Aylus Networks, Inc. v. Apple Inc.

Filing 120

ORDER regarding Joint Discovery Letter Brief 115 . Signed by Judge Kandis A. Westmore on 04/09/2015. (kawlc2S, COURT STAFF) (Filed on 4/9/2015)

1
2
3
4

UNITED STATES DISTRICT COURT

5

NORTHERN DISTRICT OF CALIFORNIA

6
AYLUS NETWORKS, INC.,

7

Case No. 13-cv-04700-EMC (KAW)

Plaintiff,
8
v.

ORDER REGARDING JOINT
DISCOVERY LETTER BRIEF

9
APPLE INC.,

10

Re: Dkt. No. 115
Defendant.

United States District Court
Northern District of California

11
12
The parties to the above-captioned case have filed a joint discovery letter brief concerning

13
14

Aylus' Second Set of Requests for Production, No. 43,1 which seeks "[a]ll documents relating to

15

all revenues, costs, and profits from media content accessible through the Serving Node." (Joint

16

Ltr. at 1, Dkt. No. 115.) Aylus has now modified the scope of the RFP "to documents relating to

17

the revenue, costs and profits from (1) purchases or rentals of iTunes video content using the

18

accused Apple TV and/or iOS products iPhone, iPad, and iPod Touch ('Accused iOS Products')

19

[and] (2) purchases of video games on the App Store using the Accused iOS Products." (Id. at 1.)

20

It claims that this information is relevant to its damages claims. (Id.)
Federal Rule of Civil Procedure 26(b)(1) permits "discovery regarding any nonprivileged

21
22

matter that is relevant to any party's claim or defense." The information sought "need not be

23

admissible at the trial" so long as it "appears reasonably calculated to lead to the discovery of

24

admissible evidence." Id. There is a "broad mandate in favor of the relevance that is conferred by

25

Rule 26(b)(1)." Barnes & Noble, Inc. v. LSI Corp., C 11-02709 EMC LB, 2012 WL 1564734, at *

26

5 (N.D. Cal. May 2, 2012).

27
1

28

In a footnote, there is a brief reference to RFP No. 44. See Joint Ltr. at 1 n.2. This order only
concerns RFP No. 43, as that is the only RFP reproduced in the joint letter.

1

Title 35 U.S.C. § 284 provides that "[u]pon finding for the claimant the court shall award
the claimant damages adequate to compensate for the infringement, but in no event less than a

3

reasonable royalty for the use made of the invention by the infringer, together with interest and

4

costs as fixed by the court." "Infringement compensation can be the patentee's 'lost profits' or the

5

'reasonable royalty he would have received through arms-length bargaining.'" Emblaze Ltd. v.

6

Apple, Inc., --- F. Supp. 3d ---, ---, 2014 WL 2889764, at *4 (N.D. Cal. June 25, 2014) (footnote

7

omitted). "The Georgia-Pacific factors are used in the 'hypothetical negotiation' approach to

8

determining a reasonably royalty." GPNE Corp. v. Apple, Inc., No. 12-CV-02885-LHK, 2014 WL

9

3870256, at *3 (N.D. Cal. Aug. 6, 2014). Georgia-Pacific factor six examines "[t]he effect of

10

selling the patented specialty in promoting sales of other products of the licensee; that existing

11
United States District Court
Northern District of California

2

value of the invention to the licensor as a generator of sales of his non-patented items; and the

12

extent of such derivative or convoyed sales." Georgia-Pacific Corp. v. U.S. Plywood Corp., 318

13

F. Supp. 1116, 1120 (S.D.N.Y. 1970), modified and aff'd, 446 F.2d 295 (2d. Cir. 1971).

14

In this case, the sales information Aylus seeks addresses the sixth Georgia-Pacific factor,

15

even if some of the information relates to sales involving non-infringing products. See Micro

16

Chemical, Inc. v. Lextron, Inc., 317 F.3d 1387, 1393 (Fed. Cir. 2003) (trial court did not abuse its

17

discretion in allowing expert to testify on the effect sales of non-infringing products had on a

18

reasonable royalty rate); Trans-World Mfg. Corp. v. Al Nyman & Sons, Inc., 750 F.2d 1552, 1566

19
20
21
22
23

(Fed. Cir. 1984) (district court incorrectly excluded evidence of profits where infringing use of
displays could have increased eyeglass sales and thus could be relevant in determining the amount
of a reasonable royalty). Apple's description of the accused Airplay functionality as only a "small
feature" of certain of its iOS devices does not mean that the information Aylus seeks is not
relevant. See Haworth, Inc. v. Herman Miller, Inc., 162 F.R.D. 286, 288 (1995) ("It may well be
that when all factors in the market for [the patented product] are considered, convoyed sales of

24
freestanding [collateral products] will play a negligible role in calculating a reasonable royalty.
25
But it is too soon to tell whether recovery for convoyed sales would over-compensate [plaintiff].").
26
27

To the extent that Airplay, no matter how small its role, draws more consumers to purchase
video content/video games through the iTunes store so that they can, through their iPod Touch,

28
2

1

iPad, or iPhone, direct that content to an accused AppleTV for display on a home television

2

screen, those sales could shape the reasonable royalty analysis. See Positive Techs., Inc. v. Sony

3

Elecs., Inc., No. 11-cv-2226-SI (KAW), 2013 WL 707914, at * 4 (N.D. Cal. Feb. 26, 2013) ("If

4

the parties had negotiated a price for using Plaintiff's patented specialty in Defendants' E-Readers

5

before the alleged infringement began, the parties might reasonably have considered not only the

6
7
8
9
10

United States District Court
Northern District of California

11
12
13
14
15
16
17
18

revenue Defendants stood to gain through sales of the E-Readers containing the improved-quality
displays, but also through sales of accessories and content."); Haworth, Inc., 162 F.R.D. at 288
("[H]ere, [plaintiff] must only show a cause-effect relationship that hypothetical negotiators would
consider in establishing the license fee.") (citation omitted).
Apple's arguments to the contrary are not persuasive. Its assertion that Aylus "seeks
iTunes Store revenue that is not tied to the accused AirPlay functionality" ignores the allegations
in the complaint, which include:
12. Apple makes, has made, imports, offers for sale, and/or sells an
AppleTV product. The AppleTV product, when connected to a display device, such
as a television, enables the rendering and displaying of audiovisual media that
comes from a media server on a wide area network, such as the internet, on the
television or other display device. This includes the rendering and display of
audiovisual media from Internet services, including, but not limited to, Apple's
iTunes Store. According to Apple, "Apple TV with 1080p HD gives you access to
the best content — blockbuster movies, TV shows, sports, your music and photos,
and more — right on your widescreen TV. You can even play content from your
iOS devices on your TV using AirPlay." http://www.apple.com/appletv/[.]

19

13. Apple makes, has made, imports, offers for sale, and/or sells Apple iPod
Touches, iPhones, and iPads.

20

14. AppleTVs and Apple iPod Touches, iPhones, and iPads include a
version of Apple software AirPlay.

21
22
23
24
25
26
27
28

15. Apple's AppleTVs with AirPlay allow Apple iPod Touches, iPhones,
and iPads to direct audiovisual media from servers located on the Internet,
including, but not limited to, the iTunes Store, to be rendered on an AppleTV for
display on a display device. According to Apple, "Apple TV gives you anytime
access to endless entertainment. Thousands of HD movies and TV shows from
iTunes — many in stunning 1080p — play through Apple TV on your HDTV, and
music and photos stream from your computer. You just click and watch. With
AirPlay, it's simple to play content from your iPad, iPhone, or iPod Touch on your
TV. And finding whatever you're in the mood for — from any compatible content
provider —is quick and easy thanks to a beautiful and consistent interface."
http://www.apple.com/appletv/what-is/. In addition, these devices have the ability
to control the media being displayed on the display device.
3

1
2
3
4
5
6
7
8
9
10

United States District Court
Northern District of California

11
12
13
14
15
16

16. In addition, Apple's AppleTVs with AirPlay allow Apple iPod Touches,
iPhones, and iPads containing certain applications or "apps" to direct and control
audiovisual media content from servers located on the Internet, owned and/or
operated by third parties, including NetFlix and Amazon, to be rendered on an
AppleTV. Apple provides the software development environment for producing the
apps and the marketing, sales, and distribution systems for the apps. In addition,
Apple provides the software code incorporated into the apps operating on the iPod
Touches, iPhones, and iPads that enables the iPod Touches, iPhones, and iPads to
use the AirPlay feature to render a video signal received from the third party
provided media servers at the AppleTV. Apple also provides the software code
incorporated into the AppleTV which allows the AppleTV to interact with the
Apple iPod Touches, iPhones, and iPads to receive and render the video signals
from the third party provided media servers. The software incorporated into the app
and incorporated into the AppleTV has no substantial non-infringing use and is
especially intended to render media content on the AppleTV from media servers at
the direction and control of the Apple iPod Touches, iPhones, and iPads.
17. Apple engages in marketing and provides resources and documentation
to encourage users of AppleTVs to use Apple iPod Touches, iPhones, and iPads to
direct and control audiovisual content from servers located on the Internet,
including servers operated by Apple, and those operated by third parties, including
NetFlix, Hulu, and Amazon, to be rendered on an AppleTV. Indeed, on its public
website, Apple advertises and instructs customers on how to use its products in a
manner that infringes the '753/412 patent claims. On information and belief,
Defendant Apple knew its actions would induce infringement of the '753/412
patent.
(2d Am. Compl. ("SAC") ¶¶ 12-17, Dkt. No. 37.)
Apple also argues that Aylus is not entitled to iTunes sales information because no

17
functional relationship exists between iTunes and AirPlay, and thus, any resulting sales are not
18
convoyed sales as contemplated by Georgia-Pacific factor six. This argument is misguided, and
19
20
21
22

the two cases Apple cites in support of the argument illustrate this.
In American Seating, the trial court granted the defendant's motion to set aside the verdict
for lost profits on convoyed sales. American Seating Co. v. USSC Group, Inc., 514 F.3d 1262,
1268-69 (Fed. Cir. 2008). The Federal Circuit upheld that ruling on appeal. Id. at 1269. It

23

determined that the jury had no basis to conclude that the plaintiff was entitled to lost profits on

24

collateral sales, as no interrelated or functional relationship existed between the defendant's

25

passenger seats and the plaintiff's patented tie-down system. Id. In Inline Connection

26

Corporation, the court granted a motion in limine to exclude expert testimony on the issue of

27

purported convoyed sales where the expert conceded that such sales had no effect on his

28

reasonable royalty analysis. Inline Connection Corp. v. AOL Time Warner Inc., 407 F. Supp. 2d
4

1

424, 432 (Fed. Cir. 2007).
Neither of these cases stand for the proposition that information concerning convoyed sales

2
3

is not discoverable simply because a plaintiff may fail to prove that those sales are, in fact,

4

convoyed sales. If Apple wishes to argue the convoyed sales issue at trial, to either challenge the

5

admissibility of certain evidence or undermine Aylus' theory of damages, it may do so. But the

6
7

argument is unsuccessful insofar as Apple expects to resist discovery of the information Aylus
seeks here.
For the reasons set forth above, Apple shall produce documents relating to the revenue,

8
9
10

United States District Court
Northern District of California

11

costs, and profits from (1) purchases or rentals of iTunes video content using the accused Apple
TV and/or the Accused iOS Products and (2) purchases of videos games on the App Store using
the Accused iOS Products, 2 documents which are apparently readily available on the SAP
accounting database Apple maintains in the regular course of business.3 See Joint Ltr. at 4.

12
IT IS SO ORDERED.
13
Dated: 04/09/15
14
______________________________________
KANDIS A. WESTMORE
United States Magistrate Judge

15
16
17
18
19
20
21
22
23
24
25
2

26

The parties did not brief any issues concerning the relevant damages period. The Court
presumes that they are in agreement on this, as it was not raised in the joint letter.

27

3

28

Because it appears that the information Aylus seeks is readily available, the Court declines to
limit Apple's production to only information that is necessary to show the pull through effect of
the accused functionality on sales of video content through the iTunes Store.
5