Case Law Update: Timing of Technical Expert Analysis of Non-Infringing Alternatives in Smart Path Connections

[author: Alexander Clemons]

Recent case law may impact the timing of defendant technical expert analysis and opinion regarding non-infringing alternatives in patent infringement litigation. On March 13, 2024, Magistrate Judge Roy S. Payne, in the United States District Court for the Eastern District of Texas, Marshall Division, issued an order in Smart Path Connections, LLC, v. Nokia of America Corp., striking the rebuttal report of the defendant's technical expert for failure to disclose their analysis of non-infringing alternatives in an opening report.^[1] The Court found "that the technical showing that an alternative is non-infringing is the burden of [defendant] and should have been presented in an opening technical report."^[2] This ruling may have implications for parties engaged in patent infringement and other litigation, within the Eastern District of Texas and elsewhere.

Before the Court was the plaintiff’s motion to strike portions of the defendant’s technical expert’s rebuttal report, among other motions.^[3] Plaintiff contended that the technical expert’s rebuttal report opinions on non-infringing alternatives should be stricken because “[defendant] failed to properly give notice of its non-infringing alternatives or associated arguments in response to interrogatories proffered by [plaintiff] early in the case. … [Plaintiff] further argue[d] that [defendant] should not be permitted to present these non-infringing alternatives and associated arguments in a rebuttal report, preventing [plaintiff] from meaningfully responding.”^[4] Defendant replied that “it adequately identified all the non-infringing alternatives in detail in its interrogatory responses. … [Defendant] also argue[d] it is entirely appropriate for it to raise its non-infringing alternative arguments in this manner since the burden of proving damages is on [plaintiff], and [defendant] needed [plaintiff’s] infringement expert report before it could respond with its non-infringing alternative positions.”^[5]

The Court ruled that the defendant’s technical expert’s “discussion of non-infringing alternatives should be stricken as untimely and ultimately irrelevant in light of [defendant’s] decision to offer no damages opinion tying any non-infringing alternative to a proper damages analysis.”^[6] In reaching its conclusion on untimeliness, the Court stated that it agreed “with [plaintiff] that it is [defendant’s] burden to show that an alternative is non-infringing and thus should have been raised in an opening report.”^[7] The Court found that the non-infringing alternatives analysis, in this case, was “only relevant to a reasonable royalty damages analysis” and that under such a damages analysis “a non-infringing alternative analysis is more similar to an affirmative defense whose burden is upon the defense.”^[8] As part of its reasoning, the Court noted that “the operation of a non-infringing alternative in a reasonable royalty analysis is to limit damages to the advantage of defendants.”^[9] The Court went on to explain that “[Defendant] is correct under Federal Circuit case law that damages is the burden of [the plaintiff.] … However, this does not permit [defendant] to withhold its evidence of non-infringing alternatives until rebuttal.”^[10] The Court also found that defendant’s late disclosure was grounds to exclude the technical expert’s testimony because it “prevent[ed] [plaintiff] from providing expert rebuttal without leave of the Court.”^[11]

Since proving infringement and damages is generally the plaintiff’s burden, one can understand why the defendant in this case may have believed that the technical analysis of non-infringing alternatives should have been included in the rebuttal round of expert reports. This is particularly the case here, since defendant represented that the non-infringing alternatives were already identified in interrogatory responses. Including the analysis of non-infringing alternatives in a rebuttal technical expert report also provides certain advantages to defendants. For example, including the technical analysis of non-infringing alternatives in the rebuttal technical expert report allows the defendant’s technical expert to benefit from having first reviewed the plaintiff’s technical expert’s opening report on infringement, before issuing their own opinions. It also allows the defendant’s technical expert to issue their opinions on non-infringing alternatives alongside the defendant’s damages expert’s rebuttal report, which would typically rely on those opinions in considering the appropriate measure and amount of damages. The Court’s insistence that, instead, the defendant’s technical expert must include opinions regarding non-infringing alternatives in the opening technical expert report, because establishing non-infringing alternatives is the defendant’s burden, frustrated the defendant’s strategy in this case. It also raises challenging questions for other cases.

As one example, and as the Court pointed out, a non-infringing alternatives analysis may be relied upon by the defendant’s damages expert in considering the appropriate measure and amount of damages in a patent infringement case. In this case, the Court noted that “none of [defendant’s] experts provide any financial analysis of the impact of a non-infringing alternative to a reasonable royalty[.]”^[12] However, if the non-infringing alternatives analysis had been relied upon by the defendant’s damages expert, would this Court have required the damages expert to include that analysis in an opening damages expert report, rather than in rebuttal? While the burden of proof regarding non-infringing alternatives may lie with the defendant, the broader impact of this burden on the timing of expert reports potentially implied by this ruling is unclear, and it could possibly disrupt the expected flow of opening and rebuttal reports in patent infringement cases.

Additionally, applying the logic of the Court’s opinion to other areas of intellectual property law could potentially result in further unexpected outcomes. In a trademark case under the Lanham Act, for example, a plaintiff may “recover (1) defendant’s profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action.”^[13] The statute specifies that “[i]n assessing profits the plaintiff shall be required to prove defendant’s sales only; defendant must prove all elements of cost or deduction claimed.”^[14] Faced with a Lanham Act case, would this Court find that it is the defendant’s burden to prove costs and deductions, making them more similar to an affirmative defense, and that any technical analysis relating to such costs and deductions should be included in the opening technical expert report? In such a case, a defendant might put forth a technical analysis of various product features to make arguments regarding the relative value of the trademark at issue compared to the functional and technical aspects of the product, which may then be used by a damages expert as a basis for some deduction or apportionment to profits. Would this Court require such a technical analysis to be included in the opening round of expert reports, rather than in rebuttal? Would the same requirement apply to the defendant’s damages expert’s analysis of costs and deductions, necessitating its inclusion in an opening report as well?

The Court’s opinion in Smart Path Connections seemingly ties the timing of expert disclosures on various issues to the burdens of proof on those issues. However, it is not clear that this universally needs to be the case, so long as the party without the burden of proof is provided an opportunity to respond to the evidence presented by the party that does have that burden. Moving forward, perhaps one solution that could be considered by courts and parties seeking to navigate the tensions and questions identified above would be to adopt an expert discovery schedule that includes three report phases: opening reports, rebuttal reports, and reply reports. Based on recent experience, this three-phase report schedule is already in use in some jurisdictions, such as the United States District Court for the District of Delaware, for example. At least in the context of the damages analysis, such an approach may help to alleviate the concerns of both plaintiffs and defendants, as it would allow plaintiffs to address their burden of proof regarding damages in opening expert reports, allow defendants the opportunity to rebut and address their own burden of proof as to certain aspects of damages (e.g., non-infringing alternatives) in rebuttal reports, and still allow plaintiffs the chance to respond in reply reports.

In any event, this ruling highlights for defendants the importance of developing and appropriately disclosing technical analyses and opinions regarding non-infringing alternatives sufficiently early in a case, not only through interrogatory responses, but also potentially through opening technical expert reports. For plaintiffs, the ruling suggests an additional potential avenue for responding to non-infringing alternatives that are only disclosed through a rebuttal report. Parties, attorneys, and experts would be wise to consider the implications of the Court’s holding when litigating before the Court in the Eastern District of Texas, one of the country’s most active district court venues for patent infringement litigation. They should also consider whether other courts facing analogous issues might follow a similar framework to the one laid out in this case and prepare accordingly.