`
`UNITED STATES PATENT AND TRADEMARK OFFICE
`
`____________
`
`BEFORE THE PATENT TRIAL AND APPEAL BOARD
`
`____________
`
`AMERICAN NATIONAL MANUFACTURING INC.,
`Petitioner,
`
`v.
`
`SLEEP NUMBER CORPORATION
`f/k/a SELECT COMFORT CORPORATION,
`Patent Owner.
`____________
`
`Case No. IPR2019-00500
`
`Patent No. 9,737,154
`____________
`
`
`
`
`DECLARATION OF CRAIG S. MILLER, JR. IN SUPPORT OF
`PETITIONER’S OPPOSITION TO PATENT OWNER’S MOTION FOR
`ADDITIONAL DISCOVERY
`
`
`
`WA 13785030.1
`
`American National Manufacturing Inc.
`Exhibit 1033
`IPR2019-00500
`Page 1
`
`
`
`Case No. IPR2019-00500
`Patent No. 9,737,154
`
`I, Craig Miller Jr., declare and state as follows:
`
`1.
`
`I am the President of Petitioner American National Manufacturing, Inc.
`
`and am familiar with the allegations that have been put forward by Sleep Number
`
`Corporation f/k/a Select Comfort Corporation (“Sleep Number”) in seeking
`
`additional discovery. I make this declaration to correct several misstatements that
`
`have been made by Sleep Number to the Board regarding my interactions with Sleep
`
`Number.
`
`2.
`
`Since 1996, American National Manufacturing Inc. has been
`
`manufacturing a full line of air adjustable mattresses under the American National
`
`Brand and later in the Dreamworks brand and Instant Comfort brand as well as other
`
`private label brand air mattresses including the Nautilus Sleep System. Effectively,
`
`all of the beds sold then and now generally included air control units; however, the
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`primary driving factor for the consumer in the sale of these products is the mattresses
`
`3.
`
`In March 2006, Kirk Stoa of Select Comfort approached me and asked
`
`if I would consider working with them rather than against them. During the
`
`discussion, he asked if I would consider providing technical consultation regarding
`
`product development. At the time, Sleep Number had significant product failures
`
`related to the structural integrity of the air chambers in their product lines.
`
`Specifically, Sleep Number’s air chambers tended to fail in ways related to the
`
`2
`
`
`WA 13785030.1
`
`American National Manufacturing Inc.
`Exhibit 1033
`IPR2019-00500
`Page 2
`
`
`
`Case No. IPR2019-00500
`Patent No. 9,737,154
`
`sealing of their air chambers. In addition, the overall construction of their air
`
`mattresses created issues with “rolling to the middle,” where a user would slide into
`
`the middle area between two air chambers placed side-by-side. This was in addition
`
`to significant and widespread reports of mold and mildew which formed on their air
`
`chambers. The latter issue related to mold and mildew led to class action lawsuit
`
`against Sleep Number which was covered in the news media, for example a 2008
`
`Consumerist article which may be found at https://consumerist.com/2008/05/17/the-
`
`sleep-number-difference-is-mold/. As American National did not have these
`
`problems, Sleep Number had hoped that I would be able to share my technical
`
`knowhow on mattress construction and my relationships with component
`
`manufacturers within the industry to address these issues. They promised me to pay
`
`a significant amount money for my expertise and —we settled on $1.25 million for
`
`3 years with automatic one (1) year extensions at the rate of $500,000.00 per year.
`
`4.
`
`Exhibit 2037 is a copy of the consultant contract that Sleep Number
`
`offered me. As the discussions regarding consulting evolved, I was surprised when
`
`the scope went beyond me simply providing technical assistance—one of the
`
`provisions expressly barred myself and American National Manufacturing from
`
`selling any additional consumer air mattresses during the period of the consultancy
`
`beyond the list of pre-existing customers which we had prior to signing the contract.
`
`3
`
`
`WA 13785030.1
`
`American National Manufacturing Inc.
`Exhibit 1033
`IPR2019-00500
`Page 3
`
`
`
`Case No. IPR2019-00500
`Patent No. 9,737,154
`
`In short, we could not seek any new customers for our consumer air adjustable
`
`mattresses. I, however, was willing to accept that non-compete provision due the
`
`fact that American National Manufacturing Inc. had significant manufacturing
`
`presence in the medical air bed space, and that area was not covered by the non-
`
`compete. I also accepted the non-compete provision, because I believed at the time
`
`that Sleep Number would actually carry out their promise and pay me the full amount
`
`of the contract with automatic 1 year renewals and possible royalty steams as stated
`
`within the contract—that turned out to be false unfortunately. Regardless, I accepted
`
`the consultant role and signed the contract. This agreement essentially required
`
`that I abandon my business plans for launching and expanding a direct to consumer
`
`business featuring our air adjustable mattresses, with the exception of only selling
`
`to a few existing customers. Approximately 6 months after signing the original
`
`agreement which permitted American National to sell our Air Adjustable mattresses
`
`to certain customers on Exhibit A of the agreement, I was contacted by Kirk Stoa
`
`regarding two of our pre-existing customers on the agreed to Exhibit A. As it turned
`
`out Select Comfort had simply changed their mind and wanted us to make two
`
`concessions. Kirk told me that in the spirit of the agreement and our commitment to
`
`working together long term we are asking you to exit your agreement with AH Beard
`
`to make way for Select Comfort to enter the Australian market. Regrettably I agreed,
`
`4
`
`
`WA 13785030.1
`
`American National Manufacturing Inc.
`Exhibit 1033
`IPR2019-00500
`Page 4
`
`
`
`Case No. IPR2019-00500
`Patent No. 9,737,154
`
`and we took back large amounts of product from AH Beard and issued them credit
`
`to help Select Comfort have a clear path to the Australian market. There was no
`
`additional compensation of any kind made for this concession; it was simply a good
`
`faith gesture on my part for what I thought was going to be a long term mutually
`
`beneficial relationship which turned out to be false. As demonstrated in Exhibit
`
`1034, which is a true and correct copy of a business record from American National
`
`Manufacturing, the monthly direct to consumer sales by Nautilus, a company we
`
`acquired, were as high as
`
` units per month before the consulting agreement,
`
`while current monthly sales of the accused consumer products have never reached
`
`those levels. Thus, this business has never fully recovered from the non-compete
`
`and from Sleep Number’s other anticompetitive activities.
`
`5.
`
`From 2006 to 2011, I provided my services to Sleep Number under the
`
`consultant agreement. I gave advice regarding the construction and configuration
`
`of their mattress components and how to manufacture air chambers to avoid issues
`
`of mold and other quality control issues.
`
`6.
`
`I was never retained to provide any advice into the programming or
`
`configuration of their air controllers. That is due to the fact that I do not have any
`
`knowledge regarding computer code or how to program any of the electronic
`
`components. At no time have I or anyone else at American National Manufacturing
`
`5
`
`
`WA 13785030.1
`
`American National Manufacturing Inc.
`Exhibit 1033
`IPR2019-00500
`Page 5
`
`
`
`Case No. IPR2019-00500
`Patent No. 9,737,154
`
`ever seen or examined any of Sleep Number’s source code for any of their air
`
`controllers.
`
`7.
`
`To the extent air controllers had anything to do with my consultancy
`
`agreement, it was Sleep Number who sought our air controllers. Indeed, per their
`
`demand, I provided three of our air controllers to Sleep Number in 2006 as part of
`
`the agreement. Interestingly, I believe that Sleep Number accused one of these
`
`legacy controllers as infringing the ‘747 and the ‘154 patents in the District Court
`
`case, despite the air controller predating both patents by several years. Additionally,
`
`as part of the consultancy, I introduced Sleep Number to AMN’s air controller
`
`suppliers, Arco and Providence in as early as February 2008. I was not present at
`
`these meetings because Sleep Number excluded me from these meetings.
`
`8.
`
`I would later find out that Sleep Number was using these industry
`
`contacts I provided to steal component suppliers away from American National. For
`
`instance under the consultancy, I introduced Sleep Number to American National’s
`
`air chamber component manufacturer East Rock, who at the time was the supplier
`
`of vulcanized air chambers. Sleep Number engaged East Rock to manufacturing air
`
`chamber designs that I helped create for Sleep Number. As part of that engagement,
`
`Sleep Number, without consulting me, insisted that East Rock never again do any
`
`business with me or American National Manufacturing.
`
`6
`
`
`WA 13785030.1
`
`American National Manufacturing Inc.
`Exhibit 1033
`IPR2019-00500
`Page 6
`
`
`
`Case No. IPR2019-00500
`Patent No. 9,737,154
`
`9.
`
`The consultancy agreement was amended on January 22, 2009 because
`
`Sleep Number decided to renegotiate the contract because they allegedly could not
`
`afford the automatic annual one (1) year renewals at $500,000.00 per year beginning
`
`after year 3 of the original term. The amendment essentially changed the total value
`
`of my consulting efforts for the 5-year term from what should have been
`
`$2,250,000.00 to $1,400,000.00. The amendment also eliminated the automatic
`
`renewal period and established a termination date of December 31, 2011. This
`
`amendment also contained a change in the competitive activities section whereas
`
`American National and I could begin selling our products to new customers other
`
`than those larger companies named in the amendment that Sleep Number did not
`
`want to compete with. On December 31, 2011 American National Manufacturing
`
`and I was released from the non-compete portion of the contract.
`
`10. At no time have I ever copied any of the Sleep Number’s products. My
`
`designs for mattress construction were American National Manufacturing’s and my
`
`own, prior to ever engaging in the consultancy relationship. Many of my designs
`
`were never adopted by Sleep Number, because they felt that it would be too
`
`expensive or add too much cost to their products. As was found by the jury in the
`
`District of Minnesota, our statement that our products are better quality than Sleep
`
`Number is not false—our construction techniques and designs are superior to theirs.
`
`7
`
`
`WA 13785030.1
`
`American National Manufacturing Inc.
`Exhibit 1033
`IPR2019-00500
`Page 7
`
`
`
`Case No. IPR2019-00500
`Patent No. 9,737,154
`
`11. The development of the air controllers used by American National
`
`never incorporated any Sleep Number technology, in part because under the
`
`consultancy agreement, I never disassembled their pumps, examined their
`
`schematics, or examined their source code. Instead, the programming and design of
`
`American National Manufacturing’s accused pumps were carried out in partnership
`
`with Arco, Providence, and Medisphere.
`
`12. The programming of each of the accused pumps were done solely by
`
`Arco, Providence, Elysen, and Medisphere. Beyond the desired overall function of
`
`the controllers, no one at American National Manufacturing, including myself, ever
`
`had any direct input on the code or programming for the air controllers.
`
`13. Arco, Providence, Elysn, and Medisphere are all third-party companies
`
`with no direct or
`
`indirect common ownership with American National
`
`Manufacturing. Currently, Arco, Providence, Elysn, and Medisphere all own the
`
`respective source code that they authored.
`
`14. As I have been involved in the manufacturing of air beds and other sleep
`
`surfaces for over 30 years, I have personal knowledge regarding the overall
`
`consumer air bed market. Based on my knowledge, I believe that Sleep Number
`
`Corporation f/k/a Select Comfort Corporation possesses 95% of the consumer air
`
`bed market. The remaining 5% of the consumer air bed market is shared between
`
`8
`
`
`WA 13785030.1
`
`American National Manufacturing Inc.
`Exhibit 1033
`IPR2019-00500
`Page 8
`
`
`
`Case No. IPR2019-00500
`Patent No. 9,737,154
`
`AMN, InnoMax, Responsive Surface Technology LLC (“ReST”), and Boyd
`
`Specialty Sleep Systems.
`
`15.
`
` Sleep Number substantially, exclusively sells air adjustable consumer
`
`beds and accessories and has publically disclosed its sales revenue for 2018 at over
`
`1.5 billion. Without disclosing actual numbers, American National’s revenue from
`
`air adjustable consumer beds and accessories is substantially less than 15 million
`
`thus far in 2019.
`
`I declare under penalty of perjury under the laws of the United States of
`
`America that the foregoing is true and correct.
`
`Date: October 30, 2019
`
`
`
`
`
`
`
`
`By /s/ Craig S. Miller, Jr.
`CRAIG S. MILLER, JR.
`
`
`
`
`
`9
`
`
`WA 13785030.1
`
`American National Manufacturing Inc.
`Exhibit 1033
`IPR2019-00500
`Page 9
`
`
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