Nintendo Loses Damages Expert Testimony

Jul 13, 2020

SUMMARY

A court struck Nintendo’s damages expert testimony severely damaging its patent infringement case.

BACKGROUND

This is a continuation of a case discussed earlier, Gamevice v. Nintendo, where Gamevice sued Nintendo for the Nintendo Switch’s alleged infringement of a family of Gamevice patents. One aspect of the case we did not discuss earlier is Nintendo’s assertion that Gamevice devices infringe three of Nintendo’s patents, U.S. Patent Nos. 7,193,165 (directed towards a handheld gaming device), 8,702,514 (a controller system), and 9,700,806 (a game controller that connects to a separate device). This appears to be the first and only time that Nintendo has asserted any of its utility patents in the United States.

Example figures from the Nintendo patents and Gamevice device below:

On March 30, 2020 Gamevice filed motions for summary judgment of invalidity and noninfringement of the three patents and to exclude the expert testimony of Nintendo’s damages expert. The court issued its ruling on June 6, 2020.

MOTIONS FOR SUMMARY JUDGMENT

INVALIDITY AND NONINFRINGEMENT MOTIONS

The court denied Gamevice’s motions for summary judgment of noninfringement and invalidity of the ’165 and ’514 Patents primarily due to conflicting expert testimony from the experts creating genuine issues of material fact. These opinions don’t really warrant much discussion except for a civil procedure practice point for N.D. Cal. patent cases.

Gamevice filed invalidity contentions for the ’514 Patent on November 1, 2018 (this is a procedural filing identifying why a party believes the patents are invalid and generally identifies all of the prior art it will be using to invalidate a patent). On May 24, 2019, Gamevice served interrogatories on Nintendo asking it to “explain all factual and legal bases for each contention by [Nintendo] that” each prior art reference does not anticipate and thus “invalidate the asserted claims.” Nintendo responded substantively while objecting to the interrogatory as prematurely calling for an expert report. After Gamevice filed its expert report of invalidity of the ’514 Patent in December 2019, Nintendo filed a rebuttal export report in February 2020 and included new substantive arguments towards validity. Gamevice objected to the new arguments and argued for their exclusion. The court recognized that there is something of a split amongst the courts in the district on how to handle these types of objections but ultimately sided with Nintendo because Gamevice had the burden of proof on invalidity. The practice point is that, at least in front of Judge Seeborg in the N.D. Cal., you can reserve some of your arguments for rebuttal expert reports on issues which you do not bear the burden of proof.

The court found for Gamevice on noninfringement of the ’806 Patent primarily on technical/claim construction grounds.

DAUBERT MOTIONS

Both parties filed motions to exclude testimony from the other party’s experts, known as Daubert motions (from Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 589 (1993)). Nintendo moved to exclude Gamevice’s technical expert, which the court denied. Gamevice moved to exclude Nintendo’s damages expert, which the court granted.

Nintendo’s damages expert identified a reasonable royalty in his expert report, but failed to tie it to any facts of the case. The court’s reasoning is fairly damning. A couple of excerpts (with citations removed):

The only attempt Wunderlich makes at tying the royalty rate he assumed to evidence is a statement that his assumed royalty rate is a multiplier on a rate Gamevice paid to a third party. However, Wunderlich then admitted at his deposition that he had used the incorrect third-party royalty rate. He characterized his mistake as a “typo,” but said the typo would not change his damages conclusion because “my analysis isn’t take the [third-party royalty] rate and double it.” Thus, at his deposition, Wunderlich disavowed the only concrete basis for the royalty rate used in his report. This underscores that, regardless of what evidence Wunderlich considered in compiling his report, his calculations are not tied to that evidence. Under Rule 702, a jury cannot be permitted to rely on such unreliable testimony. Without a royalty rate, Wunderlich’s damages calculation is of no use.

And on the damages expert’s opinion on the nexus between the Nintendo patents and success of Nintendo products:

Many of the “technical” opinions on which he relies are inapposite. For example, Wunderlich states, citing another witness, that the size of one of Nintendo’s products, which embodies the ’165 Patent, was integral to its commercial success—but the ‘165 Patent is not about the size of the claimed device. Moreover, Wunderlich cites to a conversation with a technical expert, but that conversation was about Gamevice’s, not Nintendo’s, products. The unreliability of Wunderlich’s opinion on this matter is further underscored by the fact that he does not differentiate among the claims of each patent, while Nintendo itself does not assert its products practice each of the asserted claim.

I’m not sure if Nintendo was just phoning it in with the damages expert reports (and deposition testimony), but I’m sure it wasn’t cheap based on what experts charge.

THE BIG PICTURE

Losing one’s damages expert in patent litigation is a major setback. It allows the other side to enter in expert testimony on appropriate damage without a damages theory of one’s own. Some courts have even granted no damages where infringement was shown, though the Federal Circuit has remanded a number of those cases back to the district court to determine a reasonable royalty. However, if the court finds that the Gamevice devices infringe Nintendo’s patents, it will be hard for Nintendo to argue that a reasonably royalty is far from Gamevice’s damages expert’s estimate. It can also be a setback for the expert since counsel will often vet experts by asking if they’ve ever been successfully Daubert’d. The deficiencies in Nintendo’s damages case make me think that its patent assertion is more about driving towards settlement than to recover any sort of damages, but it’s still surprising that Nintendo’s counsel would allow that damages expert report to go to the court.

[Thanks to Docket Navigator for access to the case docket]