Case 1:16-cv-00453-RGA Document 618-1 Filed 10/29/18 Page 1 of 45 PageID #: 49820
`Case 1:16-cv-00453-RGA Document 618-1 Filed 10/29/18 Page 1 of 45 PagelD #: 49820
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` THE CLERK: All rise.
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`THE COURT: All right. Good morning. Please be
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`seated.
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`This is Acceleration Bay versus Activision
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`Blizzard. Civil Action Number 16-453.
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`Good morning, Mr. Rovner.
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`MR. ROVNER: Good morning, Your Honor. Phil
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`Rovner from Potter Anderson for plaintiff, Acceleration Bay.
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`With me from Kramer Levin, Paul Andre.
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`MR. ANDRE: Good morning, Your Honor.
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`MR. ROVNER: Lisa Kobialka.
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`MS. KOBIALKA: Good morning, Your Honor.
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`MR. ROVNER: And Aaron Frankel.
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`MR. FRANKEL: Good morning, Your Honor.
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`THE COURT: All right. Good morning to you all.
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`Mr. Blumenfeld.
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`MR. BLUMENFELD: Good morning, Your Honor. Jack
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`Blumenfeld for Activision Blizzard. And with me are Trent
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`Webb from Shook Hardy & Bacon, David Enzminger, and Mike
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`Tomasulo from Winston & Strawn.
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`Behind them Aaron Hankel from Shook Hardy &
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`Bacon, and Kathleen Barry from Winston & Strawn.
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`And in the first row, Omer Salik and Julia
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`Kazaks, next to him, from Activision.
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`THE COURT: All right. Well, good morning to
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` IN THE UNITED STATES DISTRICT COURT
`
`FOR THE DISTRICT OF DELAWARE
`
`ACCELERATION BAY, LLC )
`
` )
` Plaintiff, )
`
` )
`
` ) Civil Action No. 15-453-RGA
`v.
` )
`
`
`
` )
`ACTIVISION BLIZZARD, INC., )
`
`
` )
` Defendant. )
`
` J. Caleb Boggs Courthouse
` 844 King Street
` Wilmington, Delaware
` Friday, October 19, 2018
` 8:32 a.m.
` Pretrial Hearing
`
`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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`APPEARANCES CONTINUED:
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` JACK B. BLUMENFELD, ESQUIRE
` MORRIS NICHOLS ARSHT & TUNNELL, LLP
` 1201 North Market Street
` Wilmington, Delaware 19899
`
` -and-
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` 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-
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` 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:
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` Mr. Omar Salik
` Ms. Julia Kazaks
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`you all, too. All right.
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`So, though I've read portions of the Pretrial
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`Order, including the motions in limine and the body of it,
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`but I guess the first thing to address is damages.
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`What are we going to do about that, Mr. Andre?
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`MR. ANDRE: Your Honor, we're going to be
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`putting forward a damages case that has three factual bases
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`that the jury can decide a reasonable royalty.
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`First being a cost savings methodology that you
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`have allowed in the case with Dr. Valerdi and others who
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`will be talking about the cost-savings basis. This is
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`largely based on a few other Federal Circuit cases that have
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`allowed this type of damages model.
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`We also have a revenue-based model based on the
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`proper apportionment of the revenue and the profits of the
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`infringing technology over the relevant time period that the
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`jury can base a reasonable royalty on.
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`And we also have a per-unit royalty possibility
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`that the jury can base a reasonable royalty on as well.
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`THE COURT: All right. So for example, the per
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`unit, let's say cost, I don't know, $100 to buy an
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`Activision software package.
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`How do you get to a per-unit royalty?
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`MR. ANDRE: It's actually a per-user royalty
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`because it's -- when I say per unit, it's per unit per user.
`10/20/2018 02:21:48 PM
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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.
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`infringing technology versus not using the infringing
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`technology.
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`She had to go out, and they would have to design
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`a specific aspect of their network that they didn't have to
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`do because they were using the prepackaged software that was
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`infringing. But in that case, the damages expert expressly
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`said that the parties to the hypothetical negotiation would
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`have factored that in.
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`In our case, there is no cost-savings analysis.
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`What they're referring to is Dr. Dr. Valerdi's analysis
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`where he says, If I had to re-engineer the entire game
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`without regard to the patented technology at all, there is
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`not one thing in Dr. Dr. Valerdi's report that relates to
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`the patented technology.
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`He assumes every line of code in the product
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`would have to be rewritten. Every single line, whether it's
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`patented technology or not. And he says, If you had to
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`re-engineer the end game, it would cost this. That's not a
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`cost-savings analogy.
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`And their expert doesn't even say it. What she
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`said was, Dr. Valerdi provides an additional input into my
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`Georgia-Pacific Factor for my Uniloc verdict, and what it
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`means is that there are not non-infringing alternatives and
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`that cost to redesign the entire game would be so
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`prohibited, we have to look at other indicators of value
`8
`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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`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
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`analysis that ties to anything other than the rate that was
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`stricken. Exmark by the Federal Circuit decided earlier
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`this year and is crystal clear on that you cannot do a
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`generic Georgia-Pacific factor that isn't tied to a specific
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`rate that the expert is advancing. Otherwise, it's
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`untethered to the facts of the case.
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`So the fact that Dr. Meyer did Georgia-Pacific
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`Factors with respect to the now-excluded Uniloc jury verdict
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`rate is not admissible. The per-user possibility is
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`inadmissible because there is not a single witness who can
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`tie a per-user royalty rate to the number of users.
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`Dr. Meyer did that, but it was excluded. She
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`has no other opinion on that.
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`THE COURT: All right.
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`MR. ENZMINGER: She doesn't have a royalty rate
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`that she can apply nor does any other witness, and that
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`leaves us back with the cost-savings analysis. There is no
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`cost-savings analysis in this case.
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`Mr. Andre talked about the Federal Circuit has
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`blessed a cost-savings analysis, and I think he's talking
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`about the Prism case which was a case that he argued in the
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`Federal Circuit. In that case, the damages expert actually
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`said that there was a cost-savings analysis which analyzed a
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`cost savings for the plaintiff as a result of using the
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`theory at all. And so when you recall the damages, the
`little more. Mr. Andre, can you just explain a little more
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`summary judgment in Daubert, we had 50 pages for 16 claims,
`what the revenue-based model is?
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`five products, three companies.
`And let me say, I don't expect to resolve this
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`THE COURT: Why are you telling me?
`this morning, but what I expect to do is set a schedule for
`08:45:17 5
`MR. ENZMINGER: We had to make some judgments.
`you all to submit stuff. But part of that, setting the
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`THE COURT: Well, so either you did raise it, or
`schedule I think requires that the defendants say, they may
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`you didn't raise it, but you can't say, We raised it, and we
`not agree with your theory, but at least they understand
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`had to make some judgments.
`what it is.
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`MR. ENZMINGER: No. No. I'm saying it was
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`never mentioned until this morning as a possible stand-alone
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`damages case. It's not admissible as a stand-alone damages
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`case because it's not tied to patented technology. It's not
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`apportioned. No one testified it was a factor in the
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`reasonable royalty in the reasonable royalty calculation.
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`And there's no way you can take his $7 billion
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`design-around estimate and put a number on that. It's just
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`prejudicial. It's just putting a big number out in front of
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`the jury and saying, Somewhere between zero and $7 billion
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`is a number.
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`But there's not a single other witness, and
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`certainly not Dr. Valerdi, who can tie that number to a
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`reasonable royalty that the jury can conclude. They have
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`nobody who can quantify any of these royalty bases that
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`Mr. Andre suggests.
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`THE COURT: So do you understand the three
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`Mr. Andre suggests? So I forget what Mr. Andre called them,
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`the three different theories here.
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`Do you understand what he means by each of the
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`theories that he's described briefly this morning?
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`MR. ENZMINGER: So the cost-savings methodology,
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`I do not know what his methodology is because what has been
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`submitted to us is in no way a cost-savings analysis. It is
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`not an analysis of what the defendant saved if, by using an
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`alleged infringing broad M-regular broadcast channel.
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`I mean, if you think about these video games and
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`how complex they are, for example, graphics. Graphics,
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`rendering graphics, and the artwork, and all of that that
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`goes in the games has no possible relationship to an
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`M-regular broadcast channel. That would obviously not have
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`to be rewritten, yet Dr. Dr. Valerdi's analysis is that the
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`entire game, every line of code would have to be rewritten.
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`His other assumption is that rewriting the code
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`to avoid the patents would use exactly the same number of
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`lines that the current product has. There's absolutely no
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`cost savings analysis in this case.
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`With respect to the revenue-based model, I have
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`no idea what he's talking about there because while the
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`company, obviously, has revenue, there is no witness who can
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`take that revenue and reduce it to a rate.
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`THE COURT: Let's see if we can address that a
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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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`MR. ANDRE: Yeah. I think, Your Honor, we've
`given them notice of these three theories since day one of
`the case.
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`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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`early on?
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`MR. ANDRE: Yeah, way back when.
`10/20/2018 02:21:48 PM
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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
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`that?
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`MR. ANDRE: Well, yeah. She's going to give
`some more calculations as to how she got to all those
`numbers.
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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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`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 --
`
`4 of 60 sheets
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`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
`14
`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.
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`But as Your Honor's very well aware of, a jury
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`can make that final determination. You don't have to give a
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`percentage, per se. It's not a requirement to give a
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`percentage rate. It's traditional.
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`We try to do it with the Uniloc, and they don't
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`like that number. So the jury is going to have to make a
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`determination based on all the facts that are in. And the
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`fact will be substantial as to the numbers, the revenue
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`numbers, like I said, the cost of development.
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`THE COURT: But, you know, the numbers are
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`obviously made up, but essentially that I have an
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`understanding what you plan to do in relation to this is,
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`Here's a big number. Here's a progress number. Here's the
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`percentage contribution of the games. Jury, do what you
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`think is fair.
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`MR. ANDRE: Yeah. So the Georgia-Pacific
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`Factors which she's going to go through, they're not a
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`generic Georgia-Pacific. Georgia-Pacific Factors are used
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`to determine a reasonable royalty. It's not a reasonable
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`

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`is have you -- and I tend to think that it makes sense for
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`you to go first, you know, to write something by a date that
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`we'll pick by like, you know, Monday explaining whatever all
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`the problems are with this. And that would give plaintiff
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`then a chance, if you say, you know, you never disclosed
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`before or whatever, to say, Yes, it is. Here it is.
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`And you know, and then after they do that by
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`like, say, Wednesday, then on Thursday, you can submit
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`something saying, you know, No. You know, whatever. Then
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`we'll figure this out on Friday, and we'll know what we have
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`on Monday.
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`MR. ENZMINGER: Your Honor, obviously, we will
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`do what the Court concludes we should do, but let me make a
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`couple of observations.
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`THE COURT: Okay.
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`MR. ENZMINGER: The theories that Mr. Andre just
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`talked about are expressly excluded by Uniloc versus
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`Microsoft and by Exmark versus Briggs which were cited in
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`our papers.
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`THE COURT: When you say "cited" in your
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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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`18
`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?
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`MR. ENZMINGER: The problem, Your Honor, is what
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`he just said is not tied to this case.
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`THE COURT: Well, so here's the thing: So like
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`I said, I can't decide this this morning, but what I can do
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`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.
`
`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.
`20
`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.
`
`10/20/2018 02:21:48 PM
`
`

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`going to.
`
`Case 1:16-cv-00453-RGA Document 618-1 Filed 10/29/18 Page 7 of 45 PageID #: 49826
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`09:00:57 1
`I'm not saying don't talk. I'm just saying be
`methodology if what he is saying is that Dr. Valerdi is the
`09:01:01 2
`mindful of what is in the realm of possibility this morning.
`cost-savings analysis. If that's their position, we are
`09:01:05 3
`MR. ENZMINGER: Right. The other aspect with
`ready to respond, and we can.
`09:01:07 4
`respect to the process of having the defense go first and
`THE COURT: Is that your position, Mr. Andre?
`09:01:10 5
`try to shoot down what we don't know --
`MR. ANDRE: He is the principal. He doesn't
`09:01:15 6
`THE COURT: Well, and I'm sorry. That's the
`give the ultimate. It's Dr. Valerdi in combination with Dr.
`09:01:18 7
`reason why I'm trying to get Mr. Andre to put on the record
`Meyer and some other testimony we'll be eliciting which
`09:01:22 8
`what it is, because here's the thing: If I say to them, you
`we've given them. We've cited to them over and over again.
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`go first, he's going to write it up. Maybe he'll write it
`MR. ENZMINGER: Can I get him to tell us what it
`09:01:27 10
`up a little, you know. He'll have a little more detail, but
`is now because I don't know what testimony he's talking
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`you're going to come back and say, you know, You didn't
`about. There is no -- no witness has testified about cost
`09:01:35 12
`disclose this. You didn't do this. You know, we're not
`savings. There is one line in Dr. Dr. Valerdi's report that
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`going to get to the heart of the issue.
`says the word cost savings, and then he goes off and does a
`09:01:43 14
`It's going to require an extra round of
`different analysis which he and Dr. Meyer both admit is not
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`briefing, I think, because you're going to end up with them
`a cost-savings analysis.
`09:01:48 16
`going last. And I don't know, I tend to think that it ought
`So if there is other testimony, we need to hear
`09:01:51 17
`to be on you to try to keep it out, not on them, under the
`it. I need to know. What I'm trying to understand is their
`09:01:57 18
`circumstances where we are right now, to, you know, tie up
`cost-savings analysis.
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`all the loose