UNITED STATES PATENT AND TRADEMARK OFFICE
`
`____________
`
`
`BEFORE THE PATENT TRIAL AND APPEAL BOARD
`
`____________
`
`
`AMERICAN NATIONAL MANUFACTURING INC.,
`Petitioner,
`
`v.
`
`SELECT COMFORT CORPORATION,
`Patent Owner.
`
`____________
`
`Case No. IPR2019-00514
`Patent No. 5,904,172
`____________
`
`
`
`
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`
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`
`
`DECLARATION OF CARL G. DEGEN
`IN SUPPORT OF PATENT OWNER’S RESPONSE
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`Sleep Number Corp.
`EXHIBIT 2055
`IPR2019-00514
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`I, Carl G. Degen, declare as follows:
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`1.
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`I am over the age of 21 years and am fully competent to make this
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`Declaration. I make the following statements based on personal knowledge and, if
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`called to testify to them, could and would do so.
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`2.
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`I received my Bachelor’s of Science Degree in Mathematics and
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`Economics from the University of Wisconsin–Parkside in Kenosha, Wisconsin in
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`1977. I then completed all but my dissertation toward a Ph.D. in Economics at the
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`University of Wisconsin–Madison in 1980.
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`3.
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`I am currently employed at Laurits R. Christensen Associates, Inc. in
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`Madison, Wisconsin, where I have worked since 1980. I started my employment as
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`an Economist in 1980, and advanced numerous times to my current role as President,
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`which I have held since 2005. I was previously an Economics Teaching Assistant
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`from 1977 to 1978 and an Economics Research Assistant from 1978 to 1980 at the
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`University of Wisconsin–Madison. I was also the Vice President of the Wisconsin
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`Business Economics Association from 1983 to 1984.
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`4.
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`I have testified in numerous litigations involving intellectual property
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`and other business disputes, and in postal and energy rate cases. Since joining Laurits
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`R. Christensen Associates, Inc., I have worked extensively on projects for the U.S.
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`Postal Service including productivity measurement, cost measurement, product cost
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`1
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`models, and regulatory reform. I have also worked on projects in the energy and
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`railroad industries. I have authored papers and written regulatory testimony.
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`5.
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`6.
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`A copy of my current CV is attached as Appendix A.
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`I have been retained by Fox Rothschild LLP, counsel for Sleep Number
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`Corporation, formerly known as Select Comfort Corporation (“Sleep Number”), to
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`analyze certain unit sales data produced in this inter partes review (“IPR”)
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`proceeding by Petitioner American National Manufacturing, Inc. (“ANM”). None
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`of my opinions are contingent on any result or payment of my fees.
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`Understanding of the Law
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`7.
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`I am not a lawyer and do not offer legal opinions. However, I do have
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`an understanding of certain legal concepts as relevant to my work and my analysis
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`in this case.
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`8.
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`I understand that there are various secondary indicia of non-
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`obviousness (sometimes called “secondary considerations”) that a patent owner may
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`argue support a finding of patentability. I understand one such secondary
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`consideration is commercial success, which I understand to relate to economic
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`considerations regarding the products at issue. I understand one relevant
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`consideration of commercial success is demand for the patented technologies, which
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`can relate to the amount of sales of products that include the patented technologies,
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`the sales trends of these products, and the market’s purchasing behavior regarding
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`2
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`these products. I understand another relevant consideration of commercial success
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`is adoption of the patented technologies, which I understand to relate to the extent
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`to which patented technologies displace non-patented technologies in relevant
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`segments of the market.
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`9. My opinions and analyses are based on the data and evidence currently
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`available. If additional evidence or clarifying information is provided, I reserve the
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`right to consider its impact, if any, on my opinions and analyses and amend this
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`declaration if appropriate.
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`Background
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`10.
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`I have reviewed Sleep Number’s Amended Disclosure of Asserted
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`Claims and Infringement Contentions against ANM, which is Exhibit 2070. I
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`understand that these exhibits disclose ANM’s air bed systems, including names of
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`air controllers that Sleep Number has accused in an underlying district court case.
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`11.
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`It is my understanding that ANM petitioned the United States Patent
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`and Trademark Office for IPR on three Sleep Number Patents: U.S. Patent No.
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`5,904,172 (“the ‘172 Patent”); U.S. Patent No. 9,737,154 (“the ‘154 Patent”); and
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`U.S. Patent No. 8,769,747 (“the ‘747 Patent”); and that IPR has been instituted on
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`each Patent. I understand that infringement is not an issue in this IPR, but I use the
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`term “accused” throughout this declaration for ease of reference and because that is
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`the term ANM used in its production of its unit sales data discussed below.
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`3
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`12.
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`I have reviewed a document produced by ANM in the underlying
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`district court case with the bates number ANMI00133414–22, which I understand is
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`Exhibit 2077. I understand that Exhibit 2077 includes the names of air controllers
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`ANM sold between the years 1998 and 2018 and includes a timeline at
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`ANMI00133414 depicting when ANM sold each air controller. My analysis focuses
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`on what ANM refers to as the Gen 2 V4, Gen 3 V1, and Gen 3 V2 air controllers. I
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`understand that the timeline and the subsequent pages provide information regarding
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`the “Manifold” and “Software” (ANM’s terms used in Exhibit 2077) included in
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`these air controllers. This is relevant to my analysis as explained below.
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`13. Exhibit 2077 (at ANMI00133414 and ANMI00133420) shows that
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`ANM sold the Gen 2 V4 air controller (which included an “Arco/Rimco” manifold
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`and “Arco, Target system”1 Software) from August 2012 through approximately
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`December 2014. Exhibit 2077 (at ANMI00133414 and ANMI00133421) shows that
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`ANM sold the Gen 3 V1 air controller (which included an “Arco/Rimco” manifold,
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`1 Exhibit 2077 at ANMI00133420 indicates that ANM’s Gen 2 V4 air controller is
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`the earliest air controller that ANM described as a “target pressure” controller.
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`4
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`and “Providence, Target system” Main version 1.5 – 1.82 and Remote version 1.8
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`Software (identified collectively as “M1.5-1.8/R1.8” in Exhibit 2078)), from June
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`25, 2014
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`through August 2016. Exhibit 2077 (at ANMI00133414 and
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`ANMI00133422) shows that ANM sold the Gen 3 V2 air controller (which included
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`a “Koge” manifold3 and “Providence, Target system” Main versions 1.92, 1.97,4 2.0
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`and Remote version 2.55 Software (identified collectively as “M1.92-2.0/R2.55” in
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`Exhibit 2078)), from August 2016 onward.
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`2 I see that Exhibit 2077 at ANMI00133414 refers only to a version 1.8 but that
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`Exhibit 2077 at ANMI00133421 refers to a version 1.5 – 1.8. I understand from
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`Sleep Number’s counsel that Sleep Number has inspected and accused version 1.8.
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`3 Based on conversation with counsel and the bullet-point description in Exhibit
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`2077 at ANMI00133422, I understand that the Gen 3 V2 air controller included a
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`Koge manifold, not an Arco/Rimco manifold as is indicated elsewhere on
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`ANMI00133422 (presumably inadvertently).
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`4 Exhibit 2077 at ANMI00133414 does not include reference to a version 1.97, but
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`my analyses would be the same had it been incorporated at any period of time when
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`ANMI00133414 notes version 2.0 was incorporated because I understand Sleep
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`Number asserts both as reading on its ‘154 Patent and ‘747 Patent.
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`5
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`14.
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`I understand that Sleep Number has asserted that air beds sold with
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`ANM’s air controllers that include at least an Arco, Koge, or Medisphere “manifold”
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`(which I understand Sleep Number refers to as the enclosure of the valve enclosure
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`assembly) supported by the corresponding source code versions noted in Exhibit
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`2077 read on its ‘172 Patent. I also understand that Sleep Number has asserted that
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`air beds sold with ANM’s air controllers that include at least Software (i.e. source
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`code) versions 1.8, 1.97, and 2.0 read on its ‘154 Patent and ‘747 Patent.
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`15.
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`I have also reviewed the Declarations of John Abraham and George
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`Edwards, which are Exhibits 2041 and 2054, which I also relied upon in gleaning
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`the foregoing information.
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`Unit Data Analyses
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`16.
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`I understand that, on October 15, 2019, ANM produced a native excel
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`document titled “IPR 8” in this IPR, which purports to provide unit sales data for
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`ANM’s sales of consumer and medical beds for the time period March 2004 to
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`September 2019. These data include only units for ANM’s identified sales. These
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`data do not include revenues, prices, expenses, or profits regarding ANM’s identified
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`sales, which, if made available to me in Excel format, may provide further evidence
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`of the commercial success of ANM’s products achieved as a result of incorporating
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`the technologies from Sleep Number’s ‘172 Patent, ‘154 Patent, and ‘747 Patent. I
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`understand that a portion of “IPR 8” is being filed as Exhibit 2078. Specifically, I
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`6
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`understand that Exhibit 2078 consists of a PDF of the tab titled “Raw Data,” which
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`is the tab containing the data that I analyzed, sorted by Month lowest to highest
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`(Column B).
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`17.
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`I analyzed ANM’s “Raw Data” by filtering various columns of
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`information and running various pivot tables. Specifically, my analyses consider the
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`“Month” of each sale in Column B, the “Inner Co” sales (i.e. inter-company sales)
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`and “3rd Party” sales (i.e. sales to third parties) in Column D, the “Description” of
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`the product being sold in Column F, the number of “Units Sold” for each such
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`product in Column H, whether the product was a “Medical” or “Consumer” product
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`in Column I, whether the product sold included a “Manifold” listed in Column K
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`that has been accused by Sleep Number, and/or whether the product sold included
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`“Software” (source code) listed in Column L that has been accused by Sleep
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`Number. Column K includes the following five options for “Manifold” – Arco,
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`Koge, Medisphere, N/A, 5 and Sun/Wok. I understand that Sleep Number has
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`asserted that at least the Arco, Koge, and Medisphere manifolds (supported by the
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`corresponding source code versions noted in Exhibit 2077) read on Sleep Number’s
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`‘172 Patent. Column L includes eight options for “Software” – Arco, Arco Target,
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`5 I understand that “N/A” refers to a product not sold with an accused “Manifold.”
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`7
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`M1.5-1/8.R1.8, M1.92-2.0/R2.55, Medisphere, N/A, 6 Sizewise, and Sun/Wok. I
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`understand that Sleep Number has asserted that at least source code versions 1.8,
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`1.97, and 2.0 read on its ‘154 Patent and ‘747 Patent.
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`18. My analyses address two questions: 1) Did ANM’s use/changes
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`regarding technologies that Sleep Number asserts read on Sleep Number’s ‘172
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`Patent, ‘154 Patent, and ‘747 Patent impact ANM’s average monthly unit sales of
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`accused pumps/air controllers; and 2) What was ANM’s adoption rate of the
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`manifolds/source code that Sleep Number asserts read on Sleep Number’s ‘172
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`Patent, ‘154 Patent, and ‘747 Patent compared to the sales of mattresses identified
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`by ANM as accused in Column M of its “Raw Data” (Exhibit 2078).
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`Impact from ANM’s Changes in Manifold and/or Software
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`19. Because ANM’s first offering of a “target pressure” air controller was
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`in August 2012, I begin my analyses of ANM’s unit sales data from Exhibit 2078 in
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`August 2012 and conduct the analyses over four periods of time: (1) August 2012
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`through June 2014 (“Period 1”), (2) July 2014 through July 2016 (“Period 2”), (3)
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`August 2016 through August 2017 (“Period 3”), and (4) September 2017 through
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`6 I understand that “N/A” refers to a product not sold with an accused “Software.”
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`8
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`September 2019 (“Period 4”).7 Period 1 reflects the time frame that ANM sold the
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`Gen 2 V4 air controller with an Arco/Rimco manifold asserted to read on Sleep
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`Number’s ‘172 Patent. Period 2 reflects the time frame that ANM sold the Gen 3 V1
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`air controller with an Arco/Rimco manifold asserted to read on Sleep Number’s ‘172
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`Patent; and with source code version M1.5-1.8/R1.8 asserted to read on Sleep
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`Number’s ‘154 Patent and ‘747 Patent. Period 3 reflects the time frame that ANM
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`sold the Gen 3 V2 air controller with a Koge manifold asserted to read on Sleep
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`Number’s ‘172 Patent; and with source code versions 1.9 and 1.92 not asserted to
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`read on Sleep Number’s ‘154 Patent or ‘747 Patent. Period 4 reflects the time frame
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`that ANM sold the Gen 3 V2 air controller with a Koge manifold asserted to read on
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`Sleep Number’s ‘172 Patent; and with source code version 2.0 asserted to read on
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`Sleep Number’s ‘154 Patent and ‘747 Patent.8
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`7 I understand from the Declaration of Elizabeth Patton, Exhibit 2058, that, prior to
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`2012, unit sales to consumers would have been subject to a non-compete agreement
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`between parties in this IPR. Therefore, I do not include this time period in my
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`analyses.
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`8 To the extent that ANM’s source code version 1.97 was implemented during a
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`portion of Period 4, I understand that Sleep Number has asserted this source code
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`version also reads on Sleep Number’s ‘154 Patent and ‘747 Patent.
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`9
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`20. My analyses identify unit sales of ANM’s accused pumps/air
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`controllers as products containing variants of “pump” or “controller” in the
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`“Description” in Column F of Exhibit 2078 and have a “Manifold” asserted to read
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`on Sleep Number’s ‘172 Patent in column K and/or have a “Software” (i.e. source
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`code version) asserted to read on Sleep Number’s ‘154 Patent or ‘747 Patent in
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`column L of Exhibit 2078. Attached as Appendix B is a chart showing ANM’s
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`monthly unit sales of pumps/air controllers that include a manifold and/or source
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`code that I understand is asserted to read on Sleep Number’s ‘172 Patent, ‘154
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`Patent, and/or ‘747 Patent (“accused pumps/air controllers”). The three vertical lines
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`indicate the transitions between the Periods described above. The four horizontal
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`lines indicate ANM’s average monthly unit sales during each Period. ANM’s
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`average monthly unit sales of accused pumps/air controllers by Period are shown in
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`Table 1 below:
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`21.
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`I statistically tested ANM’s mean unit sales of accused pumps/air
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`controllers for each Period to the mean(s) of ANM’s unit sales of accused pumps/air
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`controllers in adjacent Period(s) to determine if ANM’s average monthly unit sales
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`of accused pumps/air controllers was statistically different between the compared
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`10
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`Periods. Appendix C shows the results of my statistical analyses generated by this
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`testing in the form of the log file exported by the STATA software used to perform
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`these analyses.
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`22.
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`I understand that ANM’s product changes between Period 1 and Period
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`2 include a change from ANM’s Arco Target source code not asserted to read on
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`Sleep Number’s ‘154 Patent and ‘747 Patent to ANM’s version 1.8 source code
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`asserted to read on Sleep Number’s ‘154 Patent and ‘747 Patent.
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`23.
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`I understand that ANM’s product changes between Period 2 and Period
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`3 include a change from source code asserted to read on Sleep Number’s ‘154 Patent,
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`and ‘747 Patent (version 1.8) to source code not asserted to read on Sleep Number’s
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`‘154 Patent or ‘747 Patent (versions 1.9 and 1.92). I understand that ANM’s accused
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`9
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`11
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`pumps/air controllers also changed at this time from an Arco/Rimco manifold to a
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`Koge manifold—both of which are asserted to read on Sleep Number’s ‘172 Patent.
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`24.
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`I understand that ANM’s product changes between Period 3 and Period
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`4 include a change from source code not asserted to read on Sleep Number’s ‘154
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`Patent and ‘747 Patent (versions 1.9 and 1.92) to source code asserted to read on
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`Sleep Number’s ‘154 Patent and ‘747 Patent (version 2.0 and version 1.97 to the
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`extent it was implemented).
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`25.
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` I understand that the demand
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` is a relevant factor to
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`consider regarding commercial success of ANM’s accused pumps/air controllers.
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`ANM’s Adoption of Accused Manifolds and Source Code
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`26.
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`I also understand that evidence of ANM’s adoption of the technologies
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`asserted to read on Sleep Number’s ‘172 Patent, ‘154 Patent, and ‘747 Patent in its
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`pumps/air controllers is another relevant consideration regarding commercial
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`success. I measured ANM’s adoption of accused technologies by comparing its sales
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`of accused pumps/air controllers (as defined above) to its sales of accused mattresses
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`13
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`(defined as those identified as “Accused” by ANM in Exhibit 2078). 11
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` I understand that Sleep Number asserts that its ‘172 Patent,
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`‘154 Patent, and ‘747 Patent cover an entire mattress system.
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`14
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`15
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`Sleep Number Corp.
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`27.
`\l
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`28.
`N 00
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`Conclusions
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`29. Based upon my analyses detailed above, I believe to a reasonable
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`degree of certainty that there is clear evidence of commercial success based on:
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`•
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`30. These analyses demonstrate that demand for technologies that read on
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`Sleep Number’s ‘172 Patent, ‘154 Patent, and ‘747 Patent exists.
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`17
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`31.
`U.) p—L
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`18
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`I declare under penalty of perjury that the foregoing is true
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`and correct. Executed on October 29, 2019.
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`19
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`APPENDIX A
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`Carl G. Degen
`
`Professional Papers:
`
`”Air Pollution and Mortality Rates: A Note on Lave and Seskin‘s Pooling of Cross-Section and Time Series
`Data,” Journal ofEnv/ronmental Economics and Management, Vol. 7, 1980, pp. 149—155 (with G. B.
`Christainson).
`
`”United States Postal Service Capital Stock Estimates, 1962—1982,” March 1983, (with D. C. Christensen,
`L. R. Christensen, and P. E. Schoech).
`
`”United States Postal Service Measures of Real Output, Input, and Total Factor Productivity 1963—
`1984,” October 1984, (with D. C. Christensen, L. R. Christensen, and P. E. Schoech).
`
`”United States Postal Service Econometric Analysis of USPS Structure of Production and Total Factor
`Productivity, 1963—1983,” November 1984, (with D. C. Christensen, L. R. Christensen, and P. E.
`Schoech)
`
`l’Data Base and Methodology for Economic Comparison of School Districts,” February 1985, (with D. C.
`Christensen).
`
`”Review of the Evidence for Urban/Rural Cost of Living Differentials in Wisconsin,” February 1985, (with
`D. C. Christensen).
`
`”The Role of Deregulation in Wisconsin's Economic Development,” presented to the Wisconsin Strategic
`Development Commission, April 1985, (with L. R. Christensen).
`
`”United States Postal Service Quarterly Real Output, input, and Total Factor Productivity, 1982 lst
`Quarter Through 1986 lst Quarter,” February 1986, (with D. C. Christensen, L. R. Christensen, and P. E.
`Schoech)
`
`”United States Postal Service Productivity Budgeting Model Users Manual,” June 1986.
`
`”Capital in the United States Postal Service,” in Technology and Capital Formation, 1989, eds. Dale W.
`Jorgenson and Ralph Landau, MIT Press, Cambridge, (with D. C. Christensen, L. R. Christensen, and P. E.
`Schoech)
`
`”Performance Analysis of Processing and Distribution Facilities: Sources of TFP Improvement,” February
`22, 1994, (with D. C. Christensen, K. L. Ehiinger, and P. E. Schoech).
`
`Regulatory Testimony
`
`Written supplemental direct testimony before the Postal Rate Commission, USPS—ST-12, in Docket No.
`R94—1, Postal Rate and Fee Changes (Reclassification of Second-Class Tallies).
`
`Written direct testimony before the Postal Rate Commission, USPS-T—S in Docket No. MC9S—1,
`Classification Reform i (Letter Bundle Handling Survey and First-Class Mail Characteristics Study).
`
`Written rebuttal testimony before the Postal Rate Commission, USPS—RT—9, in Docket No. MC95—1,
`Classification Reform-1 (Impact of Automation on First-Class Mail, The Impact of Postage Rates on
`Christmas Cards, and Alternative Volume Unit Cost Estimates for Publications).
`
`
`
` 2 Christensen Associates
`
`Sleep Number Corp.
`EXHIBIT 2055
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`Sleep Number Corp.
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`

`

`Carl G. Degen
`
`Written direct testimony before the Postal Rate Commission, USPS—CT—Z, in Docket No. MC96—2,
`Classification Reform ll, Nonprofit (Classroom Mail).
`
`Written direct testimony before the Postal Rate Commission, USPS-T—lz, in Docket No. R97—1, Postal
`Rate and Fee Changes (New Costing Methods).
`
`Written rebuttal testimony before the Postal Rate Commission, USPS—RT—6, in Docket No. R97—1, Postal
`Rate and Fee Changes (New Costing Methods).
`
`Written direct testimony before the Postal Rate Commission, USPS—T—16, in Docket No. R2000—1,
`Postal Rate and Fee Changes (Mail Processing Costing Methods).
`
`Written rebuttal testimony before the Postal Rate Commission, USPS—RT—ES, in Docket No. RZOOO—l,
`
`Postal Rate and Fee Changes (Mail Processing Costing Methods and a Survey of Bound Printed Matter).
`
`Rebuttal Testimony of Mark E. Meitzen, Ph.D., Christensen Associates; Dennis L. Weisman, Ph.D.,
`
`Professor Emeritus, Kansas State University; and Carl G. Degen, Christensen Associates, Performance-
`Based Ratemaking Mechanism, on behalf of NSTAR Electric Company and Western Massachusetts
`Electric Company each d/b/a EVERSOURCE ENERGY, May 19, 2017.
`
` 3 Christensen Associates
`
`
`
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`EXHIBIT 2055
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`

`

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`Sleep Number Corp.
`EXHIBIT 2055
`|PR2019-00514
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`Page 24
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`IPR2019-00514
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`

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`ANM Accused Controller Unit Sales
`
`APPENDIX B
`
`Sleep Number Corp.
`EXHIBIT 2055
`IPR2019-00514
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`

`

`APPENDIX C
`
`Sleep Number Corp.
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`IPR2019-00514
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`
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`Sleep Number Corp.
`EXHIBIT 2055
`|PR2019-00514
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`Sleep Number Corp.
`EXHIBIT 2055
`IPR2019-00514
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`