Case 1:16-cv-00453-RGA Document 600 Filed 10/17/18 Page 1 of 7 PageID #: 48853
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF DELAWARE
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`ACCELERATION BAY LLC,
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`Plaintiff,
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`V.
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`ACTIVISION BLIZZARD INC.,
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`Defendant.
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`Civil Action No. 1: 16-cv-00453-RGA
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`MEMORANDUM ORDER
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`Presently before the Court is Defendant' s Motion to Preclude Inadmissible and
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`Undisclosed Damages Theories and Evidence. (D.I. 581). The Parties have briefed the issues.
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`(D.I. 581 , 583 , 587). For the reasons set out below, Defendant's Motion is GRANTED-IN(cid:173)
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`PART.
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`I.
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`BACKGROUND
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`On August 29, 2018, I excluded the opinion of Plaintiffs reasonable royalty expert, Dr.
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`Christine Meyer, to the extent that it relied on a jury verdict from Uniloc USA, Inc. v. EA, No.
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`6:13-cv-00259-RWA (E.D. Tex. Dec. 15, 2014). (D.I. 578 at 27-28). This ruling led the parties
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`to correspond regarding Plaintiffs damages case. (See D.I. 581 at 1; D.I. 583 at 4-5). In a letter
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`dated September 21, 2018, Plaintiff described the evidence of damages it intends to provide at
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`trial. (D.I. 581-1 , Exh. 2). Plaintiff identified three royalty bases and a royalty rate of 15.5%.
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`(Id.). Defendant takes issue with all the evidence supporting Plaintiffs proposed reasonable
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`royalty.
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`Case 1:16-cv-00453-RGA Document 600 Filed 10/17/18 Page 2 of 7 PageID #: 48854
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`II.
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`DISCUSSION
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`Reasonable royalty damages must be awarded if infringement is proven. See Dow
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`Chemical Co. v. Mee Industries, Inc., 341 F.3d 1370, 1381-82 (Fed. Cir. 2003) (holding that
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`district court erred in concluding that "no damages could be awarded, in light of the presumption
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`of damages when infringement is proven"). "That reasonable royalty damages must be awarded
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`if infringement is found, however, does not mean that the rules of evidence do not apply to
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`proposed testimony." AVM Techs., LLC v. Intel Corp., 927 F. Supp. 2d 139, 146 (D. Del. 2013).
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`Plaintiff proposes to support its 15.5% royalty rate by presenting the jury with: (1) the
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`testimony of John Garland, Plaintiffs Vice President of Licensing; (2) the testimony of John
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`Ward, Plaintiffs CEO; (3) an "industry report" Plaintiff "had in its files" when researching
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`industry rates; and (4) a document showing a royalty Defendant pays to Microsoft. (D.I. 583 at
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`9-10).
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`I. Testimony of John Garland, Vice President of Licensing
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`Plaintiff proposes that Mr. Garland will provide testimony, "based on his decades of
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`experience licensing intellectual property," that in his opinion "the 15. 5% starting point rate is
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`consistent with ... the 'high profit, low cost' nature of licensing software." (D.I. 583 at 9).
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`Defendant responds that Plaintiff did not offer Mr. Garland as an expert and he has not provided
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`an expert report. (D.I. 587 at 4). Furthermore, Defendant argues that Mr. Garland cannot offer a
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`lay opinion on this topic. (Id.) .
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`Mr. Garland cannot properly testify about a reasonable royalty in this case. Federal Rule
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`of Evidence 701 precludes most opinion testimony by lay witnesses. It provides:
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`If a witness is not testifying as an expert, testimony in the form of an opinion is
`limited to one that is:
`(a) rationally based on the witness' s perception;
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`2
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`Case 1:16-cv-00453-RGA Document 600 Filed 10/17/18 Page 3 of 7 PageID #: 48855
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`(b) helpful to clearly understanding the witness's testimony or to
`determining a fact in issue; and
`( c) not based on scientific, technical, or other specialized knowledge
`within the scope of Rule 702.
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`(Fed. R. Ev. 701). An opinion on a reasonable royalty is necessarily based on specialized
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`knowledge. Thus, because he is not serving as an expert, Mr. Garland' s opinion that the
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`appropriate reasonable royalty is 15.5% must be excluded.
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`Moreover, Mr. Garland has no personal knowledge that would allow him to
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`testify even if reasonable royalty calculation were within the scope of admissible lay
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`testimony. Rule 602 provides, "A witness may testify to a matter only if evidence is
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`introduced sufficient to support a finding that the witness has personal knowledge of the
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`matter." During his deposition, Mr. Garland stated, "I don't know the source behind the
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`rate." (D.I. 584-1 , Exh. 6 at 27:25). He knew of the rate exclusively from "a discussion
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`with Joe Ward." (Id. at 28:11). Mr. Garland also confirmed that he has no knowledge of
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`prior efforts to license or sell the patents, their value to the gaming industry, or any facts
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`that would be relevant to their value to the gaming industry. (D.I. 587-1, Exh. 1 at 37:19-
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`39:21 , 53 :15-55:4, 30:12-31 :1). Thus, Mr. Garland has admitted that he has no personal
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`knowledge of the facts underlying the 15.5% royalty rate that would allow him to testify
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`on this subject.
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`Accordingly, I will exclude the proposed testimony of Mr. Garland that 15.5%
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`would be a reasonable royalty rate.
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`2. Testimony of John Ward, CEO
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`Plaintiff states that Mr. Ward will testify regarding the proposed 15.5% reasonable
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`royalty rate. (D.I. 583 at 9-10). Plaintiff argues that Defendant failed to question Mr. Ward
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`about the bases for the rate. (Id. at 9). Thus, Plaintiff asserts it is not at fault for the lack of
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`3
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`Case 1:16-cv-00453-RGA Document 600 Filed 10/17/18 Page 4 of 7 PageID #: 48856
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`record evidence of Mr. Ward' s knowledge. (Id.). Plaintiff does not attempt to clarify Mr.
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`Ward' s factual knowledge of the 15.5% royalty. Defendant responds that Mr. Ward, just like
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`Mr. Garland, has no personal knowledge of facts relevant to a reasonable royalty.
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`I agree with Defendant. Particularly persuasive support for Defendant' s position is the
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`undisputed fact that Mr. Ward did not work for the correct company (Boeing) at the time of the
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`hypothetical negotiation or any time thereafter. (D.I. 587 at 2). Moreover, Mr. Ward testified
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`that he has never licensed the patents, has never negotiated a royalty rate for them, and has very
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`little understanding of the patents' technology. (D.I. 587-1 , Exh. 2 at 223:9-23 , 233:9-21 , 286:6-
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`287:7, 330:1-333:3). When asked to discuss the value of the patents, he said, "they're worth
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`what they're worth." (Id. at 287:1-9). Mr. Ward invoked attorney-client privilege or referenced
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`counsel when asked more specifically about the value of the patents, about prospective licenses,
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`or about any economic fact that might support a reasonable royalty. (See D.I. 587 & n.1
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`(summarizing Mr. Ward' s deposition, collecting instances of attorney-client privilege claims,
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`and listing references to counsel)). All told, Mr. Ward clearly showed during his deposition that
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`he has no independent knowledge of a reasonable royalty. He was not there at the right time, he
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`has not licensed them, he does now know the technology well, and he declined to indicate that he
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`had knowledge of any relevant facts.
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`Accordingly, I will exclude the proposed testimony of Mr. Ward that 15.5% would be a
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`reasonable royalty rate.
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`3. Industry Report
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`Plaintiff further proposes to support its 15.5% rate with an "industry report regarding
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`royalty rates Acceleration Bay had in its files when researching industry rates." (D.I. 583 at 10).
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`4
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`The "industry report" appears to be an infographic 1 produced by an entity called "Idea Buyer."
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`(D.I. 584, Exh. 8). It contains several colorful boxes with helpful information for a potential
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`patent licensor. (Id.). At the bottom of the info graphic there are a series of boxes that represent
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`various industries ( accessories, fast food, internet, entertainment, etc.). (Id.). Each box contains
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`an "industry standard royalty rate[]" for that industry. (Id.). Plaintiff does not explain why this
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`document might be admissible or how it might be authenticated.
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`Defendant argues that the "industry report" is inadmissible hearsay. 2 It is correct.
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`"Evidence that is properly authenticated may nonetheless be inadmissible hearsay if it contains
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`out-of-court statements, written or oral, that are offered for the truth of the matter asserted and do
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`not fall under any exception enumerated under Federal Rule of Evidence 802." United States v.
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`Browne, 834 F .3d 403 , 415 (3d Cir. 2016). The "industry report" consists entirely of written,
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`out-of-court statements. The only relevant purpose for offering it would be to prove the truth of
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`those statements. Thus, the document is hearsay regarding a 15.5% royalty. Plaintiff has not
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`argued that the "industry report" falls into an exception to the hearsay rule and I do not see any
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`1 An "infographic" is "a chart, diagram, or illustration ( as in a book or magazine, or on a
`website) that uses graphic elements to present information in a visually striking way."
`Jnfographic, Merriam-Webster, https://www.merriam-webster.com/dictionary/infographic. The
`infographic discussed in this order can be found at: https://www.ideabuyer.com/news/industry(cid:173)
`standard-royalty-rates.
`2 Defendant makes several other valid points about the "industry report."
`Acceleration has no expert or fact witness who can explain: (1) what that
`[]unidentified and un-consulted author of the document means when he or she
`says that 15.5% is the "Industry Standard Royalty Rate[]" for "Entertainment"
`(with a picture of a drama mask); (2) what real-world patent licenses, if any, went
`into that rate; or (3) why "Entertainment" applies to Activision, Boeing, and these
`patents instead of other listed rates, like "Aerospace" at 4.00%, "Internet" at
`8.20%, or "Media and Entertainment" (with a picture of a "TV") at 6.50%.
`(D.I. 587 at 2).
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`5
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`Case 1:16-cv-00453-RGA Document 600 Filed 10/17/18 Page 6 of 7 PageID #: 48858
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`exception that fits. Therefore, the document is inadmissible and Plaintiff cannot introduce it to
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`establish a reasonable royalty. I will exclude the industry report and opinions derived from it. 3
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`4. Defendant's Agreement with Microsoft
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`The final evidence Plaintiff forwards to support its 15.5% royalty are "documents
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`showing that [Defendant] pays a similar 15-17% royalty to Microsoft for its games." (D.I. 583 at
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`10 ( citing D.I. 584-1 , Exh. 9)). Plaintiff does not explain how these documents might come into
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`the trial or why they are relevant.
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`Defendant responds that Plaintiff is referring to a "Microsoft Publisher Agreement." It is
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`not a patent license or anything like one. Rather, it is an agreement between Defendant and
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`Microsoft allowing Defendant to sell games compatible with the Xbox platform and to distribute
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`digital content via the Xbox Game Store. (D.I. 587 at 4). The Agreement provides that
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`Defendant will pay Microsoft a percentage of the wholesale price of each physical Xbox game
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`that it produces. (D.I. 584-1 , Exh. 9). It further provides that Microsoft will pay Defendant a
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`percentage of the price that consumers pay for Defendant's digital content that is sold on the
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`Xbox Game Store. (Id.). Defendant notes that Plaintiffs damages expert "made no attempt to
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`tie the non-comparable Microsoft agreement to any patent royalty rate, let alone a 15 .5% rate."
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`(Id.). In fact, Plaintiffs damages expert said the Microsoft agreement was "not directly
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`comparable to a patent license." (Id. (citing Meyer Report 1111, 72)).
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`The Microsoft Publisher Agreement is inadmissible because it is irrelevant. A review of
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`the Agreement reveals no obvious connection between it and this case. Plaintiff does not remedy
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`3 The "industry report" is problematic for an additional reason. My review of the document and
`its source strongly indicates to me that it is a form of advertisement. That is, its royalty rate
`claims appear to be designed to draw people to do business with Idea Buyer. For this additional
`reason, the document is unreliable and properly excluded.
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`Case 1:16-cv-00453-RGA Document 600 Filed 10/17/18 Page 7 of 7 PageID #: 48859
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`this by providing an explanation of how the publishing of a video game might be comparable to
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`the licensing a patent. Moreover, Plaintiffs expert said it is not. Thus, I will exclude the
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`Microsoft Publisher Agreement for use in proving a reasonable royalty rate.
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`III.
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`CONCLUSION
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`The testimony of John Garland, Plaintiffs Vice President of Licensing; the testimony of
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`John Ward, Plaintiffs CEO; an "industry report" Plaintiff had in its files when researching
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`industry rates; and a document showing a royalty Defendant pays to Microsoft are inadmissible
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`to prove a 15.5% royalty rate. It appears from the briefing that this is all the evidence Plaintiff
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`has to support the 15.5% royalty rate. Thus, the 15.5% royalty rate and bases associated with it
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`are effectively precluded as well.
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`I do not agree with Defendant that it is appropriate, at this point, entirely to preclude
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`Plaintiff from presenting a damages case. Of course, whether Plaintiff can put together an
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`admissible damages case is another question.
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`Thus, Defendant' s Motion to Preclude Inadmissible and Undisclosed Damages Theories
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`and Evidence (D.I. 581) is GRANTED-IN-PART.
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`IT IS SO ORDERED this J1 day of October 2018.
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