Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_14-cv-01197/USCOURTS-cand-3_14-cv-01197-15/pdf.json

Nature of Suit Code: 830
Nature of Suit: Patent
Cause of Action: 35:145 Patent Infringement

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United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

FINJAN, INC.,

Plaintiff,

v.

SOPHOS, INC.,

Defendant.

Case No. 14-cv-01197-WHO 

ORDER GRANTING IN PART 

SOPHOS'S RENEWED MOTION TO 

EXCLUDE TESTIMONY OF DR. 

LAYNE-FARRAR

Re: Dkt. No. 324

INTRODUCTION

On August 15, 2016 I partially granted Sophos's Daubert motion to exclude certain 

testimony of Dr. Layne-Farrar. Dkt. No. 250. In that order I explained that Layne-Farrar's method 

of applying a royalty rate to an apportioned base for each patent and adding the resulting royalties 

was not reliable because under her apportionment method she had attributed the full value of 

certain features of Sophos’s products to multiple patents and so had counted the value of these 

features multiple times. Id. at 7. This functioned to inflate Layne-Farrar’s royalty base and her

final damages calculation. Id. Layne-Farrar submitted an amended report on August 24, 2016 and 

Sophos has renewed its motion to exclude Layne-Farrar's testimony based on her amended report. 

Dkt. No. 324. I heard argument on this motion on September 8, 2016 and, after further study, I 

have concluded that the amended methodology is not reliable and will exclude it.

DISCUSSION

My role with respect to expert testimony is as a gatekeeper. The objective of Daubert’s 

gatekeeping requirement “is to ensure the reliability and relevancy of expert testimony. Kumho 

Tire Co. v. Carmichael, 526 U.S. 137, 152 (1999). A judge does not have the discretion to 

“abandon the gatekeeping function” or “to perform the function inadequately.” Id. at 159 (Scalia, 

J. concurring). The burden is on the proponent of the expert testimony to show, by a 

Case 3:14-cv-01197-WHO Document 348 Filed 09/08/16 Page 1 of 5
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preponderance of the evidence, that the admissibility requirements are satisfied. Lust By & 

Through Lust v. Merrell Dow Pharm., Inc., 89 F.3d 594, 598 (9th Cir. 1996).

Layne-Farrar’s amended methodology, the volume discount royalty rate method, suffers 

from the same problem discussed in my prior order and obfuscates, intentionally or not, her 

opinion regarding the royalty she applies for the allegedly infringed patents. While crossexamination could unravel some of the problems with her opinion, ultimately it would be 

prejudicial to allow the jury to consider it because of its unreliability. 

While the volume discount royalty rate reduces the overall damage calculation, it does not 

resolve the issue I previously identified as it continues to attribute the full value of certain features 

to multiple patents. I will illustrate this problem with an example.

Layne-Farrar opines that a total of 5/7 modules of Sophos’s UTM product are infringed by 

Finjan's patents. Assuming each module has equal value, Finjan’s patents, at maximum, account 

for 5/7 the value of the UTM’s total revenues. The total revenues are 21.5M so the total possible 

apportioned revenue base for Finjan’s five patents, using this infringing module method, is 

15.3M.

1

 Layne-Farrar also opines that a 16 percent royalty rate is appropriate given Finjan's past 

licenses. Applying this royalty rate to the apportioned royalty base I get (15.3M)(.16) = 2.44M. 

Based on Layne-Farrar’s own methodology, this should be the highest possible royalty for 

Finjan’s five patents on the UTM because this reflects the maximum apportionment base for all 

five patents and is the highest royalty rate she uses. 

But Layne-Farrar calculates a 5.6M royalty. She does this by calculating an individual 

royalty for each patent and then adding the royalties for all of the patents together. Layne-Farrar 

calculates an apportionment base for each patent based on how many modules that patent covers. 

She then applies the 16 percent royalty rate to the patent with the lowest apportionment base to 

calculate the royalty for the first patent. Next she applies a reduced royalty rate of 14.5 percent to 

the apportionment base for the patent with the next lowest royalty base to calculate her royalty 

base for the second patent. She continues in this way using a declining royalty and applying it to 

 

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(21.5M)(5/7) =15.3M

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United States District Court

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each patent to calculate individual royalty rates and then adds the royalties together to get her final 

royalty of 5.6M 

While Layne-Farrar's new opinion and calculation is more complex than before, the issue 

with it is the same. She continues to attribute the full value of certain modules of the Sophos 

product to multiple patents by including their full value in each patent’s individual apportionment 

base. As discussed before, this is improper; if each patent is valid, then each cannot contribute the 

full value of a single module. Id.

There is nothing wrong with attempting to calculate an individual royalty for each patent. 

The problem here is that Layne-Farrar has not sufficiently apportioned the value of the various 

modules to each patent to calculate a per patent royalty without double-counting the modules’ 

value. Layne-Farrar could have attempted to further apportion the modules to each patent. For 

example, she could have determined that each of the five patents, which all cover module 1, 

contribute 1/5 the value of module 1. She did not propose this level of apportionment for probably 

good reasons,, given the complex and interrelated nature of the technologies. But her decision not 

to apportion the modules to each patent does not make it reasonable to attribute the full value of 

module 1 to all five patents. While it may be hard to determine how exactly to break down the 

value of module 1 among the five patents, it is clear that the module’s full value never increases. 

But Layne-Farrar incorporates the full value of module 1 five separate times when she calculates 

the individual apportionment base for each patent. This is the exact same problem I identified in 

my prior opinion and Layne-Farrar has not resolved it here.

Layne-Farrar’s use of the declining royalty rate does not save her opinion. While this 

reduces her overall royalty calculation, her total royalty still exceeds the highest royalty possible 

assuming a maximum 15.3M base and 16 percent royalty rate. While Layne-Farrar’s precise 

calculation is difficult to track, because her ultimate royalty is significantly higher than the 

maximum possible royalty for her figures, it is clear that she must be double counting the revenues 

for certain modules. The problem with Layne-Farrar’s prior methodology was not her ultimate 

royalty calculation, but the method she used to calculate it.

Layne-Farrar’s ultimate royalty calculation of 5.6M for the UTM user method is likely to 

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confuse the jury because it does not align with the apportionment base and royalty rate she selects. 

While Finjan insists that Layne-Farrar never exceeds the maximum apportionment base of 15.3M 

and her royalty rate never exceeds 16 percent, her ultimate calculation reflects a base or royalty 

rate well above the numbers she puts forward. For example, holding constant the maximum 

15.3M apportionment base, Layne-Farrar’s 5.6M royalty reflects a functional royalty rate of 36 

percent.

2

 Alternatively, holding constant a 16 percent royalty rate, her 5.6M figure reflects a 

functional royalty base of 35M.

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(Her billings based method results in a whopping royalty rate of 

53.7%).

Layne-Farrar could have offered an opinion that a 36 percent royalty rate is appropriate or 

that the royalty base should exceed 15.3M. If she had the foundation to offer these opinions she 

would have been welcome to do so. But she did not offer those opinions. Under the method she 

has selected, where a maximum apportionment base for the UTM user method is 15.3M and her 

maximum royalty rate is 16 percent, her conclusion that a reasonable royalty is 5.6M is not 

reliable. It conceals that she is functionally applying a much higher royalty rate or using a much 

higher royalty base to reach her ultimate royalty figure. This opinion is therefore likely to confuse 

the jury and is not reliable.

Because Layne-Farrar’s volume discount royalty rate again attributes the value of Sophos’s 

product features to multiple patents it is not a reliable method. I GRANT Sophos’s motion with 

regard to Layne-Farrar’s volume discount royalty rate opinions.

As discussed at oral argument, Sophos’s objection to Layne-Farrar’s proxy opinion 

regarding SophosLabs should have been raised in its prior Daubert motion and has now been 

waived for purposes of the Daubert challenge. I DENY Sophos’s motion with regard to Layne-

 

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.36(15.3M)=5.6M 3

(35.M)(.36)=(5.6M)

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Farrar’s SophosLabs proxy opinion.

IT IS SO ORDERED.

Dated: September 8, 2016

______________________________________

WILLIAM H. ORRICK

United States District Judge

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