UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICTOF VIRGINIA NorfolkDivision

JAGUAR LAND ROVER LIMITED, ) ) Plaintiff, ) REDACTED ) v. ) Case No.: 2:18-cv-320 ) BENTLEY MOTORS LIMITED, and ) BENTLEY MOTORS, INC., ) ) Defendants. )

OPINION AND ORDER In this patent infringementaction PlaintiffJaguar Land Rover Limited ("JLR") alleges that

Defendants Bentley Motors Limited and Bentley Motors, Inc. (collectively, "Bentley") infringed

JLR's All-Terrain Specification feature ("the '828 patent") on Bentley's Bentayga luxury sport utility vehicle. Before the Court now is Bentley's Motion to Strike JLR's Untimely Damages

Theory, filedon September 2, 2020. ECF No. 390. By its Motion Bentley seeks to preclude JLR from offering expert testimony, evidence or argument regarding a theory of damages JLR advanced through its expert witness James E. Malackowski which Bentley claims was not timely disclosed. Id As alternative relief, Bentley "requests that factdiscovery be reopened to allow it to explore the factualunderpinnings of JLR's new theory."1 Id Bentley fileda memorandum in support of its Motion.2 ECF No. 395. JLR filed a memorandum in opposition to the Motion on

1 The damage theoryand Mr. Malackowski's report, opinions, and the basis forhis opinions have been deemed by the parties to constitute and contain confidential proprietary information. Because of that, the parties submitted both redacted versions of their memoranda and exhibits, and unredacted versions under seal. By necessity, the Court must discuss matters that are under seal, and therefore this Opinion and Order is preliminarily being issued under seal. However, the parties are DIRECTED to meet and confer to determine appropriate redactions to this Opinion and Order and submit to the chambers of the undersigned within seven days an agreed-upon redacted Opinion and Order which the Court can upload to the public docket. 2 The Court's citations in the body of this Opinion and Order will be to the unredacted versions of the parties' briefings. Nonetheless, the redacted version of Bentley's memorandum in support is ECF No. 391. September 16,2020. ECF No. 403.^ Bentley filed a reply memorandum on September 22, 2020.

ECF No. 407."^ The Court held a remote hearing on the Motion on October 22,2020, at which Mr.

Edgar Haug argued on behalf of Bentley and Mr. Matthew Moore argued on behalf of JLR. At the Court's direction, after the hearing JLR filed a supplemental exhibit under seal consisting of

Mr. Malackowski's rebuttal expert report and a reference cited therein. ECF No. 432. The matter having been fully briefed and argued, the Court issues this ruling GRANTING Bentleys' Motion for alternative relief.

Throughout the course of this litigation Bentley repeatedly sought to obtain from JLR a computation of each category of damages claimed by JLR for Bentley's alleged infringement.

Among Bentley's efforts to determine the substance of JLR's damage claim, Bentley submitted interrogatories, the most pertinent of which is Interrogatory 5, which called upon JLR to describe the complete basis for JLR's contention that it is entitled to damages under 35 U.S.C. § 284.

Subpart (ii) required JLR to "state whether you contend to be entitled to a reasonable royalty rate, lost profits, or any other form of damages, and provide a computation of the damages you claim in each category." ECF No. 395, attach. 7 at 23. JLR provided an initial response which included objections and an answer, and four supplemental responses, the last of which was served on

January 24,2020. Id. at 24-38, 68. In each response, JLR averred that it was pursuing both a lost profits theory of damages and a reasonable royalty. Id. Starting with its third supplemental response, JLR articulated that it would pursue its reasonably royalty theory of damages "on the supposed result of hypothetical negotiations between the patentee and the infringer" since "[t]here is no established royalty for the *828 patent." Id. at 35. Further, JLR averred that its expert would determine the reasonable royalty "using one or more valuation methods commonly used in

^ The redacted version of JLR's memorandum in opposition is ECF No. 402. ^ The redacted version of Bentley's reply is ECF No. 404. determining reasonable royalties." JLR specifically referenced the Income Approach,the Market Approach, and "the Cost Approach, which considers the cost to design and develop, or reproduce,

an infringing product in a non-infnnging manner; and an assessment of the fifteen ^Georgia-

Pacific factors' delineated in Georgia-Pacific v. U.S. Plywood Corp.., 318 F.Supp. 1116, 1120 (S.D.N.Y. 1970), which provide a reasoned economic framework for a hypothetical negotiation."

Id. at 35-36. In its fourth supplemental response, JLR "reiterate[d] its contention that the

reasonable royalty adequate to compensate JLR for Bentley's past damages will be calculated

based on a hypothetical negotiation between JLR and Bentley. Bentley further reiterates its

contention that JLR is entitled to damages in the form of lost profits." Id. at 37. JLR also cited to

a list of documents that it contended supported its damages claims. Id. at 37-38. JLR "identifie[d]

the deposition transcripts of eight witnesses "as having information relevant to damages as

measured in the form of lost profits or a reasonable royalty in this case."^ Id. at 38.

As noted, JLR served its Fourth Supplemental Responses to interrogatories on January 24,

2020. Id. at 68. While discovery in this case was originally scheduled to close on January 17,

2020, ECF No. 55, the Court signed an Agreed Order submitted by the parties extending, inter

alia, JLR's deadline to supplement its response to Bentley's Interrogatory 5, ECF No. 175.

Because of the COVID-19 outbreak, the Court issued an Agreed Order to extend certain pending

deadlines, including the identification of experts (from April 14, 2020 to July 14, 2020, and the

production of expert reports from the party with the burden of proof,from May 14,2020 to August

13, 2020.^ ECF No. 333. Pursuant the Agreed Order, expert discovery closed on October 14,

2020. Id.

'JLR identified Liisa Janov, John Hall, David Garris, Matthew Holmes,Philip Baker,Richard Agnew,Michael Rocco, and Albert Robinson. Id. JLR did not identify David Armstrong as a witness with knowledge. Id. ® The deadline for responsive expert reports was extended from June 11,2020 to September 10,2020, and for rebuttal expert reports from June 25,2020 to September 24,2020. Id. Also pertinent to the background of this dispute, on December 4, 2019, Bentley filed a

Motion to Compel seeking an Order requiring JLR to provide a more fulsome response to, inter alia. Interrogatory 5. ECF No. 77. The Court held a hearing on that Motion on January 14,2020, and at the hearing, "Defendants proffered that this motion was limited to their contention that

Plaintiff should provide additional information regarding their lost profits claim . . .." ECF No.

170 at 2. Consequently, the Court granted the motion, id., and JLR provided the fourth supplemental interrogatory responses.

On August 13, 2020, in accordance with the revised scheduling order, JLR produced the

expert witness report of James E. Malackowski. ECF No. 395, attach. 8. In this report Mr.

Malackowski provides a detailed analysis of multiple possible damage claims, including lost

profits and reasonable royalty. Id. Mr. Malackowski ultimately rejected the lost profits damages

theory and determined that the appropriate measure of damages was a reasonable royalty relying

on the Cost Approach valuation method. Id. Specifically, Mr. Malackowski opined that, based

upon a hypothetical negotiation between the parties, JLR would demand and Bentley would agree

to paying a reasonable royalty rate ofREDACTEDper vehicle, along with a "technology access fee" of

approximatelyREDACTED. Id. He determined the amount of the technology access fee based on

JLR's development costs associated with the '828 patent.^ Id.

In its briefing and at the hearing, Bentley has contended that JLR's damage claim for a

reasonably royalty based on the technology access fee is a new theory of damages, not previously

'Ordinarily, the Cost Approach valuation method considers the cost to design and develop an infringing product in a non-infringing manner. However, Mr. Malackowski opined that "where no non-infringing alternative has been identified or developed, the cost of developing the accused asset may be considered. ECF No. 395, attach. 8 at 92. When challenged on this point by Bentley's expert, Mr. Malackowski stated in his rebuttal that "[a]ctual costs [of development] based on the experience of the patent owner are a widely accepted proxy of the cost to reproduce a specific intangible asset." ECF No. 434 at 26. In support of this proposition, Mr. Malackowski cites to the treatise Russell L. Parr, Intellectual Property - Valuation, Exploitation, and Infringement Damages 79 (5th ed. 2018). That resource explains that "[o]ne method that can be employed to obtain an estimate of the cost to reproduce a new replica ofthe property is a trending of historical costs." Id.

4 disclosed, and therefore should be stricken. Bentley claims it has been surprised by this damage theory on two grounds. First, it claims that JLR's assertion all throughout this litigation that it was pursuing a lost profits theory ofdamages, only to abandon that claim at the last moment,constitutes an unfair surprise that caused it to waste substantial resources in defense thereof. Second, Bentley claims that Mr. Malackowski's report set forth a new, previously undisclosed theory conceming the technology access fee that had nowhere been mentioned before, and that caught Bentley by surprise. As a result of that surprise, Bentley was unable to conduct any discovery of the facts underlying the damage theory, and the time for discovery has long since closed. While it could and did depose Mr. Malackowski, and produce a report from its own expert attempting to rebut

Mr. Malackowski's conclusions, Bentley claims it is subjected to unfair prejudice because it is unable to discover and test the imderlying factual basis on which Mr. Malackowski based his opinions. Therefore, Bentley moves the Court to strike this damage theory or, in the altemative, reopen discovery to permit Bentley to conduct limited discovery into this damage theory.

In its briefing and at the hearing, JLR contended that it was within its rights to abandon the lost profits theory of damages and rely on the specific reasonably royalty claim as articulated by

Mr. Malackowski. Further, JLR contends that it did, in fact, disclose this theory, including the

Cost Approach valuation method for determining reasonably royalty based upon a hypothetical

negotiation, at the very least in its third and fourth supplement interrogatory responses. JLR

proffered eight witnesses for deposition that it contends addressed, in some form or fashion, its

theory of damages. Alternatively, JLR argues that striking its damage claim is too harsh a remedy,

and that if necessary and given the time available before trial, the Court could permit Bentley to

depose two specific witnesses—^Jan Prins and David Armstrong, the JLR employees most

knowledgeable about JLR's development costs for the *828 patent—^which would permit Bentley to explore the factual underpinnings of Mr. Malackowski's opinion.

Preliminarily, the Court notes that Bentley's challenge is not just to the timeliness of the

JLR's damage theory disclosure, but also to the validity of it. In other words, besides challenging the timing of JLR's disclosure, Bentley also challenges the validity of Mr. Malackowski's opinion in regard to his utilization of the technology access fee—^based on JLR's development costs—as opposed to the development cost of a non-infringing alternative. JLR,through Mr. Malackowski's rebuttal expert report, argues that this type offee is appropriate under the Cost Approach valuation

method as demonstrated by the Parr treatise. Regardless, whether Mr. Malackowski's methodology is scientifically sound or otherwise reliable under a Dauber^ analysis, that issue was

not specifically addressed by the parties in their briefing and therefore need not be addressed by the Comt at this juncture. Instead, the Court evaluates solely the timeliness of JLR's disclosure.

Rule 26(a)(l)(A)(iii) requires a party to disclose "a computation of each category of damages claimed by the disclosing party—^who must also make available for inspection and copying as imder Rule 34 the documents and material, unless privileged or protected from

disclosure, on which each computation is based, including materials bearing on the nature and

extent of the injuries suffered." Additionally, the Scheduling Order in this case established a specific disclosure date for expert witness reports. See, ECF Nos. 333. JLR argues that a party

may supplement its Rule 26(a)(l)(A)(iii) disclosure of its computation of each category of

damages by producing an expert report, citing Silicon Knights, Inc. v. Epic Games, Inc, No. 5:07- cv-275, 2012 WL 1596722, at *1 (E.D.N.C. May 7, 2012), and that the actual calculation of

damages is routinely the subject of expert witness testimony and reports, relying on Personal

Audio, LLC v. Google LLC, No. 17-cv-1751, 2018 WL 4502002, at *1 (D. Del. Sept. 20, 2018).

® Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579(1993).

6 ECF No.403 at 5,15. Consequently, JLR contends that the expert report was a timely, appropriate disclosure. JLR further points to other disclosures of this reasonable royalty theory of damages, including REDACTED

Id. at 6, 12-13. JLR also contends that its supplemental responses to Interrogatory 5 clearly articulated a reasonable royalty claim based on a h3q)othetical negotiation utilizing the Cost

Approach valuation method, identifying witnesses and documents, including its REDACTED

. M at 10-13. JLR points out that Bentley represented to the Court at the hearing on Bentley's motion to compel that it only challenged Interrogatory 5 with respect to the lost profits claim. Id. at 7. Finally, JLR argues that

Bentley had the opportunity to discuss the reasonable royalty rate damages with its Rule 30(b)(6)

witness. Id. at 8-9.

The question for the Court is whether the disclosures described constitute "a computation

ofeach category of damages claimed by the disclosing party," as required by Rule 26(a)(l)(A)(iii).

Generally, "[t]he federal rules promote broad disclosure during discovery so that each party can

evaluate the strength of its evidence and chances of success. This makes trial *less of a game of

blind man's bluff and more of a fair contest.'" Newsome v. Penske Truck Leasing Corp., 437 F.

Supp. 2d 431,437(D. Md. 2006)(quoting United States v. Procter & Gamble Co., 356 U.S. 677,

682 (1958)). In addition, "[t]he purpose of Rule 26(a) is to allow litigants *to adequately prepare

their cases for trial and to avoid imfair surprise.'" Bresler v. Wilmington TV. Co., 855 F.3d 178,

190 (4th Cir. 2017), citing Russell v. Absolute Collection Servs., Inc., 763 F.3d 385, 396 (4th Cir.

2014). Accordingly, a party who fails to comply with the expert witness disclosure rules is

prohibited from **us[ing] that information or witness to supply evidence ... at a trial, unless the failure was substantially justified or is harmless." Fed. R. Civ. P. 37(c)(1).

Accordingly, Rule 26 and Rule 37 should not be interpreted in a manner that undercuts the

general purpose of discovery or promotes surprise at trial. It is true that JLR disclosed information

regarding its ultimate theory of damages in the ways it suggests. It is also true that it proffered

alternate theories of damages all along the way,including the lost profits theory and the reasonable

royalty theory based on the Market Approach and the Income Approach valuation methods,

thereby requiring Bentley to prepare a defense to each potential avenue ofrecovery. At the hearing

Mr. Moore acknowledged that JLR decided to abandon its lost profits damages theory well before

it disclosed Mr. Malackowski's report, although this was not disclosed to Bentley until it received

the expert's report.^ Consequently, between the close of discovery in January and the disclosure

of the expert report in August, Bentley was required to defend against several alternate theories of

damages, only one of which JLR ended up asserting.

Additionally, despite JLR's reliance on Silicon Knights, supra,"an expert report may not

simply stand in the place of Plaintiffs required 26(a)(l)(A)(iii) disclosures." Companion Prop. &

Gas. Ins. Co. v. U.S. BankNat'l Ass'n, No. 3:15-cv-01300-JMC, 2016 WL 3452734, at *2(D.S.C.

June 24, 2016). JLR was obligated to disclose not just several potential theories it might elect to

pursue when its expert delivered his report, but a "computation." As the court noted in Silicon

Knights,"a party's Rule 26(a)(l)(A)(iii) disclosure must state the types of damages that the party

seeks, must contain a specific computation of each category, and must include documents to

support the computations. 2012 WL 1596722, at *1 (emphasis added). JLR may have timely

disclosed the type of damages sought and relevant documents, it cannot be said that JLR offered

'At the hearing, Mr. Moore first stated that JLR abandoned the lost profits theory at or near the close of discovery. When pressed by the Court, he then represented he could not be sure when that occurred. In any event, JLR never notified Bentley of the change in focus of its damage claim from lost profits to reasonable royalty with a technology access fee until it disclosed Mr. Malackowski's report on August 13,2020.

8 any computation of damages using the reasonable royalty applying the Cost approach valuation

method, the damage theory asserted now by Mr. Malackowski, Not until the release of Mr.

Malackowski's report did JLR disclose that its computation of damages would include REDACTED

. JLR should have disclosed this long before

it released its expert report in accordance with Rule 26(e), which imposes upon parties an

obligation to timely supplement its Rule 26(a) disclosures when the party "learns that in some

material respect the disclosure is incomplete ..." Consequently, the Court FINDS that JLR's

disclosure of its reasonable royalty damage theory was not timely.'®

Pursuant to Rule 37(c), the Court then must address whether the xmtimely disclosure

warrants exclusion, or whether the failure to disclose the pertinent information was substantially justified or harmless. Accordingly, under Rule 37(c)(1), the Court looks to the following five

factors:

(1) the surprise to the party against whom the evidence would be offered; (2) the ability of that party to cure the surprise; (3) the extent to which allowing the evidence would disrupt the trial; (4) the importance of the evidence; and (5) the nondisclosing party's explanation for its failure to disclose the evidence.

Southern States Rack and Fixture, Inc. v. Sherwin-Williams Co.,318 F.3d 592,597(4th Cir. 2003).

With respect to the first factor, the Court finds that Bentley was surprised by this disclosure.

JLR appears to have adopted a broad approach in regard to its pursuit of a damages theory, leaving

all of its options open as to what damage theory it would ultimately pursue, and what amount of

damages it would claim. By its responses to Interrogatory 5, it offered a broad range of

possibilities as to its damages claim, disclosing much of its pertinent evidence amongst a great

This finding does not mean to suggest that JLR was not entitled to abandon other potential damage claims, such as the lost profits claim. Instead, this finding is based on JLR's failure to timely disclose the specific damage theory it ultimately elected to pursue. deal of non-pertinent evidence. Bentley was therefore compelled to defend against multiple

potential theories, ultimately leading to a surprise when the specific reasonable royalty claim was

disclosed by Mr. Malackowski in his report. Of note, Mr. Malackowski relied substantially not just on evidence produced in discovery, including depositions, but also on his personal interviews

with no less than five JLR employees—^witness interviews that were not available to Bentley.

See, e.g., EOF No. 395, attach. 8 at 67-68,78-79, 93,97-99.

With respect to the second factor, had the trial schedule of this case not been disrupted by

the COVID-19 pandemic, Bentley might very well have been without remedy to cure the surprise.

However, while discovery has closed, it is within the Court*s discretion to re-open discovery to

give Bentley the opportunity to explore the factual basis for Mr. Malackowski's opinions regarding

his computation of the technology access fee. Hinkle v. City ofClarksburg, W. Va.,^\ F.3d 416,

426 (4th Cir. 1996)(stating that district courts "enjoy nearly unfettered discretion to control the

timing and scope of discovery.").

Regarding the third factor, allowing Mr. Malackowski's evidence would only disrupt the

trial if Bentley were handicapped in its ability to explore the factual basis underpinning Mr.

Malackowski's calculation. JLR argues that any surprise could have been cured by expert

discovery, and therefore allowing Mr. Malackowski's opinion will not disrupt the trial. ECF No.

403 at 21. However, this contention overlooks the fact that the expert's opinion is only as good as

the data upon which it relies, and without being able to discover the factual basis for the opinion,

Bentley's trial efforts are disrupted.

With respect to the fourth factor, both sides agree Mr. Malackowski's opinions are

undisputedly important. See ECF Nos. 395 at 15; 403 at 25. The Court agrees that this evidence

'' Matthew Holmes, Dr. Gregory Davis, Richard Agnew, David Armstrong, and Jan Prins.

10 is critical to JLR's claim. Mr. Malackowski analyzed multiple damage theories, and the reasonable royalty theory he espoused resulted in a substantial claim for damages.

Finally, with respect to the fifth factor, JLR's nondisclosure was not substantially justified.

JLR knew at or shortly after the close of discovery in January that it would abandon its lost profits theory and pursue a damage claim seeking a reasonable royalty based on a hypothetical negotiation between the parties, applying the Cost Approach valuation method. After disclosing several potential theories in discovery, and concededly disclosing certain underlying information upon which such a reasonable royalty theory could be based, JLR failed to supplement its disclosures as required by Rule 26(e) until it submitted Mr. Malackowski's report. This deprived Bentley of both the ability to focus its own efforts on rebutting only the reasonable royalty/Cost Approach damage theory, but also seek relief from the Court to extend discovery to determine the specific factual basis for JLR's damage theory. As the Court noted supra, the discovery rules favor broad disclosure in order to make trials a fair contest and less of a game of blind man's bluff. JLR's failure to provide its damage claim sooner than it did was not substantially justified.

In light of its analysis of the Southern States factors, the Court must therefore arrive at an appropriate sanction. "Excluding expert testimony is an extreme sanction and, if the evidence is critical, one not normally to be imposed absent a showing of willful deception or flagrant disregard of the court order by the proponent." Humane Sac. v. Nat'I Union Fire Ins. Co., No. DKC 13-

1822, 2014 WL 3055568, at *8 (D. Md. July 3, 2014) (citations and intemal quotation marks omitted). Having found that JLR's damage evidence is critical and that its late disclosure was not substantially justified, the Court does not find that it involved "willful deception" or "flagrant disregard of a court order." Excluding Mr. Malackowski's damages theory would operate to work a severe hardship on JLR, potentially crippling its case. Based on the Court's finding regarding

11 the second Southern States factor, the Court FINDS that it can cure the surprise to Bentley by permitting it to engage in additional discovery regarding the factual underpinnings of Mr.

Malackowski's opinions; i.e. the development costs of the '828 patent. JLR suggested at the hearing that, if the Court were inclined to authorize additional discovery, its employees Jan Prins and Robert Armstrong were the most knowledgeable persons regarding the development costs of the '828 patent. It therefore may be appropriate for Bentley to depose these two witnesses. The

Court does not intend to circumscribe exactly what discovery might be necessary to determine evidence supporting the development costs of the '828 patent, which Mr. Malackowski contends justifies theREDACTED technology access fee. Nor, however, does this Order intend to authorize unlimited further discovery regarding this issue. Instead, the parties are DIRECTED to meet and confer for the purpose of agreeing upon what further, limited discovery is necessary to provide Bentley with the facts JLR contends support Mr. Malackowski's reasonable royalty opinion. Should the parties fail to agree, they are DIRECTED to promptly contact the undersigned's Courtroom Deputy to schedule a telephone conference to resolve the dispute. All discovery should be concluded on or before December 29, 2020. Bentley is also granted leave to submit a supplemental expert report no later than January 5,2020.

Consequently, Bentley's Motion to Strike JLR's Untimely Damage Theory, ECF No. 390, is GRANTED in part. Bentley is GRANTED its alternative relief to re-open discovery to the extent and under the conditions described in this ORDER.

The Clerk is DIRECTED to forward a copy of this Order to all counsel of record.

LIAWRENCB R. LEONARD UNITED STATES MAGISTRATE JUDGE Norfolk, Virginia October 28,2020

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