In a recent patent infringement case, the U.S. Court of Appeals for the Federal Circuit ruled that a federal trial judge should have granted the defendants’ motion to exclude the testimony of the plaintiff’s damages expert. This article summarizes this decision, which underscores the duty of courts to serve as gatekeepers to ensure that expert evidence is relevant and reliable.
Cyntec Company, Ltd. v. Chilisin Electronics Corp., Chilisin America Ltd., No. 2022-1873 (Fed. Cir. October 16, 2023).
Trial court decision
The plaintiff sued the defendants for allegedly infringing its patents for molded chokes and an improved method of manufacturing them. Molded chokes — inductors used to eliminate undesirable signals in a circuit — are found in many modern electronics.
Most of the damages sought by the plaintiff resulted from sales outside the United States. But the plaintiff accused the defendants of indirectly infringing its patents by selling products containing the infringing chokes to customers who imported those products into the United States.
To estimate U.S. sales of infringing products, the expert used Securities and Exchange Commission (SEC) filings to determine the customers’ “importation rates” by dividing their U.S. revenue by their worldwide revenue. To estimate the infringement revenue subject to damages, the expert multiplied the defendants’ accused domestic revenue by each customer’s importation rate. Then he multiplied these estimated direct sales by the plaintiff’s estimated market share to arrive at the plaintiff’s lost sales.
The jury awarded the plaintiff the full amount of requested damages: $1,552,493 in lost profits, plus $320,463 in reasonable royalty damages. The district court granted the plaintiff’s motion for enhanced damages, resulting in a total damages award of $5,553,244.
The defendants had filed a motion under Rule 702 of the Federal Rules of Evidence to exclude the damages expert’s testimony. However, the U.S. District Court for the Northern District of California admitted it, ruling that the expert’s opinions relied on “data sources that are sufficiently reliable that a jury can determine whether the assumptions made in his calculations were valid.”
Appellate court finding
The defendants appealed on several grounds. Notably, they argued that the district court should have granted the Rule 702 motion. The appellate court agreed, holding that the district court abused its discretion by admitting the expert’s testimony. It vacated the jury’s lost profits award, finding that the expert’s calculation was unreliable and speculative. The revenue reported in customers’ SEC filings included sales of noninfringing products and services, and the expert failed to account for those unrelated products and services.
The defendants also appealed the district court’s rulings on two motions for judgment as a matter of law (JMOL). First, the defendants argued that the district court erred by granting the plaintiff’s motion for a JMOL that its claims weren’t invalid as obvious. The defendants asserted that factual disputes regarding this issue should have gone to the jury. The appellate court agreed, reversing and remanding this issue.
Second, the defendants argued that the district court should have granted their motion for a JMOL of noninfringement. They contended that the jury verdict rested on an erroneous construction of certain patent terms and wasn’t supported by substantial evidence. The appellate court sided with the plaintiff. It found that the district court’s construction of patent terms was proper and the evidence supported the verdict.
Experts in the crosshairs
Cyntec demonstrates how federal and state courts that follow the FRE scrutinize expert testimony for relevance and reliability. The appellate court recognized the trial court’s duty to serve as gatekeeper to ensure that expert evidence is relevant and reliable. However, this case was decided shortly before amendments to Federal Rules of Evidence (FRE) Rule 702 took effect.
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