United States District Court, D. Nebraska
MEMORANDUM AND ORDER
LYLE E. STROM, Senior District Judge.
This matter is before the Court on the common Daubert motion (Filing No. 261 in 8:12CV122; Filing No. 221 in 8:12CV123; Filing No. 234 in 8:12CV124; Filing No. 214 in 8:12CV125; Filing No. 204 in 8:12CV126) of the five defendants in five separate cases. Pursuant to Section 299 of Title 35, plaintiff Prism Technologies, L.L.C. ("Prism") opted to file separate actions against common alleged infringers of its patents (35 U.S.C. § 299(a), (b); Filing No. 135). In the interest of judicial economy, the parties agreed to allow the filing of "common motions for summary judgment" and "common Daubert motions" by the defendants, AT&T Mobility L.L.C., Sprint Spectrum L.P., T-Mobile U.S.A., Inc., United States Cellular Corporation d/b/a U.S. Cellular, and Cellco Partnership d/b/a Verizon Wireless (referred to heretofore as the "defendants") (Filing No. 226). The defendants filed the current common Daubert motion to exclude the opinions and testimony of James E. Malackowski ("Malackowski"). A case-specific Daubert motion (Filing No. 266) against Malackowski was also filed by AT&T. The matter has been fully briefed and is ready for disposition (Filing No. 264, Filing No. 337, Filing No. 368). After review of the motion, briefs, indices of evidence, oral arguments, and relevant case law, the Court rules as follows.
Originally, Prism alleged infringement of three asserted patents (Filing No. 1). Ultimately, Prism narrowed the scope of this action to two patents: U.S. Patent No. 8, 127, 345 ("Patent 345") and U.S. Patent No. 8, 387, 155 ("Patent 155") (Filing No. 1; Filing No. 242, 9; Filing No. 243-4, 3; Filing No. 243-5, 2). Prism dropped its third asserted patent, U.S. Patent 7, 290, 288 ("Patent 288"), from this action ( Id. ).
The United States Patent and Trademark Office ("PTO") issued Patent 345, entitled "METHOD AND SYSTEM FOR MANAGING ACCESS TO PROTECTED COMPUTER RESOURCES VIA AN INTERNET PROTOCOL NETWORK", on February 28, 2012, from an application filed October 30, 2007 (Filing No. 1-6, at 1). Patent345 is allegedly a continuation of Patent 288, entitled "METHOD AND SYSTEM FOR CONTROLLING ACCESS, BY AN AUTHENTICATION SERVER, TO PROTECTED COMPUTER RESOURCES PROVIDED VIA AN INTERNET PROTOCOL NETWORK" and filed on August 29, 2002 ( Id. ).
The PTO issued Patent 155, entitled "SYSTEM FOR MANAGING ACCESS TO PROTECTED COMPUTER RESOURCES", on February 26, 2013, from an application filed November 11, 2010, with the PTO. Prism contends that the Patent 155 application was a continuation of the Patent 345 application.
Prism has a fourth, unasserted patent, U.S. Patent No. 6, 516, 416 ("416 Patent"), entitled "SUBSCRIPTION ACCESS SYSTEM FOR USE WITH AN UNTRUSTED NETWORK". The Court has referenced this patent in its prior orders ( E.g., Filing No. 132).
On April 4, 2012, Prism filed its complaints against AT&T and various other cellular phone providers in separate actions, alleging direct infringement, indirect contributory infringement, and indirect inducement of infringement of Patents 345 and 155 (Filing No. 1, 85). The complaint was amended September 21, 2012 (Filing No. 40) and March 1, 2013 (Filing No. 85). On April 23, 2013, the parties submitted a Joint Claim Construction Statement and the Court conducted a Markman hearing on July 2, 2013 (Filing Nos. 110, 130). The Court issued its Markman order on July 30, 2013, accepting jointly stipulated terms and construing disputed terms (Filing No. 132).
Prism has retained experts to testify and offer testimony and opinions at trial regarding damages and the systems in this case. The parties submitted their briefs and a Daubert hearing was held August 27, 2014. Mr. Malackowski will offer expert damage testimony at trial. Specifically, Mr. Malackowski has created a "reasonable royalty amount" for the defendant's purported infringement based upon a royalty rate and a royalty base (Filing No. 337, at 7). The defendants move to exclude such testimony in its entirety (Filing No. 264, at 34).
B. MALACKOWSKI'S MODEL
Mr. Malackowski calculated the royalties against each defendant from February 28, 2012 until December 31, 2013, subject only to the defendants producing information for 2014. Filing No. 337, at 11 n.3. Mr. Malackowski's model is based upon a hypothetical negotiation between Prism and each defendant. Id. at 11.
Mr. Malackowski's model has multiple stages. First, he attempted to isolate the "economic footprint" of the invention in each defendant's revenues to create a royalty base in a three-step calculation. First, he identified each defendant's data services revenue. Second, he reduced the revenue of RIM subscribers per Prism's RIM agreement. Third, he "apportioned" these revenues by each defendant's cost savings fraction. The third step is pivotal to this motion.
The cost-savings fraction is a separate, two-step, calculation. Mr. Malackowski identified the numerator of this fraction as the cost savings value of the asserted patents (Filing No. 265-3, at 43-46). Then, Mr. Malackowski identified the denominator as the total network costs for each defendant ( Id. ). The resulting fraction represented the "benefit cost savings" of the infringing system. Therefore, the royalty base equation is as follows:
[(data revenue - RIM revenue) × (cost savings/network costs)] AT&T characterizes the left-side of the equation as the "revenue calculation" and the right-side as the "cost-savings calculation." Mr. Malackowski concluded, for each defendant, that the products of these calculations were the royalty bases.
Next, Mr. Malackowski considered the Georgia-Pacific factors to create a royalty rate of 2-4% for each defendant ( Id. at 46-86). The product of the royalty base and the royalty-rate constituted the ...