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Syngenta Crop Protection, LLC v. Willowood Azoxystrobin, LLC

United States District Court, M.D. North Carolina

July 20, 2017

SYNGENTA CROP PROTECTION, LLC, Plaintiff,
v.
WILLOWOOD AZOXYSTROBIN, LLC, et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          Catherine C. Eagles, District Judge.

         Syngenta Crop Protection, LLC sued Willowood[1] for patent infringement, seeking millions of dollars in lost profits on its fungicides containing azoxystrobin. Willowood seeks to exclude the opinions of Syngenta's expert witness on damages, Dr. Benjamin Wilner, as speculative and unreliable because he used inaccurate budget projections and irrelevant product comparisons to calculate Syngenta's lost profits. The Court will admit Dr. Wilner's opinions on lost profits for the 5, 602, 076 Patent and the 5, 633, 256 Patent because they are based on sufficient facts and data. However, the Court will exclude his opinions on lost profits for the 5, 847, 138 Patent and the 8, 124, 761 Patent because they are not based on sufficient facts or reliable principles.

         Willowood also seeks to exclude Dr. Wilner's testimony about Willowood's successful effort to obtain EPA registration of its fungicides. The Court will admit Dr. Wilner's testimony on Willowood's early entry into the market because it is relevant to his theory of damages. The Court will exclude his testimony on whether Willowood misused the Formulators' Exemption because it is not relevant to his calculation of damages, nor does Dr. Wilner appear competent to testify to those facts.

         The motion will be granted in part and denied in part.

         I. Background Facts on Infringement and Damages

         Syngenta uses the patents-at-issue to manufacture fungicides containing azoxystrobin, which it sells in the agricultural market. The ‘076 Patent and the ‘256 Patent claim a group of chemical compounds that includes azoxystrobin. The compound patents expired in February 2014. Doc. 96-1 at ¶ 29. The ‘138 Patent, which expired in December 2015, and the ‘761 Patent, which will expire in 2029, both claim methods of manufacturing azoxystrobin. Id. at ¶¶ 30-31. Syngenta seeks damages for Willowood's infringement of each patent and an injunction to prevent Willowood's continued infringement of the ‘761 Patent. See Doc. 1 at pp. 26-27.

         In 2013, Willowood imported five kilograms of azoxystrobin into the United States, infringing the compound patents. Doc. 141 at 4. Willowood further infringed the compound patents by commissioning a third party to use the azoxystrobin to formulate fungicides. Id. at 6. Based on the formulations, the EPA approved Willowood's application to register its fungicides containing azoxystrobin in 2014. Docs. 164-26, 164-27. Willowood began to sell its generic azoxystrobin fungicides in the United States that same year at substantially lower prices than Syngenta. See Doc. 149-1 at 13. Syngenta asserts that Willowood's infringement caused lost profits through its early entry into the market and through its infringing sales.

         Syngenta contends that if Willowood had not infringed the compound patents, Willowood would not have been able to formulate its products and register with the EPA in 2014 and would not have entered the market until late 2015. Id. at 11, 36. Similarly, if Willowood had waited until the ‘138 Patent expired to use azoxystrobin made with the ‘138 Patent's claimed method, Willowood would have entered the market in 2016. See Id. at 40. According to Syngenta, Willowood's head start caused Syngenta to lose sales, forced it to reduce prices to compete before its exclusivity expired, and gave Willowood a greater market presence than it would have had if it had entered the market later.[2] Id. at 15-16. Syngenta seeks to recover lost profits for the compound and ‘138 Patents from 2014-2017 caused by Willowood's head start in the market. Id. at 27-40.

         Syngenta also asserts that Willowood's importation and sales of azoxystrobin infringed the ‘138 and ‘761 patents because Willowood's azoxystrobin is made through the patents' claimed processes. See Id. at 11. Syngenta seeks lost profit damages for Willowood's sales that infringed the ‘138 Patent from 2014-2015[3] and the ‘761 Patent from 2014-2017. Id. at 37-43. Syngenta's expert, Dr. Benjamin Wilner, [4] calculated Syngenta's head-start damages and damages from Willowood's infringing sales together through a lost profits analysis. See Id. His methods and analysis are discussed in more detail infra.

         II. The Law on Damages for Lost Profits

         An award of damages for patent infringement should be “adequate to compensate for the infringement, but in no event less than a reasonable royalty.” 35 U.S.C. § 284. A patentee may prove lost profit damages by creating a hypothetical “but for world, ” where infringement has been “factored out of the economic picture.” Grain Processing Corp. v. Am. Maize-Prods. Co., 185 F.3d 1341, 1350 (Fed. Cir. 1999). “Reconstructing the market [is] by definition a hypothetical enterprise.” Id. “To prevent the hypothetical from lapsing into pure speculation, ” courts require “sound economic proof of the nature of the market.” Id.; see also Versata Software, Inc. v. SAP Am., Inc., 717 F.3d 1255, 1265 (Fed. Cir. 2013).

         The hypothetical nature of the evidence does not make it inadmissible. Indeed, the Federal Circuit “has affirmed lost profit awards based on a wide variety of reconstruction theories, ” including the theories of lost sales and price erosion.[5] Crystal Semiconductor Corp. v. TriTech Microelecs. Int'l, Inc., 246 F.3d 1336, 1355-56 (Fed. Cir. 2001); see also Grain Processing, 185 F.3d at 1350 (collecting cases).

         To obtain damages for lost sales, the patentee must show “a reasonable probability that he would have made the asserted sales ‘but for' the infringement.” Grain Processing, 185 F.3d at 1349. Under the Panduit factors, the patentee satisfies this by proving “(1) demand for the patented product, (2) absence of acceptable noninfringing substitutes, (3) his manufacturing and marketing capability to exploit the demand, and (4) the amount of the profit he would have made.” Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152, 1156 (6th Cir. 1978).

         Similarly, to obtain damages under a price erosion theory, a patent owner must (1) “show that ‘but for' infringement, it would have sold its product at a higher price;” (2) “present evidence of the (presumably reduced) amount of product the patentee would have sold at the higher price;” and (3) “account for the nature, or definition, of the market, similarities between any benchmark market and the market in which price erosion is alleged, and the effect of the hypothetically increased price on the likely number of sales at that price in the market.” Ericsson, Inc. v. Harris Corp., 352 F.3d 1369, 1378 (Fed. Cir. 2003) (quotations omitted). Experts can use the benchmark methodology[6] to calculate price erosion damages by “select[ing] a product similar to the patented product and compar[ing] the performance of that benchmark in a market free of infringement with the performance of the patented product in the market affected by infringement.” Crystal, 246 F.3d at 1357; see Ericsson, 352 F.3d at 1378-79 (calculating price erosion by comparing the actual performance of the patented product to the performance of a benchmark product made by the patentee in a market with the same conditions but without infringement).

         III. Benchmarks

         A. Overview of Dr. Wilner's Evidence

          In his report, Dr. Wilner calculated Syngenta's lost profits caused by Willowood's infringement. For each year from 2014-2017 and for each of the patents-at-issue, he used benchmarks to determine what Syngenta's gross profits would have been for azoxystrobin in a hypothetical market unaffected by Willowood's infringement. See Doc. 149-1 at 27-43. From these hypothetical gross profits, he subtracted both Syngenta's actual gross profits on azoxystrobin and the estimated incremental costs that Syngenta would have incurred to obtain the hypothetical gross profits.[7] Id. at 25, 33-35, 67-68. The amount of money that remained was, in his opinion, Syngenta's lost profits. Id. at 35, 67. Stated another way: Hypothetical Gross Profits in a Non-Infringing World minus Syngenta's Actual Gross Profits minus Incremental Costs equals Syngenta's Lost Profit Damages.

         Depending on the particular year and patents-at-issue, Dr. Wilner chose two benchmarks, [8] which he used to calculate Syngenta's hypothetical gross profits. He used the first benchmark-the extent to which a benchmark product's actual gross profits either met its budgeted gross profits or increased or decreased from the past year-to adjust the second benchmark-Syngenta's budgeted gross profits or past gross profits for azoxystrobin. Dr. Wilner's choice of benchmarks and his calculations are described in more detail later in this opinion, as the Court examines the admissibility of his opinions.

         B. Analysis

         For his expert testimony to be admissible, Dr. Wilner must base his opinions “on sufficient facts or data” and must employ “reliable principles and methods.” Fed.R.Evid. 702. “[T]he trial judge must ensure that any and all scientific testimony or evidence admitted is not only relevant, but reliable.” Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 589 (1993). However, the fact finder, not the court, must determine whether an expert is credible and whether the expert's opinions are correct. Apple Inc. v. Motorola, Inc., 757 F.3d 1286, 1314 (Fed. Cir. 2014), overruled in part not relevant here by Williamson v. Citrix Online, LLC, 792 F.3d 1339, 1349 (Fed. Cir. 2015) (en banc); i4i Ltd. P'ship v. Microsoft Corp., 598 F.3d 831, 854 (Fed. Cir. 2010) (“Daubert and Rule 702 are safeguards against unreliable or irrelevant opinions, not guarantees of correctness.”), aff'd, 564 U.S. 91 (2011). “Vigorous cross-examination, presentation of contrary evidence, and careful instruction on the burden of proof are the traditional and appropriate means of attacking shaky but admissible evidence.” Summit 6, LLC v. Samsung Elecs. Co., 802 F.3d 1283, 1296 (Fed. Cir. 2015) (quoting Daubert, 509 U.S. at 596).

         Willowood does not object to Dr. Wilner's method: computing lost profits by subtracting actual gross profits and incremental costs from hypothetical gross profits calculated by adjusting one benchmark with another. While this method does not use a typical lost sales or price erosion approach, as long as appropriate benchmarks are selected, it accounts for lost sales and price erosion, and for inaccuracies in the benchmarks. However, Willowood contends that Dr. Wilner's opinions are inadmissible because he did not base his choice of benchmarks on sufficient facts or data.

         To rely on a benchmark for price erosion, the party must offer “substantial evidence of the similarities” between the benchmark product and the infringed product and between their two markets. Ericsson, 352 F.3d at 1379 (upholding price erosion damages using benchmark of similar product with one technological difference, produced by the same company, and sold in a similarly competitive market). As long as an expert provides some evidence of their similarities, then “[t]he degree of comparability of” the products and their markets and the failure “to control for certain variables are factual issues best addressed by cross examination and not by exclusion.” ActiveVideo Networks, Inc. v. Verizon Commc'ns, Inc., 694 F.3d 1312, 1333 (Fed. Cir. 2012); see also i4i, 598 F.3d at 852 (“When the methodology is sound, and the evidence relied upon sufficiently related to the case at hand, disputes about the degree of relevance or accuracy . . . may go to the testimony's weight, but not its admissibility.”).

         1. The Compound Patents

         a. Dr. Wilner's Calculations

         Dr. Wilner used two benchmarks to calculate damages for the compound patents: Syngenta's budgeted gross profits for azoxystrobin and the budgeted gross profits and actual performance of mesotrione, an herbicide made by Syngenta. Doc. 149-1 at 30. For 2014, Dr. Wilner calculated the extent to which Syngenta's actual gross profits for mesotrione met its budgeted gross profits. Id. at 33. He assumed that but for Willowood's infringement, Syngenta would have met its budgeted gross profits for azoxystrobin to the same extent as it had for mesotrione. See id. Using this method, he calculated that Syngenta's hypothetical gross profits were $140, 943, 000.[9] Id. at 34, 68 ln.4. After subtracting Syngenta's actual gross profits and incremental costs from its hypothetical gross profits, Dr. Wilner found that but for Willowood's infringement, Syngenta lost $20, 020, 000 in 2014. Id. at 67 lns.1-4, 68 lns.4-6. To determine the extent of Syngenta's lost profits due to Willowood's head start in the market, he followed a similar process for 2015, 2016, and 2017.[10] Id. at 34-35, 67-68.

         Explaining his choice of benchmark, Dr. Wilner opined that “Syngenta's budgets are an informative benchmark for what sales and profits would have been” for azoxystrobin without Willowood's infringement. Id. at 38; see Doc. 197 at 231:8-:21. Dr. Wilner learned about “Syngenta's exacting budgeting process” through discussions with several employees, Doc. 149-1 at 30; see also Doc. 197 at 107:6-:18, 109:7-:14, whom Syngenta intends to call as trial witnesses to testify about the budgeting process. See Doc. 221 at 48:2-:15. In his report, Dr. Wilner also noted several factors evaluated in the budgeting process, including the product's exclusivity status, the crops it protects, and the weather patterns and geographic pressures affecting those crops. Doc. 149-1 at 30-31.

         Dr. Wilner also found mesotrione to be an appropriate benchmark for azoxystrobin. Id. at 31-32; Doc. 197 at 243:3-244:1. The compound patents and Syngenta's data exclusivity[11] for mesotrione created similar barriers against generics entering both markets. Doc. 149-1 at 31-32; see Doc. 149-10 at 3. Mesotrione protects the same major crops as azoxystrobin and both are top-sellers for Syngenta. Doc. 149-1 at 31. Finally, the products have comparable lifecycles, such as evolving mixtures of active ingredients. Id. ...


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