WI-LAN Inc. v. Alcatel-Lucent USA Inc. et al

Filing 359

SUR-REPLY to Reply to Response to Motion re 337 SEALED MOTION ALCATEL-LUCENT, HTC, AND SONY MOBILE'S DAUBERT MOTION TO EXCLUDE THE REPORT AND TESTIMONY OF JOHN C. JAROSZ REGARDING ISSUES RELATED TO DAMAGES filed by WI-LAN Inc.. (Weaver, David)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
TYLER DIVISION
WI-LAN INC.,
Plaintiff,
v.
ALCATEL-LUCENT USA INC.; et al.
Defendants.

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Civil Action No. 6:10-cv-521-LED
JURY TRIAL DEMANDED
FILED UNDER SEAL

WI-LAN’S SUR-REPLY TO DEFENDANTS’ DAUBERT MOTION TO EXCLUDE
JOHN C. JAROSZ’S REPORT AND TESTIMONY REGARDING DAMAGES

A.

The EMVR Is Not Implicated by Mr. Jarosz’s Computation of a Lump-Sum
Royalty That Considers All Relevant Circumstances.

Defendants’ Reply says that “Wi-LAN concedes that its expert, [Mr.] Jarosz, uses a
royalty rate applied to entire end-product revenues” to compute royalties. Reply at 1. Wi-LAN
nowhere concedes any such thing. To the contrary, Wi-LAN’s response makes clear that “[t]he
form of damages for each Defendant is a lump-sum royalty, not a running royalty computed as a
percentage of revenue.” Wi-LAN’s Response at 1; see also id. at 2-3 (“However, Mr. Jarosz did
not conclude damages should be based on a ‘running royalty.’ Rather, as is plainly reflected in
his report and testimony, Mr. Jarosz concluded damages should be based on a ‘lump-sum’
royalty.”) (citing Exhibit A at 47 and Exhibit B at 134). Defendants apparently hope that this
Court will not read Wi-LAN’s response—or Mr. Jarosz’s report and deposition testimony.
Nor does Wi-LAN argue that there is an “exception” to the EMVR whenever the expert
“packages his conclusion as a ‘lump sum.’” Reply at 1. Rather, Wi-LAN makes the common
sense point, recognized by the court in Phillp M. Adams & Assocs. v. Winbond Electronics
Corp., 2012 WL 3522097 (D. Utah 2010), that the EMVR is not implicated by a lump-sum
royalty calculation that does not compute royalties as a percentage of revenues generated by the
entire product. The Federal Circuit’s decision in Lucent Technologies, Inc. v. Gateway, Inc., 580
F.3d 1301 (Fed. Cir. 2009), does not consider, much less reject this argument. Reply at 1. In
Lucent, the plaintiff’s damages expert opined only on a running royalty (not a lump-sum royalty)
consisting of “8% of sales revenue for the accused software products.” Id. at 1324, 1326. And
the Court’s decision in Lucent makes clear that it was the opinions of plaintiff’s expert, based on
a running royalty computed as 8% of sales revenue, which violated the EMVR. Id. at 1338.
Indeed, after Lucent the Federal Circuit has expressly distinguished a “running royalty”
calculated as a percentage of revenues of an end-product (having the potential to violate the

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EMVR) from “lump sum royalties that are not calculated as a percentage of any component or
product.” LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51, 67 (Fed. Cir. 2012).
Moreover, the issue in LaserDynamics, as in Lucent, was that the plaintiff’s expert opined that
damages should be solely on a “running royalty” computed as a percentage of the sales of the
accused product. Id. at 68. Defendants have not cited any case from the Federal Circuit (or from
any other court) where an expert’s damages opinion, computed as a lump-sum royalty based on
consideration of all available evidence, was found to implicate or violate the EMVR.1
Defendants’ real complaint is that, as one part of Mr. Jarosz’s analysis to determine the
appropriate lump-sum royalty for each Defendant, Mr. Jarosz considered Wi-LAN licenses that
included rights to the patents-in-suit, some involving lump-sum payments, and others involving
running royalties. However, running royalty license agreements can be relevant to a lump-sum
royalty calculation. See Lucent, 580 F.3d at 1330. Defendants play fast-and-loose with Mr.
Jarosz’s methodology and seek to transform one part of his analysis (consideration of running
royalty licenses involving the patents-in-suit) 2 into the sine qua non of his opinions. Mr. Jarosz
will opine on a lump-sum royalty for each Defendant based on all relevant circumstances.
B.

Mr. Jarosz’s Consideration of Lump-Sum and Running-Royalty Licenses
Between Wi-LAN and Third Parties Was Economically Justified.

Even though Wi-LAN disputes that Mr. Jarosz’s lump-sum royalty calculations could
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Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011), did not involve a
damages opinion computed as a lump-sum royalty. Rather, the expert in Uniloc computed
damages using a “25 percent rule of thumb” where he assumed that the plaintiff would be
entitled to a running royalty consisting of 25% of the profits generated by the accused product.
2

Notably, Defendants offer no legitimate response as to why it is permissible for their
own expert, Dr. Becker, to employ a similar methodology. See Wi-LAN Response at 9-10 &
n.4. Defendants suggest that Dr. Becker “attempted to apportion and adjust the various lumpsum and other licenses he used” (Reply at 4-5), but so did Mr. Jarosz. Dr. Becker and Mr. Jarosz
merely have a factual disagreement as to how the lump-sum and running-royalty licenses should
be adjusted to account for the unique circumstances of each Defendant—a disagreement that
goes to the weight, not the admissibility, of Mr. Jarosz’s testimony.
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implicate or violate the EMVR, courts have found, after Lucent, that an expert may base royalties
on the entire market value of an accused product where “economically justified.” Wi-LAN
Response at 6-7 (citing Lucent Technologies, 580 F.3d at 1339, and Mondis Technology, Ltd. v.
LG Electronics, 2011 WL 2417367, at *2-3 (E.D. Tex. June 14, 2011)). Defendants claim that
Mondis is contrary to LaserDynamics, which Defendants contend “rejected any ‘practical’ or
‘economic necessity’ exception to the EMVR.”

Reply at 2.

In doing so, Defendants

mischaracterize LaserDynamics. There, the expert attempted to justify use of a smaller royalty
rate applied to the entire product based on economic necessity, but the Federal Circuit held that
the expert had, in essence, “plucked [the smaller royalty rate] out of thin air.” 694 F.3d at 69.
Ultimately, the Court concluded that there was no need for “a necessity-based exception … for
LaserDynamics in this case.” Id. at 70 (emphasis added). Thus, LaserDynamics does not
categorically reject an economic necessity exception and does not mention, must less reject, the
court’s analysis in Mondis.
Defendants also suggest that Mondis is distinguishable because “there were 13-16
licenses to the patents-in-suit that were relied on by all parties.” Reply at 2. But nothing in
Mondis supports Defendants’ assertion that an economic necessity exists only if the parties agree
that certain licenses are most comparable. The Court in Mondis recognized that reasonable
royalty calculations must be tethered to comparable licenses and thus concluded that where “the
most reliable licenses are based on the entire value of the licensed product,” the plaintiff’s expert
may use those licenses to compute royalties under the EMVR. Id. at *3. Here, of course, Mr.
Jarosz did not compute a running royalty based on the entire market value of the accused
products, but instead computed a lump sum royalty after (a) considering both lump-sum and
running-royalty license agreements involving the patents-in-suit, and (b) adjusting those

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agreements to account for each Defendant’s unique circumstances.
Defendants now complain that “Alcatel-Lucent and HTC contend that no comparable
licenses exist, and Sony Mobile agrees that the majority of licenses considered by Mr. Jarosz are
not usable.” Reply at 2-3. But Defendants did not make this argument in their Daubert motion,
and this Court should not consider arguments raised for the first time in a reply. Bankhead v.
Gregg County, 2013 WL 124114, at *3 n.1 (E.D. Tex. Jan. 9, 2013). In any event, Defendants’
factual arguments concerning the comparability of licenses should be resolved by the jury, not by
the Court.3 In this respect, it is telling that not even Defendants’ own experts agree with each
other on the question of whether Wi-LAN’s licenses are comparable.
Defendants also complain about the adjustments made by Mr. Jarosz’s to lump-sum
licenses. Wi-LAN does not claim that Mr. Jarosz “compare[s] the EMV of the accused products
to Defendants total revenues.” Reply at 3. Defendants fail to appreciate the purpose of Tab 79
of Mr. Jarosz’s report—where he makes an additional (and perhaps too conservative) adjustment
to account for the “magnitude of the products at issue relative to each Defendant’s total
activities.” Wi-LAN Response at 8. This adjustment reduces the royalties owed by Defendants
based upon their “extent of use” as compared to total handset or base station revenues.
C.

There Is At Least a Factual Dispute as to Whether the Accused Features
Drive Demand for the Accused Product.

Defendants do not dispute that their own representatives testified that customers,
including AT&T, demand compliance with HSPDA. Wi-LAN Response, Exhibits F-K. Nor do
Defendants dispute that Wi-LAN’s technical expert, Dr. Wells, will opine that the patents-in-suit
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Defendants claim that Mr. Jarosz ignores “key provisions” of licenses, including
RuggedCom, which Defendants say “actually uses the smallest saleable unit as a royalty base.”
Reply at 3. Defendants misread the RuggedCom license. The “Subject Products” to which the
0.4% royalty rate applies includes both “stand alone” products and “Other Products.” See Reply,
Exhibit 2, Schedule F, c(ii)-(iii). For the “stand alone” products, which include “Base Stations,”
the royalty is applied to the gross selling price minus certain charges (transport fees, levies, etc.).
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are essential for compliance with HSPDA. Id., Exhibit B at 53-54. This is not a case where the
patented feature is only a minor or helpful but non-essential part of the accused product. See
Lucent, 480 F.3d at 1332-33 (patent at issue involved a helpful and convenient “date picker” that
was “but a tiny feature of one part of a much larger software program”); LaserDynamics, 694
F.3d at 68-69 (no evidence that demand for laptop computers was driven by patented technology
for optical disc discrimination”). At the very least, there is a disputed fact issue as to whether the
patented technology—which Dr. Wells opines is essential to compliance with HSPDA—drives
the demand for customers like AT&T, which demand compliance with the HSPDA standards.
See Ergotron, Inc. v. Rubbermaid Commercial Prods., 2012 WL 3733578, at *4 (D. Min. Aug.
28, 2012)(denying Daubert motion based on EMVR where there was a factual dispute as to
whether the patented feature drove product’s demand).
D.

Defendants’ Other Complaints Are Meritless

With respect to pre-suit damages, Wi-LAN does not dispute that it bears the burden of
proving that it complied with the marking statute, if applicable. But there are disputed fact issues
that need to be resolved at trial and that are not properly resolved on a Daubert motion.
(Defendants did not move for summary judgment on marking).

In any event, contrary to

Defendants’ contention, Mr. Jarosz explained in his deposition (see Wi-LAN Response, Exhibit
B, at 227-28), how he could readily adjust the lump-sum damages for HTC and Alcatel-Lucent
should they prevail on their marking argument as a matter of law.
Defendants also mischaracterize Wi-LAN’s position on future damages. Mr. Jarosz has
computed future damages as part of his analysis of what would constitute a lump-sum damages
report, and to the extent that the Court is inclined to hear Mr. Jarosz’s opinions on future
damages, Mr. Jarosz will present those opinions.
Defendants’ Daubert motion is opposed in all respects and should be denied.
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Dated: March 13, 2013

Respectfully submitted,
By: /s/ David B. Weaver
David B. Weaver (TX Bar 00798576)
Lead Attorney
Avelyn M. Ross (TX Bar 24027817)
Ajeet P. Pai (TX Bar 24060376)
Syed K. Fareed (TX Bar 24065216)
Jeffrey T. Han (TX Bar 24069870)
Seth A. Lindner (TX Bar 24078862)
VINSON & ELKINS LLP
2801 Via Fortuna, Suite 100
Austin, TX 78746
Tel: [phone]
Fax: [phone]
[e-mail]
[e-mail]
[e-mail]
[e-mail]
[e-mail]
[e-mail]
Steve R. Borgman (TX Bar 02670300)
Gwendolyn Johnson Samora
(TX Bar 00784899)
VINSON & ELKINS LLP
1001 Fannin Street, Suite 2500
Houston, TX 77002-6760
Tel: [phone]
Fax: [phone]
[e-mail]
[e-mail]
Local Counsel
Johnny Ward (TX Bar No. 00794818)
Wesley Hill (TX Bar No. 24032294)
Claire Abernathy Henry
(TX Bar No. 24053063)
Ward & Smith Law Firm
P.O. Box 1231
1127 Judson Rd., Ste. 220
Longview, TX 75606-1231
Tel: [phone]
Fax: [phone]
[e-mail]
[e-mail]
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claire@wsfirmcom
Attorneys for Plaintiff Wi-LAN Inc.

CERTIFICATE OF AUTHORIZATION TO FILE UNDER SEAL
This is to certify that this motion should be filed under seal because it refers to material
covered by the Agreed Protective Order approved and entered into this case on the 19th day of
December, 2011 (Doc #145).
/s/ David B. Weaver
David B. Weaver

CERTIFICATE OF SERVICE
The undersigned certifies that the foregoing document was filed electronically in
compliance with Local Rule CV-5(a). As such, this document was served on all counsel who are
deemed to have consented to electronic service on this the 13th day of March, 2013.
/s/ David B. Weaver
David B. Weaver

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