Case 1:16-cv-00453-RGA Document 622 Filed 11/02/18 Page 1 of 21 PageID #: 49885
`
`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF DELAWARE
`
`C.A. No. 16-453-RGA
`
`)))))))))
`
`ACCELERATION BAY LLC,
`
`Plaintiff,
`
`v.
`
`ACTIVISION BLIZZARD, INC.,
`
`Defendant.
`
`PLAINTIFF ACCELERATION BAY LLC’S
`OPPOSITION MOTION REGARDING DAMAGES ISSUES
`
`Philip A. Rovner (#3215)
`Jonathan A. Choa (#5319)
`POTTER ANDERSON & CORROON LLP
`Hercules Plaza
`P.O. Box 951
`Wilmington, DE 19899
`(302) 984-6000
`provner@potteranderson.com
`jchoa@potteranderson.com
`
`Attorneys for Plaintiff
`Acceleration Bay LLC
`
`OF COUNSEL:
`
`Paul J. Andre
`Lisa Kobialka
`James Hannah
`KRAMER LEVIN NAFTALIS
` & FRANKEL LLP
`990 Marsh Road
`Menlo Park, CA 94025
`(650) 752-1700
`
`Aaron M. Frankel
`KRAMER LEVIN NAFTALIS
` & FRANKEL LLP
`1177 Avenue of the Americas
`New York, NY 10036
`(212) 715-9100
`
`Dated: October 23, 2018
`
`PUBLIC VERSION
`
`Public version dated: November 2, 2018
`
`

`

`Case 1:16-cv-00453-RGA Document 622 Filed 11/02/18 Page 2 of 21 PageID #: 49886
`
`Acceleration Bay is entitled to no less than a reasonable royalty under 35 U.S.C. §284 for
`
`Activision’s infringement. The reasonable royalty can be based on: (1) Activision’s cost savings
`
`from its infringement and/or (2) apportioned revenues from Activision’s sales of the accused
`
`products implicated by the infringing networks. Here, Acceleration Bay’s reasonable royalty
`
`claims are supported by admissible evidence, including Activision’s financial records, testimony
`
`of fact witnesses, expert opinion and an analysis of the Georgia-Pacific factors based on the
`
`specific facts of this case. Activision has long known about this evidence and these claims
`
`because Acceleration Bay timely disclosed them early in discovery, and Activision either failed
`
`to challenge them or already unsuccessfully attempted to exclude the evidence and opinions
`
`upon which Acceleration Bay’s damages case is based.
`
`Activision’s motion is based on the fundamentally incorrect premise that for a jury to
`
`determine a reasonable royalty, there must be a royalty rate applied. That is not the law. The
`
`Federal Circuit has held that there are many acceptable methods of calculating a reasonable
`
`royalty, and confirmed a reasonable royalty can be based on cost-savings that does not apply a
`
`royalty rate. See Apple Inc. v. Motorola, Inc., 757 F.3d 1286, 1315 (Fed. Cir. 2014) (confirming
`
`that there are multiple approaches to determine a reasonable royalty); Powell v. Home Depot
`
`U.S.A., Inc., 663 F.3d 1221, 1238-41 (Fed. Cir. 2011) (approving a cost-savings based verdict
`
`that was not based on a royalty rate). In Powell, the Federal Circuit rejected the same argument
`
`Activision advances, i.e., that a royalty rate is necessary to sustain a damages award. Id.
`
`Activision’s motion also should be denied because it parrots the same arguments the
`
`Court already rejected in finding that Acceleration Bay’s experts’ cost savings estimate and
`
`apportionment opinions are admissible under Daubert, as well as regarding their hypothetical
`
`negotiation date. Activision was fully heard on those issues and, significantly, never moved for
`
`

`

`Case 1:16-cv-00453-RGA Document 622 Filed 11/02/18 Page 3 of 21 PageID #: 49887
`
`reconsideration of those rulings. Regardless, Activision provides no basis for the Court to reach
`
`a different result to the extent it even entertains these same recycled arguments that it already
`
`denied. Activision’s critiques are grist for cross-examination, not a basis for exclusion. D.I. 578
`
`(Memorandum Opinion) at 28, 30-31. Accordingly, the Court should permit Acceleration Bay to
`
`present its admissible evidence from which the jury can determine, as required by law, the
`
`reasonable royalty owed for Activision’s infringement.
`
`A.
`
`A Reasonable Royalty Based on Cost-Savings
`
`Acceleration Bay seeks a reasonable royalty based on Activision’s cost savings from
`
`infringement. Acceleration Bay first disclosed this methodology (as well as its revenue based
`
`model described below) in response to Activision’s interrogatory regarding the methods for
`
`determining damages, on March 30, 2017, and in supplemental responses thereafter. Ex. 1 at 7;
`
`Ex. 2 at 6, 8; Ex. 3 at 11-12 (identifying a reasonable royalty based on “cost savings to
`
`Defendant from using the Asserted Patents” and its “forthcoming expert reports”).
`
`As evidence for the cost-savings claim, Acceleration Bay, through Dr. Meyer, will
`
`present Activision’s internal documents that identify the development costs for each accused
`
`game. Acceleration Bay will also offer the opinion of Dr. Valerdi regarding the cost to rebuild
`
`the infringing network. Specifically, Dr. Valerdi’s cost estimate is if there was “an alternative”
`
`or non-infringing alternative, “it would require rearchitecting the game to develop a new network
`
`architecture and associated functionality” and his opinion is “to estimate the cost to do so.” See
`
`D.I. 444, Ex. C-2 (“Valerdi Rpt.”) at 3. In other words, Dr. Valerdi’s opinion is regarding the
`
`expense that Activision avoided by not having to build a non-infringing network, and he
`
`discloses in his report his assumptions and the factual inputs into his estimate. These
`
`assumptions and inputs include his reliance on Acceleration Bay’s technical experts’ analysis of
`
`the accused products and numerous characteristics of the software and the hypothetical
`
`2
`
`

`

`Case 1:16-cv-00453-RGA Document 622 Filed 11/02/18 Page 4 of 21 PageID #: 49888
`
`rearchitecting project, all of which are unrebutted by Activision. See id. at 2-13; see also id. at
`
`Errata to Valerdi Rpt. served on October 23, 2017.
`
`Dr. Valerdi’s opinion is tied directly to the footprint of the patented invention which is
`
`the same as an apportioned base because he assesses what it would cost to build a non-infringing
`
`alternative based on the lines of infringing code. Contrary to Activision’s misrepresentation, Dr.
`
`Valerdi did not just count lines of source code untethered to the infringement issues in this case.
`
`As explained in his report and in the deposition testimony collected in the following section, the
`
`scope of Dr. Valerdi’s cost-estimate was “just the networking code,” based on his discussions
`
`and understanding of infringement from the infringement experts Dr. Mitzenmacher and Dr.
`
`Medvidovic, and it is not the cost to re-architect the entire game. D.I. 444, Ex. C-2 at 8 (“Since
`
`all source code printed relates to networking functionality, this is a reasonable subset to analyze
`
`for purposes of the cost estimate.”).
`
`Dr. Valerdi, therefore, estimated the cost to replace the infringing networking
`
`functionality in the accused products with a non-infringing alternative, to the extent it is even
`
`possible, guided by the opinions of Acceleration Bay’s technical experts. In doing so, Dr.
`
`Valerdi’s cost estimate is directly tied to infringing technology at issue. His opinion is not the
`
`cost to develop the existing games, but rather the cost to implement a non-infringing alternative
`
`to the extent one is available.
`
`Acceleration Bay relies on additional admissible evidence to support this claim.
`
`Activision itself identified the documents that enumerate the amount that it spent to develop each
`
`of the accused games. D.I. 455, Ex. 61 at 7-9. Acceleration Bay further relies on supporting
`
`deposition testimony, including that of Activision’s corporate designees, Byron Beede, Saralyn
`
`Smith, Robert Kostich, for the specific identification of the costs spent to develop the each of the
`
`3
`
`

`

`Case 1:16-cv-00453-RGA Document 622 Filed 11/02/18 Page 5 of 21 PageID #: 49889
`
`accused products, which indicate a minimum amount that Activision was willing to spend to use
`
`the infringing technology to develop its accused products. Ex. 3 at 11-12.
`
`Thus, Acceleration Bay will present relevant and admissible evidence in support of its
`
`cost-savings claim. Acceleration Bay timely disclosed all of these opinions and all of this
`
`evidence during discovery and in its experts’ reports. Id.; see also D.I. 444, Ex. C-2 (Valerdi
`
`Rpt.); D.I. 480, Ex. 69 (Opening Expert Report of Dr. Meyer) (“Meyer Opening Rpt.”).
`
`Therefore, Activision has been on notice of all of the methodologies and related evidence that
`
`Acceleration Bay will present to support its cost savings damages claim.
`
`1.
`
`The Court Already Found Dr. Valerdi’s Cost Savings Opinions to Be Admissible.
`
`Acceleration Bay’s technical expert, Dr. Valerdi, provided a detailed estimate of
`
`Activision’s cost savings using the leading cost estimation tools. See D.I. 444, Ex. C-2 at 2-13.
`
`The Court already confirmed that this cost savings analysis is admissible under Daubert, and
`
`rejected the same arguments that Activision recites for this Motion, i.e. criticism of Dr. Valerdi’s
`
`computer model and Activision’s claim that Dr. Valerdi’s analysis was not tied to the specific
`
`products or technology in this case. See D.I. 578 at 30-31; D.I. 442 (Activision’s Br.) at 48-49.
`
`As Acceleration Bay previously explained, Dr. Valerdi’s computer model is a
`
`commercially available, leading tool for estimating costs. Dr. Valerdi provided a detailed
`
`explanation of the variables and inputs that he used, such as the quality of the code, the nature of
`
`the code, the number of relevant lines of code that would need to be generated, the time frame,
`
`the programming language, the labor costs, the cost reduction due to significant reuse of prior
`
`code, and reliance on his professional expertise, Acceleration Bay’s infringement experts and his
`
`analysis of the accused products to select those variables and inputs. D.I. 444, Ex. C-2 at 3-12.
`
`As noted in Acceleration Bay’s opposition to Activision’s unsuccessful Daubert motion
`
`raising these same arguments, one of Activision’s technical experts acknowledged that Dr.
`
`4
`
`

`

`Case 1:16-cv-00453-RGA Document 622 Filed 11/02/18 Page 6 of 21 PageID #: 49890
`
`Valerdi’s cost-estimation methodology is commonly used. Dr. Macedonia worked for the
`
`government’s “programming executive office for simulation training instrumentation,” and
`
`acknowledged that it spent billions in software development costs. Ex. 13 (Macedonia Tr.) at
`
`250:25-251:9. Dr. Macedonia confirmed that one of the government’s established
`
`methodologies for estimating the cost of software development projects is through the use of
`
`estimated “standard lines of code” as an input to a knowledge-based model, which is exactly
`
`what Dr. Valerdi did. Id. at 251:10-253:4.
`
`There is no merit to Activision’s claim that Dr. Valerdi just mechanically counted lines of
`
`source code untied to the infringement issues in this case. As noted above, Dr. Valerdi testified
`
`that the scope of his cost-estimate was “just the networking code,” based on his discussions of
`
`infringement from the infringement experts Dr. Mitzenmacher and Dr. Medvidovic. See, e.g.,
`
`Ex. 4 at 105:11-106: 21; 124:16-125:3; 126:6-9. Dr. Valerdi’s opinion concerns only the code
`
`“related to the networking functionality that is built into the application,” i.e., just what is needed
`
`to re-architect the infringing code, not the cost to re-architect the entire game.
`
`As Dr. Valerdi explains explicitly in his report and testified about during deposition, he
`
`used the source code related to networking functionality. Id. at 8 (“Since all source code printed
`
`relates to networking functionality, this is a reasonable subset to analyze for purposes of the cost
`
`estimate.”); see also Ex. 4 at 40:5-23; 101:2-14; 105:11-107:8; 109:3-12; 111:13-16; 112:18-
`
`113:13; 115:18-23 (describing Dr. Valerdi’s cost of rearchitecting analysis, which was based on
`
`the source code print outs available to him, and his reliance on Dr. Medvidovic regarding what
`
`source code related to networking functionality); id. at 105:11-106:21 (confirming the source
`
`code used in his cost estimation was “just the networking code” and that Dr. Medvidovic
`
`identified “the code that relates to network functionality” and “that is the estimate [Dr. Valerdi]
`
`5
`
`

`

`Case 1:16-cv-00453-RGA Document 622 Filed 11/02/18 Page 7 of 21 PageID #: 49891
`
`need[ed] to perform”); id. at 97:16-98:15 (describing that Dr. Valerdi endeavored in his cost
`
`estimate to determine the impact of using the infringing technologies and implementing this type
`
`of multiplayer gaming architecture); id. at 124:16-125:3; 126:6-9 (Dr. Valerdi confirmed his cost
`
`estimate related to “the cost of developing the software and all of the parts of the lines of code
`
`that are impacted by the multiplayer network architecture” and that he was only provided with
`
`“the relevant lines of code”). Thus, Activision’s primary criticism of Dr. Valerdi’s analysis is
`
`based on a mischaracterization of his approach.
`
`Dr. Valerdi, therefore, estimated the cost to replace the infringing networking
`
`functionality in the accused products with a non-infringing alternative, to the extent it is even
`
`possible, guided by the opinions of the technical experts. In doing so, Dr. Valerdi’s cost estimate
`
`is directly tied to the infringing technology at issue. His opinion is not the cost to develop the
`
`existing games, but rather the cost to implement a non-infringing alternative. Admissibility is
`
`not an issue because Dr. Valerdi’s opinions are just the costs to rebuild the accused networking
`
`functionality for each accused game, which is directed to Activision’s infringement.1
`
`The Court should disregard Activision’s plainly wrong attempts to distort the magnitude
`
`of Dr. Valerdi’s estimate. Acceleration Bay is not suggesting that Dr. Valerdi’s cost estimates
`
`for each game are additive. Only by adding up all of Dr. Valerdi’s cost estimates is Activision
`
`able to suggest that the alleged
`
`in cost savings. To ensure that Activision would not
`
`continue to mislead the Court on this point, Acceleration Bay represented at the Pretrial Hearing
`
`that Dr. Valerdi’s estimates for each game is not additive because Activision would only need to
`
`develop a non-infringing network once. Id.; see also id. at 28:11-29:15. Thus, Activision’s
`
`1 Activision also repeatedly advances the incorrect claim that Acceleration Bay limited its World
`of Warcraft infringement case to cross-realm zone functionality. What Acceleration Bay stated
`during the pretrial conference is that cross-realm zone technology is “one of the primary features
`that we’re accusing of infringement.” Ex. 6 at 45:13-18 (emphasis added).
`
`6
`
`

`

`Case 1:16-cv-00453-RGA Document 622 Filed 11/02/18 Page 8 of 21 PageID #: 49892
`
`repeated claim that Dr. Valerdi’s cost estimates are
`
`should be disregarded.
`
`Activision’s total cost savings, according to Dr. Valerdi, ranges from about
`
`
`
`
`
` Thus, the jury will be able to consider Dr. Valerdi’s cost-savings estimate, as well as Dr.
`
`Meyer’s opinions related to cost-savings and summaries of Activision’s net and gross profits (as
`
`discussed in more detail in the following section) and analysis of the Georgia Pacific factors
`
`based on specific facts relevant to Activision, such as the extent of use and benefits of the
`
`technology. The jury can then use these data points to determine a reasonable royalty in light of
`
`the specific facts of the case utilizing the Georgia-Pacific factors, which Dr. Meyer has provided
`
`as part of her opinion. In addition, there is factual testimony from Activision’s witnesses that the
`
`jury can consider in determining a reasonable royalty. For example, there is Saralyn Smith, who
`
`is part of the marketing leadership team at Activision and its corporate designee regarding all the
`
`competitive features of World of Warcraft, who compared the other competitive features which
`
`do not relate to the patented technology. Ex. 5 (7/25/17 Deposition of Saralyn Smith) at 57:3-19.
`
`Indeed, such evidence is relevant to cost savings, as well as the revenue based reasonable royalty
`
`claim.
`
`As the Court noted during the pretrial hearing, to the extent Activision did not raise these
`
`objections in connection with its unsuccessful Daubert challenge, Activision should be barred
`
`from raising them now. Ex. 6 at 8:14-9:8. Activision has had numerous opportunities to
`
`challenge Acceleration Bay’s damages claims, throughout discovery, before the Special Master
`
`and the Court, and should not be permitted to get multiple bites at the apple over the same issue.
`
`2.
`
`Other Evidence Includes Dr. Meyer’s Guidance on How the Jury Can Apply Dr.
`Valerdi’s Cost Savings Estimate.
`
`Dr. Meyer disclosed how Dr. Valerdi’s cost-savings estimate should be applied to the
`
`7
`
`

`

`Case 1:16-cv-00453-RGA Document 622 Filed 11/02/18 Page 9 of 21 PageID #: 49893
`
`facts of this case. She set forth in her September 2017 opening report that the costs for any
`
`purported non-infringing alternative (assessed relative to what they would be if the patented
`
`invention were used) may include, for example, the incremental cost of producing the product at
`
`issue and the incremental expected future sales (and commensurate profits) of the product, which
`
`is indicative of what Activision would be willing to pay, i.e., a comparison of costs against the
`
`incremental profits. D.I. 480, Ex. 69 at ¶¶ 41, 47. With respect to these inputs, Dr. Meyer
`
`provided a table regarding the development costs in comparison to Activision’s profits for each
`
`of the games and a table identifying Dr. Valerdi’s cost-savings calculations to rebuild the
`
`infringing network. Id. at Exhibits 4E, 5. Dr. Meyer discussed these savings with Dr. Valerdi
`
`and the lack of non-infringing alternatives with Acceleration Bay’s other technical experts.
`
`Dr. Meyer, as set forth in her report, will explain to the jury how these cost savings factor
`
`into the Georgia-Pacific analysis. For example, as set forth throughout her opening report, Dr.
`
`Meyer describes how to consider a non-infringing alternative and Dr. Valerdi’s cost estimate in
`
`connection with Activision’s actual profits, as well as the importance of the multiplayer
`
`capability to Activision, as part of and in the context of her analysis of the relevant Georgia-
`
`Pacific factors. See id. at ¶¶ 11, 38, 41, 43, 47, 51-53 (lack of alternatives), 54-57 (Valerdi), 130
`
`and 137, and 131-135 (importance of multiplayer capability). Thus, Acceleration Bay will ask
`
`the jury to consider all of these facts and data points in determining a reasonable royalty based
`
`on the cost savings that is directly tied to the footprint of the invention.
`
`Notably, Activision has no credibility given its inconsistent and unfounded arguments
`
`regarding Dr. Valerdi and Dr. Meyer. For example, Activision repeatedly makes the
`
`demonstrably incorrect claim that Dr. Meyer determined that Dr. Valerdi’s opinion was
`
`somehow not an “indicator of value.” Motion at 3 and 8. Activision, however, took a contrary
`
`8
`
`

`

`Case 1:16-cv-00453-RGA Document 622 Filed 11/02/18 Page 10 of 21 PageID #: 49894
`
`position in its Daubert motion. Activision specifically moved to exclude Dr. Valerdi and Dr.
`
`Meyer’s reliance on his opinion, arguing that: “[s]urprisingly, Dr. Meyer, who has a doctorate in
`
`economics, relies on this opinion as a crucial input to her damages model. In reliance on this
`
`
`
` Dr. Meyer claims that Activision’s ‘maximum willingness to pay’ ‘is likely to have been
`
`quite high.’” D.I. 442 at 48. Activision, thus, acknowledged Dr. Meyer’s reliance on Dr.
`
`Valerdi and how it was an important input into her opinion. Activision’s reversal of position is
`
`contrary to what it argued earlier and should be disregarded. Moreover, Dr. Meyer’s reliance on
`
`Dr. Valerdi does not mean that Dr. Valerdi’s opinion does not stand on its own to represent the
`
`cost savings Activision realized by using the infringing technology.
`
`Furthermore, Activision’s current argument ignores Dr. Meyer’s reports. Dr. Meyer
`
`discussed with Dr. Valerdi his cost savings analysis and included her discussion and
`
`understanding of it in her damages expert report. See D.I. 480, Ex. 69 at Exs. 4E, 5, and ¶¶7, 11,
`
`51-57, 130, 137. In discussing the Georgia-Pacific factors, Dr. Meyer specifically stated that “in
`
`addition, I have similarly incorporated the cost of a potential NIA [non-infringing alternative], as
`
`estimated by Dr. Valerdi, into my analysis. I discuss my understanding of his methodology in
`
`Section III.C of my report. To the extent that the cost estimates provided by Dr. Valerdi reflect
`
`the ‘price’ of an NIA, I already account for this in my analysis.”).” See D.I. 480, Ex. 69 at ¶ 137.
`
`Activision’s mischaracterization of Dr. Meyer’s consideration of Dr. Valerdi’s cost-
`
`savings estimate is also demonstrated in her deposition testimony. When Activision questioned
`
`Dr. Meyer about Dr. Valerdi’s opinion, Dr. Meyer referenced her discussions with Dr. Valerdi
`
`regarding his cost-savings estimate, the fact that she submitted an errata to update her report to
`
`be consistent with Dr. Valerdi’s revisions to his cost-savings estimate, and her opinion related to
`
`the cost estimates that Dr. Valerdi provided. At no point did Dr. Meyer claim that Dr. Valerdi
`
`9
`
`

`

`Case 1:16-cv-00453-RGA Document 622 Filed 11/02/18 Page 11 of 21 PageID #: 49895
`
`did not offer a cost-saving opinion. See Ex. 12, (1/23/18 Meyer Tr.) at 18:3-30:23, 232:9-233:7.
`
`Ignoring Dr. Meyer’s opinions and testimony regarding cost-savings, Activision
`
`remarkably suggests that Dr. Meyer does not understand Dr. Valerdi to have offered a cost-
`
`savings opinion, ignoring all of the above evidence. Activision cites to Dr. Meyer’s testimony
`
`regarding Dr. Valerdi’s opinion in the Take Two matter, not this case. The cited testimony was
`
`specifically discussing Take-Two’s alleged non-infringing alternatives. See Ex. 10 at 118:24-
`
`120:14. What Dr. Meyer actually stated was that Take Two failed to provide a counter-cost
`
`savings estimate and failed to identify any viable non-infringing alternatives. Id. This testimony
`
`does not support Activision’s claim that Dr. Valerdi did not provide a cost-savings estimate.
`
`Further, Activision’s citation to Dr. Valerdi is taken out of context because he testified
`
`that what he estimated was “in the case of the Activision report, the cost of developing the
`
`software as is, with the benefit of these patents as a baseline, to try to understand, you know, the
`
`development cost and· maintenance costs of each game.” Motion at 8; see also Ex. 4 at 100:5-
`
`11. That estimate, as he testified and identified in his report, was based on the infringing
`
`networking functionality, not the all the source code of the accused games, as Activision keeps
`
`claiming. Thus, Activision’s representation that Dr. Meyer or Dr. Valerdi did not include an
`
`opinion related to cost-savings is false, and its description of their opinions is simply wrong.
`
`3.
`
`Acceleration Bay’s Cost Savings Claim is Consistent With Federal Circuit Precedent
`
`The Federal Circuit confirmed that a cost-savings reasonable royalty that is not based on
`
`a royalty rate can be a proper award of patent damages. The facts of Acceleration Bay’s
`
`damages case based on costs are similar to those presented and affirmed by the Federal Circuit in
`
`Powell where the jury awarded a lump sum of $15 million, which was approximately $7,736 per
`
`unit, as a reasonable royalty. 663 F.3d at 1238-41. There, the plaintiff presented a range of cost
`
`savings from which the jury could determine a royalty, including $2,180 per unit (the expected
`
`10
`
`

`

`Case 1:16-cv-00453-RGA Document 622 Filed 11/02/18 Page 12 of 21 PageID #: 49896
`
`profits from building and installing the accused product in each store) to $8,500 per unit (the
`
`price spent to replace incompatible products). The Powell expert also provided a discussion of
`
`the Georgia-Pacific factors, including a discussion of the cost-savings to defendant to achieve by
`
`reducing the number of injuries in future. Id. at 1239-40. The defendant presented several
`
`theories, including one based on a 3-5% royalty on the per price unit and in closing even
`
`suggested plaintiff would have allowed defendant to use the patented technology for free. Id. at
`
`1239. The Federal Circuit affirmed the jury award, which was not based on a royalty rate,
`
`rejecting the defendant’s argument that an award may not exceed the expected profits, and
`
`opined that the “jury was entitled to choose an award within the amounts advocated by the
`
`opposing parties.” Id. at 1241.
`
`Here, Acceleration Bay seeks to advance the same type of reasonably royalty claim
`
`approved by the Federal Circuit in Powell. In Acceleration Bay’s case, Dr. Valerdi will present
`
`his analysis to the jury and give a range of the cost savings based on re-architecting the
`
`infringing code. Acceleration Bay will then ask the jury to pick a reasonable royalty from within
`
`that range, taking into consideration all relevant factors, such as Activision’s net and gross
`
`profits, its extent of use and the value of the use of the infringing technology, and other specific
`
`facts regarding Activision’s infringement, such as the number of users of its accused games.
`
`As acknowledged by Activision, the Federal Circuit again approved a similar cost-
`
`savings damages analysis in Prism Techs. LLC v. Sprint Spectrum L.P. Motion at 8, citing 849
`
`F.3d 1360, 1378 (Fed. Cir. 2017). Activision’s only attempt to distinguish Prism is to note that,
`
`in Prism, the damages expert opined that “the parties would have valued the [] patents based on
`
`Sprint’s expected cost savings” and to repeat its incorrect claim (debunked above) that Dr.
`
`Meyer did not consider Dr. Valerdi’s cost-estimation as evidence of value. Id. Just as in Prism,
`
`11
`
`

`

`Case 1:16-cv-00453-RGA Document 622 Filed 11/02/18 Page 13 of 21 PageID #: 49897
`
`Dr. Meyer opined that the parties to the hypothetical negotiation in this case would have taken
`
`into account the significant cost savings to Activision in valuing the patents. Accordingly, Dr.
`
`Valerdi’s cost savings estimate is admissible and relevant to damages as an indicator of the value
`
`to Activision from its use of the patented technology.
`
`Ultimately, all of this admissible evidence is probative to assist the jury in determining
`
`what portion of Activision’s cost savings it would have agreed to as a reasonable royalty. Thus,
`
`the Court should deny Activision’s motion to preclude Acceleration Bay’s cost-savings evidence.
`
`B.
`
`A Reasonable Royalty Based On Apportioned Revenues
`
`Acceleration Bay will also provide admissible evidence regarding a reasonable royalty
`
`based on Activision’s apportioned revenues which are tied to the footprint of the patented
`
`inventions, such that the jury will be equipped to determine an appropriate reasonable royalty for
`
`Activision’s infringement. Dr. Meyer will present the revenues from the accused products,
`
`provide her apportionment to the footprint of the invention and discuss the relevant Georgia-
`
`Pacific factors regarding the lack of non-infringing alternatives, benefits of the patented
`
`technology, the extent and value of use of the patented technology, and profitability information.
`
`Specifically, Dr. Meyer summarized the relevant revenue and profit and other financial
`
`information and the testimony from the following corporate designees confirming the revenues
`
`and profits attributable to each of the accused products and importance of the patented
`
`technology: Robert Kostich (Call of Duty), Saralyn Smith (World of Warcraft), and Byron Beede
`
`(Destiny). See D.I. 480, Ex. 69 at ¶¶ 31-33, 113, 139 , FN 11, 116, 120, 286-87, Exs. 4A-E.
`
`This financial information only concerns the accused products, and is not company-wide.
`
`Dr. Meyer also provided a basis for her apportionment opinion (discussed below), which
`
`she applies to the revenues to identify the apportioned revenues that are attributable to the
`
`patented invention. This apportionment method identifies the relevant revenues of the footprint
`
`12
`
`

`

`Case 1:16-cv-00453-RGA Document 622 Filed 11/02/18 Page 14 of 21 PageID #: 49898
`
`of the invention. Activision’s attacks on Dr. Meyer’s apportionment methodology are without
`
`merit and were already presented to and rejected by the Court. D.I. 578 at 30.
`
`Dr. Meyer marshals additional factual evidence and expert opinion to support a revenue-
`
`based claim. Dr. Meyer has data points regarding the number of users and units sold, which are
`
`evidence of the extent and value to Activision from its use of the infringing technology. As Dr.
`
`Meyer explained in her expert report, “the value of the incremental benefits (i.e., additional
`
`profits) to the licensee from using the patented technology represents the maximum royalty that
`
`the licensee would be willing to pay,” and “define the negotiating (or bargaining) range for the
`
`royalty associated with the [hypothetical] license.” D.I. 480, Ex. 69 at ¶ 42. She also described
`
`the value of the infringing multiplayer functionality to Activision, relying upon the technical
`
`expert testimony of Dr. Bims, Dr. Medvidovic and Dr. Mitzenmacher regarding the benefits,
`
`importance of the patented technology and lack of non-infringing alternatives, all of which is
`
`admissible and unchallenged by Activision. See, e.g., id. at ¶¶ 7, 25-27, 53, 81, 88, 130, 140.
`
`Dr. Meyer’s reliance on these experts and their technical opinions combined with her
`
`economic analysis is addressed in her analysis of the Georgia-Pacific factors. See, e.g., id. at ¶¶
`
`7, 26, 27, 51-56, 113, 130-131, 137, 140. Thus, the jury will have the data inputs and framework
`
`necessary to determine the reasonable royalty, which can be based on the apportioned revenues
`
`and/or profits.
`
`As discussed above, Acceleration Bay disclosed that it would seek an apportioned,
`
`revenue or profit based damages claim over a year ago. Thus, Acceleration Bay’s damages
`
`claim is admissible, even without an opinion from Dr. Meyer regarding a royalty rate. Indeed, a
`
`royalty rate is not necessary to determining a reasonable royalty. Activision concedes as much
`
`because its own damages expert Ms. Lawton does not apply a royalty rate to the apportioned
`
`13
`
`

`

`Case 1:16-cv-00453-RGA Document 622 Filed 11/02/18 Page 15 of 21 PageID #: 49899
`
`revenues. Ex. 7 at 403-12. Instead, Ms. Lawton provides a lump sum range based on a “market
`
`approach” to determine the alleged value of the sublicense rights under the Sony/Boeing License.
`
`Id. As discussed in more detail in Section C, there is no law that requires the application of a
`
`royalty rate to apportioned revenues, and apportioned revenues is just one representation of the
`
`value of the patented technology to Activision.
`
`1.
`
`Activision’s revenues are admissible as they are apportioned to the invention’ footprint
`
`Activision’s entire basis to exclude the revenues damages claim is an alleged failure to
`
`apportion, an argument that was already fully briefed and that the Court rejected during Daubert
`
`motions. D.I. 578 at 30. Activision fails to identify any reason for the Court to reach a different
`
`result on its second bite at the apple.
`
`Activision’s argument is based on citation to multiple cases as supposedly supporting
`
`exclusion of revenue evidence, but those cases are all inapposite. Activision relies on law
`
`regarding the entire market value rule, standing for the proposition that a plaintiff should not
`
`present unapportioned revenues. Activision Br. at 1 citing Uniloc USA, Inc. v. Microsoft Corp.,
`
`632 F.3d 1292, 1315 (Fed. Cir. 2011) (affirming district court finding that use of entire market
`
`value as a "check" on the reasonableness of the expert's damages calculation was improper).
`
`That is simply not reflective of the analysis that Acceleration Bay will be presenting at trial or
`
`what Dr. Meyer has disclosed. As discussed above, Acceleration Bay is not seeking a reasonable
`
`royalty based on the entire market value, i.e., the total revenues, of the accused products.
`
`Instead, Dr. Meyer is going to present the royalty base based on revenues of the games and
`
`identify the appropriate apportionment of those revenues to reflect the footprint of the invention.
`
`Thus, Acceleration Bay and Dr. Meyer are not going to suggest that Acceleration Bay’s
`
`reasonabl