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Case 1:17-cv-00770-JDW Document 308 Filed 02/05/24 Page 1 of 12 PageID #: 30588
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF DELAWARE
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`WIRTGEN AMERICA, INC.,
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`
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`Plaintiff,
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`
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`v.
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`CATERPILLAR, INC.,
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`
`
`
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`Defendant.
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`
`
`
`
`
`Case No. 1:17-cv-00770-JDW-MPT
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`
`
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`
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`MEMORANDUM
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`Economists love assumptions. One joke recites that a physicist, a chemist, and an
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`economist find themselves on a desert island with a single can of food. The physicist offers
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`to calculate the force needed to use a coconut to open the can. The chemist offers to
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`make a solution that will eat through the can’s top. The economist tells them they are
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`making it too complicated and just to assume a can opener.
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`The world of patent damages is filled with economic assumptions, including that
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`the infringer and patent holder sat down and negotiated a license just before the
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`infringement began. To construct that hypothetical negotiation, a damages expert must
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`assume that each side participated willingly in the negotiation. But some participants are
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`more willing than others. In this case, Wirtgen America, Inc. held patents on features that
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`gave it a competitive advantage over one of its primary competitors, Caterpillar, Inc. It
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`

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`Case 1:17-cv-00770-JDW Document 308 Filed 02/05/24 Page 2 of 12 PageID #: 30589
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`didn’t license those patents to Caterpillar in real life, and it presumably would not have
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`wanted to license them in the world of a hypothetical negotiation, either.
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`When Dr. Pallavi Seth constructed a hypothetical negotiation to calculate those
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`damages, she placed a great deal of emphasis on Wirtgen’s reluctance to enter into a
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`license agreement with its competitor. Too much emphasis, as it turns out. Because in
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`constructing the hypothetical negotiation, Dr. Seth assumed that Wirtgen wouldn’t enter
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`into a license with Caterpillar unless it received at least all of the profits it would lose from
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`lost machine sales. That assumption holds true regardless of the value of those
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`technologies or circumstances that might have made Caterpillar less willing to license
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`some patents than others.
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`Federal Circuit law does not allow Dr. Seth to make that assumption, however. She
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`had to apportion her damages to account for non-infringing elements of the cold planers
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`at issue. Her failure to do so means that I must exclude her damages analysis.
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`I.
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`BACKGROUND1
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`A.
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`The Patented Technologies
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`Wirtgen asserts nearly 20 claims across 7 patents. The patents relate broadly to
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`road construction equipment—primarily cold planers—but they cover a range of different
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`1 I write this opinion for the benefit of the Parties. Given their familiarity with the
`underlying dispute and its procedural history, I recount here only the circumstances
`necessary to resolve this Motion.
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`
`
`
`2
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`

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`Case 1:17-cv-00770-JDW Document 308 Filed 02/05/24 Page 3 of 12 PageID #: 30590
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`features. The ‘309 Patent2 discloses road building machines that can adjust the machine’s
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`height relative to the frame or chassis. The ‘530 Patent3 discloses a road construction
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`machine with a drum, adjustable ground supports, and lifting sensors. The ‘972 Patent4
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`discloses similar features. The ‘641 Patent5 makes disclosures about a method for working
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`ground surfaces with a milling drum, including raising the drum off the ground. The ‘788
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`Patent6 discloses a road construction machine that is height-adjustable for milling depth
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`or slope. The ‘474 Patent7 covers similar subject matter and shares a similar specification.
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`The ‘268 Patent8 discloses aspects of the drive train in a road construction machine.
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`B.
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`Dr. Seth’s Analysis
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`Wirtgen submits Dr. Seth as its damages expert. Dr. Seth estimated a reasonable
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`royalty that Caterpillar would have paid to Wirtgen if Wirtgen and Caterpillar had engaged
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`in a hypothetical negotiation on the eve of the first alleged infringement. Dr. Seth cites to
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`evidence showing that Wirtgen would be reluctant to license to Caterpillar, even under
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`very favorable license terms. For example, Wirtgen has never licensed its patents to
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`Caterpillar in the past.
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`
`
`2 U.S. Patent No. 7,828,309
`3 U.S. Patent No. 9,656,530
`4 U.S. Patent No. 8,424,972
`5 U.S. Patent No. 7,530,641
`6 U.S. Patent No. 7,946,788
`7 U.S. Patent No. 8,690,474
`8 U.S. Patent No. RE48,268.
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`
`
`3
`
`

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`Case 1:17-cv-00770-JDW Document 308 Filed 02/05/24 Page 4 of 12 PageID #: 30591
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`Nevertheless, using a willing licensor/willing licensee framework, Dr. Seth
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`estimated the highest amount that would ensure Caterpillar found the agreement
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`profitable (otherwise known as Caterpillar’s maximum willingness to pay or “MWP”) and
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`the lowest amount that would ensure Wirtgen found the agreement profitable (Wirtgen’s
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`minimum willingness to accept or “MWA”). Dr. Seth defines Caterpillar’s MWP as “the
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`anticipated incremental profits earned from practicing the Asserted Patents,” and
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`Wirtgen’s MWA as “the profits it anticipates to lose should Caterpillar practice the
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`Asserted Patents.” (D.I. 213-1 ¶ 17.) The difference between those Wirtgen’s MWA and
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`Caterpillar’s MWP) equals the “joint surplus value.” (Id. ¶ 18.)
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`Wirtgen’s MWA is its lost profits due to infringement. Those lost profits represent
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`“both potential machine sales and spare and replacement parts sales associated with
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`those machines that Wirtgen would have had the opportunity to make itself if not for
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`Caterpillar’s alleged infringement of the Asserted Patents.” (D.I. 213-1 ¶ 17 n.11.)
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`Dr. Seth opines that the joint surplus value “may not relate entirely to the Asserted
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`Patents,” so she apportions the joint surplus value “to isolate the incremental value
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`contributions of the Asserted Patents to the accused products.” (Id.; see also id. ¶¶ 204-
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`06, 241-42.) She apportions the joint surplus value using an apportionment rate based on
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`a count of family-level forward patent citations. She then splits the apportioned joint
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`surplus value between the parties using the Rubenstein bargaining model. Finally, she
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`arrives at her damages calculation by adding Wirtgen’s split of the apportioned joint
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`
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`4
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`

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`Case 1:17-cv-00770-JDW Document 308 Filed 02/05/24 Page 5 of 12 PageID #: 30592
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`surplus value to Wirtgen’s MWA. Stated as a percentage of her total damages figure,
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`Wirtgen’s MWA accounts for roughly 95%.
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`According to Dr. Seth, the method for determining Wirtgen’s MWA would not
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`change depending on which patents the jury finds Caterpillar infringed. (The actual
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`amount of the MWA might change because different patents were in effect at different
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`times.) During her deposition, she acknowledged that she “did not conduct any patent-
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`by-patent apportionment” with respect to her calculation of the MWA. (D.I. 213-2 at 108-
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`09.)
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`C.
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`Procedural History
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`Caterpillar filed a motion to exclude Dr. Seth’s testimony. On February 1, 2024, I
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`held a hearing with counsel for the Parties concerning the potential exclusion of Dr. Seth’s
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`testimony. At that hearing, I ruled that Dr. Seth’s reasonable royalty analysis was deficient
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`and noted that I would memorialize the reasons for that decision in writing. This opinion
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`provides that reasoning.
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`II.
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`LEGAL STANDARD
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`Regional circuit law governs aspects of expert opinion admissibility unless the
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`issues are unique to patent law. See Micro Chem., Inc. v. Lextron, Inc., 317 F.3d 1387, 1390
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`(Fed. Cir. 2003). Federal Rule of Evidence 702 provides that a qualified expert may testify
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`in the form of an opinion if: “(a) the expert’s scientific, technical, or other specialized
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`knowledge will help the trier of fact to understand the evidence or to determine a fact in
`
`
`
`5
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`

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`Case 1:17-cv-00770-JDW Document 308 Filed 02/05/24 Page 6 of 12 PageID #: 30593
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`issue; (b) the testimony is based on sufficient facts or data; (c) the testimony is the product
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`of reliable principles and methods; and (d) the expert has reliably applied the principles
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`and methods to the facts of the case.” FED. R. EVID. 702. Rule 702’s requirements establish
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`“three distinct substantive restrictions on the admission of expert testimony:
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`qualifications, reliability, and fit.” Elcock v. Kmart Corp., 233 F.3d 734, 741 (3d Cir. 2000);
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`see also Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579 (1993).
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`“A patent owner, having prevailed on liability, may receive a reasonable royalty or
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`lost profits, but not both for the same infringing units.” Asetek Danmark A/S v. CMI USA
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`Inc., 852 F.3d 1352, 1362 (Fed. Cir. 2017). A standard, but non-exclusive, way of
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`determining lost profits is utilizing the four-factor test articulated in Panduit Corp. v.
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`Stahlin Bros. Fibre Works, 575 F.2d 1152, 1156 (6th Cir. 1978). A reasonable royalty, on the
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`other hand, is often “based upon a hypothetical negotiation between the patentee and
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`the infringer when the infringement began.” Unisplay, S.A. v. Am. Elec. Sign Co., 69 F.3d
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`512, 517 (Fed. Cir. 1995). Most analyses of a reasonable royalty utilize the fifteen-factor
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`test set out in Georgia–Pacific Corp. v. United States Plywood Corp. See id. at 517 n.7.
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`(citing 318 F. Supp. 1116, 1120 (S.D.N.Y.1970), modified and aff'd, 446 F.2d 295 (2d Cir.),
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`cert. denied, 404 U.S. 870, 92 S.Ct. 105, 30 L.Ed.2d 114 (1971)). A hypothetical negotiation
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`“necessarily involves an element of approximation and uncertainty.” Id. Nonetheless,
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`“given the great financial incentive parties have to exploit the inherent imprecision in
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`patent valuation, courts must be proactive to ensure that the testimony presented—using
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`
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`6
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`

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`Case 1:17-cv-00770-JDW Document 308 Filed 02/05/24 Page 7 of 12 PageID #: 30594
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`whatever methodology—is sufficiently reliable to support a damages award.”
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`Commonwealth Sci. & Indus. Rsch. Organisation v. Cisco Sys., Inc., 809 F.3d 1295, 1301
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`(Fed. Cir. 2015).
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`Apportionment requires that “a patentee must take care to seek only those
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`damages attributable to the infringing features.” Virnetx, Inc. v. Cisco Sys., Inc., 767 F.3d
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`1308, 1326 (Fed. Cir. 2014). The Federal Circuit requires that “to be admissible, all expert
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`damages opinions must separate the value of the allegedly infringing features from the
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`value of all other features.” Commonwealth Sci. & Indus. Rsch. Organisation, 809 F.3d at
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`1301 (citation omitted) (explaining that apportionment is the governing rule where multi-
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`component products are involved). So, an expert’s failure to properly apportion damages
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`justifies exclusion of that expert’s testimony at trial. See LaserDynamics, Inc. v. Quanta
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`Computer, Inc., 694 F.3d 51, 69 (Fed. Cir. 2012); Uniloc USA, Inc. v. Microsoft Corp., 632
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`F.3d 1292, 1318 (Fed. Cir. 2011).
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`The entire market value rule “is a narrow exception” to the rule of apportionment.
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`LaserDynamics, Inc., 694 F.3d at 67. “If it can be shown that the patented feature drives
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`the demand for an entire multi-component product, a patentee may be awarded damages
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`as a percentage of revenues or profits attributable to the entire product.” Id.
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`Wirtgen, as the party offering Dr. Seth’s testimony, bears the burden of proving
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`that her testimony meets Rule 702’s restrictions. In re Paoli R.R. Yard PCB Litig., 35 F.3d
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`
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`7
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`

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`Case 1:17-cv-00770-JDW Document 308 Filed 02/05/24 Page 8 of 12 PageID #: 30595
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`717, 744 (3d Cir. 1994). Further, as the patentee, Wirtgen bears the ultimate burden of
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`proving damages. See Uniloc USA, Inc., 632 F.3d at 1315.
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`III.
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`ANALYSIS
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`Dr. Seth didn’t properly apportion her reasonable royalty, even though the law
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`requires her to do so. In simplified terms, her royalty payment sums two figures: Wirtgen’s
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`MWA; and the joint surplus value. But Dr. Seth apportioned only the joint surplus value.
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`That is, she didn’t apportion Wirtgen’s MWA/lost profits. In other words, Dr. Seth premises
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`Wirtgen’s lost profits on sales of entire machines and not the value that a specific patent
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`added to that machine. Thus, she sets a whopping 95% of her damages figure in a way
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`that includes the value of all the other features in the machines. Because Dr. Seth doesn’t
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`invoke the entire market value rule, that’s impermissible.
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`In her reasonable royalty calculation, Dr. Seth was permitted to “consider the
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`profits on sales [Wirtgen] might lose as a result of granting a license.” Asetek Danmark
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`A/S, 852 F.3d at 1362 (citing Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1554–55 (Fed. Cir.
`
`1995) (en banc)). As a general matter, lost profits might even predominate an ultimate
`
`reasonable royalty figure. See id.; see also FloodBreak, LLC v. Art Metal Indus., LLC, No.
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`3:18-CV-503 (SRU), 2020 WL 6060974, at *16 (D. Conn. Oct. 13, 2020) (allowing a damages
`
`expert who “weighed lost profits more heavily than other factors in her hypothetical
`
`negotiation” to testify at trial); Apple, Inc. v. Samsung Elecs. Co., No. 12-CV-00630-LHK,
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`2014 WL 794328, at *22 (N.D. Cal. Feb. 25, 2014) (same). That framework might be
`
`
`
`8
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`

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`Case 1:17-cv-00770-JDW Document 308 Filed 02/05/24 Page 9 of 12 PageID #: 30596
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`particularly relevant in a case like this one where the licensor would have been reluctant
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`to make a deal. But Dr. Seth’s lost profits are problematic because that figure fails to
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`isolate the value of the allegedly infringing features from the value of all other features.
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`See VirnetX, Inc., 767 F.3d at 1329. It is Dr. Seth’s use of unapportioned lost profits wherein
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`the issue lies.
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`Dr. Seth’s apportionment approach is out of step even when compared to the cases
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`Wirtgen cites. The Federal Circuit has acknowledged that certain methodologies
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`themselves can build in apportionment. See Mentor Graphics Corp. v. EVE-USA, Inc., 851
`
`F.3d 1275, 1288 (Fed. Cir. 2017) (proper analysis of Panduit factors may account for
`
`apportionment); Vectura Ltd. v. Glaxosmithkline LLC, 981 F.3d 1030, 1041 (Fed. Cir. 2020)
`
`(comparable licenses and negotiations). When a damages expert walks through the
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`Panduit factors in determining a lost profit analysis, and then inputs that analysis into her
`
`reasonable royalty rate calculation, she might take care of apportionment too. See, e.g.,
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`FloodBreak, LLC, 2020 WL 6060974, at *5. An analysis of licenses to comparable
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`technology might also do the trick. See, e.g., Plexxikon Inc. v. Novartis Pharms. Corp., No.
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`4:17-CV-04405-HSG, 2021 WL 97544, at *5 (N.D. Cal. Jan. 12, 2021).
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`But Dr. Seth doesn’t use the Panduit factors to arrive at her lost profits number.
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`She also can’t rely on a comparable license because Wirtgen hasn’t licensed these patents
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`before. To be clear, it’s okay that she didn’t use the Panduit factors or comparable licenses.
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`But, in the absence of doing either, she had to find another adequate way to apportion
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`
`
`9
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`

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`Case 1:17-cv-00770-JDW Document 308 Filed 02/05/24 Page 10 of 12 PageID #: 30597
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`her damage award in light of the facts of this case. See Commonwealth Sci. & Indus. Rsch.
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`Organisation, 809 F.3d at 1301.
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`She attempts to meet that requirement in her analysis of Georgia-Pacific’s Factor
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`13, but it’s inadequate. See generally AstraZeneca AB v. Apotex Corp., 782 F.3d 1324, 1338
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`(Fed. Cir. 2015); Bd. of Regents Univ. of Texas Sys. v. Bos. Sci. Corp., 645 F. Supp.3d 324,
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`330 (D. Del. 2022). On one hand, Dr. Seth acknowledges the rule of apportionment in that
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`analysis. She notes that “[t]he Accused Product as a whole incorporates value from other
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`patents, know-how, human capital, and raw materials, in addition to the value contributed
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`by the technology embodied by the Asserted Patents.” (See D.I. 213-11 ¶ 195.) She then
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`passingly suggests that the sales data she relied on already accounts for apportionment.
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`(See id.) But, without a more fulsome analysis, it’s unclear how machine sales data could
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`possibly do that. Wirtgen’s counsel could not answer that question at the hearing. The
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`fact that Dr. Seth mentioned apportionment in talking about the thirteenth Georgia-
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`Pacific factor doesn’t mean that she apportioned her damages properly, and it doesn’t
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`make her analysis admissible. See, e.g., NNCrystal US Corp. v. Nanosys, Inc., No. CV 19-
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`1307-RGA, 2023 WL 2891453, at *3 (D. Del. Apr. 11, 2023).
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`One example from the hearing demonstrates some of the problems with Dr. Seth’s
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`analysis. Around the time of the hypothetical negotiation, Caterpillar analyzed several of
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`Wirtgen’s patents to determine how they impacted Caterpillar in the marketplace. For
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`some, Caterpillar concluded that it had no workaround and its inability to provide the
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`
`
`10
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`

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`Case 1:17-cv-00770-JDW Document 308 Filed 02/05/24 Page 11 of 12 PageID #: 30598
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`patented technology substantially harmed its market position. But for the ‘309 Patent,
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`Caterpillar determined that it could design a workaround in a few months and at a
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`relatively low cost. (Hearing Tr. at 66-67.) By assuming that Wirtgen’s MWA would be its
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`lost profits, and then setting that as a damages floor, Dr. Seth fails to account for the fact
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`that the ‘309 Patent—as one example—was less valuable to Caterpillar. Apportionment
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`would have corrected that flaw.
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`During the hearing, Wirtgen’s counsel defended Dr. Seth’s work by arguing that
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`she conducted a hypothetical negotiation of Wirtgen’s patent portfolio. (Hearing Tr. at
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`61-62.) The problem with that approach, though, is that the portfolio contains unrelated
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`patents covering different features of the machines. And the hypothetical negotiation
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`would only have included those patents that the jury finds infringed, not the whole
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`portfolio. Dr. Seth’s approach therefore leaves open the possibility of awarding damages
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`for features that the jury finds not to be infringing.
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`A failure to apportion goes to admissibility, not weight. If Wirtgen prevails on
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`liability, it will be entitled only to a damage award which captures “the value of what was
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`taken” meaning the patented technology. See Ericsson, Inc. v. D-Link Sys., Inc., 773 F.3d
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`1201, 1226 (Fed. Cir. 2014). As the Federal Circuit has explained, “care must be taken to
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`avoid misleading the jury by placing undue emphasis on the value of the entire product.”
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`Commonwealth Sci. & Indus. Rsch. Organisation, 809 F.3d at 1302. Under these
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`
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`11
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`

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`Case 1:17-cv-00770-JDW Document 308 Filed 02/05/24 Page 12 of 12 PageID #: 30599
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`circumstances, I find that since 95% of Dr. Seth’s damages figure is unapportioned lost
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`profits, admission risks “skew[ing] the damages horizon for the jury.” Id.
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`At the conclusion of the hearing, Wirtgen suggested that Dr. Seth may still be able
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`to testify. (See Hearing Tr. at 70:13-23.) I haven’t been supplied with her revised expert
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`report, nor have I been able to parse the excerpts of the expert report I have to determine
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`the merits of this request. Therefore, I am not ruling out the possibility that Dr. Seth may
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`be able to testify on matters not at-issue in this opinion, but I’m not blessing it, either.
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`IV.
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`CONCLUSION
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`Dr. Seth assumes that Wirtgen would have been a reluctant licensor. While
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`reasonable, that assumption leads her to award to Wirtgen all of its lost profits, and then
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`some, without determining if any particular patented technology justified such a recovery.
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`Because she fails to apportion to ensure that Wirtgen would receive only the benefit of
`
`its patented technologies in her damages analysis, Dr. Seth’s analysis runs afoul of
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`governing Federal Circuit precedent and requires exclusion. To the extent that Wirtgen
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`believes that there are parts of Dr. Seth’s opinion that survive this analysis, it may disclose
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`the testimony that it proposes to Caterpillar in short order, and I will resolve any remaining
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`disputes at the final pretrial conference. An appropriate Order follows.
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`BY THE COURT:
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`
`
`/s/ Joshua D. Wolson
`JOSHUA D. WOLSON, J.
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`12
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`February 5, 2024
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`

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