Case 2:17-cv-00513-JRG Document 302 Filed 01/16/19 Page 1 of 11 PageID #: 19329
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF TEXAS
`MARSHALL DIVISION
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`AGIS SOFTWARE DEVELOPMENT LLC,
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`Plaintiff,
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`v.
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`HUAWEI DEVICE USA INC. ET AL.,
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`Defendants.
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`Case No. 2:17-CV-0513-JRG
`(LEAD CASE)
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`JURY TRIAL DEMANDED
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`Case No. 2:17-CV-0516-JRG
`(CONSOLIDATED CASE)
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`JURY TRIAL DEMANDED
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`APPLE, INC.,
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`Defendant.
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`PLAINTIFF AGIS SOFTWARE DEVELOPMENT LLC’S SUR-REPLY IN
`OPPOSITION TO APPLE INC.’S DAUBERT MOTION TO EXCLUDE THE
`OPINIONS OF MR. ALAN RATLIFF RELATING TO DAMAGES (DKT. 231)
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`Case 2:17-cv-00513-JRG Document 302 Filed 01/16/19 Page 2 of 11 PageID #: 19330
`Case 2:17-cv-00513-JRG Document 302 Filed 01/16/19 Page 2 of 11 PageID #: 19330
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`Case 2:17-cv-00513-JRG Document 302 Filed 01/16/19 Page 3 of 11 PageID #: 19331
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`AGIS submits this sur-reply memorandum in further opposition to Apple’s Daubert
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`motion to exclude certain opinions of AGIS’s damages expert Alan Ratliff (Dkt. 231). Apple’s
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`Reply in support of its motion is essentially a rehash of the arguments in its opening motion
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`papers. For the reasons set forth below and in AGIS’s opposition (Dkt. 250), Apple’s motion
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`should be denied.
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`I.
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`ARGUMENT
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`A. Mr. Ratliff’s “Technical Apportionment” is Not Arbitrary and is
`Properly Supported by the Opinions of AGIS’s Technical Expert
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`Apple does not dispute that Mr. Ratliff apportions between the patented and non-patented
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`features, and agrees that Mr. Ratliff’s opinion is based on Mr. McAlexander’s technical analysis
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`of the value of the accused functions and patented features. Apple simply disagrees with
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`Mr. McAlexander’s conclusions about the relative significance of the patented technology and
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`the resulting quantification of that in the damages context by Mr. Ratliff.
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`Apple again focuses on a single paragraph of Mr. McAlexander’s report, ignoring the
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`remainder of his analysis on which Mr. Ratliff relied. See Dkt. 250 at 5. Apple now labels as
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`“arbitrary” (Dkt. 268 at 2) what is actually an estimate based on substantial qualitative analysis,
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`an approach condoned by this Court in other similar cases, offering no additional authority,
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`citing only cases that are clearly distinguishable and do not support the vague, alternative test
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`which Apple seems to advocate. Apple attempts to distinguish the Federal Circuit’s decision in
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`Chrimar Holding Co., LLC v. ALE USA Inc., 732 F. App’x 876, 2018 WL 2120618 (Fed Cir.
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`2018), Dkt. 250 at 7, arguing that the damages analysis in Chrimar was based on royalty rates
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`from licenses the parties had previously entered and that the apportionment of unpatented versus
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`patented features was with respect to a standards essential patent and based on descriptions in the
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`standard itself. Dkt. 268 at 3. But nowhere in Chrimar did the Court limit its opinion to
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`comparisons involving previously-negotiated royalty rates, nor did the Court limit its holding to
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`SEPs. Chrimar permits a damages expert to rely on a technical expert’s analysis to estimate the
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`relative values of patented versus non-patented features. Chrimar, 2018 WL 2120618, at *9.
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`Mr. Ratliff’s 40% apportionment to the patented features - based on Mr. McAlexander’s
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`conclusion that the patented features are almost if not as important as the non-patented features -
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`is not, as Apple contends, a “black box.” Dkt. 268 at 2. Apple’s own damages expert, Paul
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`Meyer, apportioned the value of the price paid by Apple for a patent portfolio for what he deems
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`a comparable license by quantifying similar language.
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`.
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` AGIS should not be held to a higher standard of precision than
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`Apple’s own expert.
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`Apple also reargues that “AGIS . . . failed to account for several critical technologies in
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`the Accused Apps, including battery life-saving features, the apps’ ‘look-and-feel,’ and
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`technology covered by Apple’s own patents.” Dkt. 268 at 3. Apple again misses the point.
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`Apple does not dispute that fee-based device and friend-finding apps offered by the wireless
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`carriers, xFi and Family Tracker, which have tens-of-millions of downloads combined, offer the
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`same core functions and features as Apple’s Find My iPhone and Find My Friends apps. It is
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`these core functions and features that are accused by AGIS of infringing, not the other features
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`and functions of its devices that are the baseline technology which all of the accused and
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`comparable third-party apps are built upon, and therefore need not be apportioned out since the
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`upfront fees are paid for the apps, not their common, shared device platforms.
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`Case 2:17-cv-00513-JRG Document 302 Filed 01/16/19 Page 5 of 11 PageID #: 19333
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`B.
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`The Market Price of the Family Tracker App Was a Reliable
`Starting Point for the Hypothetical Negotiation
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`Attacking Mr. Ratliff’s choice of the Family Tracker app as a starting point for his
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`analysis, Apple argues that “AGIS does not identify any evidence showing that Apple made a
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`single additional sale, received a single additional dollar in ‘advertising’ revenue, or received a
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`single additional dollar in any ‘other way’ that is attributable to the Accused Apps.” Dkt. 268 at
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`1. Apple then claims that “AGIS provides no objective evidence correlating the price of the
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`third-party Family Tracker app to the alleged ‘ecosystem’ value of the Accused Apps.” Dkt. 268
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`at 4. But Apple does not dispute that it did not produce any data or metrics reflecting, under its
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`ecosystem monetization model, claiming that it “does not track financial information for apps
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`that it distributes for free.” Despite Apple’s internal decision to not track this data, Apple does
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`not and cannot deny that popular, highly-used apps, such as these, do have value and that this
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`value can be estimated based on market information relating to comparable apps that use a
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`different monetization model. For Apple to claim otherwise would mean that Apple includes
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`such apps in every single one of the millions of accused iPhones, iPads, iPods and Apple watches
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`it sells out of sheer benevolence. Such a claim is simply not credible.1
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`Apple also injects a new “Economics 101” argument into this issue, arguing without
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`citing to any authority that no consumer would pay for an app if a similar app is given away free.
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`Apple then declares the only possible explanation is that those who purchased the fee-based
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`third-party apps must have been paying for some feature the third-party apps have that the
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`Case 2:17-cv-00513-JRG Document 302 Filed 01/16/19 Page 6 of 11 PageID #: 19334
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`accused apps do not. Dkt. 268 at 5. Apple’s argument is flawed in several ways. Notably,
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`Apple does not list, much less prove, that there are additional valuable features of the third-party
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`apps that would merit the fees. Further, Mr. Ratliff demonstrated in his report and workpapers,
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`and explained in his deposition, that there are no significant differences, just different providers
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`in different businesses with different monetization models. See Dkt. 250 at 9. Ultimately, Apple
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`focuses on the wrong question. The relevant inquiry is not why a significant number of users
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`might choose the comparable third-party apps over the accused apps but, rather, what is the
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`market value of the accused core features and functions of the accused apps? Mr. Ratliff
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`answers this using pricing for comparable third-party apps that may be downloaded for a fee as a
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`proxy for Apple’s different monetization model.2
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`While not denying the usage statistics AGIS relies on for its estimate downloads of the
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`Family Tracker app, Apple suggests that it did not produce app metrics for Family Tracker or
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`other similar apps because it did not know that information might be relevant until it saw
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`Mr. Ratliff’s report. Now months later, Apple finally does so, but only for the latest version and
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`only covering a partial year period in 2018. During that period, “the data shows that Family
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`Tracker was downloaded only 424 times for iPhone and only 19 times for iPad.” Dkt. 268 at 5;
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`Dkt. 268-2. As with its prior citation to statistics regarding Family Tracker user reviews, Apple
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`again misleads. See Dkt. 250 at 10, fn. 4. The data cited in Apple’s Reply is limited to its
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`production of new subscriptions to a single upgrade version of Family Tracker released in early
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`2018, ignoring subscriptions to at least 23 prior versions dating back to 2010. This does
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`nothing to rebut, and in fact corroborates, Mr. Ratliff’s estimates based on market information
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`that combined Apple and Android distribution of Family Tracker is in the 20,000 to 100,000
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`2 Apple attempts to frame Mr. Ratliff’s market price starting as one exclusively based on Family Tracker, but his
`report makes it clear that he considers multiple third-party apps with a range of fees and simply used the app at
`lowest end of the range which was Family Tracker.
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`Case 2:17-cv-00513-JRG Document 302 Filed 01/16/19 Page 7 of 11 PageID #: 19335
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`range,3 and fails to address the cumulative wireless carrier and xFi app distributions in the tens-
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`of-millions on Google Play alone. Dkt. 250-4 at ¶¶8, 9.
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`C.
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`The Insurance Adjustment is Not Arbitrary and is Supported
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`Apple does not dispute that the accused devices are pre-configured to and capable of
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`being used to find a lost device.
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`For shock value, Apple mischaracterizes AGIS’s argument concerning the insurance
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`benefit, citing a “$200 insurance benefit” (Dkt. 268, at 5) as if it was a royalty base or price, as
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`opposed to focusing on the actual impact on the royalty amount. The insurance amount estimate
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`was chosen at the low end price and deductible for device loss insurance reflecting a benefit (or
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`avoided cost) of having the ability to locate a lost device, but was only used to compare the
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`relative cost of the insurance to device replacement cost. Dkt. 250-2, at ¶94.
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`3 Half that distribution is reflected on GooglePlay, and the Apple distribution was estimated to be similar. Dkt. 250-
`4 [Ratliff Declaration], at ¶8.
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`). Id.
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`D.
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`Apple Mischaracterizes the Reference to Apple’s Profits
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`Finally, Apple does not dispute that Georgia-Pacific factor 15 expressly contemplates a
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`comparison of the reasonable royalty to the accused product’s profitability. Apple again
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`misstates what Mr. Ratliff does in connection with this factor. To be clear, AGIS will not
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`present, and Mr. Ratliff will not opine, as to “evidence suggesting a royalty rate as a percentage
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`of Apple’s overall revenues or profits,” as argued by Apple. Dkt. 268 at 6. Any references to
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`Apple’s revenues or profits in Mr. Ratliff’s expert report were limited to the context of Georgia-
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`Pacific Factor 15 and focus solely on the profits of the SSPPU, and then only after further usage
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`apportionment and technical apportionment. Apple conflates “profits” (a term used to represent
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`a dollar amount) with “profit margin” (a percentage of relevant sales price) in trying to confuse
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`the issue. Mr. Ratliff’s focus is on the estimated profit margin relevant to the ecosystem value of
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`the accused apps (the SSPPU), and his opinion on this point is limited to amount of the
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`reasonable royalty compared to that profit margin.
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`For all of the foregoing reasons, Apple’s motion to exclude certain damages opinions of
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`Alan Ratliff should be denied in its entirety.
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`Dated: January 14, 2018
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`BROWN RUDNICK LLP
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` /s/ Alfred R. Fabricant
`Alfred R. Fabricant
`NY Bar No. 2219392
`Email: afabricant@brownrudnick.com
`Lawrence C. Drucker
`NY Bar No. 2303089
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`Case 2:17-cv-00513-JRG Document 302 Filed 01/16/19 Page 9 of 11 PageID #: 19337
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`Email: ldrucker@brownrudnick.com
`Peter Lambrianakos
`NY Bar No. 2894392
`Email: plambrianakos@brownrudnick.com
`Vincent J. Rubino, III
`NY Bar No. 4557435
`Email: vrubino@brownrudnick.com
`Alessandra C. Messing
`NY Bar No. 5040019
`Email: amessing@brownrudnick.com
`Shahar Harel
`NY Bar No. 4573192
`Email: sharel@brownrudnick.com
`John A. Rubino
`NY Bar No. 5020797
`Email: jrubino@brownrudnick.com
`Enrique W. Iturralde
`NY Bar No. 5526280
`Email: eiturralde@brownrudnick.com
`Daniel J. Shea, Jr.
`NY Bar No. 5430558
`Email: dshea@brownrudnick.com
`Justine Minseon Park
`NY Bar No. 5604483
`Email: apark@brownrudnick.com
`BROWN RUDNICK LLP
`7 Times Square
`New York, NY 10036
`Telephone: 212-209-4800
`Facsimile: 212-209-4801
`
`Samuel F. Baxter
`Texas Bar No. 01938000
`Email: sbaxter@mckoolsmith.com
`Jennifer L. Truelove
`Texas State Bar No. 24012906
`Email: jtruelove@mckoolsmith.com
`McKOOL SMITH, P.C.
`104 East Houston Street, Suite 300
`Marshall, Texas 75670
`Telephone: 903-923-9000
`Facsimile: 903-923-9099
`
`ATTORNEYS FOR PLAINTIFF, AGIS
`SOFTWARE DEVELOPMENT LLC
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`Case 2:17-cv-00513-JRG Document 302 Filed 01/16/19 Page 10 of 11 PageID #: 19338
`Case 2:17-cv-00513-JRG Document 302 Filed 01/16/19 Page 10 of 11 PageID #: 19338
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`Case 2:17-cv-00513-JRG Document 302 Filed 01/16/19 Page 11 of 11 PageID #: 19339
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`CERTIFICATE OF SERVICE
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`The undersigned hereby certifies that, on January 14, 2019, all counsel of record who are
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`deemed to have consented to electronic service are being served with a copy of this document via
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`the Court’s CM/ECF system per Local Rule CV-5(a)(3).
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`/s/ Alfred R. Fabricant
`Alfred R. Fabricant
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