Cook Inc. v. Endologix, Inc.
| Decision Date | 10 September 2012 |
| Docket Number | No. 1:09-cv-01248-TWP-DKL,1:09-cv-01248-TWP-DKL |
| Parties | COOK INCORPORATED Corporate Parent COOK GROUP INCORPORATED, Plaintiff, v. ENDOLOGIX, INC., Defendant. ENDOLOGIX, INC., Counter Claimant, v. COOK INCORPORATED, Counter Defendants. |
| Court | U.S. District Court — Southern District of Indiana |
This matter is before the Court on Defendant Endologix Inc.'s (Endologix) Motion to Exclude Opinion Testimony of Cook's Damages Expert Julie Davis (Dkt. 193). Plaintiff Cook Inc., ("Cook") retained Ms. Davis as a damages expert and on December 16, 2011 Ms. Davis submitted her expert report pursuant to Federal Rule of Civil Procedure 26(2)(B). Endologix objects to Ms. Davis's opinion testimony alleging it is unreliable and used improper analyses. For the reasons set forth below, Endologix's motion is DENIED.
The facts and background of this case are set forth at length in the Court's Entry on Claim Construction (Dkt. 145) and Entry on Endologix's Motion for Summary Judgment of Noninfringement (Dkt. 300). The Court will provide only the facts relevant to the current motion.
Cook retained Ms. Davis as a damages expert pursuant to Federal Rule of Civil Procedure 26(a)(2)(B), and she subsequently submitted her expert report. The expert report establishes Ms. Davis's background in auditing and financial consulting services to attorneys and corporate clients, the scope of her retention by Cook, information relied upon, and an analysis and calculation of lost profits and reasonable royalties due to Cook.
Ms. Davis's calculations necessarily assume infringement liability and that "but for Endologix offering the accused products for sale, Cook would have been able to capture a portion of those sales." Dkt. 196-1 at 13. For those sales not subject to lost profits damages, Ms. Davis "calculated damages based on a reasonable royalty applied to the net sales of Endologix's infringing sales." Dkt. 196-1 at 13. Ms. Davis calculated damages of $10,615,804 in lost profits relating to infringement of the '706 patent and $11,735,293 in reasonable royalties relating to infringement of both the '706 patent and '777 patent, for total damages of $22,351,097. However, if the only appropriate measure of damages is reasonable royalties, Ms. Davis calculated a total award of $14,819,716 relating to infringement of both patents-in-suit.
Endologix has moved to exclude Ms. Davis's testimony. Endologix contends Ms. Davis's calculation of lost profits "rests entirely upon her speculative and unreliable assumption that Cook would have captured Endologix's infringing sales in direct proportion to Cook's market share." Dkt. 194 at 2. Specifically, Endologix argues Ms. Davis improperly consideredall Abdominal Aortic Aneurysm ("AAA") devices to be fungible and applied an arbitrary pro rata market share approach. Regarding reasonable royalties, Endologix contends Ms. Davis improperly relied upon an unrelated court ruling, Bard Peripheral Vascular, Inc. v. W.L. Gore & Assocs., Inc., No. CV-03-597-PHX-MHM, 2010 U.S. Dist. Lexis 144259 (D. Ariz. Sept. 9, 2010), as a relevant bench mark to justify an inflated royalty rate.
"Under the Daubert gatekeeping requirement, the district court has a duty to ensure that expert testimony offered under Federal Rule of Evidence 702 is both relevant and reliable." Jenkins v. Bartlett, 487 F.3d 482, 488-89 (7th Cir. 2007). "Whether proposed expert testimony is sufficiently reliable under Rule 702 is dependent upon the facts and circumstances of the particular case." Id. The Court is given latitude to determine "not only how to measure the reliability of the proposed expert testimony but also whether the testimony is, in fact, reliable." Gayton v. McCoy, 593 F.3d 610, 616 (7th Cir. 2010). "The court should [ ] consider the proposed expert's full range of experience and training in the subject area, as well as the methodology used to arrive at a particular conclusion." Id.
The patent statute requires that upon proof of infringement, "the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court." 35 U.S.C. § 284. Grain Processing Corp. v. Am. Maize-Products Co., 185 F.3d 1341, 1349 (Fed. Cir.1999) (internal quotation marks and citation omitted). Therefore, in some cases, a patent owner may be entitled to both lost profits and reasonable royalty damages.
"To recover lost profits, the patent owner must show 'causation in fact,' establishing that 'but for' the infringement, he would have made additional profits." Id. Once the showing is made by a reasonable probability, the burden shifts to the accused infringer to establish the patent's owner "but for" causation claim is unreasonable. Id. A patent owner can meet its burden by establishing the Panduit factors: "(1) demand for the patented product, (2) absence of acceptable noninfringing substitutes, (3) his manufacturing and marketing capability to exploit the demand, and (4) the amount of the profit he would have made." Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152, 1156 (6th Cir. 1978). This requires a reconstruction of the market, "as it would have developed absent the infringing product." Grain Processing Corp., 185 F.3d at 1350. Reconstructing the market is by definition a hypothetical enterprise. Id. "To prevent the hypothetical from lapsing into pure speculation, this court requires sound economic proof of the nature of the market and likely outcomes with infringement factored out of the economic picture." Id.
Assuming a finding of infringement, Ms. Davis calculated the additional sales of the Zenith stent grafts and delivery systems Cook would have made "but for" Endologix's infringement by applying the four factors set forth in Panduit Corp. v Stahlin Bro. Fibre Works, Inc., 575 F. 2d 1152, 1156 (6th Cir. 1978). First, she described evidence that shows demand in the market for a product incorporating the patented invention, or the '706 patent. This includes the number and growth of procedures using endovascular repair for treating AAA, increasedAAA diagnoses, and historical sales and revenue of Endologix's AAA and Cook's Zenith products. Second, Ms. Davis noted there are two companies, Medtronic and Gore, which compete with Cook's Zenith products for the treatment of AAA. Therefore, she applied State Industries, Inc. v. Mor-Flo Industries, Inc., 883 F.2d 1573, 1577-80 (Fed. Cir. 1989), which stands for the proposition that a patent owner would have captured the sales of an accused product in proportion to the patent owner's market share. Third, Ms. Davis determined that Cook had the manufacturing and marketing capacity to exploit demand. Fourth, Ms. Davis calculated the lost profits by determining the number of lost sales, which she determined to be 2471 units, and the corresponding lost revenue. Then, she determined lost profits by subtracting the cost of manufacturing the units and royalties paid. Ms. Davis opined that the lost profits totaled $10,615,804. In this section of her report, Ms. Davis noted testimony that the Powerlink and Cook's Zenith products were "virtually identical" and "there would be no anatomies which would be serviced exclusively by Cook or Endologix devices." Dkt. 196-1 at 22.
Endologix contends Ms. Davis failed to reliably reconstruct the market absent the accused infringing products. Specifically, Endologix argues Ms. Davis ignored market realities and used an underlying market share calculation based upon speculation.
First, Endologix argues Ms. Davis mistakenly assumed that Cook, Medtronic, Gore, and Endologix compete identically for all sales of AAA stent grafts. That is, she treats all AAA stent grafts as fungible, when Endologix argues, she should have assessed "how the suitability of the competing AAA devices for different AAA or patient characteristics would have governed the distribution of Endologix's allegedly infringing unit sales among its competitors in the 'but for' world of calculating lost profits." Dkt. 194 at 13. Endologix relies upon BIC Leisure Prods.,Inc. v. Windsurfing Int'l, Inc., 1 F.3d 1214 (Fed. Cir. 1993) and King Instruments Corp. v. Perego, 65 F.3d 941 (Fed. Cir. 1995).
In BIC, Windsurfing sued BIC for infringement of a sailboard patent. After finding infringement, the district court awarded Windsurfing lost profits based on its pro rata share of the market. The Federal Circuit reversed and found the record in the case did not "evince a reasonable probability that Windsurfing would have made its pro rata share of BIC's sales had BIC not been in the market." BIC, 1 F.3d at 1218. The court reasoned that the sailboard market was relatively elastic and was particularly sensitive to price disparity. Id. For example, the BIC sailboard sold for $350 while the Windsurfing board sold for around $600. Other competitors in the market sold boards resembling BIC's at a similar price. Therefore, the court held the district court erred in assuming BIC's customers "would have redistributed their purchases among all the remaining sailboards, including Windsurfing's One Design boards at a price $200 to $300 more than BIC's." Id. Thus, Windsurfing and BIC were not competing in the same market and there was no "but for" causation of lost profits. Id. at 1219.
In King Instruments, Perego was found to infringe upon one of King Instrument's...
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