Tuesday, July 26, 2011

Hypothetical Negotiation Based on "Nash Bargaining Solution" Rejected as Unreliable

The court granted defendant's motion to strike portions of plaintiff's damages expert's report addressing "the Nash bargaining solution." "The Nash bargaining solution is a mathematical model that purports to define the most mutually beneficial outcome of a two-party bargaining scenario. After identifying the profits each party could expect without a deal and the surplus created by their cooperation, the Nash model allocates the value of the deal in two steps: each party first receives the same profits it could expect without a deal, and then the remaining surplus is divided evenly between them. The Nash bargaining solution relies on 'a few general assumptions' that 'idealize the bargaining problem.' . . . [Plaintiff's expert] glossed over the axioms underlying the Nash solution without citing any evidence to show that those assumptions were warranted in the present case. . . . The Nash bargaining solution has never been approved by a judge to calculate reasonable royalties in litigation, at least in the face of objection. . . . The Nash bargaining solution would invite a miscarriage of justice by clothing a fifty-percent assumption in an impenetrable fa├žade of mathematics. . . . No expert testimony based on the Nash bargaining solution will be admitted."

Oracle America, Inc. v. Google Inc., 3-10-cv-03561 (CAND July 22, 2011, Order) (Alsup, J.)

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