In a recent decision, on remand for a damages trial in a hotly contested patent case, a California federal court has ruled that Professor Robert Mnookin, a leading negotiation theorist and Harvard Professor, may testify as an expert on patent damages. In permitting negotiation theory to serve as the basis for establishing reasonable royalties in a patent case, the court has given this mediation guru an entirely new role, and has held that negotiation theory is one acceptable basis for assessing reasonable royalties in a patent case. The court has created a new use for mediation knowledge and a new opportunity for mediation and negotiation theorists. The ruling grew out of a challenge to Professor Mnookin’s qualifications to testify under Daubert, the case that requires federal trial courts to act as the gatekeeper for expert testimony and to determine whether the qualifications and basis for the proposed expert testimony meet generally accepted scientific principles. In Lucent Technologies, Inc. v. Microsoft Corporation, No 07 CV 2000 (SD Cal. June 16, 2011), the court held that negotiation theory is sufficiently well-established and accepted in the scientific community to withstand a Daubert challenge. Lucent contended that Professor Mnookin’s real-world negotiation analysis would conflict with the hypothetical approach typical in patent damages analysis because:
Under this [negotiation] theory, two parties come to a negotiation with their ‘best alternative to a negotiated Agreement’ (“BATNA”) and a reservation price. . . The two parties will only come
to an agreement if there is an overlap between their ‘zone of potential agreement’(“ZOPA”).
(Id.) Lucent argues that this theory ignores that the hypothetical negotiation between two
parties should (1) assume the patent is valid and infringed, (2) allow parties to walk away, and
(3) ignores information about the ‘Book of Wisdom.’
(Slip. Op. at 8.)
The court rejected the contention that the royalty calculation had to be based exclusively on the hypothetical negotiation that would have taken place before the infringement. According to the court, the hypothetical negotiation was not the only approach:
[T]here is no single correct approach at calculating reasonable royalties. . . Both Lucent and Microsoft agree that Professor Mnookin is well versed and qualified in the area of negotiation theory. . . Professor Mnookin’s negotiation that he applies to the facts of this case is widely accepted in the scientific community and has been published in many journals. . . The Court concludes that Professor Mnookin’s negotiation theory is based on reliable principles and methods. [internal citations omitted]
(Slip. Op. at 9.)
However, the Court seems to ignore the fact that although Professor Mnookin may understand how negotiations work, his only understanding of what either Lucent or Microsoft would be willing to offer must come from evidence equally available to the judge and jury – is the negotiation theory information sufficient to pinpoint the reasonable royalty? It is no small irony that negotiation theory that depends on assumptions about the risk assessed value of litigation for its analysis of the best alternative to a negotiated agreement (BATNA) is now going to serve as the foundation for establishing that value. Mediators and negotiation experts may have a new role to play. Professor Mnookin has crossed over. Will negotiation specialists appear as experts in other damages cases? It will be interesting to see how things develop.