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Visteon Global Technologies, inc. v. Garmin International, Inc.

United States District Court, E.D. Michigan, Southern Division

October 14, 2016

VISTEON GLOBAL TECHNOLOGIES, INC. AND VISTEON TECHNOLOGIES, LLC, Plaintiffs,
v.
GARMIN INTERNATIONAL, INC., Defendant.

          David R. Grand United States Magistrate Judge

         OPINION AND ORDER (1) GRANTING GARMIN'S MOTION TO EXCLUDE DR. JOEL STECKEL'S CONJOINT SURVEY AND CONCLUSIONS DERIVED THEREFROM (ECF NO. 259) AND (2) GRANTING GARMIN'S MOTION TO EXCLUDE PETER SMITH'S REASONABLE ROYALTY CALCULATIONS AND OPINIONS REGARDING DAMAGES (ECF NO. 260); (3) GRANTING GARMIN'S MOTION TO STRIKE DR. STECKEL'S DECLARATION (ECF NO. 318); (4) GRANTING GARMIN'S MOTION TO STRIKE PORTIONS OF PETER SMITH'S EXPERT REPORT (ECF NO. 342); AND (5) GRANTING VISTEON'S DAUBERT MOTION TO EXCLUDE JOHN LAVRAKAS FROM OFFERING ANY TESTIMONY REBUTTING SURVEY (ECF NO. 255)

          PAUL D. BORMAN UNITED STATES DISTRICT JUDGE

         In this patent infringement action, Defendant Garmin International, Inc.'s (“Garmin”) has moved to exclude the expert opinions of Plaintiffs Visteon Global Technologies, Inc. and Visteon Technologies, LLC's (“Visteon”) damages experts Dr. Joel Steckel and Mr. Peter Smith. (ECF Nos. 259, 260.) Visteon has filed Responses to both motions (ECF Nos. 280, 281) and Garmin has filed Replies (ECF Nos. 319, 320). The Court held a Daubert[1] hearing on July 13, 2016, and heard testimony from both Dr. Steckel and Mr. Smith. The parties filed post-hearing briefs on August 12, 2016. (ECF Nos. 376, 377.)[2]

         I. BACKGROUND

         This is an action for patent infringement. In the claims that remain for trial, Visteon Global contends that Garmin infringes, either directly or indirectly, U.S. Patent No. 5, 544, 060 (“the ‘060 patent”), U.S. Patent No. 5, 654, 892 (“the ‘892 patent”) and U.S. Patent No. 5, 832, 408 (“the ‘408 patent”). In general, the '060 patent is directed to a method of navigating a vehicle whereby a user can generate an optimal path and then switch to an alternate navigation path before beginning on the optimal path. Visteon contends that Garmin directly infringes Claims 3, 4, and 6 and indirectly infringes Claim 3 of the ‘060 patent. In general, the ‘892 patent is directed to a method for assisting the navigation of a vehicle whereby a complex arrow icon is generated and displayed to the driver at a predetermined time or distance before the driver reaches a particular maneuver. Visteon contends that Garmin directly and indirectly infringes Claim 8 of the ‘892 patent. In general, the ‘408 patent is directed to a navigation system which allows the user to search for a destination either from a list of categories or from an alphanumeric search. Visteon contends that Garmin directly and indirectly infringes Claims 4 and 5 of the ‘408 patent.

         Visteon contends that a variety of Garmin navigation products (“the accused products”) infringe one or more the asserted claims literally and under the doctrine of equivalents. Visteon contends that Garmin directly infringes, actively induces infringement and/or contributorily infringes one or more of the asserted claims of the asserted patents, and that Garmin's infringement is and has been willful. Visteon seeks damages in the form of a reasonable royalty for Garmin's alleged infringement. Visteon also seeks prejudgment interest, enhanced damages, attorneys' fees, and costs, including without limitation any fees and costs associated with participating in multiple ex parte proceedings at the United States Patent and Trademark Office (“USPTO”) as initiated by Garmin in this action. Garmin denies that it directly, indirectly or contributorily infringed or induced infringement of any of the patents in suit and affirmatively asserts a host of invalidity defenses. Garmin seeks judgment in its favor and requests that it be awarded its costs and reasonable attorneys' fees incurred in defending against Visteon Complaint.

         With respect to Dr. Steckel, Garmin attacks the “scientific adequacy” of Dr. Steckel's survey, challenging aspects of the underlying design of the survey and the analysis that Dr. Steckel employed in analyzing the data that he collected. Garmin levels three principal attacks on the reliability of Dr. Steckel's methods as applied in this case and to his conclusions, which Garmin argues resulted in inflated values of the accused features “far beyond any semblance of real-world credibility.” Garmin argues that the survey produced “economically irrational results, ” attributable to at least the following fundamental flaws: First, Garmin argues that Dr. Steckel did not survey the actual patented functionalities but rather tested features much broader than the accused features, leading to an overvaluation of the patented features. Second, Garmin argues that Dr. Steckel failed to include reasonable distracter features in his product profiles, thus inordinately focusing respondents on the patented features. And third, Garmin argues that Visteon improperly extrapolates from Dr. Steckel's “economic values” to support their reasonable royalty damage calculation.

         With respect to Mr. Smith, Garmin levels three principal attacks on his reasonable royalty calculation: (1) Mr. Smith's reliance on Dr. Steckel's Economic Values fails to apportion revenue to the individual allegedly infringing features (as distinct from the multitude of non-patented features in the accused devices); (2) Mr. Smith failed to properly apply the Georgia-Pacific analysis; and (3) Mr. Smith failed to explain the methodology he applied to reach his final royalty calculation that was revised to account for Dr. Steckel's own revision to his Economic Values.

         A. Dr. Steckel's Conjoint Study

         Visteon's survey expert, Dr. Joel Steckel, is a Professor of Marketing at the Stern School of Business, New York University, where he is the Vice Dean of Doctoral Education. Dr. Steckel received his B.A. from Columbia University and his M.B.A., M.A., and Ph.D degrees from the Wharton School, University of Pennsylvania. Dr. Steckel has visiting or permanent faculty appointments at the Columbia University Graduate School of Business, the Anderson Graduate School of Management, U.C.L.A., the Yale University School of Management and the University of Pennsylvania Wharton School. (ECF No. 268, Garmin Index of Exhibits, Ex. E, 11/30/12 Revised Report of Joel Steckel, Ph.D ¶ 1). (“11/30/12 Steckel Report”). Dr. Steckel's fields of specialization include marketing strategy, marketing research, and consumer decision-making. Dr. Steckel has taught M.B.A. students about, written textbook chapters on, and lectured executives on conjoint analysis. Id. ¶ 3. At the Daubert hearing, Dr. Steckel first testified that this was the first time he had performed a conjoint analysis in a patent matter, but later at the hearing recalled having done a conjoint study in one other patent case that never went to trial. (ECF No. 386, Sealed Transcript of July 13, 2016 Daubert Hearing at 37:24-38:13.)

         Dr. Steckel conducted a choice-based conjoint (“CBC”) consumer survey on behalf of Visteon to attempt to determine the value that consumers place on the individual accused patented features.[3] Conjoint analysis “is based on the notion that consumers will “consider jointly” the attributes or characteristics of a product when making their purchasing decisions.” Steckel Report ¶ 36 (emphasis in original). V. Seenu Srinivasan, a tenured Professor Emeritus at the Stanford Graduate School of Business, and an acknowledged “father of conjoint analysis, ” explained the survey-based research approach as reported in TV Interactive Data Corp. v. Sony Corp., 929 F.Supp.2d 1006 (N.D. Cal. 2013):

Professor Srinivasan describes conjoint analysis as a type of survey or market research, which, at the most general level, conceptualizes products as bundles of attributes, treating price as an attribute. [Declaration of Professor V. Seenu Srinivasan]. ¶ 3. Conjoint analysis uses customer surveys to determine “values” for each attribute. By choosing among multiple bundles of attributes, survey participants make implicit tradeoffs one would make in real-world purchasing decisions. Id. “For example, conjoint analysis offers respondents hypothetical products in several combinations, some of which might contain feature 1 (but not feature 2), and some of which might contain feature 2 (but not feature 1).” Id. Professor Srinivasan explains that by comparing respondents' choices when presented with different features, one can estimate the quantitative values of specific features. Id. According to Professor Srinivasan, studies have validated that this implicit tradeoff is more reliable than asking consumers directly what they would pay for a specific feature. Id.

929 F.Supp.2d at 1020.

         Dr. Steckel's conjoint study was a web-based study that respondents took on their desktop or laptop computers. Id. ¶ 42. Dr. Steckel worked with a professional survey firm, Applied Marketing Science (“AMS”), that implemented the survey under Dr. Steckel's direction. Id. ¶ 10. A conjoint survey typically asks study participants to compare a number of product profiles to determine a relative value that the consumer attaches to a particular, individual feature or attribute. “By capitalizing on respondents' joint consideration of the various attributes for specified products, the research is then able to analyze the response data to evaluate consumer preferences and relative valuations for individual product attributes, combinations of product attributes, and particular products.” Id. ¶ 36. A respondent in a conjoint consumer survey is asked to choose from among a “choice set” of products, with each choice set described by profiles of bundled attributes. Id. ¶ 37. For example, a conjoint exercise involving bottled water might contain attributes such as flavor, label color, carbonation and bottle shape. Each attribute would be further defined by a set of characteristics known as “levels, ” for example the flavor attribute would have multiple mutually exclusive possible levels, such as lemon, lime, and orange. Id.

         Dr. Steckel selected six attributes to define the GPS product profiles shown to respondents in the conjoint survey: a. Points of Interest (the ‘408 patent), b. Special Designation Selection (the ‘375 patent), c. Preview and Route Adjustment (the ‘060 patent), d. Turn Preview Display (the ‘892 patent), e. Language Display and f. Price. Id. ¶ 38. Attributes a, b, c, and d are related to the patented features, attribute e is a “distracter, ” and attribute f allows a measurement of value associated with all of the other attributes. Id. Each attribute, with the exception of price, is defined by two levels. Id. ¶ 39. A sample three-product profile choice task would look like this:

         (Image Omitted)

         Having price as one of the attributes “allows for the measurement of an economic value for each patented feature relative to appropriate reference points.” Id. ¶ 40. Dr. Steckel utilized three device product profiles per choice task and in each instance asked the respondent to select the device that they would be most likely to purchase. Id. ¶ 43. Respondents were shown a total of 16 choice tasks to complete the survey. Id.

         Based on the respondent's selections from the choice sets, Dr. Steckel applied a well established statistical analysis, utilizing the multinomial logit model employing Hierarchical Bayes (“HB”) estimates, to determine the separate value, or “partworth, ” that consumers attach to each product attribute. Id. ¶¶ 44-45. Partworths reflect how much each attribute contributes to the overall consumer preference for a product (here a feature) and allow the researcher to assess the relative importance of attributes by examining the ranges of partworths. Id. ¶ 44. The partworths allow an assessment of the importance of the features described by the attributes in consumer purchasing decisions and allow an evaluation of the willingness of the consumer to trade off features against price. Id. ¶ 45. Dr. Steckel used the partworths on price and the attributes to estimate the extent of these tradeoffs for each of the patented features, resulting in an “economic value” or “EV” for the patented feature relative to the closest allegedly non-infringing alternative. Id. ¶ 46.

         All of the respondents to the conjoint survey were recruited through Survey Sampling International (“SSI”), a company that pre-recruits potential respondents who have indicated a willingness to participate in such market research surveys. Id. at ¶ 18. SSI respondents were invited to take the survey based on their profile and demographics. Id. at ¶ 19. Several controls were in place to ensure that only invited respondents could respond, that each respondent could only complete the survey one time and that the respondent's stated age and gender matched their profile in the SSI database. Id. Forty respondents to the conjoint survey were excluded because their age and gender did not match the SSI database profile. Id. ¶ 49. A total of 737 invited respondents qualified to participate and, out of those 737, 588 respondents completed the conjoint survey between May 7 and 11, 2012. Id. ¶ 50. The initial results from the 588 respondents who completed the survey were screened for basic unreliability, such as completing the survey too quickly or too slowly or with straight-line responses that demonstrate insufficient attention to the survey. Id. ¶ 52. There were 546 respondents in the final sample set and they took an average of 27.3 minutes to complete the survey. Id.

         In designing the survey, Dr. Steckel undertook two levels of exploratory research to determine the efficacy of the design. First, AMS interviewed 15 GPS users to determine an appropriate vocabulary for the questionnaire based on the words and phrases commonly used by consumers. In a second round of exploratory research, AMS interviewed 25 GPS users to ensure that the survey set forth the closest allegedly non-infringing attribute alternative. Id. ¶55(a). In making the final selection of non-infringing alternatives to include in the survey, Dr. Steckel was informed by the results of his exploratory research and also was assisted by counsel for Visteon. ECF No. 268, Garmin Index of Exhibits, Ex. F, 11/20/12 Deposition of Dr. Joel Steckel 138:25-139:7. None of the individuals who participated in the exploratory research were asked to complete the conjoint survey. Steckel Report ¶ 55(a)(iii). Before going live with the conjoint survey, Dr. Steckel conducted a web-based pretest of 10 GPS consumers who were debriefed after they completed survey. Id. ¶ 55(b). The survey presented video depictions of the attributes and levels, utilizing voice-over, animation and accompanying text to enhance visual explanations. Id. ¶ 55(c).

         Before beginning each choice task, respondents were given descriptions of each of the attributes and levels through general text descriptions, video animations and charts describing the various options that respondents would see in the upcoming choice task. Steckel Report ¶ 56. Each respondent was then given 16 separate choice tasks, each task consisting of three different GPS devices with various attributes and levels within those attributes, and were told to select the device that they would be most likely to purchase and to assume that they must purchase one, i.e. there was not a “no-purchase” option. Steckel Report ¶¶ 57, 58; Steckel Report Ex. H-19. Respondents were told to assume that aside from the attributes identified in the choice sets, the devices were otherwise equal.

         Dr. Steckel used the data generated by the respondents across all of their choice tasks to estimate the partworths, i.e. the value that respondents placed on each of the levels within each attribute. Steckel Report ¶ 59. Dr. Steckel used software developed by Sawtooth Software, Inc. to obtain individual respondent-level HB estimates of the partworths. The partworths generated by the HB method are measured in units of consumer utility - if a consumer's utility for attribute level A is greater than that of attribute level B, then that consumer prefers attribute level A to attribute level B, all else being equal. Id. In obtaining the HB estimates, Dr. Steckel constrained the partworths on the price attribute for each respondent to be monotonic, i.e. his analysis imposed the reasonable economic assumption that individuals prefer paying a lower price for a product than a higher price for that same product. Id. ¶ 60.[4]

         Dr. Steckel's conjoint survey results indicated that the mean partworth on the attribute level relating to the patented feature was greater in the case of each of the patented attributes than the partworth on the level associated with the non-infringing alternative for that attribute. Steckel Report ¶¶ 63, 64. Dr. Steckel used the respondent-level partworths on price and the other attributes to estimate the EV of the patented features by expressing in “units of utility” as a percentage of a reference price. Id. ¶ 66. Dr. Steckel performed this EV calculation for each respondent for each of the patented features and then computed a simple mean EV for the presence of the patented feature versus its absence. This computation yielded the following results: “Respondents indicated that they are willing to pay, on average, $13.93 for the presence of the Points of Interest Feature ('408 patent), $14.48 for the Preview and Route Adjustment Feature ('060 patent), $11.86 for the Special Destination Selection Feature ('375 patent), and $10.41 for the Turn Preview Display feature ('892 patent). Id. 68.

         Despite using the term “willingness to pay” in his Report, Dr. Steckel emphasized that his economic values do not represent the actual amounts that consumers would be willing to pay for inclusion of the patented features in a competitive market. Id. ¶ 69. Dr. Steckel expressly stated that “it would be incorrect to suggest that these four patented features alone are responsible for $50.68 of the price of a GPS system.” Id. Dr. Steckel confirmed this understanding of his economic values at the Daubert hearing, testifying expressly that “the Economic Values do not reflect what a consumer would be willing to pay for the attribute in the marketplace necessarily.” Daubert Tr. 24:22-23.) “Q: Did you take any steps as part of your survey analysis to determine the price of these features in the actual marketplace? A: I did not.” Daubert Tr. 24:24-25:1.

         Responding to the Court's inquiry as to why he elected to use only one relatively unimportant distracter feature, i.e. language, in his study, Dr. Steckel explained that it was unnecessary for purposes of his study to determine the actual value of the patented features to consumers in relation to the many other non-patented features of the accused devices:

I don't need to create the real world, completely real world trade-offs for my purposes, for the purposes of the Study. If I were trying to project consumer choices, so how market share might have been adjusted but for the incorporation of the patent features, then [mulitple distracters] would have been really important, then they would have been critical. I believe in those cases if that were my goal, Garmin's criticisms would be appropriate. However, that was not my goal. I am just trying to create the trade-offs between the particular features and money without projecting to real world choices. So I think the short answer to your question is I wasn't trying to project to real world choices - I don't need to for purposes of the Study as I described them.

Daubert Tr. 37:5-14 (alteration added).[5] Dr. Steckel does suggest that the economic values do provide an indication that in general the patented features are of significant value to consumers and that not all GPS features are valued equally by consumers. Smith Report ¶ 69.

         Visteon's pre and post-Daubert hearing briefing makes clear, and it is undisputed, that Dr. Steckel's study did not attempt to determine a real world price for the four patented features, and did not endeavor to value any non-patented features or to determine the value of the four patented features relative to the multitude of non-patented features in the accused devices: “Garmin correctly posits that ‘[c]onjoint surveys, when done properly, are useful for determining the relative value of one feature to other tested features.'” (ECF No. 280, Visteon's Resp. to Garmin's Mot. to Exclude Smith 5 (“Smith Resp. Br.”) (Emphasis and alteration in original). The only tested features in Dr. Steckel's study, apart from the unimportant language distracter, were the four patented features.

         Thus, the only “value” expressed in Dr. Steckel's economic values is the relative value of the four asserted patented features to one another. Dr. Steckel's conjoint results express nothing about the value of the four patented features relative to other important features of the accused devices. “Dr. Steckel's conjoint analysis was used for one (and only one) purpose by Mr. Smith - to apportion the value of the patented features relative to each other.” (ECF No. 376, Visteon's Post-Daubert Hearing Brief 1.) (Emphasis in original). To emphasize this point, Visteon quotes the following from paragraph 69 of Dr. Steckel's Report, portions of which were quoted above:

It is important to recognize that these values do not represent the actual amounts consumers would be willing pay for the inclusion of the patented features in a competitive market. It would be incorrect to suggest that these four patented features alone are responsible for $50.68 of the price of a GPS system. Price is primarily determined by three factors: consumer value, producer costs, and competition. I studied only one, consumer value.

Smith Resp. Br. 5 (emphasis in original).

         As discussed at length infra, it is Visteon's burden in this case to tie its reasonable royalty damage calculation to the actual incremental value of the patented features in the real world marketplace, i.e. to establish the incremental profit that Garmin could have expected to earn from incorporating the patented technology in these four patents into their PNDs at the time of a hypothetical negotiation. Visteon concedes that Dr. Steckel did not attempt to do this but claims that it has satisfied this burden through additional expert evidence provided by Mr. Peter Smith, whose opinion builds on Dr. Steckel's work:

[P]rice (or actual value apportioned to the patents-in-suit) can be determined when the Economic Values are combined with producer costs and competition. With this in mind, Mr. Smith picked up where Dr. Steckel's analysis left off, and provided the two other elements of the price calculation via Georgia-Pacific analysis and Garmin's target profit margin: producer costs and competition. . . . Garmin's target profit margin directly accounts for its royalty and hardware costs (producer costs) and was derived by Mr. Smith as a first multiplier to begin to transform the Economic Values from the theoretical consumer values to the prices attributable to the patents-in-suit. The next factor was derived from Mr. Smith's Georgia-Pacific analysis which considers, among other things, competition in the industry. . . . Mr. Smith's analysis is solidly based on a reliable methodology for attributing value to the patented features, and thus complies with the Court's apportionment requirement. Contrary to Garmin's assertion that “Mr. Smith did not take any additional steps” to apportion, Mr. Smith's analysis completes the apportionment process started by Dr. Steckel to assign value to each of the patented features.

Smith Resp. Br. 5-7 (emphasis in original).

         B. Mr. Smith's Reasonable Royalty Calculations

         Following a finding of infringement, “the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer.” 35 U.S.C. § 284. “The most common method for determining a reasonable royalty is the hypothetical negotiation approach, which ‘attempts to ascertain the royalty upon which the parties would have agreed had they successfully negotiated an agreement just before infringement began.'” VirnetX, Inc. v. Cisco Sys., Inc., 767 F.3d 1308, 1326 (Fed. Cir. 2014) (quoting Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1324 (Fed. Cir. 2009)). Utilizing the hypothetical negotiation approach, Peter Smith offers four separate reasonable royalty calculations: (1) “use Lane Guidance and Turn Preview as a royalty value proxy;” (2) “use the Steckel part-worths to calculate potential royalties directly;” (3) “develop a Total Available Margin estimate;” and (4) “use the Mitac Settlement.” ECF No. 268, Garmin Index of Exhibits, Exhibit M, 9/28/12 Expert Report of Peter Smith 30-31 (“the Smith Report”). In this motion, Garmin focuses solely on method two, the calculation that relies on the use of Dr. Steckel's Economic Values, which Mr. Smith describes as follows:

In this case, I took the partworths developed by Dr. Steckel, and applied a discount factor to account for the relative negotiating strength of Visteon, as shown in my development of the Georgia-Pacific (Exhibits 10 and 11) factors in this case. That discount, either 0.4000 (Exhibit 10) or 0.568 (Exhibit 11), is based upon the ratio of 2.00/5.00 (Exhibit 10) or 2.84/5.00 (Exhibit 11). It is applied to an adjusted royalty number developed by assuming a target margin to be received by Garmin for the incorporated features that will yield a total margin equal to the actual 63.89% gross margin received during the infringement period on sales of automotive PND products. The estimated royalty for each patent, and the estimated total royalty ($4.94, using the results of Exhibit 10) to be paid for the four patents-in-suit is shown in Exhibit 1[9].

Smith Report 30.[6] (Alteration/correction added; see also Steckel Dep. 225:3-8).

         Mr. Smith states that he has read Dr. Steckel's conjoint study and that it “successfully identified significant economic value in the patents-in-suit, and can be relied upon as a partial basis for developing a reasonable royalty estimate for use in calculating economic damages for use by the court in the event that it is found Defendant Garmin has infringed the patents in suit with its PND products.” ECF No. 268, Exhibit D, Nov. 13, 2012 Deposition of Peter Smith 54:21-56:8. Mr. Smith confirmed that Dr. Steckel calculated the consumer value of the accused features only and did not undertake to determine the value of all features of the accused devices, which includes a multitude of features that were not subject to challenge in this case:

Q: Did Dr. Steckel calculate the total consumer value of all features of personal navigation devices?
A: I believe he only talked about the patented features in his calculations; and again, in paragraph 69, that is indicated directly.
Q: Okay. So is that correct then, Dr. Steckel did not calculate the total consumer value of all features, including non patented features of personal navigation devices?
A: To my knowledge, he didn't and certainly his report doesn't say that.
***
Q: [B]ut Dr. Steckel did not determine a parts-worths (sic) value for all of the non-patented features and functionalities in the PNDS?
A: That was not the objective of his study, so I'm fairly certain he didn't. Smith ...

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