REDACTED-PUBLIC VERSION
`
`Case IPR2014-01121
`Patent 7,626,349
`
`
`
`IN THE UNITED STATES PATENT AND TRADEMARK OFFICE
`BEFORE THE PATENT TRIAL AND APPEAL BOARD
`
`Case IPR2014-01121
`
`Patent 7,626,349
`
`
`
`DECLARATION OF CHRISTOPHER J. BOKHART
`
`
`QUALIFICATIONS
`I am a Vice President of CRA,1 a national consulting firm dedicated to
`
`advising clients and counsel in the areas of consulting, business valuation,
`
`licensing, and litigation support services. CRA is frequently retained to address
`
`accounting, financial, economic, and marketing issues concerning intellectual
`
`property.
`
`
`2.
`
`During my tenure at CRA (and its predecessors), I have consulted with
`
`clients and counsel on business valuation issues, licensing, technology
`
`1 My title at CRA International was also Vice President. My title at InteCap was
`Managing Director.
`
`Exhibit 2010 - 1
`
`
`- 1 -
`
`
`
`PROTECTIVE ORDER MATERIAL -
`ATTORNEY'S EYES ONLY
`
`Nidec Motor Corporation
`IPR2014-01121
`
`
`Zhongshan Broad Ocean Motor Co.,
`Ltd.; Broad Ocean Motor LLC; and
`Broad Ocean Technologies, LLC
`
`
`Petitioners
`
`
`
`
`
`
`
`
`Nidec Motor Corporation
`
`
`v.
`
`
`
`
`
`
`
`
`
`
`
`Patent Owner
`
`
`
`
`
`
`I.
`
`1.
`
`

`
`Case IPR2014-01121
`Patent 7,626,349
`
`commercialization and transfer, and market assessment. I have also supervised and
`
`REDACTED-PUBLIC VERSION
`
`participated in a variety of commercial litigation engagements including breach of
`
`contract, product liability, and the determination of lost profits, reasonable royalty,
`
`and price erosion damages in intellectual property infringement disputes.
`
`
`3.
`
`Prior to joining CRA, I was one of the founding members of IPC Group,
`
`LLC. IPC Group merged with another consulting company in 1999 and was
`
`renamed InteCap, Inc. InteCap was acquired by CRA in 2004. The business of
`
`IPC Group and InteCap during my tenure there was providing accounting,
`
`financial, economic, and marketing consulting services. Before founding IPC
`
`Group, I was an Executive Consultant with Peterson & Co. Consulting, which also
`
`specialized in the same types of consulting services.
`
`
`4.
`
`I received a Bachelor of Science in Management degree, with an emphasis in
`
`Accounting, from Purdue University. I am a Certified Public Accountant in the
`
`State of Illinois, as well as a Certified Fraud Examiner.
`
`
`5.
`
`I am a member of several professional organizations, including the
`
`following:
`
`• American Institute of Certified Public Accountants;
`
`• Illinois CPA Society;
`
`• Association of Certified Fraud Examiners; and
`
`Exhibit 2010 - 2
`
`
`- 2 -
`
`
`
`PROTECTIVE ORDER MATERIAL -
`ATTORNEY'S EYES ONLY
`
`Nidec Motor Corporation
`IPR2014-01121
`
`

`
`Case IPR2014-01121
`Patent 7,626,349
`
`
`• Licensing Executives Society.
`
`REDACTED-PUBLIC VERSION
`
`
`6.
`
`A copy of my curriculum vitae, as well as a list of cases in which I have
`
`testified (both at deposition and at trial), can be found in the attached appendices in
`
`Exhibit 2011 at Tabs 1 and 2. CRA is compensated for the time spent by me and
`
`my associates at our rates of up to $645 per hour.
`
`II. ASSIGNMENT
`
`7.
`I have been retained by Hovey Williams, LLP, counsel for Nidec Motor
`
`Corporation (“Nidec”). Specifically, I have been retained to determine whether
`
`Nidec’s products incorporating the patented technology were a commercial
`
`success, and to evaluate the factors underlying that success. I understand that the
`
`commercial success of a product can be used as a secondary consideration in
`
`demonstrating the non-obviousness of the underlying patented invention. The
`
`following declaration contains my testimony regarding certain aspects of
`
`secondary considerations relating to the obviousness of the subject matter claimed
`
`in U.S. Patent No. 7,626,349 (“the ‘349 patent).
`
`
`8.
`
`I may, if requested, offer rebuttal testimony to any evidence or argument
`
`advanced by the Petitioner, Zhongshan Broad Ocean Motor Co., Ltd.; Broad Ocean
`
`Motor, LLC; and Broad Ocean Technologies, LLC (“Broad Ocean”), regarding
`
`Exhibit 2010 - 3
`
`
`- 3 -
`
`
`
`PROTECTIVE ORDER MATERIAL -
`ATTORNEY'S EYES ONLY
`
`Nidec Motor Corporation
`IPR2014-01121
`
`

`
`Case IPR2014-01121
`Patent 7,626,349
`
`issues of commercial success. Attached to this declaration are schedules (Tabs 4-
`
`REDACTED-PUBLIC VERSION
`
`9) that summarize and support my opinions.
`
`
`9.
`
`As such, my review, analysis and opinions focus on the following:
`
`• General evaluation of the HVAC market, including revenues earned by
`
`Nidec on the sales of the products’ incorporating the technology;
`
`• Evaluation of market dynamics, including the market share growth and
`
`pricing premium by the products with the patented technology;
`
`• Review of the evidence of the marketing efforts of the products
`
`incorporating the technology;
`
`
`10.
`
`In all cases, my review and opinions are based on my expertise in the field
`
`of accounting, financial, and economic matters related to intellectual property
`
`valuation.
`
`III.
`
`11.
`
`INFORMATION RELIED UPON
`
`In performing the analysis and developing the opinions reflected in this
`
`declaration, I relied upon various documents produced by the parties and publicly
`
`available information. A list of the information I have relied upon is attached
`
`hereto in Exhibit 2011 at Tab 3 and referenced in the text and attached schedules of
`
`this declaration. In addition, I have had discussions with Nidec personnel,
`
`specifically Mark Carrier, John Filla and Ryan Wade.
`
`Exhibit 2010 - 4
`
`
`- 4 -
`
`
`
`PROTECTIVE ORDER MATERIAL -
`ATTORNEY'S EYES ONLY
`
`Nidec Motor Corporation
`IPR2014-01121
`
`

`
`REDACTED-PUBLIC VERSION
`
`Case IPR2014-01121
`Patent 7,626,349
`
`IV. RELEVANT FACTS AND BACKGROUND
`
`12.
`I understand that Broad Ocean has petitioned and was granted inter partes
`
`review under 35 U.S.C. § 312 and 37 C.F.R. § 42.100 of the ‘349 patent.2 The
`
`‘349 patent was issued on December 1, 2009.3 I further understand that the ‘349
`
`patent is alleged to cover the permanent magnet motors using sinewave
`
`(sinusoidal) commutation technology including an independent q- and d- axis
`
`control scheme sold by Nidec.4
`
`
`1.
`
`Parties-in-Suit
`
`
`
` Nidec is a leading manufacturer of commercial, industrial, and appliance 13.
`
`motors and controls.5 What is now Nidec was originally established in 1890.6 In
`
`2010, Nidec Motor Corporation was formed when Nidec Corporation acquired
`
`
`2 Decision - Institution for Inter Partes Review of U.S. Patent No. 7,626,349,
`Zhongshan Broad Ocean Motor Co., Ltd., Broad Ocean Motor LLC, and Broad
`Ocean Technologies, LLC v. Nidec Motor Corporation, IPR2014-01121
`(1/21/2015).
`3 Ex. 1001, U.S. Patent No. 7,626,349.
`4 Ex. 1001, U.S. Patent No. 7,626,349.
`5 Ex. 2012, About Us, Nidec (http://www.nidec-motor.com/About-Us.aspx).
`6 Ex. 2013, Company History, Nidec (http://www.nidec-motor.com/About-
`Us/Company-History.aspx).
`
`Exhibit 2010 - 5
`
`
`- 5 -
`
`
`
`PROTECTIVE ORDER MATERIAL -
`ATTORNEY'S EYES ONLY
`
`Nidec Motor Corporation
`IPR2014-01121
`
`

`
`Case IPR2014-01121
`Patent 7,626,349
`
`Emerson’s motors and controls division to expand its presence in the U.S. market.7
`
`REDACTED-PUBLIC VERSION
`
`Nidec Motor Corporation is based in St. Louis, MO.8
`
`
`
` Broad Ocean: Broad Ocean Motor is a global developer, manufacturer, and 14.
`
`distributor of motors.9 The company is based in Zhongshan, China10 and was
`
`founded in 2000.11
`
`
`2.
`
`Patent-in-Suit
`
`
`
` The ‘349 patent was issued on December 1, 2009 and covers a motor 15.
`
`controller for use in a heating, ventilating and/or air conditioning (HVAC)
`
`system.12 Sinewave commutation produces continuous phase currents in the
`
`permanent magnet motor to allow for reduced noise and vibration.13 The patented
`
`technology was first incorporated into Nidec’s products in 2007 with the release of
`
`
`7 Ex. 2014, Nidec to Buy Emerson Unit, The Wall Street Journal
`(http://www.wsj.com/articles/SB1000142405274870455410457543660091855182
`6); Company Overview, Nidec (http://www.nidec-motor.com/About-Us/Company-
`Overview.aspx).
`8 Ex. 2015, Company Overview, Nidec (http://www.nidec-motor.com/About-
`Us/Company-Overview.aspx).
`9 Ex. 2016 , Zhongshan Broad-Ocean Motor Co., Ltd.
`(https://www.capitaliq.com/CIQDotNet/company.aspx?companyId=45977574).
`10 Ex. 2016, Zhongshan Broad-Ocean Motor Co., Ltd.
`(https://www.capitaliq.com/CIQDotNet/company.aspx?companyId=45977574).
`11Ex. 2017, Company Profile, Broad-Ocean website (http://www.broad-
`ocean.com/en/introduce.html).
`12 Ex. 1001, U.S. Patent No. 7,626,349.
`13 Ex. 1001, U.S. Patent No. 7,626,349.
`
`Exhibit 2010 - 6
`
`
`- 6 -
`
`
`
`PROTECTIVE ORDER MATERIAL -
`ATTORNEY'S EYES ONLY
`
`Nidec Motor Corporation
`IPR2014-01121
`
`

`
`Case IPR2014-01121
`Patent 7,626,349
`
`the Perfect Speed Gen I model.14 Since then, Nidec has produced several other
`
`REDACTED-PUBLIC VERSION
`
`models incorporating the technology.
`
`
`
` HVAC Market Overview 3.
`
`
`
` The HVAC market includes furnaces, heat pumps, cooling equipment, and a 16.
`
`variety of other segments.15 This domestic market is expected to grow by
`
`approximately 2.4% annually to $42 billion by 2017.16 It is within the gas and oil
`
`furnace segments that the patented motors are primarily used (the “residential
`
`heating market”).17
`
`
`
` Traditionally, there have been two types of motors used in the residential 17.
`
`heating market, permanent split capacitor motors (PSCs) and electronically
`
`commutated motors (ECMs).18 PSCs work at a single speed and multi-speeds
`
`
`14 Ex.2007, Copy of OEM Aftermarket Distribution Market Units Ave Price
`Market Sales 2.xlsx.
`15 Ex. 2018, HVAC Equipment Market – Global Industry Analysis, Size, Share,
`Growth, Trends, and Forecast 2012-2018, PR Newswire (9/3/2013)
`(http://www.prnewswire.com/news-releases/hvac-equipment-market---global-
`industry-analysis-size-share-growth-trends-and-forecast-2012---2018-
`222161181.html).
`16 Ex. 2019, HVAC Market Report, Gruppo BPC, 2014
`(http://www.slideshare.net/gruppobpc/abstract-market-reporthvacusa2014eng).
`17 Based on discussion with Nidec personnel.
`18 Ex. 2020, Comparing Motor Technologies, The News (12/14/2009)
`(http://www.achrnews.com/articles/112674-comparing-motor-technologies).
`
`Exhibit 2010 - 7
`
`
`- 7 -
`
`
`
`PROTECTIVE ORDER MATERIAL -
`ATTORNEY'S EYES ONLY
`
`Nidec Motor Corporation
`IPR2014-01121
`
`

`
`Case IPR2014-01121
`Patent 7,626,349
`
`while ECMs can perform with variable-speed capabilities as well as single and
`
`REDACTED-PUBLIC VERSION
`
`multi-speeds.19
`
` PSC motor technology has generally been the standard in the industry.20
`18.
`
`These motors use alternating current (AC) and include two main components, a
`
`stator and a rotor.21 Because of their design, these motors cannot offer variable
`
`speeds and are less efficient than ECMs.22 The use of PSC motors is primarily used
`
`in lower SEER (seasonal energy efficiency ratio) HVAC units or in units sold at
`
`lower price points.23
`
`
`19 Ex. 2020, Comparing Motor Technologies, The News (12/14/2009)
`(http://www.achrnews.com/articles/112674-comparing-motor-technologies); Ex.
`2021, Evaluation of Retrofit Variable-Speed Furnace Fan Motors, U.S. Department
`of Energy p. 1 (January 2014) (http://www.nrel.gov/docs/fy14osti/60760.pdf); Ex.
`2022, Using ECM Motors in HVAC Systems, Thomasnet.com (2015)
`(http://www.thomasnet.com/articles/machinery-tools-supplies/ECM-Motors-
`HVAC-Systems).
`20 Ex. 2020, Comparing Motor Technologies, The News (12/14/2009)
`(http://www.achrnews.com/articles/112674-comparing-motor-technologies).
`21 Ex. 2020, Comparing Motor Technologies, The News (12/14/2009)
`(http://www.achrnews.com/articles/112674-comparing-motor-technologies).
`22 Ex. 2020, Comparing Motor Technologies, The News (12/14/2009)
`(http://www.achrnews.com/articles/112674-comparing-motor-technologies).
`23 Ex. 2020, Comparing Motor Technologies, The News (12/14/2009)
`(http://www.achrnews.com/articles/112674-comparing-motor-technologies); Ex.
`2022, Using ECM Motors in HVAC Systems, Thomasnet.com (2015)
`(http://www.thomasnet.com/articles/machinery-tools-supplies/ECM-Motors-
`HVAC-Systems).
`
`Exhibit 2010 - 8
`
`
`- 8 -
`
`
`
`PROTECTIVE ORDER MATERIAL -
`ATTORNEY'S EYES ONLY
`
`Nidec Motor Corporation
`IPR2014-01121
`
`

`
`Case IPR2014-01121
`Patent 7,626,349
`
` ECMs are motors that utilize single and multi-speed capabilities but also 19.
`
`
`
`REDACTED-PUBLIC VERSION
`
`incorporate variable speed technology in a direct current design using permanent
`
`magnets.24
`
`
`
` Many ECM models are chosen due to their ability to run at variable speeds, 20.
`
`but other ECMs still have benefits over traditional PSCs.25 When running at a fixed
`
`speed, ECMs use less energy than a typical PSC motor running at a fixed speed in
`
`a similar unit.26
`
`
`
` The variable speed option within these motors can provide even more 21.
`
`benefits over the traditional PSCs. By establishing a permanent magnetic field,
`
`these motors employ variable speed to allow for high efficiency, low speed, and
`
`
`24 Ex. 2022, Using ECM Motors in HVAC Systems, Thomasnet.com (2015)
`(http://www.thomasnet.com/articles/machinery-tools-supplies/ECM-Motors-
`HVAC-Systems).
`25 Ex. 2022, Using ECM Motors in HVAC Systems, Thomasnet.com (2015)
`(http://www.thomasnet.com/articles/machinery-tools-supplies/ECM-Motors-
`HVAC-Systems).
`26 Ex. 2022, Using ECM Motors in HVAC Systems, Thomasnet.com (2015)
`(http://www.thomasnet.com/articles/machinery-tools-supplies/ECM-Motors-
`HVAC-Systems).
`
`Exhibit 2010 - 9
`
`
`- 9 -
`
`
`
`PROTECTIVE ORDER MATERIAL -
`ATTORNEY'S EYES ONLY
`
`Nidec Motor Corporation
`IPR2014-01121
`
`

`
`Case IPR2014-01121
`Patent 7,626,349
`
`high torque.27 Greater efficiency and better airflow are just a few of the
`
`REDACTED-PUBLIC VERSION
`
`advantages of an ECM motor over the PSC motor.28
`
`
`
` The domestic variable speed market has grown22.
`
`
`
`
`
`29 I understand this market for variable speed motors
`
`includes three large players including Nidec Motor Corporation, Regal Beloit (as a
`
`result of the acquisition of General Electric’s commercial AC and HVAC motor
`
`business in 2005),30 and Broad Ocean Motor Company.31
`
`
`
` Within ECMs, commutation is used to produce continuous phase currents in 23.
`
`the permanent magnet motor to drive the air-moving component.32 This
`
`commutation can be in the form of sinusoidal back EMF waveforms or traditional
`
`trapezoidal back EMF waveforms.33 HVAC systems commonly employ the square
`
`wave commutation.34 However, the square wave commutation produces relatively
`
`
`27 Ex. 2023, Super Premium” Efficiency Motors are Now Available, Washington
`State University (2010).
`28 Ex. 2024, Rescue® EcoTech® Direct Drive Blower Motor, The High Efficiency
`“ECM/BPM” Drop-in Replacement Blower Motor. Nidec Motor Corporation.
`29 Ex. 2011 at Tab 5, Schedule 5.1.
`30 Ex. 2025, History, Regal Beloit (http://www.regalbeloit.com/who-we-are/our-
`company/history.aspx).
`31 See Ex. 2011 at Tab 5, Schedule 5.0.
`32 Ex. 1001, U.S. Patent No. 7,626,349.
`33 Ex. 1001, U.S. Patent No. 7,626,349.
`34 Ex. 1001, U.S. Patent No. 7,626,349.
`
`Exhibit 2010 - 10
`
`
`- 10 -
`
`
`
`PROTECTIVE ORDER MATERIAL -
`ATTORNEY'S EYES ONLY
`
`Nidec Motor Corporation
`IPR2014-01121
`
`

`
`Case IPR2014-01121
`Patent 7,626,349
`
`high operation torque ripple and torque harmonics.35 Because of this, the system
`
`REDACTED-PUBLIC VERSION
`
`produces unwanted, acoustic noise and vibration.36 To counteract this noise and
`
`vibration, many motors incorporate mechanical damping material.37
`
`
`
` Sinusoidal commutation, on the other hand, produces smoother torque 24.
`
`output.38 The minimized torque ripple produces less acoustic noise, a highly
`
`desirable factor, especially in residential and commercial applications.39
`
`V. ADVANTAGES OF THE PATENTED TECHNOLOGY
`I understand that the ‘349 patent involves sinusoidal commutation.40 Nidec
`
`25.
`
`electric motors and controllers practicing the invention claimed in the ‘349 patent
`
`include the names PerfectSpeed, EcoTech, 16X4W, SelecTech, Rescue Select and
`
`EcoApex 48.41 I will collectively refer to them as “Practicing Nidec Motors.” In
`
`addition to the non-patented benefits discussed above, Practicing Nidec Motors
`
`
`35 Ex. 1001, U.S. Patent No. 7,626,349.
`36 Ex. 1001, U.S. Patent No. 7,626,349.
`37 Ex. 1001, U.S. Patent No. 7,626,349.
`38 Ex. 1001, U.S. Patent No. 7,626,349.
`39 Ex. 1001, U.S. Patent No. 7,626,349.
`40 Ex. 1001, U.S. Patent No. 7,626,349.
`41 Based on discussions with Mark Carrier; See also Ex. 2003. Declaration of
`Mark Carrier at paragraph 23.
`
`Exhibit 2010 - 11
`
`
`- 11 -
`
`
`
`PROTECTIVE ORDER MATERIAL -
`ATTORNEY'S EYES ONLY
`
`Nidec Motor Corporation
`IPR2014-01121
`
`

`
`Case IPR2014-01121
`Patent 7,626,349
`
`have additional benefits and features including independent q- and d- axis control
`
`REDACTED-PUBLIC VERSION
`
`of a sinewave commutation.42
`
`
`
` These benefits provide better torque control over speed ranges which gives a 26.
`
`more consistent flow across the heat exchanger.43 The result is uniform and
`
`efficient heating and cooling throughout the home.44 The q- and d- axis control
`
`also deals with drops in line voltage.45 This allows the motor to turn during low
`
`voltage situations.46
`
`
`
` As a result of the sine wave commutation, the Practicing Nidec Motors are 27.
`
`quieter than other styles of ECM motors.47 Especially noticeable is the reduction
`
`in startup noise production.48 In many models, manufacturers address the issue of
`
`
`42 Based on discussion with Mark Carrier; See also Ex. 2003. Declaration of Mark
`Carrier at paragraph 25.
`43 Based on discussion with Mark Carrier; See also Ex. 2003. Declaration of Mark
`Carrier, paragraphs 26-28, 44, 46 and 47.
`44 Based on discussion with Mark Carrier; See also Ex. 2003. Declaration of Mark
`Carrier, paragraphs 26-28, 44, 46 and 47.
`
`45 Based on discussion with Mark Carrier; See also Ex. 2003. Declaration of Mark
`Carrier at paragraph 33.
`46 Based on discussion with Mark Carrier; See also Ex. 2003. Declaration of Mark
`Carrier at paragraph 33.
`47 Based on discussion with Mark Carrier; See also Ex. 2003. Declaration of Mark
`Carrier, paragraphs 29-32, 44, 46 and 47.
`48 Based on discussion with Mark Carrier; Ex. 2004, Goodman Business
`Alignment Technology Meeting 5_2012.pptx; See also Ex. 2003. Declaration of
`Mark Carrier at paragraph 32.
`
`Exhibit 2010 - 12
`
`
`- 12 -
`
`
`
`PROTECTIVE ORDER MATERIAL -
`ATTORNEY'S EYES ONLY
`
`Nidec Motor Corporation
`IPR2014-01121
`
`

`
`Case IPR2014-01121
`Patent 7,626,349
`
`noise with damping methods.49 However, use of the patented invention eliminates
`
`REDACTED-PUBLIC VERSION
`
`the need for additional dampers which can result in lower costs and simplicity over
`
`time.50
`
`VI. COMMERCIAL SUCCESS ANALYSIS
`
` Overview 4.
`
`
`28.
`
`I understand that commercial success of a product can be used as one of the
`
`objective indicia in demonstrating the nonobviousness of the underlying patented
`
`invention. For example, as stated by the Court of Appeals for the Federal Circuit
`
`in J.T. Eaton & Co. v. Atlantic Paste & Glue Co.:
`
`When a patentee can demonstrate commercial success, usually shown
`by significant sales in a relevant market, and that the successful
`product is the invention disclosed and claimed in the patent, it is
`presumed that the commercial success is due to the patented
`invention.51
`
`
`
`
`49 Ex. 1001, U.S. Patent No. 7,626,349.
`50 Based on discussion with Mark Carrier; See also Ex. 2003. Declaration of Mark
`Carrier at paragraph 30.
`51 J.T. Eaton & Co. v. Atlantic Paste & Glue Co., 106 F.3d 1563, 1571 (Fed. Cir.
`1997); see also Richdel, Inc. v. Sunspool Corp., 714 F.2d 1573, 1580 (Fed. Cir.
`1983); Demaco Corp. v. F. Von Langsdorff Licensing, Ltd., 851 F.2d 1387, 1392
`(Fed. Cir. 1988); Ecolochem, Inc. v. S. Cal. Edison Co., 227 F.3d 1361, 1377 (Fed.
`Cir. 2000) (“[A] presumption arises that the patented invention is commercially
`successful ‘[w]hen a patentee can demonstrate commercial success, usually shown
`by significant sales in a relevant market, and that the successful product is the
`invention disclosed and claimed in the product.”).
`
`Exhibit 2010 - 13
`
`
`- 13 -
`
`
`
`PROTECTIVE ORDER MATERIAL -
`ATTORNEY'S EYES ONLY
`
`Nidec Motor Corporation
`IPR2014-01121
`
`

`
`Case IPR2014-01121
`Patent 7,626,349
`
` Commercial success can also be indicated by a number of factors other than 29.
`
`
`
`REDACTED-PUBLIC VERSION
`
`"significant sales." These include market share growth and premium pricing in
`
`comparison to competing products.
`
`
`30.
`
` I understand that there is no requirement for a product to be commercially
`
`successful for the entire time since introduction, an unachievable standard for most
`
`products since market penetration and profitability do not occur instantaneously
`
`upon introduction.
`
`
`31.
`
` I further understand that the patentee must show that a nexus exists
`
`between the asserted claims and the commercial success. As explained in the
`
`Manual of Patent Examining Procedure:
`
`To be given substantial weight in the determination of obviousness or
`nonobviousness, evidence of secondary considerations must be
`relevant to the subject matter as claimed, and therefore the examiner
`must determine whether there is a nexus between the merits of the
`claimed invention and the evidence of secondary considerations. The
`term “nexus” designates a factually and legally sufficient connection
`between the objective evidence of nonobviousness and the claimed
`invention so that the evidence is of probative value in the
`determination of nonobviousness.52
`
`
`
`52 Manual of Patent Examining Procedure §716.01 (b)
`(http://www.uspto.gov/web/offices/pac/mpep/s716.html). Citations omitted.
`
`Exhibit 2010 - 14
`
`
`- 14 -
`
`
`
`PROTECTIVE ORDER MATERIAL -
`ATTORNEY'S EYES ONLY
`
`Nidec Motor Corporation
`IPR2014-01121
`
`

`
`REDACTED-PUBLIC VERSION
`
`Case IPR2014-01121
`Patent 7,626,349
`
`
`32.
`
`In addition, the Manual of Patent Examining Procedure also provides
`
`guidelines related to the determination of commercial success to the nexus of the
`
`invention. In section 716.03(b) it states:
`
`Hybritech Inc. v. Monoclonal Antibodies, Inc., 802 F.2d 1367, 231
`USPQ 81 (Fed. Cir.1986). (Evidence of commercial success
`supported a conclusion of nonobviousness of claims to an
`immunometric “sandwich” assay with monoclonal antibodies.
`Patentee’s assays became a market leader with 25% of the market
`within a few years. Evidence of advertising did not show absence of a
`nexus between commercial success and the merits of the claimed
`invention because spending 25-35% of sales on marketing was not
`inordinate (mature companies spend 17-32% of sales in this market),
`and advertising served primarily to make industry aware of the
`product because this is not the kind of merchandise that can be sold by
`advertising hyperbole.).53
`
`
` Further, I understand that advertising can play a role in proving the nexus of 33.
`
`
`
`a patent in commercial success as described in Omron Oilfield & Marine, Inc. v.
`
`MD/Totco, A Division of Varco, L.P.:
`
`Advertising the benefits of the claimed invention links the invention
`to commercial success. Cf. Gambro Lundia AB v. Baxter Healthcare
`Corp., 110 F.3d 1573, 1579 (Fed. Cir. 1997) (“The prominence of the
`patented technology in . . . advertising creates an inference that links
`the . . . invention to this success.”)54
`
`
`53 Manual of Patent Examining Procedure §716.01 (b)
`(http://www.uspto.gov/web/offices/pac/mpep/s716.html). Citations omitted.
`54 Institution of Inter Partes Review 37 C.F.R. § 42.108, Omron Oilfield &
`Marine, Inc. v. MD/Totco, A Division of Varco, L.P., IPR2013-00265, Patent
`5,474,142 (10/31/2013); See also Cf. Gambro Lundia AB v. Baxter Healthcare
`
`
`
`- 15 -
`
`
`
`PROTECTIVE ORDER MATERIAL -
`ATTORNEY'S EYES ONLY
`
`Nidec Motor Corporation
`IPR2014-01121
`
`Exhibit 2010 - 15
`
`

`
`REDACTED-PUBLIC VERSION
`
`Case IPR2014-01121
`Patent 7,626,349
`
`
`
`
`
` Accordingly, I understand that the commercial success must be derived from 34.
`
`differentiation attributable to the invention claimed and that such success must not
`
`be the result of heavy promotion or advertising, shift in advertising, consumption
`
`by purchasers normally tied to the patent owner or other business events
`
`extraneous to the merits of the claimed invention.55
`
`
`1.
`
`Determination of Commercial Success
`
`
`35.
`
` To determine whether the Practicing Nidec Motors were a commercial
`
`success, I undertook an analysis and review of the factors described above,
`
`including market share growth and premium pricing.
`
`A. Market Share Growth
`
`
`
` A commercially successful product provides the firm marketing the product 36.
`
`with a benefit above and beyond the cost of development and commercialization.
`
`It should enable the producing company to expand its sales and gain market share
`
`at the expense of rivals. Additionally, an increase in market size also demonstrates
`
`consumer demand for the product.
`
`
`Corp., 110 F.3d 1573, 1579 (Fed. Cir. 1997) and Wm. Wrigley Jr. Co. v. Cadbury
`Adams USA LLC, 683 F.3d 1356, 1369 (Fed. Cir. 2012).
`55 Manual of Patent Examining Procedure §716.01 (b)
`(http://www.uspto.gov/web/offices/pac/mpep/s716.html).
`
`Exhibit 2010 - 16
`
`
`- 16 -
`
`
`
`PROTECTIVE ORDER MATERIAL -
`ATTORNEY'S EYES ONLY
`
`Nidec Motor Corporation
`IPR2014-01121
`
`

`
`Case IPR2014-01121
`Patent 7,626,349
`
` As indicated in the background section of this report, the commercial 37.
`
`
`
`REDACTED-PUBLIC VERSION
`
`success of the Practicing Nidec Motors, in terms of absolute sales levels, has been
`
`significant. In 2008, the year after the patent was filed, sales of the Practicing
`
`Nidec Motors were
`
`.56 Sales then began to grow, reaching
`
`
`
`
`
`57 Sales of these motors continued to rise, reaching
`
`, and are projected to
`
`
`
` Within the variable
`
`speed market, Nidec’s unit market share increased from
`
`
`
`
`
`, causing competitors’ market share to drop significantly, as shown in Figure
`
`1. 59
`
`
`56 Ex. 2011 at Tab 4, Schedule 4.1.
`57 Ex. 2011 at Tab 4, Schedule 4.1.
`58 Ex. 2011 at Tab 4, Schedule 4.1.
`59 Ex. 2011 at Tab 8, Schedule 8.0.
`
`Exhibit 2010 - 17
`
`
`- 17 -
`
`
`
`PROTECTIVE ORDER MATERIAL -
`ATTORNEY'S EYES ONLY
`
`Nidec Motor Corporation
`IPR2014-01121
`
`

`
`Case IPR2014-01121
`Patent 7,626,349
`
`
`Figure 1. Unit Market Share of Nidec vs Competitors60
`
`REDACTED-PUBLIC VERSION
`
`
`
` Another indicator of a commercially successful product is that it outsells 38.
`
`previous products that it may be replacing in a relatively short period of time. The
`
`Magellan model was the previous model in the variable speed market offered by
`
`Nidec and it does not incorporate the patented technology. By 2004, it reached
`
`sales of
`
`
`
`61 with a
`
`market share.62 In comparison, the Practicing
`
`Nidec Motors had sales of
`
`
`
`63 with a
`
` market share in 2010.64
`
`
`60 Ex. 2011 at Tab 8, Schedule 8.0.
`61 Ex. 2011 at Tab 4, Schedule 4.1.
`62 Ex. 2011 at Tab 9, Schedule 9.0.
`63 Ex. 2011 at Tab 4, Schedule 4.1.
`64 Ex. 2011 at Tab 9, Schedule 9.0.
`
`Exhibit 2010 - 18
`
`
`- 18 -
`
`
`
`PROTECTIVE ORDER MATERIAL -
`ATTORNEY'S EYES ONLY
`
`Nidec Motor Corporation
`IPR2014-01121
`
`

`
`Case IPR2014-01121
`Patent 7,626,349
`
`These sales are continuing to grow and are expected to reach
`
`
`
`REDACTED-PUBLIC VERSION
`
`with a market share of
`
` as seen in Figure 2.65
`
`Figure 2. Unit Market Share of Magellan Model vs. Patented Technology
`
`Models66
`
`
`
` Market share growth can also be seen with Nidec’s relationship with 39.
`
`Goodman Air Conditioning and Heating. Before the patented technology,
`
`
`
`.67 However, within two
`
`years of the Practicing Nidec Motors being released, Nidec had secured a deal
`
`65 Ex. 2011 at Tab 4, Schedule 4.1.
`66 Ex. 2011 at Tab 8, Schedule 8.0. I have also calculated market share based on
`dollar revenue and the results are similar, see Tab 9, Schedule 9.0. In addition I
`have reviewed market share on a product description basis as shown on Schedules
`8.1 and 9.1.
`67 Based on discussion with Mark Carrier; See also Ex. 2003. Declaration of Mark
`Carrier at paragraph 48.
`
`
`
`Exhibit 2010 - 19
`
`
`- 19 -
`
`
`
`PROTECTIVE ORDER MATERIAL -
`ATTORNEY'S EYES ONLY
`
`Nidec Motor Corporation
`IPR2014-01121
`
`

`
`REDACTED-PUBLIC VERSION
`
` as a direct result of the benefits
`
`Case IPR2014-01121
`Patent 7,626,349
`
`
`provided by the ‘349 patent.68
`
`B.
`
`Premium Pricing
`
`
`
` Another factor of commercial success is whether the product can sell at a 40.
`
`premium in comparison to competitors’ products and previous products not
`
`utilizing the patented technology. As shown in Figure 3 below, these Practicing
`
`Nidec Motors initially sold at a premium in comparison to similar products in the
`
`variable speed market.69
`
`
`
`
`68 Based on discussion with Mark Carrier; See also Ex. 2003. Declaration of Mark
`Carrier at paragraph 48.
`69 See Ex. 2003. Declaration of Mark Carrier at paragraphs 40-42.
`
`Exhibit 2010 - 20
`
`
`- 20 -
`
`
`
`PROTECTIVE ORDER MATERIAL -
`ATTORNEY'S EYES ONLY
`
`Nidec Motor Corporation
`IPR2014-01121
`
`

`
`Case IPR2014-01121
`Patent 7,626,349
`
`
`Figure 3. Average Selling Prices of Variable Speed Market vs. Patented
`
`REDACTED-PUBLIC VERSION
`
`Technology Models70
`
`
`
` Even among Nidec’s own products, the prices of the Practicing Nidec 41.
`
`Motors initially exceeded the prices of their previous variable speed motor not
`
`utilizing the patented technology, the Magellan, as shown in Figure 4.
`
`
`70 Ex. 2011 at Tab 7, Schedule 7.0.
`
`Exhibit 2010 - 21
`
`
`- 21 -
`
`
`
`PROTECTIVE ORDER MATERIAL -
`ATTORNEY'S EYES ONLY
`
`Nidec Motor Corporation
`IPR2014-01121
`
`

`
`Case IPR2014-01121
`Patent 7,626,349
`
`Figure 4. Average Selling Prices of Magellan Model and Patented Technology
`
`REDACTED-PUBLIC VERSION
`
`Models71
`
`
`VII. NEXUS
`
` As previously stated, I understand that the commercial success must be 42.
`
`derived from differentiation attributable to the invention claimed and that such
`
`success must not be the result of heavy promotion or advertising, shift in
`
`advertising, consumption by purchasers normally tied to the patent owner or other
`
`business events extraneous to the merits of the claimed invention.
`
`
`71 Ex. 2011 at Tab 4, Schedule 4.2; See also Ex. 2003. Declaration of Mark Carrier
`at paragraph 40.
`
`Exhibit 2010 - 22
`
`
`- 22 -
`
`
`
`PROTECTIVE ORDER MATERIAL -
`ATTORNEY'S EYES ONLY
`
`Nidec Motor Corporation
`IPR2014-01121
`
`

`
`Case IPR2014-01121
`Patent 7,626,349
`
` My determination of commercial success focused not only on the absolute 43.
`
`
`
`REDACTED-PUBLIC VERSION
`
`performance of the Practicing Nidec Motors, but also the relative performance
`
`when compared to competing motors and Nidec’s predecessor product, the
`
`Magellan. This along with the price premium commanded are indicators that there
`
`is a nexus between the ‘349 patent and the commercial success of Nidec’s motors
`
`above and beyond the success and demand attributable to the non-patented
`
`features. The nexus is also indicated by the decision by Goodman to switch over
`
`to the Practicing Nidec Motors specifically because of the benefits of the ‘349
`
`patent.72
`
`
`
` All products require marketing and advertising. The key questions regarding 44.
`
`commercial success are whether this advertising was inordinate or was for reasons
`
`other than to make the industry aware of the product’s patented features.
`
`
`45.
`
`I understand that Nidec sells a very technical product to sophisticated
`
`original equipment manufacturers.73 Nidec markets its products through
`
`presentations to potential customers.74 This customer specific approach is directly
`
`
`72 Ex. 2003. Declaration of Mark Carrier at paragraph