In Sonos, Inc. v. D&M Holdings Inc. d/b/a The D+M Group, et al., C.A. No. 14-1330-WCB (D. Del. Dec. 7, 2017) (Apportionment Order), Judge William C. Bryson denied Plaintiff’s motion for leave to submit a second supplemental report from its damages expert because the supplemental report failed to conduct a proper apportionment analysis. The Court had previously excluded the expert’s first report due to a failure to apportion and because it therefore violated the entire market value rule. Apportionment Order at 1. The supplemental report looked to the least expensive accused product for a revised and reduced royalty base, in order to “to “account[] for additional, non-patented features and componentry associated with higher priced products.” Id. at 2 (quoting report). The Court concluded that the method still calculated the royalty based on the entire market value of the product where the least expensive accused product still contained features not covered by the patents. Id. at 3. The Court observed that “it appears that the [expert] regarded the effective reduction in the accused revenue resulting from that calculation as constituting apportionment because it reflects a reduction in the amount that he previously cited. While an apportionment would certainly produce a reduction, that does not mean that a reduction necessarily constitutes apportionment. Nothing in [the] report reflects an apportionment directed to the role of the patented features in driving demand for the product.” Id. at 3-4.
While the Court would therefore not permit Plaintiff to offer a royalty rate premised on the entire market value rule, the Court did permit Plaintiff to accept Defendants’ proposal for a reasonable royalty at trial. Id. at 4.
In a separate opinion issued December 8, 2017, Judge Bryson also excluded certain of Plaintiff’s proposed secondary considerations evidence of praise as hearsay (“Exhibits Order”). See Exhibits Order at 4-10. While the Court would permit evidence of industry praise, the Court excluded praise that included factual statements about the products that went beyond assertions of opinion. For example, statements that a product was “mind blowing” were admissible, but following statements that the product was the first of its kind to perform a function was a factual assertion offered for the truth of the matter asserted, and thus excludable hearsay. Id. at 6-7. Furthermore, some exhibits addressed praise of features of the product that were outside the scope of the asserted claims. Id. at 7-8. The Court also took Rule 403 into consideration and concluded that the prejudicial effect of such evidence outweighed its probative value. Id. at 8-9.The Court also ordered such statements redacted from exhibits that contained admissible evidence of praise. Finally, the Court ruled that “out-of-court statements by third-party declarants that [Defendants] or others copied [Plaintiff] are inadmissible hearsay.” Id. at 10.
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