Seeking Alpha
Long/short equity
Profile| Send Message|
( followers)  

At the end of the first week of trial between ParkerVision (NASDAQ:PRKR) and Qualcomm (NASDAQ:QCOM), Judge Dalton has issued his ruling on Daubert motions. The ruling was extremely unfavorable to ParkerVision, with the maximum plausible damages having been reduced from $500M to well under $100M.

The Daubert Motions were filed on July 7, 2013 (ParkerVision285, Qualcomm288), the Replies (final) to Daubert Motions were filed on July 25, 2013 (ParkerVisionReply305, QualcommReply302). I analyzed these motions in an earlier article (ParkerVision V. Qualcomm: Recent Motions Analyzed). There was an oral hearing on the Daubert motions on September 30, 2013 (available directly from the court reporter.)

The judge issued a ruling on October 11, 2013, but has left one motion open (on Benoit's use of the Nash Bargaining Solution.)

Summary of Rulings:

  1. "Parkervision's Daubert Motion to Exclude Portions of the Expert Report and Testimony of Gregory Leonard and Behzad Razavi (Doc. 285) is GRANTED IN PART AND DENIED IN PART. The Motion is GRANTED with respect to Gregory Leonard's reliance on the WRF Agreement and the Berkana Acquisition, and in all other respects is DENIED."

The key point is that the ParkerVision/Via agreement is allowed, which results in a very low damages number of cents per transceiver. The WRF and Berkana motions were granted, but have no practical effect on Qualcomm's damages testimony, as Leonard testified that he only used those agreements as a check on the reasonability of his damages estimate based on the Via agreement. Since Via Telecom also sells a baseband chip, reliance on the ParkerVision/Via agreement seemingly eliminates any possibility of enhanced damages for convoyed sales.

Here are some quotes from the judge's ruling:

"Thus, Leonard will not be precluded from relying on the VIA Agreement in opining on an appropriate reasonable royalty in this case."

"First, Leonard acknowledged the pertinent presumptions, and his criticisms appear to go to a lack of commercial success--not a lack of patentability. Second, there is sufficient evidence of non-infringing alternatives available in 2006 to support Leonard's opinions. Third, there is no merit to Parkervision's endorsement argument. Parkervision's remaining challenges are best handled with vigorous cross-examination, presentation of contrary evidence, and appropriate instructions to the jury."

  1. "Qualcomm's Daubert Motion to Exclude Paul Benoit's Damages Testimony and Memorandum in Support (Doc. 288) is GRANTED IN PART AND IS DENIED IN PART. The Motion is GRANTED with respect to Paul Benoit's reliance on the 1999 Documents and negotiations, is DENIED WITHOUT PREJUDICE as to the Nash Bargaining Solution challenge, and in all other respects is DENIED. "

Thus ParkerVision will not be allowed to base its damages estimates on the 1999 Documents and negotiations. The $500M damages number (from PRKR's briefings and quotes by Jeff Parker) is based primarily on the use of those emails and documents, and thus will no longer be allowed at trial. It is unclear what ParkerVision will be allowed to use as a basic for damages (other than responding to Qualcomm's use of the ParkerVision/Via agreement.) ParkerVision (in the Daubert hearing) argued that the inputs to the Nash Bargaining Solution alternatively can be based on 2006 Qualcomm sales and the assumption that Qualcomm would have lost all transceiver and baseband sales if deprived of the use of ParkerVision patented ideas (i.e., that there was no non-infringing alternative).

The use of the Nash Bargaining Solution (NBS) is still to be decided. Since the NBS "split" of 50/50 was predicated on the 1999 emails and/or the unsupported statement by Benoit that there was no non-infringing alternative, it seems very likely that ParkerVision will not be allowed to present any evidence for damages estimate remotely close to the $500M number, even in the event that the patents are found to be valid and infringed. Furthermore, if NBS is thrown out altogether, the jury will probably only be given the Qualcomm damages testimony (this seems likely given the judge's commentary). Addendum: ParkerVision has filed a declaration defending Benoit's use of NBS. My read is that the declaration does exactly what the judge specifically said he would not allow: use of complicated mathematics to justify an arbitrary "rule of thumb" profit split. I think it very likely that the judge will disallow any use of NBS, and thus ParkerVision's expert witness (Benoit) will not be allowed to present any damages testimony, although I would expect him to be allowed to rebut Qualcomm's testimony.

Quotes from the ruling:

"Given the foregoing, there can be little dispute that the 1999 documents and negotiations are too different from the hypothetical negotiation to provide a reliable foundation for Benoit's economic analysis."

"The Court similarly rejects Parkervision's effort to immunize the 1999 Documents and negotiations from the comparability requirements… The court also finds that Powell and other cases cited by Parkervision actually undermine its argument."

"Parkervision has not met its burden to establish by a preponderance of the evidence that Benoit's opinions based on the 1999 Documents satisfy the requirements of Rule 702. To the contrary, opinions based on Qualcomm's internal financial projections created seven years before the hypothetical negotiation are too speculative and unreliable to be helpful to the jury. Accordingly, the Court will preclude Benoit from relying on the 1999 Documents and negotiations."

"At this point, Court has reservations about Benoit's use of the admittedly "complex" NBS (Doc. 375, p. 71), and the Court therefore cannot find that Parkervision has met its burden to establish by a preponderance of the evidence that Benoit's use of the NBS satisfies the requirements of Rule 702 and Daubert. Oracle Am., Inc. v. Google Inc., 798 F. Supp. 2d 1111, 1120 (N.D. Cal. 2011) (rejecting the NBS under Uniloc because it as confusing and "cloth[ed] a fifty-percent assumption in an impenetrable façade of mathematics"); Suffolk Techs. LLC v. AOL Inc., No. 1:12-cv-625, 2013 U.S. Dist. LEXIS 64630, at *5-*6 (E.D. Va. Apr. 12, 2013) (rejecting NBS damages opinion as indistinguishable "from the damages opinion rejected in Uniloc); e.g., Dynetix Design Solutions, Inc. v. Synopsys, Inc., No. C-11-05973, 2013 WL 4538210, at *5 (N.D. Cal. Aug. 22, 2013) (excluding expert testimony basing a hypothetical royalty rate on a fifty percent split). Rather than preclude Benoit's reliance on the NBS, the Court will provide Parkervision with an additional opportunity to satisfy its burden of proof.

This is the best course of action, particularly given the Court's ruling as to Benoit's reliance on the 1999 Documents and negotiations."

First Week of Trial

There are have been four and a half days of testimony so far. I am getting detailed daily reports from three attendees (an RF engineer, a patent lawyer and an IP analyst), but was unable to attend personally (to my regret).

The jury is reasonably well educated, with both a lawyer and electrical engineer (MS degree). David Sorrells, Jeff Parker, and Paul Prucnal testified for ParkerVision on Monday-Thursday. Mr. Sorrells did reasonably well on both direct and cross, but Jeff Parker (CEO of ParkerVision) performed poorly on cross examination, with Qualcomm doing an excellent job of showing the lack of any commercial acceptance of any ParkerVision RF products (D2D or D2P). Finally, Paul Prucnal (PRKR's expert witness) testified mostly on infringement. Dr. Prucnal did well on direct, but the cross examination went very poorly for ParkerVision. Dr. Prucnal seemed evasive and to not know details of how he did key simulations. ParkerVision rested on Thursday. On Friday, Qualcomm started with Dr. Razavi, the expert witness on validity. Dr. Razavi (like Prucnal) did well on direct, but less well on cross.

So far, the trial is mixed for both sides, with both expert witnesses not doing a convincing job of testifying. My best guess is that ParkerVision is somewhat likely to win on validity (where Qualcomm has the burden of proof), but lose on infringement (where ParkerVision bears the burden.) With lots more testimony to come, this could change. ParkerVision has presented essentially no evidence of Qualcomm's intent to infringe valid patents, and so I see very little possibility of a finding of indirect (or contributory) infringement (which has a very high burden for ParkerVision, and is very similar to proving fraud).

Regardless of the finding of the first phase (validity and infringement) -- given the judge's Daubert ruling -- I see almost no possibility of a damages award that would come even close to justifying the current market cap of PRKR ($225M). I summarize this in the following table, which displays the reasonable likely outcomes (based on jury, testimony so far, and recent Daubert ruling).

Jury Finding

Damages

Est. Prob.

Patents Invalid

$0

10%

Patents Not Infringed

$0

40%

Patents Valid and Infringed, No Indirect Infringement

Well under $5M

45%

Patents valid and infringed, Indirect Infringement

Well under $100M

5%

Source: ParkerVision V. Qualcomm: Daubert Ruling And First Week Of Trial

Additional disclosure: I own a small amount of QCOM stock.