`
`Transcript of Conference Call
`
`Date: September 5, 2019
`Case: American National Manufacturing Inc. -v- Sleep Number Corporation, et al.
`
`Planet Depos
`Phone: 888.433.3767
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`WORLDWIDE COURT REPORTING & LITIGATION TECHNOLOGY
`
`AMERICAN NATIONAL MANUFACTURING, INC. - EX 1040 - Page 1
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` 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 IPR 2019-00497 (Patent 8,769,747 B2)
` Case IPR 2019-00500 (Patent 9,737,154 B2)
` Case IPR 2019-00514 (Patent 5,904,172)
` ----------------
` Conference Call
`BEFORE: JUDGE DANIELS, JUDGE IPPOLITO, JUDGE
`FINAMORE, Administrative Patent Judges
`The above-entitled matter came on for hearing on
`September 5, 2019, commencing telephonically at
`10:32 a.m.
`Job No.: 261408
`Pages: 1-32
`Reported by: Bonnie Panek
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`AMERICAN NATIONAL MANUFACTURING, INC. - EX 1040 - Page 2
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`Transcript of Conference Call
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`2
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` A P P E A R A N C E S
`ON BEHALF OF PETITIONER:
` KYLE L. ELLIOTT, ESQUIRE
` KEVIN S. TUTTLE, ESQUIRE
` LAW OFFICES OF SPENCER FANE, LLP
` 1000 Walnut Street, Suite 1400
` Kansas City, Missouri 64106
` (816) 474-8100
`
` JASPAL SINGH HARE, ESQUIRE
` LAW OFFICES OF SPENCER FANE, LLP
` 2200 Ross Avenue, Suite 4800 West
` Dallas, Texas 75201
` (214) 750-3610
`
`ON BEHALF OF PATENT OWNER:
` LUKE TOFT, ESQUIRE
` LAW OFFICES OF FOX, ROTHCHILD, LLP
` Campbell Mithun Tower
` 222 South Ninth Street, Suite 2000
` Minneapolis, Minnesota 55402-3338
` (612) 607-7336
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`AMERICAN NATIONAL MANUFACTURING, INC. - EX 1040 - Page 3
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`Transcript of Conference Call
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`3
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`STEVEN A. MOORE, ESQUIRE
`LAW OFFICES OF PILLSBURY, WINTHROP,
`SHAW, PITTMAN, LLP
`501 West Broadway, Suite 1100
`San Diego, California 92101-3505
`(619) 234-5000
`
`KECIA J. REYNOLDS, ESQUIRE
`LAW OFFICES OF PILLSBURY, WINTHROP,
`SHAW, PITTMAN, LLP
`1200 Seventeenth Street, NW
`Washington, D.C. 20036
`(202) 663-8000
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`AMERICAN NATIONAL MANUFACTURING, INC. - EX 1040 - Page 4
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`Transcript of Conference Call
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`4
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` C O N T E N T S
`REMARKS BY: PAGE
`Mr. Toft 6
`Mr. Tuttle 7
`Mr. Toft 7
`Mr. Tuttle 8
`Mr. Toft 13
` E X H I B I T S
` (None.)
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`AMERICAN NATIONAL MANUFACTURING, INC. - EX 1040 - Page 5
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`5
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` P R O C E E D I N G S
` THE REPORTER: Okay. I'm ready to go
`ahead and get started.
` JUDGE DANIELS: Let me just follow up.
`Mr. Tuttle, are you doing the speaking for
`petitioner?
` MR. TUTTLE: Yes. Yes, Your Honor.
` JUDGE DANIELS: Great. Okay. Also on
`the phone with me today are Judges Ippolito and
`Finamore, and I'm going to invite them at least at
`the end to ask some questions since at least Judge
`Finamore is going to be doing some of the writing
`of these cases now that we've got all three.
` Just to recap this is a conference call
`for IPR 2019-00497, 00500 and 00514. It sounds
`like we have on the record all of the counsel, so
`we'll skip that part. We don't need to reiterate
`that. I have a couple -- well, the panel has a
`couple of questions for the parties before we get
`into a more thorough discussion.
` Let me start off by asking Mr. Toft --
`and Mr. Tuttle, please, you can weigh in after or
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`AMERICAN NATIONAL MANUFACTURING, INC. - EX 1040 - Page 6
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`Transcript of Conference Call
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`6
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`respond. Mr. Toft, do you have -- can you give us
`a general idea of the size of these companies at
`least with regards to the products we're talking
`about?
` In other words, is your client
`significantly bigger, the same size, you know, as
`far as sales of these products? I understand
`that's some of the information you may be looking
`for in your discovery request, but can you give me
`a general idea?
` MR. TOFT: Yeah, absolutely. The --
`unfortunately the air mattress market is not
`something that is studied. The market, the field
`is mattresses and there isn't a good understanding
`out there as to the market size of the mattresses
`that are sold that have air mattresses.
` My understanding is that Sleep Number
`and ANM, Sizewise are some of the major players
`and Sleep Number is larger. It is my
`understanding at least that Sleep Number is larger
`than both ANM and Sizewise.
` JUDGE DANIELS: And Mr. Tuttle, that's
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`7
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`commensurate with what you know?
` MR. TUTTLE: Yeah. I mean, our
`understanding is that Sizewise is significantly
`larger than American National Manufacturing or
`Sizewise -- I'm sorry. Sleep Number is
`significantly larger than American National or
`Sizewise, you know, in particular as evidenced by
`their -- a lot of their marketing that we're all
`familiar with on television and whatnot.
` JUDGE DANIELS: Thank you. Mr. Toft,
`what -- when did Sleep Number -- approximately
`what -- let me just ask the year rather than a
`date. What year did Sleep Number start selling
`its relevant products?
` MR. TOFT: I apologize. I wasn't quite
`ready for that question.
` JUDGE DANIELS: That's my job, to keep
`you on your toes.
` MR. TOFT: Yep. So there are two
`different technologies really at issue here. The
`172 patent and the IPR 2019-00514 is an older
`technology, and I believe we started selling those
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`products in the '98 time frame, 1998 time frame.
` The -- but I could double check and get
`back to you on that if you want a more precise
`answer, and the products that incorporate the
`technology utilized in the 747154 patents that are
`at issue in the 00497 and 00514 proceedings I
`believe hit the market in around 2009 --
` JUDGE DANIELS: Okay.
` MR. TOFT: -- but I could also double
`check that and get back to you if --
` JUDGE DANIELS: No, I just sort of --
`these are some general questions and they're
`helpful just for the context of what we're talking
`about today. And let me ask Mr. Tuttle, can you
`tell me what ANM's approximate year that they
`started selling their products?
` MR. TUTTLE: Well, they've -- the air
`mattress market is sort of a separate market out
`there in the field, and my understanding is that
`American National Manufacturing has been at least
`manufacturing in the air mattress market since
`about 1990s, but we'd have to verify that with the
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`client, and you're looking at the modern versions
`were manufactured in the mid 2000s.
` JUDGE DANIELS: What about the ones
`that are potentially infringing that are accused
`of infringing, and I think if I'm recalling what's
`in the discovery request the Q1, 2, 3, whatever
`numbers those were? Do you have a -- can you tell
`me a year? If you can't that's fine. I was just
`looking for again some general information on
`those accused products.
` MR. TUTTLE: Yeah, I don't have a
`specific year. My understanding is that those are
`the more recent products that we've made.
` JUDGE DANIELS: Sure. Okay. Let me
`shift gears. Mr. Tuttle, I've got a particular
`question for you. I'm going to assume that you
`think these discovery requests that we asked
`patent owner's counsel to show us are overbroad.
` And my question to you is this: If
`these were narrower, in other words if they didn't
`require for instance just for an example so much
`financial -- specific financial information and
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`maybe they were centered on the sales data, just
`the sales numbers, whether that's unit sales per
`month or per -- annually, would that be something
`your client would be more inclined to produce or I
`guess -- and then the follow-up question to that
`is or are you going to fight these sort of tooth
`and nail all the way through as far as these
`discovery requests?
` MR. TUTTLE: Well, our client's
`position now is that the discovery requests are
`not relevant and overly broad. Certainly they're
`overbroad in time frame and scope as I think we're
`talking about here right now.
` In addition in the infringement
`contingencies of the district court the patent
`owner has identified what of its products it
`alleges practiced the patents that we're dealing
`with here and in almost all of the challenged
`claims.
` JUDGE DANIELS: The reason I'm asking
`this question is because -- and I'd like to get an
`answer from you. The reason I'm asking the
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`question is I can sort of try and point the
`parties here towards a stipulation or determining
`what might be relevant to -- and the parties might
`be willing to share with each other themselves and
`resolve this dispute among themselves which is
`always -- or the board's going to do it with these
`motions.
` So that's one of the overarching
`factors, so the question again is are -- would
`your client be open to stipulating to some
`narrower information if patent owner narrowed its
`request?
` MR. TUTTLE: I mean, at this point
`without -- we did send it to the client and we
`haven't received any feedback yet, but I think a
`general consensus would be no. The information
`they do seek is subject to a higher level of
`confidentiality at the district court level, and
`so that's why we raised a protective order issue,
`and we kind of see this as unfortunately a fishing
`expedition when they have sales information
`themselves.
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` JUDGE DANIELS: Look, I understand
`that, you know, everything at the district court
`level is -- the judge hasn't even probably looked
`at it yet. I know why he puts it all under
`confidential, because he doesn't want to deal with
`it at the moment. I'm not really that concerned
`about that.
` What I'm really looking to do is we
`need to make sure, because we have the federal
`circuit that is very interested in the objective
`indicia of secondary considerations, I want to
`make sure we get all the facts and evidence we
`need without being overly broad so that we get
`into infringement issues, so that's why I'm asking
`this question if there was room, but it sounds
`like there is not.
` So with that said let me say this: I
`think I would have to agree, Mr. Toft, that these
`are pretty fairly broad, at least our initial
`impression that these are fairly broad for the
`limited purposes of what you need to do and show
`for objective indicia and not obviousness,
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`13
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`especially in light of the fact that you are
`probably the larger player here.
` But again we want to make sure we get
`all the information on the table. So let me tell
`you, my other concern is -- our other concern is
`that, you know, any time we start to talk about
`nexus of someone's product, of petitioner's
`product it can lead to issues of infringement.
` We don't have that authority, nor do I
`want to step on a district court judge's, you
`know, turf or toes on that matter, but having said
`that, and I'd like to you just -- you know, I'm
`sure you're aware keeping in mind the Garmin
`factors, let me give you the floor to explain your
`motion.
` MR. TOFT: So I appreciate you bringing
`that up. This is one thing that I wanted to
`preview for the board and for petitioner, and this
`isn't quite ripe yet because we have not discussed
`this with petitioner.
` But on the nexus front there will -- we
`will be going to the district court to ask for a
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`slight modification of the protective order or an
`agreement with petitioner to be able to use -- you
`know, as you're aware, or as you may be aware the
`patents and suit for the 00497 and 00500
`procedures are -- they use source codes in the
`products in order to practice the inventions.
` And the source code has been produced
`in the district court level under AEO
`designations, but we would like to use our
`infringement contentions to show the nexus, and so
`there will be that request going out, and if
`that's something that we can't resolve we might be
`back in front of you asking just to be able to use
`that information here in this proceeding.
` But as to the discovery requests
`themselves we tried to keep them relatively
`narrowed to the products that we have identified
`at this point and the particulars of the products
`that we believe read on the patented claims and
`not looking for additional products, and in the
`comparison of those products to products sold by
`ANM and as well as Sleep Number that do not
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`practice the patented products, and we'll be using
`that information.
` And the reason that we're seeking the
`information that we are is because we believe that
`not only is the units sold a factor to consider in
`the commercial success but also the profit margin
`of the products, and to the extent the products
`can have a greater -- the products that
`incorporate the patented technology have a greater
`profit margin that is indicia of the commercial
`success of those products which is why we're
`asking for the cost of goods sold or cost of sales
`and the gross profit margins and any other costs
`that vary.
` And the other reason that we're looking
`for the, you know, specificness to the skew and
`product names and features is because there are
`several features that will need to be considered
`in that analysis to make sure that we are focusing
`our efforts on what it is that is causing the
`commercial success of those products, and then
`finally the date of the sale of the products is
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`also relevant to the indicia of copying as to when
`the products first hit the market by ANM and
`Sizewise, so I guess that's --
` JUDGE DANIELS: Let me break in for a
`second. What -- if I'm understanding you
`correctly you have this information already in the
`-- from the district court litigation, and just
`remind me those cases are stayed?
` MR. TOFT: Those cases are stayed, but
`we do not have all of this information from
`petitioner in the district court case, which is
`why we're here asking for it. We don't have most
`of it, actually, so -- but yes, they are stayed.
` JUDGE DANIELS: What do you have, what
`information do you have?
` MR. TOFT: I would have to double
`check, but I believe that there is some sales
`information as to units sold, but there is not a
`breakdown of the cost of goods sold or cost of
`sales in order to determine an accurate gross
`profit margin or any other costs that vary, and
`those are only up to the -- as to the products
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`that incorporate some of the technology.
` We have nothing for products that
`don't, so there's no way to do an analysis as to a
`profit margin that would exist on the products
`that incorporate those patented claims versus the
`ones that do not.
` JUDGE DANIELS: Why is profit -- why is
`profit -- I understand that -- so you're going to
`have to spend a lot of time telling us how the
`profits are indicative of -- I'm having a hard
`time I guess understanding why profit is anymore
`impressive as to commercial success than sales and
`why we should -- that's a pretty burdensome ask.
` All that gross net, you know, financial
`data is a lot and especially, you know, to ask
`them to put it into particular Excel forms, I
`mean, that's a lot of work. We've got limited
`time here. That sounds more like a district
`court, you know, discovery request. Explain to me
`why the profit is so important.
` MR. TOFT: Well, I think it just -- it
`shows -- if you can sell a product that does not
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`have the patented technology for, for example, a
`hundred dollars profit, but your profit margin
`increases by 50 percent if you can incorporate the
`patented technology I think that that shows that
`the commercial success in addition to whether or
`not it drives actual sales, there's an additional
`benefit that a company that's the patented
`technology that might not always be present in the
`sales data alone.
` And to the burdensome -- you know,
`these are large companies that keep, you know, at
`least the general practice, I'm not here to speak
`for ANM or Sizewise, but the general practice is
`to keep this information and, you know, a lot of
`times they can be -- you know, the information
`that you're seeking can be inputted and printed
`out in a report.
` I don't -- I'm not aware of this being
`an overly burdensome request. There's nothing
`that we're asking for that wouldn't naturally be
`tracked by a company.
` JUDGE DANIELS: Let me ask, Mr. Tuttle,
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`if you can respond to sort of those two points in
`particular. I mean, understanding that -- just
`understanding that it sounds like the sales unit
`-- the unit sales data is out there and available
`it sounds like can you address the profit question
`and the burden question I just asked Mr. Toft?
` MR. ELLIOTT: Your Honor, this is Kyle
`Elliott. My apologies for interjecting. Mr.
`Tuttle got dropped off. I think he's back on, and
`to the extent that Mr. Tuttle can't answer those I
`as lead counsel probably have even though I'm out
`of the office and otherwise indisposed.
` Kevin, are you back on?
` MR. TUTTLE: I'm back on. I apologize
`for that.
` MR. ELLIOTT: Okay. Go ahead and
`address it and then I'll jump in if His Honor
`wishes me to. Thank you.
` MR. TUTTLE: I apologize. I missed
`half of those questions, so Kyle, if you can carry
`that.
` MR. ELLIOTT: Sure. So first of all
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`AMERICAN NATIONAL MANUFACTURING, INC. - EX 1040 - Page 20
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`the profit margin, the way that specifically this
`is tracked is not on a per product basis,
`especially on the medical side of products. It's
`tracked more on a gross sense, so that is an
`owner's thing to collect. Thus far all those
`products that are unaccused, you know, no
`production has been made to those, as Mr. Toft
`says.
` That is the vast, vast majority of
`Sizewise's sales and revenue as opposed to the
`accused products which I'll refer to -- you'll
`hear Platinum is the name of those products, and
`so it is very onerous and significantly would
`expand the scope of discovery between the parties
`even beyond what has taken place already in the
`district court.
` Further, while that is financial
`information, et cetera, that we withheld I would
`note that the patent owner in the district court
`litigation has also so far not provided any of
`their financial information for us. It's been
`intentionally withheld. So the other thing about
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`the source codes being sought here is that that is
`third party code.
` And we can't even guarantee that the
`third parties would provide permission for it to
`be used in this context. That's something that's
`more -- if anyone will secure it voluntarily we
`have, but that's another piece that -- you know,
`part of this request is going to expand this
`particular dispute in front of the board beyond
`what its scope should be.
` JUDGE DANIELS: Okay. All right. Let
`me let -- Mr. Toft, if you want go ahead and
`finish up anything else you have to say, and then
`I'll let either Mr. Elliott or Mr. Tuttle respond
`and then I'll go talk about it with the other
`judges. Mr. Toft.
` MR. TOFT: Yeah, just to make sure are
`we -- or just to be clear are we talking about
`just the additional discovery request?
` JUDGE DANIELS: Yeah, so if you want to
`finish off, I mean, you know -- so let me ask this
`question. Let me ask a follow-up question. What
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`AMERICAN NATIONAL MANUFACTURING, INC. - EX 1040 - Page 22
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`-- I'm assuming you want more pages for your
`patent owner response because you're anticipating
`that this information would require significantly
`more space to discuss in particular the issues
`that are surrounding the -- what appears to be
`some -- the software and the method.
` MR. TOFT: And that's part of the
`request for additional word count. I think that,
`you know, to expand on that a little bit there are
`-- in addition to the commercial success and
`potential copying indicia of secondary
`considerations that might be, you know, discovered
`in this discovery, or utilized in this discovery
`rather, there is additional evidence that we have
`of other secondary considerations which we would
`want to address and which obviously were not
`addressed in the petition.
` So in addition to having to respond to
`every argument in the petition there will be
`substantial arguments related to secondary
`considerations that we will want to make as to all
`three patents at issue. But in addition to that
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`there are procedural issues which -- you know,
`some of which we've mentioned in our patent owner
`preliminary response which we will want to address
`in order to preserve, and there are several
`substantive issues in these petitions.
` There -- each of the proceedings was
`presented on multiple claims and grounds. You
`know, for example, the 514 there are 13 grounds
`asserted against that one patent, which is a very
`unusually high number of grounds. In each of the
`proceedings are there are several claim
`constructions at issue. In two of them there are
`six identified just by petitioner that we will
`have to address, which we only addressed two of in
`our preliminary response, but there are additional
`claims at issue the patent owner will want to
`address.
` The same with the 514, there are terms
`that they give, you know, multiple alternative
`constructions that each of those are going to have
`to be addressed, and in addition the claims at
`issue are even on the limitation by limitation
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`analysis, for example, in the 00500 proceeding for
`the 154 patent some of the claims and the
`limitations are quite long.
` For example, claim 12 which was
`asserted has 13 claim limitations, some of which
`are a paragraph long, and to -- in order to fully
`address each of the challenges and to present our
`evidence of secondary considerations we are
`seeking additional word count. At this time we're
`thinking a 25 percent increase to the word count
`limit would be appropriate, but would defer to the
`board on that.
` JUDGE DANIELS: Mr. Tuttle, I assume
`that if we did you would -- you'd want a similar
`amount of pages, or it is word count, true?
` MR. TUTTLE: Yes.
` JUDGE DANIELS: Twenty-five percent is
`a lot. I'm not averse, you know, to a little bit
`of room, but we can sort of deal with that. We
`can deal with that. You know, 25 percent is a
`lot. I'm sort of more in the range of 10 percent
`perhaps, but let's do this.
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` In looking at this -- in looking at
`this I've got to tell you, Mr. Toft, I think that
`if we were to grant these -- I'm going to go talk
`with the judges here, but our overall impression
`is that if we were to grant these it would not be
`in the significant financial breadth that you've
`asked for here.
` So my thought, and I'll amend this
`after talking with the judges here in a second if
`I need to but, you know, if we allow these motions
`and responses I would sort of curb your enthusiasm
`for the amount of discovery that the board would
`be willing to allow. All right. So with that
`said let me take a break here for a moment and go
`talk with the other judges, and we'll be right
`back. Thanks.
` (There was a brief recess in the
`proceedings from 10:58 a.m. until 11:04 a.m.)
` JUDGE DANIELS: Hi. We're back. All
`right. Well, overall I think we're going to
`authorize a 10-page motion for additional
`discovery and an equal 10-page response. No reply
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`is authorized at this time. We can deal with that
`if you deem it necessary later. So a couple of
`other housekeeping matters on this.
` If this goes to the increased page
`limit and the problem that you are raising for us
`with this is that these issues of nexus to a
`petitioner's product raise these issues as
`infringement, that as I noted before we are very
`reluctant to tread on places the board is not
`authorized to go.
` The more time you spend having to do
`this the less likely we probably are to do it. If
`you look at some of our precedent in allowing
`additional discovery you'll notice that these are
`fairly simple -- these are fairly simple claims
`and products that are easy to show nexus to.
` So all of that to some extent goes to
`again, indicating to Mr. Toft, to you that you are
`free to narrow your discovery request in order to
`potentially get us to grant them, so I just wanted
`to leave you with that on top of the fact that we
`are going to grant this or authorize these
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`motions.
` A couple of other points. To the
`extent you have information in the district court
`that's under a protective order we wanted to
`remind you that you need to go back to the
`district court and modify that so that you can
`produce it in front of us. That's usually what
`the parties have done in the past and it is fairly
`straight forward.
` That should not be a difficult -- too
`difficult a modification to make, and with respect
`to a protective order in front of us if you all
`have stipulated to one you can submit it to us
`and, you know, absent some real problem we're
`going to -- we'll grant that, so that's the
`protective order stuff I wanted to touch on.
` From the standpoint of this issue of
`the word count and extending that you're free to
`address it in your -- you're free to address it to
`the extent you like in your motion and briefs on
`this issue. From a scheduling perspective we
`probably need to get this done sooner rather than
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`later.
` Do you all -- I asked you all I think
`in an E-mail to have some idea of what that
`briefing schedule would be. Mr. Toft, do you have
`any suggestions based on since sort of the ball is
`in your court for discovery at the moment?
` MR. TOFT: Yeah. So I had thought --
`well, I haven't discussed this with opposing
`counsel, but the -- that our opening brief would
`be due a week from today with their opposition --
`so Thursday, the 12th, with the opposition due
`Tuesday, the 17th.
` And then hopefully we can have an
`answer by the end of that week, and then depending
`on the answer the counsel can work together to
`determine whether or not we need to stipulate to a
`modification of due dates one, two and three was
`my suggestion.
` JUDGE DANIELS: How does that work for
`you, Mr. Tuttle?
` MR. TUTTLE: As to our response five
`days after their's I think we'd need at least
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`seven days.
`
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