover lost profits before the date Plaintiff ICN acquired the patents-in-suit. (D.1. 214
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`at 9-11). To the extent Mr. Reed offers opinions that are inconsistent with the starting date of
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`March 8, 2017 for lost profits recovery, those opinions are excluded.
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`· B. Mr. Reed's Opinions on Secondary Considerations
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`i. Commercial Success
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`Defendant asks the Court to exclude Mr. Reed's commercial success opinion "because he
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`does not appropriately address the nexus between the alleged commercial success and the
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`patented invention." (D.I. 174 at 8). Specifically, Defendant argues that Mr. Reed's identified
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`nexus was known in the prior art and therefore cannot provide the nexus required by law. (Id.).
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`Plaintiffs argue that Mr. Reed has identified and addressed the required nexus, and therefore
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`Defendant's challenge goes to the weight of the opinion, not admissibility. (D.1. 187 at 16).
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`"[A] nexus must exist between the commercial success and the claimed invention" for
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`commercial success to be relevant. Takai Corp. v. Easton Enterprises, Inc., 632 F.3d 1358, 1369
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`(Fed. Cir. 2011); see also Ormco Corp. v. Align Tech., Inc., 463 F.3d 1299, 1311-12 (Fed. Cir.
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`2006) ("Evidence of commercial success ... is only significant if there is a nexus between the
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`claimed invention and the commercial success."). "[T]he patentee in the first instance bears the
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`burden of coming forward with evidence sufficient to constitute a prima facie case of the
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`requisite nexus." Demaco Corp. v. G. Von Langsdorjf Licensing Ltd., 851 F.2d 1387, 1392 (Fed.
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`Cir. 1988). "[T]here is a presumption of nexus for objective considerations when the patentee
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`4
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`shows that the asserted objective evidence is tied to a specific product and that product 'is the
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`invention disclosed and claimed in the patent.'" WBIP, LLC v. Kohler Co., 829 F.3d 1317, 1329
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`(Fed. Cir. 2016) (quoting JT Eaton & Co. v. At!. Paste & Glue Co., 106 F.3d 1563, 1571 (Fed.
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`Cir. 1997)). "If commercial success is due to an element in the prior art, no nexus exists."
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`Takai, 632 F.3d at 1369-70; see also Ormco, 463 F.3d at 1311-12 ("if the feature that creates the
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`commercial success was known in the prior art, the success is not pertinent"). The patentee, at
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`this stage, "is not required to rebut the possibility that the sales of the accused products are
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`attributable to other features." Exe/is Inc. v. Cellco Partnership, 2012 WL 6043494, at *14 (D.
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`Del. Nov. 6, 2012) (citing Demaco, 851 F.2d at 1392-93).
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`Defendant argues that the stated nexus is legally insufficient because it existed in the
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`prior art. 1 This, however, is a more appropriate inquiry for summary judgment, not for a
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`Daubert motion. See Ormco, 463 F.3d at 1311-12. Here, Mr. Reed stated in his opinion, "The
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`products covered by the [three] patents-in-suit have experienced commercial success." (D.I.
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`177-1 at 137). Specifically, Mr. Reed points to two products covered by the patents-in-suit, "the
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`ADT Pulse product (based on iControl's Connect platform) and Comcast's launch of the Xfinity
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`Home Security product (based on iControl's Converge platform)." (Id. at 38). As Mr. Reed
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`notes, the ADT Pulse product experienced rapid growth from 12,000 subscribers at the end of
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`2010 to just under 2 million subscribers at the end of 2016. (Id. at 140). Furthermore, Mr. Reed
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`notes that iControl as a company did not become successful until after it introduced the patented
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`technology in its Connect and Converge platforms. (Id. at 138-39). Similarly, Mr. Reed
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`demonstrates that Plaintiff Alarm.corn's revenue from its software as.a service (SaaS) products
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`1 Plaintiffs dispute that any prior art exists. (D.I. 187 at 12).
`5
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`and licenses have increased since it obtained a license to the patents-in-suit in January 2014. (Id
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`at 142-43).
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`Mr. Reed describes the nexus between commercial success and the asserted patents as
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`follows:
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`[W]e have the ability to compare the economic performance of services that
`embody the patented technology ... with basic interactive home security services
`that did not provide the ability to integrate security services with interactive video
`and home automation capability. Those previous security services that could not
`provide an upgrade path to video or home automation did not survive in the
`marketplace, or at best, demonstrated stagnant economic performance when other
`services that embody the patented technology demonstrated significant growth
`and/or market acceptance.
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`(Id at 135). Later in the report, Mr. Reed summarizes the nexus as "the integration of video
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`and/or home automation services with security services." (Id at 136). Plaintiffs at oral
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`argument stated that this description of the nexus in Mr. Reed's opinion was the result of Mr.
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`Reed "confer[ring] and rel[ying] upon the technical expert to help him understand or formulate a
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`shorthand identification" of the nexus. (D.I. 208 at 91:19-21). This is consistent with Mr.
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`Reed's footnote stating, "I understand that the '619, '844, and '931 patents each relate to this
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`nexus regarding integration of security services with video and/or home automation and the
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`success of such security services that include an efficient upgrade path for integrated interactive
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`capability." (D.I. 177-1 at 136 n. l). Mr. Reed also specifically points to the patents-in-suit
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`enabling "additional advanced interactive functions associated with video cameras, doorbells and
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`other devices with z-wave capability compared to systems with basic interactive functions" as
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`part of his commercial success analysis. (Id at 146).
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`I am not convinced at this juncture that Mr. Reed's opinion proposes a legally insufficient
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`nexus. Mr. Reed's shorthand identification of the nexus does not exclude the other relevant
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`6
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`discussions of the patented technology and its relation to the patented products' commercial
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`success. Moreover, it is not clear that the prior art cited by Defendant encompasses Mr. Reed's
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`emphasis on efficient upgrade paths or the advanced interactive functions with devices with z(cid:173)
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`wave capability. Furthermore, Defendant's contention that Mr. Reed's opinion is .based on
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`insufficient facts and data because he failed "to consider the plethora of prior art that included
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`the feature he relies upon as an alleged nexus" is an issue that goes to the weight and credibility
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`of the testimony, not its admissibility. (DJ. 174 at 14). At trial, Defendant can challenge Mr.
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`Reed's opinions through cross-examination and the presentation of contrary evidence. The
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`Court is not persuaded that it should exclude Mr. Reed's testimony.
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`ii. Mr. Reed's Opinion on Failure of Others
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`Defendant asks the Court to exclude Mr. Reed's "failure of others" opinion on the basis
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`that it is not relevant to nonobviousness. (D.I. 174 at 8). Plaintiffs respond that Defe:p.dant's
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`challenge to this opinion is merely an attack on the weight of Mr. Reed's testimony, rather than
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`its admissibility. (D.I. 187 at 19).
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`I agree with Defendant. The relevant analysis for this factor is "the failure of others to
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`find a solution to the problem which the patent[s] in question purport[] to solve." Symbol Techs.,
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`Inc. v. Opticon, Inc., 935 F.2d 1569, 1578 (Fed. Cir. 1991) (internal quotation omitted). This
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`factor is intended to "show indirectly the presence of a significant defect in the prior art while
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`serving as a simulated laboratory test of the obviousness of the solution to a skilled artisan." In
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`re Cyclobenzaprine Hydrochloride, 676 F.3d 1063, 1082 (Fed. Cir. 2012) (cleaned up). Mr.
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`Reed's analysis focuses solely on the irrelevant failure of others to economically compete in the
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`market, not their technological failure. Moreover, Mr. Reed cannot offer an opinion as to the
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`technical failure of others because he is not a technical expert. The Court therefore concludes
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`7
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`that Mr. Reed's "failure of others" analysis shall be excluded as to the "failure of others" factor
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`but may be used for the licensing factor of secondary considerations. 2
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`iii. Mr. Reed's Opinion on Copying
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`Defendant requests that Mr. Reed's "copying" opinion "be excluded because it is not
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`based on sufficient facts." (D.I. 174 at 8). Plaintiffs argue that Defendant's challenge goes to
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`weight of Mr. Reed's opinion, not its admissibility. (D.I. 187 at 21). Defendant is correct. ''Not
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`every competing product that arguably falls within the scope of a patent is evidence of copying."
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`Weyers v. Master Lock Co., 616 F.3d 1231, 1246 (Fed. Cir. 2010). "[C]opying requires evidence
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`of efforts to replicate a specific product," id., and the replicated product must be shown to be an
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`embodiment of the claims. See Amazon.com v. Barnesandnoble.com, Inc., 239 F.3d 1343, 1366
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`(Fed. Cir. 2001).
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`The evidence cited and relied upon by Mr. Reed in his copying opinion is insufficient. At
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`most, the evidence relied on by Mr. Reed demonstrates that Defendant had products with similar
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`features to those of iControl and Plaintiff Alarm.com. There is no evidence cited by Mr. Reed of
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`efforts to replicate a specific product. The email referencing a security dealer website does not
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`identify a specific product to emulate; it merely includes a website link. Further, Defendant's
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`access to Plaintiff Alarm.com software through COO Bill Rose only arose when he joined
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`Defendant in 2015. Plaintiffs have pointed to no evidence showing that this access resulted in
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`changes to Defendant's products. Finally, the specific email relating to Apple Watch
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`applications cannot be evidence of copying because Defendant has not released an Apple Watch
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`2 One aspect of the "failure of others" opinion was that Telular took a license to the patents-in-suit associated with
`the Connect platform. (D.I. 208 at 94:9-11; D.I. 177-1 at 264-65). The Plaintiffs at oral argument conceded that "it
`probably falls better into the licensing category for secondary consideration and ... we probably would just limit it
`to that if that resolves it." (D.I. 208 at 100:13-16).
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`8
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`application. Access to a product that was never developed cannot be evidence of a Defendant's
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`copying of other technology as this would defeat the specific product requirement of copying.
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`Therefore, Mr. Reed's opinion on copying is based on insufficient facts and is excluded.3
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`iv. Mr. Reed's Opinion on Praise by Others
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`Defendant asks the Court to exclude Mr. Reed's "praise by others" opinion4 because he
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`"fails to provide clear evidence" and "fails to establish the requisite nexus between any praise
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`and the patented invention." (D.I. 174 at 8). Plaintiffs respond that Defendant's challenge goes
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`to the weight of Mr. Reed's opinion. (D.I. 187 at 20). "Evidence that the industry praised a
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`claimed invention or a product that embodies the patent claims weighs against an assertion that
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`the claimed invention would have been obvious." Apple Inc. v. Samsung Elecs. Co., 839 F.3d
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`1034, 1053 (Oct. 7, 2016). "[A]n expert must establish a nexus between industry praise and the
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`patented technology." Cot'n Wash, Inc. v. Henkel Corp., 56 F. Supp. 3d 626, 650 (D. Del.
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`2014).
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`The evidence relied on by Mr. Reed in this section of his report does not relate to the
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`patented technology. At most, Mr. Reed's opinion establishes that there was industry praise for
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`Alarm.com as a company, not for the asserted patents. This section relies on a significant
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`amount of testimony from Mr. Dawes from iControl and Mr. Trundle from Alarm.com. As the
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`previous patent owner and the current exclusive licensee of the patents, their commentary cannot
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`qualify as "praise by others." The only evidence cited by Mr. Reed from outside industry
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`sources are a 2012 assessment by ABI Research, a suggestion by the manufacturer of2GIG
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`3 I am also doubtful that Mr. Reed's expertise as a damages expert qualifies him to offer testimony on "copyin·g."
`4 The Court notes that Mr. Reed combined his analysis of copying and praise by others in his report. The Court will
`address the evidence here that it believes was intended by Mr. Reed to support an opinion that there was praise by
`others.
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`panels to Telular that Telular should approach iControl about using its patents, and a June 2015
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`article in SFM Magazine discussing SentryNet's partnership with Defendant SecureNet. (D.I.
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`177-1 at 153-55, 160). However, the ABI Research assessment does not appear to reflect Mr.
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`Reed's stated nexus; the quoted language merely identifies the "software as service (SaaS) HAS
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`offerings," the ability to "support many large deployments," and "benefiting from early and
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`successful partnerships and system deployments." (D.I. 177-1 at 153, 153 n.49). This does not
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`appear to praise anything specific about the technology used by Plaintiff Alarm.com or iControl.
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`Further, Mr. Reed fails to connect 2GIG's suggestion to the patents-in-suit. As such this
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`suggestion cannot be relevant. Additionally, the quoted portion of the SFM article is merely a
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`description of the technology. There is no mention of praise for the technology in the article.
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`· Therefore, Mr. Reed's praise by others opinion is excluded as it is based on insufficient facts.
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`IV.
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`Conclusion
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`For the foregoing reasons, Defendant's Motion to Exclude Opinions of Brett Reed is
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`GRANTED-IN-PART as to the lost profits opinion, GRANTED as to the failure of others,
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`copying, and praise by others opinions, and DENIED as to the commercial success opinion.
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`An accompanying order will be entered.
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`10
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