Source: http://www.groklaw.net/articlebasic.php?story=20120402192119280
Timestamp: 2019-04-24 04:54:29+00:00

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Both Oracle and Google, not content with letting Dr. Kearl, the court-appointed damages expert, introduce his damages report and testimony without challenge, have filed Motions to exclude portions of Dr. Kearl's report. However, each party only seeks to exclude one narrow area of Dr. Kearl's testimony.
Google expresses concern that Dr. Kearl's opinion is inconsistent with governing law that a reasonable royalty be based only on the intellectual property at issue in the case. (850 [PDF; Text]) The Google objection focuses on Dr. Kearl's stated opinion that the starting place for the valuation should have been the entire IP bundle under negotiation in the 2006 Sun/Google negotiations, not just the copyrights and patent at issue in this case. Kearl's logic was that either Google knew which patents and copyrights were critical such that the real negotiated value was already limited to the value of those items, or Google didn't know which patents and copyrights were critical and Google wanted the broadest possible license in order to keep its options open. Kearl provided no factual evidence to support either of these scenarios, and it runs counter to governing law. Google only seeks to exclude this specific testimony.
Oracle, on its side, is concerned with the Google expenses related to Android that were deducted from the damages base. (845 [PDF; Text]) Oracle argues that Google has the burden of establishing those expenses and has failed to do so. Thus, Dr. Kearl should not be able to rely on the number that was provided by Google expert Dr. Cox. Oracle contends that Dr. Cox never established a basis for the expense number he used, relying on Google provided numbers and testimony from a Google employee who is not being offered as a witness at trial and whose testimony is only provided by deposition. In that deposition the Google employee admitted he could not establish that the company-provided expense numbers properly accounted for deductible Android expenses. Thus, Oracle contends, Google has not established an evidentiary basis for the Cox/Kearl expense number.
To some extent the objections of both Google and Oracle are not critical to Dr. Kearl's overall calculations. Yes, they will make some difference, but we are talking perhaps plus or minus $10 million, which in this context is not a lot.
In the submissions due on Tuesday please include your analysis of the CONTU report, which the Judge has now read with interest. Please also quote from any relevant passages in the committee reports following up on the CONTU report, that is, to what extent did Congress intend to adopt the report?
In addition, please include a critique of Professor Pamela Samuelson’s article in 85 Texas Law Review 1921 (2007). If there are one or two other treatises or articles you recommend, please cite them and give a sentence as to their importance.
This request has got to be good news for Google. The CONTU report was the impetus for the Copyright Act of 1976 that provided formal copyright protection for software. Interestingly, some of the recommendations of the CONTU report were not implemented by the Copyright Office. You can find a full version of the CONTU report here.
As for the article by Pamela Samuelson, the first thing you need to know is that she is probably the foremost authority on (and critic of) copyright protection of software in the country. This particular article, "Why Copyright Law Excludes Systems and Processes from the Scope of Its Protection [PDF] is right on point. It walks through the history of the idea/expression dichotomy, the adoption of copyright protection of software, why Baker v. Selden does apply, the application of Baker to software, and the implications of the application of Baker to various aspects of software. It is worth noting that Oracle, in criticizing Baker relied on Prof. Nimmer's copyright treatise, but Prof. Samuelson argues that Prof. Nimmer wrongly interpreted Baker and its application by the courts. This should be interesting.
Also, by Monday the 9th at noon counsel shall file the agreed-on timeline to hand out to the jury.
PLEASE TAKE NOTICE that on April 9, 2012, or as soon thereafter as counsel may be heard, Defendant Google Inc. ("Google") will, and hereby does, respectfully move to exclude portions of the opinions and testimony of Dr. James Kearl. This Motion is based on the following memorandum of points and authorities in support, the Declaration of Daniel Purcell ("Purcell Decl.") and accompanying exhibits, the entire record in this matter, and on such evidence as may be presented at the hearing of this Motion.
At his deposition last week, the Court's appointed Rule 706 damages expert, Dr. James R. Kearl, acknowledged that one narrow aspect of his expert opinion is inconsistent with governing law (and this Court's prior orders) regarding the requirement that a reasonable royalty be based only on the intellectual property at issue in this case. Accordingly, Google files this conditional and limited motion to strike to confirm that Dr. Kearl will not be allowed to offer such testimony in the damages phase of trial.
In his March 20, 2012 report, Dr. Kearl began his damages calculation (as Oracle's expert Dr. Iain Cockburn had done) by looking at the 2006 negotiations between Sun and Google for a technology partnership including a bundle of intellectual-property rights. Dr. Kearl calculated the percentage of the value of the total 2006 Sun bundle attributable to the intellectual property in suit: the '104 patent (2.38% of the total bundle), the '520 patent (.07% of the bundle), and the 37 purportedly copyrighted API packages (together 1.9% of the bundle). Kearl Report ¶ 111 & n.63; /id./ at Table 7. Google is not moving to strike Dr. Kearl's apportionment analysis.
[REDACTED] Id. ¶ 104 (emphases added).
Purcell Decl. Ex. A (Kearl Depo.) at 157:7-158:6 (emphases added).
Indeed, the Court previously disapproved of exactly this same reasoning when Oracle and Dr. Cockburn employed it in their first damages report last summer. There, Dr. Cockburn calculated damages for Google's purported use of "Java," without separating out the asserted patents and copyrights from the remainder of Oracle's various Java platforms not at issue. The Court rejected that sort of broad-brush analysis, ruling that it "runs afoul of controlling law." July 22, 2011 Order [Dkt. 230] at 5.
The reasonable royalty to be calculated is "a reasonable royalty for the use made of the invention by the infringer." 35 U.S.C. 248 (emphasis added). Java was not the invention. Only the claims asserted were the invention.
basis" because "Sun's practice was to license Java, not to license individual patents," does not change this statutory requirement (Weingaertner Exh. A at ¶ 132). An opinion that the hypothetical negotiation would have resulted in a Java license simply fights the hypothetical.
July 22, 2011 Order [Dkt. 230] at 5-6 (emphases in original).
Not only does section 248 require that any reasonable royalty be tied to "the use made of the invention" at issue in the case, myriad federal appellate opinions bar plaintiffs from recovering damages for related or ancillary intellectual property that is not asserted in litigation or used by the defendant. Two years ago, in RestQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860 (Fed. Cir. 2010), the Federal Circuit held that "[a]t all times, the damages inquiry must concentrate on compensation for the economic harm caused by infringement of the claimed invention." Id. at 869 (emphasis added). In its July 22, 2011 Order, the Court cited this language from RestQNet, explaining that the Federal Circuit meant that "[t]he hypothetical license therefore must be tailored to the amount and type of infringement that actually occurred" and that "[t]he reasonable royalty must compensate for the infringing features, but not for non-infringing ones." July 22, 2011 Order [Dkt. 230] at 8 (emphasis added); see also, e.g., Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1332 (Fed. Cir. 2009) (hypothetical negotiation analysis must "elucidate how the parties would have valued the patented feature during the hypothetical negotiation") (emphasis added); Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152, 159 (6th Cir. 1978) ("the relevant facts" in a hypothetical negotiation analysis include (1) "what plaintiffs property was"; (2) "to what extent defendant has taken it"; and (3) "its usefulness and commercial value as shown by its advantages over other things and by the extent of its use").
2012 Order [Dkt. 785] at 3-5 (striking the upper bound of Dr. Cockburn's apportionment under a "group-and-value approach"); id. at 10-11 (requiring deduction from total value of 2006 Sun bundle to account for value of unasserted copyrights); id. at 11-13 (striking Dr. Cockburn's "independent significance approach" for failing to follow the apportionment guidelines in January 9, 2012 Order).
The opinions in paragraphs 97 through 105 of Dr. Kearl's report are inconsistent with the law and this Court's orders. To the extent Dr. Kearl plans to offer them at trial, they would be only confusing, not helpful, to the jury in calculating a legally permissible measure of damages in this case. Google respectfully asks the Court to exclude those opinions.
PLEASE TAKE NOTICE that Plaintiff Oracle America, Inc. (“Oracle”) hereby moves to exclude portions of the opinions and testimony of the court-appointed Rule 706 expert Dr. James Kearl. This motion is based on the following memorandum of points and authorities, the declaration of Meredith Dearborn and accompanying exhibits, the entire record in this matter, and on such evidence as may be presented at any hearing on this Motion, on a date to be determined by the Court, as well as any other ground the Court deems just and proper.
Oracle moves to strike one aspect of the copyright infringer’s profits analysis by the Courtappointed damages expert, Dr. James Kearl.
On infringer’s profits Google bears the burden of proving its deductible expenses for Android. The only costs that Google may deduct are those that actually contributed to sales of the infringing work. Dr. Kearl has not tried to determine whether Google’s claimed Android expenses are in fact attributable to Android, or whether they contributed to infringing sales of Android. Instead, he adopts the figures that Google’s copyright damages expert, Dr. Alan Cox, used in the infringer’s profits calculation in his October 2012 damages report.
But Dr. Cox also conducted no examination or analysis of the allocation of expenses to Android. To determine the deductible expenses for Android, Dr. Cox relied on two things: (a) an unaudited P&L statement that his staff “received from counsel,” and (b) an interview with a Google employee, Aditya Agarwal, who had already testified – as Google’s corporate designee on Android revenues and expenses – [REDACTED]. Mr. Agarwal is not on Google’s trial witness list, and consequently cannot appear at trial to provide the factual basis for Dr. Cox’s – or Dr. Kearl’s – allocation of expenses to Android.
1 Rapanos v. United States, 547 U.S. 715, 754 n.14 (2006) (Scalia, J.). As Justice Scalia explains the allusion, “an Eastern guru affirms that the earth is supported on the back of a tiger. When asked what supports the tiger, he says it stands upon an elephant; and when asked what supports the elephant he says it is a giant turtle. When asked, finally, what supports the giant turtle, he is briefly taken aback, but quickly replies ‘Ah, after that it is turtles all the way down.’” Id.
Dr. Kearl cannot offer testimony on Android costs that rests on nothing more than Google’s expert’s unfounded opinion. The proof of Pursuant to Federal Rules of Evidence 702, 703, and 403, Oracle moves to strike this single aspect of Dr. Kearl’s testimony.
Last fall, Oracle moved to strike Dr. Cox’s opinions insofar as they relied on interviews with Google employees, one of whom was Mr. Agarwal. (Dkt. No. 558 at 6–10.) In its opposition, Google conceded that the interviewees had to establish the foundational facts at trial before its experts could testify based on those facts. (Dkt. No. 581 at 3 (“Google has already explained that it will, and accepts that it must, offer the underlying factual testimony from the percipient witnesses first, before its experts may testify based on those facts.”).) Oracle pointed out that Mr. Agarwal was not even on Google’s witness list, and thus would never be able to “offer the underlying factual testimony” at trial. (Dkt. No. 614 at 3.) In denying Oracle’s Daubert motion, the Court emphasized that Google’s experts could testify only so long as the interviewees on which its experts relied could “testify to the foundational facts with firsthand knowledge” at trial. (Dkt. No. 632 at 3 (citing Therasense, Inc. v. Becton, Dickerson & Co., No. C04-02123 WHA, 2008 WL 2323856, at *2 (N.D. Cal. May 22, 2008) (Alsup, J.).) Oracle seeks to enforce that Order. On the issue of Android expenses, Google has no competent witness who can provide the foundational facts on which Dr. Cox relied. As Dr. Kearl has no basis for his allocation of expenses other than Dr. Cox, he too has no proper factual basis for those deductions, and his opinion must be excluded on this score.
from its infringer’s profits actually contributed to Android’s profits.
omitted); see also Taylor v. Meirick, 712 F.2d 1112, 1121–22 (7th Cir. 1983) (“It is too much to ask a plaintiff who has proved infringement also to do the defendant’s cost accounting.”).
The only costs that Google may deduct are those that “actually contributed to sales of the infringing work.” Frank Music, 772 F.2d at 516.2 Before deducting any category of costs from the raw revenue, a defendant must offer evidence showing how the costs contributed to the production of the infringing work.
In Frank Music, the defendant, MGM, introduced evidence at trial that segregated overhead expenses into general categories, such as general and administrative costs, sales and advertising, and engineering and maintenance. MGM then allocated a portion of these costs to the production of the infringing show, Hallelujah Hollywood, based on a ratio of the revenues from that production as compared to MGM Grand's total revenues. Id. The district court adopted the defendant’s approach, but the Ninth Circuit reversed, holding that the district court’s finding that MGM had established that its overhead contributed to the infringing show was clear error.
2 Although Frank Music construed an earlier version of the Copyright Act, Congress’s amendments do not affect these holdings. Later cases have continued to rely on Frank Music for this proposition. See, e.g., Folkens v. Wyland, C-01-1241 EDL, 2002 WL 1677708, at *6 (N.D. Cal. July 22, 2002).
basis. The district court apparently agreed with this approach. That is not the law of this circuit. Under Kamar International, a defendant additionally must show that the categories of overhead actually contributed to sales of the infringing work. 752 F.2d at 1332. We can find no such showing in the record before us.
Id. Here, therefore, Google bears the burden of demonstrating that the expenses that it seeks to deduct actually contributed to Android’s profits.
which Dr. Cox and Dr. Kearl rely.
On April 8, 2011, Oracle deposed Mr. Adyita Agarwal, a senior financial analyst at Google, who was Google’s Rule 30(b)(6) designee on Google’s revenues and expenses relating to Android. (Declaration of Meredith Dearborn (“Dearborn Decl.”) Ex. A (Plaintiff’s Notice of Deposition of Defendant Google, Inc. Pursuant to Fed. R. Civ. P. 30(b)(6), dated March 10, 2010).) By proffering Mr. Agarwal, Google represented that he spoke for the company on “how Google accounts for Android-related revenues and expenses.” (Id., Topic 2.) [REDACTED] Google had a duty to “make a conscientious, good-faith effort to designate knowledgeable persons for Rule 30(b)(6) depositions and to prepare them to fully and unevasively answer questions about the designated subject matter.’” Bd. of Tr. of Leland Stanford Junior Univ. v. Tyco Int’l Ltd., 253 F.R.D. 524, 526 (C.D. Cal. 2008) (citations omitted). Mr. Agarwal, as Google’s 30(b)(6) deponent, had an “affirmative obligation to educate himself” on how Google accounts for Android’s revenues and expenses, because he had to be prepared to “testify to the knowledge of the corporation, not the individual.” Id. (citations omitted, emphasis in original).
expenses contributed to Android’s profits.
what Google expenses were properly allocable to Android. (Dearborn Decl. Ex. D (Cox Dep. 46:16– 47:21) (“I didn’t do an allocation. I just took the expenditures that Google had booked on its P&Ls for Android, having determined based on the sources that you cited that it was appropriate to do so.”) Dr. Cox is not an accountant. (Id. 145:18–21.) The “sources” on which Dr. Cox relied were limited to what appears to be a recent version of the Android P&L document, the transcript of Mr. Agarwal’s 30(b)(6) deposition cited above, and two off-the-record conversations with Mr. Agarwal. (Id. 47:3–21; 78:23-80:2).) [REDACTED] That document was produced to Oracle as part of “backup” to Dr. Cox’s reports in October, several months after the close of discovery. Dr. Cox conceded that the document was not audited, and that as far as he knew, none of the historical figures in the P&L had been audited either. (Dearborn Decl. Ex. D (Cox Dep. 80:22 –82:3).).
D. Dr. Kearl relies on Dr. Cox, and did no independent analysis of his own.
Based on the record evidence, Google will not be able to establish a key foundational fact for each element of cost it seeks to deduct—that the cost “actually contributed to sales of the infringing work.” Frank Music, 772 F.2d at 516.
First, Mr. Agarwal is not on Google’s witness list. (See Dkt. No. 525-3; Dkt. No. 840.) The court has limited each party to the witnesses disclosed in the joint proposed pretrial order. (Dkt. No. 675 ¶ 4.) Google may argue that it reserved the right to call any person on Oracle’s witness list, but Mr. Agarwal is only listed as testifying by deposition on Oracle’s list. (Dkt. 525-2 at 13.) As described above, Mr. Agarwal’s deposition provides no basis for concluding that any cost in the P&L should be allocated to Android.
[REDACTED] Mr. Agarwal was not testifying based on “firsthand knowledge.” (Dkt. No. 632 at 3.) He was Google’s corporate representative. His answers bind the company as admissions, but cannot be used by Dr. Kearl or Google’s experts to fulfill or comment on Google’s burden. He cannot be permitted to [REDACTED] as a corporate designee, but suddenly remember that methodology in interviews with Google’s experts and at trial. See Calzaturficio S.C.A.R.P.A. s.p.a. v. Fabiano Shoe Co., Inc., 201 F.R.D. 33, 36 (D. Mass. 2001) (holding that interpreting Rule 30(b)(6) to require a company’s witness to prepare for the deposition is “necessary in order to make the deposition a meaningful one and to prevent the ‘sandbagging’ of an opponent by conducting a half-hearted inquiry before the deposition but a thorough and vigorous one before the trial. This would totally defeat the purpose of the discovery process.”) (citations omitted); see also Dkt. No. 676 at 7 (Omnibus Order on Motions in Limine) (“In the interest of fairness, Mr. Lindholm cannot testify on matters he refused to address during his deposition.”).
Third, Dr. Cox explained that he did no other due diligence to understand the methodology in the Android P&L document, or to determine whether the costs it lists were properly allocated to Android, other than discussing that document with Mr. Agarwal. (Dearborn Decl. Ex. D (Cox Dep 75:19–76:22).) As a consequence, even if the P&L document is admitted into evidence, neither Dr. Cox nor Dr. Kearl can testify as to whether any of its costs contributed to Android’s revenues because neither did any independent verification of their own to determine whether that allocation was correct. See Kilgore v. Carson Pirie Holdings, Inc., 205 F. App’x 367, 372 (6th Cir. 2006) (expert testimony was “not supported by sufficient data or reliable methodology” where expert relied on an article but “did not know on what research or methodology the article was based, and he admitted that he did not conduct any independent research on this subject.”).
circumvent the testimony of its 30(b)(6) designee, who was unable to provide any information that would confirm that Google correctly accounted for Android expenses; (2) Google would benefit from its failure to present a 30(b)(6) witness who could testify intelligently about Android expense allocation; and (3) Google would evade the rule that an expert must disclose the bases for his or her opinions, by citing one basis in discovery, and substituting a different one at trial, when the original basis collapses.
Thus, no witness at trial will be able to support Dr. Cox’s assumptions, or Dr. Kearl’s adoption of Dr. Cox’s assumptions, as to the allocation of costs between Android and Google’s other business units.
under Daubert and prejudicial to Oracle.
Because no witness at trial can support Dr. Cox’s assumptions as to the allocation of Android costs and Dr. Kearl relies on Dr. Cox’s assumptions, Dr. Kearl’s lacks foundation and this defect cannot be cured at trial.
The more central the “fact” issue is in the overall opinion and overall trial and the more controverted the “fact” is in the context of the case, the more due diligence an expert should exercise before merely taking a partisan’s word. At some point, as here, the supposed fact is too important and too controverted and should be addressed by witnesses with firsthand knowledge.
allocation was done in the first place. Dr. Kearl has no reliable or reasonable basis on which to rely on Dr. Cox’s opinion.
For the reasons stated above, the Court should prohibit Dr. Kearl from testifying as to the amount of Google’s cost deductions in his infringer’s profits analysis.
3 In contrast, it is appropriate for the experts to apply their previously disclosed methodologies to updated revenue, profit, and loss data from the months between the close of discovery and trial. In that circumstance, the nature of the opinion and the character of the evidence is unchanged – the data is merely updated.
Absent very good cause, a witness may be called only if the witness is on the proponent’s most-current rolling, written list of the next seven witnesses and has been on the list at least 38 (not 48) hours. Said list may be updated each day by 5 p.m. and shall include seven or fewer names. Witnesses need not be called in the sequence indicated but they must be on the mostcurrent rolling list. The list shall be delivered to all counsel and to chambers by 5 p.m. each day. If both sides agree in writing, the seven limit and the 38-hour leadtime may be changed. This does not change the document-use notice provision.

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