UNITED STATES PATENT AND TRADEMARK OFFICE
`___________________________
`
`BEFORE THE PATENT TRIAL AND APPEAL BOARD
`________________________________________________________________
`
`ZHONGSHAN BROAD OCEAN MOTOR CO., LTD.;
`BROAD OCEAN MOTOR LLC; and
`BROAD OCEAN TECHNOLOGIES, LLC
`
`Petitioners
`
`v.
`
`NIDEC MOTOR CORPORATION
`
`Patent Owner
`
`U.S. Patent No. 7,626,349
`Case No. IPR2014-01121
`
`PETITIONERS’ RESPONSE TO PATENT OWNER’S MOTION FOR
`OBSERVATION REGARDING CROSS-EXAMINATION OF REPLY
`WITNESS IVAN HOFMANN
`
`HOU 1810351v.2
`
`
`___________________________
`
`BEFORE THE PATENT TRIAL AND APPEAL BOARD
`________________________________________________________________
`
`ZHONGSHAN BROAD OCEAN MOTOR CO., LTD.;
`BROAD OCEAN MOTOR LLC; and
`BROAD OCEAN TECHNOLOGIES, LLC
`
`Petitioners
`
`v.
`
`NIDEC MOTOR CORPORATION
`
`Patent Owner
`
`U.S. Patent No. 7,626,349
`Case No. IPR2014-01121
`
`PETITIONERS’ RESPONSE TO PATENT OWNER’S MOTION FOR
`OBSERVATION REGARDING CROSS-EXAMINATION OF REPLY
`WITNESS IVAN HOFMANN
`
`HOU 1810351v.2
`
`
`
`Pursuant to the Board’s January 21, 2015 Scheduling Order (Paper 21),
`
`Petitioners Zhongshan Broad Ocean Motor Co., Ltd. Broad Ocean Motor LLC, and
`
`Broad Ocean Technologies, LLC (collectively, “Broad Ocean”) provide the
`
`following Response to Patent Owner’s Motion for Observation Regarding Cross-
`
`Examination of Reply Witness Ivan Hofmann.
`
`As the Board stated in this action, the purpose of observations is to “draw
`
`the Board’s attention to relevant cross-examination testimony of a reply witness,
`
`since no further substantive paper is permitted after the reply.” Paper 21 at 6.
`
`Patent Owner, however,
`
`improperly uses the observations as a vehicle to
`
`supplement the arguments in its Patent Owner Response. Broad Ocean objects to
`
`this misuse of the observations. See PTAB Trial Practice Guide, 77 Fed. Reg.
`
`48756, 48768 (“An observation (or response) is not an opportunity to raise new
`
`issues, re-argue issues, or pursue objections.”)
`
`Further, as discussed in the individual responses below, Patent Owner’s
`
`observations either are redundant in view of Mr. Hofmann’s Declaration, or reach
`
`unwarranted inferences from the cited testimony of Ivan Hofmann in view of other
`
`testimony of Mr. Hofmann cited herein that has either been omitted or ignored by
`
`Patent Owner.
`
`1.
`
`Response to Observation 1 – The testimony cited by Patent Owner is
`
`irrelevant
`
`to Hofmann’s qualifications.
`
`Patent Owner has never challenged
`
`HOU 1810351v.2
`
`- 1 -
`
`
`
`Hofmann’s qualifications. Moreover, the cited testimony is taken out of context
`
`for Hofmann testified that the opinions where he concluded that there was not
`
`objective indicia of obviousness are limited solely with respect to opinions he has
`
`given testimony about, and does not include the many matters not listed on his CV
`
`nor matters in which he was acting as a consultant or in which he did not testify, in
`
`which he came to the opposite conclusion. See, Ex. 2031, page 15, line 9-page 20,
`
`line 6. Moreover, this observation disregards Mr. Hofmann’s testimony regarding
`
`the complexity of prior analysis where a determination of significant sales were
`
`determined, however the performance lacked nexus to the patents-in-suit. Id.
`
`2.
`
`Response to Observation 2 – Patent Owner incorrectly asserts that this
`
`testimony demonstrates that PSC motors and ECM motors operate in separate
`
`submarkets, and that ECM motors are more quiet. First, with respect to the
`
`testimony cited to by Patent Owner concerning the noise level of motors, Patent
`
`Owner takes this testimony out of context and does not
`
`include Hofmann’s
`
`previous answer concerning the same topic:
`
`Q. Is it also your understanding that an ECM motor is
`inherently quieter than a PSC motor?
`A. Well, I guess there I would be careful to say there is a
`question of degree. If, in fact, an ECM motor is quieter,
`my understanding as an absolute question, sure, I think
`an ECM motor is viewed quieter, particularly at startup
`and shutdown versus a PSC. But oftentimes the level of
`
`HOU 1810351v.2
`
`- 2 -
`
`
`
`quietness is either nondetectable to the human ear or is
`drowned out, if you will, or that there are other factors in
`the functioning of an HVAC system that may or may not
`render any differences in sound irrelevant.
`Exhibit 2013, page 24, line 19 to page 25, line 9.
`
`Finally, this observation and others presupposes the existence and relevance
`
`of purported “submarkets.” This observation mischaracterizes the conclusion that
`
`Mr. Hofmann indicated that PSC and ECM motors are in separate “submarkets”.
`
`Mr. Hofmann’s testimony acknowledges that
`
`there is natural differentiation
`
`between products in a market, but this does not create a purported “submarket.”
`
`The line of questioning through-out the deposition involved whether or not OEMs
`
`were making decisions to choose between PSC and ECM motors. The mere fact
`
`that a “choice” is requires demonstrates that both PSCs and ECMs are competing
`
`in the same market. As described in the Hofmann Declaration (Ex. 1014, para.
`
`32), there is general consensus from multiple sources regarding this competition:
`
`the Declaration of Alan Kessler (the “Kessler Declaration”); the Declaration of Ge
`
`Hu (the “Hu Declaration”); his discussions with industry participants; the DOE
`
`Market Assessment;
`
`and Nidec’s own marketing presentation materials.
`
`Customers choosing between different products within a market is common. The
`
`existence of certain “advantages” of one product over another does not create a
`
`HOU 1810351v.2
`
`- 3 -
`
`
`
`submarket, but rather provides a consumer of a choice within the same overall
`
`market.
`
`3.
`
`Response to Observation 3 – Patent Owner incorrectly asserts that this
`
`testimony demonstrates that PSC motors and ECM motors operate in separate
`
`submarkets. As noted above, this observation and others presupposes the existence
`
`and relevance of purported “submarkets.” This observation mischaracterizes the
`
`conclusion that Mr. Hofmann indicated that PSC and ECM motors are in separate
`
`“submarkets”. Mr. Hofmann’s testimony acknowledges that
`
`there is natural
`
`differentiation between products in a market, but this does not create a purported
`
`“submarket.” The line of questioning through-out the deposition involved whether
`
`or not OEMs were making decisions to choose between PSC and ECM motors.
`
`The mere fact that a “choice” is required demonstrates that both PSCs and ECMs
`
`are competing in the same market. As described in the Hofmann Declaration (Ex.
`
`1014 at ¶32), there is general consensus from multiple sources regarding this
`
`competition:
`
`the Declaration of Alan Kessler (the “Kessler Declaration”); the
`
`Declaration of Ge Hu (the “Hu Declaration”); his discussions with
`
`industry
`
`participants;
`
`the DOE Market Assessment; and Nidec’s own marketing
`
`presentation materials. Customers choosing between different products within a
`
`market is common. The existence of certain “advantages” of one product over
`
`HOU 1810351v.2
`
`- 4 -
`
`
`
`another does not create a submarket, but rather provides a consumer of a choice
`
`within the same overall market.
`
`4.
`
`Response to Observation 4 – Patent Owner claims that this testimony
`
`demonstrates that PSC motors and ECM motors operate in separate submarkets,
`
`and that PSC motors are unlikely to part of a high-efficiency system. To the
`
`contrary, all this testimony establishes is that Hofmann, who admits he is not a
`
`technical expert, believes that as one moves to a super high efficiency system that
`
`PSC motors may be less viable for use in such a system. Rather, Hofmann testified
`
`that PSC motors and ECM motors do compete in the same market:
`
`Q. Well, from your understanding of the industry, what is
`a high efficiency HVAC system?
`A. Basically, above certain SEER ratings, HVAC
`systems start to be viewed as high efficiency and then
`there are degrees of high efficiency.
`I think that my
`understanding of what is stated here is that, certainly in
`systems that meet
`the threshold in high efficiency
`standard, that PSC and ECM motors can be used.
`Exhibit 2013, page 29, lines8-17.
`
`5.
`
`Response to Observation 5 – Patent Owner’s observation about the
`
`purpose of the DOE market data misses the point. The DOE market analysis, as
`
`Hofmann’s testimony explains, was focused on blower motors that were sold in the
`
`US residential market. This observation also mischaracterizes Mr. Hofmann’s
`
`HOU 1810351v.2
`
`- 5 -
`
`
`
`testimony that indicates the DOE study evaluated the entire HVAC market. By
`
`including both ECMs and PSCs in the scope of the document it de facto defined
`
`the ECMs and PSCs as competing in this market.
`
`Indeed, the pie chart cited by
`
`Mr. Hofmann lists ECMs and PSCs with their respective market shares showing
`
`that DOE considers these products as competing. As Mr. Hofmann testified, the
`
`DOE studty is “an objective assessment” of the market landscape for HVAC
`
`blower motors. Ex. 2031, page 38.
`
`6.
`
`Response to Observation 6 – Patent Owner’s observation about the
`
`purpose of Exhibit 2024 misses the point. Exhibit 2024’s relevance is that it is
`
`evidence that Nidec touted many factors in promoting this ECM motor. In
`
`addition, Patent Owner is improperly attempting to use this observation as a
`
`vehicle to supplement the arguments in its Patent Owner Response. Broad Ocean
`
`objects to this misuse of the observation. See PTAB Trial Practice Guide, 77 Fed.
`
`Reg. 48756, 48768. This is an exhibit that Nidec cited to in its response for the
`
`proposition that Nidec touted the motor’s patented features. Nidec cannot come
`
`back now and try to add additional purposes for submitting this document.
`
`7.
`
`Response to Observation 7 – Patent Owner incorrectly claims that this
`
`observation demonstrates that PSC motors and ECM motors operate in separate
`
`submarkets simply because ECM motors can be more expensive than PSC motors.
`
`Not only is this incorrect but the argument is disingenuous in light of Exhibit 2024,
`
`HOU 1810351v.2
`
`- 6 -
`
`
`
`which specifically compares PSC and ECM Motors. In addition, Patent Owner is
`
`improperly attempting to use this observation as a vehicle to supplement the
`
`arguments in its Patent Owner Response. Broad Ocean objects to this misuse of
`
`the observation. See PTAB Trial Practice Guide, 77 Fed. Reg. 48756, 48768. This
`
`is an exhibit that Nidec cited to in its response for the proposition that Nidec touted
`
`the motor’s patented features. Nidec cannot come back now and try to add
`
`additional purposes for submitting this document.
`
`8.
`
`Response to Observation 8 – This observation ignores that the specific
`
`document used in this line of questioning was related to a single presentation
`
`related to certain specific products, namely what factors aftermarket replacement
`
`customers of OEM’s consider when deciding what type of replacement motor or
`
`system to install. Broad Ocean does object to any insinuation that these are factors
`
`that OEMs consider when purchasing blower motors. Moreover, this observation
`
`ignores that the specific document used in this line of questioning was related to a
`
`single presentation related to certain specific products.This observation also
`
`mischaracterizes Mr. Hofmann’s testimony referencing various others factors that
`
`have significant importance in the customer decision-making process. Ex. 2031,
`
`pages 33-35 and 64-65.
`
`9.
`
`Response to Observation 9 – Patent Owner claims that Hoffman
`
`misapplied market numbers from the DOE Market assessment. First, Patent
`
`HOU 1810351v.2
`
`- 7 -
`
`
`
`Owner
`
`fails
`
`to explain exactly how Hofmann allegedly misapplied this
`
`information.
`
`Second, Hofmann did not misapply any market
`
`information as Patent
`
`Owner claims, but instead, Hoffman took the most reliable, objective evidence
`
`from the DOE Assessment and applied it
`
`to well-accepted indurty numbers
`
`supplied by AHRI.
`
`Q. Then Mr. Brown also asked you some questions about
`the DOE's survey and the AHRI data points.
`In the
`course and scope of your engagement here, did you and
`your team scour the internet for relevant information with
`respect to sales and market share and so forth?
`
`A. Yes, we did. We conducted extensive research to find
`the best and most objective information we could with
`respect to the market for HVAC Blower Motors.Based on
`our research, the DOE study was the most comprehensive
`and reliable data source we found that gave a breakout of
`the ECM motors relative to the other blower motor
`technologies used,
`combined with the data
`and
`information that was part of the record, as well as the
`reliance on knowledgeable industry participants.
`Q. The AHRI data you relied upon was fairly current,
`correct?
`
`HOU 1810351v.2
`
`- 8 -
`
`
`
`A. Yes, it was. The AHRI data is published regularly
`and included their data based on reported historical
`information from '05 through 2014.
`
`Ex.2031, page 79, line 8- page 80, line 22.
`
`Third, there is no evidence that this analysis was incorrect. As Hofmann
`
`testified, he believed that the DOE report was the most reliable and objective
`
`evidence of market share and so he used it. He then confirmed his analysis:
`
`Q. So this is furnace types only in the DOE report, but
`you were applying that percentage to all types of blower
`motors.
`in canvassing the available
`So, again,
`A. Right.
`information with respect to ECM blower motors as a
`percentage of the market, I found the DOE Market
`Assessment the most objective and reliable source of
`information, recognizing it does focus on all furnace
`types applying that
`to the blower motors as you've
`described.
`Q. Where in your declaration do you explain a basis for
`applying the percentages from furnace types across all
`types of blower motors?
`A. Well, I think I explained in my that I have a variety of
`objective sources of information and I identify the DOE
`Market Assessment as one of those and I explicitly refer
`to this pie chart and explained that I use it to apply to the
`HVAC blower motor market.
`
`HOU 1810351v.2
`
`- 9 -
`
`
`
`Q. What information do you have that tells you that you
`can apply the percentages for furnace types across air
`conditioners?
`A. The information I have is, again, a combination of
`sources that I've identified in my report or my declaration
`that shows this distribution of ECM motors. With
`respect to applying that to air conditioners specifically, I
`think I saw that the various motor types for various
`subcategories of different furnace types was with 44
`percent. I think that -- I know a lot of air conditioners are
`central air conditioners that are part of the furnace
`construct or system, if you will; and so it's a reasonable, I
`think, objective data source to apply the distribution
`that's identified by the DOE to the categories of various
`blower motors.
`Exhibit 2013, page 56, line 18-page 58, line 8.
`
`10.
`
`Response to Observation 10 – As noted above, Hoffman relied upon
`
`the most recent, reliable and objective information he could locate. Ex. 2031
`
`pages 73-74. While the data was several years old, Hofmann noted that this
`
`actually lead to a more conservative ECM market share because as he noted ECM
`
`sales have increased since the time of the DOE report. See Observation 11. The
`
`instant objection, however, is incorrect in saying that Hofmann relied upon similar
`
`information used by the Patent Owner and instead ignores that a significant
`
`portion of the analyses of Patent Owner’s other witnesses (Mr. Filla and Mr.
`
`HOU 1810351v.2
`
`- 10 -
`
`
`
`Bokhart) relied upon forecasts and assumptions that were not derived from
`
`publically available sources but rather internal “best guesses.” Ex. 1022, page 45.
`
`11.
`
`Response to Observation 11 – Patent Owner claims that this testimony
`
`supports its position that there are separate submarkets for PSC and ECM motors,
`
`and that ECM motors have advantages over PSC motors they replace. First,
`
`Patent Owner misconstrues Hoffman’s testimony, all Hofmann testified to is that
`
`he believed ECM market share of the overall HVAC market has increased since
`
`2009 based on his review of several sources of information. This observation in
`
`fact supports Broad Ocean’s position that the overall HVAC market is the proper
`
`market. And as to any ECM motor advantages, Hofmann did not dispute that but
`
`he noted that those advantages came at a cost-higher prices.
`
`12.
`
`Response to Observation 12 – Patent Owner incorrectly claims that
`
`Hofmann’s testimony demonstrates that Patent Owner achieved higher pricing.
`
`Nothing could be further from the truth. Hofmann simply testified that in a
`
`hypothetical situation an OEM might be willing to pay more for a second source
`
`supply of motors. At no point in time did he ever agree that Nidec achieved
`
`premium pricing.
`
`In fact, he noted in his declaration that it appears that Nidec
`
`improperly overstated its pricing numbers. See, ex.1014, paras. 55-59. Moreover,
`
`Mr. Hofmann testified that the Nidec motors have not demonstrated any notable
`
`price premium driven by the patent-at-issue, and that
`
`the Nidec motors are
`
`HOU 1810351v.2
`
`- 11 -
`
`
`
`“generally not priced at a premium to other comparable motors” (Ex. 1014, paras.
`
`57-58), and that “these all show that there is really not any sort of consistent price
`
`premium as claimed in the Bokhart declaration.” Ex. 2031, page 63.
`
`13.
`
`Response to Observations 13-15 – In these observations, Patent
`
`Owner notes that Hofmann relied in small part on conversations he had with third-
`
`party witnesses that would only agree to speak if their identity was not disclosed
`
`merely to corroborate the information and analysis obtained from other sources.
`
`This observation also ignores testimony from Hofmann establishing that this
`
`procedure is not unusual in his line of work because witnesses like these do not
`
`want to be dragged into the dispute especially if the witness works for an OEM that
`
`buys from both parties.
`
`Q. Who is the individual you spoke to that you refer to in
`paragraph 73?
`A. The vice president of engineering at Nortek Global
`HVAC.
`Q. And what's his name?
`A. I'm unable to provide his name.
`Q. Why?
`A. For similar reasons to the individual discussed earlier.
`In discussing his ability to provide me with information
`he asked that he not be specifically identified. I think --
`you know, my understanding is that Nortek buys from
`both Nidec and broad ocean and didn't want to get kind
`
`HOU 1810351v.2
`
`- 12 -
`
`
`
`of dragged into the middle of this dispute and so was fine
`talking to us but didn't want to be individually identified.
`***
`
`Ex. 2031, page 76, lines 11-21.
`
`Q. Mr. Hofmann, Mr. Brown asked you some questions
`about the fact that a couple of these witnesses, if you
`want to call them that, or people you had discussions
`with asked that their names not be disclosed. Do you
`recall that testimony?
`A. I do.
`Q. Based upon your experience, is that unusual?
`A. No.
`I regularly have encountered situations in
`litigation or dispute settings such as this where the
`anonymity of the views and opinions of individuals with
`whom they have expressed opinions are not identified.
`Ex. 2031, page 79, line 22-page 80, line 22.
`
`Dated: September 25, 2015
`
`Respectfully submitted,
`
`/s/ Steven F. Meyer
`Steven F. Meyer (Reg. No. 35,613)
`Charles S. Baker (pro hac vice)
`LOCKE LORD LLP
`Three World Financial Center
`New York, New York 10281-2101
`
`HOU 1810351v.2
`
`- 13 -
`
`
`
`Certificate of Service
`
`Pursuant to 37 C.F.R. §42.6(e) and 37 C.F.R. §42.105(b), the undersigned
`hereby certifies that on September 25, 2015, a complete and entire copy of the
`foregoing PETITIONERS’ RESPONSE TO PATENT OWNER’S MOTION
`FOR OBSERVATION REGARDING CROSS-EXAMINATION OF REPLY
`WITNESS IVAN HOFMANN was electronically served in its entirety on the
`Patent
`Owner
`of
`record
`(as
`agreed
`upon
`by
`counsel)
`at
`sbrown@hoveywilliams.com, mwalters@hoveywilliams.com,
`and litigation@
`hoveywilliams.com.
`
`the undersigned certifies that on September 25, 2015, a
`Additionally,
`complete and entire copy of the foregoing PETITIONERS’ RESPONSE TO
`PATENT OWNER’S MOTION FOR OBSERVATION REGARDING
`CROSS-EXAMINATION OF REPLY WITNESS IVAN HOFMANN was
`electronically served on the Patent Owner’s below-listed counsel of record at
`jschwent@thompsoncoburn.com,
`djinkins@thompsoncoburn.com,
`and
`litigation Nidec Motor
`the
`syoo@thompsoncoburn.com,
`in
`co-pending
`Corporation
`v. Broad Ocean Motor LLC et
`al., Civil Action No.
`4:13-CV-01895-JCH (E.D. Mo.), as agreed upon by the parties.
`
`Dated: September 25, 2015
`
`/s/ Charles S. Baker
`Steven F. Meyer (Reg. No. 35,613)
`Charles S. Baker (pro hac vice)
`LOCKE LORD LLP
`Three World Financial Center
`New York, New York 10281-2101
`
`Attorneys for Petitioners Zhongshan
`Broad Ocean Motor Co., Ltd.;
`Broad Ocean Motor LLC; and
`Broad Ocean Technologies, LLC
`
`HOU 1810625v.2
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