1 

IN THE UNITED STATES DISTRICT COURT 

FOR THE NORTHERN DISTRICT OF ILLINOIS 

EASTERN DIVISION 

COSTAR REALTY INFORMATION, INC., 

 Plaintiff, 

 v. 

CIVIX-DDI, LLC, 

 Defendant. 

Case No. 1:12-cv-04968 (Lead Case) 

Judge James F. Holderman 

CIVIX-DDI, LLC, 

 Plaintiff, 

 v. 

LOOPNET, INC., 

 Defendant. 

Consolidated for pretrial purposes with: 

Case No. 1:12-cv-07091 

Case No. 1:12-cv-08632 

JURY TRIAL DEMANDED

COSTAR’S AND LOOPNET’S REPLY MEMORANDUM IN SUPPORT OF THEIR 

DAUBERT MOTION TO EXCLUDE THE TESTIMONY OF FRANCES McCLOSKEY 

CIVIX’s brief is largely an exercise in misdirection. Many of the specific facts and 

arguments set forth in CoStar’s and LoopNet’s Opening Brief as the basis for exclusion of Ms. 

McCloskey’s opinions stand uncontested. Instead, CIVIX devotes much of its energy to 

criticizing CoStar’s and LoopNet’s damages expert, which is entirely irrelevant to the question of 

whether Ms. McCloskey’s methodology passes muster under Daubert. CIVIX also tries to focus 

attention on other irrelevant facts. But CIVIX does not dispute what is most important: 

• all of the data that Ms. McCloskey used to calculate damages came from 2011–nine 

years after the agreed 2002 date of the hypothetical license negotiation; 

REDACTED
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• the accused searches are not the basis for customer demand for the accused CoStar 

products, and Ms. McCloskey did not apportion damages between accused and nonaccused aspects of the products; and 

• $-per-subscriber is just one of the five metrics that were the basis for Trulia’s royalty 

payment, and Ms. McCloskey simply ignores the other four metrics in order to arrive 

at her inflated LoopNet royalty. 

CoStar and LoopNet have established that Ms. McCloskey’s opinions are unreliable under 

Daubert and must therefore be excluded. 

I. MR. MALACKOWSKI’S OPINIONS ARE NOT AT ISSUE. 

CIVIX devotes approximately a third of its brief to criticizing the opinions of CoStar’s 

and LoopNet’s damages expert, James Malackowski. But CIVIX has not moved to exclude Mr. 

Malackowski’s testimony, nor is the soundness of his methodology relevant to the resolution of 

CoStar’s and LoopNet’s motion. CIVIX tries to justify its focus on Mr. Malackowski by 

suggesting that CoStar and LoopNet find fault with Ms. McCloskey’s opinions by “juxtaposing” 

her opinions against those of Mr. Malackowski. (CIVIX Br., at 2.) In reality, CoStar and 

LoopNet cited to Mr. Malackowski’s report for only two things: (1) background facts, such as 

the parties’ agreement that the proper metric of damages is a lump-sum reasonable royalty 

negotiated in mid-2002 for all patents and all products at the same time; and (2) changes in the 

Internet-based search market and CoStar’s and LoopNet’s financial condition from 2002 to 2011, 

which facts Ms. McCloskey testified that she did not disagree with. (Opening Br., at 1-2, 7-8.) 

CIVIX would like to turn CoStar’s and LoopNet’s motion into a “battle of the experts” 

best resolved by mutual cross examination. But this tactic merely represents an attempt at 

distraction from the real issue, namely, the inadmissibility of Ms. McCloskey’s unreliable 

methods under the law. 
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II. COSTAR’S SEC FILING IS IRRELEVANT. 

CIVIX’s brief opens with yet another red herring in the form of a quote from CoStar’s 

most recent SEC filing. (CIVIX Br., at 1, 15.) Of course, Generally Accepted Accounting 

Principles and the SEC rules that govern CoStar’s accounting for possible loss contingencies are 

entirely distinct from the legal standard set forth in Daubert. Moreover, CIVIX conveniently 

omits the statement in the SEC filing that directly addresses CoStar’s viewpoint on the validity 

of Ms. McCloskey’s opinions and methodology: “We believe that Civix’s calculation of 

damages is based on improper assumptions and miscalculations, and is otherwise unsupported.” 

(Exh. W,1

 CoStar’s December 31, 2013 Form 10-K at 47.) 

III. MS. MCCLOSKEY USED THE WRONG HYPOTHETICAL NEGOTIATION 

DATE IN DETERMINING COSTAR’S AND LOOPNET’S DAMAGES. 

CIVIX’s arguments that Ms. McCloskey used mid-2002 as the hypothetical negotiation 

date are without merit. First of all, CIVIX relies on the fact that Ms. McCloskey says that she 

used a mid-2002 negotiation date. (CIVIX Br., at 3.) CIVIX also points out that Ms. McCloskey 

says that she had in mind the importance of CoStar’s new Internet platform in mid-2002. (Id. at 

8-9.) Whatever Ms. McCloskey says, what she actually did was use data points from 2011 for 

every single input to her damages calculation.2

 (See Opening Br., at 2-4, 6; CIVIX Br., at 3-9.) 

CIVIX does not contest this fact, nor does CIVIX show that information from 2002 actually 

affected her damages opinion in any way. 

 

1

 Exhs. A-V were submitted with CoStar’s and LoopNet’s Opening Brief. Exhs. W-Y are 

submitted with this Reply Brief. 

2

 In its brief, CIVIX appears to suggest that that Ms. McCloskey used a different method to 

calculate CoStar’s damages than that outlined in CoStar’s and LoopNet’s Opening Brief. (See

CIVIX Br., at 9-11.) The falsity of this suggestion is addressed in Section IV. below. Even if 

Ms. McCloskey did use the residential-real-estate-market-as-a-benchmark method as her primary 

calculation, though, all of those data points are likewise from 2009 and 2011. (See Opening Br., 

Exh. A, McCloskey Report, at 64, 67.) 
 4 

CIVIX’s primary argument is a straw man, namely, that the law permits consideration of 

post-hypothetical negotiation events, sometimes referred to as the “Book of Wisdom.” (See

CIVIX Br., at 7-8.) This idea is correct as a general principle, as CoStar and LoopNet 

acknowledged in their opening brief. (See Opening Br., at 5.) But CIVIX ignores the more 

fundamental rule that an evaluation of damages must focus principally on the facts and 

circumstances that exist as of the hypothetical negotiation date because damages must value the 

technology to the parties when infringement began, rather than being an “after-the-fact 

assessment.” LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51, 75-76 (Fed. Cir. 

2012). CIVIX does not cite to a single case in which any court has permitted a damages expert 

to offer an opinion based exclusively on data that is significantly later than the hypothetical 

negotiation, much less a full nine years later. 

CIVIX appears to argue that 2009 and 2011 data is “better” than 2002 data for various 

reasons. First, CIVIX relies on the fact that two of the patents-in-suit emerged from 

reexamination in 2009. (CIVIX Br., at 3.) Ms. McCloskey’s Report mentioned the 

reexaminations, but that fact played no role whatsoever in her damages analysis. Indeed, she 

selected the 2009 and 2011 licenses as “sufficiently comparable” because they granted rights in 

only the patents-in-suit and were in the real estate industry. (See Opening Br., Exh. A, 

McCloskey Report, at 40-42, 53-54.) She never identified the fact that the ’622 and ’291 patents 

had survived reexamination in 2009 as a rationale for rejecting earlier licenses as comparable. 

Indeed, Ms. McCloskey explained that the fact that the patents had not been found valid or 

infringed by a court affected the comparability of all license agreements, without making any 

distinction between the pre-reexamination and post-reexamination licenses. (Id.) Moreover, 

when asked in her deposition the bases for her position that CIVIX’s pre-2009 license 
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agreements were not comparable, Ms. McCloskey did not identify reexamination as a factor. 

(Opening Br., Exh. L, McCloskey Tr., at 146-148.) Because the patents’ reexamination is not 

actually one of the bases for Ms. McCloskey’s reliance on 2011 data to the exclusion of 2002 

data, it cannot form a basis for admissibility of her opinions. 

Second, CIVIX argues that the later licenses, unlike the pre-2002 licenses, grant rights in 

only the patents and claims asserted in this litigation. (CIVIX Br., at 3-4.) Neither CIVIX nor 

Ms. McCloskey dispute that the pre-2002 licenses did grant rights in the patents-in-suit as 

continuations of the ’525 patent. (See Opening Br., at 9.) Moreover, in her deposition, Ms. 

McCloskey rejected the notion that the pre-2002 licenses were not comparable because they 

granted rights in additional patents. (Opening Br., Exh. L, McCloskey Tr., at 146-148.) Instead, 

she relied on the idea that the ’525 patent had no claims drawn to Internet searches. (Id.) CoStar 

and LoopNet addressed this point in their Opening Brief, to which CIVIX offers no response. 

(Opening Br., at 9; CIVIX Br., at 3-9.) 

Third, CIVIX urges that its residential real estate licenses should play a predominant 

role, particularly the NAR license because it was not a settlement of litigation between the 

parties. (CIVIX Br., at 3, 7-8.) CIVIX simply ignores Mr. Semple’s testimony that CIVIX’s 

licenses are not industry-specific, which makes the real estate industry point irrelevant. (See

Opening Br., at 9.) Even more surprisingly, CIVIX also ignores Ms. McCloskey’s position that 

the NAR license should be considered a compromise to resolve the parties’ dispute and, in this 

respect, treated the same as CIVIX’s licenses that formally settled litigation. (Opening Br., Exh. 

A, McCloskey Report, at 41.) 

 Indeed, with respect to the applicability of 2011 data points, CIVIX does not dispute 

that courts have found later events irrelevant when the technological and financial landscape 
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changes after the hypothetical negotiation date. (See Opening Br., at 7-8.) Neither CIVIX nor 

Ms. McCloskey challenge the facts set forth in Mr. Malackowski’s Report establishing exactly 

those types of changes between 2002 and 2011 in this case.3 (See id.) 

There is no dispute on two critical points: (1) Ms. McCloskey’s damages opinions are 

based entirely on 2011 data; and (2) no case law, Book of Wisdom or otherwise, supports an 

approach of calculating damages using only data from nine years after the hypothetical 

negotiation date. Neither Ms. McCloskey nor CIVIX could identify a single way in which her 

analysis would change if the hypothetical negotiation date was 2011 instead of 2002. Because 

Ms. McCloskey effectively used the wrong hypothetical negotiation date, her opinions must be 

excluded. 

IV. MS. MCCLOSKEY VIOLATED THE ENTIRE MARKET VALUE RULE IN 

DETERMINING COSTAR’S DAMAGES. 

On this issue, CIVIX again asserts that Ms. McCloskey did not violate established patent 

damages principles because she says she didn’t. (CIVIX Br., at 9.) A review of Ms. 

McCloskey’s complete testimony on why she did not view herself as violating the entire market 

value rule, however, quickly reveals the flaws in her reasoning. Ms. McCloskey explained that, 

 

3

 CoStar and LoopNet vigorously contest CIVIX’s criticisms of Mr. Malackowski’s 

damages opinions. Because those criticisms are irrelevant to the present motion, CoStar and 

LoopNet respond only briefly here. As an initial matter, Mr. Malackowski did not ignore post2002 events or fail to use the Book of Wisdom. (See, e.g., Exh. X, Malackowski Report, at 22-

32, 36-41, 65-69; see also Exh. Y, Malackowski Tr., at 27 (“[E]very expert in every assignment 

employs the book of wisdom . . . . The issue of the book of wisdom is how widely you open it . . 

. .”).) He also explained that the patents’ reexamination did not affect his analysis because his 

opinions already included the assumption that the patents were valid and infringed. (See Exh. X, 

Malackowski Report, at 56; Exh. Y, Malackowski Tr., at 24-25.) The testimony that CIVIX 

elicited on whether the patent reexaminations were “known or knowable” in 1999 is irrelevant–

the question is what was “known or knowable” to the parties at the time of the hypothetical 

negotiation, in mid-2002. (Exh. Y, Malackowski Tr., at 27.) 
 7 

in her view, because the CIVIX licensees’ royalty payments necessarily had some relationship to 

their total revenues, their royalties could be applied to CoStar on a percentage-of-revenue basis: 

I did an analysis of the license agreements and determined what other parties did 

in terms of paying for the patented inventions in relation to their total revenue so 

therefore you have an analogous -- in my opinion, you have an analogous 

situation to what CoStar and LoopNet might have agreed to in the negotiation . . . 

. 

(Opening Br., Exh. L, McCloskey Tr., at 44; see also id. at 41-50.) 

Q: Now, you said that it’s -- for CoStar it was fair to look at percent of revenues 

because in some way the royalty that companies are willing to pay is always 

fundamentally based on revenues. Do I have that right? 

A: Yes. 

(Id. at 60; see also id. at 193-194.) As CoStar and LoopNet pointed out in their opening brief, 

such a rationale would do away with the entire market value rule. In every case, a royalty could 

be calculated as a percentage of total revenues because prior licensees’ royalty rates necessarily 

had some relationship to their total revenues. (Opening Br., at 13-14.) CIVIX had no response 

to this point. 

CIVIX tries to sidestep its entire market value rule problem by suggesting that Ms. 

McCloskey did not calculate CoStar’s damages as a percentage of total revenues. (CIVIX Br., at 

9-11.) CIVIX argues that Ms. McCloskey’s opinion is instead derived from the total royalties 

paid by real estate licensees. (Id.) Ms. McCloskey testified, however, that her comparison to the 

aggregate residential real estate licensee royalties was merely a reasonableness check. (Opening 

Br., Exh. L, McCloskey Tr., at 86-87.) She stated very clearly that she actually calculated 

CoStar’s damages by taking a percentage of CoStar’s total revenues, not by looking at how much 

the “Professional Focused” segment of the residential real estate market paid: 

REDACTED
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(Opening Br., Exh. L, McCloskey Tr., at 189-190; see also id. at 24-25, 34-35, 59; Opening Br., 

Exh. A, McCloskey Report, at 72; Opening Br., at 4 n.2.) 

Despite CIVIX’s attempted sleight of hand, there is no question that Ms. McCloskey 

calculated CoStar’s damages as a percentage of its total revenues. Moreover, CIVIX does not 

dispute that CoStar derives its revenues from far more than just the accused searches, including 

non-search product features and non-accused search functionality. (See Opening Br., at 11-12.) 

The law is clear: a patentee may calculate damages as a percentage of total revenues only if the 

accused feature “creates the ‘basis for customer demand’ or ‘substantially creates the value of the 

component parts.”” Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1318 (Fed. Cir. 2011) 

(quoting Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1336 (Fed. Cir. 2009)). CIVIX 

does not contend that either of these conditions is met. Therefore, Ms. McCloskey was required 

to apportion damages between the accused features and non-accused features, but failed to do so. 

Accordingly, her CoStar damages opinion is in clear violation of the entire market value rule and 

must be excluded.4

CIVIX offers a final excuse that fact discovery did not provide it with a basis upon which 

to apportion. (CIVIX Br., at 12.) As an initial matter, the testimony that CIVIX relies on relates 

to apportionment among the accused CoStar Suite products (Property Professional, COMPS, 

 

4

 Again, CoStar and LoopNet strongly disagree with CIVIX’s attacks on Mr. 

Malackowski’s opinions. But Mr. Malackowski’s consideration of the NAR license has nothing 

to do with whether Ms. McCloskey violated the entire market value rule. 

REDACTED
 9 

Tenant), not between accused and non-accused functionality. Moreover, if nothing else, CIVIX 

had every opportunity to conduct a survey designed to determine the value of accused searches 

versus other searches and features. Difficulty of apportionment does not forgive its absence. See 

LaserDynamics, 694 F.3d at 69 (“Finally, we reject the contention that practical and economic 

necessity compelled LaserDynamics to base its royalty on the price of an entire laptop 

computer.”); IP Innovation L.L.C. v. Red Hat, Inc., 705 F.Supp.2d 687, 690 (E.D. Tex. 2010) 

(Rader, J., sitting by designation) (rejecting patentee’s argument that it could not apportion 

because defendants did not provide sufficient information). 

V. MS. MCCLOSKEY USED AN ARBITRARY METRIC IN DETERMINING 

LOOPNET’S DAMAGES. 

CIVIX does not dispute any of the facts that form the basis for CoStar’s and LoopNet’s 

arguments to exclude Ms. McCloskey’s LoopNet opinion as arbitrary, namely: 

• the Trulia license states that Trulia’s royalty was based on five enumerated metrics; 

• Ms. McCloskey used only one of those metrics–$-per-subscriber–in applying the 

Trulia royalty to LoopNet to determine LoopNet’s damages; 

• use of the other metrics results in significantly higher and lower LoopNet damages 

figures than that determined by Ms. McCloskey; and 

• there is no evidence at all that $-per-subscriber was a basis for the Zillow royalty. 

(See Opening Br., at 14-15.) Ms. McCloskey’s use of a $-per-subscriber metric from the Trulia 

and Zillow licenses to calculate LoopNet’s damages is not reliable because it ignores the 

combination of metrics that the Trulia license explicitly identifies as the bases for the Trulia 

royalty. 

Instead, CIVIX points out that Ms. McCloskey had an explanation for why she used her 

$-per-subscriber metric. (CIVIX Br., at 13.) But Ms. McCloskey gave that testimony in 

response to a question as to whether Trulia, Zillow, and LoopNet needed to have approximately 
 10 

the same number of paid subscribers in order to use that metric. (Opening Br., Exh. L, 

McCloskey Tr., at 222-223.) Neither the question nor her answer relate at all to the 

appropriateness of using $-per-subscribers to the exclusion of the other metrics. (See id.) 

Moreover, the testimony cited by CIVIX involves Ms. McCloskey’s defense of paid subscribers 

versus all subscribers (including free users), which has nothing to do with CoStar’s and 

LoopNet’s motion. (See id.) Even if it was relevant, her testimony does nothing to explain why 

$-per-subscriber is a valid metric but advertising revenue (also identified in the Trulia license as 

a basis for the royalty) is not, as both involve financial benefit (revenue) to the licensee. 

CIVIX’s only other argument is criticism of Mr. Malackowski’s use of the “page views” 

metric, but once again, his opinions (which are sound in any event) are not at issue here. 

CoStar’s and LoopNet’s arguments for the exclusion of Ms. McCloskey’s LoopNet opinion are 

not truly contested in any relevant way. 

VI. CIVIX’S “WEIGHT NOT ADMISSIBILITY” ARGUMENT. 

Finally, CIVIX falls back on the argument that any flaws in Ms. McCloskey’s opinions 

go to their weight, not their admissibility. (CIVIX Br., at 14-15.) CIVIX would like for this 

Court to view the issue as a “battle of the experts” for the jury to sort out. But the question is not 

the relative merits of the two experts’ approaches. The question is whether Ms. McCloskey’s 

methods, standing on their own two feet, comport with the Daubert standard. They do not. 

Using the wrong hypothetical negotiation date, violating the entire market value rule, and basing 

damages on an arbitrary metric are fundamental flaws in methodology that render Ms. 

McCloskey’s opinions unreliable under Supreme Court and Federal Circuit law and therefore 

unsuitable for presentation to a jury. Yes, there may be multiple reliable methods for 

determining a reasonable royalty in some cases, but Ms. McCloskey has not chosen one of them 

in this case. 
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VII. CONCLUSION. 

Because Ms. McCloskey’s opinions are based on methods that are unreliable and/or not 

reliably applied to the facts of the case, CoStar and LoopNet respectfully submit that this Court 

should exercise its gatekeeper function under Daubert and exclude her testimony. 

DATED: June 13, 2014 Respectfully submitted, 

/s/ Craig D. Leavell 

 

David C. Van Dyke 

Joseph W. Barber 

Emily E. Bennett 

HOWARD & HOWARD ATTORNEYS PLLC 

200 S. Michigan Avenue, Suite 1100 

Chicago, IL 60604 

Telephone: (312) 456-3641 

Facsimile: (312) 939-5617 

Email: dvd@h2law.com

jwbarber@howardandhoward.com

ebennett@howardandhoward.com

Craig D. Leavell 

Mary E. Zaug 

Jason Fitterer 

KIRKLAND & ELLIS LLP 

300 North LaSalle 

Chicago, IL 60654 

Telephone: (312) 862-2000 

Facsimile: (312) 862-2200 

Email: craig.leavell@kirkland.com

mary.zaug@kirkland.com

 jason.fitterer@kirkland.com
 12 

 Atif Khawaja (Pro Hac Vice) 

Robert A. Gretch (Pro Hac Vice) 

KIRKLAND & ELLIS LLP 

601 Lexington Avenue 

New York, NY 10022 

Telephone: (212) 446-4800 

Facsimile: (212) 446-4900 

Email: atif.khawaja@kirkland.com

robert.gretch@kirkland.com

Attorneys for 

CoStar Realty Information, Inc. & LoopNet, Inc.
CERTIFICATE OF SERVICE 

I hereby certify that on June 13, 2014, a true and correct copy of the foregoing document 

was served upon counsel for CIVIX-DDI, LLC by electronic mail as follows: 

Ashley LaValley alavalley@nshn.com 

Daniel R. Ferri dferri@nshn.com 

David J. Sheikh sheikh@nshn.com 

Gabriel I. Opatken gopatken@nshn.com 

Joseph A. Culig jculig@nshn.com 

Olivia T. Luk oluk@nshn.com 

Paul K. Vickrey vickrey@nshn.com 

Raymond P. Niro rniro@nshn.com 

 

Respectfully submitted, 

/s/ Craig D. Leavell 

 Craig D. Leavell 

Attorney for 

CoStar Realty Information, Inc. & LoopNet, Inc.