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)

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Exhibit C 1 1 IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF TEXAS TYLER DIVISION 2 3 WI-LAN, INC. ) 4 DOCKET NO. 6:10cv521 -vs- ) 5 Tyler, Texas 8:50 a.m. July 10, 2013 6 ALCATEL-LUCENT USA, INC., ET AL 7 ****************************************************** 8 WI-LAN, INC. ) ) DOCKET NO. 6:13cv252 9 10 -vsHTC CORPORATION, ET AL ) ) 11 12 13 14 15 TRANSCRIPT OF TRIAL MORNING SESSION BEFORE THE HONORABLE LEONARD DAVIS, UNITED STATES CHIEF DISTRICT JUDGE, AND A JURY 16 17 18 19 20 21 22 COURT REPORTERS: MS. SHEA SLOAN MS. JUDY WERLINGER 211 W. Ferguson Tyler, Texas 75702 shea_sloan@txed.uscourts.gov 23 24 25 Proceedings taken by Machine Stenotype; transcript was produced by a Computer. 19 1 (Jury in.) 2 THE COURT: 3 Welcome back, Ladies and Gentlemen of the 4 Jury. 5 Welcome back. Please be seated. day. 6 7 We're about to begin our third And Plaintiff will call their next witness, please. 8 MS. ROSS: Good morning, Your Honor. 9 Avelyn Ross on behalf of the Plaintiff. 10 The Plaintiff would call Mr. John Jarosz. 11 THE COURT: 12 Okay. You have been sworn, haven't you? 13 THE WITNESS: 14 THE COURT: You have not? 15 All right. Please raise your right hand 16 I have not. and be sworn. 17 (Witness sworn.) 18 THE COURT: 19 All right. You may have a seat. 20 THE WITNESS: Thank you. 21 JOHN JAROSZ, PLAINTIFF'S WITNESS, SWORN 22 DIRECT EXAMINATION 23 BY MS. ROSS: 24 Q. Good morning, Mr. Jarosz. 25 A. Good morning, Ms. Ross. 20 1 2 3 Q. Would you please introduce yourself to the jury. A. Yes. My name is John Jarosz. I was born and 4 raised in Wisconsin, although I now live on the East 5 Coast. 6 My wife and I have been married for 28 years. 7 We have six children, five of whom are grown and out on 8 their own. 9 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? 11 A. I'm an economist. 12 Q. And what does an economist do? 13 A. Well, we economists do lots of things; but 14 among the things that we do is, we assess businesses and 15 we value assets and intellectual property. 16 in particular, are a form of assets. 17 Q. 18 of economics? 19 A. And patents, And do you specialize in any particular area Most of the work that I do is in evaluating 20 intellectual property assets. 21 is the area that covers patents, copyrights, trademarks, 22 and trade secrets. 23 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 21 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 8 consulting firm of about 600 people. 9 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 13 means I'm one of the owners of the firm. I'm also the 14 founder and director of the Washington, D.C. office. 15 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 20 And how long have you been an economic charts to assist in your testimony today? 21 A. Yes, I have. 22 Q. And have you prepared a chart that summarizes 23 24 25 some of your qualifications? A. Yes, I have. MS. ROSS: May I see Slide 1, please? 22 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 6 background? 7 A. Sure. I have a bachelor's in economics in 8 organizational communication from Creighton University, 9 which is located in Omaha, Nebraska. 10 After that, I was a fellowship student in the 11 Ph.D. program in economics at Washington University, 12 which is located in St. Louis. 13 most of the requirements for my Ph.D. but not all of 14 them. 15 a Ph.D. 16 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 17 bachelor's degree and a master's degree, you also have a 18 law degree; is that true, sir? 19 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 23 Wisconsin, but I've been on inactive status for 24 27 years. 25 Q. Have you ever practiced law, sir? 23 1 A. I have not. 2 Q. So you've been an economist your entire 3 career? 4 A. I have. 5 Q. Are you a member of any professional 6 7 organizations? A. Yes. I'm a member of the American Economic 8 Association; the American Law and Economics Association; 9 the AIPLA, which is the American Intellectual Property 10 Law Association; and the Licensing Executive Society. 11 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 14 the United States, and actually worldwide -- there are 15 about 6 or 8,000 of us -- that orient much of our 16 careers to assessing intellectual property rights and 17 finding the best ways to put a value on those rights and 18 to share those rights among parties and help companies 19 share their intellectual property rights. 20 21 22 Q. Have you held any leadership positions with the Licensing Executive Society? A. Yes. I've been fairly active with the LES 23 over the years. Fairly recently, for a two-year period, 24 I was chairman of the Valuation and Taxation Committee. 25 And then I became a -- after that, I became a 24 1 charter member of a subgroup that gives a certification 2 as a certified licensing professional. 3 to be part of a small group who wrote the exam to 4 determine who would earn that CLP in the future. 5 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 8 be drafting up the exam than taking the exam. 9 Q. How do you keep active in the field? 10 A. Well, I do lots of things, but among the 11 things that I do is I write and publish articles. 12 give speeches, and I teach courses. 13 14 15 Q. I Where do you teach courses or give presentations? A. I -- I give presentations and teach courses 16 throughout the country. 17 active at the Georgetown University Law Center helping 18 teach a course there. 19 Fairly recently, I've been And the U.S. Patent and Trademark Office has 20 asked me to come in and give a valuation course to an 21 international delegation of people that came from a 22 variety of different countries and are learning about 23 the U.S. patent system, and in particular, they wanted 24 to learn about how we in the United States value 25 intellectual property rights. 25 1 2 Q. Have you ever acted as a damages expert in a patent case before? 3 A. Yes, many times. 4 Q. About how many times have you testified as a 5 6 7 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. 8 Q. Can you give me a couple of examples of your 9 experience? 10 11 MS. ROSS: A. Sure. May I have Slide 2? You'll see here I've worked in many 12 different industries, just about every imaginable 13 industry; some of which are related here, some of which 14 are very different. 15 16 17 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. 19 Q. Could you give me some examples of that? 20 A. Sure. I've worked for handset manufacturers, 21 including Nokia, Motorola Mobility, and BlackBerry. 22 I've also worked for people that are involved in the 23 infrastructure. 24 opening. 25 back. Qualcomm is a name that came up in I worked for them for quite some time years 26 1 In the opening statement, you might remember 2 there was a wall of patents put up. 3 started working with Qualcomm, there were just a few up 4 there. 5 patents. 6 Q. When I first Now I think that whole wall is filled with Now, in this case, you're testifying on behalf 7 of Wi-LAN, who's the patent owner. 8 how does your testimony break down between patent owner 9 versus accused infringer? 10 A. Over your career, It's about an even split, meaning about half 11 the time, I'm representing companies that own patent 12 rights, and about half the time, I'm representing 13 companies that are accused of infringing on patent 14 rights. 15 MS. ROSS: Your Honor, at this time, we 16 tender Mr. Jarosz as an expert in the fields of IP 17 valuation and damages es -- es -- excuse me -- 18 THE COURT: 19 MS. ROSS: 20 THE COURT: 21 22 Q. 25 -- 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. 23 24 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 27 1 jury in determining what the proper amount of damages 2 would be if the jury finds that the patents here are 3 valid, not unenforceable, and infringed. 4 So if the jury finds that there is liability, 5 I've been asked to provide assistance on thinking about 6 evidence that would determine how much money should be 7 paid for that infringement. 8 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 11 submitted in the fall -- fall of 2012, and one that I 12 submitted in the last couple of weeks. 13 MS. ROSS: 14 please? 15 Q. Jen, may I have Slide 4, (By Ms. Ross) So let's talk a little bit about 16 how you reached your opinions on your damages assessment 17 in this case. 18 What type of evidence did you evaluate in your 19 assessment? 20 A. Well, I looked at quite a bit. This is kind 21 of a listing of the kinds of things. 22 it's fun to get access to all this material, and in 23 other regards, it's overwhelming, but it's always 24 necessary. 25 In some regards, So I looked at information from the files of 28 1 each of the four companies here: 2 licensing information, marketing information. 3 at the patents. 4 observers of the industry. 5 and reports, and I talked to people involved in the 6 business. 7 8 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 10 occasions, I've read his materials, and I saw his trial 11 testimony transcript. 12 Q. Did you speak with anybody from Wi-LAN? 13 A. I did. 14 Q. Who did you speak with; do you know? 15 A. I spoke with Mr. Parolin, who testified here 16 yesterday. 17 our engagement here. 18 19 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 21 the parties here, and Mr. Bakewell is representing two 22 of the other parties. 23 Mr. Bakewell is representing Alcatel-Lucent 24 and HTC, and Dr. Becker is representing Ericsson and 25 Sony Mobile. They have each submitted several reports 29 1 and given depositions, and I have reviewed those 2 materials. 3 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 6 was here for some fair amount of the proceedings. 7 here the first day and a good portion of yesterday. 8 9 Q. 12 Let's focus a little more on how you've reached your damages analysis. 10 11 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 13 like Dr. Wells and other people are. 14 but I do have some general understanding of the 15 technology and its footprint or its significance in the 16 marketplace. 17 Q. 18 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, 20 which, as I understand it, is oriented to how 21 information is downloaded onto smartphones and tablets 22 and other devices. 23 Q. 24 offers? 25 A. Do you understand the benefits that HSDPA I understand them generally. Again, I'm not a 30 1 technical expert, but I understand generally that the 2 advantages of the patents and HSDPA are related to 3 faster communications, faster downloads, and to more 4 efficient downloading. 5 So that means it has advantages to us users 6 using our smartphones and our tablets. 7 advantages to the infrastructure providers, the 8 operators, those people who are trying to provide us 9 with that information. 10 11 Q. And it has Is it your understanding that Wi-LAN invented HSDPA? 12 A. They did not, to my understanding. 13 Q. Then why do Wi-LAN's patents matter to HSDPA 14 15 from an economic point of view? A. Well, according to Dr. Wells and other 16 information that I've seen in this case, the patents 17 relate to very important functionalities in HSDPA. 18 I understand from Dr. Wells that, in fact, it's 19 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 23 handset or a base station that complies with HSDPA, you 24 have to practice these patents. 25 HSDPA protocol and not practice these four patents. You cannot comply with 31 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? 8 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. 20 21 MS. ROSS: Oh, I'm sorry, not that one. Slide 5. I apologize. 24 25 Jen, may I have Slide 3, please? 22 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? 32 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 6 be. 7 8 9 Q. Summarizing what you understand the testimony to be, will be fine. A. He was asked about Sony's understanding about 10 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 13 downloading of apps, which is applications, games, 14 Internet, Facebook, and other information. 15 So he's talking about the issue of fast 16 downloads, us users getting that information quicker 17 than we did before. 18 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. 24 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. 33 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 7 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 34 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 35 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

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