`
`IN THE UNITED STATES DISTRICT COURT
`FOR THE WESTERN DISTRICT OF TEXAS
`WACO DIVISION
`
`VS.
`
`STRATOSAUDIO, INC.
`
`
`* June 23, 2021
`*
`* CIVIL ACTION NOS.
`*
`
`* W-20-CV-1125
`HYUNDAI MOTOR AMERICA
`VOLKSWAGEN GROUP OF AMERICA, INC. W-20-CV-1131
`
`BEFORE THE HONORABLE ALAN D ALBRIGHT
`MOTION HEARING (via Zoom)
`
`
`APPEARANCES:
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`For the Plaintiff:
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`Jonathan J. Lamberson, Esq.
`White & Case LLP
`3000 El Camino Real
`2 Palo Alto Square, Suite 900
`Palo Alto, CA 94306
`
`Michael J. Songer, Esq.
`White & Case LLP
`701 13th Street, Nw
`Washington, DC 20005-3807
`
`Corby R. Vowell, Esq.
`Friedman, Suder & Cooke
`604 E. 4th Street, Suite 200
`Fort Worth, TX 76102
`
`Clarence Rowland, Esq.
`Ryan K Yagura, Esq.
`O'Melveny & Myers LLP
`400 South Hope Street
`Los Angeles, CA 90071
`
`Darin W. Snyder, Esq.
`O'Melveny & Myers LLP
`Two Embarcadero Center, 28th Floor
`San Francisco, CA 94111-3823
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`For Defendant Hyundai:
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`For Defendant Volkswagen:
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`David Philip Whittlesey, Esq.
`Shearman & Sterling LLP
`111 Congress Ave, Suite 1700
`Austin, TX 78701
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
`
`StratosAudio Exhibit 2004
`Volkswagen v StratosAudio
`IPR2021-00716
`Page 1 of 41
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`Court Reporter:
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`Mark A. Hannemann, Esq.
`Shearman & Sterling LLP
`599 Lexington Avenue
`New York, NY 10022
`
`Kristie M. Davis, CRR, RMR
`PO Box 20994
`Waco, Texas 76702-0994
`(254) 340-6114
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`Proceedings recorded by mechanical stenography, transcript
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`produced by computer-aided transcription.
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
`
`StratosAudio Exhibit 2004
`Volkswagen v StratosAudio
`IPR2021-00716
`Page 2 of 41
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`3
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`(June 23, 2021, 9:31 a.m.)
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`DEPUTY CLERK: Motion hearing in Civil Action
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`W-20-CV-1125, styled StratusAudio, Incorporated versus Hyundai
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`Motor America, and Case No. W-20-CV-1131, styled StratosAudio,
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`Incorporated versus Volkswagen Group of America.
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`THE COURT: If I could have announcements from counsel,
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`please.
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`MR. VOWELL: Good morning, Your Honor. This is Corby
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`Vowell with Friedman, Suder & Cooke for the plaintiff
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`StratosAudio.
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`MR. SNYDER: Good morning, Your Honor. This is Darin
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`Snyder of O'Melveny and Myers for defendant Hyundai Motor
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`America. My colleague Mr. Clarence Rowland is going to be
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`handling the argument for us today.
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`THE COURT: Very good.
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`MR. WHITTLESEY: Your Honor, David Whittlesey here from
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`Shearman & Sterling for Volkswagen, and with me my partner Mark
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`Hannemann. I think he will be taking the lead on our arguments
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`today.
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`MR. VOWELL: And, Your Honor, also on the plaintiff's side
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`let me let lead counsel introduce themselves.
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`MR. SONGER: Your Honor, this is Mike Songer.
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`Thank you, Mr. Vowell.
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`It's Mike Songer from White & Case, and I'll be handling
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`the venue motion.
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
`
`StratosAudio Exhibit 2004
`Volkswagen v StratosAudio
`IPR2021-00716
`Page 3 of 41
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`THE COURT: Okay.
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`MR. LAMBERSON: Good morning, Your Honor. Jonathan
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`Lamberson also from White & Case, and I will be handling the
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`discovery/schedule dispute.
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`THE COURT: What do you all suggest we take up first?
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`MR. SONGER: I'd say the venue.
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`THE COURT: Okay. I thought so too. I'm happy to hear
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`the argument on the motion for transfer.
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`MR. WHITLESEY: Your Honor, we have two -- there's two
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`motions, one for Volkswagen, one for Hyundai. Do you have any
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`preference as to which one goes first?
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`THE COURT: I don't.
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`(Clarification by the reporter.)
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`MR. HANNEMANN: All right. Thank you, Your Honor. This
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`is Mark Hannemann from Shearman representing Volkswagen. It's
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`nice to see you on the other side of the virtual bench. It's
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`been awhile.
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`Plaintiff's argument in this case would provide nationwide
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`venue for patent suits against wholesalers who do business
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`nationwide. This is exactly the opposite of Congress' intent
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`in passing the venue statute which is explained in, for
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`example, the Federal Circuit's Cray decision.
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`The basic problem with plaintiff's argument is that it
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`conflates whether someone is doing business at a place with
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`whether that place is their own established place of business.
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
`
`StratosAudio Exhibit 2004
`Volkswagen v StratosAudio
`IPR2021-00716
`Page 4 of 41
`
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`I don't know that there's a lot for me to say other than that
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`Volkswagen does not have a place of business in the Waco
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`Division. It owns no real estate. It rents no real estate.
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`It -- the only allegation is that its dealers are in Waco,
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`which means that Volkswagen is doing business with its dealers,
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`but it's not doing that business at the dealerships. And
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`without a place of business of Volkswagen, there is no venue in
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`this district for a patent case against Volkswagen.
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`I can talk in more detail about the Cray case. I could
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`talk about ratification, which is something that comes up in
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`the plaintiff's brief, but if you have any particular questions
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`for me right now, I'd be happy to answer them.
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`THE COURT: Let me hear from -- obviously a response, but,
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`I mean, I think the -- I just find it a fascinating question.
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`I mean, I really do. You know, it's -- is Volkswagen --
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`Volkswagen is selling cars in the district. I mean -- well,
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`let me try it this way. I'll use a passive voice.
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`Volkswagen cars are being sold in the Western Division.
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`We don't have a fight over that. And they're being sold by
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`independent dealers. I think -- you know, I get all the facts,
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`but I still find it a fascinating question about whether or not
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`that is doing business in the Western District, and I'm happy
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`to hear -- let me hear from the plaintiff and then we'll go
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`back.
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`MR. SONGER: Yes, Your Honor. This is Mr. Songer.
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
`
`StratosAudio Exhibit 2004
`Volkswagen v StratosAudio
`IPR2021-00716
`Page 5 of 41
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`I agree this is a fascinating issue, and they are doing
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`business for at least two reasons in this district, and the
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`first is -- although Mr. Hannemann just simply focused on what
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`VW does, it ignored the wealth of evidence of what it directs
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`its dealers to do. And those operating agreements, which we've
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`attached to our opposition, spell out the detail to which VW
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`goes and either ratifies, controls, adopts, directs the dealers
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`to engage in their activities, and it goes through the list,
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`and we've listed it out and I'm not going to go through in
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`detail, but it goes down to the detail beyond just telling you
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`how many cars you can have and the price that is set and you
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`have to use the trademarks. It goes to telling you what your
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`building has to look like. It goes and deals with warranties
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`that I'll talk about in a minute. It gives specifications for
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`the accounting system. It even goes so far as to detail the
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`type of IT equipment that should be used by the dealers that's
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`there. And there's 11 -- I think we listed 11 factors that are
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`there well beyond which was in Judge Gilstrap's Blitzsafe case
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`where he found both control and ratification from the
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`manufacturers over those dealers. But this isn't a --
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`Go ahead.
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`THE COURT: And let me ask you all this. Again, I just
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`find this fascinating. I mean, I -- it also makes me wonder,
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`and I don't think this was addressed really in TC Heartland
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`because it wasn't necessary, but what was the intent of
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
`
`StratosAudio Exhibit 2004
`Volkswagen v StratosAudio
`IPR2021-00716
`Page 6 of 41
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`Congress when they said the venue will be where someone is
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`doing business and does that -- you know, it's -- look. It's
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`one thing if -- to me if Apple is having its phones sold by an
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`AT&T dealer -- one AT&T dealer in the entire district, is Apple
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`doing business? I mean, Apple phones are being sold, but
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`are -- is Apple doing business? That's one question.
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`Here you have Volkswagen dealerships to the -- I don't
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`remember the names of the folks that are running them, but to
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`the world, the world sees a Volkswagen dealership in the
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`district. Not an independent dealership that happen -- not
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`like a Walmart that happens to be selling Kleenex, but this is
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`a Volkswagen dealership, and is that or is that not doing
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`business especially where the well-known standard is, you know,
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`make, use, sell, make for sale -- it seems to me that that
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`applies here as well. And so is there -- and we've -- I've
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`looked at my clerks pretty carefully over the agreements that
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`you just talked about in terms of the control that the
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`defendants exercise over these folks that are operating the car
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`dealerships. Is there anything else you wanted to say? I
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`interrupted you and I'm sorry about that.
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`MR. SONGER: No. That's all right, Judge. You're allowed
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`to do that of course.
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`Yes. If you want the guidance on that, I would look
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`towards the Google case which both defendants say that we
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`didn't address, but we didn't need to because the agency issue
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
`
`StratosAudio Exhibit 2004
`Volkswagen v StratosAudio
`IPR2021-00716
`Page 7 of 41
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`in there was addressed by Judge Gilstrap in Blitzsafe.
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`Google -- now, I was looking at that second prong about
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`the argument over whether you needed actual employees there or
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`agents, and the Google Federal Circuit case came out and looked
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`at the venue statute as it came down through Congress over the
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`years, and it pointed out in there that things that directly
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`affect the business such as exchange of goods, is the language,
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`transportation, storage and those types of factors were deemed
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`to be activities that would fall within the venue statute.
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`And in Google it was distinguishing from ISPs and routine
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`maintenance work that was done on those servers and said, well,
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`the -- at that time the venue statute didn't really contemplate
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`that type of work, but the venue statute at that time certainly
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`contemplated the sale of goods, and that's what we have here in
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`addition to the other activities and the offer of services
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`through warranties and otherwise.
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`And that -- the Google case goes through the history of
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`what's there, and I believe it addresses dead on what we have
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`here and what's required. You have the manufacturers who sell
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`exclusively to their dealers and then they require the control
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`that we've pointed out and the consumers go and buy from those
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`dealers.
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`Also, not to be overlooked, and as was pointed out by
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`Judge Gilstrap in the Blitzsafe case, both VW and Hyundai
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`provide warranties.
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
`
`StratosAudio Exhibit 2004
`Volkswagen v StratosAudio
`IPR2021-00716
`Page 8 of 41
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`THE COURT: I was about to ask you -- I was literally
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`about to ask you. Who -- if I buy a Volkswagen from one of
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`these dealers, is it the dealership or the -- or Volkswagen
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`that is providing the warranty? It's Volkswagen, right?
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`MR. SONGER: It's Volkswagen and it's Hyundai as well,
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`although Hyundai also allows the dealers to offer an additional
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`warranty on top of the manufacturer one.
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`THE COURT: But when I go there as a purchaser of a
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`Hyundai or a Volkswagen and I told I'm getting the 100 --
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`whatever it is, 100,00 miles, doesn't matter, and five
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`year/100-mile warranty, the person who is making that offer of
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`the warranty of the car that I'm purchasing is the car
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`manufacturer, correct?
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`MR. SONGER: That's our understanding based on the
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`operating agreements, and neither defendant has argued
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`otherwise based on those.
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`THE COURT: Let me hear, if I could, from anything counsel
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`for Volkswagen would like to say and then we'll shift over to
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`Hyundai.
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`MR. HANNEMANN: Sure. I think that the citation to the
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`Google case is very important. The Google case -- in the
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`Google case the Federal Circuit unambiguously held that there
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`has to be the regular physical presence of an employee at a
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`place for that employer -- employee's employer to be doing
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`business at that place, and there's no question that there's no
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
`
`StratosAudio Exhibit 2004
`Volkswagen v StratosAudio
`IPR2021-00716
`Page 9 of 41
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`Volkswagen employees in the Western District of Texas. I think
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`under the black law -- the black letter law of Google that
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`means there's no Volkswagen place of business.
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`Under the Cray case what the -- the Court noted that the
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`fact that the defendant has advertised it has a place of
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`business or even set up an office is not sufficient. The
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`defendant must actually engage in business from that location.
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`And so the mixup that Judge Gilstrap went through with the
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`Blitzsafe case is he focused on wrongly, I think, on whether
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`BMW was doing business in the Eastern District of Texas.
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`That's not the question. The question is whether the car
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`manufacturers are doing business at the dealerships, not by
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`selling cars to the dealerships but by having somebody on the
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`ground in West Texas providing services from that location, and
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`that just simply is not the case.
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`MR. SONGER: If I may address that, Your Honor?
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`THE COURT: Sure. Of course.
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`MR. SONGER: Google goes beyond employees. It says agents
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`or employees when it's looking at that factor. So it's not
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`just a -- an employee with --
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`THE COURT: And so I understand what you mean by that, as
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`opposed to Volkswagen -- and correct me if I'm wrong, and the
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`other side can help. Your position is is that when
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`Volkswagen -- and I'm assuming this applies to Hyundai as
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`well -- in essence, the way car dealerships are set up, which
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
`
`StratosAudio Exhibit 2004
`Volkswagen v StratosAudio
`IPR2021-00716
`Page 10 of 41
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`may even be unique, a very unique business, the folks that are
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`running the auto dealership -- again, we've talked about the
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`sale of the car, we're talking about the warranties. Your
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`position is that they are essentially agents -- they're not
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`employees because they're not receiving a check directly from
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`Volkswagen, but they are the agents of -- direct agents of
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`Volkswagen's because they're selling the cars, they're selling
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`the warranties, they're selling the upgrades, they're selling
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`everything else. And so that's my -- is that my understanding
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`what your agency position is?
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`MR. SONGER: It is, Your Honor, and this was addressed by
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`Judge Gilstrap who pointed out that -- and cited the case law
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`to support this. And this is -- and when I say Blitzsafe, I
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`think we're referring to the Blitzsafe 1 decision from 2018.
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`But at Page star 11 he points out that and cites case law
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`that says: Although dealers may not be agents in the broad
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`sense of the term, certainly for what they're doing, it's true
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`that an automobile dealership -- and I'm quoting here -- may,
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`under certain circumstances, be an agent of the manufacturer.
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`And he goes through and he cites cases that talk about that
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`point. So that is exactly what we're saying, and it was
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`addressed by Judge Gilstrap and it does apply here.
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`MR. ROWLAND: Your Honor, can Hyundai respond to some of
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`these points?
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`THE COURT: No. I'm just -- no.
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
`
`StratosAudio Exhibit 2004
`Volkswagen v StratosAudio
`IPR2021-00716
`Page 11 of 41
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`(Laughter.)
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`THE COURT: Of course you can.
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`Yes. I just wanted to make sure we exhausted the
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`Volkswagen, and then obviously I'm going to give Hyundai a
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`chance, but I was just -- one more -- if anyone wants to say
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`anything else in either direction on behalf of Volkswagen, I'm
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`happy to hear it and then I was about to shift to Hyundai.
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`MR. HANNEMANN: Thank you, Your Honor.
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`I'm not aware that in any of the briefing there was an
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`allegation that the dealerships' employees are agents of
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`Volkswagen. And I would strenuously object. I don't know how
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`one strenuously objects as opposed to just a regular objection,
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`but I --
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`THE COURT: Whatever it is, you want it on the record that
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`your objection is -- you disagree with that strenuously.
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`MR. HANNEMANN: Correct. Correct.
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`Those are employees of the dealers. They're not agents of
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`Volkswagen Group of America.
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`THE COURT: Okay. You don't just -- as a friend of mine
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`would say, you deny the allegation and you despise the
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`alligator. I think -- I thank you. And so...
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`MR. HANNEMANN: I definitely do not, Your Honor. I'm
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`sorry to interrupt, but Mr. Songer and I go back a long way and
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`definitely do not despise him.
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`THE COURT: Okay. I'll hear from Hyundai.
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
`
`StratosAudio Exhibit 2004
`Volkswagen v StratosAudio
`IPR2021-00716
`Page 12 of 41
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`MR. ROWLAND: Thank you, Your Honor.
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`There's essentially two points that have been discussed so
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`far. The first was the agency issue, and the second was the
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`business of HMA issue.
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`On the agency issue Judge Gilstrap stated that it is
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`certainly true that dealers are not agents of manufacturers in
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`a broad sense of the term.
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`And then what the remainder of his decision does is it
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`goes through some other sense of agency which is not supported
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`by the -- which is not what the Federal Circuit applies. The
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`Federal Circuit applies the third restatement of agency, and
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`that's in the Google decision.
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`And under the third restatement of agency, there are
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`several essential elements of what it requires to be an agent.
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`One of those essential elements is that the dealership has to
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`16
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`be controlled by HMA. Here there's no control because it would
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`17
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`be illegal for HMA to be controlling these dealerships. Texas
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`18
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`law provides that a distributor may not directly or indirectly
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`19
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`operate or control a franchise dealer or dealership. So any
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`20
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`argument that there's any control by HMA would be incorrect.
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`21
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`And if any provision of these agreements that we've been
`
`22
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`discussing constitutes control under the agency rules, then
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`23
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`that provision would be illegal and would be unenforceable, and
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`24
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`that's the Lulirama case. Any provision in there that could
`
`25
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`constitute control would be illegal and would be unenforceable.
`
`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
`
`StratosAudio Exhibit 2004
`Volkswagen v StratosAudio
`IPR2021-00716
`Page 13 of 41
`
`
`
`14
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`And the Fifth Circuit has even gone farther and has
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`specifically held in case law that manufacturers like GM do not
`
`control dealerships and are not agents of dealerships.
`
`Dealerships are not agents of manufacturers.
`
`So we have specific Fifth Circuit law on point saying that
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`there's no control. We have specific third restatement of
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`agency rules which cannot be satisfied and which plaintiff does
`
`not address. They say they cited a case that addresses agency,
`
`but that case does not apply to the third restatement of
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`1 2 3 4 5 6 7 8 9
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`10
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`agency. It applies some other definition of agency which is
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`11
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`not what the Federal Circuit uses.
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`12
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`Second, just briefly on the conducting the business of
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`13
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`HMA, HMA is not conducting any business in this district. HMA
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`14
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`is a California corporation that sells cars to hundreds of
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`15
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`dealerships across the country. That's a distributor business.
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`16
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`Dealerships, in contrast, are engaged in a separate
`
`17
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`business selling cars to consumers, and that's a retail
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`18
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`business. The distinction between distributing and retailing
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`19
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`is a codified distinction under Texas law. Under Texas law HMA
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`20
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`cannot be engaged in the business of buying, selling or
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`21
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`exchanging new motor vehicles at an established and permanent
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`22
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`place of business in Texas. It would be illegal for HMA to be
`
`23
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`engaging in that business.
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`24
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`So I think under Texas law we have a clear distinction
`
`25
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`between different types of business, and HMA is not conducting
`
`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
`
`StratosAudio Exhibit 2004
`Volkswagen v StratosAudio
`IPR2021-00716
`Page 14 of 41
`
`
`
`15
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`a business that then dealerships are conducting in this
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`district.
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`And I think the third key point here, which has not been
`
`discussed too much, but the key point here is that these
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`dealerships are independent contractors. As the Court recently
`
`held in the Adtran case, an independent contractor relationship
`
`is insufficient to satisfy the third element of Cray. These
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`dealerships are companies such as, you know, Round Rock
`
`Hyundai. That's owned by a massive public company called
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`1 2 3 4 5 6 7 8 9
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`10
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`Penske Automotive that operates hundreds of dealerships across
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`11
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`the country, and it is simply incorrect to say that Hyundai
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`12
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`controls this massive public corporation or any of its retail
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`13
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`outlets. There's no basis to collapse the forums and impute
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`14
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`the operations of these dealerships to HMA.
`
`15
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`Finally, the Court also addressed this warranty issue. A
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`16
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`warranty is an obligation to affect repairs, in essence. But
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`17
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`that warranty does not give HMA any control over the
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`18
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`dealerships, and that's really the key issue here. To
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`19
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`establish any sort of agency, there has to be control, and
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`20
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`these warranties do not allow the dealerships to control -- the
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`21
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`manufacturers to control the dealerships, and that's because
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`22
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`these agreements do not exist in a vacuum. Every material part
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`23
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`of the relationship between these dealerships and the
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`24
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`manufacturers is regulated by statute, including warranties.
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`25
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`The warranties, for example -- I mean, one of the key
`
`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
`
`StratosAudio Exhibit 2004
`Volkswagen v StratosAudio
`IPR2021-00716
`Page 15 of 41
`
`
`
`16
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`issues of a warranty is that the manufacturer has to reimburse
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`the dealership for warranty repairs, but those labor rates and
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`warranty rates are governed by a statute. And to the extent
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`dealerships are unhappy with HMA's warranty reimbursements, the
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`Texas DMV oversees that dispute. The Texas DMV controls the
`
`warranty reimbursements. So there's no avenue for HMA to
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`somehow affect some sort of lever of control over these
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`dealerships through warranties.
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`And, additionally, HMA is not affecting warranty repairs
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`1 2 3 4 5 6 7 8 9
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`10
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`in this district. That's the dealerships. They do that and
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`11
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`then we reimburse them. But there's no HMA employee or agent
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`12
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`in this district that is conducting that business. It's the
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`13
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`dealerships which are independent third parties.
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`14
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`So there's kind of three key issues: One, there's no
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`15
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`agent, and plaintiff has not mentioned -- I don't believe
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`16
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`plaintiff mentions the agency issue at all in their briefing.
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`17
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`They certainly don't apply the Google agency framework, and
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`18
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`they also don't apply the Fifth Circuit agency framework which
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`19
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`has a detailed set of rules for what you would need to do to
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`20
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`show agency.
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`21
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`There's also no HMA business being conducted in this
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`22
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`district because HMA is -- it would be illegal for HMA to be
`
`23
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`conducting that business, and Texas has explicitly delineated
`
`24
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`between the different types of business here.
`
`25
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`And, third, these are independent contractors, and there's
`
`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
`
`StratosAudio Exhibit 2004
`Volkswagen v StratosAudio
`IPR2021-00716
`Page 16 of 41
`
`
`
`17
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`no basis to collapse the corporate forums, and that's
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`essentially what Judge Gilstrap did in the Blitzsafe case. And
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`that analysis was before the Google decision which sets forth
`
`the proper legal framework and tells us that we need to apply
`
`the third restatement of agency, not Judge Gilstrap's
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`alternative analysis in which he initially admitted that
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`dealers are not agents of manufacturers.
`
`Does the Court have any questions about that?
`
`THE COURT: I don't.
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`A response from plaintiff?
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`MR. SONGER: Yes, Your Honor. Let me address them in
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`1 2 3 4 5 6 7 8 9
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`10
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`11
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`12
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`turn.
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`13
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`First, on the -- well, I'll address the last one on the
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`14
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`warranty issue and doing business.
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`15
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`Counsel's overlooking that, again, Judge Gilstrap went to
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`16
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`the statute that noted that under warranty provisions, and this
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`17
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`is Occupational Code 2301.251C. It's discussed on star 11 of
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`18
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`Blitzsafe. That they -- those manufacturers if they directly
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`19
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`or indirectly reimburse another person to perform warranty
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`20
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`repair services on a vehicle, is engaged in business in this
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`21
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`state regardless of whether they sell or offer for sale new
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`22
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`motor vehicles. So they are engaged in business by statute by
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`23
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`the provision of those warranty services.
`
`24
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`The second point is on the statute, the statute -- and
`
`25
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`both parties cited this -- it talks about how in a broad
`
`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
`
`StratosAudio Exhibit 2004
`Volkswagen v StratosAudio
`IPR2021-00716
`Page 17 of 41
`
`
`
`18
`
`provision that the manufacturers can't control or own and
`
`what's -- the dealerships and what's involved there.
`
`But, again, that statute was discussed and analyzed by
`
`Judge Gilstrap, and the defendants have not provided any
`
`explanation of what control means in that case in that statute
`
`that says a manufacturer can't own or control from what's
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`there.
`
`It's also not absolute. That's a minor point. There are
`
`exemptions where a manufacturer can actually own a dealership
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`1 2 3 4 5 6 7 8 9
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`10
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`for a limited period of time -- periods of time. There's
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`11
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`exceptions in that statute, mainly dealing when you transfer
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`12
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`franchises. I don't want to overplay that as to what's
`
`13
`
`involved.
`
`14
`
`But that ties into the agency issue. And the agency issue
`
`15
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`under Google and the Fifth Circuit, and Hyundai cited the
`
`16
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`Cardinal Health Solutions case to support this argument, there
`
`17
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`is an agency relationship from that case and from Hyundai's
`
`18
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`brief, it's reply brief on Page 6. The key is, does the right
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`19
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`to control, which in the context of agency, do you set tasks
`
`20
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`and dictate the means and details of the agent's work to
`
`21
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`accomplish those tasks?
`
`22
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`Now, Hyundai just spoke about the power to hire and fire
`
`23
`
`employees, but the quote they cited in the cases go beyond
`
`24
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`that: Participate in the daily operations of the agent's work.
`
`25
`
`Give the agent interim instructions once work has begun.
`
`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
`
`StratosAudio Exhibit 2004
`Volkswagen v StratosAudio
`IPR2021-00716
`Page 18 of 41
`
`
`
`19
`
`Inspect the progress or receive reports. Make suggestions or
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`recommendations, et cetera.
`
`And the point is is that what both parties have done is
`
`effectively ignore their operating agreements and the wealth of
`
`information that's in there at exactly what the manufacturers
`
`require the dealers to do. They just go and say, well, they're
`
`not agents because here's something that says it, but look at
`
`the means and details that are being performed by the
`
`dealerships that Hyundai controls. They set again the facility
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`1 2 3 4 5 6 7 8 9
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`10
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`standards on what the building looks like. They set the
`
`11
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`inventory levels. They tell the types of parts and quantities
`
`12
`
`you have to carry. They require training. They require that's
`
`13
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`there. They set prices for maintenance. They set minimum
`
`14
`
`working capital.
`
`15
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`Again, Hyundai has access to its dealers' IT systems
`
`16
`
`that's there. So, and, again, I'm not going to go through all
`
`17
`
`the points that we raised because Your Honor and the clerks
`
`18
`
`read those agreements and read the briefs. But the key on that
`
`19
`
`agency, even as Hyundai points out, is -- are the -- is their
`
`20
`
`control over the means and details of the agent's work, and
`
`21
`
`that clearly is there based on what they do in those operating
`
`22
`
`agreements and what they require their role as it relates to
`
`23
`
`the dealerships and what's involved there.
`
`24
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`25
`
`THE COURT: Anything else from -- yeah. Of course.
`
`MR. ROWLAND: Great. So there are a number of significant
`
`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
`
`StratosAudio Exhibit 2004
`Volkswagen v StratosAudio
`IPR2021-00716
`Page 19 of 41
`
`
`
`20
`
`issues I want to address there.
`
`First, on the conducting business through warranties, the
`
`statute says that for purposes of the statutes, it's conducting
`
`business, but there's no identified established place of
`
`business. The venue statute focuses on a physical place of
`
`business where an HMA employee or agent is conducting business.
`
`This sort of general sense of conducting business is not
`
`focused on a physical location within the district, which is
`
`what the venue statute is focused on. So I don't think that
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`1 2 3 4 5 6 7 8 9
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`10
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`gets us over the hill.
`
`11
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`Second, counsel said the defendants have not provided any
`
`12
`
`definition of control. We did provide a definition of control
`
`13
`
`and so did the Federal Circuit in the Google case. The
`
`14
`
`definition of control is brought in through the third
`
`15
`
`restatement of agency which the Federal Circuit applied and
`
`16
`
`also which the Fifth Circuit applies. So there's a clear
`
`17
`
`definition of control offered in our briefing.
`
`18
`
`Additionally, counsel said that there are exemptions where
`
`19
`
`HMA could somehow own or control a franchise, but those
`
`20
`
`exemptions are not relevant in this case. Those exemptions
`
`21
`
`relate to facilitating a peaceful like transfer of the
`
`22
`
`dealership to a different dealer which is a short term thing
`
`23
`
`that there are no facts, you know, in this case suggesting that
`
`24
`
`HMA has some sort of temporary ownership of one of these
`
`25
`
`dealerships. HMA submitted a declaration stating that we do
`
`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
`
`StratosAudio Exhibit 2004
`Volkswagen v StratosAudio
`IPR2021-00716
`Page 20 of 41
`
`
`
`21
`
`not own any of the dealerships. So none of those exceptions
`
`that counsel referenced would be relevant here.
`
`Additionally, counsel missed parts and misread the
`
`Cardinal Health case. He said that -- on Page 6 of our brief
`
`we include a block quote which specifies rights of control.
`
`And there are essentially two parts to that paragraph. The
`
`first part of the paragraph lists examples of things that can
`
`constitute control. The second part of the paragraph after the
`
`word "that go beyond" -- the phrase that "go beyond the pow