United States District Court For The Northern District of California San Jose Division

Case 5:05-cv-00334-RMW Document 2474 Filed 10/25/2008 Page 1 of 18
1 TOWNSEND and TOWNSEND and CREW LLP

DANIEL J. FURNISS (SBN 73531) djfurniss@townsend.com
2 THEODORE G. BROWN, III (SBN 114672) tgbrown@townsend.com
JORDAN TRENT JONES (SBN 166600) jtjones@townsend.com
3 379 Lytton Avenue
Palo Alto, California 94301
4 Telephone: (650) 326-2400; Facsimile: (650) 326-2422
5 THELEN LLP
KENNETH L. NISSLY (SBN 77589) kennissly@thelen.com
6 SUSAN van KEULEN (SBN 136060) svankeulen@thelen.com
225 West Santa Clara Street, Suite 1200
7 San Jose, California 95113
Telephone: (408) 292-5800; Facsimile: (408) 287-8040
8
O’MELVENY & MYERS LLP
9 KENNETH R. O’ROURKE (SBN 120144) korourke@omm.com
WALLACE A. ALLAN (SBN 102054) tallan@omm.com
10 400 South Hope Street, Suite 1060
Los Angeles, California 90071-2899
11 Telephone: (213) 430-6000; Facsimile (213) 430-6407
12 Attorneys for Defendants and Counterclaim Plaintiffs
HYNIX SEMICONDUCTOR INC.,
13 HYNIX SEMICONDUCTOR AMERICA INC., HYNIX
SEMICONDUCTOR MANUFACTURING AMERICA INC.,
14 HYNIX SEMICONDUCTOR U.K. LTD., and
HYNIX SEMICONDUCTOR DEUTSCHLAND GmbH
15
UNITED STATES DISTRICT COURT
16 FOR THE NORTHERN DISTRICT OF CALIFORNIA
SAN JOSE DIVISION
17
RAMBUS INC.,
18 Plaintiff, Case No. C 05-00334 RMW
v.
19 HYNIX’S DAUBERT NOTICE OF
HYNIX SEMICONDUCTOR INC., HYNIX MOTION AND MOTION TO
20 SEMICONDUCTOR AMERICA INC., HYNIX EXCLUDE PORTIONS OF EXPERT
SEMICONDUCTOR MANUFACTURING REPORT AND TESTIMONY OF
21 AMERICA INC., RAMBUS’S DAMAGES EXPERT
DAVID J. TEECE (DAUBERT #6)
22 SAMSUNG ELECTRONICS CO., LTD.,
SAMSUNG ELECTRONICS AMERICA, INC., Date: December 2, 2008
23 SAMSUNG SEMICONDUCTOR, INC., Time: 2:00 p.m.
SAMSUNG AUSTIN SEMICONDUCTOR, Location: Courtroom 6, 4th Floor
24 L.P., Judge: Hon. Ronald M. Whyte
25 NANYA TECHNOLOGY CORPORATION,
NANYA TECHNOLOGY CORPORATION
26 U.S.A.,
27 Defendants
28
HYNIX’S DAUBERT NOTICE OF MOTION AND MOTION TO EXCLUDE PORTIONS OF EXPERT REPORT AND TESTIMONY OF 1
DEFENDANT’S DAMAGES EXPERT DAVID J. TEECE (DAUBERT #6) CASE NO. C 05 00334 RMW
1 HYNIX SEMICONDUCTOR INC., HYNIX

SEMICONDUCTOR AMERICA INC., HYNIX
2 SEMICONDUCTOR MANUFACTURING
AMERICA INC., HYNIX SEMICONDUCTOR
3 U.K. LTD., HYNIX SEMICONDUCTOR
DEUTSCHLAND GmbH,
4
Counterclaim Plaintiffs,
5 v.
6 RAMBUS INC.,
7 Counterdefendant.
8
9 DOCUMENT SUBMITTED UNDER SEAL
10 THIS ENVELOPE CONTAINS INFORMATION THAT HAS BEEN DESIGNATED AS

CONFIDENTIAL – OUTSIDE COUNSEL ONLY PURSUANT TO THE PROTECTIVE
11 ORDER ENTERED IN THIS CASE AND IS NOT TO BE OPENED OR ITS CONTENTS
REVEALED ABSENT A COURT ORDER OR STIPULATION OF THE PARTIES
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HYNIX’S DAUBERT NOTICE OF MOTION AND MOTION TO EXCLUDE PORTIONS OF EXPERT REPORT AND TESTIMONY OF
1 TABLE OF CONTENTS
2 Page
3 I. INTRODUCTION .....................................................................................................................1
4 II. LEGAL STANDARD FOR ADMISSIBILITY OF EXPERT TESTIMONY..........................2
5 III. THE COURT SHOULD EXCLUDE TEECE’S UNRELIABLE OPINIONS
AND TESTIMONY RELATING TO AN “INFRINGER’S ROYALTY”...............................3
6
A. Teece’s “Infringer’s Royalty” Theory Conflicts with Federal Circuit
7 Precedent .......................................................................................................................3
8 1. The Key Premise of Teece’s “Infringer’s Royalty” Theory Is
Incorrect, As the Federal Circuit Has Held that the
9 Hypothetical Negotiation of a Reasonable Royalty Takes into
Account Uncertainty Regarding Infringement Liability and
10 Patent Validity ...................................................................................................3
11 2. Teece’s “Infringer’s Royalty” Constitutes an Improper
Enhancement of the Damages Allowed Under the Patent Act..........................4
12
B. The Data Utilized by Teece To Quantify an “Infringer’s Royalty” Is
13 Unreliable In That It Does Not Reflect the Context of a Hypothetical
Negotiation Between Hynix and Rambus .....................................................................6
14
C. Teece’s Failure To Consider All Relevant Evidence from the Present
15 Case Also Renders His “Infringer’s Royalty” Theory Unreliable ................................9
16 IV. THE COURT SHOULD EXCLUDE TEECE’S OPINIONS AND
TESTIMONY CONCERNING WORLDWIDE SALES AND INDIRECT
17 SALES OF HYNIX’S DEVICES ...........................................................................................10
18 A. Patent Law Precludes Rambus From Recovering Damages Based on
Hynix’s Foreign Sales of the Accused Devices...........................................................10
19
B. The Court Should Exclude Teece’s Opinions Regarding Indirect Sales
20 Because There Is No Evidence To Establish A Damages Base for
Indirect Sales of the Accused Devices ........................................................................12
21
V. CONCLUSION .......................................................................................................................13
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HYNIX’S DAUBERT NOTICE OF MOTION AND MOTION TO EXCLUDE PORTIONS OF EXPERT REPORT AND TESTIMONY OF i
1 TABLE OF AUTHORITIES
2 Page
3 Cases
4 Amado v. Microsoft Corp.,
517 F.3d 1353 (Fed. Cir. 2008) ................................................................................................... 3, 4, 9
5
Amstar Corp. v. Envirotech Corp.,
6 823 F. 2d 1538 (Fed. Cir. 1988) ........................................................................................................ 10
7 Daubert v. Merrill Dow Pharm., Inc.,
509 U.S. 579 (1993) ............................................................................................................................ 2
8
Devex Corp. v. General Motors Corp.,
9 667 F.2d 347 (3d Cir.1981) ............................................................................................................... 12
10 DSU Medical Corp. v. JMS Co.,
296 F.Supp.2d 1140 (N.D. Cal. 2003)............................................................................................. 2, 4
11
Enpat, Inc. v. Microsoft Corp.,
12 6 F. Supp. 2d 537 (E.D. Va. 1998) .................................................................................................... 10
13 Georgia-Pacific Corp. v. United States Plywood Corp.,
318 F.Supp. 1116 (S.D.N.Y. 1970) ..................................................................................................... 6
14
International Rectifier Corp. v. Samsung Electronics, Co., Ltd.,
15 361 F. 3d 1355 (Fed. Cir. 2004) ....................................................................................................... 10
16 Kumho Tire Co. v. Carmichael,
526 U.S. 137 (1999) ............................................................................................................................ 2
17
Machinery Corp. of Am. v. Gullfiber AB,
18 774 F.2d 467 (Fed Cir. 1985) .............................................................................................................. 5
19 Mahurkar v. C.R. Bard, Inc.,
79 F.3d 1572 (Fed. Cir. 1996) ......................................................................................................... 4, 5
20
National Presto Industries v. Black & Decker, Inc.,
21 760 F. Supp. 699 (D. Del. 1991) ...................................................................................................... 12
22 Panduit Corp. v. Stahlin Bros. Fibre Works, Inc.,
575 F.2d 1152 (6th Cir. 1978) ......................................................................................................... 4, 5
23
Technology Licensing Corp. v. Gennum Corp.,
24 2004 U.S. Dist. LEXIS 10604 (N.D. Cal. March 26, 2004)............................................................... 2
25 Unisplay S.A. v. American Electronic Sign Co. Inc.,
69 F. 3d 512 (Fed. Cir.1995) ............................................................................................................. 12
26
WL Gore & Associates v. Carlisle Co.,
27 198 U.S.P.Q. 353 (D. Del. 1978)....................................................................................................... 12
28
HYNIX’S DAUBERT NOTICE OF MOTION AND MOTION TO EXCLUDE PORTIONS OF EXPERT REPORT AND TESTIMONY OF ii
1 TABLE OF AUTHORITIES (con’t)

2 Page
3 Other Authorities
4 “An Empirical Analysis of Intellectual Property Litigation: Some Preliminary
Results,” 41 Hous. L. Rev. 749 (2004) ................................................................................................ 8
5
“Emperical Evidence on the Validity of Litigated Patents,” 26 AIPLA Quarterly J.
6 185-275 (1998) .................................................................................................................................... 7
7 “Explaining Deviations From the 50-Percent Rule -- A Multimodal Approach to the
Selection of Cases for Litigation,” 25 J. Legal Studies 233-259 (1996)............................................. 7
8
“Royalties, evolving patent rights, and the value of innovation,” Research Policy,
9 Vol. 33, No. 2, pp. 179-191 (2004) ..................................................................................................... 7
10 “The Selection Effects (and Lack Thereof) in Patent Litigation: Evidence from
Trials,” Topics in Economic Analysis & Policy, Vol. 4: No. 1, Art.21 (2004) ................................... 8
11
“The Selection Hypothesis and the Relationship Between Trial and Plaintiff Victory,”
12 103 J. Polit. Econ. 229-260 (1995) ..................................................................................................... 7
13 Rules
14 Fed. R. Evid. 702 ..................................................................................................................................... 2
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HYNIX’S DAUBERT NOTICE OF MOTION AND MOTION TO EXCLUDE PORTIONS OF EXPERT REPORT AND TESTIMONY OF iii
1
NOTICE OF MOTION AND MOTION
2
3 TO ALL PARTIES AND THEIR COUNSEL OF RECORD:

4 PLEASE TAKE NOTICE that on December 2, 2008, at 2:00 p.m. or as soon thereafter as this
5 matter may be heard before the Honorable Ronald M. Whyte, United States District Court for the
6 Northern District of California, Courtroom 6, 4th Floor, 280 South First Street, San Jose, California
7 95110, Defendants and Counterclaimants Hynix Semiconductor Inc., Hynix Semiconductor America
8 Inc., Hynix Semiconductor Manufacturing America Inc., Hynix Semiconductor U.K. Ltd. and Hynix
9 Semiconductor Deutschland GmbH (collectively “Hynix”) will and hereby do move this Court for an
10 order excluding portions of the expert report and testimony of Rambus, Inc.’s (“Rambus”) damages
11 expert David J. Teece.
12 Hynix bases its motion on this Notice of Motion and Motion, the accompanying Memorandum
13 of Points and Authorities, the supporting Declarations of Theodore G. Brown, III and Sven Raz, and
14 on such other evidence and argument that may properly come before the Court.
15
16 MEMORANDUM OF POINTS AND AUTHORITIES

17 I. INTRODUCTION
18 In determining the “reasonable royalty” that should be awarded to Rambus if it prevails,
19 Rambus and its damages expert, David J. Teece (“Teece”), have lost sight of the ultimate goal of
20 compensating Rambus for Hynix’s infringement. Instead, Rambus seeks a windfall of millions of
21 dollars supposedly to compensate for Hynix challenging the validity, enforceability, and infringement
22 of the patents-in-suit. Rambus also feels that it should receive extra compensation for all of Hynix’s
23 sales and those of Hynix’s customers, irrespective of the geographic location of those sales or whether
24 those sales can be quantified. In an attempt to justify Rambus’s rapacity, Teece has littered his expert
25 report with speculative and unreliable theories under the guise of calculating a “reasonable royalty.”
26 In consequence, Hynix moves the Court to exclude those portions of Teece’s expert report and
27 proposed testimony that fail to meet established standards for reliability of expert testimony.
28 Specifically, Hynix moves to exclude those portions of Teece’s expert report and proposed testimony
1 that relate to an “infringer’s royalty” on grounds that such opinions are (1) the product of an unreliable
2 methodology that is in conflict with Federal Circuit precedent, (2) based on unreliable data, and (3)
3 not supported by the evidence of record. Hynix further moves to exclude Teece’s opinions and
4 testimony as they relate to Hynix’s worldwide sales and indirect sales, as Rambus legally is precluded
5 from recovering damages for such sales.
6 II. LEGAL STANDARD FOR ADMISSIBILITY OF EXPERT TESTIMONY
7 Rule 702 of the Federal Rules of Evidence governs the admissibility of expert testimony. It
8 allows an expert to testify to his opinions only if (1) the testimony is based upon sufficient facts or
9 data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has
10 applied the principles and methods reliably to the facts of the case. Fed. R. Evid. 702. The Supreme
11 Court has directed that the trial judge must act as a gatekeeper under Rule 702 to ensure that expert
12 testimony is reliable and relevant. Daubert v. Merrill Dow Pharm., Inc., 509 U.S. 579, 597 (1993).
13 Such heightened scrutiny is necessary because expert testimony “can be both powerful and quite
14 misleading because of the difficulty in evaluating it.” Id. at 595 (citations omitted).
15 In performing its gatekeeping responsibility, the trial court must “determine the reliability of a
16 particular expert’s opinion through a preliminary assessment of the methodologies supporting such
17 opinion.” DSU Medical Corp. v. JMS Co., 296 F.Supp.2d 1140, 1147 (N.D. Cal. 2003). Following
18 this determination, the trial court must still decide whether the methodology was applied reliably to
19 “the particular facts and circumstances of the particular case.” See Kumho Tire Co. v. Carmichael,
20 526 U.S. 137, 158 (1999); DSU Medical, 296 F.Supp.2d at 1147 (“A trial court may exclude evidence
21 when it finds that there is simply too great an analytical gap between the data and the opinion
22 proffered.”). If a court finds an expert’s methodology is inherently unreliable, or that the expert’s
23 application of the methodology is unreasonable, then the opinion should be excluded. See DSU
24 Medical, 296 F.Supp.2d at 1156 (finding the expert’s methodology “not legally acceptable,” and
25 further finding that even if the methodology was reliable, the expert’s application of the methodology
26 was “far too remote factually” to allow the expert’s testimony); see also Technology Licensing Corp.
27 v. Gennum Corp., 2004 U.S. Dist. LEXIS 10604, at *31 (N.D. Cal. March 26, 2004) (precluding the
28 patent holder’s damages expert from attempting to enhance the reasonable royalty calculation through
1 the application of a multiplier).

2 III. THE COURT SHOULD EXCLUDE TEECE’S UNRELIABLE OPINIONS AND
TESTIMONY RELATING TO AN “INFRINGER’S ROYALTY”
3
A. Teece’s “Infringer’s Royalty” Theory Conflicts with Federal Circuit Precedent
4
1. The Key Premise of Teece’s “Infringer’s Royalty” Theory Is Incorrect, As
5 the Federal Circuit Has Held that the Hypothetical Negotiation of a
Reasonable Royalty Takes into Account Uncertainty Regarding
6 Infringement Liability and Patent Validity
7 Teece bases his “infringer’s royalty” theory on the incorrect premise that the hypothetical
8 negotiation of a reasonable royalty does not account for any uncertainty as to infringement liability or
9 the validity of the patents at issue. As detailed in his report, Teece’s “infringer’s royalty” theory
10 hinges on the idea that
11
REDACTED
12
13
14
15
16
17
18 (Raz Decl. Ex. 20 at 39) (emphasis added).
19 However, Teece’s approach plainly contradicts the Federal Circuit’s recent holding on the
20 calculation of reasonable royalty damages. In Amado v. Microsoft Corp., 517 F.3d 1353, 1361-62
21 (Fed. Cir. 2008), the Federal Circuit endorsed a lower court’s discretion to award a higher reasonable
22 royalty for acts of infringement occurring after a verdict of infringement because:

There is a fundamental difference, however, between a reasonable royalty for pre-verdict
23
infringement and damages for post-verdict infringement. Prior to judgment, liability for
24 infringement, as well as the validity of the patent, is uncertain, and damages are
determined in the context of that uncertainty. Once a judgment of validity and
25 infringement has been entered, however, the calculus is markedly different because
different economic factors are involved.
26
27 (citation omitted) (emphasis added). This holding plainly refutes the alleged “standard legal
28 assumption” at the heart of Teece’s “infringer’s royalty” theory that a reasonable royalty should be
1 calculated assuming REDACTED (Raz Decl. Ex. 20 at 39.)1

2 Therefore, Teece’s “infringer’s royalty” methodology is contrary to the law and hence unreliable
3 under Rule 702. DSU Medical, 296 F.Supp.2d at 1148 (“Reliable methodology requires that the legal
4 grounds used by an expert to calculate damages be legally acceptable.”). As such, the Court should
5 exclude for all purposes those portions of Teece’s expert report and proposed testimony that relate to
6 an “infringer’s royalty.”
7 2. Teece’s “Infringer’s Royalty” Constitutes an Improper Enhancement of
the Damages Allowed Under the Patent Act
8
9 By advancing his “infringer's royalty” theory, Teece improperly attempts to penalize Hynix
10 for exercising its right to challenge the validity, enforceability, and infringement of the patents-at-
11 issue in this lawsuit. The Federal Circuit has expressly rejected the levying of super-statutory
12 penalties for defending against allegations of patent infringement in litigation. See Mahurkar v. C.R.
13 Bard, Inc., 79 F.3d 1572, 1581 (Fed. Cir. 1996). In Mahurkar, the trial court added an additional 9%
14 to the calculated “reasonable royalty,” labeling this additional percentage a “Panduit kicker.” Id. at
15 1580 (citing Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152 (6th Cir. 1978)). On
16 appeal, the Federal Circuit found the trial court abused its discretion by adding a “Panduit kicker” and
17 vacated the damages award, holding:
18 Panduit does not authorize additional damages or a “kicker” on top of a reasonable
royalty because of heavy litigation or other expenses. In section 284 and 285, the Patent
19
Act sets forth statutory requirements for awards of enhanced damages and attorney fees.
20 The statute bases these awards on clear and convincing proof of willfulness and
exceptionality. Panduit at no point suggested enhancement of a compensatory damage
21 award as a substitute for the strict requirements for these statutory provisions. The
district court's “kicker,” on the other hand, enhances a damages award, apparently to
22 compensate for litigation expenses, without meeting the statutory standards for
23 enhancement and fees. Therefore, the district court abused its discretion in awarding a
24
1
Hynix submits that the Federal Circuit’s holding in Amado does not conflict with Model Patent Jury
25 Instruction for the Northern District of California No. 5.7 which states that the jury “must assume that
both parties believed the patent valid and infringed” at the time of the hypothetical negotiation.
26 (emphasis added). Believing that a patent is valid and infringed as required in the jury instruction does
not equate to a certain knowledge that the patent is valid and infringed as required under Teece’s
27 “infringer’s royalty” theory.
28
1 9% “Panduit kicker.”
2
Id. at 1581.
3
By advocating for the imposition of an “infringer’s royalty,” Teece is seeking what was
4
expressly forbidden by the Federal Circuit in Mahurkar -- a non-statutory enhancement of a
5
compensatory damage award. In effect, Teece’s “infringer’s royalty” adds a non-statutory
6
enhancement, or “kicker,” into the reasonable royalty calculation based solely on a defendant’s
7
decision to defend itself in litigation against allegations of patent infringement. Nothing in the Patent
8
Act provides for such a penalty. See id. at 1579 (“The Patent Act redresses violations of the right to
9
exclude with damages adequate to compensate for infringement.”). Therefore, like the “Panduit
10
kicker” in Mahurkar, Teece’s “infringer’s royalty” is nothing more than an improper attempt to
11
circumvent “the statutory standards for enhancement and fees.” Id. at 1581.2
12
In fact, Teece himself acknowledges in his article the disfavor his “infringer’s royalty” has
13
garnered in various courts:
14
Some courts have refused to award what they refer to as a “Panduit kicker”, on
15 the grounds that an award of what we have termed “infringer’s royalties”
amounts to an improper “penalty” on an accused infringer that asserted its legal
16 right to compel the patent holder to prove that its patent is valid and infringed.
Other courts have noted that there are other means (notably an award of
17 additional damages for “willful infringement”) that can be used to address the
issue raised in this paper.
18
19 (Brown Decl. Ex. C at 185 n.25). Similarly, this Court should find Teece’s “infringer’s royalty” to be
20 an improper penalty that is unauthorized under the Patent Act, and exclude Teece's opinions and
21 testimony concerning an “infringer's royalty” from this litigation.
22
23
2
Teece’s “heads I win, tails I break even” policy argument similarly has no basis in the law or reality,
24 as the Patent Act provides sufficiently compelling reasons for a party to avoid a verdict of
infringement without the addition of Teece’s “infringer’s royalty,” including the risk of an injunction,
25 an award of attorneys’ fees, and/or an award of treble damages for willful infringement. See
Machinery Corp. of Am. v. Gullfiber AB, 774 F.2d 467, 472 (Fed Cir. 1985) (“[T]he discretion given
26 the court [to award attorney fees], in addition to the present discretion to award triple damages, will
discourage infringement of a patent by anyone thinking that all he would be required to pay if he loses
27 the suit would be a royalty.”)
28
1 B. The Data Utilized by Teece To Quantify an “Infringer’s Royalty” Is Unreliable In

That It Does Not Reflect the Context of a Hypothetical Negotiation Between Hynix
2 and Rambus
3 Even if Teece’s “infringer’s royalty” theory was legally sound, the data utilized by Teece to
4 quantify such royalty is too unreliable and factually distinguishable from the present case to support
5 Teece’s opinions on the matter. In his report, Teece cautions about the limited application of his
6 “infringer’s royalty”:
REDACTED
7
10
11
12 (Raz Decl. Ex. 20 at 38 n.109) (emphasis added). REDACTED
13 REDACTED
14
15
16
17
18 (Raz
19 Decl. Ex. 20 at 41-42.)
20 The statistical data relied upon by Teece is unreliable because it is not indicative of the time
21 period and factual circumstances during which the “hypothetical negotiation” between Hynix and
22 Rambus is presumed to have taken place. Under the direction provided in Georgia-Pacific Corp. v.
23 United States Plywood Corp., 318 F.Supp. 1116 (S.D.N.Y. 1970), the hypothetical negotiation is to
24 take place on the eve of the alleged infringement. While Teece alleges the hypothetical negotiation
25 would occur in January 2001 (the earliest issue date of the patents in suit)3, the data used by Teece to
26
3
It should be noted that Hynix’s damages expert, Roy Weinstein, places the hypothetical negotiation
27 at a later date when the allegedly infringing sales began. (Brown Decl. Ex. B, at 11-12.) However, for
purposes of this motion only, Teece’s proposed January 2001 date will be used.
28
1 calculate his “win rates” is based on six studies that considered lawsuits that ended several years prior
2 to 2001, considered only validity decisions, considered only decisions reported in USPQ reporters,
3 were limited to cases filed in only a single district court or court of appeals, and/or failed to consider
4 cases resolved by pretrial motions. Specifically,
5 • Teece’s “win rate” in his article “Royalties, evolving patent rights, and the value of
6 innovation,” Research Policy, Vol. 33, No. 2, pp. 179-191 (2004), is based on data
7 from a Federal Judicial Center database that covers lawsuits filed from 1979-1995.
8 (Brown Decl. Ex. C at 186.) This database only reports whether the plaintiff or the
9 defendant prevailed, and therefore “does not directly measure the probability that
10 patent holders win at trial.” (Brown Decl. Ex. C at 187 n.32.) This database also does
11 not trace the cases through to final disposition after appeal, so it is impossible to
12 determine if the “wins” for the plaintiffs were upheld on appeal and/or after remand.
13 (Brown Decl. Ex. C at 187 n.36.)
14 • The “win rate” of J. Waldfogel in his article “The Selection Hypothesis and the
15 Relationship Between Trial and Plaintiff Victory,” 103 J. Polit. Econ. 229-260 (1995),
16 is based (according to Teece) on 170 cases filed in the Southern District of New York
17 from 1984 to 1987. (Raz Decl. Ex. 20 at 40 n.114.)
18 • The “win rate” of Kessler, Mietes and Miller in their article “Explaining Deviations
19 From the 50-Percent Rule -- A Multimodal Approach to the Selection of Cases for
20 Litigation,” 25 J. Legal Studies 233-259 (1996), is based (according to Teece) on 30
21 cases decided by the Seventh Circuit Court of Appeals between 1982 and 1987. (Raz
22 Decl. Ex. 20 at 40, n.115.)
23 • The “win rate” of J. Allison and M. Lemley in their article “Emperical Evidence on the
24 Validity of Litigated Patents,” 26 AIPLA Quarterly J. 185-275 (1998), is based on "all
25 written, final validity decisions . . . from early 1989 through 1996." (Brown Decl.
26 Ex. D at 187.)
27 • The “win rate” of A. Marco in his article “The Selection Effects (and Lack Thereof) in
28 Patent Litigation: Evidence from Trials,” Topics in Economic Analysis & Policy, Vol.
1 4: No. 1, Art.21 (2004), is based on adjudications on validity or infringement made

2 between 1970 and 1997 and reported in the US Patents Quarterly (USPQ), which
3 reports only published decisions. (Brown Decl. Ex. E at 13.)
4 • The “win rate” of W. Landes in his article “An Empirical Analysis of Intellectual
5 Property Litigation: Some Preliminary Results,” 41 Hous. L. Rev. 749 (2004), is based
6 on data from the Administrative Office of the United States Courts from 1978-2000.
7 (Brown Decl. Ex. F at 757-58.) The Landes win rate likely is artificially high as it is
8 based entirely on a plaintiff’s win rate at trial (Brown Decl. Ex. F at 771), and does not
9 factor in data on cases resolved by pretrial motions (which Teece’s article found were
10 resolved in favor of the plaintiff only 34.2% of the time). (Brown Decl. Ex. C at 187.)
11 Like Teece’s article, the Landes article only assesses whether the plaintiff or defendant
12 prevailed at trial, not whether the patent holder prevailed at trial. (Brown Decl. Ex. F at
13 771.) Also like Teece’s article, the Landes article does not trace the sample cases
14 through to final disposition after appeal, so it is impossible to determine if the “wins”
15 for the plaintiffs were upheld on appeal and/or after remand. (Brown Decl. Ex. F at
16 757.)
17 Critically, Teece has not made any effort to determine the “win rate” for patent holders in
18 lawsuits involving semiconductor patents and technologies similar to the patents-in-suit in or about
19 January 2001 (Teece’s proposed date for the hypothetical royalty negotiation). As such, there is no
20 reliable basis for Teece’s opinion that in their hypothetical negotiation, Hynix and Rambus would
21 have taken into consideration the fact that a patent holder has a 46% to 66% chance of prevailing in
22 patent infringement litigation.
23 Given the unreliability and irrelevance of the data relied on by Teece, it is unsurprising that
24 courts have expressed serious misgivings about allowing testimony regarding Teece’s “infringer’s
25 royalty” in other litigations. In particular, this Court expressed strong reservations regarding Teece’s
26 “attempt to quantify the discount Rambus normally assigns licensees to compensate for not having to
27
28
1 deal with litigation’s vagaries” in the prior litigation between the parties. (Brown Decl. Ex.G at 13.)4
2 Similarly, Judge Payne in the Rambus v. Infineon case in the Eastern District of Virginia excluded
3 Teece’s “infringer’s royalty” testimony in its entirety. (Brown Decl. Ex. H at 2.) In doing so, Judge
4 Payne held that Teece’s approach “bespeaks unsound science, unsound methodology and advocacy,”
5 and therefore found the testimony to be “unreliable.” (Brown Decl. Ex. I at 12:1-5.)
6 Therefore, the Court should reject, yet again, Teece’s attempt to increase Hynix’s alleged
7 damages on the basis of unreliable and irrelevant data, and exclude those portions of Teece’s expert
8 report and proposed testimony that relate to an “infringer’s royalty.”
9 C. Teece’s Failure To Consider All Relevant Evidence from the Present Case Also
Renders His “Infringer’s Royalty” Theory Unreliable
10
11 Teece’s failure to consider the particular circumstances of the present case in quantifying an
12 “infringer’s royalty” further renders his opinions unreliable. In his article, Teece himself warns
13 against solely utilizing a large-sample probability calculation such as Teece exclusively relies upon in
14 his expert report to quantify an “infringer’s royalty”:
15 This does not mean, however, that in patent infringement litigation it is always
appropriate to calculate the "infringer’s royalty" simply by multiplying the existing rates
16 by the inverse of the large-sample probability of a finding of validity and infringement.
There are numerous complications -- ranging from the fact that the probability of validity
17
and infringement varies across patents and can vary over time even for a single patent, to
18 the fact that the value of being able to practice a patent can vary over time, to the
dynamics of the licensing process in the context of multiple potential licensees, to the fact
19 that many licenses (and many patent infringement lawsuits) involve multiple patents, to
the presence of terms in licenses (such as a "most favored nations" clause) that can affect
20 the royalties paid over the term of the license -- that make it necessary in practice to
proceed with caution.
21
22 (Brown Decl. Ex. C at 189) (emphasis added).
23
24 4
March 1, 2006 Order on Patent Trial Motions In Limine, Case No. C-00-20905 (Brown Decl. Ex. G)
In the order, the Court did allow Teece to provide testimony regarding an “infringer’s royalty” solely
25 “to support the fact that his damages estimates are ‘conservative.’” (Brown Decl. Ex. G at 13.)
However, as detailed previously in this motion, the Federal Circuit’s subsequent decision in Amado
26 eviscerated the central premise of Teece’s “infringer’s royalty” theory. Therefore, Hynix respectfully
submits that testimony on Teece’s “infringer’s royalty” theory should not be allowed in this litigation
27 for any purpose whatsoever.
28
1 Yet, in his expert report, Teece does not, as he urges, “proceed with caution.” In fact, in
2 calculating his alleged “infringer’s royalty,” Teece does not rely on any facts or evidence of record to
3 support his opinion. Teece does not consider the probability of validity and infringement for the
4 patents-in-suit, or how that probability would vary over time. Teece does not factor in the “dynamics
5 of the licensing process” employed by Rambus in light of the multiple potential licensees that existed
6 at the time. (Brown Decl. Ex. B at 12-23.) Teece does not address the fact that Rambus’s other
7 licenses included far more patents than those at issue in this litigation. (Brown Decl. Ex. B at 12-23.)
8 Nor does Teece consider the terms of those licenses, including the fact that many contained what is
9 termed a “most favored nations” clause. (Brown Decl. Ex. B at 12-23.) In short, Teece did not
10 consider any of the facts and circumstances that he himself argued “make it necessary in practice to
11 proceed with caution” in calculating the alleged “infringer’s royalty.” As such, the portions of
12 Teece’s expert report and testimony that relate to an “infringer’s royalty” cannot be considered
13 reliable (even under Teece’s own standard) and should be excluded by the Court.
14 IV. THE COURT SHOULD EXCLUDE TEECE’S OPINIONS AND TESTIMONY

CONCERNING WORLDWIDE SALES AND INDIRECT SALES OF HYNIX’S
15 DEVICES
16 A. Patent Law Precludes Rambus From Recovering Damages Based on Hynix’s
Foreign Sales of the Accused Devices
17
18 The Court should reject Teece’s attempt to extend the reach of Rambus’s U.S. patents beyond
19 products sold or manufactured in the United States. United States patent laws do not operate beyond
20 the limits of the United States. E.g., International Rectifier Corp. v. Samsung Electronics, Co., Ltd.,
21 361 F. 3d 1355, 1360 (Fed. Cir. 2004). Because this lawsuit involves only United States patents,
22 Rambus’s only potential remedy is a reasonable royalty based on Hynix’s sales of accused products
23 that were manufactured or sold in the United States. Foreign sales are irrelevant to the damages
24 determination, as Rambus cannot be granted a reasonable royalty on such sales. Amstar Corp. v.
25 Envirotech Corp., 823 F. 2d 1538, 1546 (Fed. Cir. 1988) (affirming the district court’s denial of
26 damages for foreign sales because such sales did not infringe a valid U.S. patent); Enpat, Inc. v.
27 Microsoft Corp., 6 F. Supp. 2d 537, 539 (E.D. Va. 1998) (“Microsoft’s foreign sales may not be taken
28 into account in any determination of a reasonable royalty.”).
1 Despite the clarity of the law on the issue, Teece improperly persists in his belief that Hynix’s
2 worldwide sales should be used as the damages base in this litigation. In his report, Teece opines that
3 REDACTED
4 REDACTED (Raz Decl. Ex. 20 at 54.) Teece then attempts to

5 justify this contradiction of established law by noting that REDACTED
6 REDACTED (Raz Decl. Ex. 20 at 54.) However, Teece’s explanation

7 conveniently neglects the critical fact that REDACTED
8 REDACTED . In other words, REDACTED

9 REDACTED
10 REDACTED Here, however, only Rambus’s United States

11 patents are at issue; therefore, Rambus is only entitled to damages based on infringing activities in the
12 United States. Rambus is required to sue Hynix in other countries for infringement of its non-United
13 States patents and to seek damages in foreign courts for such allegedly infringing activities.
14 Furthermore, Teece’s opinion that limiting damages to U.S.-only sales should somehow
REDACTED
15 increase the appropriate royalty rate is unsupported and, consequently, unreliable. In his report,
16 REDACTED
17 REDACTED
18 REDACTED
19 REDACTED (Raz Decl. Ex. 20 at 53.) However, Teece
20 provides no reliable evidence to substantiate his theory.5 For this reason, this Court properly
21 concluded in the prior litigation that Teece’s “testimony as to the possible effect of basing royalty
22 rates on the United States’ sales only was pure speculation.” (Brown Decl. Ex. J at 5.)
23 Therefore, because Rambus is not entitled to recover damages based on Hynix’s sales of the
24 accused devices outside the United States, and Teece’s opinion regarding a higher royalty rate on
25
5
Teece’s citation to alleged conversations from “several years ago” wherein a Rambus licensing
26 executive purportedly told Teece and his “staff” that a U.S.-only royalty rate “would be significantly
higher” than a worldwide rate falls far short of evidentiary standards for either admissibility or
27 reliability. (Raz Decl. Ex. 20 at 53.)
28
1 U.S.-only sales is pure speculation, the Court should exclude all such opinions from this litigation.
2 B. The Court Should Exclude Teece’s Opinions Regarding Indirect Sales Because
There Is No Evidence To Establish A Damages Base for Indirect Sales of the
3 Accused Devices
4 The Court should exclude Teece’s testimony regarding indirect sales because Teece admits
5 that he cannot quantify Hynix’s indirect sales of the accused devices. In his report, Teece expressly
6 acknowledges that he is REDACTED
7 REDACTED
8 (Raz Decl. Ex. 20 at 58.) Nonetheless, Teece opines that REDACTED
9 REDACTED (Raz Decl. Ex. 20 at

10 58.)
11 It would be unfair and prejudicial to allow Teece to refer to his damages calculation as
12 "conservative" because it does not account for unproven indirect sales. Any testimony referring to
13 Teece’s damages calculations as “conservative” would likely influence the trier of fact to award
14 Rambus a higher royalty than that to which Rambus is entitled. Such a result would be both factually
15 and legally incorrect, as an award of damages to Rambus based on a reasonable royalty must have a
16 factual basis and cannot be speculative or based upon little or no evidence. See Unisplay S.A. v.
17 American Electronic Sign Co. Inc., 69 F. 3d 512, 517 (Fed. Cir.1995) (“Although this analysis
18 necessarily involves an element of approximation and uncertainty, a trier of fact must have some
19 factual basis for a determination of a reasonable royalty. Any rate determined by the trier of fact must
20 be supported by relevant evidence in the record.”); Devex Corp. v. General Motors Corp., 667 F.2d
21 347 (3d Cir.1981) (affirming a damages award of $0 due to lack of evidence, because “the statute
22 requires the award of a reasonable royalty, but to argue that this requirement exists even in the absence
23 of any evidence from which a court may derive a reasonable royalty goes beyond the possible
24 meaning of the statute.”); see also National Presto Industries v. Black & Decker, Inc., 760 F. Supp.
25 699, 701 (D. Del. 1991) (holding that reasonable royalty damages cannot be “based on conjecture”);
26 WL Gore & Associates v. Carlisle Co., 198 U.S.P.Q. 353, 368 (D. Del. 1978) (stating that a reasonable
27 royalty must “be determined solely on the basis of the submitted evidence and upon an evaluation of
28 the factors that could affect the reasonable royalty, not upon mere conjecture”).
1 Consequently, this Court held in the prior litigation that “[p]ermitting Teece to embellish
2 Rambus’s damages by calling his estimates ‘conservative’ would invite the jury to award damages that
3 lack legal basis and allow Rambus to avoid the rigors of proving up indirect sales.” (Brown Decl.
4 Ex. G at 14.) Therefore, this Court ordered that “although Teece may use the word ‘conservative’ to
5 describe his analysis, he cannot mention indirect sales to support this adjective.” (Brown Decl. Ex. G
6 at 14.) Because Teece’s proposed testimony in this litigation is virtually identical to his proposed
7 testimony in the prior litigation, the Court should again exclude those portions of Teece’s expert report
8 and proposed testimony that relate to indirect sales.
9 V. CONCLUSION
10 For the foregoing reasons, Hynix respectfully requests that the Court exclude the specified
11 portions of the expert report and testimony of Rambus’s damages expert David J. Teece.
12
13 DATED: October 24, 2008 Respectfully submitted,

14
15 By: /s/ Theodore G. Brown, II

Daniel J. Furniss
16 Theodore G. Brown, III
Jordan Trent Jones
17 TOWNSEND and TOWNSEND and CREW LLP
18 Kenneth L. Nissly
Susan van Keulen
19 Geoffrey H. Yost
THELEN REID BROWN RAYSMAN & STEINER LLP
20
Kenneth R. O’Rourke
21 Wallace A. Allan
O’MELVENY & MYERS LLP
22
Attorneys for
23 HYNIX SEMICONDUCTOR INC.,
HYNIX SEMICONDUCTOR AMERICA INC.,
24 HYNIX SEMICONDUCTOR
MANUFACTURING AMERICA INC., HYNIX
25 SEMICONDUCTOR U.K. LTD., and HYNIX
SEMICONDUCTOR DEUTSCHLAND GmbH
26 61560838 v2
27
28
DEFENDANT’S DAMAGES EXPERT DAVID J. TEECE (DAUBERT #6) - CASE NO. C 05-00334 RMW

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Case 5:05-cv-00334-RMW Document 2474 Filed 10/25/2008 Page 1 of 18

1 TOWNSEND and TOWNSEND and CREW LLP

1 HYNIX SEMICONDUCTOR INC., HYNIX

9 DOCUMENT SUBMITTED UNDER SEAL

10 THIS ENVELOPE CONTAINS INFORMATION THAT HAS BEEN DESIGNATED AS

1 TABLE OF AUTHORITIES (con’t)

3 TO ALL PARTIES AND THEIR COUNSEL OF RECORD:

16 MEMORANDUM OF POINTS AND AUTHORITIES

1 the application of a multiplier).

18 (Raz Decl. Ex. 20 at 39) (emphasis added).

22 royalty for acts of infringement occurring after a verdict of infringement because:

1 calculated assuming REDACTED (Raz Decl. Ex. 20 at 39.)1

21 testimony concerning an “infringer's royalty” from this litigation.

1 B. The Data Utilized by Teece To Quantify an “Infringer’s Royalty” Is Unreliable In

12 (Raz Decl. Ex. 20 at 38 n.109) (emphasis added). REDACTED

4 cases resolved by pretrial motions. Specifically,

13 (Brown Decl. Ex. C at 187 n.36.)

17 from 1984 to 1987. (Raz Decl. Ex. 20 at 40 n.114.)

20 Litigation,” 25 J. Legal Studies 233-259 (1996), is based (according to Teece) on 30

22 Decl. Ex. 20 at 40, n.115.)

24 Validity of Litigated Patents,” 26 AIPLA Quarterly J. 185-275 (1998), is based on "all

1 4: No. 1, Art.21 (2004), is based on adjudications on validity or infringement made

8 report and proposed testimony that relate to an “infringer’s royalty.”

22 (Brown Decl. Ex. C at 189) (emphasis added).

14 IV. THE COURT SHOULD EXCLUDE TEECE’S OPINIONS AND TESTIMONY

28 into account in any determination of a reasonable royalty.”).

4 REDACTED (Raz Decl. Ex. 20 at 54.) Teece then attempts to

6 REDACTED (Raz Decl. Ex. 20 at 54.) However, Teece’s explanation

8 REDACTED . In other words, REDACTED

10 REDACTED Here, however, only Rambus’s United States

19 REDACTED (Raz Decl. Ex. 20 at 53.) However, Teece

8 (Raz Decl. Ex. 20 at 58.) Nonetheless, Teece opines that REDACTED

9 REDACTED (Raz Decl. Ex. 20 at

8 and proposed testimony that relate to indirect sales.

13 DATED: October 24, 2008 Respectfully submitted,

15 By: /s/ Theodore G. Brown, II

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