`
` 1
`
` 1 IN THE UNITED STATES DISTRICT COURT
` FOR THE EASTERN DISTRICT OF TEXAS
` 2 TYLER DIVISION
`
` 3
` VIRNETX, INC. )
` 4 DOCKET NO. 6:10cv417
` -vs- )
` 5 Tyler, Texas
` ) 12:05 p.m.
` 6 APPLE, INC. November 5, 2012
`
` 7
`
` 8 TRANSCRIPT OF TRIAL
` AFTERNOON SESSION
` 9 BEFORE THE HONORABLE LEONARD DAVIS,
` UNITED STATES CHIEF DISTRICT JUDGE, AND A JURY
` 10
`
` 11
`
` 12 A P P E A R A N C E S
`
` 13
`
` 14 FOR THE PLAINTIFFS:
`
` 15
` MR. DOUGLAS CAWLEY
` 16 MR. BRADLEY W. CALDWELL
` MR. JASON D. CASSADY
` 17 MR. JOHN AUSTIN CURRY
` McKOOL SMITH
` 18 300 Crescent Court, Ste. 1500
` Dallas, TX 75201
` 19
`
` 20
`
` 21 COURT REPORTERS: MS. JUDITH WERLINGER
` MS. SHEA SLOAN
` 22 shea_sloan@txed.uscourts.gov
`
` 23
`
` 24 Proceedings taken by Machine Stenotype; transcript was
` produced by a Computer.
` 25
`
`Page 1 of 179
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`VIRNETX EXHIBIT 2064
`Mangrove v. VirnetX
`Trial IPR2015-1046
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` 1 FOR THE PLAINTIFF:
`
` 2 MR. ROBERT M. PARKER
` MR. ROBERT CHRISTOPHER BUNT
` 3 PARKER BUNT & AINSWORTH
` 100 East Ferguson, Ste. 1114
` 4 Tyler, TX 75702
`
` 5
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` 6
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` 7
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` 8
` FOR THE DEFENDANT:
` 9
` MR. DANNY L. WILLIAMS
` 10 MR. TERRY D. MORGAN
` MR. RUBEN S. BAINS
` 11 MR. CHRIS CRAVEY
` MR. MATT RODGERS
` 12 MR. DREW KIM
` MR. SCOTT WOLOSON
` 13 WILLIAMS, MORGAN & AMERSON, P.C.
` 10333 Richmond, Ste. 1100
` 14 Houston, TX 77042
`
` 15
` MR. ERIC ALBRITTON
` 16 MR. STEPHEN E. EDWARDS
` MS. DEBRA COLEMAN
` 17 MR. MATTHEW C. HARRIS
` ALBRITTON LAW FIRM
` 18 P.O. Box 2649
` Longview, TX 75606
` 19
`
` 20 MR. JOHN M. DESMARAIS
` MR. MICHAEL P. STADNICK
` 21 DESMARAIS, LLP - NEW YORK
` 230 Park Avenue
` 22 New York, NY 10169
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` 23
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` 24
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` 25
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` 1 P R O C E E D I N G S
` 2 (Jury out.)
` 3 COURT SECURITY OFFICER: All rise.
` 4 THE COURT: Bring the jury in, please.
` 5 (Jury in.)
` 6 THE COURT: Please be seated.
` 7 MR. CASSADY: May it please the Court.
` 8 THE COURT: All right, Mr. Cassady. You
` 9 may proceed.
` 10 CHRISTOPHER VELLTURO, Ph.D., DEFENDANT'S WITNESS,
` 11 PREVIOUSLY SWORN
` 12 CROSS-EXAMINATION
` 13 BY MR. CASSADY:
` 14 Q. Dr. Vellturo, my name is Jason Cassady. We've
` 15 met before, right?
` 16 A. Yes.
` 17 Q. In fact, I came up to Boston and I took your
` 18 deposition just a month or two after my son was born,
` 19 right?
` 20 A. That sounds right, yes.
` 21 Q. Okay. And I want to talk about a couple of
` 22 things you showed the jury. Okay?
` 23 A. Sure.
` 24 Q. The first one is this slide right here. You
` 25 showed the jury this, and you were trying to explain to
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` 1 the jury that the iPhone had a lot of sales prior to the
` 2 implementation of FaceTime, right?
` 3 A. That's one of the things we discussed. Yes.
` 4 Q. Okay. So -- and you say the total number here
` 5 is about 25.8 million units, right?
` 6 A. Yes.
` 7 Q. Well, I took that and I combined it into a
` 8 slide.
` 9 MR. CASSADY: If you would go to
` 10 Slide 42, Mr. Moreno.
` 11 Q. (By Mr. Cassady) I took that 25.8 million
` 12 units and I put it into one bar, and I want to talk
` 13 about what you didn't show the jury.
` 14 After FaceTime was implemented -- let's go
` 15 ahead and go to the next click -- this is what happened
` 16 to the iPhone sales; isn't that right?
` 17 A. Right, after FaceTime, along with many, many
` 18 other things were added to the phones. That's part of
` 19 what Apple does.
` 20 Q. Yeah. I know we've added the features, but
` 21 the point is, FaceTime, the big blue bar, 63.3 million
` 22 units, more than twice the number before was added,
` 23 right?
` 24 A. Well, these are iPhone sales. So these
` 25 aren't -- these aren't FaceTime sales. But, yes, demand
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` 1 for Apple's phones continues to grow and grow.
` 2 Q. Okay. But you didn't show the jury that big
` 3 blue bar of sales with FaceTime, did you?
` 4 A. No. That wasn't part of what my proposition
` 5 was.
` 6 Q. Okay. And then you've said -- and I was kind
` 7 of caught off guard by it -- you said there is no
` 8 evidence that relay servers affect the users of
` 9 FaceTime.
` 10 Do you remember that?
` 11 A. I think I said I haven't seen in any reports
` 12 that indicated that users notice any difference.
` 13 Q. Okay. You've been in this trial, right?
` 14 You've been sitting back there watching the whole time,
` 15 right?
` 16 A. Yes.
` 17 Q. Okay.
` 18 MR. CASSADY: Let's go ahead and go the
` 19 Slide 13.
` 20 Q. (By Mr. Cassady) The second highlighting,
` 21 overuse of relay servers will degrade the user
` 22 experience.
` 23 That's very clear to the exact point you just
` 24 made. And this is an Apple document.
` 25 A. I'm sorry. What Apple document is this?
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` 1 Q. It's their Game Kit, which FaceTime is based
` 2 on. You didn't look at this document before?
` 3 A. I may have seen it at some point.
` 4 Q. Okay. So it's -- isn't it true that there's
` 5 in evidence that the use of relay server -- relay server
` 6 affects the user, right?
` 7 A. I'm talking about actual user experience. I
` 8 haven't seen any evidence that users, as FaceTime calls
` 9 have actually been executed, saw any difference between
` 10 FaceTime calls completed peer-to-peer and FaceTime calls
` 11 that were routed through the relay server instead.
` 12 This isn't talking about user experiences as
` 13 we actually observe them.
` 14 Q. And I quote, overuse of relay servers will
` 15 degrade the user experience. Are those words in that
` 16 paper?
` 17 A. On non-compliant 3G networks, which is
` 18 essentially nothing in the United States. There are
` 19 very few --
` 20 Q. Dr. Vellturo, this is not in your report. You
` 21 do not know that.
` 22 A. I've done a lot of work on -- 3G and 4G are
` 23 operational standards on cellular phone networks, and
` 24 there is relatively little non-compliant 3G networks
` 25 left in the United States.
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` 1 Q. But you didn't think that was relevant to put
` 2 in your report, did you? Because you thought there was
` 3 nothing like this, no document like this that said it
` 4 will degrade the user experience.
` 5 But we'll go ahead and go to the next issue.
` 6 The -- you say in this case that it shouldn't be based
` 7 on hardware; isn't that right? The royalty base, not
` 8 based on hardware?
` 9 A. It should be based on the software value
` 10 associated with the hardware units, just like
` 11 Mr. Weinstein did for the Macintosh computer.
` 12 Q. And that's a yes. But you say it should not
` 13 be based on the hardware, right?
` 14 A. It being what? I'm sorry.
` 15 Q. The royalty base.
` 16 A. I don't think the hardware aspects of it
` 17 should factor in the royalty base. That's correct.
` 18 Q. Okay. And one of the reasons you say that is
` 19 because Microsoft license was based on software, right?
` 20 A. The Microsoft license was based on Microsoft
` 21 Windows; and to some degree, I believe the office suite
` 22 of software, those are both essentially software.
` 23 MR. CASSADY: Your Honor, may I approach
` 24 the easel here?
` 25 THE COURT: Yes, you may.
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` 1 MR. CASSADY: Thank you.
` 2 Q. (By Mr. Cassady) Now, Dr. Vellturo, you said
` 3 the 29-dollar price was the upgrade price of the Mac
` 4 operating system, right?
` 5 A. The upgrade price whereby upgrading you went
` 6 from not having access to patented inventions to having
` 7 access to the patented inventions.
` 8 Q. All right. But the upgrade price isn't what
` 9 Microsoft paid on, right?
` 10 A. Well, Microsoft ultimately agreed to a
` 11 lump-sum number.
` 12 Q. Yeah. They paid $200 million for their
` 13 operating system to be covered. That's what they did.
` 14 So what I'm going to ask you is, when Microsoft sells
` 15 Windows 7 Home Premium, how much does it cost?
` 16 A. That varies tremendously.
` 17 Q. All right. It doesn't vary very much at all
` 18 actually. It's about 150 bucks. Okay?
` 19 So $29, we know that's wrong. It should be at
` 20 least $150, based on the Microsoft license that you call
` 21 the benchmark, right? That's the benchmark?
` 22 A. No, sir.
` 23 Q. You said the Microsoft license was the
` 24 benchmark rate.
` 25 A. That's true.
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` 1 Q. Okay. So, therefore, let's use the benchmark
` 2 base.
` 3 A. That benchmark base is not on -- I'm sorry --
` 4 Microsoft operating system and software don't work on
` 5 Apple computers or devices. It's not the right
` 6 comparison.
` 7 Q. I'm glad you said that. The Apple Mac
` 8 operating system can't be installed on an Apple iPod
` 9 either, can it?
` 10 A. Of course not.
` 11 Q. And it can't be installed on Apple iPhone
` 12 either, can it?
` 13 A. It doesn't mean they don't offer the same
` 14 kinds of functionalities to the users. It's just they
` 15 relate to different hardware.
` 16 Q. So when you want it to be $29, it is, and when
` 17 you don't want it to be $150, it isn't, right?
` 18 A. Well, it wasn't just $29 from me, sir. It was
` 19 also $29 from Mr. Weinstein, but only for the Macs. He
` 20 didn't use $150; he used $29.
` 21 Q. Okay. Well, let's talk about the other
` 22 licenses.
` 23 You know it's a fact that the other licensees,
` 24 Aastra, NEC, and Mitel, pay on their hardware, right?
` 25 A. Based on the way those agreements were
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` 1 structured, that's my understanding with respect to the
` 2 very limited commerce at issue there.
` 3 Q. Okay. In fact, one of the licensees is on the
` 4 monitor in the jury box, NEC.
` 5 A. NEC has a very broad product line. This
` 6 clearly applies only to a little bit of that, because if
` 7 you back out what those payments are in terms of the
` 8 commerce they affect, it's -- it's like, I think, $20
` 9 million. NEC is a multi-billion-dollar company.
` 10 Q. Did you hear the question I asked,
` 11 Dr. Vellturo?
` 12 What I said was, on the monitors -- we see
` 13 around the computers and monitors here, do they say NEC
` 14 on them, and is that the same company in the license?
` 15 A. It's the same company.
` 16 Q. Okay. Thank you.
` 17 Now, you'll agree with me that NEC paid on
` 18 hardware, right?
` 19 A. Certain hardware.
` 20 Q. Did you ever see that hardware?
` 21 A. I may have seen pictures of it. I'm not sure
` 22 I have physically seen it.
` 23 Q. In fact, you said it was totally different
` 24 than the Apple scenario, right?
` 25 A. That's my recollection.
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` 1 Q. Okay. Well, let's quickly take a look at some
` 2 of that hardware, okay?
` 3 A. Okay.
` 4 Q. This is a server NEC sells. It's the SV8100.
` 5 MR. CASSADY: And if you could,
` 6 Mr. Moreno, could you pull up Slide 3400 -- I'm sorry --
` 7 Slide 34.
` 8 Q. (By Mr. Cassady) I just did a blowout straight
` 9 out of the license. The SV8100 is listed right there,
` 10 Univerge 8100. They pay a royalty on this.
` 11 A. On that server?
` 12 Q. On this server.
` 13 A. If you represent it -- that's a server.
` 14 Q. Okay. This is the 8100.
` 15 A. Okay.
` 16 Q. They paid on this. They pay 1.61 percent on
` 17 this (indicating), right?
` 18 A. Okay. Yes.
` 19 Q. Okay. Just like Apple has FaceTime servers
` 20 that do FaceTime, right? You just said in your direct
` 21 testimony that the accused feature of the FaceTime
` 22 server. That's what you said, and that the FaceTime
` 23 server does the implementation.
` 24 They pay on servers, NEC does, right?
` 25 A. I think if you agree to apply a royalty rate
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` 1 just to the servers that Apple uses to implement
` 2 FaceTime, we would be having a completely different
` 3 conversation.
` 4 That's not the way your expert has done it,
` 5 sir. He doesn't do it to the servers that run FaceTime.
` 6 He does it to the devices.
` 7 Q. I'm glad you said that.
` 8 So NEC doesn't just pay on that server, do
` 9 they? They also pay on the phones.
` 10 Let's go ahead and get some of those out.
` 11 This is the DT700 series phone right here out of the
` 12 license. They pay on the phone, too?
` 13 A. Yes. That's an IP phone that sets on your --
` 14 doesn't fit in your pocket. Doesn't allow to you to
` 15 search the web. Doesn't allow you to do any of the
` 16 things people have come to expect from their Apple
` 17 iPhones.
` 18 This is part of when you go into a company
` 19 office and they have phones on their desks. They have a
` 20 computer that runs them, probably that one, and they
` 21 have phones that are stuck into those computer cable
` 22 wires. And they use the phones in their office.
` 23 Q. But it's different than the Apple, yes or no?
` 24 These are different than Apple's system?
` 25 A. Those are different than the devices that
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` 1 VirnetX is claiming the royalty applies to.
` 2 Q. All right. Are you --
` 3 A. They are very, very different.
` 4 Q. Do you know -- did you know -- actually, we
` 5 know at least at the time of your report, the NEC
` 6 license hadn't come out yet, right?
` 7 A. I've issued two reports.
` 8 Q. By the time of your first report.
` 9 A. That's right, but it had before I issued my
` 10 second one.
` 11 Q. So we know at least of the time of your first
` 12 report, that you didn't look into the fact that NEC
` 13 actually offers video-conferencing using these servers,
` 14 and some of these phones -- not this specific one -- but
` 15 they have it?
` 16 A. Through landline means, that's -- it wouldn't
` 17 surprise me. These are office-based systems.
` 18 Q. You know that FaceTime is an IP device, right?
` 19 It uses IP networks to communicate, and these are IP
` 20 phones. It's the same thing.
` 21 A. No, it's not.
` 22 Q. Okay.
` 23 A. It's just not. I'm sorry.
` 24 Q. Okay. Now, Dr. Vellturo, you're not a lawyer,
` 25 right?
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` 1 A. That's true.
` 2 Q. Okay. And you're not a security lawyer,
` 3 right?
` 4 A. No.
` 5 Q. Okay. And so that means you're not the kind
` 6 of lawyer who goes out and decides what does and does
` 7 not fall under an 8-K filing, right?
` 8 A. I don't decide that. That's true.
` 9 Q. Okay. Now, sir, in your report -- you didn't
` 10 talk about it today; but in your report, you did an
` 11 analysis of the various surveys in this case.
` 12 Do you remember that?
` 13 A. I thought I did talk about it this morning
` 14 with the jury. I talked about the surveys I had viewed
` 15 and where FaceTime appeared on those surveys and that
` 16 VPN On Demand didn't appear.
` 17 Q. Right.
` 18 A. Maybe I'm missing something. I thought we did
` 19 talk about that.
` 20 Q. You touched on the one -- one of the surveys
` 21 that Mr. Weinstein relied on. I agree with you.
` 22 What I want to ask you about is, you did a
` 23 chart in your report and you titled it: The Influence
` 24 of FaceTime in Purchasing Apple Devices.
` 25 Do you remember that?
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` 1 A. Not specifically. I had a lot of exhibits in
` 2 my reports.
` 3 Q. Okay. Well, one of the rows that you had in
` 4 that chart was that it said: Respondents -- that's
` 5 Apple customers -- who purchased the product for a new
` 6 feature and stated that FaceTime was the most important
` 7 feature.
` 8 Does that sound familiar?
` 9 A. I remember that being one of the surveys
` 10 Mr. Weinstein used, and I did address it in my report.
` 11 So I do remember that survey.
` 12 Q. Okay.
` 13 MR. CASSADY: So I'm going to go ahead
` 14 and put it over here on the ELMO.
` 15 Okay. Let me help Ms. Judy out to put
` 16 the mic closer to me.
` 17 Q. (By Mr. Cassady) Okay. Do you see at the
` 18 bottom what I just said: Respondent, who purchased the
` 19 product for a new feature and stated that FaceTime was
` 20 the most important feature? Do you see that?
` 21 A. I see those percentages from .14 percent,
` 22 which is less than 1 percent, to about 5.4 percent.
` 23 Q. That's what I want to talk to you about.
` 24 So even by your calculations here at the bottom, you say
` 25 5-1/2 percent of iPod Touch users purchased the product
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` 1 for a new feature and stated that FaceTime was the most
` 2 important feature. Right?
` 3 A. 5 percent of the iPod Touch customers surveyed
` 4 in that survey, yes, that's the number.
` 5 Q. Okay. And then for the other ones, for the
` 6 iPhone 4S and the 4, you had other surveys that had
` 7 these smaller percentages. Yes, they're lower than
` 8 1 percent, though. I'll agree with you, right?
` 9 A. They are.
` 10 Q. Okay. And then for the iPad, you just don't
` 11 have anything at all, right? No data?
` 12 A. Right. I don't remember there being an
` 13 iPad -- there was an iPad that asked a question about
` 14 FaceTime, but it didn't have these other elements to it,
` 15 so I couldn't complete the analysis.
` 16 Q. Okay. Well, let's go ahead when you don't
` 17 turn in your work -- and I don't mean this against you.
` 18 You know, it's against -- you know, Apple
` 19 doesn't have a survey we got for this, so we just put a
` 20 0 down, right?
` 21 We're going to do that against VirnetX. So
` 22 we'll just give it a 0. And you'll agree giving it a 0
` 23 actually hurts VirnetX, because VirnetX is saying that
` 24 more than 0 of customers are picking that device for
` 25 FaceTime.
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` 1 You would agree with me, right?
` 2 A. Right. If you're assuming that no one uses --
` 3 no one bought an iPad at all with respect to FaceTime,
` 4 then the 0 would be the lowest number that could be.
` 5 Q. Okay. And that would be worse for VirnetX,
` 6 given what you've heard Mr. Weinstein testify to about
` 7 18 percent and other percentages, right?
` 8 A. Depends on what you're going to do with it,
` 9 but --
` 10 Q. Right.
` 11 A. -- possibly.
` 12 Q. Okay. So let's go ahead -- I just want to do
` 13 the math here. If we -- do you still have a calculator
` 14 up there?
` 15 A. I do.
` 16 Q. Okay. I want you to do this math for me. I
` 17 want you to add 5.4, plus .18, plus .14, plus .42?
` 18 A. Okay. Let me try it one more time.
` 19 Okay.
` 20 Q. Okay. Now, I want you to divide by 5, because
` 21 we gave a 0 to the iPad. Would you divide by 5 for me,
` 22 please?
` 23 A. Okay.
` 24 Q. What's the number you came to?
` 25 A. 1.2 percent.
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` 1 Q. Okay. And you would agree with me, sir, that
` 2 1.2 percent is higher than Mr. Weinstein's 1-percent
` 3 royalty, right?
` 4 Let me see if I can help you. 1.2 is more
` 5 than 1?
` 6 A. 1.2 is more than 1.
` 7 Q. Okay.
` 8 A. Yeah. 1.2 million cantaloupes is more than 1
` 9 automobile. They are on a completely different basis.
` 10 You can't compare those 2 numbers.
` 11 Q. Just like the chocolates analogy Mr. Williams
` 12 used; we just can't figure it out?
` 13 A. I can't remember the chocolates analogy, but
` 14 that's --
` 15 Q. Okay. So with regards to this, we know it's
` 16 1.22.
` 17 Okay. Now I want to go up to the one above
` 18 it, and this is: Respondents who purchased cited a new
` 19 feature as one of the purchase drivers and stated that
` 20 FaceTime was the most important feature.
` 21 You see that? So it was one of the reasons.
` 22 A. Can you slide it over a little bit? I want to
` 23 see that whole -- thank you.
` 24 Right. This is what's called a conditional
` 25 probability.
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` 1 Q. All right. Let's go ahead and do this
` 2 exercise again.
` 3 Can you do 10, plus 1, plus 1, plus 2, and
` 4 divide it by 5?
` 5 A. 2.8.
` 6 Q. Okay. And you would agree that 2.8 is more
` 7 than 1, right?
` 8 A. 2.8 is more than 1, but 2.8 has no relevance
` 9 here. I'm sorry.
` 10 Q. Okay. Now, you currently work at QES, right?
` 11 A. I do.
` 12 Q. And you're the sole partner at QES, right?
` 13 A. Yes, I am.
` 14 Q. And you and your team at QES have worked for
` 15 Apple a number of times in the past; isn't that right?
` 16 A. Yes.
` 17 Q. And do you remember in your deposition you did
` 18 not know how much money Apple had paid you in those
` 19 matters; isn't that right?
` 20 A. I think you asked me if I thought it was more
` 21 than a million dollars, and I said probably.
` 22 Q. That's right. That was my next question. In
` 23 fact, when I asked you if it was more than a million
` 24 dollars, you said I'm not sure but probably.
` 25 And what I want to know, sir, is do you know
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` 1 that number today?
` 2 A. I believe you asked for that number at my
` 3 deposition. I think it's in the
` 4 2-and-a-half-million-dollar range. That's my
` 5 recollection, but I'm not fully sure I remember.
` 6 Q. Okay. $2 and a half million, right?
` 7 A. Over the 10 years I've had QES, me and all my
` 8 staff, yeah, that sounds about right.
` 9 Q. That Apple paid you?
` 10 A. Well, Apple paid the company, yes.
` 11 Q. QES?
` 12 A. And I do own the company.
` 13 Q. Okay. And then last couple of questions.
` 14 A. Sure.
` 15 Q. Were you here when Mr. Kelly was on the stand?
` 16 A. Yes.
` 17 Q. And he said his number was $6 million.
` 18 A. Okay.
` 1