Court Opinion

ID: 2669022
Source: CourtListenerOpinion
Date Created: 2014-04-07 15:37:39.495145+00
Date Added: 2024-06-11T13:14:49.224856
License: Public Domain

Case: 14-111   Document: 17      Page: 1   Filed: 04/07/2014

          NOTE: This order is nonprecedential.

   United States Court of Appeals
       for the Federal Circuit
                 ______________________

         REMBRANDT SOCIAL MEDIA, LP,
               Plaintiff-Petitioner,

                            v.

                   FACEBOOK, INC.,
                 Defendant-Respondent.
                 ______________________

                        2014-111
                 ______________________

    On Petition for Permission to Appeal pursuant to 28
U.S.C. § 1292(b) from the United States District Court for
the Eastern District of Virginia in No. 1:13-cv-00158-TSE-
TRJ, Judge T. S. Ellis III.
                 ______________________

                     ON PETITION
                 ______________________

  Before PROST, O'MALLEY, and TARANTO, Circuit Judges.
TARANTO, Circuit Judge.
                       ORDER
    Rembrandt Social Media, LP, petitions for permission
to appeal an order of the United States District Court for
the Eastern District of Virginia that excluded Rem-
brandt’s proffered expert testimony on damages under
Case: 14-111    Document: 17     Page: 2    Filed: 04/07/2014

2              REMBRANDT SOCIAL MEDIA, LP   v. FACEBOOK, INC.

Fed. R. Evid. 702 and Daubert v. Merrell Dow Pharmaceu-
ticals, Inc., 509 U.S. 579 (1993). The district court certi-
fied the order for appeal under 28 U.S.C. § 1292(b).
Facebook, Inc., while disagreeing with Rembrandt’s
challenges to the exclusion order on its merits, agrees
with Rembrandt that this court should hear this appeal
under § 1292(b). We deny the petition.
                             A
    Rembrandt sued Facebook for patent infringement
and sought reasonable royalty damages. Rembrandt’s
expert issued a report proposing a royalty calculation in a
running-royalty form, using a royalty base multiplied by a
royalty rate. Facebook filed a pretrial motion to exclude
testimony by Rembrandt’s expert based on that report.
    The district court granted the motion based on its
finding of two serious flaws in the proposed testimony of
Rembrandt’s expert. First, the court concluded that the
expert had not properly apportioned Facebook’s revenue
to “the features actually causing the alleged infringe-
ment.” Second, the court concluded that the expert had
improperly used surveys about the importance to users of
various features of the Facebook service, because he
equated survey-result percentages reflecting importance
with percentages of advertising revenue received by
Facebook, without adequate analysis. Those flaws infect-
ed the proposed royalty base as well as the royalty rate,
the court held, requiring exclusion of the expert’s testi-
mony based on the report.
     At the request of both parties, the district court then
certified the inadmissibility ruling for interlocutory
appeal under § 1292(b), which authorizes a district court
to certify for appeal an otherwise-unappealable order
when it is “of the opinion that such order involves a
controlling question of law as to which there is substan-
tial ground for difference of opinion and that an immedi-
ate appeal from the order may materially advance the
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 REMBRANDT SOCIAL MEDIA, LP   v. FACEBOOK, INC.           3

ultimate termination of the litigation.” 28 U.S.C.
§ 1292(b). In the same certification order, the court
stayed further district-court proceedings in the case,
cancelling the trial that was scheduled to begin just a few
days later. Accordingly, liability for patent infringement
has not been tried or conceded or otherwise established.
                              B
    Under the express language of § 1292(b), this court
has “discretion” whether to “permit an appeal to be taken”
under the provision. See Digital Equip. Corp. v. Desktop
Direct, Inc., 511 U.S. 863, 883 n.9 (1994) (noting “broad”
discretion). In this case, we conclude that we should not
permit the appeal. The district court’s rationale for
certifying the matter does not persuade us that we should
permit the appeal, and several considerations convince us
that we should not.
                              1
      In determining that there was a controlling question
of law, the district court considered whether it could reach
a liability judgment without damages evidence. The
district court observed that this court “has held that a
patentee that has proved infringement has also proved
the existence of damages [footnote citing Lindemann
Maschinenfabrik GmbH v. American Hoist & Derrick Co.,
895 F.2d 1403 (Fed. Cir. 1990)], but given the uncertainty
in this case regarding plaintiff’s ability to put forward any
evidence of damages, it is appropriate to certify this issue
. . . for resolution on the question of the admissibility of
plaintiff’s expert report and related testimony on damag-
es.” ADD.48. As Lindemann itself makes clear, however,
the “fact of damage”—including harm to the “right to
exclude”—is different from the quantity of “damages” (the
latter consisting of the compensation appropriate for the
amount of harm). Lindemann, 895 F.2d at 1406; see also,
e.g., Am. Stevedore Inc. v. Porello, 330 U.S. 446, 450 n.6
(1947); Nycal Offshore Dev. Corp. v. United States, 743
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4              REMBRANDT SOCIAL MEDIA, LP   v. FACEBOOK, INC.

F.3d 837, 844 (Fed. Cir. 2014) (existence of loss different
from quantification of loss in contract and other contexts).
Thus, liability may be tried and established here even if
the district court’s pre-trial Daubert ruling is not recon-
sidered before or at trial and even if that ruling leaves
Rembrandt with no proof of damages.
    Apart from the potential implication of its reading of
Lindemann, the district court did not say that the parties
could not go to trial on liability without the excluded
evidence. The district court did not even foreclose Rem-
brandt from presenting damages evidence apart from the
excluded evidence, expressing “uncertainty” about that
possibility. ADD.48. Nor did it foreclose the possibility of
nominal damages or declaratory or injunctive relief.
     In addition, neither the district court’s order nor the
parties’ submissions make clear that the case would not
go to trial on liability—even that it would not require a
jury trial—if we immediately reviewed the pretrial Daub-
ert ruling on damages and affirmed it. For example,
Facebook has not stated that it would accede to a judg-
ment of infringement of a valid patent in order to obtain a
final judgment appealable on damages or other grounds.
Likewise, the district court did not state, and the parties
do not agree, that the case would not go to trial on liabil-
ity if we immediately reviewed the pretrial Daubert ruling
and reversed it. Accordingly, we have no firm basis for
predicting that immediate review here would produce a
saving of the court’s or litigants’ resources or shorten the
time to complete resolution of the case.
                             2
    The parties here present only what would seem to be
a fairly common set of assertions about the possible value
of an interlocutory appeal. Facebook urges that, if the
exclusion order were to stand, Rembrandt would have
remaining no meaningful claim to relief, while Rembrandt
makes no such concession, and the district court avoided
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    REMBRANDT SOCIAL MEDIA, LP   v. FACEBOOK, INC.          5

any conclusion on that subject. Rembrandt makes the
very generally applicable observation that an appeal now
“could” promote settlement by aiding in “the correct
valuation of the lawsuit,” Pet. at 19, while Facebook says
nothing at all about possible settlement, and neither did
the district court. In these circumstances, it is not evi-
dent that there is anything to distinguish this case from
many others in which it could be said that the application
of record-specific legal standards for damages is unclear. 1
    For that reason, we must consider the possible sys-
temic effects of undertaking interlocutory review here.
There is good reason to be wary of any action that would
broadly invite interlocutory review of a record-specific
damages ruling like the one at issue here, rendered before
any determination of liability. Most obviously, an appel-
late review of such a ruling could easily turn out to have
no consequences. After the appellate decision, proceed-
ings on liability could result in a determination of no
liability, mooting any issue of damages.
    Interlocutory review also could turn out not to save
resources, or shorten the time to the ultimate conclusion
of the case, despite hopes that it would. For one thing,
such review delays trial, and once trial is delayed, there

1   Rembrandt cites two decisions on damages issues
reviewed in § 1292(b) appeals. Pet. at 12 n.26. Both
involved fairly pure legal issues, not record-specific appli-
cations. Al-Amin v. Smith, 637 F.3d 1192, 1195 (11th Cir.
2011) (“whether, in the absence of physical injury, a
prisoner is precluded from seeking punitive damages by
the Prison Litigation Reform Act of 1995”); Alvarado v.
Cajun Operating Co., 588 F.3d 1261 (9th Cir. 2009)
(whether punitive and compensatory damages are availa-
ble as forms of relief for retaliation in violation of the
Americans with Disabilities Act).
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6              REMBRANDT SOCIAL MEDIA, LP   v. FACEBOOK, INC.

may be much less reason for denying an opportunity to
correct defects in proposed damages evidence. In this
case, in stating that it would be unfair to permit Rem-
brandt’s expert to revise his proposed testimony, the
district court relied on the fact that trial was “scheduled
to commence in less than two working days.” ADD.47.
But the choice of a § 1292(b) certification, accompanied by
postponement of trial, would seem to undermine the
stated premise of the refusal to allow modification of the
proposed damages presentation.
    Moreover, as the district court here recognized, the
aim of the reasonable-royalty calculation is to measure
the market value of the invention itself—what it is worth
to potential users, compared to their using only non-
infringing technologies. Riles v. Shell Exploration and
Prod. Co., 298 F.3d 1302, 1312 (Fed. Cir. 2002) (“The
economic relationship between the patented method and
non-infringing alternative methods, of necessity, would
limit the hypothetical negotiation.”), quoted at ADD.63
n.18; see Dowagiac Mfg. Co. v. Minn. Moline Plow Co., 235
U.S. 641, 648 (1915) (reasonable royalty damages meas-
ure “value of what was taken”). 2 In establishing the value

2    The district court stated that, if the patent technology
improves on “an existing technology, Rembrandt is only
entitled to a royalty based on the incremental value
provided by that improvement”; it added that “the royalty
base is meant to represent value gained from the alleged
infringement, and thus the amount that a hypothetical
licens[ee] would have paid to license the patent.” ADD.62.
As to the second statement: Because the “base” is not “the
amount that a . . . licens[ee]” pays, the court presumably
meant to refer to the bottom-line royalty payment—
whether that is a lump sum or a running payment calcu-
lated as a product of base and rate (see, e.g., LaserDynam-
ics, Inc. v. Quanta Computer, Inc., 694 F.3d 51, 70 (Fed.
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 REMBRANDT SOCIAL MEDIA, LP   v. FACEBOOK, INC.          7

of the invention itself, “the patentee . . . must in every
case give evidence tending to separate or apportion . . .
[its] damages between the patent feature and the unpat-
ented features.” Garretson v. Clark, 111 U.S. 120, 121
(1884) (internal quotation marks omitted). And in im-
plementing that requirement, we have barred use of too
high a royalty base—even if mathematically offset by a
“‘low enough royalty rate’”—because such a base “carries
a considerable risk” of misleading a jury into overcompen-
sating, by “‘skew[ing] the damages horizon for the jury’”
and “‘mak[ing] a patentee’s proffered damages amount
appear modest by comparison.’” LaserDynamics, Inc. v.
Quanta Computer, Inc., 694 F.3d 51, 67, 68 (Fed. Cir.
2012) (quoting Uniloc USA, Inc. v. Microsoft Corp., 632
F.3d 1292, 1329-20 (Fed. Cir. 2011)).
    Those requirements—specifically, the requirements to
focus on reliable evidence of value apportioned to the
invention itself and to avoid potentially misleading forms
of presentation of evidence—support “certain general
rule[s].” Id. at 67. But given the nature of the inquiries
involved, the rules are not so precise in their application
or scope as to make a single opportunity for compliance
clearly or always enough—though, in the right circum-
stances, a district court may well decide that it is. For
those and the other reasons stated, we decline to hear the
§ 1292(b) appeal in this case.
    Accordingly,
    IT IS ORDERED THAT:
    The petition for permission to appeal is denied.

Cir. 2012))—which “represent[s] value” (but not necessari-
ly all the value) gained over existing technology, ADD.62.
Case: 14-111    Document: 17    Page: 8     Filed: 04/07/2014

8              REMBRANDT SOCIAL MEDIA, LP   v. FACEBOOK, INC.

                               FOR THE COURT

                               /s/ Daniel E. O’Toole
                               Daniel E. O’Toole
                               Clerk of Court