Parallel Networks Licensing LLC v. International Business Machines Corporation
1:13-cv-02072
D. Del.Apr 17, 2017Background
- Parallel Networks sued IBM for patent infringement; summary judgment previously excluded Parallel Networks' indirect-infringement theory.
- After that ruling, IBM moved to exclude all testimony of Parallel Networks' damages expert, John R. Bone, arguing Bone had no admissible opinion on damages for IBM's alleged direct infringement via IBM.com.
- Bone's expert report primarily analyzed damages tied to IBM's sales of accused products (profit-based Georgia‑Pacific style apportionment) and explicitly treated licenses to end-users operating websites as irrelevant.
- Parallel Networks later indicated Bone would testify about damages from IBM's internal use of the accused products (IBM.com); IBM disputed that such an opinion was disclosed and, alternatively, argued it fails Daubert/Rule 702 standards.
- The Court reviewed Bone's report, deposition, and supplemental submissions and concluded Bone did not provide a developed damages theory tied to IBM.com and that any belated theory is methodologically unreliable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Bone disclosed a damages opinion for IBM's alleged direct infringement via IBM.com | Bone's report included a reasonable‑royalty analysis reflecting IBM's internal use and "online value"; thus the theory was disclosed | No such damages theory was developed in the report; disclosure limited to sales‑based damages and bargaining leverage from IBM.com | Held for IBM: report did not adequately disclose a damages theory tied to IBM.com (excluded under Rule 26/37) |
| Whether Bone's purported IBM.com damages opinion satisfies Rule 702/Daubert | Opinion is reliable and can be explained at trial | Methodological flaws and analytical gaps render the opinion unreliable and inadmissible | Held for IBM: even if construed as an opinion, it fails Daubert (unreliable methodology and poor fit) |
| Reliance on internal IBM statistics (0.5% downtime; 3.8% revenue loss) | Internal IBM document supports the cited downtime and revenue‑loss estimates | The IBM slide does not link to the accused products or justify the numerical relationships relied upon | Held for IBM: the internal numbers are insufficiently grounded to meet Rule 702 reliability requirements |
| Apportionment and use of company‑wide margins to value web‑driven revenue | Using company metrics and market proxies provides a reasonable basis for apportionment | Applying company‑wide gross margin to a narrow online revenue slice and assuming market‑average patent value to IBM is unsupported | Held for IBM: apportionment and margin assumptions are unreliable and create too great an analytical gap |
Key Cases Cited
- Daubert v. Merrell Dow Pharm., 509 U.S. 579 (1993) (trial court gatekeeper role for expert admissibility under Rule 702)
- Kumho Tire Co. v. Carmichael, 526 U.S. 137 (1999) (Daubert gatekeeping applies to all expert technical and specialized testimony)
- Gen. Elec. Co. v. Joiner, 522 U.S. 136 (1997) (courts may exclude expert opinions with an analytical gap between data and conclusion)
- Georgia‑Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970) (factors for reasonable‑royalty royalty analysis)
- Coalition to Save Our Children v. Bd. of Educ. of Del., 90 F.3d 752 (3d Cir. 1996) (exclusion of undisclosed expert testimony is within district court discretion)
- ZF Meritor, LLC v. Eaton Corp., 696 F.3d 254 (3d Cir. 2012) (plaintiff omits damages evidence at its own risk)
- Metavante Corp. v. Emigrant Sav. Bank, 619 F.3d 748 (7th Cir. 2010) (importance of adequate expert disclosure for cross‑examination and rebuttal)
- i4i Ltd. P'ship v. Microsoft Corp., 598 F.3d 831 (Fed. Cir. 2010) (evaluate expert reasonableness even when based on defendant's internal documents)
Disposition: IBM's motion to exclude John R. Bone's expert report is granted.