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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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`Plaintiff,
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`v.
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`CATERPILLAR, INC.,
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`Defendant.
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`Case No. 1:17-cv-00770-JDW
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`MEMORANDUM
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`My Memorandum and Order dated February 5, 2024, put a significant speed bump
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`in the way of Wirtgen America, Inc.’s trial plans because it excluded the testimony of
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`Wirtgen’s damages expert, Dr. Pallavi Seth. Rather than give up, Wirtgen decided to use
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`the litigation equivalent of a road roller to pave over the speed bump by having Dr. Seth
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`serve a supplemental expert report on Caterpillar, Inc. Caterpillar objects. After
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`considering Caterpillar’s motion to exclude Dr. Seth’s revised report, I conclude that,
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`although my earlier decision forced Dr. Seth to take a detour, the road is open for her to
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`offer her damages opinions at trial.
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`I.
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`BACKGROUND
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`A.
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`The Patented Technologies
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`At the time the alleged infringement began, Wirtgen America, Inc. (“Wirtgen”) and
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`Wirtgen GmBH were both wholly owned affiliates of a closely held family company. At
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`Case 1:17-cv-00770-JDW Document 326 Filed 02/09/24 Page 2 of 14 PageID #: 30736
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`that time, Wirtgen GmBH owned the patents at-issue in this litigation. In 2017, Wirtgen
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`sued Caterpillar alleging patent infringement. Wirtgen now asserts nearly 20 claims across
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`7 patents, which I outlined in my decision dated February 5th.
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`B.
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`Dr. Seth’s Analysis
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`In her initial expert report, Dr. Seth calculated a reasonable royalty award using a
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`hypothetical negotiation framework. She began by estimating the highest amount that
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`would ensure Caterpillar found the agreement profitable (otherwise known as Caterpillar’s
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`maximum willingness to pay or “MWP” or “Accused Profits”) and the lowest amount that
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`would ensure Wirtgen found the agreement profitable (Wirtgen’s minimum willingness
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`to accept or “MWA”). Dr. Seth apportioned only the difference between those two values
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`(the “joint surplus value”). In other words, she never apportioned Wirtgen’s MWA. The
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`method she used to find her apportionment rate was based on a count of family-level
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`forward patent citations. She then split the apportioned joint surplus value between the
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`parties using the Rubenstein bargaining model. She arrived at her final damages
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`calculation by adding Wirtgen’s split of the apportioned joint surplus value to Wirtgen’s
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`MWA.
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`On October 5, 2023, Caterpillar filed a Daubert motion to exclude that expert report
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`and Dr. Seth’s related testimony. Caterpillar argued that Dr. Seth (1) disguised a lost profits
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`analysis as a reasonable royalty award; (2) used the wrong parties in her hypothetical
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`negotiation; (3) impermissibly used actual lost profits instead of expected lost profits; (4)
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`2
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`Case 1:17-cv-00770-JDW Document 326 Filed 02/09/24 Page 3 of 14 PageID #: 30737
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`failed to apportion her damages; and (5) failed to establish that convoyed sales are
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`recoverable.
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`On February 1, 2024, I held a hearing about the potential exclusion of Dr. Seth’s
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`testimony. I ruled that Dr. Seth’s reasonable royalty analysis was deficient and noted that
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`I would memorialize the reasons for that decision in writing. On February 5, 2024, I issued
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`a written opinion granting Caterpillar’s Daubert motion. I concluded that Dr. Seth failed
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`to properly apportion her damages estimate in a manner consistent with Federal Circuit
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`precedent. Because that led to the exclusion of Dr. Seth’s testimony in full, I did not
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`address the other grounds that Caterpillar had raised in its motion. I also noted, without
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`deciding, that Wirtgen may still be able to present parts of Dr. Seth’s testimony that didn’t
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`run afoul of that opinion.
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`Following my opinion, Wirtgen served a supplemental damages report on
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`Caterpillar, which explains that now Dr. Seth has “removed Wirtgen’s minimum willingness
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`to accept and applied the calculations from the previously disclosed forward patent-
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`citation analysis and Rubenstein bargaining model to the entirety of the Accused Profits.”
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`(Supplemental Expert Report of Dr. Pallavi Seth dated February 6, 2024 ¶ 4.) The Accused
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`Profits are the same as Caterpillar’s MWP, which includes “both the sales of machines and
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`of spare and replacement parts associated with those machines.” (Expert Report of Dr.
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`Pallavi Seth dated May 19, 2023 ¶ 17 n.10.) Dr. Seth explains that this is “purely a
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`mathematical exercise” as otherwise her analysis is “unchanged.” (Supp. Rept. ¶ 4.)
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`3
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`Case 1:17-cv-00770-JDW Document 326 Filed 02/09/24 Page 4 of 14 PageID #: 30738
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`Pursuant to that exercise, she revises her total damages figure, reducing it from her prior
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`report.
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`Caterpillar filed a motion to exclude Dr. Seth’s supplemental expert report, and the
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`Motion is ripe for disposition. I heard argument on this issue during the final pre-trial
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`conference.
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`II.
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`ANALYSIS
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`Caterpillar’s Motion raises issues both about the timing of Dr. Seth’s
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`supplemental report and the substance of her methodology. I will address each in turn.
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`A.
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`Late Disclosure/Exclusion
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`The Federal Circuit applies regional circuit law to procedural questions that are not
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`themselves substantive patent law issues so long as they do not (A) pertain to patent law, (B)
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`bear an essential relationship to matters committed to the Federal Circuit’s exclusive control
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`by statute, or (C) clearly implicate the jurisprudential responsibilities of the Federal Circuit in
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`a field within its exclusive jurisdiction. See GFI, Inc. v. Franklin Corp., 265 F.3d 1268, 1272 (Fed.
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`Cir. 2001). Therefore, I apply Third Circuit law with respect to motions to exclude evidence in
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`patent cases.
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`Federal Rule of Civil Procedure 26(a) requires that an expert report contain “a
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`complete statement of all opinions the witness will express and the basis and reasons for
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`them.” FED. R. CIV. P. 26(a)(2)(B)(i). “If a party fails to provide information … as required by Rule
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`26(a) … the party is not allowed to use that information … at a trial, unless the failure was
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`4
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`Case 1:17-cv-00770-JDW Document 326 Filed 02/09/24 Page 5 of 14 PageID #: 30739
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`substantially justified or harmless.” FED. R. CIV. P. 37(c)(1). Because excluding evidence is an
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`extreme sanction, my discretion to do so is not unlimited. See id.
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`In the Third Circuit, a district judge may exclude untimely expert opinions only after
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`analyzing the Pennypack factors. See ZF Meritor, LLC v. Eaton Corp., 696 F.3d 254, 298 (3d
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`Cir. 2012). Those factors are: “(1) the prejudice or surprise in fact of the party against whom
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`the excluded witnesses would have testified or the excluded evidence would have been
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`offered; (2) the ability of that party to cure the prejudice; (3) the extent to which allowing
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`such witnesses or evidence would disrupt the orderly and efficient trial of the case or of
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`other cases in the court; (4) any bad faith or willfulness in failing to comply with the court's
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`order; and (5) the importance of the excluded evidence.” Id. (quotations omitted).
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`Dr. Seth’s supplemental report qualifies as an untimely disclosure. It’s true, as
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`Wirtgen argues, that she’s using a method that she disclosed in her original expert report.
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`But her theory of how to use that method is new, meaning the supplemental report
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`discloses a different opinion and a different reason for it than she expressed before. It is
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`therefore a different opinion under Rule 26, not just an update to the opinion that she
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`gave before. Although it’s new, I conclude that the Pennypack factors weigh against
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`exclusion.
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`Prejudice And Ability To Cure. While Caterpillar will suffer some prejudice from the
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`late-disclosed report, I conclude that the prejudice is relatively minor, even though the
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`disclosure is on the eve of trial. Dr. Seth disclosed her apportionment methodology in her
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`5
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`Case 1:17-cv-00770-JDW Document 326 Filed 02/09/24 Page 6 of 14 PageID #: 30740
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`original report. Caterpillar had the opportunity to test that methodology in depositions
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`and to have its experts critique it, both of which it did. So it’s not left flat-footed going
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`into trial. In that regard, this case is distinct from the situation that Judge Andrews
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`confronted in NexStep, Inc. v. Comcast Cable Commc'ns, LLC, No. CV 19-1031-RGA, 2021
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`WL 5356293 (D. Del. Nov. 17, 2021). In that case, the expert “cobbled together a new
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`theory” on the eve of trial. Id. at * 2. That’s not what Dr. Seth did. She pivoted and adapted
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`her analysis to account for my ruling, but she did so with a methodology of which
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`Caterpillar was already aware, not something that she threw together at the last minute.
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`At the final pretrial conference, I asked Caterpillar to identify the prejudice that it
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`suffered. The only thing it identified was a lost opportunity to raise a Daubert challenge
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`to Dr. Seth’s methodology. Caterpillar knew about Dr. Seth’s forward patent citation and
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`Rubenstein bargaining model methodology and could have challenged it in its Daubert
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`motion. Caterpillar says that it didn’t do so because it faced page limit constraints and the
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`issue was relatively minor considering Dr. Seth’s original use of Wirtgen’s MWA as the
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`royalty floor. Having re-reviewed the original briefing, I do think that Caterpillar had
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`enough room to raise a challenge to Dr. Seth’s methodology. It’s failure to do so was a
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`product of a tactical decision to focus more space on other arguments that could have
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`been a bit more concise, not an inability to make the argument. In any event, Caterpillar
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`has raised its methodological challenges to Dr. Seth’s apportionment methodology in this
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`6
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`Case 1:17-cv-00770-JDW Document 326 Filed 02/09/24 Page 7 of 14 PageID #: 30741
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`Motion, and I have reviewed them, So Caterpillar got its bite at the apple, even if it was a
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`little later in the process.
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`In its brief in support of this Motion, Caterpillar also says that it lost the opportunity
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`to depose Dr. Seth. It didn’t repeat that assertion at the final pretrial conference, so I have
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`to conclude it’s not that big a deal. But I do recognize that Caterpillar made decisions
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`about how to allocate its deposition time based on the opinions in front of it at the time,
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`and that has changed. During the final pretrial conference, Wirtgen offered to make Dr.
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`Seth available for a supplemental deposition before trial begins. I will permit Caterpillar
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`to take Dr. Seth’s deposition, focused only on her apportionment methodology and her
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`decision to change the methodology in the wake of my decision. That deposition may not
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`exceed two hours.
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`Ultimately, I conclude that Caterpillar might have suffered some prejudice, but not
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`the great prejudice that one might expect from a new expert report on the eve of trial.
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`And to the extent Caterpillar is suffering some prejudice, I can ameliorate it (though not
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`eliminate it) by permitting Dr. Seth’s deposition and by considering Caterpillar’s new
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`Daubert arguments on the merits.
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`Disruption To Orderly Presentation. Caterpillar has been on notice that Dr. Seth
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`would testify at trial, and it has been on notice that she would tell the jury about her
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`apportionment methodology. Allowing her to do so will not disrupt the orderly and
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`efficient presentation of trial.
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`7
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`Case 1:17-cv-00770-JDW Document 326 Filed 02/09/24 Page 8 of 14 PageID #: 30742
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`Bad Faith/Willfulness. There’s no evidence that Wirtgen acted in bad faith or
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`willfully. It put forward what it thought was a defensible expert damages report. When I
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`excluded it, it pivoted quickly and adjusted the analysis to correct the errors I identified.
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`Importance Of Evidence. “The importance of the evidence [to be excluded] is often
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`the most significant factor” for a judge to weigh. ZF Meritor, 696 F.3d at 254. In this case,
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`Dr. Seth’s analysis is critically important to Wirtgen’s case. Indeed, its exclusion might put
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`an end to Wirtgen’s damages claim because Wirtgen would have a very hard time
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`pointing the jury to a reasonable royalty range in its absence. This factor therefore weighs
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`strongly in favor of permitting Dr. Seth’s supplemental report.
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`On balance, weighing these factors, I will permit Dr. Seth to testify pursuant to her
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`supplemental report. Her report is late, and it forces Caterpillar to scramble a bit in its trial
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`preparation. But what it really does is elevate what used to be a minor issue to a major
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`issue at trial, and Caterpillar can adjust.
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`B.
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`Rule 702/Daubert
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`When I ruled on Caterpillar’s original Daubert motion, I did not rule on several
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`issues that it raised because my apportionment ruling obviated the need to do so. But
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`with that issue off the table, in fairness to Caterpillar, I have revisited them. In addition, to
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`ameliorate the prejudice that Caterpillar claims that it suffered from not raising a Daubert
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`challenge that targets Dr. Seth’s apportionment methodology, I have reviewed
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`Caterpillar’s new Daubert arguments. None of those arguments leads to exclusion.
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`8
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`Case 1:17-cv-00770-JDW Document 326 Filed 02/09/24 Page 9 of 14 PageID #: 30743
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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
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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). Rule 702 mandates that
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`the relevant expert testimony “must be supported by appropriate validation—i.e., ‘good
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`grounds,’ based on what is known.” Daubert, 509 U.S. at 590; see also Schneider ex rel.
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`Estate of Schneider v. Fried, 320 F.3d 396, 404 (3d Cir. 2003).
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`Wirtgen, as the party offering the expert's opinion, bears the burden of proving
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`that it meets Rule 702’s restrictions. See In re Paoli R.R. Yard PCB Litig., 35 F.3d 717, 744
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`(3d Cir. 1994). While the party must make more than a prima facie showing that an expert's
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`methodology is reliable, “[t]he evidentiary requirement of reliability is lower than the
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`merits standard of correctness.” Pineda, 520 F.3d at 247. Rule 702 “has a liberal policy of
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`9
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`Case 1:17-cv-00770-JDW Document 326 Filed 02/09/24 Page 10 of 14 PageID #: 30744
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`admissibility.” Id. at 243 (quoting Kannankeril v. Terminix Int'l, Inc., 128 F.3d 802, 806 (3d
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`Cir. 1997)).
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`Apportionment Challenges. Dr. Seth’s apportionment methodology consists of
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`three steps. First, she focuses on net profits, not net revenues. In that way, she accounts
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`for input costs. Then, she does a patent forward citation analysis to try to isolate the value
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`of the various patents. Finally, she engages in a Rubenstein bargaining model to try to
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`account for other factors, such as the companies’ respective market power and ownership
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`of unpatented features. I find that her analysis properly considers the patented features
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`of the machines. See Intel Corp. v. Future Link Sys., LLC, No. CV 14-377-LPS, 2017 WL
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`2482881, at *5 (D. Del. June 1, 2017) (finding a forward citation analysis sufficiently reliable
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`to survive a Daubert attack). Dr. Seth has attempted to control for all of the non-patented
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`features through her various steps, and therefore has tried to isolate the value of each of
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`the patented features.
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`In its current motion, Caterpillar complains that this methodology doesn’t take
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`enough account of non-patented features that add value. Its criticisms might have merit,
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`but they are not enough to merit exclusion because they suggest that Dr. Seth made what
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`Caterpillar characterizes as factual errors, not methodological errors. Caterpillar’s
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`criticisms therefore go to weight, not to admissibility.
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`Convoyed Sales. “A ‘convoyed sale’ refers to the relationship between the sale of a
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`patented product and a functionally associated non-patented product.” Am. Seating Co.
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`10
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`Case 1:17-cv-00770-JDW Document 326 Filed 02/09/24 Page 11 of 14 PageID #: 30745
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`v. USSC Grp., Inc., 514 F.3d 1262, 1268 (Fed. Cir. 2008). A patentee may recover on a
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`convoyed sale if (1) “both the patented and unpatented products ‘together were
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`considered to be components of a single assembly or parts of a complete machine, or
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`they together constituted a functional unit’” and (2) “the patent-related feature drives
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`demand for the functional unit as a whole.” Zimmer Surgical, Inc. v. Stryker Corp., 365 F.
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`Supp. 3d 466, 491 (D. Del. 2019) (quoting Am. Seating Co., 514 F.3d at 1268); see also
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`Deere & Co. v. Int'l Harvester Co., 710 F.2d 1551, 1559 (Fed. Cir. 1983) (permitting
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`consideration of convoyed sales when a patentee sought a reasonable royalty).
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`Dr. Seth’s expert report addresses these two requirements. Dr. Seth factored in the
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`sales of spare and replacement parts into her reasonable royalty analysis. Taken together
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`with the patented features at-issue in this case, the spare and replacement parts create “a
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`complete machine” or, at the very least, share a “functional relationship.” Juicy Whip, Inc.
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`v. Orange Bang, Inc., 382 F.3d 1367, 1371 (Fed. Cir. 2004) (quoting Rite–Hite Corp. v. Kelley
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`Co., 56 F.3d 1538, 1543 (Fed. Cir. 1995) (en banc)). The spare and replacement parts of the
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`Accused Machines are therefore distinguished from a situation where “devices [are] sold
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`together merely for convenience and business advantage.” Rite–Hite Corp., 56 F.3d at
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`1551.
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`In Juicy Whip, the Federal Circuit held that Juicy Whip’s patented beverage
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`dispenser and the non-patented syrup used in the dispenser shared a functional
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`relationship, so the jury could determine if Juicy Whip could recover for lost profits of the
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`11
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`Case 1:17-cv-00770-JDW Document 326 Filed 02/09/24 Page 12 of 14 PageID #: 30746
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`syrup. See Juicy Whip, 382 F.3d at 1371. Wirtgen’s spare and replacement parts are
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`comparable to the syrup in Juicy Whip. They are sold after-market, they could come from
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`a different source, and they work together with the patented machine. Juicy Whip dealt
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`with an infringer trying to recover lost profits, but the Federal Circuit analyzes convoyed
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`sales in the reasonable royalty rate context in the same manner, so that’s a distinction
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`without a difference. See Deere & Co., 710 F.2d at 1559.
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`As to the second part of the convoyed sales test, it is Dr. Seth’s opinion that the
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`revenue associated with those spare and replacement parts “accrue directly from sales of
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`cold milling machines themselves.” (Expert Report ¶¶ 180, 246.) That’s a reasonable
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`opinion. Because those parts would be used to replace elements of the original machine,
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`the universe of buyers of those spare and replacement parts would be those that already
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`own the machine. The replacement parts don’t “command a market value and serve a
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`useful purpose independent of the patented product.” See Am. Seating Co., 514 F.3d at
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`1268. Caterpillar may disagree with Dr. Seth’s opinion in this regard. However, at this
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`stage, Dr. Seth’s assumptions and analysis related to convoyed sales are appropriate. A
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`jury may hear and weigh this evidence against Caterpillar’s criticisms.
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`Reliance On Lost Profits. Dr. Seth’s heavy reliance on lost profits in her reasonable
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`royalty calculation was permissible. See Asetek Danmark A/S v. CMI USA Inc., 852 F.3d
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`1352, 1362 (Fed. Cir. 2017) (citing Rite-Hite Corp., 56 F.3d at 1554–55); see also
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`FloodBreak, LLC v. Art Metal Indus., LLC, No. 3:18-CV-503 (SRU), 2020 WL 6060974, at *16
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`12
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`Case 1:17-cv-00770-JDW Document 326 Filed 02/09/24 Page 13 of 14 PageID #: 30747
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`(D. Conn. Oct. 13, 2020) (allowing a damages expert who “weighed lost profits more
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`heavily than other factors in her hypothetical negotiation” to testify at trial); Apple, Inc. v.
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`Samsung Elecs. Co., No. 12-CV-00630-LHK, 2014 WL 794328, at *22 (N.D. Cal. Feb. 25,
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`2014) (same).
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`Proper Entities. Dr. Seth’s use of Wirtgen (as opposed to Wirtgen GmbH) in the
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`hypothetical negotiation was a permissible assumption. Generally, the licensor in a
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`hypothetical negotiation must have “at that time held all right, title and interest in the
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`patent.” Opticurrent, LLC v. Power Integrations, Inc., No. 17-CV-03597-WHO, 2018 WL
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`6727826, at *8 (N.D. Cal. Dec. 21, 2018) (alterations and citation omitted). In Dr. Seth’s
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`opinion, the interests of Wirtgen GmbH and Wirtgen America were aligned such that
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`Wirtgen GmbH would have assigned its patents to Wirtgen America right before a
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`hypothetical negotiation. There is some record evidence supporting this opinion.
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`The corporate relationship between Wirtgen GmBH and Wirtgen distinguishes this
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`situation from the cases cited by Caterpillar. In those cases, there was no reasonable
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`finding that the patent holder would have granted its patent rights to the hypothetical
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`licensor. See, e.g., Warsaw Othropedic, Inc. v. Nuvasive, Inc., 2016 WL 4536740 (S.D. Cal.
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`June 15, 2016) (patent holder and hypothetical licensor were competitors); Opticurrent,
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`LLC, 2018 WL 6727826, at *9 (expert did not show that the individual inventor would have
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`assigned its rights to a company). Caterpillar is free to attack the soundness of this opinion
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`at trial, but this issue goes to weight.
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`13
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`Case 1:17-cv-00770-JDW Document 326 Filed 02/09/24 Page 14 of 14 PageID #: 30748
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`Actual Data. Dr. Seth could rely on actual profits post-infringement as opposed to
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`expected profits. See Lucent Technologies, Inc. v. Gateway, Inc., 580 F.3d 1301, 1333 (Fed.
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`Cir. 2009). Because Caterpillar experienced an alleged windfall from its alleged
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`infringement, that information may be particularly probative here. See On Track
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`Innovations Ltd. v. T-Mobile USA, Inc., 106 F. Supp. 3d 369, 410 (S.D.N.Y. 2015).
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`III.
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`CONCLUSION
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`Wirtgen fixed Dr. Seth’s damages report to take care of the apportionment issue.
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`It did so in a minimally disruptive way, so the extreme sanction of exclusion isn’t
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`warranted. Wirtgen must make Dr. Seth available to Caterpillar should Caterpillar seek to
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`re-depose her before trial. In light of these conclusions, I will deny Caterpillar’s additional
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`requests like those that seek to bar any of Wirtgen’s fact witnesses from discussing
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`damages and profits. An appropriate Order follows.
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`BY THE COURT:
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`February 9, 2024
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`/s/ Joshua D. Wolson
`JOSHUA D. WOLSON, J.
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`14
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