Business Valuation Expert Witness Not Allowed to Testify in Technology Licensing Dispute

Summary: A Business Valuation Expert Witness was not allowed to testify regarding infringement of a company’s technology patent because he used improper methodology.


Facts: This case Via Vadis, LLC et al v. Amazon.Com, Inc.,Case No. 1:2014cv00813 (United States District Court Western District of Texas) involves a disagreement over ownership of a data messaging system. Plaintiff Via Vadis, LLC and AC Technologies claims, Inc stole and used Via Vadis’ technology under their Patent “521.” Plaintiff alleges that the technology under Patent 521 allows users to transfer data between various electronic devices including computers. Via Ladis retained Business Valuation Expert Witness Paul Benoit to testify on how much profit had been made by Amazon with the stolen technology under the patent. He claims that the reasonable royalty for damages is over 30 million dollars. The Defendant argued that this figure was improperly based on the larger service of cloud storage, as opposed to only the patented technology. Amazon then filed a motion to exclude the Business Valuation Expert Witness’s testimony. 


Discussion: Amazon found many errors within Benoit’s analysis in his damages report. First, the Defendant claims that evidence is lacking in regards to Benoit’s claim of revenue being at risk without the patented technology. Next, Benoit’s further assertions regarding lost revenue are not based on technology associated with Patent 521, but rather are based on the larger BitTorrent interface. Third, the report used a method of splitting profits that had already been rejected by the Federal Circuit Court of Appeals because it is not reliable. Lastly, the Business Valuation Expert Witness did not focus on split profits relating to the unpatented aspects of the BitTorrent technology. The Plaintiffs disagreed. 


Via Ladis responded that Benoit has been able to testify on similar issues in the past. The plaintiff referenced past Federal Circuit Court cases where Benoit was found to be qualified. The Plaintiff continued that Amazon’s issues with the report and their motion to strike has no relation to admissibility within the case. The court sided with Amazon in this instance, and agreed with the claim that lost revenue had been exaggerated. The court further found that the way in which profits could be split was wrong. The court also emphasized that evidence for Benoit’s claims would be better served to be analyzed in cross-examination.


The suit continued with discussion on market value Rule 35 U.S.C § 284 which relates to reasonable royalties. Under this rule, compensation should be reasonable and correlate to the damages caused by infringing upon a patent. Furthermore, actual payout should consider this fact with great significance after the court finalizes decisions. It has also been decided that damages are permitted to be based on the whole market value of a specific product rather than just certain elements of a patented invention. In relation to Amazon, Benoit applied this rule and broke down how much profit has been made from the patent 521 technology. He claims that plaintiffs should be owed royalties equal to $33.8 million  after examining how customers use the BitTorrent interface as well as inclusion of division of profit between both parties. 


Amazon responded in a rebuttal report and reaffirmed that Benoit grossly misunderstood profits that were made from the BitTorrent technology. The Defendant repeated the idea that Benoit’s analysis of revenue was speculative, lacked consideration of consumer use, and did not consider other products that include similar cloud based storage services. Amazon’s argument continued by emphasizing that unpatented technology could also be the basis for estimated revenue, rendering Benoit’s claims moot. The court ultimately decided that Benoit’s damages report violated market value rules because he did not use the proper royalty base for how much Via Vadis should be owed. 


Conclusion: The Defendant’s motion to exclude Paul Benoit’s Reasonable Royalty Report was granted because of improper methodology in apportionment of royalties.