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. IPR2019-00514
`
`Patent No. 5,904,172
`
`DECLARATION OF CRAIG MILLER, JR.
`
`WA 14184758012
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`WA 14231564.l
`
`American National Manufacturing, Inc.
`EXHIBIT 1072
`IPR2019—00514
`Page 1
`
`
`
`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. IPR2019-00514
`
`Patent No. 5,904,172
`
`DECLARATION OF CRAIG MILLER, JR.
`
`WA 14184758012
`
`WA 14231564.l
`
`American National Manufacturing, Inc.
`EXHIBIT 1072
`IPR2019—00514
`Page 1
`
`
`
`Case No. IPR2019-00514
`
`Patent No. 5,904,172
`
`1, Craig Miller Jr., declare and state as follows:
`
`1.
`
`I am the President of Petitioner American National Manufacturing, Inc.
`
`(“ANM”) and am familiar with the allegations that have been put forward by Sleep
`
`Number Corporation f/k/a Select Comfort Corporation (“Sleep Number”).
`
`In
`
`addition, I am a managing member of Dires, LLC, a retailer of mattress systems
`
`manufactured and distributed by ANM.
`
`I have personal knowledge of the facts
`
`stated in this declaration.
`
`I make this declaration in response to the declaration of
`
`Carl G. Degen, dated October 23, 2019 (Exhibit 2055). My declaration presents
`
`facts that perhaps were not known to Mr. Degen and to correct assumptions made in
`
`his declaration
`
`2.
`
`Mr. Degen’s declaration includes calculations he made based on unit
`
`sales data produced by ANM in these IPR proceedings. The data is referred to by
`
`the parties as “raw data”. The raw data is in the form of a spreadsheet with columns
`
`which list each sale of a manifold, software (“source code”) and mattresses sold by
`
`ANM to its customers. The products sold are fiirther described under the heading
`
`“description”.
`
`The further descriptions
`
`include pumps and air controllers
`
`(“controller”) and mattresses. ANM customers are identified as “Inner Company”
`
`and “Third Party”.
`
`(The raw data also distinguishes between sale of units for
`
`“consumer” and “medical” use.) The spreadsheet listing of units sold was created
`
`WA 142315641
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`American National Manufacturing, Inc.
`EXHIBIT 1072
`IPR2019—00514
`Page 2
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`Case No. IPR2019-00514
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`Patent No. 5,904,172
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`from ANM invoices to its customers. For exemplary purposes, I have attached
`
`Exhibit 1073 which shows each of the column headings.
`
`3.
`
`Within the raw data, manifolds, source code and mattresses are
`
`identified as either “accused” or “not accused” based solely on whether Sleep
`
`Number alleges that the manifold reads on one of its patents. As to source codes,
`
`“accused” means only that the source code is associated with a manifold that Sleep
`
`Number accused. ANM purchased and resold controllers that included source code
`
`and it resold the controllers. Overtime, various versions of source code were
`
`included in the controllers purchased and resold by ANM. ANM is without any
`
`ability to distinguish between source code versions that it purchased from suppliers
`
`and resold. As to mattresses, “accused” means only that the mattress was sold with
`
`an accused manifold. ANM understands Sleep Number to contend that a mattress is
`
`accused if it was sold with an accused manifold.
`
`4.
`
`My review of Mr. Degen’s declaration reveals that he organized
`
`ANM’s unit sales per the raw data spreadsheet into four time periods. Mr. Degen
`
`contends that his time periods 2 and 4 show substantial increases in ANM’s unit
`
`sales and Mr. Degen attributes those sales to ANM’s sale of accused manifolds and
`
`source code. In his deposition of January 8, 2020, Mr. Degen says he relied on the
`
`raw data which Sleep Number’s counsel provided to him, that he did not ask Sleep
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`WA 14231564.]
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`American National Manufacturing, Inc.
`EXHIBIT 1072
`lPR2019—00514
`Page 3
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`Case No. IPR2019-00514
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`Patent No. 5,904,172
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`Number’s counsel to provide other information and he did not conduct independent
`
`research into any facts relevant to the unit sales stated on the raw data spreadsheet.
`
`In the following paragraphs, I state facts regarding the raw data that Mr. Degen may
`
`not have understood and facts regarding ANM’s business and Sleep Number’s anti-
`
`competitive conduct that Sleep Number may not have described to Mr. Degen.
`
`5.
`
`Regarding his Period 1, Mr. Degen under-counted the number of
`
`controllers sold by ANMb_ This under-count occurred in connection
`
`with ANM sales of mattresses to Dires, LLC (“Dires”). Dires re-sells ANM mattress
`
`systems to consumers and each system includes at least one mattress and a controller.
`
`This is necessary because the controller is the device that inflates the mattress.
`
`Between August 2012 and late June or early July 2014, ANM invoices to Dires did
`
`not list the controllers separately from the mattress. The raw data entries come from
`
`ANM’s invoice records, so the raw data reflected l-mattresses without an
`
`accompanying controller, although, in fact, each mattress had a controller in the
`
`same delivery box.
`
`In addition, Mr. Degen over-counts the number of mattresses
`
`sold in his Period 1. ANM sold to Dires in Period 1 (carrying over for two months
`
`in Degen’s Period 2)|- split double mattresses (branded as split Eastern King or
`
`split California King). These split mattresses appear on the invoice as two mattresses
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`WA I423I564,l
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`American National Manufacturing, Inc.
`EXHIBIT 1072
`IPR2019—00514
`Page 4
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`Case No. IPR2019-00514
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`Patent No. 5,904,172
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`(for a total.) although, in fact, they are a split king mattress system with a single
`
`controller.
`
`6.
`
`Another important fact related to Mr. Degen’s Period 1
`
`is that it
`
`corresponds with the conclusion of an agreement under which Sleep Number paid
`
`me and ANM to stay out of the adjustable firmness consumer bed market except for
`
`sales to a few pre-approved and existing customers. Accordingly, Period 1 sales
`
`reflect the time that ANM was starting to build awareness among consumers
`
`purchasing such beds and preparing for controlled and manageable growth.
`
`7.
`
`Regarding Mr. Degen’s Period 2, he likely over-counted the number of
`
`controllers sold by ANM that
`
`included source code accused by ANM. The
`
`controllers ANM sold in this Period were supplied with source code described by
`
`the supplier as a range of versions between version 1.5 and version 1.8. ANM had
`
`no information of which version was installed within any controller. Accordingly,
`
`ANM’s raw data described the versions as 1.5-1.8. However, Sleep Number accuses
`
`only version 1.8 in Period 2. According to the raw data, there are more than 9,800
`
`controllers with versions 1.5-1.8. ANM (and apparently, Mr. Degen) does not know
`
`how many are the accused version 1.8.
`
`8.
`
`During Mr. Degen’s Period 2, ANM changed the supplier of controllers
`
`from Arco to Providence. This change, in part, was due to production issues that
`
`WA l423l564.l
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`American National Manufacturing, Inc.
`EXHIBIT 1072
`lPR2019—00514
`Page 5
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`Case No. IPR2019-00514
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`Patent No. 5,904,172
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`constrained Arco’s supply of products to ANM. Alter switching to Providence,
`
`ANM did not encounter supply issues that affected its sales. Also, the Providence
`
`product was more reliable than the Arco product.
`
`9.
`
`Also in Mr. Degen’s Period 2, Sleep Number substantially increased its
`
`efforts to ban Dires from Google ads and other media. Exhibit 1074 is a Dires
`
`record made of Sleep Number’s actions that resulted in particular ads not being
`
`placed online and also the complete suspension of all Dires ads on Google for
`
`periods of time. One Google suspension occurred in Mr. Degen’s Period 2. All the
`
`complaints by Sleep Number related to alleged trademark infringement. This was a
`
`false accusation by Sleep Number as demonstrated by a jury verdict of no trademark
`
`infringement by Dires. This is explained further in connection with my statement of
`
`facts related to Mr. Degen’s Period 4.
`
`10.
`
`In connection with Mr. Degen’s Period 3, ANM had changes to the
`
`source code and the controllers it sold. Sleep Number made the accusation that
`
`software in ANM’s controllers infringed a claim of the 172 patent regarding
`
`continuous monitoring of air pressure in the mattress. ANM could not immediately
`
`determine whether the claim was accurate so, pending an investigation, ANM
`
`removed the portion of the source code that it believed might have related to
`
`continuous monitoring. Later,
`
`in a proceeding before the Intemational Trade
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`WA 142315641
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`American National Manufacturing, Inc.
`EXHIBIT 1072
`lPR2019—00514
`Page 6
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`Case No. IPR2019-00514
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`Patent No. 5,904,172
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`Commission, the Administrative Law Judge determined that the ANM controller did
`
`not practice the continued monitoring limitations of the ‘ 172 patent.
`
`1 1. Also in Mr. Degen’s Period 3, ANM switched to a different supplier for
`
`its manifolds, but the new manifolds did not properly interface with the source code.
`
`A slight modification to the source code was necessary which was accomplished by
`
`a local programmer. The modified software is not accused by Sleep Number.
`
`12.
`
`Sleep Number’s anti-competitive activity continued in Period 3. Sleep
`
`Number’s allegations of trademark infringement caused Google ads to refuse
`
`advertisements by Dires and to suspend Dires from any advertisements from June 6
`
`to June 26, 2017. The suspension (and “disapprovals” by Google ads) affected ANM
`
`sales to Dires from June through at least August. In this timeframe, ANM sales to
`
`Dires—May 2017.
`
`In my opinion, based on my
`
`experience, the-as due largely to the 20 day suspension instigated by
`
`Sleep Number. Exhibit 1075 is a summary of the advertising spending for Dires
`
`which has been broken down by time period.
`
`13.
`
`In connection with Mr. Degen’s Period 4, ANM sales to Dires increased
`
`substantially.
`
`In October 2017, just two months into Mr. Degen’s Period 4, a jury
`
`in Minneapolis ruled against Sleep Number and in favor of Dires. Sleep Number
`
`had sued Dires, alleging trademark infringement, the same claim it had made to
`
`WA 14231564.]
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`American National Manufacturing, Inc.
`EXHIBIT 1072
`IPR2019-00514
`Page 7
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`Case No. IPR2019-00514
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`Patent No. 5,904,172
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`Google ads in an effort to suppress sales by Dires. Sleep Number also claimed false
`
`advertising by Dires. (The jury found “false advertising” caused by the statements
`
`of one person who I fired, but the false statements had nothing to do with the patents
`
`involved in this proceeding. The jury awarded $120,812 due to the false statements.
`
`Sleep Number asked the jury to award it $17 million. At the trial, I conducted a
`
`demonstration for the jury that compared the features of the ANM bed (sold by
`
`Dires) to the Sleep Number bed. The jury’s verdict was for Dires that no trademark
`
`infringement had occurred. Dires made a video that presented the same comparison
`
`of features that I presented to the jury. Dires published the video on YouTube and
`
`on its website. There were 241,195 views of this video while it was posted, between
`
`12-3 1-2017 and 6-25-2018. See, https:/youtu.be/Wj ib4tL-TYY, last viewed January
`
`17, 2020. Mr. Degen’s Appendix B shows the tremendous increase in sales by Dires
`
`afier the jury’s verdict and the premier of the YouTube video.
`
`14. Mr. Degen’s Period 4 over-counts the number of accused manifolds by
`
`- This relates to manifolds/controllers that ANM sold to its customer-
`
`- These manifolds should not have been counted for two reasons. First, the
`
`172 patent had already expired by the time Mr. Degen’s period 4 began so Sleep
`
`Number has no basis to contend the sales were improper. Second, there was no
`
`printed circuit board or any source code accompanying these manifolds. The
`
`WA 14231564]
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`American National Manufacturing, Inc.
`EXHIBIT 1072
`IPR2019—00514
`Page 8
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`Case No. IPR2019—005 14
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`Patent No. 5,904,172
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`product ANM sells t-is only a manifold with solenoids attached to it
`
`and an outer housing. The product has no circuitry, no compressor and no source
`
`code.
`
`15. Another important factor that lead to increased ANM sales in Mr.
`
`Degen’s Period 4 was the effect of a Sleep Number decision to stop selling the
`
`Comfortaire adjustable firmness beds to mattress retailers. Comfortaire was the
`
`number 2 selling line of adjustable firmness beds in the industry (behind Sleep
`
`Number) when purchased by Sleep Number in 2013. Sleep Number continued to
`
`market the Comfortaire line until June 30, 2017. Comfortaire sold beds to retailers
`
`that later sold ANM beds (identified in the raw data as “third party”). These retailers
`
`increased their purchases of ANM beds when the Comfortaire bed was no longer
`
`available to them.
`
`16.
`
`Based on the facts, it is inaccurate to contend that the patents allegedly
`
`affecting ANM source code versions or manifolds had any effect on ANM’s sales to
`
`its customers, or through its customers to consumers. As to the accused source
`
`codes, ANM mattresses, when adjusted to be more firm from—
`
`— As to the accused manifolds, a manifold is merely a pathway
`
`
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`WA ”2315641
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`American National Manufacturing, Inc.
`EXHIBIT 1072
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`Page 9
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`Case No. IPR2019-00514
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`Patent No. 5,904,172
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`for compressed air that
`
`is enclosed within the controller.
`
`Source codes and
`
`manifolds are not visible to the consumer.
`
`I have no information that either of them
`
`affect ANM’s sales. In fact, consumer reviews of the ANM beds do not mention the
`
`source codes or manifolds accused by Sleep Number (or any other source code or
`
`manifold). These reviews can be viewed at www.Trustpilot.com and entering
`
`Personalcomfortbed.com.
`
`Indeed, because the sales by Dires are “on-line,” the
`
`consumer has no opportunity to check how fast a mattress adjusts pressures before
`
`making a purchase.
`
`17.
`
`Throughout my career,
`
`I have observed that increased spending on
`
`effective advertising correlates positively with increased sales. Sales trends observed
`
`in Mr. Degen’s four periods correspond with increased spending by Dires on
`
`—on advertising on Mr. Degen’s Period 1. Mr.
`
`Degen observed a sharp increase in ANM sales in his Period 2 and during that time,
`
`Dires increased its advertising spending—Mr.
`
`Degen observed that ANM sales increased, but at a slower rate, in his Period 3 and
`
`during that time, Dires increased its advertising spending—
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`10
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`American National Manufacturing, Inc.
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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.
`
`18. As mentioned, advertising must be efficient in order to drive sales.
`
`Dires used on-line advertising and focused on Google ads which I believe to reach
`
`the largest on-line audience. Further, Dires’ advertising focused on price, ease of
`
`assembly, construction and quality which I believe to be the most important factors
`
`to on-line purchasing of adjustable
`
`firmness beds.
`
`Dires
`
`also focused
`
`on comparing the ANM product
`
`to the product
`
`sold by Sleep Number.
`
`This
`
`comparison
`
`can
`
`be
`
`observed
`
`on
`
`the
`
`Dires’
`
`website,
`
`www.personalcomfortbed.com/comparetosleepnumber
`
`(last viewed January 17
`
`2020). Dires did not advertise the component parts which Sleep Number accuses in
`
`these proceedings.
`
`19.
`
`From 2006 to 20] l, I provided my services to Sleep Number under a
`
`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.
`
`20.
`
`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
`
`11
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`American National Manufacturing, Inc.
`EXHIBIT 1072
`IPR2019410514
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`Case No. IPR2019-00514
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`Patent No. 5,904,] 72
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`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
`
`ever seen or examined any of Sleep Number’s source code for any of their air
`
`controllers.
`
`21.
`
`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. To the best of my recollection, these controllers were Gen. 2, Ver. 3
`
`air controllers which are referenced on page 6 of Ex. 2077. These controllers were
`
`developed and created prior to my consultancy beginning with Sleep Number 2006.
`
`I declare under penalty of perjury that the foregoing is true and correct.
`
`69/135;
`
`Cr g S. Miller, Jr.
`
`/— 2 a zo20
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`Date
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`12
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`WA 14231564.l
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`American National Manufacturing, Inc.
`EXHIBIT 1072
`lPR2019—00514
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