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`EXHIBIT 25
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`DECLARATION OF TRENT D. TANNER
`IN SUPPORT OF
`NUVASIVE'S OPPOSITION TO
`DEFENDANTS' MOTIONS IN LIMINE NOS. 1-10
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`Case 3:18-cv-00347-CAB-MDD Document 350-26 Filed 11/06/21 PageID.32601 Page 2 of
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`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF CALIFORNIA
`SAN DIEGO DIVISION
`
`NUVASIVE, INC.,
`
` Plaintiff,
`
`v.
`
`CASE NO. 18-cv-00347-CAB-MDD
`
`ALPHATEC HOLDINGS, INC. and
`ALPHATEC SPINE, INC.,
`
` Defendants.
`
`SUPPLEMENTAL REBUTTAL EXPERT REPORT OF KEITH R. UGONE, PH.D.
`
`December 18, 2020
`
`HIGHLY CONFIDENTIAL – ATTORNEYS’ EYES ONLY
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`EXHIBIT 25
`Page 550
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`

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`Case 3:18-cv-00347-CAB-MDD Document 350-26 Filed 11/06/21 PageID.32602 Page 3 of
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`SUPPLEMENTAL REBUTTAL EXPERT REPORT OF KEITH R. UGONE, PH.D.
`
`December 18, 2020
`
`I.
`
`II.
`
`III.
`
`IV.
`
`V.
`
`OVERVIEW OF ASSIGNMENT ................................................................................... 1
`
`SUMMARY OF OPINIONS ............................................................................................ 4
`A. Evaluation Of NuVasive’s Claimed Lost Profits Damages As Presented In The
`Inglish Supplemental Damages Report ......................................................................... 5
`
`B. Reasonable Royalty For A License To The Patents-In-Suit ......................................... 9
`
`C. Monetary Damages Are Adequate To Compensate NuVasive For Alphatec’s
`Alleged Infringement .................................................................................................. 11
`
`QUALIFICATIONS AND EXPERIENCE .................................................................. 12
`
`FACTS, DATA, AND INFORMATION RECEIVED ................................................. 13
`
`OVERVIEW OF PARTIES ........................................................................................... 16
`A. NuVasive..................................................................................................................... 16
`
`B. Alphatec ...................................................................................................................... 16
`
`VI.
`
`OVERVIEW OF PATENTS-IN-SUIT ......................................................................... 17
`
`VII. MARKET AND PRODUCT OVERVIEW .................................................................. 19
`A. Overview Of Spinal Fusion Surgery And Market For Lateral Lumbar Interbody
`Fusion Products ........................................................................................................... 19
`
`1. Spinal Fusion Surgery ........................................................................................... 19
`
`2. Market For Lateral Lumbar Interbody Fusion Products ....................................... 23
`
`B. NuVasive’s MAS Platform And Embodying Products .............................................. 26
`
`1. Description Of NuVasive’s MAS Platform And XLIF Offerings ........................ 26
`
`2. NuVasive’s Sales Associated With Its MAS Platform/XLIF Procedure .............. 27
`
`C. Alphatec’s Battalion Lateral System And Accused Products ..................................... 28
`
`1. Description Of Alphatec’s Battalion Lateral System And Accused Products ...... 28
`
`2. Alphatec’s Sales Associated With Its At-Issue Battalion Lateral System ............ 34
`
`VIII. SUMMARY OF NUVASIVE’S CLAIMED DAMAGES AS PRESENTED BY MR.
`INGLISH ......................................................................................................................... 35
`A. Mr. Inglish’s Claimed Lost Profits Opinion ............................................................... 36
`
`B. Mr. Inglish’s Claimed Royalty Opinion ..................................................................... 38
`
`IX.
`
`EVALUATION OF NUVASIVE’S CLAIMED LOST PROFITS DAMAGES AS
`PRESENTED IN THE INGLISH SUPPLEMENTAL DAMAGES REPORT......... 40
`A. Alphatec Had Acceptable Non-Infringing Alternatives ............................................. 41
`
`1. Acceptable Non-Infringing Alternatives To The Access Patents ......................... 42
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`HIGHLY CONFIDENTIAL – ATTORNEYS’ EYES ONLY
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`2. Acceptable Non-Infringing Alternatives To The Implant Patents ........................ 46
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`B. Alphatec’s Sales Of The Battalion Lateral System Are Attributable To Factors
`Unrelated To The Patents-In-Suit ............................................................................... 51
`
`1. Safety And Reproducibility Are Not Unique To The Patented Technology ........ 52
`
`2. Experienced Sales Representatives And Strong Relationships With Surgeons
`Are Key Drivers Of Demand For Lateral Spine Surgery Products/Platforms ...... 54
`
`3. Non-Accused Lateral Spine Surgery Products Have Been Commercially
`Successful Without Using The Asserted Claims Of The Patents-in-Suit ............. 62
`
`C. Lack Of Evidence That NuVasive Would Have Made Alphatec’s At-Issue Sales
`Absent The Alleged Infringement .............................................................................. 67
`
`1. Mr. Inglish Inappropriately Assumes NuVasive Would Have Made All Of
`Alphatec’s Alleged “Diverted Sales” (In One Scenario) ...................................... 68
`
`2. NuVasive Does Not Identify Alphatec As A “Significant Competitor” ............... 71
`
`3. Alphatec’s At-Issue Battalion Lateral System Is Differentiated From
`NuVasive’s MAS Platform/XLIF Offerings ......................................................... 73
`
`D. Adjustments to NuVasive’s Claimed Lost Profits ...................................................... 75
`
`1. Adjustments To Mr. Inglish’s Claimed Lost Profits Associated With The Access
`Patents ................................................................................................................... 75
`
`2. Adjustments to Mr. Inglish’s Claimed Lost Profits Associated With The Implant
`Patents ................................................................................................................... 87
`
`E. Conclusion Relating To NuVasive’s Lost Profits Claim ............................................ 95
`
`X.
`
`REASONABLE ROYALTY FOR A LICENSE TO THE PATENTS-IN-SUIT ...... 96
`A. Patent Infringement Royalty Damages ....................................................................... 98
`
`1. Hypothetical Negotiation Framework And The Georgia-Pacific Factors ............ 98
`
`2. Hypothetical Negotiation Date And Parties ........................................................ 100
`
`3. Hypothetical Negotiation Predicates ................................................................... 102
`
`B. NuVasive’s Negotiating Position .............................................................................. 103
`
`1. Claimed Benefits Of The Patents-In-Suit ........................................................... 104
`
`2. The Significant Investment To Develop The Patented Products And MAS
`Platform / XLIF Procedure ................................................................................. 107
`
`3. NuVasive Would Acknowledge That The Sales Of Its Embodying Products Is
`Attributable To Factors Unrelated To The Patents-In-Suit ................................. 108
`
`4. NuVasive Would Assert That Alphatec Would Be A Competitor With Respect
`To NuVasive’s MAS Platform/XLIF Offerings ................................................. 115
`
`C. Alphatec’s Negotiating Position ............................................................................... 116
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`HIGHLY CONFIDENTIAL – ATTORNEYS’ EYES ONLY
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`EXHIBIT 25
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`1. Alphatec Would Have Had Acceptable Non-Infringing Alternatives To The
`Patents-In-Suit..................................................................................................... 116
`
`2. Sales Of Alphatec’s At-Issue Battalion Lateral System Are Not Attributable To
`The Patents-In-Suit ............................................................................................. 117
`
`3. Alphatec Was Under Significant Financial Stress At The Time Of The
`Hypothetical Negotiation .................................................................................... 118
`
`4. Alphatec Would Stress That There Are Numerous Competitors In The Lateral
`Surgery Market ................................................................................................... 119
`
`D. Value Indicators For A License To The Patents-In-Suit .......................................... 120
`
`1. NuVasive’s License Agreements ........................................................................ 120
`
`2. Alphatec’s Agreements ....................................................................................... 123
`
`E. Outcome Of The Hypothetical Negotiation .............................................................. 131
`
`1. Running Royalty Payment Constrained By The Costs Of Implementing Non-
`Infringing Alternatives ........................................................................................ 133
`
`2. Running Royalty Payment Applied To All Sales ............................................... 135
`
`3. Conclusion As To The Outcome Of The Hypothetical Negotiation ................... 137
`
`XI. MONETARY DAMAGES ARE ADEQUATE TO COMPENSATE NUVASIVE
`FOR ALPHATEC’S ALLEGED INFRINGEMENT ................................................ 138
`
`HIGHLY CONFIDENTIAL – ATTORNEYS’ EYES ONLY
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`EXHIBIT 25
`Page 553
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`Case 3:18-cv-00347-CAB-MDD Document 350-26 Filed 11/06/21 PageID.32605 Page 6 of
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`SUPPLEMENTAL REBUTTAL EXPERT REPORT OF KEITH R. UGONE, PH.D.
`
`I.
`
`1.
`
`December 18, 2020
`
`OVERVIEW OF ASSIGNMENT
`
`I have been retained as an economics and damages expert for Alphatec Holdings, Inc. and
`
`Alphatec Spine, Inc. (“Alphatec” or “Defendants”) in the matter of NuVasive, Inc. v.
`
`Alphatec Holdings, Inc. and Alphatec Spine, Inc. 1 NuVasive, Inc. (“NuVasive” or
`
`“Plaintiff”) alleges that Alphatec has infringed certain claims of its “Access Patents” and
`
`certain claims of its “Implant Patents” as identified in Table 1 (collectively, the “Patents-
`
`in-Suit”). According to NuVasive, Alphatec has infringed the Patents-in-Suit by providing
`
`various components of its Battalion Lateral System (“Accused Products”).
`
`2.
`
`The original reports issued in this matter pertained to the Access Patents. On November
`
`8, 2019, Mr. Blake Inglish issued an expert report (“the Inglish Damages Report”) in
`
`support of claimed damages associated with the Access Patents-related allegations made
`
`by NuVasive. I submitted an expert report on December 4, 2019 (the “Ugone Rebuttal
`
`Report”) in which I, among other things, (a) independently assessed the claimed royalty
`
`damages owed by Alphatec should the Access Patents be found to be valid, enforceable,
`
`and infringed and (b) evaluated NuVasive’s claimed damages presented in the Inglish
`
`Report.
`
`1 Amended Complaint for Patent Infringement dated September 13, 2018 (“Amended Complaint”).
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`HIGHLY CONFIDENTIAL – ATTORNEYS’ EYES ONLY
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`EXHIBIT 25
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`Supplemental Rebuttal Expert Report of Keith R. Ugone, Ph.D.
`December 18, 2020
`_____________________________________________________________________________________________
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`and Section X.C), and the identified value indicators of a reasonable royalty payment
`
`(detailed in Section X.D), the likely outcome of a February 2017 hypothetical negotiation
`
`between NuVasive and Alphatec would be a non-exclusive, freedom-to-operate, U.S.-only
`
`license to the Patents-in-Suit. I have considered two alternative outcomes: (1) an outcome
`
`that is constrained by the costs of implementing acceptable non-infringing alternatives to
`
`the Access Patents and the Implant Patents and (2) an outcome of a running royalty applied
`
`to all sales (unconstrained by the costs of non-infringing alternatives).
`
`173. At the hypothetical negotiation, the parties would agree that “the industry standard of using
`
`the implant as the currency for the procedure”502 would also be appropriate for the to-be-
`
`negotiated license to the Patents-in-Suit. At the hypothetical negotiation, the parties also
`
`would look to the January 2016 Warsaw / Alphatec Agreement as a framework to establish
`
`the appropriate royalty base. The Warsaw / Alphatec Agreement specifies that the royalty-
`
`bearing products “shall consist of the primary implant used during a given surgical
`
`procedure that is inserted via such retractor.” 503 The Warsaw / Alphatec Agreement
`
`indicates a running royalty rate of no more than 8% to 9% applied to the net sales of the
`
`royalty-bearing products, which would translate to approximately 6% applied to the gross
`
`sales of the royalty-bearing products
`
`174.
`
`For the Access Patents (other than the ’270 Patent), the parties would look to the sales of
`
`implants (including PEEK and titanium implants) included in the allegedly infringing
`
`502 Inglish Supplemental Damages Report, p. 190.
`
`503 Nonexclusive Patent License Agreement between Warsaw Orthopedic, Inc. and Alphatec Spine, Inc. dated January
`22, 2016, pp. 2 – 3. (ATEC_LLIF000262386 – 404, at 387 – 388.) In addition, under the first amendment, the
`“Royalty-Bearing Products” were amended to include: IdentiTi LIF Porous Ti Spacers, Transcend LIF PEEK Spacers,
`and Battalion PEEK LLIF Spacers. (First Amendment to Nonexclusive Patent License Agreement between Alphatec
`Spine, Inc. and Warsaw Orthopedic, Inc. dated January 1, 2020, Exhibit B. (ATEC_LLIF000965645 – 714, at 648 –
`714.))
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`HIGHLY CONFIDENTIAL – ATTORNEYS’ EYES ONLY
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`EXHIBIT 25
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`Supplemental Rebuttal Expert Report of Keith R. Ugone, Ph.D.
`December 18, 2020
`_____________________________________________________________________________________________
`
`
`orders to determine the appropriate royalty base. The ’270 Patent does not claim a
`
`retractor, but instead is related to intradiscal shims. Thus, for orders that are alleged to
`
`infringe the ’270 Patent, the parties would agree that the relevant royalty base would be
`
`determined based upon sales of Alphatec’s allegedly infringing intradiscal shims. For the
`
`Implant Patents, the parties would agree that that the relevant royalty base would be
`
`determined based upon sales of Alphatec’s allegedly infringing PEEK implants.504
`
`1. Running Royalty Payment Constrained By The Costs Of Implementing Non-
`Infringing Alternatives
`
`175. The parties (as prudent and reasonable negotiators to a license agreement) likely would
`
`agree to a running royalty payment that is constrained by the costs of implementing (a) a
`
`non-infringing alternative to the Access Patents and (b) a non-infringing alternative to the
`
`Implant Patents. Thus, at the hypothetical negotiation, the parties would have incorporated
`
`the costs of implementing non-infringing alternatives into the determination of a reasonable
`
`royalty payment, as detailed below.
`
`a. Access Patents. As discussed in Section IX.A.1, I understand that Alphatec could have
`designed, developed, and manufactured a non-infringing two-bladed retractor
`according to the Warsaw patents within a year or less.505, 506 According to Mr. Scott
`Robinson, Alphatec’s costs of developing a two-bladed retractor according to the
`Warsaw patents would have included costs related to an engineer’s salary and
`additional costs related to prototypes and other administrative costs. These costs would
`
`
`504 Mr. Inglish opined “for all the patents-in-suit (other than the ’270 Patent), implant sales would be the agreed upon
`royalty base at the hypothetical negotiations for each of the patents-in-suit.” For the ’270 Patent, Mr. Inglish opined
`to a royalty base of “sales of accused intradiscal shims, rather than implants.” (Inglish Supplemental Damages Report,
`p. 253.)
`505 Based upon a discussion with Mr. Scott Robinson, I understand that Alphatec likely would have gone through
`approximately three rounds of development for the non-infringing two-bladed retractor, including the production and
`testing of several prototypes.
`506 Moreover, based upon an alternative hypothetical negotiation date of January 2016, it is reasonable that Alphatec
`could have had a two-bladed retractor prior to any of its actual Battalion Lateral System sales. Assuming a
`hypothetical negotiation date of January 2016, the reasonable royalty payment would be equal to $190,000 (i.e., the
`cost of implementing the two-bladed retractor).
`
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`HIGHLY CONFIDENTIAL – ATTORNEYS’ EYES ONLY
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`EXHIBIT 25
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`Supplemental Rebuttal Expert Report of Keith R. Ugone, Ph.D.
`December 18, 2020
`_____________________________________________________________________________________________
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`Table 28
`Summary Of Reasonable Royalty Damages
`For The Patents-In-Suit Individually And Jointly
`February 2017 – September 2020
`
`Damages
`Start Date
`Patent
`Individual Access Patent
`
`Applicable Product For
`Royalty Base
`
`Royalty Base
`
`Royalty Rate
`(Gross Sales)
`
`Royalty
`Payment
`
`’801 Patent
`
`2/14/2017
`
`’780 Patent
`
`2/14/2017
`
`PEEK /Titanium Implant
`PEEK /Titanium Implant
`
`’832 Patent
`
`2/14/2017
`
`PEEK /Titanium Implant
`
`’227 Patent
`
`2/13/2018
`
`PEEK /Titanium Implant
`
`’859 Patent
`
`9/13/2018
`
`PEEK /Titanium Implant
`
`’531 Patent
`
`9/13/2018
`
`PEEK /Titanium Implant
`
`$12,502,709
`
`$15,454,456
`
`$11,015,243
`
`$14,624,386
`
`$14,011,284
`
`$13,236,642
`
`’270 Patent
`
`2/14/2017
`
`Intradiscal Shim
`
`$481,482
`
`All Access Patents Combined
`
`Individual Implant Patent
`
`’334 Patent
`
`2/14/2017
`
`PEEK Implant
`
`’156 Patent
`
`2/14/2017
`
`PEEK Implant
`
`All Implant Patents Combined
`
`$16,710,580
`
`$5,354,325
`
`$9,904,884
`
`$9,904,884
`
`6%
`
`6%
`
`6%
`
`6%
`
`6%
`
`6%
`
`6%
`
`6%
`
`6%
`
`6%
`
`6%
`
`All Patents-in-Suit Combined514
`
`$750,163
`
`$927,627
`
`$660,915
`
`$877,463
`
`$840,677
`
`$794,199
`
`$28,889
`
`$1,002,635
`
`$321,260
`
`$594,293
`
`$594,293
`
`$1,080,477
`
`3. Conclusion As To The Outcome Of The Hypothetical Negotiation
`
`178. Given these considerations and an assessment of the Georgia-Pacific factors as presented
`
`throughout my report and exhibits, the likely outcome of the hypothetical negotiation
`
`between NuVasive and Alphatec would be a non-exclusive, freedom-to-operate, U.S.
`
`license to the Patents-in-Suit for a reasonable royalty payment of 6% applied to gross sales
`
`of the royalty-bearing products. In addition, given the facts and circumstances of this case,
`
`the parties likely would have incorporated the costs of implementing non-infringing
`
`alternatives into the determination of an overall reasonable royalty payment. Under this
`
`outcome, the royalty payment would be equal to the sum of running royalties over the time
`
`514 The (a) reasonable royalty damages for the Access Patents and (b) the reasonable royalty damages for the Implant
`Patents do not sum to (c) the royalty damages for the Patents-in-Suit combined due to the overlap in certain implant
`units (and associated components) that allegedly infringe both the Access Patents and Implant Patents.
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`HIGHLY CONFIDENTIAL – ATTORNEYS’ EYES ONLY
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`EXHIBIT 25
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`Supplemental Rebuttal Expert Report of Keith R. Ugone, Ph.D.
`December 18, 2020
`_____________________________________________________________________________________________
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`period it would have taken to implement the non-infringing alternatives plus the costs of
`
`implementing such alternatives. This outcome yields a total royalty payment of $288,366
`
`for a license to all Access Patents and Implant Patents over the life of the patents.
`
`179.
`
`I also provide an alternative calculation applying the reasonable royalty to the sales of
`
`royalty-bearing products over the February 14, 2017 through September 16, 2020 time
`
`period (without incorporating the constraints of acceptable non-infringing alternatives).
`
`This alternative outcome yields total royalty damages of $1,080,477 through September
`
`16, 2020 time period assuming all Access Patents and Implant Patents are found valid and
`
`infringed.
`
`XI. MONETARY DAMAGES ARE ADEQUATE TO COMPENSATE NUVASIVE FOR
`ALPHATEC’S ALLEGED INFRINGEMENT
`
`180. Mr. Inglish opined that there are some factors that “would make it difficult, if not
`
`impossible, to fully quantify the future economic harm caused by Alphatec’s alleged
`
`infringement of the patents-in-suit.”515 However, at a high-level, Mr. Inglish’s opinions
`
`relating to irreparable harm and the adequacy of monetary damages fail to account for the
`
`following:
`
`a. NuVasive is an industry leader in the LLIF market, 516 whereas Alphatec is still
`operating at a loss (Section X.C.3);
`
`b. NuVasive, despite Alphatec’s presence in the market, has seen consistent growth and
`expects to see consistent growth over the next few years;517
`
`c. NuVasive does not view Alphatec as a significant competitor (Section IX.C.2); and
`
`515 Inglish Supplemental Damages Report, p. 259.
`
`516 Inglish Supplemental Damages Report, p. 67. See also U.S. Market Report Suite for Minimally Invasive Spinal
`Implants, iData Research, June 2019, p. 220. (NUVA_ATEC0310060 – 159, at 156.)
`
`517 See Inglish Supplemental Damages Report, pp. 135 – 136.
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`Supplemental Rebuttal Expert Report of Keith R. Ugone, Ph.D.
`December 18, 2020
`_____________________________________________________________________________________________
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`reliably calculated through royalty payments based upon the data available from
`Alphatec.
`
`* * * * * *
`
`182. My analyses and opinions contained in this report are based upon information available to
`
`date. I reserve the ability to review documents, deposition transcripts, or other information
`
`still to be produced by the parties to this dispute and to supplement my opinions based upon
`
`that review.
`
`__________________
`Keith R. Ugone, Ph.D.
`December 18, 2020
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`EXHIBIT 25
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