Federal Circuit Affirms Exclusion of Portions of Damages Expert's Report

The decision is Niazi Licensing Corp. v. St. Jude Medical S.C., Inc., which as I mentioned earlier this week issued on Monday.  This is a precedential opinion by Judge Stoll, joined by Judges Taranto and Bryson.  Principal issues on appeal include claim definiteness, induced infringement, sanctions for failure to disclose predicate facts relevant to expert opinions, and the exclusion of portions of a damages expert's report.  Only the last of these is directly relevant to the subject matter of this blog, so I will focus on that.

Specifically, the district court excluded portions of an expert report asserting that the appropriate royalty base for a method claim relating to use of a double catheter to treat congestive heart disease.  As the Federal Circuit explains:

[Plaintiff's expert] Mr. Carlson concluded that a royalty rate of 14.6% “is the minimum reasonable royalty” rate for infringement of claim 11, directed to a procedure for implanting an electrical lead into a lateral branch of a coronary sinus vein using a double catheter. . . . As for the royalty base, he opined that the royalty base for infringement of claim 11 includes an outer catheter, an inner catheter, a guide wire, and a lead, because: (1) the method claims recite these elements; and (2) this court “has recognized that in some instances, a royalty based upon actual use of a method – as opposed to a royalty applied to the sale of a device that practices the method – is impractical in view of real-world considerations.” J.A. 727 (citing Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1334 (Fed. Cir. 2009)).

Mr. Carlson did not explain why a royalty based on the alleged use of the method would be impractical in this case. Instead, Mr. Carlson stated merely that because claim 11 requires an outer catheter, an inner catheter, a guide wire, and a lead, these components comprise the smallest saleable component used by an electrophysiologist to practice the claimed method. Accordingly, Mr. Carlson concluded that the royalty base should include all sales of these components. The district court excluded Mr. Carlson’s expert opinion as legally insufficient because Mr. Carlson failed to “apportion” between infringing and noninfringing uses and because he could not properly include leads in the royalty base. Daubert Op., 2020 WL 5512507, at *10–11. We affirm the district court’s exclusion. . . .

Mr. Carlson did not even attempt to explain why a royalty based on use of the method would be impractical in this case. He did not attempt to value any efficiencies or patient health advantages gained by practicing the patented method compared to non-patented methods or explain why this could not be done. Nor did he identify any other evidence relating to the value of the claimed method relative to other methods or explain why such a valuation would not be possible.

In addition, Mr. Carlson included in his damages calculations sales of all of St. Jude’s outer catheters, inner catheters, guide wires, and leads, even though it was undisputed that not all of those sold devices had been used to practice the claimed method. Appellant’s Br. 56 (noting that claim 11 is the “predominant” method). Whether one refers to this as failure to “apportion” as the parties and district court did or as failing to limit damages to a reasonable approximation of actual infringing uses of the claimed method, Mr. Carlson’s failure to account for noninfringing uses of the sold devices was legally improper. In this regard, we disagree with Niazi’s carefully worded assertion on appeal that apportionment does not apply to method claims. Damages should be apportioned to separate out noninfringing uses, and patentees cannot recover damages based on sales of products with the mere capability to practice the claimed method. Rather, where the only asserted claim is a method claim, the damages base should be limited to products that were actually used to perform the claimed method. Cardiac Pacemakers, Inc. v. St. Jude Med., Inc., 576 F.3d 1348, 1358–59 (Fed. Cir. 2009).

It is true that “we have never laid down any rigid requirement that damages in all circumstances be limited to specific instances of infringement proven with direct evidence.” Lucent, 580 F.3d at 1334. But Mr. Carlson did not address or rely on any evidence—such as testimony of electrophysiologists, other anecdotal testimony, or survey evidence—that estimated the amount or percentage of sold devices that were actually used to infringe the claimed method. Niazi asserts in its appeal brief that the claimed method was the “predominant method” and that, therefore, because damages do not have to be more than a reasonable approximation, it was reasonable to include all sales. First, the appendix page that Niazi cites for this “predominant method” assertion, J.A. 716, says nothing about frequency of use and does not support its assertion. Second, even assuming that the record supported the notion that the claimed method was the “predominant” method, predominant is a broad word that merely means “most frequent” or “common.” Such a broad, unsupported, and conclusory assertion does not reliably establish how often the patented method was used by doctors to allow a reasonable approximation of the damages base.

We are also not persuaded by Niazi’s argument that Mr. Carlson properly included leads in his calculation of the royalty base because he accounted for apportionment in the royalty rate. Appellant’s Br. 54–55 (citing Exmark, 879 F.3d at 1348). We do not see any apportionment analysis—either in calculating the base or calculating the rate—in the portions of Mr. Carlson’s report provided to this court. There is simply no explanation of how (or even whether) he apportioned to account for unpatented uses when selecting the minimum royalty rate of 14.6%. And the explanation provided in Niazi’s brief—that Mr. Carlson selected a range of rates from 6.0% to 16.63% . . . is contradicted by the report itself. Mr. Carlson did not provide a range of reasonable royalty rates; rather, he concluded that a royalty rate of 14.6% “is the minimum reasonable royalty [rate] under [his] quantitative analysis.” J.A. 728 (emphasis added); see also J.A. 726 (opining that a “reasonable royalty rate is 14.60%, and that [Niazi] and St. Jude would have reasonably entered into a license at that rate”); J.A. 729 (indicating 14.6% is the reasonable royalty rate) (pp. 28-31).

To summarize, I'd say that the principal substantive principles coming out of this case are that (1) apportionment applies to method claims; and (2) patentees cannot recover damages for the infringement of method claims based on sales of devices that are only capable of infringing uses, without some basis for inferring how often the devices are used for these purposes.