Expert Report Proffered by a Party in a Prior Case Is Not Automatically a “Party Admission” for Purposes of Fed. R. Evid. 801(d)(2)(C), Holds Fifth Circuit

In HTC Corp.  v. Telefonaktiebolaget LM Ericsson, No. 19-40566 (5th Cir. Aug. 31, 2021), the Fifth Circuit affirms exclusion of an expert report from a valuation expert who the defendant had used in prior litigation, holding that the prior expert’s testimony is inadmissible hearsay and not admissible as a party admission under Fed. R. Evid. 801(d)(2)(C).

Modern technology requires common technical standards across equipment so that machines can communicate among themselves, regardless of brand or model. Standard-setting organizations play a key role in setting “technical standards that permit interoperability between devices.” But such cooperation can lead to anticompetitive behavior. “Standards frequently incorporate patented technology, known as standard-essential patents . . . When a patent becomes essential to an industry standard, other companies face a choice if they want to have a standard-compliant device: They can either attempt to license the patented technology in order to develop their own product, or they can risk a patent infringement action against them. This puts the holder of a standard-essential patent in a powerful position to extract as much money as they want from potential licensees.”  

To counteract the anticompetitive effect, “standard setting organizations require standard-essential patent holders to commit to licensing their patents on fair, reasonable, and non-discriminatory terms (FRAND terms).” In this case plaintiff HTC, which produces mobile devices, claimed that defendant Ericsson “breached its commitment to provide a license on FRAND terms.” At trial, the defendant prevailed and the judge entered declaratory judgment that “Ericsson complied with its FRAND assurance to HTC.”

The Fifth Circuit affirms the defense verdict over a host of challenges.

One issue at trial was the valuation of defendant’s patents. HTC sought to cross-examine Ericsson’s valuation expert (named Mills) by with testimony by another expert witness engaged by Ericsson in a different case (named Kennedy), who used a different methodology. “HTC wanted to demonstrate that Ericsson’s experts in a previous case had calculated royalty rates in comparable licensing agreements at a lower rate than the one offered to HTC. The district court granted Ericsson’s motion in limine to exclude this evidence, yet HTC tried to present it to the jury via cross-examination of another expert. The district court excluded the evidence as hearsay and HTC now appeals the exclusion of the report and testimony of one expert in particular.”

Although the prior expert’s report is facially hearsay, HTC argued that because Ericsson offered it in another case, it was an admissible “party admission” under Fed. R. Evid. 801(d)(2)(C) because it was “offered against an opposing party” and “made by a person whom the party authorized to make a statement on the subject.” The theory was that because Ericsson hired the expert in the first case, the expert thereby acted as an “agent” of Ericsson.

The panel affirms order excluding the report and barring cross-examination. “Those cases where we have allowed expert testimony to serve as a party admission have been limited to circumstances where the expert was an agent of the opposing party or where the expert’s statements or reports were prepared for the very case in which admission was sought . . . . That is not the case here. Kennedy was not an agent of Ericsson simply by virtue of acting as an expert witness in a prior case.”

“Kennedy’s testimony was prepared and given at a different time for a different case. Although Kennedy’s testimony may touch on the same general topic as Mills’s, Kennedy’s valuation was necessarily given for a different purpose and dealt with a distinct licensing situation. It had nothing to do with the present dispute over the licensing negotiations between Ericsson and HTC. The district court was well within its discretion in excluding Kennedy’s prior opinions.”

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