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`BEFORE THE PATENT TRIAL AND APPEAL BOARD
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`AMERICAN NATIONAL MANUFACTURING INC.,
`Petitioner,
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`V.
`
`SLEEP NUMBER CORPORATION
`
`f/k/a SELECT COMFORT CORPORATION,
`Patent Owner.
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`Case No. IPR2019-00514
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`Patent No. 5,904,172
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`DECLARATION OF CRAIG MILLER, JR.
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`WA 14184758012
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`American National Manufacturing, Inc.
`EXHIBIT 1072
`IPR2019—00514
`Page 1
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`Case No. IPR2019-00514
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`Patent No. 5,904,172
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`1, Craig Miller Jr., declare and state as follows:
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`1.
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`I am the President of Petitioner American National Manufacturing, Inc.
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`(“ANM”) and am familiar with the allegations that have been put forward by Sleep
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`Number Corporation f/k/a Select Comfort Corporation (“Sleep Number”).
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`In
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`addition, I am a managing member of Dires, LLC, a retailer of mattress systems
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`manufactured and distributed by ANM.
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`I have personal knowledge of the facts
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`stated in this declaration.
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`I make this declaration in response to the declaration of
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`Carl G. Degen, dated October 23, 2019 (Exhibit 2055). My declaration presents
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`facts that perhaps were not known to Mr. Degen and to correct assumptions made in
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`his declaration
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`2.
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`Mr. Degen’s declaration includes calculations he made based on unit
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`sales data produced by ANM in these IPR proceedings. The data is referred to by
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`the parties as “raw data”. The raw data is in the form of a spreadsheet with columns
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`which list each sale of a manifold, software (“source code”) and mattresses sold by
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`ANM to its customers. The products sold are fiirther described under the heading
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`“description”.
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`The further descriptions
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`include pumps and air controllers
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`(“controller”) and mattresses. ANM customers are identified as “Inner Company”
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`and “Third Party”.
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`(The raw data also distinguishes between sale of units for
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`“consumer” and “medical” use.) The spreadsheet listing of units sold was created
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`from ANM invoices to its customers. For exemplary purposes, I have attached
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`Exhibit 1073 which shows each of the column headings.
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`3.
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`Within the raw data, manifolds, source code and mattresses are
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`identified as either “accused” or “not accused” based solely on whether Sleep
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`Number alleges that the manifold reads on one of its patents. As to source codes,
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`“accused” means only that the source code is associated with a manifold that Sleep
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`Number accused. ANM purchased and resold controllers that included source code
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`and it resold the controllers. Overtime, various versions of source code were
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`included in the controllers purchased and resold by ANM. ANM is without any
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`ability to distinguish between source code versions that it purchased from suppliers
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`and resold. As to mattresses, “accused” means only that the mattress was sold with
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`an accused manifold. ANM understands Sleep Number to contend that a mattress is
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`accused if it was sold with an accused manifold.
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`4.
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`My review of Mr. Degen’s declaration reveals that he organized
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`ANM’s unit sales per the raw data spreadsheet into four time periods. Mr. Degen
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`contends that his time periods 2 and 4 show substantial increases in ANM’s unit
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`sales and Mr. Degen attributes those sales to ANM’s sale of accused manifolds and
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`source code. In his deposition of January 8, 2020, Mr. Degen says he relied on the
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`raw data which Sleep Number’s counsel provided to him, that he did not ask Sleep
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`Number’s counsel to provide other information and he did not conduct independent
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`research into any facts relevant to the unit sales stated on the raw data spreadsheet.
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`In the following paragraphs, I state facts regarding the raw data that Mr. Degen may
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`not have understood and facts regarding ANM’s business and Sleep Number’s anti-
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`competitive conduct that Sleep Number may not have described to Mr. Degen.
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`5.
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`Regarding his Period 1, Mr. Degen under-counted the number of
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`controllers sold by ANMb_ This under-count occurred in connection
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`with ANM sales of mattresses to Dires, LLC (“Dires”). Dires re-sells ANM mattress
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`systems to consumers and each system includes at least one mattress and a controller.
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`This is necessary because the controller is the device that inflates the mattress.
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`Between August 2012 and late June or early July 2014, ANM invoices to Dires did
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`not list the controllers separately from the mattress. The raw data entries come from
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`ANM’s invoice records, so the raw data reflected l-mattresses without an
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`accompanying controller, although, in fact, each mattress had a controller in the
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`same delivery box.
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`In addition, Mr. Degen over-counts the number of mattresses
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`sold in his Period 1. ANM sold to Dires in Period 1 (carrying over for two months
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`in Degen’s Period 2)|- split double mattresses (branded as split Eastern King or
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`split California King). These split mattresses appear on the invoice as two mattresses
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`(for a total.) although, in fact, they are a split king mattress system with a single
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`controller.
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`6.
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`Another important fact related to Mr. Degen’s Period 1
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`is that it
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`corresponds with the conclusion of an agreement under which Sleep Number paid
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`me and ANM to stay out of the adjustable firmness consumer bed market except for
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`sales to a few pre-approved and existing customers. Accordingly, Period 1 sales
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`reflect the time that ANM was starting to build awareness among consumers
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`purchasing such beds and preparing for controlled and manageable growth.
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`7.
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`Regarding Mr. Degen’s Period 2, he likely over-counted the number of
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`controllers sold by ANM that
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`included source code accused by ANM. The
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`controllers ANM sold in this Period were supplied with source code described by
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`the supplier as a range of versions between version 1.5 and version 1.8. ANM had
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`no information of which version was installed within any controller. Accordingly,
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`ANM’s raw data described the versions as 1.5-1.8. However, Sleep Number accuses
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`only version 1.8 in Period 2. According to the raw data, there are more than 9,800
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`controllers with versions 1.5-1.8. ANM (and apparently, Mr. Degen) does not know
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`how many are the accused version 1.8.
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`8.
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`During Mr. Degen’s Period 2, ANM changed the supplier of controllers
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`from Arco to Providence. This change, in part, was due to production issues that
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`constrained Arco’s supply of products to ANM. Alter switching to Providence,
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`ANM did not encounter supply issues that affected its sales. Also, the Providence
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`product was more reliable than the Arco product.
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`9.
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`Also in Mr. Degen’s Period 2, Sleep Number substantially increased its
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`efforts to ban Dires from Google ads and other media. Exhibit 1074 is a Dires
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`record made of Sleep Number’s actions that resulted in particular ads not being
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`placed online and also the complete suspension of all Dires ads on Google for
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`periods of time. One Google suspension occurred in Mr. Degen’s Period 2. All the
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`complaints by Sleep Number related to alleged trademark infringement. This was a
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`false accusation by Sleep Number as demonstrated by a jury verdict of no trademark
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`infringement by Dires. This is explained further in connection with my statement of
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`facts related to Mr. Degen’s Period 4.
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`10.
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`In connection with Mr. Degen’s Period 3, ANM had changes to the
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`source code and the controllers it sold. Sleep Number made the accusation that
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`software in ANM’s controllers infringed a claim of the 172 patent regarding
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`continuous monitoring of air pressure in the mattress. ANM could not immediately
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`determine whether the claim was accurate so, pending an investigation, ANM
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`removed the portion of the source code that it believed might have related to
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`continuous monitoring. Later,
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`in a proceeding before the Intemational Trade
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`Commission, the Administrative Law Judge determined that the ANM controller did
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`not practice the continued monitoring limitations of the ‘ 172 patent.
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`1 1. Also in Mr. Degen’s Period 3, ANM switched to a different supplier for
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`its manifolds, but the new manifolds did not properly interface with the source code.
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`A slight modification to the source code was necessary which was accomplished by
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`a local programmer. The modified software is not accused by Sleep Number.
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`12.
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`Sleep Number’s anti-competitive activity continued in Period 3. Sleep
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`Number’s allegations of trademark infringement caused Google ads to refuse
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`advertisements by Dires and to suspend Dires from any advertisements from June 6
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`to June 26, 2017. The suspension (and “disapprovals” by Google ads) affected ANM
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`sales to Dires from June through at least August. In this timeframe, ANM sales to
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`Dires—May 2017.
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`In my opinion, based on my
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`experience, the-as due largely to the 20 day suspension instigated by
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`Sleep Number. Exhibit 1075 is a summary of the advertising spending for Dires
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`which has been broken down by time period.
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`13.
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`In connection with Mr. Degen’s Period 4, ANM sales to Dires increased
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`substantially.
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`In October 2017, just two months into Mr. Degen’s Period 4, a jury
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`in Minneapolis ruled against Sleep Number and in favor of Dires. Sleep Number
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`had sued Dires, alleging trademark infringement, the same claim it had made to
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`Google ads in an effort to suppress sales by Dires. Sleep Number also claimed false
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`advertising by Dires. (The jury found “false advertising” caused by the statements
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`of one person who I fired, but the false statements had nothing to do with the patents
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`involved in this proceeding. The jury awarded $120,812 due to the false statements.
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`Sleep Number asked the jury to award it $17 million. At the trial, I conducted a
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`demonstration for the jury that compared the features of the ANM bed (sold by
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`Dires) to the Sleep Number bed. The jury’s verdict was for Dires that no trademark
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`infringement had occurred. Dires made a video that presented the same comparison
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`of features that I presented to the jury. Dires published the video on YouTube and
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`on its website. There were 241,195 views of this video while it was posted, between
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`12-3 1-2017 and 6-25-2018. See, https:/youtu.be/Wj ib4tL-TYY, last viewed January
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`17, 2020. Mr. Degen’s Appendix B shows the tremendous increase in sales by Dires
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`afier the jury’s verdict and the premier of the YouTube video.
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`14. Mr. Degen’s Period 4 over-counts the number of accused manifolds by
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`- This relates to manifolds/controllers that ANM sold to its customer-
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`- These manifolds should not have been counted for two reasons. First, the
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`172 patent had already expired by the time Mr. Degen’s period 4 began so Sleep
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`Number has no basis to contend the sales were improper. Second, there was no
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`printed circuit board or any source code accompanying these manifolds. The
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`product ANM sells t-is only a manifold with solenoids attached to it
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`and an outer housing. The product has no circuitry, no compressor and no source
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`code.
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`15. Another important factor that lead to increased ANM sales in Mr.
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`Degen’s Period 4 was the effect of a Sleep Number decision to stop selling the
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`Comfortaire adjustable firmness beds to mattress retailers. Comfortaire was the
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`number 2 selling line of adjustable firmness beds in the industry (behind Sleep
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`Number) when purchased by Sleep Number in 2013. Sleep Number continued to
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`market the Comfortaire line until June 30, 2017. Comfortaire sold beds to retailers
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`that later sold ANM beds (identified in the raw data as “third party”). These retailers
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`increased their purchases of ANM beds when the Comfortaire bed was no longer
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`available to them.
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`16.
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`Based on the facts, it is inaccurate to contend that the patents allegedly
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`affecting ANM source code versions or manifolds had any effect on ANM’s sales to
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`its customers, or through its customers to consumers. As to the accused source
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`codes, ANM mattresses, when adjusted to be more firm from—
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`— As to the accused manifolds, a manifold is merely a pathway
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`for compressed air that
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`is enclosed within the controller.
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`Source codes and
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`manifolds are not visible to the consumer.
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`I have no information that either of them
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`affect ANM’s sales. In fact, consumer reviews of the ANM beds do not mention the
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`source codes or manifolds accused by Sleep Number (or any other source code or
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`manifold). These reviews can be viewed at www.Trustpilot.com and entering
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`Personalcomfortbed.com.
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`Indeed, because the sales by Dires are “on-line,” the
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`consumer has no opportunity to check how fast a mattress adjusts pressures before
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`making a purchase.
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`17.
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`Throughout my career,
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`I have observed that increased spending on
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`effective advertising correlates positively with increased sales. Sales trends observed
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`in Mr. Degen’s four periods correspond with increased spending by Dires on
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`—on advertising on Mr. Degen’s Period 1. Mr.
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`Degen observed a sharp increase in ANM sales in his Period 2 and during that time,
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`Dires increased its advertising spending—Mr.
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`Degen observed that ANM sales increased, but at a slower rate, in his Period 3 and
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`during that time, Dires increased its advertising spending—
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`— Mr. Degen observed another sharp increase in ANM sales in
`his Period 4, and during that time, Dires increased its advertising spendin-
`—see Exhibit 1075.
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`18. As mentioned, advertising must be efficient in order to drive sales.
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`Dires used on-line advertising and focused on Google ads which I believe to reach
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`the largest on-line audience. Further, Dires’ advertising focused on price, ease of
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`assembly, construction and quality which I believe to be the most important factors
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`to on-line purchasing of adjustable
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`firmness beds.
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`Dires
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`also focused
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`on comparing the ANM product
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`to the product
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`sold by Sleep Number.
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`This
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`comparison
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`can
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`be
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`observed
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`on
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`the
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`Dires’
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`website,
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`www.personalcomfortbed.com/comparetosleepnumber
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`(last viewed January 17
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`2020). Dires did not advertise the component parts which Sleep Number accuses in
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`these proceedings.
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`19.
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`From 2006 to 20] l, I provided my services to Sleep Number under a
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`consultant agreement. I gave advice regarding the construction and configuration of
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`their mattress components and how to manufacture air chambers to avoid issues of
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`mold and other quality control issues.
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`20.
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`I was never retained to provide any advice into the programming or
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`configuration of their air controllers. That is due to the fact that I do not have any
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`knowledge regarding computer code or how to program any of the electronic
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`components. At no time have I or anyone else at American National Manufacturing
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`ever seen or examined any of Sleep Number’s source code for any of their air
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`controllers.
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`21.
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`To the extent air controllers had anything to do with my consultancy
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`agreement, it was Sleep Number who sought our air controllers.
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`Indeed, per their
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`demand, I provided three of our air controllers to Sleep Number in 2006 as part of
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`the agreement. To the best of my recollection, these controllers were Gen. 2, Ver. 3
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`air controllers which are referenced on page 6 of Ex. 2077. These controllers were
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`developed and created prior to my consultancy beginning with Sleep Number 2006.
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`I declare under penalty of perjury that the foregoing is true and correct.
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`69/135;
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`Cr g S. Miller, Jr.
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`/— 2 a zo20
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`Date
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