Case 1:19-cv-01334-CJB Document 627 Filed 11/07/23 Page 1 of 12 PageID #: 16539
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF DELAWARE
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`MIDWEST ENERGY EMISSIONS
`CORP. and MES INC.,
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`Plaintiffs,
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`v.
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`ARTHUR J. GALLAGHER & CO., et al.,
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`Defendants.
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`Civil Action No. 19-1334-CJB
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`MEMORANDUM ORDER
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`This is a patent action filed by Plaintiffs Midwest Energy Emissions Corp. (“Midwest
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`Energy”) and MES Inc. (“MES” and collectively with Midwest Energy, “Plaintiffs” or “ME2C”)
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`against 34 Defendants, in which Plaintiffs assert five patents-in-suit. The Court has set out a
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`listing of all of the parties and asserted patents in its recent October 16, 2023 Memorandum
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`Opinion (“October 16, 2023 MO”), (D.I. 586 at 2); it incorporates that discussion by reference
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`here. Presently pending before the Court is Defendants’ motion to exclude certain opinions of
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`Plaintiffs’ damages expert Philip Green (“Motion”). (D.I. 571) ME2C opposes the Motion. For
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`the reasons set forth below, the Motion is DENIED.1
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`I.
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`BACKGROUND
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`ME2C commenced this action on July 17, 2019. (D.I. 1) Defendants filed the instant
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`Motion on March 23, 2023. (D.I. 527; see also D.I. 571) The Motion was fully briefed as of
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`April 18, 2023. (D.I. 555) Defendants filed a notice of subsequent authority on September 21,
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`2023. (D.I. 577) A trial is set to begin on November 13, 2023. (D.I. 507)
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`1
`The parties have jointly consented to the Court’s jurisdiction to conduct all
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`proceedings in this case, including trial, the entry of final judgment and all post-trial
`proceedings. (D.I. 398)
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`Case 1:19-cv-01334-CJB Document 627 Filed 11/07/23 Page 2 of 12 PageID #: 16540
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`The Court here writes primarily for the parties, and so any facts relevant to this
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`Memorandum Opinion will be discussed in Section III below.
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`II.
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`STANDARD OF REVIEW
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`The Court has frequently set out the relevant standard of review for assessing a motion,
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`like this one, filed pursuant to Federal Rule of Evidence 702 (“Rule 702”) and Daubert v.
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`Merrell Dow Pharms, Inc., 509 U.S. 579 (1993). One such instance came in Integra LifeScis.
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`Corp. v. HyperBranch Med. Tech., Inc., Civil Action No. 15-819-LPS-CJB, 2018 WL 1785033,
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`at *1-2 (D. Del. Apr. 4, 2018). The Court incorporates by reference those legal standards set out
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`in Integra, and will follow them herein. To the extent that additional related legal principles
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`regarding Rule 702 and Daubert are relevant, the Court will set those out in Section III.
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`III. DISCUSSION
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`In this case, Plaintiffs seek a reasonable royalty for Defendants’ alleged infringement of
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`the asserted patents. (D.I. 547, ex. A at ¶ 13) “The reasonable royalty theory of damages . . .
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`seeks to compensate the patentee not for lost sales caused by the infringement, but for its lost
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`opportunity to obtain a reasonable royalty that the infringer would have been willing to pay if it
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`had been barred from infringing.” AstraZeneca AB v. Apotex Corp., 782 F.3d 1324, 1334 (Fed.
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`Cir. 2015). A reasonable royalty “may be based upon . . . the supposed result of hypothetical
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`negotiations between the plaintiff and defendant.” Rite–Hite Corp. v. Kelley Co., Inc., 56 F.3d
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`1538, 1554 (Fed. Cir. 1995). A factfinder uses the hypothetical negotiation to “attempt to
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`ascertain the royalty upon which the parties would have agreed had they successfully negotiated
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`an agreement just before infringement began.” Aqua Shield v. Inter Pool Cover Team, 774 F.3d
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`766, 770 (Fed. Cir. 2014) (internal quotation marks, citation and brackets omitted).
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`2
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`Case 1:19-cv-01334-CJB Document 627 Filed 11/07/23 Page 3 of 12 PageID #: 16541
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`With their Motion, Defendants raise two issues with Mr. Green’s opinions: (1) that in
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`relying upon three real-world licensing agreements, Mr. Green did not account for technical and
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`economic differences between those agreements and the hypothetical negotiation; and (2) Mr.
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`Green failed to properly apportion the value of the patents that he assumed were comparable to
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`the asserted patents with respect to these licensing agreements. (D.I. 528 at 45-50; D.I. 555 at
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`23-25) The Court will address these arguments in turn.
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`A.
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`Comparability of Real-world Licenses
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`“In determining the reasonable royalty, an expert witness may rely on existing royalty
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`agreements entered into at arms-length[,] as long as those agreements are sufficiently
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`comparable to the hypothetical license at issue in suit.” Zimmer Surgical, Inc. v. Stryker Corp.,
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`365 F. Supp. 3d 466, 494 (D. Del. 2019) (internal quotation marks and citations omitted).
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`“[C]omparisons of past patent licenses to the infringement must account for the technological
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`and economic differences between them.” Wordtech Sys., Inc. v. Integrated Networks Sols., Inc.,
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`609 F.3d 1308, 1320 (Fed. Cir. 2010) (internal quotation marks omitted). Asserting “a loose or
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`vague comparability between different technologies or licenses” is not sufficient when relying on
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`licenses to support a reasonable royalty. LaserDynamics, Inc. v. Quanta Comput., Inc., 694 F.3d
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`51, 79 (Fed. Cir. 2012). It is Plaintiffs’ burden to show comparability of the licenses on which it
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`relies. ViaTech Techs., Inc. v. Adobe, Inc., Civil Action No. 20-358-RGA, 2023 WL 5975219, at
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`*9 (D. Del. Sept. 14, 2023) (citing Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1329
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`(Fed. Cir. 2009)).
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`Defendants first argue that Mr. Green’s opinions relying on three licenses (the “Nalco,”
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`“ADA-ES” and “Chem-Mod” licenses) are unreliable and must be excluded because they “lack
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`the requisite technological and economic bases” for a comparison to the hypothetical negotiation.
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`3
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`Case 1:19-cv-01334-CJB Document 627 Filed 11/07/23 Page 4 of 12 PageID #: 16542
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`(D.I. 528 at 46-48) With respect to technological comparability, Defendants contend that Mr.
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`Green asserts only that the technologies underlying these licenses are “similar” and thus
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`“comparable” because they are from the same general field, (id. at 46 (citing D.I. 547, ex. A at ¶¶
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`190, 199; D.I. 533, ex. 26 at 157-61)), and Plaintiffs’ technical expert “has not offered a
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`sufficiently reliable predicate to compare [Plaintiffs’] patents to anyone else’s[,]” (id. (citing D.I.
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`533, ex. 11 at 149, at ¶ 157)).
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`The Court will not exclude Mr. Green’s testimony on this ground. Mr. Green relies on
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`the opinions of Plaintiffs’ technical expert, Mr. Philip O’Keefe, regarding the technological
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`comparability between the patent licenses at issue and Plaintiffs’ patents. (D.I. 547, ex. A at ¶¶
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`5, 132, 137-39, 176) Mr. O’Keefe, in turn, explains that:
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`• The Nalco patent (the “'692 patent”) has been licensed by
`Chem-Mod LLC (“Chem-Mod”) and Arthur J. Gallagher &
`Co. (“Arthur J. Gallagher”), and the patent’s claims require
`injecting halogen material into the flue gas, such that these
`licensees did not believe that they needed to license the
`patent because they do not inject material into the flue gas,
`(D.I. 546, ex. A at 146-47, at ¶¶ 151-52);
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`• The Chem-Mod patents (the “'083 patent” and the “'170
`patent”) are licensed by various Defendants; the '083 patent
`describes the use of several additives, including calcium
`bromide, to coal for the reduction of mercury emissions (as
`well as certain steps that Defendants did not perform or
`performed only biannually). MerSorb and S-Sorb contain
`some of these additives.2 (Id. at 147-48, at ¶¶ 153-54) The
`'070 patent is not very relevant to Defendants’ refined coal
`process because it describes, inter alia, combusting coal in
`the presence of nitrate salt, which is not a component
`included in MerSorb or S-Sorb. (Id. at 148, at ¶ 155); and
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`• The ADA-ES patent (the “'986 patent”) describes the use of
`nitrogenous material to control NOx and halogen material
`to control mercury emissions from combustion chambers at
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`2
`MerSorb and S-Sorb are the additives that Defendants apply to the coal to make
`refined coal. (D.I. 546, ex. A at 43, at ¶ 82; id. at 148, at ¶ 155)
`4
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`Case 1:19-cv-01334-CJB Document 627 Filed 11/07/23 Page 5 of 12 PageID #: 16543
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`•
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`coal-fired power plants, and this process is used to create
`and sell refined coal, (id. at ¶ 156).
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`In sum, all of these patents “describe technology related to
`mercury capture for use with coal-fired combustion
`chambers” and are therefore “technically comparable” to
`Plaintiffs’ patents “at least in the sense that they are drawn
`toward the same field of technology.” (Id. at 149, at ¶ 157)
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`In the Court’s view, Mr. O’Keefe has sufficiently explained the ways in which the
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`licensed technology is—and is not—comparable to the asserted patents. While Defendants
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`focused on the last paragraph of the relevant section of Mr. O’Keefe’s report (paragraph 157), as
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`demonstrated above, Mr. O’Keefe engaged in a more fulsome analysis than that. That is, he
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`otherwise explained what the relevant patents cover (e.g., mercury control through the use of
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`certain additives, some of which are also covered by the asserted patents) and noted certain other
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`differences and similarities to the asserted patents.3 (See D.I. 545 at 45); see also, e.g., SB IP
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`Holdings, LLC v. Vivint, Inc., Civil Action No. 4:20-CV-00886, 2023 WL 6601415, at *4 (E.D.
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`Tex. Oct. 10, 2023) (finding that an expert’s reliance on a license should not be excluded for
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`failure to show technological comparability, where the expert’s opinion “was based on specific
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`descriptions of the patents as well as elements and features shared by the patents”) (internal
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`quotation marks and citation omitted); Bio-Rad Lab’ys, Inc. v. 10X Genomics, Inc., C.A. No. 15-
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`152-RGA, 2018 WL 4691047, at *7 (D. Del. Sept. 28, 2018) (rejecting defendant’s argument
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`that an expert alleged only a loose or vague comparability between certain licenses and the
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`asserted patents, where he provided “reasonable and specific explanations” for selecting the
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`agreements he did). Mr. O’Keefe’s opinions establish at least a showing of “baseline
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`3
`Indeed, the Court notes that Defendants’ own expert, Dr. Niksa, opines that the
`'692 patent is technologically comparable to the asserted patents, and in doing so, he focuses on
`the additives used and the patent’s goal of reducing mercury (just as Mr. O’Keefe did). (D.I.
`618, ex. B at ¶ 71)
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`5
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`Case 1:19-cv-01334-CJB Document 627 Filed 11/07/23 Page 6 of 12 PageID #: 16544
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`comparability[;]” the “degree of comparability” can be further explored through cross-
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`examination. Bio-Rad Lab’ys, Inc. v. 10X Genomics Inc., 967 F.3d 1353, 1374 (Fed. Cir. 2020)
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`(internal quotation marks and citation omitted).
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`As for economic comparability, Defendants argue that Mr. Green’s analysis is deficient
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`because:
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`• The Chem-Mod licenses were entered into as part of a
`closed common structure of companies designed to earn
`Section 45 tax credits and included “engineering, technical,
`financial, and business support[,]” yet Mr. Green offers no
`explanation for concluding that such circumstances should
`or could apply to the arms-length, patent-focused
`hypothetical negotiation, (D.I. 528 at 47 (citing D.I. 433,
`ex. 26 at 64-65, 96-97));
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`• The Nalco license constitutes a litigation settlement
`agreement and Mr. Green does not explain how such
`circumstances would be similar to those of the hypothetical
`negotiation, (id.); and
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`• The ADA-ES license was an exclusive license between a
`licensor and a company formed by the licensor to
`commercialize his inventions, and Mr. Green “offers no
`opinion that would let a jury bridge the gap between that
`type of arrangement and the hypothetical negotiation”
`between the parties here, (id. at 48).
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`Taking up the ADA-ES license first, as Plaintiffs note, (D.I. 545 at 46), Mr. Green
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`acknowledges the fact that the ADA-ES license “differs from the licenses resulting from the
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`hypothetical negotiation in that it is an exclusive license to a related party[,]” while the licenses
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`between the parties here “would be non-exclusive and not with parties related to” Plaintiffs,
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`(D.I. 547, ex. A at ¶ 178). Mr. Green could have done a better job of more expressly providing a
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`clearer explanation as to “what extent this lack of a competitive relationship impacted the royalty
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`calculation[.]” Moskowitz Fam. LLC v. Globus Med., Inc., CIVIL ACTION No. 20-3271, 2023
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`WL 5487662, at *9 (E.D. Pa. Aug. 24, 2023); Zimmer Surgical, Inc., 365 F. Supp. 3d at 496
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`6
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`Case 1:19-cv-01334-CJB Document 627 Filed 11/07/23 Page 7 of 12 PageID #: 16545
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`(concluding that an expert failed to show that a license was economically comparable to the
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`asserted patents, where the license related to a settlement agreement and the expert “engage[d] in
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`no analysis of the underlying litigation and how it may have affected the royalty rate”) (emphasis
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`added); Intel Corp. v. Future Link Sys., LLC, C.A. No. 14-377-LPS, 2017 WL 2482881, at *2
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`(D. Del. June 1, 2017) (“Mr. Chandler also identified indicia of economic comparability between
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`the comparable license agreements and the hypothetical licenses involved here, as well as any
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`effect of alleged differences between them”) (emphasis added). However, Mr. Green does note
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`that the documentary evidence indicates that the royalties from this license could amount to as
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`much as $1 per ton, (D.I. 547, ex. A at ¶ 177), and yet he opines that the parties here would have
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`“first considered that existing licensing indicates that royalties of between $0.60 and $0.65 per
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`ton of refined coal have actually been paid for the use of similar technologies[,]” (id. at ¶ 199,
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`205 (chart not reflecting the ADA-ES agreement as a quantitative data point)). Thus, it appears
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`that he did account for the differences in the competitive circumstances between the ADA-ES
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`license and the hypothetical negotiation in his ultimate analysis. Cf. Moskowitz Fam. LLC, 2023
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`WL 5487662, at *9 (declining to exclude the expert’s testimony on a lack-of-economic-
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`comparability basis, where although the damages expert facially “did nothing to assess how
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`much lower than 10% the reasonable royalty rate should be to account for the lack of a
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`competitive relationship . . . such mathematical precision is not required[,]” and where the expert
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`did “provide some explanation why and to what extent this lack of a competitive relationship
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`impacted the royalty calculation”); see also Finjan, Inc. v. Secure Computing Corp., 626 F.3d
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`1197, 1212 (Fed. Cir. 2010) (where “Finjan noted multiple differences between the Finjan–
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`Microsoft licensing scenario and a hypothetical negotiation with Defendants[,]” such as the fact
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`7
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`Case 1:19-cv-01334-CJB Document 627 Filed 11/07/23 Page 8 of 12 PageID #: 16546
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`that “Finjan did not compete with Microsoft but does compete against Secure[,]” these
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`“differences permitted the jury to properly discount the Microsoft license”).
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`Turning next to the Nalco license, Mr. Green explains that, as a general matter,
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`“depending on the facts surrounding a given licensing circumstance, the royalty amounts and
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`terms included in settlement agreements may not be comparable to those that would be reached
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`in the arms-length negotiation of the hypothetical negotiation construct.” (D.I. 547, ex. A at ¶
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`79) At the same time, however, settlement agreements and related licenses can provide reliable
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`evidence regarding a reasonable royalty “where the royalty reflects the economic demand for the
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`claimed technology as opposed to being largely driven by the coercive facts inherent in
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`litigation.” (Id. (internal quotation marks and citation omitted)) In the Court’s view, Mr. Green
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`provides enough details about the Nalco litigation to support the idea that the Nalco license was
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`not largely driven by litigation-related coercion and instead reflects the demand for the claimed
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`technology (such that his reliance on this license can be a part of his analysis). These details
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`include the fact that: (1) the license was the product of a settlement of two lawsuits regarding the
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`'692 patent; (2) the defendants did not believe that they needed to license the patent because they
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`did not perform the claimed method; (3) the licenses note that if damages were applied to all uses
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`of the Chem-Mod solution, including at plants that were non-parties to the suits, they could total
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`hundreds of millions of dollars, but Chem-Mod and the defendants denied that any such damages
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`should be awarded; and (4) the amounts reflected in the Nalco license “were the minimum
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`royalties due because validity and infringement had not been determined” for the licensed
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`patents. (Id. at ¶¶ 135-44, 199) Beyond that, any failure by Mr. Green to account for other
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`variables can be explored on cross examination. See e.g., Shopify Inc. v. Express Mobile, Inc.,
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`Civil Action No. 19-439-RGA, 2021 WL 4288113, at *28 (D. Del. Sept. 21, 2021).
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`8
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`Finally, with respect to the Chem-Mod licenses, Plaintiffs retort that Mr. Green “noted
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`that Chem-Mod entered into agreements for similar amounts with its corporate relatives (AJG
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`entities) and with unrelated entities (CERT and DTE entities).” (D.I. 545 at 46 (citing D.I. 547,
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`ex. A at ¶¶ 131-34, 168-73)) While it is not clear to the Court where in these paragraphs Mr.
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`Green notes that certain of these agreements were with corporate relatives and others were not, it
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`does appear that the royalty rates at issue were similar enough. Thus, Defendants’ criticisms
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`here too go to the weight of Mr. Green’s analysis rather than to the admissibility.
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`B.
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`Apportionment
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`Defendants make two arguments relevant to apportionment that the Court will address in
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`turn.
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`First, Defendants argue that for the purportedly comparable licenses that he relied upon,
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`Mr. Green was required to—but failed to—isolate the portion of each license fee attributable to
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`the assertedly comparable patents. (D.I. 528 at 48) According to Defendants, Mr. Green did not
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`offer any apportionment theory with respect to the Nalco and ADA-ES licenses, and he opined
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`that no apportionment is necessary regarding the Chem-Mod licenses on the incorrect
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`assumption that the entire payment was for “comparable” mercury emission reduction
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`technology. (Id. at 49) According to Defendants, this analysis thus ignored additional benefits
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`provided by the Chem-Mod licenses, including technology for NOx reduction (which the patents
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`do not cover) and consulting and business services relating to Section 45 tax credits. (Id.)
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`Plaintiffs respond, (D.I. 545 at 47), by arguing that Mr. Green did take apportionment
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`into account in rendering his opinion, in that he concluded that:
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`“[T]here has been a substantial amount of licensing of technically
`comparable technologies. These licenses have provided for royalty
`rates of between $.35 and $.65 per ton of coal processed using
`technologies comparable to those claimed by the Asserted Patents.
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`9
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`Case 1:19-cv-01334-CJB Document 627 Filed 11/07/23 Page 10 of 12 PageID #: 16548
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`I understand that the [United States Court of Appeals for the]
`Federal Circuit has concluded that in circumstances in which
`comparable licenses exist[,] royalties that consider these
`agreements are essentially “self-apportioning” as they indicate the
`willingness of licensees to pay for the use of the technology and
`already consider the portion of profits that a licensee would be
`willing to pay for the rights to patented technology.
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`(D.I. 547, ex. A at ¶ 185) In deposition testimony, Mr. Green further explained that: (1) the
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`licenses between Chem-Mod and DTE did not vary according to how many patents were at issue
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`in the licenses because the licensees were paying for access to the technology, (D.I. 533, ex. 26
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`at 86, 91); (2) while the Chem-Mod patents enabled treating coal to reduce mercury and sulfur,
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`the same royalty rates applied to the licenses even if sulfur reduction was not needed, (id. at 87,
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`89-90); (3) a licensee that did not need to reduce NOx would not get a reduced royalty rate, (id.
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`at 90-91); and (4) royalties were due regardless of whether any other services were provided, (id.
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`at 95-96).
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`The Federal Circuit has explained that “[w]hen a sufficiently comparable license is used
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`as the basis for determining the appropriate royalty, further apportionment may not necessarily
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`be required.” Vectura Ltd. v. GlaxoSmithKline LLC, 981 F.3d 1030, 1040 (Fed. Cir. 2020).
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`“That is because a damages theory that is dependent on a comparable license (or a comparable
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`negotiation) may in some cases have ‘built-in apportionment.’” Id. (citation omitted). “Built-in
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`apportionment effectively assumes that the negotiators of a comparable license settled on a
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`royalty rate and royalty base combination embodying the value of the asserted patent.” Id. at
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`1041.
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`The Court finds that Mr. Green’s explanation is sufficient here, as he has explained why,
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`in his view, the licenses that he relies upon had built-in apportionment. The Court isn’t saying
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`that Mr. Green is correct; he may or may not be, and Defendants can surely explore their
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`10
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`Case 1:19-cv-01334-CJB Document 627 Filed 11/07/23 Page 11 of 12 PageID #: 16549
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`disagreements with Mr. Green on that front during cross-examination. See RSB Spine, LLC v.
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`DePuy Synthes Sales, Inc., Civil Action No. 19-1515-RGA, 2022 WL 17084156, at *2 (D. Del.
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`Nov. 18, 2022).
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`Finally, Defendants contend that Mr. Green’s royalty rate opinion must be excluded
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`because he fails to apportion out the value of the Section 45 tax credits that were earned by the
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`licensees of Chem-Mod’s, Nalco’s and ADA-ES’s technology (but instead opines that the
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`Section 45 tax credits served as the economic basis for the alleged infringement). (D.I. 528 at 49
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`(citing D.I. 547, ex. A at ¶¶ 127-28, 149, 151; id., ex. B at ¶¶ 16, 251, 256)) Defendants argue
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`that this failure is “fundamentally flawed” because: (1) the asserted patents do not claim
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`qualifying for Section 45 tax credits or reducing NOx, which is a requirement to earn such tax
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`credits, such that the value of the credits cannot be attributed to the alleged infringement; and (2)
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`even if practicing the patents is necessary to earn the credits, the value of the infringing product
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`would be attributable to tax code compliance rather than to the value of the technical
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`contribution of the asserted patents to the field of mercury reduction. (Id. at 49-50)
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`In response, Plaintiffs argue that Mr. Green’s royalty rate opinion is a “flat per-unit
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`amount” that is “assessed on a per-ton basis, and determined from a variety of inputs.” (D.I. 545
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`at 48 (citing D.I. 547, ex. A at ¶¶ 189-205)) As for apportionment of tax credits, Plaintiffs assert
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`that Mr. Green’s royalty rate opinion “does not include any tax credit component to apportion
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`out, and Defendants identify no evidence to show the inclusion of the value of the tax credits.”
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`(Id. at 48-49 (emphasis in original); see also Plaintiffs’ Dispositive Motions Hearing Slides at
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`Slide 85 (“Mr. Green Does Not Capture Any Tax Credit Value”)) Plaintiffs contend that Mr.
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`Green’s damages opinion “identifies the economics of Defendants’ infringement and separates
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`11
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`Case 1:19-cv-01334-CJB Document 627 Filed 11/07/23 Page 12 of 12 PageID #: 16550
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`the apportioned value for the use of the patented technology[.]” (D.I. 545 at 49 (citing D.I. 533,
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`ex. 26 at 214-16))
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`On this record, where the parties’ arguments were not very clear, at least to the Court, the
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`Court can only take Plaintiffs at their word that Mr. Green’s royalty rate range is not going
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`“include a[] tax credit component” (and therefore does not “[f]ail to [a]pportion tax credits).”
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`(Id. at 48-49) In light of this representation, Defendants’ argument that Mr. Green’s royalty rate
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`opinions must be excluded for failure to apportion out Section 45 tax credits is not well-taken.
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`IV. CONCLUSION
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`For the reasons set out above, the Court hereby ORDERS that Defendants’ Motion is
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`denied.
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`Because this Memorandum Order may contain confidential information, it has been
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`released under seal, pending review by the parties to allow them to submit a single, jointly
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`proposed, redacted version (if necessary) of the Memorandum Order. Any such redacted version
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`shall be submitted no later than November 9, 2023 for review by the Court. It should be
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`accompanied by a motion for redaction that shows that the presumption of public access to
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`judicial records has been rebutted with respect to the proposed redacted material, by including a
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`factually-detailed explanation as to how that material is the “kind of information that courts will
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`protect and that disclosure will work a clearly defined and serious injury to the party seeking
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`closure.” In re Avandia Mktg., Sales Pracs. & Prods. Liab. Litig., 924 F.3d 662, 672 (3d Cir.
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`2019) (internal quotation marks and citation omitted). The Court will subsequently issue a
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`publicly-available version of its Memorandum Order.
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`Dated: November 7, 2023
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`____________________________________
`Christopher J. Burke
`UNITED STATES MAGISTRATE JUDGE
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`12
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