IP Law Daily, PATENT—D. Del.: After revising damages apportionment, Wirtgen’s expert report permitted, (Feb 12, 2024)

By Donielle Tigay Stutland, J.D.

Following revisions, a damages report was now permissible in the patent infringement suit between Wirtgen and Caterpillar.

A federal court in Delaware reconsidered the exclusion of expert testimony in a patent infringement case between Wirtgen America, Inc. (Wirtgen) and Caterpillar, Inc. (Caterpillar). The court had previously agreed to exclude Wirtgen’s expert’s report because of an improper damages apportionment. However, the court concluded that Wirtgen’s supplemental damages report, which isolates the value of the patented features, fixes the apportionment issue. Although Caterpillar argued that the report is untimely and that there were remaining issues of admissibility, the court concluded that the expert’s supplemental report on damages was admissible (Wirtgen America, Inc. v. Caterpillar, Inc. , February 9, 2024, Wolson, J.).

Background. In 2017, Wirtgen sued Caterpillar alleging patent infringement. Wirtgen now asserts nearly 20 claims across 7 patents. Wirtgen owns patents that provided a competitive advantage in road construction equipment technology. Wirtgen’s lawsuit alleges that that Caterpillar infringed on several of its patents.

Patents in dispute. The dispute centered on seven patents owned by Wirtgen, each of which contributed to the sophistication and functionality of road construction machinery. The patents in question were U.S. Patent No. 7,828,309 (the ’309 Patent), U.S. Patent No. 9,656,530 (the ’530 Patent), U.S. Patent No. 8,424,972 (the ’972 Patent), U.S. Patent No. 7,530,641 (the ’641 Patent), U.S. Patent No. 7,946,788 (the ’788 Patent), U.S. Patent No. 8,690,474 (the ’474 Patent), and U.S. Patent No. RE48,268 (the ’268 Patent). These patents cover a wide range of innovations, from height-adjustable machines relative to their frames or chassis to machines outfitted with drums, adjustable ground supports, lifting sensors, and drive train components, all aimed at improving the efficiency, precision, and versatility of road construction equipment.

Initial expert’s report. Wirtgen’s expert, Dr. Seth, calculated a reasonable royalty award using a hypothetical negotiation framework. She estimated the highest amount that would ensure Caterpillar found the agreement profitable (otherwise known as Caterpillar’s maximum willingness to pay or “MWP” or “Accused Profits”) and the lowest amount that would ensure Wirtgen found the agreement profitable (Wirtgen’s minimum willingness to accept or “MWA”). Dr. Seth apportioned only the difference between those two values (the “joint surplus value”). The court had highlighted that the expert never apportioned Wirtgen’s MWA. The method she used to find her apportionment rate was based on a count of family-level forward patent citations. She then split the apportioned joint surplus value between the parties using the Rubenstein bargaining model. She arrived at her final damages calculation by adding Wirtgen’s split of the apportioned joint surplus value to Wirtgen’s MWA.

Previous legal determination. In an order on February 6, 2024, the court granted Caterpillar’s motion to exclude the testimony of Wirtgen’s damages expert. In its analysis, the court indicated that critical point was the need for a damages expert to apportion damages based solely on the value of the infringing features, which is a well-established principle in Federal Circuit law. Dr. Seth's methodology was found to be inadequate in apportioning Wirtgen's lost profits from the sale of entire machines to specific patented technologies. The court also highlighted the requirements for expert testimony, emphasizing the importance of reliability, qualifications, and a fit between the expert's method and the facts of the case. The court emphasized the distinct yet interrelated restrictions on expert testimony admission, including the principles of qualifications, reliability, and fit established in Daubert v. Merrell Dow Pharmaceuticals, Inc.

Because the court had excluded Dr. Seth’s testimony in full, it did not address any other grounds of inadmissibility that Caterpillar had raised in its motion. The court also specified that Wirtgen may still be able to present parts of Dr. Seth’s testimony that did not run afoul of the February 2024 opinion.

Supplemental damages report. Wirtgen served a supplemental damages report on Caterpillar which now has “removed Wirtgen’s minimum willingness to accept and applied the calculations from the previously disclosed forward patent citation analysis and Rubenstein bargaining model to the entirety of the Accused Profits” by its expert.

In the new report, Dr. Seth’s apportionment methodology consists of three steps. First, she focuses on net profits, not net revenues. In that way, she accounts for input costs. Then, she does a patent forward citation analysis to try to isolate the value of the various patents. Finally, she engages in a Rubenstein bargaining model to try to account for other factors, such as the companies’ respective market power and ownership of unpatented features. The court found her supplemental analysis properly considers the patented features of the machines. The court also noted that the expert has attempted to control for all of the non-patented features through her various steps, and therefore has tried to isolate the value of each of the patented features.

Untimeliness. Caterpillar first challenged the timeliness of the submission of the supplemental report. The court noted that in the Third Circuit, a district judge may exclude untimely expert opinions only after analyzing the Pennypack factors: (1) the prejudice or surprise in fact of the party against whom the excluded witnesses would have testified or the excluded evidence would have been offered; (2) the ability of that party to cure the prejudice; (3) the extent to which allowing such witnesses or evidence would disrupt the orderly and efficient trial of the case or of other cases in the court; (4) any bad faith or willfulness in failing to comply with the court's order; and (5) the importance of the excluded evidence.

The court agreed that the report was untimely, however, while it found that Caterpillar might have suffered some prejudice, it determined that any prejudice could be ameliorated (though not eliminated) by permitting Dr. Seth’s deposition and by considering Caterpillar’s new Daubert arguments on the merits.

Daubert arguments. The court also analyzed Caterpillar’s arguments that the supplemental expert report be excluded for other reasons. First, Caterpillar raised a challenge that the new methodology doesn’t take enough account of non-patented features that add value. However, the court found this argument does not warrant exclusion “because they suggest that Dr. Seth made what Caterpillar characterizes as factual errors, not methodological errors.”

Next, Caterpillar challenged the expert’s assumptions and analysis related to “convoyed sales.” The court concluded the expert’s opinions are appropriate at this time and that “a jury may hear and weigh this evidence,” if Caterpillar had disagreements with the expert’s opinions.

Caterpillar also argued that the expert’s reliance on lost profits was unreasonable. However, the court found that the expert’s heavy reliance on lost profits in her reasonable royalty calculation was permissible.

Caterpillar also challenged the expert’s use of the proper entities in its analysis. Caterpillar argued that the analysis used Wirtgen (as opposed to Wirtgen GmbH) in the hypothetical negotiation. The court determined this was a permissible assumption, as it is reasonable to determine that he interests of Wirtgen GmbH and Wirtgen America were aligned such that Wirtgen GmbH would have assigned its patents to Wirtgen America right before a hypothetical negotiation. The court again noted that Caterpillar is free to raise this challenge at trial.

The Case is No. 1:17-cv-00770-JDW.

Attorneys: Adam Wyatt Poff (Young, Conaway, Stargatt & Taylor LLP) for Wirtgen America, Inc. Bindu Ann George Palapura (Potter Anderson & Corroon, LLP) for Caterpillar, Inc.

Companies: Wirtgen America, Inc.; Caterpillar, Inc.

Cases: Patent DelawareNews