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June 30, 2000


The opinion of the court was delivered by: William C. Conner, Senior District Judge.


Plaintiffs, Johnson Electric North America, Inc. ("JENA") and Johnson Electric Industrial Manufactory, Ltd. ("JEI") (collectively, "Johnson"), brought this action seeking a declaratory judgment that defendants' patents are invalid and have not been infringed by plaintiffs. Defendants, Mabuchi North America Corp. ("Mabuchi America") and Mabuchi Motor Co., Ltd. ("MMC") (collectively, "Mabuchi"), brought counterclaims for patent infringement. Presently before this Court is plaintiffs' motion in limine to exclude the proposed expert testimony of Dr. Jeffrey A. Dubin. For the reasons stated below, plaintiffs' motion is granted.


JEI, a Hong Kong corporation, and JENA, a Connecticut corporation, are in the business of making small motors for a wide variety of products, including hair dryers, portable tools, and power door locks and mirrors in automobiles. MMC, a Japanese corporation, and Mabuchi America, a New York corporation, also produce small motors and are together one of Johnson's most important competitors. Mabuchi maintains a sizeable research and development department and spent approximately $17 million on research and development in 1997. See Johnson Elec. North Am. Inc. v. Mabuchi Motor Am. Corp., 98 F. Supp.2d 480, 481 (S.D.N Y 2000) (WCC). Mabuchi asserts that, in comparison, Johnson's research and development efforts have been modest. (Mabuchi Am. Answer ¶ 97.)

I. The '933 Patent Litigation

In 1985, Mabuchi discovered Johnson motor No. HC315G, and concluded that it infringed Mabuchi U.S.Patent No. 4,431,933 ("the '933 patent"). Mabuchi sent one of Johnson's customers a letter informing the customer of the alleged infringement. In response, Johnson filed a lawsuit in the Southern District of New York alleging that Mabuchi was interfering with its contractual relations and seeking a declaration of the invalidity of the '933 patent. Mabuchi counterclaimed for patent infringement and filed a lawsuit against another one of Johnson's customers in the United States District Court for the District of Delaware. Mr. Roger Baines, Director of Research and Development for Johnson, admitted in his deposition that the structure shown in the drawings of Johnson's motor No. HC315G and that shown in the drawings of the '933 patent were substantially similar. (Baines Dep. at 91.)

II. The '215 Patent Litigation

Mabuchi's U.S.Patent No. 4,574,215 ("the '215 patent") issued on March 4, 1986. See Johnson Elec., 98 F. Supp.2d at 482-83. The invention claimed in the '215 patent addressed a problem occurring in one of Mabuchi's motors that was used in automobile accessories, including power door locks and mirrors. Prior to the invention disclosed in the '215 patent, the motors contained a one-piece brushgear mechanism consisting of a terminal strip of rigid metal and a carbon brush attached at the end. The terminal strip's rigidity frequently resulted in its breakage.

Mabuchi directed the efforts of its research and development department to address this mechanical problem. Mr. Takachi Mabuchi, the president of MMC and Mabuchi America, personally participated in the design process and developed the invention claimed in the '215 patent.

The '215 patent teaches the use of a two-piece brushgear composed of a terminal strip and a separate commutator strip upon which the carbon brush is mounted. The terminal and commutator contactor strips are joined together by means of lateral projections on the terminal strip which are bent and crimped onto the edges of the commutator strip. The brushgear is L-shaped at the joint, and fits into a corresponding L-shaped slot in the brush holder on the motor case. When the brushgear is mounted in the brush holder, the terminal strip projects laterally through the motor case.

On or about March 18, 1983, Johnson learned of the existence of Mabuchi's motor with the two-piece brushgear from JEI's distributor and agent D. Rögelein GmbH, a German corporation. Dieter Riögelein, Rögelein's employee, sent a letter dated March 17, 1983 via facsimile to Patrick Wang, JEI's officer, director and employee, which provided information about the Mabuchi motor and stated that Mabuchi "has taken the chance to get a good reference in the automotive market . . ." and Johnson "would like to kick them out as soon as possible." (Defs.Am. Answer ¶ 106.)

Along with the letter, Rögelein sent one of the Mabuchi motors to Johnson in Hong Kong and requested that Johnson manufacture a comparable motor. See Johnson Elec., at 482-83. David Lam, a Johnson employee, was assigned the task of completing the design. In November 1984, Patrick Wang directed Lam to abandon his unsuccessful design efforts and simply copy the Mabuchi two-piece design. See id. Lam made a copy of the Mabuchi motor sometime in November 1984. See id.

In late 1986, Johnson altered its original brush gear structure which it had copied from Mabuchi. Mabuchi alleges that the second design included only minor revisions. (Defs.Am. Answer ¶ 109.)

Mabuchi filed an application for a United States patent on the two-piece structure in August 1983, and the '215 patent was granted thereon in March 1986. Roger Baines, Johnson's Director of Research and Development, testified that he became aware of the '215 patent at about the time of its issuance. (Baines Dep. at 151-52.)

Although the '215 patent issued in 1986, Judge Sprizzo, upon Johnson's motion, ruled that no direct damages could be awarded for infringement of the '215 patent prior to July 15, 1988 because Mabuchi failed to comply with the patent marking statute, 35 U.S.C. § 287, and gave no notice of the alleged infringement until that date. (See Order of Sprizzo, J., July 7, 1994.) Although Judge Sprizzo certified the order granting Johnson's motion for immediate appeal pursuant to 28 U.S.C. § 1292 (b), the Court of Appeals for the Federal Circuit denied leave to appeal. See Johnson Elec. North Am.,et al. v. Mabuchi Motor Am. Corp., et al, 1997 WL 173208, at *1, Misc. Docket No. 405, 1997 U.S.App. LEXIS 7687, at *1-2 (Fed.Cir. March 20, 1997).

III. Liability for Use Infringement by Johnson's Customers

Dr. Dubin's estimation of Mabuchi's damages relies, in part, on the assumed liability of Johnson for the use infringement by Johnson's customers. Mabuchi asserts, on the basis of Article 04.03 of the Settlement Agreement that resulted from the '915 patent litigation, that Johnson assumed liability for use infringement by its customers.

The parties disagree as to the meaning of Article 04.03 of the Settlement Agreement. Mabuchi asserts that during the '915 patent litigation, Johnson demanded Article 04.03 "as a means of limiting [] notice of infringement and independent litigation activity to the principals as opposed to Johnson customers." (Kakinuki Counter-Decl. ¶ 3.) Further, Mabuchi argues that Article 04.03 "states in essence that if Johnson agrees to be liable for all of the damages of Johnson's direct and ultimate customers," Mabuchi will not notify or sue these customers. (Id.)

When Johnson moved at the commencement of this litigation in 1988 for a preliminary injunction preventing Mabuchi from suing Johnson's customers, Mabuchi argued that it "was no longer precluded under the 1987 Settlement Agreement from notifying or suing Johnson's customers." (Id. at ¶ 5.) Judge Sprizzo agreed and denied Johnson's motion. (Defs.App., Ex. 11.) However, Mabuchi argues that although it is permitted to notify or sue Johnson's customers directly, it is not compelled to do so. (Kakinuki Counter-Decl. ¶ 5.) If Mabuchi does not sue Johnson's customers directly, Mabuchi argues, Johnson has agreed to be liable for all of its direct or ultimate customers' use infringement in the United States. (Id. at ¶ 6.)

In support of its position, Mabuchi points to the testimony of Richard Wang, Johnson's president and chairman, during the preliminary injunction hearing before Judge Sprizzo. According to Wang's testimony, Wang understood Article 04.03 to mean that Johnson was granting consent to jurisdiction in the event of litigation. (Prelim.Inj. Hearing Tr. at 19.) In his affidavit, Wang further testified:

Finally, the settlement agreement requires us to assure Mabuchi the means to collect the reasonable royalty it has demanded, and to designate an entity that Mabuchi can sue, should it be necessary, to recover that reasonable royalty. We have designated the Johnson Trans-Hudson Motor Corporation, a New York corporation, as an entity to be sued to recover such reasonable royalty, should Mabuchi prevail in any of these jurisdictions, and, further, state that any judgment against this company is secured by the combined assets of Johnson and JENA.

(R. Wang Aff. ¶ 14.)

In opposition to Johnson's motion in limine to exclude Dubin's expert testimony, Mabuchi argues that Dubin's testimony is necessary to prove damages because Johnson resisted discovery of its customers. (Defs.Mem. at 9-10.) Johnson counters that during discovery it "provided Mabuchi with invoices for all of its customers who purchased the allegedly infringing motors." (Weiss Reply Aff. ¶ 7.) Mabuchi obtained letters rogatory in order to take the deposition of D. Rögelein GmbH, Johnson's customer in Germany, but never filed or served the letters rogatory. (Id. at ¶ 9.) Instead of pursuing formal discovery with Johnson's customers, Mabuchi, in letters to the disclosed customers, requested voluntary disclosure. (Id. at ¶ 11, Ex. C.) At least one customer provided Mabuchi with copies of the documents requested. (Id. at ¶¶ 13-14, Exs. D, E.) Therefore, Johnson argues, Dubin's testimony is unnecessary because Mabuchi could have obtained from Johnson's customers the relevant information to prove damages, but chose not to.

Johnson's potential liability for its customers' use infringement is particularly relevant because Johnson sold only 9,600 allegedly infringing motors, valued at a total of $6,624, in the United States between April 1986 and June 1988. (Dubin Dep. of 6/8/99 at 345-46.) Although there is some dispute as to the number of sales in the United States from July 15, 1988, when Mabuchi complied with the patent marking statute, through March 1989,*fn1 when Johnson produced a non-infringing substitute micro-motor, Dubin's data show that there were no United States sales by Johnson during that time period. (Id. at 346.) Therefore, as discussed below, in proving damages Dubin relies almost entirely on Johnson's sales outside of the United States of motors that were incorporated into products that were imported into and ultimately used in the United States. However, because we find that Dubin's proffered testimony as to damages is inadmissible on other grounds, we need not reach the question of whether Mabuchi is entitled to damages based on use infringement in the United States.

IV. Dr. Dubin's Qualifications

Dr. Jeffrey A. Dubin is a co-founder and partner of the Pacific Economics Group. (Defs.App., Ex. 19.) He is also a tenured associate professor of Economics at the California Institute of Technology. (Id.) In 1978 he received a A.B. in Economics with highest honors and great distinction from the University of California, Berkeley, and in 1982 he received a Ph.D. in Economics from the Massachusetts Institute of Technology. (Id.) Dr. Dubin's current research focuses on microeconomic modeling with particular emphasis on discrete choice econometrics. (Id.) Dr. Dubin has significant experience in developing econometric models for use in patent and other litigation. (Id.) Plaintiffs do not dispute Dubin's qualifications.

V. Dr. Dubin's Report

In the absence of direct evidence of damages arising from the alleged infringement, Dr. Dubin has prepared a detailed economic analysis of the worldwide market for micro-motors. Based upon that analysis, Dubin has estimated how many of Johnson's allegedly infringing micro-motors were used within the United States, see 35 U.S.C. § 271, and computed Mabuchi's resulting damages.

Dubin attempts to evaluate what Mabuchi would have done with regard to the pricing of the micro-motors in the absence of Johnson's alleged infringement. (Id. at 4.) As a patent holder, Mabuchi has the right to exclude others from making, using or selling in the United States the patented micro-motor during the patent term. With such exclusivity, Mabuchi would have been able to set prices for the micromotors without concern for competition. (Id. at ii.) However, with or without competition, the demand for micro-motors constrains the producer's pricing behavior. (Id. at 4.) Therefore, Dubin had to construct a model reflecting the demand for micro-motors in order to determine what Mabuchi would have done, but for Johnson's alleged infringement.

Dr. Dubin's report first explains that the demand for micro-motors is "derived demand." (Id. at i.) Derived demand means that "consumer demand for the products which contain these micro-motors will drive the demand for the micro-motors." (Id. at i-ii.) There are two types of micro-motors at issue here: the 100 series motors, which are typically used in small household appliances, and the 200 series motors, which are typically used in automobiles.

Dubin constructed the demand function for the 100 and 200 series micro-motors using historical sales data to estimate the quantities of a particular good customers will purchase at various prices. Dubin's historical sales data were derived from documents provided by Johnson and Mabuchi, from public sources such as Ward's Automotive Yearbooks, and international trade statistics of imports and exports of small household appliances. (Id. at 16.) Using these sources, Dubin estimated the number of 200 series micro-motors used in cars and the number of 100 series micromotors used in hair dryers, electric toothbrushes, juicers, and electric trains/cars shipped into the United States. (Id. at 23, 25.) In order to explain the worldwide demand for 100 and 200 series micro-motors, Dubin relied upon three main factors:

(1) demand for relevant automobile and household appliances market;
(2) the inflation-adjusted (real) micromotor price; and
(3) a time trend to control for general trends in demand not accounted for in the other factors.

(Id. at 20, Ex. 15.)

The prices for both the 100 and 200 series micro-motors declined over time. (Id. at 27, Exs. 24, 25.) Johnson's prices worldwide for the 100 series are lower than Mabuchi's by 15-20%. (Id. at 26, Ex. 24.) Johnson's prices for the 200 series were lower than Mabuchi's for a time, after which the prices of the two companies were similar. (Id. at 27, Ex. 25.)

An important part of Dubin's analysis involved ascertaining the "demand elasticity" of the micro-motors. "Demand elasticity measures whether demand for a particular product is sensitive to price changes." (Id. at iii.) If a product is "price elastic," small changes in price will result in relatively large changes in the quantity demanded. If a product is "price inelastic," the quantity demanded will not change much as the price is increased or decreased. (Id.) Because a monopolist can increase the price of a price inelastic product without having a great ...

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