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

Filing 484

RESPONSE in Opposition re 475 MOTION for Attorney Fees filed by WI-LAN Inc.. (Attachments: # 1 Exhibit A - July 9 PM Tr, # 2 Exhibit B - 2013-03-21 Pre-Trial Hearing Transcript, # 3 Exhibit C - July 10 AM Tr, # 4 Exhibit D - Lanning report excerpt, # 5 Exhibit E - Email from Justin Cohen to Ajeet Pai (June 23, 2013), # 6 Exhibit F - July 12 AM Tr, # 7 Text of Proposed Order)(Weaver, David)

Exhibit C

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IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
TYLER DIVISION

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WI-LAN, INC.

)

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DOCKET NO. 6:10cv521
-vs-

)

5

Tyler, Texas
8:50 a.m.
July 10, 2013

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ALCATEL-LUCENT USA, INC.,
ET AL

7

******************************************************

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WI-LAN, INC.

)

)
DOCKET NO. 6:13cv252

9
10

-vsHTC CORPORATION,
ET AL

)
)

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TRANSCRIPT OF TRIAL
MORNING SESSION
BEFORE THE HONORABLE LEONARD DAVIS,
UNITED STATES CHIEF DISTRICT JUDGE, AND A JURY

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COURT REPORTERS:

MS. SHEA SLOAN
MS. JUDY WERLINGER
211 W. Ferguson
Tyler, Texas 75702
[e-mail]

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Proceedings taken by Machine Stenotype; transcript was
produced by a Computer.

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1

(Jury in.)

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THE COURT:

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Welcome back, Ladies and Gentlemen of the

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Jury.

5

Welcome back.

Please be seated.

day.

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7

We're about to begin our third

And Plaintiff will call their next
witness, please.

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MS. ROSS:

Good morning, Your Honor.

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Avelyn Ross on behalf of the Plaintiff.

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The Plaintiff would call Mr. John Jarosz.

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THE COURT:

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Okay.

You have been sworn,

haven't you?

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THE WITNESS:

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THE COURT:

You have not?

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All right.

Please raise your right hand

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I have not.

and be sworn.

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(Witness sworn.)

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THE COURT:

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All right.

You may have a

seat.

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THE WITNESS:

Thank you.

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JOHN JAROSZ, PLAINTIFF'S WITNESS, SWORN

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DIRECT EXAMINATION

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BY MS. ROSS:

24

Q.

Good morning, Mr. Jarosz.

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A.

Good morning, Ms. Ross.

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1
2
3

Q.

Would you please introduce yourself to the

jury.
A.

Yes.

My name is John Jarosz.

I was born and

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raised in Wisconsin, although I now live on the East

5

Coast.

6

My wife and I have been married for 28 years.

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We have six children, five of whom are grown and out on

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their own.

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years.

One is still with us for a couple of more

So the house has become very quiet lately.

10

Q.

Mr. Jarosz, what do you do for a living?

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A.

I'm an economist.

12

Q.

And what does an economist do?

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A.

Well, we economists do lots of things; but

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among the things that we do is, we assess businesses and

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we value assets and intellectual property.

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in particular, are a form of assets.

17

Q.

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of economics?

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A.

And patents,

And do you specialize in any particular area

Most of the work that I do is in evaluating

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intellectual property assets.

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is the area that covers patents, copyrights, trademarks,

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and trade secrets.

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So intellectual property

And what I do is, I help companies and

24

individuals value their intellectual property rights,

25

and I often get involved in litigation disputes like

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1

this, to figure out what the worth or the value of a

2

patent is if one party has infringed another party's

3

rights.

4

Q.

And who do you work for, sir?

5

A.

Analysis Group, Incorporated.

6

Q.

What is Analysis Group?

7

A.

We are an economic, financial, and strategy

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consulting firm of about 600 people.

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throughout the United States, in Canada, and now in

10

We have offices

China.

11

Q.

And what is your position with Analysis Group?

12

A.

I'm a managing principal of the firm, which

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means I'm one of the owners of the firm.

I'm also the

14

founder and director of the Washington, D.C. office.

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founded that office about 17 years ago.

I

16

Q.

17

consultant?

18

A.

For about 27 years.

19

Q.

And have you prepared a set of demonstrative

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And how long have you been an economic

charts to assist in your testimony today?

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A.

Yes, I have.

22

Q.

And have you prepared a chart that summarizes

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24
25

some of your qualifications?
A.

Yes, I have.
MS. ROSS:

May I see Slide 1, please?

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1

Q.

2

you prepared?

3

A.

4

(By Ms. Ross) Is this a copy of the chart that

It is.

It's a very brief summary of some of

the things that describe my background.

5

Q.

Can you please describe your educational

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background?

7

A.

Sure.

I have a bachelor's in economics in

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organizational communication from Creighton University,

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which is located in Omaha, Nebraska.

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After that, I was a fellowship student in the

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Ph.D. program in economics at Washington University,

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which is located in St. Louis.

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most of the requirements for my Ph.D. but not all of

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them.

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a Ph.D.

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Q.

And there I completed

I was awarded a master's, but I'm fairly close to
I just haven't had the time to finish it.
I notice from your chart that in addition to a

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bachelor's degree and a master's degree, you also have a

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law degree; is that true, sir?

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20

A.

Yes.

I went to law school at the University

of Wisconsin and earned my J.D. from there as well.

21

Q.

Are you licensed to practice in any state?

22

A.

I'm licensed to practice in the State of

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Wisconsin, but I've been on inactive status for

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27 years.

25

Q.

Have you ever practiced law, sir?

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1

A.

I have not.

2

Q.

So you've been an economist your entire

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career?

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A.

I have.

5

Q.

Are you a member of any professional

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7

organizations?
A.

Yes.

I'm a member of the American Economic

8

Association; the American Law and Economics Association;

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the AIPLA, which is the American Intellectual Property

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Law Association; and the Licensing Executive Society.

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12
13

Q.

Can you tell me a little bit about the

Licensing Executive Society?
A.

Yes.

That's the group of individuals here in

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the United States, and actually worldwide -- there are

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about 6 or 8,000 of us -- that orient much of our

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careers to assessing intellectual property rights and

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finding the best ways to put a value on those rights and

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to share those rights among parties and help companies

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share their intellectual property rights.

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22

Q.

Have you held any leadership positions with

the Licensing Executive Society?
A.

Yes.

I've been fairly active with the LES

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over the years.

Fairly recently, for a two-year period,

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I was chairman of the Valuation and Taxation Committee.

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And then I became a -- after that, I became a

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charter member of a subgroup that gives a certification

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as a certified licensing professional.

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to be part of a small group who wrote the exam to

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determine who would earn that CLP in the future.

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I was then asked

So I was at the -- I was the initial group

6

that drafted up the exam for people to get that

7

certification; and I can assure you, it's much better to

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be drafting up the exam than taking the exam.

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Q.

How do you keep active in the field?

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A.

Well, I do lots of things, but among the

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things that I do is I write and publish articles.

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give speeches, and I teach courses.

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14
15

Q.

I

Where do you teach courses or give

presentations?
A.

I -- I give presentations and teach courses

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throughout the country.

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active at the Georgetown University Law Center helping

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teach a course there.

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Fairly recently, I've been

And the U.S. Patent and Trademark Office has

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asked me to come in and give a valuation course to an

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international delegation of people that came from a

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variety of different countries and are learning about

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the U.S. patent system, and in particular, they wanted

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to learn about how we in the United States value

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intellectual property rights.

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2

Q.

Have you ever acted as a damages expert in a

patent case before?

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A.

Yes, many times.

4

Q.

About how many times have you testified as a

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6
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damages expert in a trial like this one?
A.
75 times.

Over the years, I've probably testified about
Several of those are here in Texas.

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Q.

Can you give me a couple of examples of your

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experience?

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MS. ROSS:
A.

Sure.

May I have Slide 2?

You'll see here I've worked in many

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different industries, just about every imaginable

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industry; some of which are related here, some of which

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are very different.

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16
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18

Q.

Have you worked on cases in the mobile

communications industry?
A.

Yes.

I've done quite a number of cases in

that area, both in the software and hardware realm.

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Q.

Could you give me some examples of that?

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A.

Sure.

I've worked for handset manufacturers,

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including Nokia, Motorola Mobility, and BlackBerry.

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I've also worked for people that are involved in the

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infrastructure.

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opening.

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back.

Qualcomm is a name that came up in

I worked for them for quite some time years

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1

In the opening statement, you might remember

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there was a wall of patents put up.

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started working with Qualcomm, there were just a few up

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there.

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patents.

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Q.

When I first

Now I think that whole wall is filled with

Now, in this case, you're testifying on behalf

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of Wi-LAN, who's the patent owner.

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how does your testimony break down between patent owner

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versus accused infringer?

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A.

Over your career,

It's about an even split, meaning about half

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the time, I'm representing companies that own patent

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rights, and about half the time, I'm representing

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companies that are accused of infringing on patent

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rights.

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MS. ROSS:

Your Honor, at this time, we

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tender Mr. Jarosz as an expert in the fields of IP

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valuation and damages es -- es -- excuse me --

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THE COURT:

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MS. ROSS:

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THE COURT:

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Q.

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-- estimation.
All right.

You may proceed.

(By Ms. Ross) Mr. Jarosz, let's start out and

talk a little bit about your work in this case.

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You may proceed.

What was your assignment?
A.

I was asked to assess the damages issues,

to -- to look at evidence that would be relevant to the

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jury in determining what the proper amount of damages

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would be if the jury finds that the patents here are

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valid, not unenforceable, and infringed.

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So if the jury finds that there is liability,

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I've been asked to provide assistance on thinking about

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evidence that would determine how much money should be

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paid for that infringement.

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9
10

Q.

And did you prepare any written materials as

part of your assignments?
A.

I did.

I prepared two reports; one that I

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submitted in the fall -- fall of 2012, and one that I

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submitted in the last couple of weeks.

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MS. ROSS:

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please?

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Q.

Jen, may I have Slide 4,

(By Ms. Ross) So let's talk a little bit about

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how you reached your opinions on your damages assessment

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in this case.

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What type of evidence did you evaluate in your

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assessment?

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A.

Well, I looked at quite a bit.

This is kind

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of a listing of the kinds of things.

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it's fun to get access to all this material, and in

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other regards, it's overwhelming, but it's always

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necessary.

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In some regards,

So I looked at information from the files of

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each of the four companies here:

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licensing information, marketing information.

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at the patents.

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observers of the industry.

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and reports, and I talked to people involved in the

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business.

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9

Q.

Sales information,
I looked

I looked at research done by outside
I read deposition testimony

Did you talk with Mr. -- or Dr. Wells, who

testified yesterday?
A.

Yes.

I've talked with Dr. Wells on several

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occasions, I've read his materials, and I saw his trial

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testimony transcript.

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Q.

Did you speak with anybody from Wi-LAN?

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A.

I did.

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Q.

Who did you speak with; do you know?

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A.

I spoke with Mr. Parolin, who testified here

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yesterday.

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our engagement here.

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20

Q.

I spoke with him on several occasions over

Did you consider the expert reports and

testimony provided by the Defendants' experts?
A.

Yes, I did.

Dr. Becker is representing two of

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the parties here, and Mr. Bakewell is representing two

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of the other parties.

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Mr. Bakewell is representing Alcatel-Lucent

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and HTC, and Dr. Becker is representing Ericsson and

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Sony Mobile.

They have each submitted several reports

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and given depositions, and I have reviewed those

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materials.

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4
5

Q.

Did you also review the trial testimony that's

been given in the case so far?
A.

Yes.

I looked at Dr. Wells' testimony, and I

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was here for some fair amount of the proceedings.

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here the first day and a good portion of yesterday.

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9

Q.

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Let's focus a little more on how you've

reached your damages analysis.

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Okay.

I was

Are you familiar with the subject matter of
the patents that Wi-LAN is asserting in this case?
A.

Generally, I am.

I'm not a technical expert

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like Dr. Wells and other people are.

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but I do have some general understanding of the

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technology and its footprint or its significance in the

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marketplace.

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Q.

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19

I'm an economist,

What aspect of the accused -- what aspect of

the accused products do they relate to?
A.

I believe they relate to what's called HSDPA,

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which, as I understand it, is oriented to how

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information is downloaded onto smartphones and tablets

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and other devices.

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Q.

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offers?

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A.

Do you understand the benefits that HSDPA

I understand them generally.

Again, I'm not a

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technical expert, but I understand generally that the

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advantages of the patents and HSDPA are related to

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faster communications, faster downloads, and to more

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efficient downloading.

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So that means it has advantages to us users

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using our smartphones and our tablets.

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advantages to the infrastructure providers, the

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operators, those people who are trying to provide us

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with that information.

10
11

Q.

And it has

Is it your understanding that Wi-LAN invented

HSDPA?

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A.

They did not, to my understanding.

13

Q.

Then why do Wi-LAN's patents matter to HSDPA

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15

from an economic point of view?
A.

Well, according to Dr. Wells and other

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information that I've seen in this case, the patents

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relate to very important functionalities in HSDPA.

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I understand from Dr. Wells that, in fact, it's

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essential technology to HSDPA.

20

Q.

And what do you understand that to mean?

21

A.

Essential.

And

As I understand it from an

22

economist's standpoint, means that in order to have a

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handset or a base station that complies with HSDPA, you

24

have to practice these patents.

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HSDPA protocol and not practice these four patents.

You cannot comply with

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1

Q.

Did you also consider Dr. Wells' testimony

2

that the patents-in-suit were not only essential, but

3

that they pertained to core functionality of HSDPA?

4
5

A.

Q.

A.

Yes.

I've seen it in documents and deposition

testimony.

10
11

In addition to Dr. Wells' testimony, did you

see any other evidence regarding the benefits of HSDPA?

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9

I believe he talked a fair amount about

that both on Monday and on Tuesday.

6
7

Yes.

Q.

Okay.

And let me clarify.

That's the

patented technology to HSDPA?

12

A.

Yes.

13

Q.

Did you consider the deposition testimony

14

given by Defendants in this case?

15

A.

I did.

16

Q.

Did you prepare some excerpts of deposition

17

testimony to assist the jury today?

18

A.

Yes.

19

Q.

Okay.

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21

MS. ROSS:

Oh, I'm sorry, not that one.

Slide 5.

I

apologize.

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25

Jen, may I have Slide 3,

please?

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23

And I converted those into slides.

Q.
me.

(By Ms. Ross) According to Dr. Wells -- excuse

Let's start with Sony Mobile.

What is shown here?

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1

A.

This is an excerpt from the testimony of

2

Mr. Hernquist, who I understand is at Sony Mobile.

3

he's asked some questions about HSDPA.

4

And

I don't know if you want me to read those or

5

just simply summarize what I understand the testimony to

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be.

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8
9

Q.

Summarizing what you understand the testimony

to be, will be fine.
A.

He was asked about Sony's understanding about

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the benefits of HSDPA; and he responded on behalf of

11

Sony that HSPA, which is sort of the broader structure

12

within which HSDPA resides, allows for faster

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downloading of apps, which is applications, games,

14

Internet, Facebook, and other information.

15

So he's talking about the issue of fast

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downloads, us users getting that information quicker

17

than we did before.

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19

Q.

And in -- in his testimony here, the bottom

part, he's talking about the downloading part?

20

A.

Yes.

21

Q.

And that corresponds to HSDPA; is that your

22
23

understanding?
A.

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25

That's my understanding.
MS. ROSS:

Q.

Let's call up Slide 6, please.

(By Ms. Ross) Let's look at HTC's testimony.

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1
2

What does this show?
A.

This is an excerpt from the transcript of

3

Ms. Markovich from HTC, and she was also asked about the

4

benefits of HSDPA.

5

title.

6

about it allowing for streaming content, in particular

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streaming video.

It's HSDPA from HTC's perspective, and she talks

8
9

I see we had a typo there in the

So when we watch live program -- or -- or
pre-recorded programs, for instance, HSDPA is important

10

in us receiving and having a favorable consumer

11

experience of watching that type of content.

12
13
14
15

MS. ROSS:
Q.

Let's go to Slide 7, please.

(by Ms. Ross) What does this document show or

what is this document?
A.

This is a excerpt from a report done by a

16

group called Dell'Oro.

17

market analyst firm.

18

closely; and for our purposes, they follow the wireless

19

industry very closely.

20

use input from many different sources, including company

21

people, and then they sell these reports.

22

Dell'Oro is a market research or

They follow businesses very

And they produce reports that

And they're used by many people in the

23

industry.

24

virtually every provider in this industry.

25

Dell'Oro reports are quite commonly used by

And Dell'Oro reported here that subscribers

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1

are willing to pay a premium, pay more W-CDMA handsets

2

and devices that provide better experiences and

3

data-intensive application.

4

specifically talk about HSDPA.

5

And then it goes on to

So it matters, this report says, to us

6

consumers for our handsets and other devices, because we

7

can get data faster and better because of HSDPA.

8
9

Q.

And you considered materials such as this one

in forming your opinions?

10

A.

Yes, I did.

11

Q.

Is this the kind of information that experts

12
13

regularly use in forming their opinions?
A.

Absolutely.

We use third-party reports that

14

talk about the industry as often as we can, both because

15

they know a lot about the industry, and they typically

16

represent kind of objective views of the business.

17

Q.

Did you consider any other industry reports?

18

A.

Yes.

For a variety of purposes, I also used

19

reports by IDC.

Those are, for my purposes, very useful

20

with regard to data.

21

Defendants here rely upon and many wireless providers

22

rely upon.

They have data that many of the

23

Mr. Parolin talked about the fact that

24

Dell'Oro and IDC are two of three most important

25

industry reports that the company is aware of that are

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1
2
3

used commonly in the industry.
Q.

Are the patents-in-suit the only ones

necessary in order to implement HSDPA?

4

A.

No, they are not.

5

Q.

Do you recall Dr. Wells' testimony regarding

6

HSDPA as it relates to HSUPA and HSPA?

7

A.

Yes.

8

Q.

Could you explain that for me?

9

A.

I understand HSPA is kind of the umbrella, and

10

within HSPA is HSDPA and HSUPA, and they work together.

11

HSDPA deals with downloading; HSUPA deals with

12

uploading.

13

HSPA.

14
15
16

Q.

But together they're combined to make up

Then the patents-in-suit would fall under the

HSDPA side of the umbrella?
A.

Absolutely.

17

MS. ROSS:

18

Let's pull up Slide 8, please.

Thank you.

19

Q.

(By Ms. Ross) What does this show?

20

A.

This is an excerpt from the patent damages

21

statute.

That is, if the jury finds the patents are

22

valid, not unenforceable, and infringed -- so they find

23

that there was something wrong that was done, and they

24

get to -- if the jury gets to the issue of how much

25

money should be paid, I understand that they should be

36
1

driven by the provision here on the screen which reads:

2

...damages adequate to compensate for the infringement,

3

but in no event less than a reasonable royalty.

4
5
6
7

Q.

Now, the passage you read mentions a

reasonable royalty.
A.

What is that, sir?

That can be thought of as a payment that

should be made for use of the patents.

8

Q.

And what form can a reasonable royalty take?

9

A.

Well, it can take -- typically, it takes one

10

of two forms.

11

is a single amount, one dollar amount.

12

The first form is a lump-sum payment that

The second is what's called a running royalty,

13

and that's an amount per infringing activity.

14

typically an amount per product sold or tied to the

15

selling price of each product sold.

16
17
18
19
20

So it's

So lump-sum royalty on one hand, running
royalty on the other hand are the two most common forms.
Q.

How did you evaluate the amount that the

royalty should be here?
A.

I used -- and -- and I think it would be

21

useful for the jury to consider using what's called a

22

hypothetical negotiation construct.

23

we pretend that these parties would have sat down at a

24

negotiating table or a series of negotiating tables,

25

because we have four different Defendants; and these two

What that means is

37
1

parties would have -- we need to figure out what these

2

two parties might have agreed to, instead of having the

3

infringing activity.

4

So what was -- what would be a fair payment

5

for each of the four Defendants to make to Wi-LAN?

6

what's really important is to think about what a

7

hypothetical license would be, arising out of these

8

negotiations.

9

Q.

10
11

So

So where does this concept of the hypothetical

negotiation come from?
A.

It comes from a very famous court case called

12

Georgia-Pacific, which was issued about 40 years ago.

13

And since then, many, many courts and many, many experts

14

like myself and Dr. Becker and Mr. Bakewell have used

15

the hypothetical negotiation construct in assessing

16

damages issues.

17

MS. ROSS:

May I have Slide 9, please?

18

Q.

(By Ms. Ross) What is this list?

19

A.

This is a list of factors that came from that

20

Georgia-Pacific case.

21

about this hypothetical license which I just described a

22

few moments ago.

23

The last factor, Factor 15, talks

The factors above that are also relevant to

24

consider.

And for most of us involved in this field and

25

many courts, we have looked at those above-factors to

38
1

help figure out what a hypothetical license should look

2

like.

3

considering what fair compensation might be.

4
5
6
7
8
9
10
11

So these are factors that are important in

Q.

How does the hypothetical negotiation compare

with a real-life negotiation?
A.

Well, in some regards, it's very similar, but

in important regards, it's very different.
Q.

Well, are there any assumptions about the

patents-in-suit that you need to account for in the
hypothetical negotiation?
A.

In the hypothetical negotiation, that becomes

12

relevant if the jury has found that the patents are

13

valid, not unenforceable, and infringed.

So if they are

14

strong patents that have been infringed.

In that case,

15

if we get to the damages issues, the jury has found that

16

these are strong and infringed rights.

17

In a real-world negotiation, that doesn't

18

exist.

19

what happens -- in almost every instance -- is both

20

parties are still disagreeing about the strength of the

21

patents and whether they've been infringed.

22

enter licenses with this cloud of uncertainty.

23

There's not a court finding.

In the real world,

So they

Here, the hypothetical license doesn't have

24

that cloud of uncertainty anymore.

We get the

25

hypothetical negotiation, if the jury has said, in

39
1

essence, remove that cloud of uncertainty; we know we

2

have strong rights.

3

difference with real-world licenses.

And so that's an important

4

Q.

And why is that an important difference?

5

A.

Well, like I said, in real-world licenses,

6

you're just not sure what the strength of your patents

7

are.

8

licensing partner, they say:

9

patent rights, and I think you're using those rights.

So when a patent owner comes to a potential

10

I think I have pretty good

And real-world licensing partner says:

I

11

don't think those are strong rights and, trust me, I'm

12

not infringing those, so let's come to a moderated

13

amount on that.

14

That doesn't happen in the hypothetical

15

negotiation.

16

Q.

So what does it do to the bargaining positions

17

of each of the participants to the hypothetical

18

negotiation?

19

A.

It greatly enhances the bargaining position,

20

the bargaining strength of the patent owner, and reduces

21

the bargaining strength of the licensees or the accused

22

infringers.

23

these are strong rights, and they have been infringed.

24
25

Q.

And the reason is because the jury has said

What assumptions do you make regarding the

parties at the hypothetical negotiation?

40
1

A.

You assume that the parties are willingly

2

sitting down at a table.

3

very well with each other so far.

4

in litigation.

5

up with an agreeable license.

6

We know they haven't played
We're, unfortunately,

The parties haven't found a way to come

In the hypothetical negotiation, we have to

7

say strip out that emotion, and we have to figure that

8

both parties are willing to enter a license.

9
10
11

Q.

Are there any other assumptions regarding the

facts during the hypothetical negotiation?
A.

Yes.

Courts have allowed -- in fact, asked us

12

to consider how history has unfolded over time to figure

13

out how the Defendants or the accused infringers -- how

14

they have used the patents and how they have benefited.

15

So it's something called the book of wisdom.

16

We can consider how history has unfolded since, for

17

instance, 2005 through today.

18

Q.

When does the hypothetical negotiation occur?

19

A.

Courts have set the hypothetical negotiation

20

at the point of first accused infringement, which is

21

typically the point of first sale after a patent has

22

issued.

23

Q.

24
25

Okay.
MS. ROSS:

please.

Let's pull up Slide 10,

41
1

Q.

(By Ms. Ross) What does this show?

2

A.

This shows the four different hypothetical

3

negotiations that would be in effect here, associated

4

with the four different Defendants.

5
6

Q.
example.

7

Let's start with Ericsson, just by way of
You have Airspan as the patent holder.
Who's Airspan?

8

A.

Airspan is the company that owned the patents

9

as of 2005.

I think Mr. Parolin talked about that at

10

some length.

11

Wi-LAN later.

12

four patents, so they would be sitting down with

13

Ericsson at that point in time.

14
15

Q.

They owned the patents.

They sold them to

But in 2005, they owned each of these

When did Wi-LAN acquire the patents from

Airspan?

16

A.

In early 2009.

17

Q.

And so that's why you have Airspan as the

18

patent holder at the time of the hypothetical

19

negotiation?

20

A.

Yes.

For the Ericsson negotiation and the

21

Alcatel-Lucent negotiation and the HTC negotiation.

22

each of those points in time, Airspan is the owner of

23

the patents.

24

Q.

25

At

Can you tell the jury the dates that the

negotiations occur with respect to the other Defendants,

42
1

please?

2

A.

Yes.

As I said before, with Ericsson, it's

3

2005; with Alcatel-Lucent, it's as well in 2005; with

4

HTC, it's in 2008; and with Sony Mobile, another

5

negotiation would have been done in 2009, and that would

6

be with Wi-LAN, because at that point in time, Wi-LAN

7

owned the patents.

8
9
10
11

Q.

But it's -- it's your opinion, isn't it, sir,

that the damages period in this case begins in October
of 2010?
A.

Yes.

That's the point at which the complaint

12

was issued for each of these four Defendants.

13

start damages well after this hypothetical negotiation

14

began, and that's -- that's standard.

15

Q.

And why do you do that, sir?

16

A.

Because it's by the law.

So I

17
18

Damages cannot

start, in this case, to accrue until that point in time.
Q.

At the time of the hypothetical negotiation

19

for each of the Defendants, is -- what is your opinion

20

with respect to the form and the length of the -- of the

21

resulting license?

22

A.

Based on the evidence that I've seen, the

23

parties would have entered a lump-sum royalty, a single

24

amount, and they would have wanted a lump sum that

25

covered the life of the patent.

That's standard for the

43
1

parties here.

2

Q.

But just to clarify, your opinions are that

3

that period should be reduced and beginning in October

4

of 2010?

5

A.

Absolutely.

6

Q.

So once you've determined who would be at the

7

negotiation, did you follow certain steps in figuring

8

out what the parties would have agreed to in the

9

negotiation?

10

A.

I'm sorry.

11

Q.

Sorry.

12
13

Yes, I did.

I had a little pause there at the end

of my question.
A.

I'm just so excited.

14

hold myself constrained here.

15

I just can't hold --

who's excited.

16
17

Q.

I think I'm the only one

What is the first step in determining the

appropriate form of the royalty license?

18

A.

Well, you determine the form of the license.

19

Q.

Okay.

20

A.

Would that have been a lump sum or running

21

royalty or something different?

22

Q.

What's the second step in the analysis?

23

A.

I do what's called a quantitative analysis.

I

24

look at hard facts, information from a variety of

25

sources to determine what the data are suggesting would

44
1
2
3
4

be a fair royalty payment.
Q.

And then what's the third step in the

analysis?
A.

It's a qualitative assessment.

It's at that

5

point at which I pull in the Georgia-Pacific Factors

6

that we saw a few moments ago, and figure out if they

7

provide much guidance in -- in assessing the

8

quantitative data.

9

So there are many factors that are useful.

10

And we economists, even though we love and we're

11

obsessed with data, we also realize negotiations are

12

driven by things that aren't always, at their core, data

13

but are important to a negotiation.

14

on top of the data to figure out what a reasonable

15

royalty should be.

16

Q.

17

Jarosz.

18

A.

So we layer that in

Let's talk about the form of the royalty, Mr.
What forms can royalty payments take?
Like I said before, it can be some lump-sum

19

fee or running royalty, the running royalty tied to the

20

precise amount of infringement.

21
22
23
24
25

Q.

And what form of the royalty did you determine

to be appropriate in this case?
A.

Again, as I said, a lump-sum fee would be the

appropriate form here.
Q.

Did you review the prior licensing history of

45
1

the parties in making that conclusion?

2

A.

Yes, I did.

3

Q.

So with respect to the licensing history, what

4
5

did you find with respect to the parties?
A.

What I found is Wi-LAN, when it's negotiating

6

with large handset or base station manufacturers, it

7

tends to negotiate for a lump-sum royalty.

8
9
10

When it's negotiating with smaller companies,
those can sometimes be running royalties.

to prefer a lump-sum amount for the large manufacturers.

11
12

But they tend

And what we have here is for large
manufacturers.

13

As well, I looked at the Defendants' licensing

14

practices, and sometimes they do it on a running royalty

15

basis, and sometimes they do it on a lump-sum basis.

16

So given that the Wi-LAN data and practices

17

favor a lump-sum fee and the Defendants' payments

18

supported that, I came to the conclusion that a lump-sum

19

fee would be appropriate.

20
21
22

Q.

What do the Defendants say about the form of

the appropriate royalty in this case?
A.

Dr. Becker and Mr. Bakewell, I believe, are in

23

agreement with me, that it should be a single lump-sum

24

payment.

25

issue.

So I don't think we're fighting about that

46
1

Q.

You said that you used quantitative approaches

2

to determine the appropriate lump-sum royalty.

3

you mean by quantitative?

4

A.

What did

Well, there are three types of quantitative

5

approaches that we economists use.

6

variety of settings, but they're particularly important

7

in intellectual property pricing.

8
9

They are used in a

Those are the market approach, the income
approach, and the cost approach.

10

I looked up all those kind of data and will

11

present those to the jury to help the jury in its

12

deliberations.

13

Q.

What is the market approach?

14

A.

The market approach entails looking at other

15

transactions that have some similarity to the

16

hypothetical negotiation to figure out if there are

17

observations that are useful.

18

Q.

Did you simply look at the dollar amount of

19

what the parties would have agreed to past -- in the

20

past for similar technology?

21

A.

No.

We look at that, but we don't stop our

22

investigation there.

23

are asked to assess that evidence and figure out how

24

it's appropriate to our situation.

25

We economists and damages people

So in the real estate example, for instance, I

47
1

can't simply say that the price that my next-door

2

neighbor realized on his or her home is the price that I

3

should get for my home.

4

There are differences.

So we economists need to adjust for those

5

differences in the style of the home, the size of the

6

home, to make the selling price of my neighbor's home

7

useful in determining what my selling price should be.

8
9
10
11
12
13

MS. ROSS:
Q.

Jen, may I have 11, please?

(By Ms. Ross) Is the market approach what you

considered in this case listed on Slide 11?
A.

Yes.

Those are the three forms of evidence

that I reviewed.
Q.

The first evidence is acquisition data.

You

14

mentioned earlier that Airspan owned the patents before

15

Wi-LAN?

16

A.

Yes, I did.

17

Q.

Did Airspan acquire the patents from anyone?

18

A.

Yes, they did.

19

Q.

And who was that?

20

A.

Airspan acquired the patents -- I'm just

21

losing the name right now -- from DSC Communications in

22

1998.

23

Q.

And how much did Airspan pay for the patents?

24

A.

$13 million.

25

Q.

Did you evaluate how comparable this

48
1

transaction, the DSC-to-Airspan transaction, was to the

2

hypothetical negotiation?

3

A.

Yes, I did.

4

Q.

And at the time of the hypothetical

5

negotiation, what business was Airspan in?

6

A.

Well, that's not the hypothetical negotiation.

7

Q.

I'm sorry.

8
9

Excuse me.

At the time of the transaction.
A.

Yeah.

I misspoke.

At the time of the transaction, which,

10

number one, was quite a number of years ago, in 1998,

11

Wi-LAN was in the broadband fixed wireless business, the

12

wireless DSL business.

13

from handsets and base stations that are at issue here.

14

It's a business very different

So -- so Airspan was looking to apply that

15

technology in a way that's quite a bit different than

16

we're talking about today.

17

Q.

What does the fact that Airspan was operating

18

in a different marketplace than the Defendants imply

19

with respect to the comparability of the transaction on

20

the hypothetical negotiation?

21

A.

It means that the transaction is of limited

22

value, both because there wasn't any finding as to the

23

strength of those patents; but, importantly, Airspan was

24

thinking of applying them in ways that are very, very

25

different from Alcatel-Lucent, Ericsson, Sony Mobile,

49
1
2
3
4

and HTC.
Q.

Now, the transaction that occurred between DSC

to Airspan, were those parties related entities?
A.

Yes, they were.

So it wasn't between -- it

5

wasn't an arm's length negotiation between unrelated

6

parties.

7

Q.

And what does arm's length negotiation mean?

8

A.

A negotiation between two people that are not

9

connected with one another in which one can make the

10

presumption that there wasn't other consideration going

11

on, a father/son relationship, for instance, or one

12

cousin to a next.

13

that.

Not that there's anything wrong with

I'm not suggesting that at all.

14

But we typically like to look at negotiations

15

between parties that are unrelated and don't have other

16

consideration and benefits flowing to and from one

17

another.

18

Q.

So what did you conclude with respect to the

19

comparability of the DSC/Airspan transfer to the

20

situation here?

21

A.

It's of limited comparability.

It was worth

22

looking at, but that 13-million-dollar number doesn't

23

provide much guidance here.

24
25

Q.

Did you also consider evidence regarding

Wi-LAN's acquisitions of the patents-in-suit from

50
1

Airspan in 2009?

2

A.

Yes, I did.

3

Q.

And how much did Wi-LAN pay for the

4

patents-in-suit?

5

A.

$11 million.

6

Q.

And in the -- did the purchase of patents

7
8
9

include the patents-in-suit?
A.

Yes, it was a larger bundle.

talked about that yesterday.

Mr. Parolin

But these four

10

patents-in-suit were part of what Wi-LAN paid $11

11

million for.

12

Q.

13
14

And how comparable was that transaction to the

hypothetical negotiation?
A.

15

That has some important differences as well.
Again, when that happened, there wasn't a

16

finding by a jury that any of the patents were valid,

17

enforceable, and infringed.

18

Moreover, Wi-LAN intended not to be in the

19

business that these Defendants are in.

20

to be -- to use these patents and licensing out that

21

technology and other technology to others.

22

intending to be in the business of manufacturing

23

anything, which is very different from the four

24

Defendants that we have here.

25

Q.

Wi-LAN intended

It wasn't

At the time of the Airspan transfer to Wi-LAN,

51
1

did Wi-LAN know whether it would be able to successfully

2

license these patents?

3

A.

No.

4

Q.

Did --

5

A.

It was hoping it would, but there was no

6
7
8
9

It had no idea.

evidence that it would be able to license these patents.
Q.

Did Wi-LAN know at that time whether the

patents were valid?
A.

There was no finding of that.

Again, it was

10

hoping that they were, but there was no objective

11

evidence of that.

12

Q.

What effect, if any, does this lack of

13

uncertainty on Wi-LAN's part regarding whether it would

14

be successful and whether the patents were valid have on

15

the price that Wi-LAN would have been willing to pay

16

Airspan at the time?

17

A.

It moderated the price that they would have

18

paid.

19

there's oil under that land; but if you don't know,

20

you're going to moderate your price.

21

hand, you know there is oil under that land, you're

22

going to pay a fairly hefty price.

23

It's kind of like buying land.

You hope that

If, on the other

At the time that Wi-LAN purchased these

24

patents, it was just land.

They didn't know what use or

25

what was under the surface of that land.

52
1

Q.

For the purposes of the hypothetical

2

negotiation, do we know whether the Defendants' products

3

were profitable and successful?

4

A.

Yes, we do.

As I mentioned earlier, we can

5

use the book of wisdom; and we have here, to determine

6

that the Defendants have used the patented inventions

7

quite extensively, there have been lots of revenues, and

8

they have realized substantial profits as well.

9
10
11

Q.

Would Wi-LAN and the Defendants have known

that the patents were valid?
A.

No one knew -- in the real world knew about

12

these patents; but in the hypothetical negotiation, when

13

Wi-LAN's talking to each of these four Defendants,

14

everybody would know that these are valid, enforceable,

15

infringed, and successful patents.

16
17
18
19
20

Q.

And so what effect would that have on the

parties to the hypothetical negotiation?
A.

That should necessarily raise the rate versus

a situation where there was this cloud of uncertainty.
Q.

Are you aware, sir, that Wi-LAN itself valued

21

the patents after it purchased them from Airspan in

22

2009?

23

A.

I'm aware that it undertook an analysis.

Mr.

24

Parolin talked about that.

And it undertook an analysis

25

associated with a finding of whether there was impair --

53
1

impairment or not.

2

Q.

3
4

Let me show you Slide 12, please.
And this is be an excerpt from PX 200 and also

DX 60.

5

A.

Is this the memo that you were referring to?
Yes.

This is one of the two memos.

This is a

6

later memo from Mr. Houston to Mr. McEwan that

7

summarizes what Wi-LAN's findings were with regard to

8

the transaction.

9

It valued two of the patents here, the '211

10

and the '326, using the royalty rates there at the

11

bottom to assess whether the company had paid too much

12

for the portfolio it obtained from Airspan.

13
14

Q.
back.

15
16

So at the time that it happened -- let me go

So what did you understand from this memo with
respect to -- how did -- how did Wi-LAN use this memo?

17

A.

It used it to determine, again, whether it had

18

paid too much, whether the $11 million was too much.

19

And what they concluded in this memo was, no, they did

20

not.

21

These patents, even though there had been no

22

jury finding, were probably worth a fair amount more

23

than $11 million.

24

adjustment in their accounting books.

25

Q.

So they did not need to make an

And the rates that we see at the bottom of

54
1

this memo for base stations and handsets, what do you

2

understand those to represent?

3

A.

They -- there's -- the base rates that is -- I

4

think they represent the rates in existing licenses that

5

Wi-LAN entered; and then at the very bottom, those are

6

additional rates that they could get above and beyond

7

the base rates because of the '211 patent, which is the

8

patent associated with the handsets, and the '326

9

patent, which is associated with the base stations.

10
11

Q.

And at this time, did Wi-LAN know whether it

would be able to license the patents successfully?

12

A.

No, it did not.

13

Q.

What did Mr. Bakewell, the expert for

14

Alcatel-Lucent and HTC, say that the royalty payment to

15

Wi-LAN should be here for Alcatel-Lucent and HTC?

16

A.

He said it should be clued off only the

17

purchase price that Wi-LAN paid to Airspan.

So he said

18

the appropriate royalty that Alcatel-Lucent and HTC

19

should pay is a small portion of that $11 million with a

20

slight return on top of that.

21

Q.

What return did Mr. Bakewell use?

22

A.

He used the discount rate that was in this

23

memo that Mr. Parolin talked about that's useful for

24

other reasons.

25

He said the return over, in essence, a

55
1

seven-year period would be about 26 percent.

2

an approach that I've seen used before in valuing

3

intellectual property, and it gives a number that's just

4

a fraction of the $11 million.

5
6

Q.

That's not

So if we use the example that Wi-LAN spent

$10, what would Mr. Bakewell's rate of return be?

7

A.

8

30 percent.

9

give you a return of 12 or $13.

10

Q.

Well, the rate of return would be that 26 or
He, in essence, says it should -- $10 would

Did you hear Mr. Parolin's testimony yesterday

11

that Wi-LAN sought a 10 to 20 times return on its

12

investments for patents that it acquired from Airspan?

13

A.

Yes.

14

Q.

And can you explain what the 10 to 20 times

15
16

return on investment means?
A.

What Wi-LAN was hoping to receive wasn't this

17

20-percent return but a hundred- or 200-percent

18

return -- or actually, a thousand-percent return.

19

So what it was hoping and what it typically

20

invests in, if it invests, $10, it's hoping, on a

21

successful project, to get a hundred dollars back.

22
23
24
25

That's their business motel.

That's a common

business model for people who own patents.
Q.

That seems really high to me.

10 to 20 times their investment?

How do they get

56
1

A.

They realize that they buy pieces of land, and

2

unfortunately, many of those pieces of land have no oil

3

underneath them, but some do.

4

Occasionally, the jury finds -- a jury finds

5

or a negotiating party finds that there are some patents

6

that they own that are very strong, and therefore, it is

7

entitled to a return associated with those.

8
9

So there are many, many dry pieces of land,
but there are some for which there's oil, and they

10

should get the adequate return on the land that has oil

11

under it.

12
13

Q.

prepared that lists the comparables.

14
15
16
17

Let's go back to Slide 13, the chart that you

What's the next entry on the chart?
A.

I looked fairly closely at a number of Wi-LAN

licenses.
Q.

Now, help me understand, sir.

You said

18

earlier that three of the Defendants -- or three of the

19

hypothetical negotiations would have occurred with

20

Airspan as opposed to Wi-LAN.

21

licenses relevant?

22

A.

So why are the Wi-LAN

Well, number one, the four hypothetical

23

involves Wi-LAN, but more importantly, the Wi-LAN

24

licenses give information of how participants in the

25

wireless business are valuing and pricing intellectual

57
1

property rights.

So what have they agreed to?

2

So these Wi-LAN licenses exist over time, and

3

they give me information about what parties often agree

4

to for intellectual property rights that are either

5

similar to what we have here or actually include what we

6

have here.

7
8
9

Q.

What Wi-LAN licenses did you consider relevant

in your analysis?
A.

I considered the Wi-LAN licenses that included

10

the patents-in-suit and that were with major

11

manufacturers of handsets and base stations.

12

for some of the running royalties, they were some of the

13

smaller manufacturers.

14

And then

But I focused on the lump-sum payments from

15

major manufacturers, companies like HTC and Sony Mobile

16

and Ericsson and Alcatel-Lucent.

17
18
19

Q.

Now, were these licenses that you considered,

limited only to the patents-in-suit?
A.

No.

All of those licenses had broader

20

portfolios, so none of them, unfortunately, had just

21

these four patents.

22
23

Q.

And did you take that fact into consideration

in your analysis?

24

A.

Absolutely.

25

Q.

And what did you do?

58
1

A.

I looked at making adjustments for the number

2

of patents that are at issue here and adjustments for

3

the size and nature of the parties that had entered

4

negotiations -- had entered licenses with Wi-LAN.

5

Q.

Are you aware that the Defendants' experts

6

contend that many, if not all, of the Wi-LAN licenses

7

you considered are not comparable to the hypothetical

8

negotiation and, therefore, should not be considered at

9

all?

10

A.

Yes.

In fact, Mr. Bakewell concluded that

11

they're all irrelevant.

12

license that provides any assistance here.

13

There's not a single Wi-LAN

Dr. Becker, who's also representing the

14

Defendants, actually disagreed with Mr. Bakewell on that

15

and agrees with me; that is, that there is some value in

16

looking at these Wi-LAN licenses.

17

Q.

In your experience, how common is it to find a

18

license that is perfectly comparable to the hypothetical

19

negotiation?

20

A.

That almost never happens.

Licenses are just

21

different from one another, just like houses are

22

different from one another or people are different from

23

one another.

24
25

You have to adjust for those differences.

If there was something that was a perfect
comparable, then I don't think that we'd have a

59
1

litigation.

2

be.

3
4

Q.

It would be clear what the payment should

In your opinion, should the

less-than-perfectly-comparable licenses be ignored?

5

A.

Absolutely not.

One should look at the

6

licenses that are relevant to the situation at hand and

7

adjust them accordingly.

8

asked to do, to assess those licenses -- licenses and

9

figure out if they're useful and how are they useful.

10

Q.

That's what we experts are

And did you do anything to take into

11

consideration the differences between the Wi-LAN

12

licenses and the hypothetical negotiation?

13

A.

Yes, I did.

14

Q.

Now, you mentioned Mr. Bakewell a few minutes

15

ago.

Excuse me.

16
17
18
19

MS. ROSS:
Q.

Strike that.

(By Ms. Ross) Now, did Mr. Bakewell rely on

any transactions involving the patents-in-suit?
A.

No.

As I mentioned a moment before, even

20

though there were Wi-LAN licenses that covered these

21

patents, he said all of those licenses are irrelevant.

22

They are not worth considering here.

23
24
25

Q.

What about the acquisition?

Did he consider

the acquisition?
A.

That's the only thing that he considered; that

60
1

is, that he used as a base for a damages determination.

2

And by acquisition, we're talking about the

3

Wi-LAN/Airspan acquisition.

4

Q.

Do you agree with Mr. Bakewell that the patent

5

purchase agreement between Wi-LAN and Airspan should be

6

considered here?

7

A.

Yes, it is worth considering.

8

Q.

But is this agreement perfectly comparable to

9
10
11

the hypothetical negotiation?
A.

No.

It's different in very important ways

that we spoke of before.

12

There was no finding that these rights are

13

valid, enforceable, and infringed.

14

intending to be and has been in a business that's very

15

different from the business of these four Defendants.

16
17

Q.

MS. ROSS:

If you could pull up Slide 14,

please.

20
21

Well, let's start with the Wi-LAN licenses

that involved lump-sum payments.

18
19

And Wi-LAN was

Thank you.
Q.

(By Ms. Ross) Does this slide show all of the

22

lump-sum payment -- or payments you found in the Wi-LAN

23

licenses?

24
25

A.

These are the lump-sum payments associated

with Wi-LAN licenses with major manufacturers in the

61
1

wireless business.

2

Mr. Parolin talked about these licenses

3

yesterday.

4

the payments are, associated with those licenses; that

5

is, the lump-sum payments.

6
7
8
9
10
11
12

Q.

And I've just summarized in the chart what

And can you please summarize the range of the

lump-sum payments that were found?
A.

At the low end, ZTE paid $1.75 million.

At

the high end, LG paid $29 million.
Q.

So should the jury just accept these numbers

and we all go home?
A.

No.

It's not so easy, unfortunately.

We need

13

to look at those and figure out how comparable they are

14

to our hypothetical negotiation or how they should be

15

adjusted.

16
17

MS. ROSS:
Q.

Let's pull up 17, please.

(By Ms. Ross) Does Jarosz 17 show the types of

18

quantitative adjustments that would be necessary in

19

making the existing lump-sum licenses comparable?

20

A.

Yes.

These are the three most important sets

21

of adjustments that should be made, the three on the

22

slide.

23
24
25

MS. ROSS:

Actually, let's go back to

Slide 14 for just a second, please.
Q.

(By Ms. Ross) Why did you find that these

62
1

licensees -- these licenses identified here on Slide 14,

2

that is, ZTE, Sharp, Huawei, Motorola Solutions,

3

Motorola Mobility, and LG, were comparable?

4

A.

Because they included the patents-in-suit.

5

Most of these licenses, in fact, specifically call out

6

or mention the patents-in-suit, and they are licenses

7

with major manufacturers of handsets or base stations or

8

both.

9

Q.

And did you consider any other licenses that

10

you found comparable with respect to running royalty

11

payments?

12

A.

Yes.

I found licenses with three other

13

parties, General Mobile, Casio, and Cal-Comp that had

14

running royalties that were useful in assessing what the

15

handset manufacturers should pay here.

16
17
18

Q.

And why did you find that those were

comparable licenses?
A.

Again, they included the patents-in-suit, just

19

like the ones on the screen do, and they were licenses

20

with companies that were in the handheld business.

21

MS. ROSS:

22

Thank you, Jen.

23
24
25

Q.

Let's go back to 17 now.

(By Ms. Ross) All right.

So in our

discussion, I'm -- excuse me.
So what quantitative adjustments did you --

63
1
2

are identified here on this chart?
A.

Adjusting for the U.S. versus worldwide

3

portion of a license, adjusting for the size of the

4

various licensees, and looking to see how to assess

5

these four patents versus the larger portfolio of

6

patents that were licensed in those other transactions.

7
8

Q.

middle one, the relative size of the licenses.

9
10
11

So I want to skip ahead and talk about that

How did you determine if the Defendants -- how
did you adjust for the relative size of the licensees?
A.

I looked to see the nature of the licensees,

12

the companies that have entered licenses, and what their

13

shares were in the businesses at issue here.

14
15
16

Q.

And when you say shares, what are you talking

about?
A.

I'm talking about market share.

So in one

17

instance, the market share is as close as I could get to

18

the base station business, and in the other, as close as

19

I could get to the handset business at issue here.

20

Q.

And where did you obtain this market

21

information?

22

A.

From two different sources.

The one is

23

Dell'Oro, which I spoke about before.

That gave me

24

information on base station shares.

25

talked about before, as did Mr. Parolin, gave me useful

And IDC, I also

64
1

information on handset market shares.

2
3

MS. ROSS:
Q.

Let's pull up 18, please.

(By Ms. Ross) Does this summarize the market

4

share comparison you did for the base stations at the

5

point of the negotiation for each of the licensees?

6

A.

Yes.

What this shows is -- ZTE, Huawei, and

7

Motorola Solutions were in the base station business;

8

and they had entered licenses with Wi-LAN.

9

could see at the point they entered the licenses, their

And you

10

shares were modest, 0.1 percent, 2.4 percent, and 2.8

11

percent.

12

At the time of the hypothetical negotiation

13

here, Ericsson's share would be 20.9 percent and

14

Alcatel-Lucent's share would be 39.4 percent.

15

words, the two base station Defendants are significantly

16

larger than the three companies in the base station

17

business that have already entered licenses with Wi-LAN.

In other

18

Q.

What does the green bar represent?

19

A.

The green bar represents the maximum share

20

since negotiation that, over time, Ericsson's share went

21

up and down as did Alcatel-Lucent's share.

22

But at the height, the best that they were

23

doing, I reflected that in the green, the neon green

24

bars.

25

48.4 percent of the base station market; and

So at its height, Ericsson comprised about

65
1

Alcatel-Lucent, at its height, comprised about

2

48.9 percent.

3

Q.

4
5

And why -- why is the max market share

important to this analysis?
A.

Well, as the book of wisdom allows us to

6

consider how history has unfolded, I wanted to consider

7

how well Ericsson and Alcatel-Lucent have done over

8

time.

I also looked at minimums and averages.

9

For this presentation, I've shown kind of the

10

highest they've been, but it certainly has been lower

11

than the green bars at various points in time.

12

book of wisdom asks us to consider all of history, from

13

the point in the negotiation through today.

14

Q.

But the

And at the hypothetical negotiation, the

15

parties would have been aware of the maximum market

16

share as well; is that true, sir?

17
18

A.

They're presumed to be aware through this book

of wisdom.

19

MS. ROSS:

20

Let's pull up 19, please.

Thank you.

21

Q.

(By Ms. Ross) What does this show?

22

A.

This shows a similar analysis for the handset

23

manufacturers, and I've presented the unit shares here.

24

Huawei, Sharp, ZTE, HTC, Sony Mobile, and Motorola and

25

LG have all entered licenses with Wi-LAN.

Some of those

66
1

were fairly small players in the handset business.

2
3

Others:

Sony, Sony Mobile, and LG were fairly

large.

4

The handset manufacturers we have here, HTC

5

and Sony Mobile, kind of fall in the middle; so versus

6

the ones on the left, they're doing better versus the

7

ones on the right doing not as well.

8

adjust and the jury would need to adjust the lump-sum

9

payments with that in mind.

10

So I needed to

And just like with the other chart, I've

11

provided in the red the share of the two Defendants at

12

the point of negotiation and their maximum share over

13

time.

14

Q.

Could you read for me, sir, the shares that

15

you calculated and the market share information that you

16

calculated for the licensees and for the Defendants?

17

A.

For the licensees, Huawei was 0.4 percent;

18

Sharp was 0.4 percent; ZTE was 0.5 percent; Motorola

19

Mobility was 7.1 percent; and LG was 18.4 percent.

20

With regard to the hypothetical negotiation,

21

the Defendants at issue here, HTC's share at negotiation

22

was 0.9 percent; and Sony Mobile was 1.2 percent.

23

maximum share for HTC was 9.2 percent; and for Sony

24

Mobile, was 1.2 percent.

25

Q.

Thank you.

The

67
1
2

Let's talk about your third adjustment on
Slide 20, please.

3
4
5

Did you also consider the value that the
patents had to Wi-LAN's wireless portfolio?
A.

Yes.

I looked -- I considered the new

6

number -- we're just talking about the four patents

7

here.

8

patents.

9

rights here.

10

Q.

11

rights?

12

A.

And Wi-LAN's other licenses had a larger set of
So I needed to adjust for the smaller set of

And how did you adjust for that smaller set of

Well, I relied on several things, but a very

13

important thing was the analysis that was contained in

14

the Houston/McEwan memo that you put on the screen a few

15

minutes ago that gave breakdowns of the incremental or

16

added value of the '211 patent, which is for the

17

handsets here, and the '326 patent, which is for the

18

base stations here.

19
20

So I relied heavily on that memo.

MS. ROSS:
Q.

Let's go to Slide 21, please.

(By Ms. Ross) Does this summarize the

21

apportionment factors that you obtained from the McEwan

22

memo at PX 20 or DX 60?

23

A.

Yes.

There were inputs from that memo, and

24

there was a bottom chart in that demonstrative slide

25

that you showed earlier where there were three different

68
1

kind of base handset rates.

2

And there are these -- are the '211 patent

3

would have an impact on that.

4

rate.

5

13.2 percent up to 33 percent.

6

It would raise that base

the blue bars.

So what it would raise the base rate by was from

7

That's what you see in

On the base station side, there was just one

8

calculation.

9

And the added amount associated with the '326 patent

10

was -- represents 28.6 percent.

11
12
13
14

There was one base -- base station rate.

I believe, however, that these are probably
somewhat conservative.
Q.

And these -- these numbers are related to the

wireless portfolio in 2009; is that correct?

15

A.

That's exactly right.

16

Q.

How did you calculate these percentages?

17

A.

I simply took the added rate associated with

18

each of the two patents, divided by the rate that

19

existed before these two patents were added to the

20

portfolio.

21
22
23

Q.

So with respect to the handset, the ranges in

the handsets, which factor is the best one to use?
A.

Well, probably for the jury's consideration is

24

the 33.3 percent.

The reason is, in that memo, it said:

25

Now that we've gotten the '211 patent or the '326

69
1

patent, we're able to add on to our royalties that we're

2

getting in the marketplace.

3

In a hypothetical negotiation, we wouldn't be

4

adding on the '211 or the '326 patent.

5

the patents.

They would be the core patents that would

6

be licensed.

And when you add a patent to a portfolio,

7

that has a much smaller effect and it should, than when

8

you just have the patent standing alone.

9

literature that supports this.

10
11
12
13

Q.

Those would be

And there's

Let me show you what's on Jarosz 22.

Who

wrote this article, sir?
A.

Eric Stasik, who used to be head of property

licensing at Ericsson.

14

Q.

What does this article show?

15

A.

There's a lot in this article, but the most

16

important message is what is underlined in the red.

17

says:

18

It

patent is negligible.

The incremental increase of each additional

19

In other words, he's pointing to Ericsson's

20

experience and experiences in the industry.

21

add a patent to a portfolio, it only adds a little bit,

22

but standing alone, it can be quite valuable.

23
24
25

Q.

When you

So what does this mean for the hypothetical

negotiation here?
A.

Well, one can consider the factors that I had

70
1

on the previous slide, but based on our understanding of

2

the value of patents, those numbers are probably a

3

little bit low.

4

number for handsets, it should probably be the 33

5

percent as opposed to the 13.2 percent.

6

Q.

If the jury focuses on any particular

So are the rates that come -- with respect to

7

the patents that are part of a portfolio that are

8

licensed, is their value linear with respect to the

9

license?

10

A.

Absolutely not.

And the economic literature

11

and licensing literature is filled with articles on this

12

point, that if you go from, say, four patents to eight

13

patents, that doesn't double a royalty rate from

14

1 percent to 2 percent.

15

It's a concept known as numeric

16

proportionality.

17

add-on becomes less and less versus the one before, to

18

the point at which some certain number of patents don't

19

increase the price at all, because there's enough of

20

a -- of a core existing already.

21
22

That is, when you add on -- each

MS. ROSS:
Q.

Let's go to Jarosz 23, please.

(By Ms. Ross) Does Jarosz 23 summarize the

23

implied lump-sum payments that you calculated for the

24

base stations after your adjustments that we just

25

discussed were made?

71
1

A.

Yes.

After adjusting for the size of the

2

various manufacturers and adjusting for the portion of

3

the -- of the portfolio here, you'll see the numbers,

4

the range of numbers reported here for the base station

5

manufacturers.

6

These do not have an adjustment for geography;

7

that is, allowing for the fact what we are talking about

8

here are U.S. patents and not Wi-LAN's worldwide patents

9

that were part of these other licenses.

10

Q.

And so this graphic depicts what the parties

11

to the hypothetical negotiation would have considered

12

would be the appropriate range for a fully paid-up

13

lump-sum license; is that correct?

14

A.

These are calculations of converting those

15

lump-sum payments to the hypothetical negotiation, and

16

they represent payments over the life of the patents.

17

So these are inputs to consider and they're

18

various alternative ways to make adjustments that are

19

reflected in this chart.

20
21
22

Q.

Can you explain for the jury what the

different ranges that are depicted here represent?
A.

They're really driven by which manufacturer is

23

adjusted.

So there were different lump-sum fees for the

24

different manufacturers.

25

of Alcatel-Lucent, for instance, a number closer to $9.3

And some suggest, in the case

72
1

million, and some suggest a number closer to $27.5

2

million.

3

several different inputs.

4

So it depends on the inputs, and there are

So rather than just focusing on one party at

5

one time, I looked at all the relevant information.

6

That's why I came up with this range.

7

Q.

And on the left-hand side of the column where

8

it says max share, negotiation share, and average share,

9

can you tell us what that means?

10

A.

Those were related to the bar charts that we

11

saw before where I had the red bar and the neon green

12

bar.

13

these Defendants had in the period at issue.

So max share is the maximum share that one of

14

Negotiations share would be at the point of

15

their hypothetical negotiation, and average share would

16

be during that period.

17
18
19

Q.

Okay.

Can you run the jury through these

numbers that you calculated?
A.

Sure.

For Alcatel-Lucent, the range for the

20

max share is 9.3 million to 27.5 million.

21

negotiation share is 7.5 million to 22.2 million.

22

the average share is 7.6 million to 22.7 million.

23

The
And

For Ericsson, for the maximum share, the range

24

is 9.2 million to 27.2 million.

For the negotiation

25

share, the range is 4 million to 11.8 million.

And for

73
1

the average share, the range is 5.6 million to 16.6

2

million.

3
4

MS. ROSS:
Q.

Let's pull up 24, please.

(By Ms. Ross) Does this summarize the lump-sum

5

payments you calculated for handsets after the

6

adjustments that we discussed before?

7

A.

Yes, exactly.

This is the same kind of

8

approach.

9

the reasons we talked about before.

10

The ranges are similar -- similarly exist for

The one new thing in this chart for the

11

handset manufacturers is the high portfolio adjustment

12

and low portfolio adjustment.

13

chart, 33.3 percent, the one I think is probably more

14

appropriate, corresponds to the high portfolio

15

adjustment, and the 13.2 percent, I think it was,

16

corresponds to the low portfolio adjustment.

17
18

Remember in that bar

So I have a few more numbers because there
were a few more inputs.

19

Q.

20

please?

21

A.

22

Can I ask you to run through the numbers,

Yes.
For Sony Mobile, max share high portfolio is

23

.6 million to 4.6 million.

The negotiation share is .6

24

million to 4.6 million.

And the average share is .4

25

million to 2.9 million.

Those are all for the high

74
1

portfolio adjustment.

2

For the low portfolio adjustment, the maximum

3

share is .2 million to 1.8 million.

The negotiation

4

share is .2 million to 1.8 million.

And the average

5

share is .1 million to 1.1 million.

Those were for all

6

the Sony Mobile numbers.

7

For HTC, the numbers are larger and the ranges

8

are a little bit broader.

For the high portfolio

9

adjustment, the maximum share is 4.4 million to 42

10

million.

The negotiation share is .4 million to 5.3

11

million.

The average share is 2 million to 20.5

12

million.

13

For the low portfolio adjustments, the number

14

for the maximum share is 1.7 million to 16.6 million.

15

For the negotiation share, it's .5 million to 2.1

16

million.

17

million.

18
19

Q.

For the average share it's .8 million to 8.1

Now, with respect to HTC, the disparity is

quite large for the max share.

20

A.

Yes, it is.

21

Q.

Can you explain that, please?

22

A.

Yes.

It's really driven by the fact that HTC,

23

since negotiation, has been very successful and then

24

less successful.

25

very modest share; and then I think as many of us

At the time of negotiation, it had a

75
1

consumers know, there have been a lot of ads for HTC

2

phones.

3

And they've been successful in the marketplace.
Now their success is dwindling some, but in

4

2012, it was a very successful company.

5

infringement began, it has gone from being modestly

6

successful to very successful.

7
8

Q.

So since

With respect to the handsets, did you also

consider the Wi-LAN licenses that have royalties?

9

A.

Yes, I did.

10

Q.

And what were the rates for those licenses?

11

A.

Basically, they ran from .25 to .5 cents.

12

Q.

Okay.

13

A.

Cents per unit.

14

Q.

Are the --

15

A.

I'm going to change that.

16

And that's cents per unit?

25 cents per unit.

I misspoke.

It's $.25, which is

I apologize.

17

Q.

Fair enough.

18

A.

So it's 25 to 50 cents per unit.

19

Q.

Thank you for clarifying.

20

Are the companies that entered running royalty

21

agreements with the Plaintiff the same size as the

22

Defendants?

23

A.

No.

They're all small companies.

General

24

Mobile -- at least in the -- in the handset business,

25

Casio, General Mobile, and -- it might be pronounced

76
1

General Mobile, and CalAmp are fairly insignificant

2

players in the business.

3

Q.

Does it matter to your analysis that some of

4

these licensees paid very little in terms of dollar

5

amounts under the terms of their running royalty rate

6

agreements?

7

A.

No.

If their success was low, they shouldn't

8

have to pay much in terms of royalty.

If their success

9

was high, they would have paid a lot.

But they were

10

very modest in their success; and, therefore, I would

11

expect the royalty -- the ultimate royalty payments to

12

Wi-LAN to be low.

13
14

Q.

handsets for a moment.

15
16
17

Let's talk about the running royalties for

Does a running rate automatically account for
the differences in size?
A.

Yes, it does.

So that if a company is very

18

successful, sells lots of units -- if they sell a

19

hundred units, they're going to pay a higher royalty

20

than if they sell ten units.

21

already built in.

22
23
24
25

Q.

So the size adjustment is

Do you need to make a geographical adjustment

for the running royalty licenses?
A.
sales.

Not if you look at U.S. sales or worldwide
In this case, we're looking at U.S. sales.

So

77
1

if I just apply those royalty rates to U.S. sales that

2

are at issue here, there's no additional need to adjust

3

for geography.

4
5

Q.

How do you use these running rates to inform

your lump-sum payment?

6

A.

Well, they were inputs, too, of the lump-sum

7

payments, and they're information that the jury could

8

and should consider in coming to a number here.

9
10

I did come up with a chart that summarized
those, but I don't know that we need to cover that.

11

Q.

Oh, I'd like to pull it up.

12

MS. ROSS:

13

Slide 26.

Q.

(By Ms. Ross) Is this what you're referring

15

A.

Yes.

16

Q.

Could you run the jury through these numbers,

17

please?

18

A.

14

to?

Sure.

For Sony Mobile, you see the numbers on

19

the left; for HTC, you will see the numbers on the

20

right.

21

Again, as I did before, I did a high portfolio

22

adjustment and low portfolio adjustment, what we talked

23

about before.

24

sales will be through trial.

25

full records from the Defendants through trial.

And here we don't really know what the
We don't -- we didn't have
So I

78
1

had to make some assumptions through trial or through

2

life of the patent as to what those numbers would be.

3
4

And so that's why you see no growth and growth
assumptions built in.

5

For Sony Mobile, the numbers are .2 million to

6

.5 million in the no-growth high portfolio adjustment.

7

And then the growth adjustment scenario is .4 million to

8

.7 million.

9

the no-growth number is .1 million to .2 million.

10

the growth numbers are .1 million to .3 million.

11

In the low portfolio adjustment scenarios,
And

HTC on the right, again, has higher numbers.

12

They've had more success in the business.

13

portfolio adjustment numbers, no growth is 3.9 million

14

to 7.6 million.

15

9.4 million.

16

no growth has 1.5 million to 3 million.

17

scenario, 1.9 million to 3.7 million.

18

Q.

For the high

The growth scenario has 4.8 million to

The low portfolio adjustment scenarios for
And the growth

Now, you said that you didn't have some actual

19

data for Sony Mobile.

20

models produced by Sony Mobile compare to the IDC Sony

21

Mobile sales estimates.

22

A.

Yeah.

How did the sales data for the

I'm not sure if I said that explicitly.

23

I had pretty good data for HTC.

Sony Mobile, it was

24

less good data.

25

provide information on all the infringing models.

They didn't appear to be able to

79
1

What they did provide seemed to be about

2

57 percent of what is in the IDC reports, so I used the

3

IDC data for the sales information.

4

Q.

Are you aware that the Defendants contend that

5

there are many components of the accused products that

6

do not use the technology at issue?

7

A.

Yes.

8

Q.

Do the Wi-LAN licenses here for running

9
10
11

royalties that you considered, does that take that fact
into consideration?
A.

Yes, because the royalty rates are just a

12

portion of revenues.

13

rate automatically adjusts for the fact that there are

14

other things that contribute value.

15

It adjusts for the fact -- the

And I don't -- certainly don't dispute that

16

here.

17

important, but there are other things.

18

royalties reflect the significance of some of the

19

inventions to the products at issue.

20
21

There are many drivers of value here.

Q.

HSDPA is

But the running

Were the licenses involving the Wi-LAN patents

limited to the patents-in-suit only?

22

A.

No.

23

Q.

And did you take this fact into consideration

24
25

They were broader.

in your analysis?
A.

Yes.

We talked earlier about the

80
1

Houston/McEwan memo that has adjustments for the

2

wireless portfolio.

3

I've done.

4
5

Q.

That's built in the analysis that

And that adjustment is reflected here on this

page?

6

A.

Yes.

7

Q.

And then on the preceding pages where we

8

looked at the lump sum, that fact was taken into

9

account?

10

A.

Absolutely.

11

Q.

Okay.

12

MS. ROSS:

13

please.

14

Q.

Let's return to Jarosz 27,

(By Ms. Ross) So the last item on the chart

15

was both the Defendants' licenses.

16

the Defendants' licenses particularly useful?

17

A.

Did you find any of

I found them somewhat useful, but none of

18

them, of course, covered the patents-in-suit, because

19

that's why we're here.

20

There is no license.

There were licenses covering a variety of

21

wireless technologies, and I looked at those.

22

lump sums; some had royalties.

23

but not as useful as the Wi-LAN licenses.

24
25

Q.

Some had

I found those useful,

Did this make the Defendants' licenses more or

less informative than the Wi-LAN licenses?

81
1

A.

Less informative, although those licenses

2

tended to have lump-sum fees and running royalties that

3

were higher than the Wi-LAN licenses.

4

they were less useful than looking directly at the

5

Wi-LAN licenses.

6
7

Q.

But they were --

Did you still consider the Defendants'

licenses?

8

A.

I did, yes.

9

Q.

Were all of the Defendants' agreements one in

10

which one party licenses patent rights in exchange for a

11

lump sum or running royalty?

12

A.

No.

There were a number of license that --

13

that are what are called a cross-licenses; one party

14

gave its entire portfolio to another party; and that

15

second party gave its portfolio back, for instance.

16

Those are called cross-licenses where rights

17

are going both ways.

18

They're just more complicated.

19

Those are somewhat less relevant.

There are some licenses in which rights went

20

one way and payment went back the other way.

21

a little bit more helpful.

22

Q.

Those are

Let's turn now to your other quantitative

23

analysis, which I believe is the income approach.

24

you explain what the income approach is?

25

A.

Can

The income approach basically looks at the

82
1

advantages or success realized by the Defendant and

2

figures out what is revealed about the significance of

3

the patents in the success of the Defendants in the

4

marketplace.

5

Q.

6
7

How did you determine what benefits the

Defendants received from using the Wi-LAN patents?
A.

Well, I sought to see if there were a set of

8

products that practiced the -- that practiced the HSDPA

9

technology versus a set of products that didn't.

10

So that would give me what we call a natural

11

experiment, that I have three products that incorporated

12

HSDPA and three other products that were roughly the

13

same thing, except they didn't have HSDPA.

14
15
16

Unfortunately, I didn't have that.

I couldn't

run that natural experiment.
Q.

Did you hear Dr. Wells' testimony earlier that

17

the patents-in-suit were essential in order to practice

18

HSDPA?

19

A.

Yes.

20

Q.

So given Dr. Wells' testimony, would the

21

Defendants' next best alternative have been to remove

22

the technology covered by the patents-in-suit and still

23

sell products that comply with HSDPA functionality?

24
25

A.

They, perhaps, technically could do that; but

it wouldn't be sellable in the marketplace.

It wouldn't

83
1

comply with the HSDPA requirements.

2

previous generation technology or a different technology

3

if you stripped out these patents.

4
5
6

Q.

It would go to a

Would customers have purchased products that

did not comply with HSDPA standard?
A.

No.

And Dr. Wells talked about that at some

7

length, saying there would have to be a reversion back

8

to previous technology or adoption of a whole new

9

technology platform, and customers wouldn't be agreeable

10

to do that.

11

Q.

Did you see, for example, any testimonial

12

evidence that suggested that non-HSDPA products would be

13

acceptable?

14

A.

I saw testimony on that point and found that

15

the Defendants here are of the belief and knowledge that

16

HSDPA is critical in the marketplace.

17
18

Q.

All right.

Let's run through some of that

testimony.

19

MS. ROSS:

20

please.

21

Q.

Let's pull up Jarosz 29,

22
23

(By Ms. Ross) What did you understand

Mr. Irving to say?
A.

Well, he says a lot here, but, in essence,

24

he's saying that operators -- U.S. operators have to

25

have HSDPA to compete and sell base stations in the

84
1

marketplace.

2
3

In other words, their base stations,
Alcatel-Lucent, have to practice HSDPA.

4

Q.

5

please?

6

A.

And could you read the last answer for me,

Without -- without 3GPP releases, without

7

following the sequence of 3GPP releases, without

8

developing the functionality that was required by them,

9

we would stop selling base stations.

10

Q.

Did you see similar testimony from Ericsson?

11

A.

Yes, I did.

12

MS. ROSS:

Let's pull up 30, please.

13

Q.

(By Ms. Ross) What did Mr. Rylander say?

14

A.

In essence, that they would not be able to

15

sell base stations to AT&T and T-Mobile, their two

16

biggest customers, if they were not HSDPA compliant.

17

In other words, AT&T and T-Mobile require

18

HSDPA compliance.

19

couldn't sell base stations to those.

20
21
22

Q.

If those were stripped out, Ericsson

Did you see similar testimony for the handset

manufacturers?
A.

23

Yes, I did.
MS. ROSS:

May I have 31, please?

24

Q.

(By Ms. Ross) What does this show?

25

A.

This is testimony from a Mr. Wu at HD -- HTC

85
1

in which he talks about the fact that the phones that

2

they provide to AT&T must perform HSDPA.

3

in the middle of this section and -- middle of this

4

excerpt and lower down.

5
6
7

You'll see it

T-Mobile down below, AT&T above require
compliance with HSDPA.
Q.

So did you understand this to mean that if a

8

phone manufacturer wants to supply AT&T and T-Mobile,

9

they must comply with HSDPA?

10

A.

Yes.

11

Q.

Are you aware that the Defendants argue that

12

there were existing alternative technologies that the

13

Defendants could have used instead of HSDPA?

14

A.

Yes.

I think they talked about Release 99,

15

EDGE, and EV-DO, and I think Dr. Wells addressed those

16

alternatives.

17

Q.

18
19

And what do you understand Dr. Wells to have

said about those alternatives?
A.

He said those alternatives either were older

20

generation and, therefore, don't provide the advantages

21

to the carriers or to the consumers that are needed; or

22

they're a whole technology platform, for example,

23

switching everything to CDMA.

24

understand it, financially unacceptable to the parties

25

here.

And that would be, as I

86
1
2
3

Q.

Well, let me show you Slide 32, please, which

corresponds with DX 145.
A.

What does this document show?

It comes from the Lucent files, which are

4

talking about the HSPDA.

5

talks about the business impact.

6

We have a typo there.

It

HSDPA met Cingular's critical business needs

7

against their CDMA competitors, and HSDPA became

8

Cingular's number one feature priority.

9

Cingular, of course, became AT&T.

10

Compared with their legacy GSM/GPRS/EDGE,

11

HSDPA provides significant improvement in spectral

12

efficiency and systems throughput.

13

It goes on to say that HSDPA led to Lucent's

14

Cingular trial and contract, which was critical to keep

15

Lucent in the UMTS business.

16

So it says HSDPA was essential for Lucent --

17

which became Alcatel-Lucent -- to comply with the

18

requirements of AT&T; and HSDPA was Cingular, or AT&T's,

19

number-one feature priority.

20

MS. ROSS:

21

Q.

22

this as well?

23

A.

Let's pull up 33, please.

(By Ms. Ross) What did Mr. Irving say about

Mr. Irving of Alcatel-Lucent was asked if they

24

can sell base stations to customers who operate a W-CDMA

25

network in the U.S. if those do not support HSPA.

And

87
1

the answer, no, they have to be compliant.

2
3

MS. ROSS:
Q.

Let's turn to 34, please.

(By Ms. Ross) Can you read for me what

4

Mr. Zucker said about the feasibility of retreating to

5

EDGE technology?

6

A.

Yes.

EDGE was the previous technology, and

7

Mr. Zucker of Alcatel-Lucent was asked:

8

you familiar with something called EDGE technology?

9

Answer:

10

Okay.

And are

Yes, I am.

Question:

So what I'm trying to explore with

11

you is whether you think any of the older technologies,

12

such as EDGE or GSM, would be regarded as an acceptable

13

alternative to HSDPA by any of your customers since

14

2007?

15
16

Answer:
Q.

No.

So if these are not good alternatives, how did

17

you then go about doing an income approach analysis for

18

base stations?

19

A.

Well, it was really hard to do, because I

20

didn't have a very good next best alternative, because

21

they needed -- they being the base station and --

22

manufacturers -- needed to comply -- needed to practice

23

HSDPA.

24
25

So what I did is, I focused my attention on
just the software sales associated with HSDPA; that is,

88
1

a base station is hardware and software.

2

attention just on what the Defendants have agreed is the

3

smallest saleable unit, the software here; and it sought

4

to determine the success of that software in the

5

marketplace.

6

MS. ROSS:

7

Q.

Let's pull up Jarosz 35,

please.

8

I focused my

9
10

(By Ms. Ross) How much revenue did

Alcatel-Lucent earn from selling HSDPA software?
A.

Just over the period from October 2 -- or --

11

or from -- yes -- October 2010 through April 2013, they

12

made about $120 million just in HSDPA software sales for

13

their base stations.

14
15
16

Q.

How did you determine the revenue

Alcatel-Lucent earned from selling HSDPA software?
A.

That came from Alcatel-Lucent records, and it

17

was the information that Mr. Bakewell summarized and

18

used as well.

19

Q.

20
21

Now, did Alcatel-Lucent provide information

regarding profit margins specific to HSDPA software?
A.

Unfortunately, it did not.

It provided profit

22

margins for W-CDMA software generally, so that's the

23

profit margin that I use in the green box.

24

Q.

And that's 62 percent.

25

A.

That's 62 percent, yes.

89
1

Q.

And -- and just so that I understand, that's a

2

calculation that you performed based on their W-CDMA

3

business?

4
5
6

A.

Yes.

That's from the records that they

provided.
Q.

In your experience, are software profit

7

margins typically higher or lower than W-CDMA profit

8

margins that you used in your calculation here?

9

A.

Typically higher.

Software margins --

10

software products generate some of the highest margins

11

in any business.

12

out software and send it.

13

it's much less effort than what's required on the

14

hardware side of any business.

15
16
17
18
19
20
21

It doesn't take much effort to stamp
It takes some effort, but

So 62 percent is probably an underestimate of
the software margin appropriate here.
Q.

Did you provide a similar calculation with

respect to Ericsson?
A.

I was unable to, because I don't have the

breakdown of Ericsson's HSDPA software sales.
Q.

Is all of the profit that is depicted --

22

actually, why don't you just run me through this slide

23

and what this slide says.

24
25

A.

So if you take the $120 million in revenues

that Alcatel-Lucent realized from HSDPA software sales,

90
1

multiply it by their profit margin of 62 percent, you

2

arrive at profits that Alcatel-Lucent made over this

3

damages period of $74.4 million.

4

Q.

Now, all of this profit that's here, this $74

5

million, that's not all due to the patents-in-suit, is

6

it, sir?

7

A.

No, it's not all due to the patents-in-suit,

8

but if there was no compliance with HSDPA, the software

9

sales wouldn't be made.

It's HSDPA software.

But there

10

are other features that add value.

There's no dispute

11

about that.

12

Q.

So then how is this number relevant?

13

A.

It suggests that the numbers that were arrived

14

at in the market approach section are reasonable,

15

probably conservative; that is, the profits at issue for

16

Alcatel-Lucent are quite high.

17

I know that number is too high for damages

18

here, but they say the market approach numbers could be

19

fair, perhaps conservative estimates.

20

Q.

And now, this calculation focuses on profits

21

associated with HSDPA only.

22

that Alcatel-Lucent and Ericsson might have lost had

23

they decided not to sell HSDPA software?

24
25

A.

Yes.

Are there other profits

I -- the base station -- the whole base

station profits are likely at issue as well, because we

91
1

saw the testimony from the Defendants that they wouldn't

2

be able to sell base stations if the hardware and

3

software didn't comply with HSDPA.

4
5
6
7
8
9
10

And those base station revenues, the hardware
revenues, are much higher than the software revenues.
Q.

And you come to that conclusion based on the

testimony of the Defendants that you heard?
A.

Yes, and my understanding of the technology

and the products offered here.
Q.

So let's discuss the income approach for the

11

handsets.

12

and Sony Mobile have sold if they couldn't offer HSDPA?

13

A.

What alternative handset products could HTC

I'm not sure they could offer any.

I saw

14

representations that the Defendants believe that maybe

15

you could try Release 99 or EDGE or EV-jDO, earlier

16

generation or other platforms; but that doesn't seem to

17

be feasible for HTC or Sony Mobile.

18

Q.

And did you hear Dr. Wells' testimony earlier

19

regarding whether these CDMA-based technologies, such as

20

EV-DO and EDGE would be a good alternative?

21

A.

He talked about those and said that would be

22

either -- some of those would be earlier generation, but

23

more importantly, that's a whole different platform.

24

That would be this -- versus W-CDMA or GSM

25

platform, it would be going to a CDMA platform, and that

92
1

would take substantial effort to convert over to that

2

new platform.

3

Q.

So why couldn't a customer who had bought an

4

HSDPA phone from Sony Mobile or HTC just switch to a

5

CDMA carrier like Verizon and buy a CDMA phone from Sony

6

Mobile or HTC instead?

7

A.

Studies have shown most of us consumers are

8

pretty bought in and pretty loyal to the networks that

9

we're on.

So for a Sprint customer, we stay with

10

Sprint.

11

tend not to change our carriers.

12

vast majority of us do not.

13
14

Q.

We may change our handsets over time, but we
Some of us do, but the

Let me show you Jarosz 36.

What does this

document show?

15

A.

16

Mobile.

17

consumers tend to be locked in by networks rather than

18

being actively loyal.

19

It shows what I was just describing from Sony
They have come to the conclusion that U.S.

In other words, once I'm on a Sprint network,

20

I stay with that Sprint network for a long time or

21

Verizon or AT&T.

22

switch within those networks.

23

Q.

24

preferences?

25

A.

We tend to stick with our networks and

And this is just based on consumer -- consumer

Yes, and consumer behavior.

93
1

MS. ROSS:

2

Q.

3

to you?

4

A.

Let's pull up 37, please.

(By Ms. Ross) Does -- what does Slide 37 say

It shows that if HTC and Sony Mobile would

5

switch to a different technology -- I can stay on my

6

same network, the Sprint network, for instance, and I

7

have lots of alternatives to handsets.

8
9

HTC and Sony Mobile only comprise about
7 percent of the business over this time.

I can go to

10

plenty of other alternatives, Samsung and Apple, and

11

there are a number of alternatives.

12

So I wouldn't need to stick with HTC knowing

13

everything would need to be changed and my prices would

14

go up.

15

handset on my network of choice.

16
17

I would just go to an alternative that offers a

Q.
Verizon.

And I believe in your answer, you used
Did you mean to say AT&T or T-Mobile?

18

A.

I meant to identify all of them, yes.

19

Q.

So if -- as you've described, if the prior

20

generation phones would not be a good alternative, then

21

how did you use -- how did you approach your income

22

approach?

23

A.

Well, I looked at -- I looked at a price

24

comparison of phones that comply with HSDPA versus

25

phones that do not.

And fortunately, I had older

94
1

information that I could compare with the newer

2

information and see the price differences.

3
4
5
6

MS. ROSS:
Q.

Let's pull up 38, please.

(By Ms. Ross) Does this slide show the

calculation that you performed?
A.

Yes.

It shows that for handsets, phones, that

7

are HSDPA compliant versus the phones that were not, the

8

price difference is about a hundred dollars.

9

In other words, I pay about a hundred dollars

10

more for an HSDPA-compliant handset.

11

That's what's

shown in the blue box.

12

Then I multiply that by the profit margins for

13

the handset manufacturers here, HTC and Sony Mobile, and

14

that's about 20 percent -- so those margins are much

15

lower than software margins -- to arrive at an

16

incremental profit per unit of $20.

17
18
19
20

In other words, they made, because of their
ability to sell HSDPA phones, about $20 more per phone.
Q.

Now, is all of that $20 attributable to the

patents-in-suit?

21

A.

Absolutely not.

22

of a phone.

23

Q.

There are many other features

HSDPA is only one set of features.

So how does this 20-dollar-per-unit figure

24

compare to the per-unit rates that you found with

25

respect to the Wi-LAN licenses that included the

95
1
2

patents-in-suit?
A.

It's appreciably higher.

You'll remember

3

those Wi-LAN patents had running royalty rates that were

4

in the range of 25 to 50 cents, so they're a small

5

fraction of the $20 here.

6

Q.

And the lower rates for the Wi-LAN licenses

7

that you calculated, that takes into account the smaller

8

portion that is required to isolate the patents-in-suit?

9

A.

Exactly.

10

Q.

So if you wanted to convert this

11

20-dollar-per-unit lump-sum figure so that you could

12

compare it with the lump-sum license agreements, what

13

would you do?

14

A.

15
16

You'd multiply it by the number of units sold

by HTC and Sony Mobile over the period at issue.
Q.

Okay.

17

MS. ROSS:

18

please.

19

Q.

Let's pull up Slide 39,

(By Ms. Ross) Did you review documents that

20

were produced by the Defendants that told you how many

21

accused units there were?

22

A.

Yes.

We talked about this a little bit

23

earlier.

I had HTC documents that were fairly reliable.

24

The Sony Mobile documents seemed to be an underestimate,

25

so I relied on the IDC reports for those data.

96
1
2

Q.

And how many infringing handsets were sold

by -- by HTC, for example?

3

A.

13.8 million.

4

Q.

Okay.

And the 13.8 million, that's from the

5

period beginning in October of 2010 through April of

6

2013?

7

A.

Exactly.

8

Q.

And the unit sales for Sony Mobile, I believe

9

you said you had to calculate that number?

10

A.

Yes.

11

Q.

Okay.

12

And you calculated that number to be

what?

13

A.

1.4 million units.

14

Q.

And, again, that 1.4 million units is

15

beginning in time, in October of 2010 through April of

16

2013; is that true?

17

A.

Yes, that's true.

18

Q.

So multiplying the 20-dollar figure, what does

19
20
21
22

that equate on a lump-sum basis?
A.

For AT -- I'm sorry -- for HTC, it results in

$276 million; for Sony Mobile, $28 million.
Q.

Okay.

So we've talked about the market and

23

income approaches.

24

undertook?

25

A.

What was the third approach that you

It's called the cost approach.

97
1

Q.

Okay.

2

A.

One looks to see how much effort it would take

3

And what is the cost approach, sir?

for a company --

4

THE COURT:

Before you go into that,

5

we've been going a pretty long time.

6

ahead and take our morning break at this time.

7

in recess until five minutes after 11:00.

8
9

I think we'll go

COURT SECURITY OFFICER:

We'll be

All rise for the

jury.

10

(Jury out.)

11

(Recess.)

12

COURT SECURITY OFFICER:

13

All rise for the

jury.

14

(Jury in.)

15

THE COURT:

Please be seated.

16

All right.

You may proceed.

17

MS. ROSS:

18

Q.

Thank you, Your Honor.

(By Ms. Ross) So, Mr. Jarosz, when we left

19

off, you were about to tell us what the cost approach

20

method is.

21

A.

Yes.

It entails considering how much it would

22

cost to design-around or come up with an alternative to

23

the patents.

24

speed and efficiency that would be required by the

25

operators and consumers but use a different approach.

So can you accomplish the same download

98
1

So that is a way to measure or price

2

intellectual property, because I wouldn't pay much money

3

for something that's easy to design-around, but I would

4

pay a lot of money for something that's hard to

5

design-around.

6
7

MS. ROSS:
Q.

Let's pull up 40, please.

(By Ms. Ross) What technological alternatives,

8

if any, do the Defendants' experts, Mr. Bakewell and Dr.

9

Becker, claim would have been available?

10
11

A.

They're the ones we talked about before the

break, Release 99, EDGE, and EV-DO.

12

Q.

And would those have been acceptable?

13

A.

No.

For the reasons we talked about before,

14

largely reliant on Dr. Wells' testimony; but also based

15

on my knowledge of the business place, it appears that

16

those would either be steps backward or retreat in

17

technology or an adoption of a very expensive new

18

platform.

19
20

Q.

So let's jump ahead and talk about your

qualitative approach.

21
22
23
24
25

MS. ROSS:
Q.

And let's pull up 44, please.

(By Ms. Ross) Does this identify the

qualitative factors that you considered?
A.

Yes.

These are the same Georgia-Pacific

Factors that we talked about earlier.

It's a list of 15

99
1

factors that are useful in assessing a hypothetical

2

negotiation and a hypothetical license.

3

those here.

4

Q.

5
6

I considered

And why do you use or why do you refer to

these as qualitative factors?
A.

Well, most of them are less agreeable to

7

having data with them or observations that economists

8

love, but they're factors that are important in a

9

negotiation nonetheless, things that impact bargaining

10
11

power.
Q.

For example, say, No. 5, the commercial

12

relationship between the licensor and the licensee, is

13

that one example?

14

A.

Yes.

It's hard to pin the dollar amount on

15

the fact that you and I are vigorous competitors, but

16

the fact that we are vigorous competitors says we

17

wouldn't license one another at very agreeable rates.

18
19

Q.

Now, did you evaluate every single factor

here?

20

A.

Yes, I did.

21

Q.

Did you compare the factors here to the

22
23

quantitative approach you previously performed?
A.

Yes.

I used them to help me assess that

24

quantitative information to help assess when the numbers

25

should be toward the lower end or higher end or how to

100
1

interpret some of the significance of some of the

2

quantitative data.

3

Q.

Can you describe for me which factors you gave

4

little significance to because of the neutral effect of

5

them?

6

A.

Well, I gave significance to all of them; but

7

in the quantitative approach, I already addressed a

8

number of them so the jury won't have so sit through me

9

describing several of them.

1, 2, 4, 5, 8, and 14 were

10

already addressed in my earlier testimony, either in

11

implementing the quantitative approach or interpreting

12

that.

13
14
15

So there are only a few that are new that the
jury hasn't heard as much about.
Q.

Okay.

Let's discuss the first factor that --

16

that did not -- that we're not going to talk about -- or

17

that we are going to talk about.

18

nature and scope of the license, Factor 3; is that

19

correct?

I think it was the

20

A.

Yes, it is.

21

Q.

Okay.

22

A.

The hypothetical license here would be over

How is this relevant to your analysis?

23

valid, enforceable, and infringed patent rights, if the

24

jury comes to that conclusion.

25

That makes any of the observations from

101
1

market -- the market approach too low, because in all of

2

those, there were licenses entered when there was a

3

cloud of uncertainty.

4

would be removed; and a payment must, because of that

5

reason alone, be higher than a real-world payment.

6

Q.

Here, that cloud of uncertainty

I think the next factor that you -- you left

7

off of your list of things that were neutral was No. 6,

8

the convoyed sales.

9
10

What does that mean?
A.

It asks the question:

Were there additional

11

things that were sold along with the products at issue

12

that benefited the Defendants?

13

In the case of handsets, they were fairly

14

somewhat un-significant:

15

and batteries and protectors.

16

and Sony Mobile might have sold some additional, because

17

it sold more phones, but not in a way that mattered

18

much.

19

Carrying cases and chargers
Those kinds of things HTC

With regard to the base stations, however, the

20

impact is a little bit more noticeable.

21

if we are just focusing on the software sales, as the

22

testimony we've seen suggests, the hardware sales would

23

likely not have been sold as well.

24
25

And, that is,

In other words, the whole solution provided by
Alcatel-Lucent and by Ericsson, the base station

102
1

solution, had to comply with HSDPA.

2

with HSDPA, then the carriers wouldn't be buying the

3

base station.

4

If it didn't comply

So if you consider the royalty base just to be

5

software, you have to consider that there are many more

6

hardware sales that might be tied in.

7

I had an example I used the other day at

8

lunch.

I wanted to get a sandwich.

9

sandwich-eater.

I'm a big

I'm from the Midwest; we eat sandwiches

10

a lot.

11

They had good options, and I ordered one of those

12

options.

13

And I went to Cheddar's and I wanted a sandwich.

But if I went to Cheddar's -- Cheddar's and

14

they didn't have sandwiches, or even more specifically,

15

didn't have bread, which is a strange hypothetical, then

16

I wouldn't have bought a sandwich there.

17

moved on to get a sandwich elsewhere.

18

The bread was important.

19

things on my sandwich.

20

lettuce, tomatoes.

I would have

There were other

I had chicken, I had mayo, I had

Those things were all important.

21

But if I didn't have the bread, because I

22

wanted a sandwich, I would have moved on to another

23

option because I wanted a sandwich.

24
25

So that's the way to think about convoyed
sales.

103
1

Q.

And so how does this affect your analysis?

2

A.

If -- for the base station side, if we're just

3

thinking about the software revenues and profits -- one

4

has to think about those -- do absolutely enhance the

5

sale of base station hardware.

6
7

Q.

So the next factor, I think, is Factor 7, the

duration of the patent and the license.

8

A.

Yes.

9

Q.

Did you examine this with respect to the

10
11

The --

market approach?
A.

I did.

The duration of the license would be

12

about similar to the licenses that I looked at in the

13

market approach.

14

significance of the patent was worth evaluating in

15

looking at the income data we have talked about.

The duration of the patent was and the

16

Q.

And what did you find?

17

A.

What I found was that the -- these HSDPA and

18

these patents appear to be very well-accepted in the

19

marketplace.

20

continue to grow in the future.

21

Their popularity is growing, and that will

MS. ROSS:

Let's pull up Jarosz 46,

22

please, which is PX 219, which I believe was previously

23

admitted.

24

Q.

(By Ms. Ross) What does this document show?

25

A.

This is from Ericsson, and it shows that

104
1

handset HSPA will continue to be the most dominant

2

technology, even in 2016.

3

it comprises about 75 percent of the technology three

4

years from now.

5
6

So Ericsson has very optimistic views on HSPA,
which embodies HSDPA.

7
8

You see that in this slide,

MS. ROSS:

Let's pull up 47, which is

PX 220, which was previously admitted yesterday as well.

9

Q.

(By Ms. Ross) What does this show?

10

A.

This is a contract between Ericsson and AT&T

11

in which AT&T, the supplier, wants to continue to

12

receive HSPA-compliant technologies from Ericsson

13

through the end of 2018.

14

MS. ROSS:

Next slide, please.

15

Q.

(By Ms. Ross) And what does this show?

16

A.

And it goes on to say:

If AT&T chooses -- I'm

17

sorry -- the supplier was Ericsson.

18

AT&T was the buyer.

19

I misspoke before.

Ericsson will make available to AT&T

20

HSPA-compliant products beyond 2018, if AT&T requires

21

it.

22

Q.

I believe the next factors that you are going

23

to discuss are Factors 9 and 10, the utility and nature

24

of the patented technology.

25

Did you consider Dr. Wells' testimony that the

105
1

patented technology and HSDPA provides benefits to

2

network operators?

3

A.

Yes.

4

Q.

And you heard testimony that it provided

5

benefits to network operators?

6

A.

Yes, I did.

7

Q.

And that was Defendants' testimony?

8

A.

Correct.

9

Q.

What effect does this information have on the

10
11

outcome of the hypothetical negotiation?
A.

Well, it's already embedded in the market

12

approach, the rates that we see there.

13

approach, the data says:

14

technology.

15

transmission says consider that that has lots of

16

advantages with regard to the income data that we talked

17

about.

18
19
20

Q.

But the income

This is really important

The faster transmission, more efficient

What evidence did you consider when evaluating

Factor 11, the extent of use by the infringer?
A.

I considered how much or how important these

21

product lines were to the infringers by looking at the

22

sales versus the rest of sales of the company.

23

differed by Defendant, anywhere from 5 to 60 percent.

24

So these were relatively important.

25

And it

But as relates to the market approach, this

106
1

had a downward impact, because in the market approach,

2

there were more technologies that were licensed to those

3

licensees.

4

used and the subset of each of the Defendants' revenue

5

bases.

6
7

Q.

9
10

Excuse me.

The next relevant factor is Factor 13, that
portion of the profit that should be credited to the
invention as opposed to other elements.

11
12

And what effect did this -- oh, I think you

said that.

8

Here, it's just a subset of the technologies

Can you explain this for me, please?
A.

Yes.

For both handsets and base stations,

13

there are lots of things that contribute value.

14

are lots of reasons why these products are successful in

15

the marketplace.

16

There

So in looking at the income data, one would

17

want to go to the lower end, because HSPA and HSDPA,

18

although important, aren't the only value drivers.

19

information is already accounted for in the market

20

approach, because we have the smaller rates accounting

21

for other value drivers.

22

That

But one has to consider, in assessing those

23

larger income numbers, that this is just a part of

24

what -- what generates value for handsets and for base

25

stations.

107
1
2
3

Q.

What effect does your evaluation of Factor 13

have on the outcome of the hypothetical negotiation?
A.

Again, I don't think it impacts the market

4

approach directly, but the income approach suggests that

5

the number should be to the low end under consideration.

6

Q.

The last factor is Factor 15.

What is that?

7

A.

That's, in essence, the hypothetical

8

negotiation, the hypothetical license.

It says, pull

9

all these things together and what do you come up with?

10

Basically -- well, there were factors -- some

11

that suggest a number toward the high end; some suggest

12

a number toward the low end range under consideration.

13

The market approach numbers that you see are

14

pretty good estimates.

15

the larger numbers that I show have to come down.

16

cannot be that high, because of a variety of reasons

17

that we just talked about.

18
19

The income approach number is

MS. ROSS:
Q.

They

Let's pull up Slide 3, please.

(By Ms. Ross) Now, Mr. Jarosz, what is your

20

overall conclusion regarding the -- your evaluation of

21

the market approach and the other inputs from the

22

qualitative factors before we get to the geographic

23

adjustment?

24

A.

25

The numbers are, as reflected on the screen,

so I have adjusted for size, and I've adjusted for the

108
1

portfolio, and I've adjusted for time.

Everything is in

2

there, except I have not adjusted for the importance of

3

the U.S. assets of Wi-LAN versus its non-U.S. assets.

4

Q.

Could you --

5

A.

The result is the numbers here.

For

6

Alcatel-Lucent of $3.8 million; for Ericsson of $6

7

million; for HTC of $3.4 million; and for Sony Mobile of

8

$.5 million.

9

Q.

10
11

And I apologize.

I almost interrupted you.

Now, to clarify, these numbers are not
adjusted for geography, right?

12

A.

That's correct.

13

Q.

And why is that, sir?

14

A.

I don't know exactly how to do that.

It was

15

an issue Mr. Parolin talked about in his testimony, but

16

what happened was, when Wi-LAN licenses a variety of

17

companies, they license the worldwide portfolio of

18

assets.

19
20
21

And what we have here is just a U.S. portfolio.
So we have to somehow gauge the significance

of what a license was back then, U.S. versus worldwide.
If the jury comes to the conclusion that all

22

or virtually all of the value is associated with the

23

U.S. portfolio, then there wouldn't be an adjustment.

24

If they suggest -- if the jury comes to the

25

conclusion that half the value is in the U.S. portfolio,

109
1

then you would multiply each of these numbers by 50

2

percent.

You would take half those numbers.

3
4

MS. ROSS:

I'm finished.

I will pass the

witness.

5

Thank you, Mr. Jarosz.

6

THE WITNESS:

7

THE COURT:

8

Cross-examination.

9
10

Thank you.

All right.

CROSS-EXAMINATION
BY MS. HEFFERNAN:

11

Q.

Good morning, Mr. Jarosz.

12

A.

Good morning, Ms. Heffernan.

13

Q.

Nice to see you again.

14

A.

Nice to see you again.

15

Q.

Sir, I think I'd like to start with some

16

topics that I think we can all agree on.

17
18

Now, you're not offering an opinion today on
infringement of the patents-in-suit, correct?

19

A.

That's correct.

I'm a damages expert.

20

Q.

And you mentioned Dr. Wells in your direct

21

exam.

You're aware that there are other technical

22

experts who are going to testify in this case for the

23

Defendants, right?

24

A.

Yes.

I'm aware of that.

25

Q.

And those experts that we have not yet heard