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`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF DELAWARE
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`Civil Action No. 15-453-RGA
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`) J
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`. Caleb Boggs Courthouse
`844 King Street
`Wilmington, Delaware
`Friday, October 19, 2018
`8:32 a.m.
`Pretrial Hearing
`
`ACCELERATION BAY, LLC
`Plaintiff,
`
`v.
`ACTIVISION BLIZZARD, INC.,
`Defendant.
`
`BEFORE: THE HONORABLE RICHARD G. ANDREWS
`United States District Court Judge
`
`APPEARANCES:
`
`PHILIP A. ROVNER, ESQUIRE
`POTTER ANDERSON & CORROON, LLP
`1313 N. Market Street, 6th Floor
`Hercules Building
`Wilmington, Delaware 19899
`-and-
`PAUL ANDRE, ESQUIRE
`LISA KOBIALKA, ESQUIRE
`AARON M. FRANKEL, ESQURE
`KRAMER LEVIN NAFTALIS & FRANKEL, LLP
`990 Marsh Road
`Menlo Park, California 94025
`For the Plaintiff
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`Case 1:16-cv-00453-RGA Document 606 Filed 10/23/18 Page 2 of 156 PageID #: 49267
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`APPEARANCES CONTINUED:
`JACK B. BLUMENFELD, ESQUIRE
`MORRIS NICHOLS ARSHT & TUNNELL, LLP
`1201 North Market Street
`Wilmington, Delaware 19899
`-and-
`DAVID P. ENZMINGER, ESQUIRE
`MICHAEL TOMASULO, ESQUIRE
`KATHLEEN B. BARRY, ESQUIRE
`WINSTON & STRAWN, LLP
`333 S. Grand Avenue, 38th Floor
`Los Angeles, California 90071
`-and-
`B. TRENT WEBB, ESQUIRE
`AARON E. HANKEL, ESQUIRE
`SHOOK HARDY & BACON, L.L.P.
`2555 Grand Boulevard
`Kansas City, Missouri 64108-2613
`For the Defendant
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`Also Present:
`Mr. Omar Salik
`Ms. Julia Kazaks
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`THE CLERK: All rise.
`THE COURT: All right. Good morning. Please be
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`seated.
`
`This is Acceleration Bay versus Activision
`Blizzard. Civil Action Number 16-453.
`Good morning, Mr. Rovner.
`MR. ROVNER: Good morning, Your Honor. Phil
`Rovner from Potter Anderson for plaintiff, Acceleration Bay.
`With me from Kramer Levin, Paul Andre.
`MR. ANDRE: Good morning, Your Honor.
`MR. ROVNER: Lisa Kobialka.
`MS. KOBIALKA: Good morning, Your Honor.
`MR. ROVNER: And Aaron Frankel.
`MR. FRANKEL: Good morning, Your Honor.
`THE COURT: All right. Good morning to you all.
`Mr. Blumenfeld.
`MR. BLUMENFELD: Good morning, Your Honor. Jack
`Blumenfeld for Activision Blizzard. And with me are Trent
`Webb from Shook Hardy & Bacon, David Enzminger, and Mike
`Tomasulo from Winston & Strawn.
`Behind them Aaron Hankel from Shook Hardy &
`Bacon, and Kathleen Barry from Winston & Strawn.
`And in the first row, Omer Salik and Julia
`Kazaks, next to him, from Activision.
`THE COURT: All right. Well, good morning to
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`you all, too. All right.
`So, though I've read portions of the Pretrial
`Order, including the motions in limine and the body of it,
`but I guess the first thing to address is damages.
`What are we going to do about that, Mr. Andre?
`MR. ANDRE: Your Honor, we're going to be
`putting forward a damages case that has three factual bases
`that the jury can decide a reasonable royalty.
`First being a cost savings methodology that you
`have allowed in the case with Dr. Valerdi and others who
`will be talking about the cost-savings basis. This is
`largely based on a few other Federal Circuit cases that have
`allowed this type of damages model.
`We also have a revenue-based model based on the
`proper apportionment of the revenue and the profits of the
`infringing technology over the relevant time period that the
`jury can base a reasonable royalty on.
`And we also have a per-unit royalty possibility
`that the jury can base a reasonable royalty on as well.
`THE COURT: All right. So for example, the per
`unit, let's say cost, I don't know, $100 to buy an
`Activision software package.
`How do you get to a per-unit royalty?
`MR. ANDRE: It's actually a per-user royalty
`because it's -- when I say per unit, it's per unit per user.
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`THE COURT: Right.
`MR. ANDRE: And there the jury can rely on
`different ways. They can look at it from the profits that
`are involved in those per-user base and then determine what
`would be a reasonable royalty based on that. It wouldn't be
`a running royalty, per se, but it would be a lump sum
`royalty on the life of the sales of those patents on those
`products.
`
`THE COURT: And so is Dr. Meyer going to show up
`and do calculations related to this?
`MR. ANDRE: Dr. Meyer will show up. I think
`about 75, 80 percent of her report is still in. The only
`thing you excluded was the final number based on the Uniloc.
`THE COURT: Right.
`MR. ANDRE: So she's going to give a lot of
`numbers. She has a lot of numbers by calculation. She does
`the apportionments. She does the Georgia-Pacific Factors.
`She does most of the things you would expect a damage expert
`to do and give the jury the factual predicate to come up
`with a reasonable royalty.
`THE COURT: Okay. All right. I might have
`something more for you on this topic. Let me just hear from
`the defendants on this.
`Mr. Enzminger.
`MR. ENZMINGER: Your Honor, none of those three
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`suggestions is admissible. There is no Georgia-Pacific
`analysis that ties to anything other than the rate that was
`stricken. Exmark by the Federal Circuit decided earlier
`this year and is crystal clear on that you cannot do a
`generic Georgia-Pacific factor that isn't tied to a specific
`rate that the expert is advancing. Otherwise, it's
`untethered to the facts of the case.
`So the fact that Dr. Meyer did Georgia-Pacific
`Factors with respect to the now-excluded Uniloc jury verdict
`rate is not admissible. The per-user possibility is
`inadmissible because there is not a single witness who can
`tie a per-user royalty rate to the number of users.
`Dr. Meyer did that, but it was excluded. She
`has no other opinion on that.
`THE COURT: All right.
`MR. ENZMINGER: She doesn't have a royalty rate
`that she can apply nor does any other witness, and that
`leaves us back with the cost-savings analysis. There is no
`cost-savings analysis in this case.
`Mr. Andre talked about the Federal Circuit has
`blessed a cost-savings analysis, and I think he's talking
`about the Prism case which was a case that he argued in the
`Federal Circuit. In that case, the damages expert actually
`said that there was a cost-savings analysis which analyzed a
`cost savings for the plaintiff as a result of using the
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`infringing technology versus not using the infringing
`technology.
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`She had to go out, and they would have to design
`a specific aspect of their network that they didn't have to
`do because they were using the prepackaged software that was
`infringing. But in that case, the damages expert expressly
`said that the parties to the hypothetical negotiation would
`have factored that in.
`In our case, there is no cost-savings analysis.
`What they're referring to is Dr. Dr. Valerdi's analysis
`where he says, If I had to re-engineer the entire game
`without regard to the patented technology at all, there is
`not one thing in Dr. Dr. Valerdi's report that relates to
`the patented technology.
`He assumes every line of code in the product
`would have to be rewritten. Every single line, whether it's
`patented technology or not. And he says, If you had to
`re-engineer the end game, it would cost this. That's not a
`cost-savings analogy.
`And their expert doesn't even say it. What she
`said was, Dr. Valerdi provides an additional input into my
`Georgia-Pacific Factor for my Uniloc verdict, and what it
`means is that there are not non-infringing alternatives and
`that cost to redesign the entire game would be so
`prohibited, we have to look at other indicators of value
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`because it would not have been part of a hypothetical
`negotiation. We have to look at other indicators of value.
`So standing alone, that analysis has absolutely
`nothing to do with the patented technology. It has nothing
`to do with per-user support. It has nothing to do with
`applying any number to the royalty base. It's not a
`cost-savings analysis.
`There are other problems with it, too. It's not
`tied to the hypothetical negotiation date. Dr. Valerdi does
`an analysis where he talks about using current labor rates.
`This hypothetical negotiation would have occurred ten years
`ago. It's not apportioned in any way.
`Dr. -- I'm sorry.
`THE COURT: So but things like that, you had the
`chance to raise them already, right, but --
`MR. ENZMINGER: No.
`THE COURT: Why not?
`MR. ENZMINGER: Because Dr. Valerdi was never
`offered as an independent damages analysis. The only
`mention of Dr. Dr. Valerdi's analysis in Dr. Meyer's report
`at all was one paragraph where she says, Dr. Valerdi's
`analysis of designing the entire game would be too
`expensive; and therefore, I'm not going to consider
`alternatives, and then she moved on to other factors.
`It was never presented as a stand-alone damage
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`theory at all. And so when you recall the damages, the
`summary judgment in Daubert, we had 50 pages for 16 claims,
`five products, three companies.
`THE COURT: Why are you telling me?
`MR. ENZMINGER: We had to make some judgments.
`THE COURT: Well, so either you did raise it, or
`you didn't raise it, but you can't say, We raised it, and we
`had to make some judgments.
`MR. ENZMINGER: No. No. I'm saying it was
`never mentioned until this morning as a possible stand-alone
`damages case. It's not admissible as a stand-alone damages
`case because it's not tied to patented technology. It's not
`apportioned. No one testified it was a factor in the
`reasonable royalty in the reasonable royalty calculation.
`And there's no way you can take his $7 billion
`design-around estimate and put a number on that. It's just
`prejudicial. It's just putting a big number out in front of
`the jury and saying, Somewhere between zero and $7 billion
`is a number.
`
`But there's not a single other witness, and
`certainly not Dr. Valerdi, who can tie that number to a
`reasonable royalty that the jury can conclude. They have
`nobody who can quantify any of these royalty bases that
`Mr. Andre suggests.
`THE COURT: So do you understand the three
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`Mr. Andre suggests? So I forget what Mr. Andre called them,
`the three different theories here.
`Do you understand what he means by each of the
`theories that he's described briefly this morning?
`MR. ENZMINGER: So the cost-savings methodology,
`I do not know what his methodology is because what has been
`submitted to us is in no way a cost-savings analysis. It is
`not an analysis of what the defendant saved if, by using an
`alleged infringing broad M-regular broadcast channel.
`I mean, if you think about these video games and
`how complex they are, for example, graphics. Graphics,
`rendering graphics, and the artwork, and all of that that
`goes in the games has no possible relationship to an
`M-regular broadcast channel. That would obviously not have
`to be rewritten, yet Dr. Dr. Valerdi's analysis is that the
`entire game, every line of code would have to be rewritten.
`His other assumption is that rewriting the code
`to avoid the patents would use exactly the same number of
`lines that the current product has. There's absolutely no
`cost savings analysis in this case.
`With respect to the revenue-based model, I have
`no idea what he's talking about there because while the
`company, obviously, has revenue, there is no witness who can
`take that revenue and reduce it to a rate.
`THE COURT: Let's see if we can address that a
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`little more. Mr. Andre, can you just explain a little more
`what the revenue-based model is?
`And let me say, I don't expect to resolve this
`this morning, but what I expect to do is set a schedule for
`you all to submit stuff. But part of that, setting the
`schedule I think requires that the defendants say, they may
`not agree with your theory, but at least they understand
`what it is.
`
`MR. ANDRE: Yeah. I think, Your Honor, we've
`given them notice of these three theories since day one of
`the case.
`
`THE COURT: Well, so because I don't know what
`it is, but you, of course, don't have to give me notice.
`MR. ANDRE: Well, Your Honor, as far as the
`revenue based, what we have is Dr. Meyer. When they're
`talking about the revenues of the games, she does an
`entire --
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`THE COURT: So let's assume the games, we're
`talking World of Warcraft and the Red User are a million
`dollars; right?
`MR. ANDRE: Okay.
`THE COURT: Right.
`MR. ANDRE: Yeah.
`THE COURT: When you say revenues, that's what
`you mean is over a period of time, we sold a billion
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`dollars. People paid Activision a billion dollars for these
`games; right?
`MR. ANDRE: Right. So you have a billion
`dollars for the games. You have the profits attributed to
`those games as well as what the profit margins are for that.
`You also have the apportionment of what is related to the
`footprint of the invention.
`So we have apportionment. We have the revenues.
`We have the profits, and we have a lot of other -- the cost
`of maintenance. We have the issues regarding the cost of
`development.
`
`THE COURT: So let's assume, because it was
`obviously stated to this effect, but let's assume the data
`says profits are 20 percent. So instead of a billion, you
`have 200 million. That's the profits.
`I can't remember at this point, did somebody
`apportion what percentage of the games relates to the
`technology that's the infringing technology and what portion
`of it is something else?
`MR. ANDRE: Yeah. Dr. Meyer does that as well.
`And you also required her to do that, and she did it, and
`that's still in the case. So she does --
`THE COURT: That was part of what I did like
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`early on?
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`MR. ANDRE: Yeah, way back when.
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`THE COURT: Okay.
`MR. ANDRE: And so it's something that
`everything is in there except her final number that she
`gave. That's what you excluded based on Uniloc. So we have
`all the information there for a jury to make the
`determination what a royalty would be.
`THE COURT: Well, so to just put a concrete
`thing on it, I assume that apportionment ends up with her
`saying "X" percent of revenue or maybe of the profit is
`attributable to the invention. What's "X"?
`MR. ANDRE: I think it's 42 percent. I don't --
`there's a number that she had. I can't recall off the top
`of my head, but she does an apportionment.
`THE COURT: All right. So basically she's going
`to say a billion dollars of sales, 200 million in profits,
`42 percent of this is apportioned to the invention.
`And is she going to say something more after
`
`that?
`
`MR. ANDRE: Well, yeah. She's going to give
`some more calculations as to how she got to all those
`numbers.
`
`THE COURT: Yeah. Yeah. I mean, assuming we
`get to all that, then she says 42 percent of this is
`apportioned to the infringing technology. Then does she say
`something else like, I don't know, so with the hypothetical
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`Case 1:16-cv-00453-RGA Document 606 Filed 10/23/18 Page 14 of 156 PageID #: 49279
`14
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`negotiation, they would have split this and take 21 percent
`times 200 million and that would have been the lump sum?
`MR. ANDRE: She doesn't say that because that
`was not in her report. I mean, that final number is the
`only thing that's missing at this point, what that number
`would be.
`
`But as Your Honor's very well aware of, a jury
`can make that final determination. You don't have to give a
`percentage, per se. It's not a requirement to give a
`percentage rate. It's traditional.
`We try to do it with the Uniloc, and they don't
`like that number. So the jury is going to have to make a
`determination based on all the facts that are in. And the
`fact will be substantial as to the numbers, the revenue
`numbers, like I said, the cost of development.
`THE COURT: But, you know, the numbers are
`obviously made up, but essentially that I have an
`understanding what you plan to do in relation to this is,
`Here's a big number. Here's a progress number. Here's the
`percentage contribution of the games. Jury, do what you
`think is fair.
`MR. ANDRE: Yeah. So the Georgia-Pacific
`Factors which she's going to go through, they're not a
`generic Georgia-Pacific. Georgia-Pacific Factors are used
`to determine a reasonable royalty. It's not a reasonable
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`Case 1:16-cv-00453-RGA Document 606 Filed 10/23/18 Page 15 of 156 PageID #: 49280
`15
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`royalty rate. It's a reasonable royalty.
`So she's going to go through each one as factors
`and say, This is where the parties would be. This is what
`would be considered, and this would tend to lead to, you
`know, how the parties would be negotiating at that time.
`So she's going to go through and do that. So
`she's going to give them information that they can make a
`reasonable royalty calculation based on the numbers that's
`provided. And they'll also be provided through other people
`as well.
`
`So that's the revenue-based model. It's
`everything, but you know, a percentage.
`THE COURT: Okay. I understand what you're
`saying there.
`And so, Mr. Enzminger, I'm not asking you
`whether you like it or not, but do you understand what he
`just said?
`
`MR. ENZMINGER: I understand what he just said,
`and I understand that it's not admissible.
`THE COURT: So let's skip that for right now.
`The per-unit analysis, do you understand the plaintiff's --
`the per user, sorry, do you understand their theory there?
`MR. ENZMINGER: No. The only per-user royalty
`that has ever been disclosed to us was excluded and none of
`these --
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`Case 1:16-cv-00453-RGA Document 606 Filed 10/23/18 Page 16 of 156 PageID #: 49281
`16
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`THE COURT: Based on Uniloc?
`MR. ENZMINGER: Yes.
`THE COURT: All right. So Mr. Andre, what about
`the per user? Can you just explain that a little more?
`MR. ANDRE: Yeah. We did a -- this is how we
`describe to them a reasonable royalty based on the number of
`unique users of the accused products, and then we gave lot
`numbers or Bates numbers in Dr. Meyer's report. And the
`idea here is that you would look at the number of unique
`users that are using this.
`THE COURT: Right. There's a million users out
`there, whatever.
`MR. ANDRE: Right. They pay subscription
`services. They pay -- you know, there's the revenue
`generated from that, and you can look at it as a per user in
`the revenues.
`The numbers all come in. She does the whole
`analysis, what the per-user numbers look like and how the --
`THE COURT: Well, when you say the "per-user
`numbers" look like, there's a million users. I understand
`that's not a number or whatever it is, it's out there. What
`other numbers, categories of numbers are we talking about
`here?
`
`MR. ANDRE: It's the -- the users are
`subscription based --
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`Case 1:16-cv-00453-RGA Document 606 Filed 10/23/18 Page 17 of 156 PageID #: 49282
`17
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`THE COURT: Okay.
`MR. ANDRE: -- so it's not a one-time purchase.
`THE COURT: Right. They pay, I don't know, $50
`a year or something?
`MR. ANDRE: Fifty bucks a year or something like
`that, so it's a little bit different analysis. The users
`are made -- there's just more data points that she uses for
`the Georgia-Pacific factors.
`THE COURT: So what the users are paying, is
`that essentially how you get to the revenue number?
`MR. ANDRE: The revenue is a combination of the
`users and units sold, and so it's the total revenue that's
`generated. The users are really -- the way I'm thinking
`about using it, Your Honor, is that without her being able
`to tie in to a rate, this will be an additional set of
`information that she'll put into the Georgia-Pacific Factors
`in which the jury can determine a reasonable royalty. We've
`disclosed this in our interrogatory responses and went over
`this in great detail.
`THE COURT: But, in other words, she's going to
`tell the jury there's "X" number of units that are sold.
`There's "X" number of users, unique users who each pay a
`royalty. Not a royalty, but pay a licensing fee, or user
`fee, or whatever it is that they pay of "X" number of
`dollars per year.
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`Case 1:16-cv-00453-RGA Document 606 Filed 10/23/18 Page 18 of 156 PageID #: 49283
`18
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`And so is she going to say something more
`numerical after that?
`MR. ANDRE: She's not giving an ultimate number.
`No. She's just going to give the raw data of all that
`information that the jury can base their royalty on.
`THE COURT: So Mr. Enzminger, do you understand
`
`that?
`
`MR. ENZMINGER: Do I understand how that can be
`presented to the jury? No.
`THE COURT: No. It's nice to ask your own
`question and answer it, but what I have in mind more was:
`Do you understand what Mr. Andre says he wants to do?
`MR. ENZMINGER: I do not understand what
`
`Mr. Andre --
`
`THE COURT: Well, what don't you understand?
`MR. ENZMINGER: I don't understand how he can
`determine a per-user number on subscription services when
`subscription services are not the accused product.
`THE COURT: Okay. But that's not a question of
`understanding what he just said, or maybe it is. I don't
`know.
`
`MR. ENZMINGER: The problem, Your Honor, is what
`he just said is not tied to this case.
`THE COURT: Well, so here's the thing: So like
`I said, I can't decide this this morning, but what I can do
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`Case 1:16-cv-00453-RGA Document 606 Filed 10/23/18 Page 19 of 156 PageID #: 49284
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`is have you -- and I tend to think that it makes sense for
`you to go first, you know, to write something by a date that
`we'll pick by like, you know, Monday explaining whatever all
`the problems are with this. And that would give plaintiff
`then a chance, if you say, you know, you never disclosed
`before or whatever, to say, Yes, it is. Here it is.
`And you know, and then after they do that by
`like, say, Wednesday, then on Thursday, you can submit
`something saying, you know, No. You know, whatever. Then
`we'll figure this out on Friday, and we'll know what we have
`on Monday.
`
`MR. ENZMINGER: Your Honor, obviously, we will
`do what the Court concludes we should do, but let me make a
`couple of observations.
`THE COURT: Okay.
`MR. ENZMINGER: The theories that Mr. Andre just
`talked about are expressly excluded by Uniloc versus
`Microsoft and by Exmark versus Briggs which were cited in
`our papers.
`
`THE COURT: When you say "cited" in your
`
`papers --
`
`MR. ENZMINGER: Sorry. Cited in the Motion to
`Exclude that was resolved yesterday. But you cannot come in
`to Court and just give the jury a Georgia-Pacific analysis
`that isn't tethered to a rate that you are advancing.
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`Case 1:16-cv-00453-RGA Document 606 Filed 10/23/18 Page 20 of 156 PageID #: 49285
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`What the Federal Circuit said earlier this year
`is referring to an expert. Nowhere in her report, however,
`did she tie the relevant Georgia-Pacific Factors to the
`five-percent reasonable royalty or explain how she
`calculated the rate using expert testimony on damages to the
`facts of the case. If the patentee fails to tie the theory
`of the facts to the case, her testimony must be excluded.
`You can't do a generic Georgia-Pacific analysis and tell the
`jury, Just think about it.
`THE COURT: Well, so --
`MR. ENZMINGER: Can I --
`THE COURT: No. I'm --
`MR. ENZMINGER: Can I answer your question? I'm
`sorry. I apologize. I went off and didn't answer.
`THE COURT: No. No. No. I was going to say,
`so I'm not going to decide the legal issues here this
`morning, no matter how impassioned your plea is that, you
`know, they're violating Federal Circuit law. I read the
`papers for the Order we did yesterday or the day before,
`whenever we did that. Maybe you cited Exmark in there, but
`I didn't need that to decide what I decided.
`MR. ENZMINGER: Right.
`THE COURT: So I didn't read that, so it's not
`in the forefront of my brain. So go ahead. You know, it's
`useful.
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`Case 1:16-cv-00453-RGA Document 606 Filed 10/23/18 Page 21 of 156 PageID #: 49286
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`I'm not saying don't talk. I'm just saying be
`mindful of what is in the realm of possibility this morning.
`MR. ENZMINGER: Right. The other aspect with
`respect to the process of having the defense go first and
`try to shoot down what we don't know --
`THE COURT: Well, and I'm sorry. That's the
`reason why I'm trying to get Mr. Andre to put on the record
`what it is, because here's the thing: If I say to them, you
`go first, he's going to write it up. Maybe he'll write it
`up a little, you know. He'll have a little more detail, but
`you're going to come back and say, you know, You didn't
`disclose this. You didn't do this. You know, we're not
`going to get to the heart of the issue.
`It's going to require an extra round of
`briefing, I think, because you're going to end up with them
`going last. And I don't know, I tend to think that it ought
`to be on you to try to keep it out, not on them, under the
`circumstances where we are right now, to, you know, tie up
`all the loose ends that they could tie up to get this in.
`But go ahead.
`MR. ENZMINGER: Well, I don't mind going first
`and last, but I do mind not knowing what their theory is.
`We are ten days away from trial. We still have never gotten
`their Rule 26 calculation of damages. We don't know --
`THE COURT: Well, it sounds like you're not
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`going to.
`
`MR. ENZMINGER: Yeah. Well, I don't know how
`you would do it given these theories, but it is a
`requirement of the Federal Rules of Civil Procedure. We
`moved to compel on our interrogatory. We won.
`They objected. They brought it to this Court.
`Their objection was overruled.
`They gave us this interrogatory response which
`has really no information in it other than, We're going to
`put in on whatever we can. They filed expert reports that
`came up with a completely different theory that was not
`disclosed in their reports. We moved to strike that.
`I mean, it wasn't disclosure in their
`interrogatories. We moved to strike that. The Special
`Master allowed it because based on Uniloc. And one of the
`documents cited in the interrogatory response was a Uniloc
`license which, by the way, wasn't the basis for the expert
`report any way. But, okay, we move on.
`The Uniloc report gets stricken. They go back
`to their interrogatory. There's nothing in there in a
`damages case. Everything they say they're going to do got
`stricken yesterday.
`And now we're in a position, ten days from
`trial, where they are tossing out t