Case 2:17-cv-00514-JRG Document 168 Filed 02/13/19 Page 1 of 21 PageID #: 14900
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`
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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,
`
`
`Plaintiff,
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`
`
`v.
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`
`HTC CORPORATION,
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`
`Defendant.
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`LG ELECTRONICS INC.,
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`
`Defendant.
`
`
`Case No. 2:17-CV-0514-JRG
`(LEAD CASE)
`
`JURY TRIAL DEMANDED
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`
`
`
`
`Case No. 2:17-CV-0515-JRG
`(CONSOLIDATED CASE)
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`JURY TRIAL DEMANDED
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`§
`§
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`PLAINTIFF AGIS SOFTWARE DEVELOPMENT LLC’S
`RESPONSE IN OPPOSITION TO LG ELECTRONICS INC.’S
`SEALED DAUBERT MOTION TO EXCLUDE THE OPINIONS OF
`MR. ALAN RATLIFF RELATING TO DAMAGES (DKT. 118)
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`Case 2:17-cv-00514-JRG Document 168 Filed 02/13/19 Page 2 of 21 PageID #: 14901
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`I.
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`II.
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`III.
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`TABLE OF CONTENTS
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`Page(s)
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`INTRODUCTION .............................................................................................................. 1
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`THE APPLICABLE LEGAL STANDARDS .................................................................... 3
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`ARGUMENT ...................................................................................................................... 4
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`A.
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`B.
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`C.
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`D.
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`E.
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`Mr. Ratliff’s “Market Value” is a Reliable Starting Point for the
`Hypothetical Negotiation ........................................................................................ 4
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`Mr. Ratliff’s “Usage Apportionment” is Reliable and Supported .......................... 6
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`Mr. Ratliff’s “Technical Apportionment” Is Reliable and Supported .................... 8
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`1.
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`Mr. Ratliff Properly Relied on the Opinions of AGIS’ Technical
`Expert .......................................................................................................... 8
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`Mr. Ratliff’s “Mobile Telephone Industry” and “Profit Split” Factors are
`Relevant ................................................................................................................ 11
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`Mr. Ratliff’s Reasonable Royalty Analysis is Not Based on the EMVR ............. 13
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`IV.
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`CONCLUSION ................................................................................................................. 14
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`i
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`Case 2:17-cv-00514-JRG Document 168 Filed 02/13/19 Page 3 of 21 PageID #: 14902
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`
`
`Cases
`
`TABLE OF AUTHORITIES
`
`
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`Page(s)
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`Apple Inc. v. Motorola, Inc.,
`757 F.3d 1286 (Fed. Cir. 2014)..................................................................................................9
`
`Beneficial Innovations, Inc. v. Advance Publications, Inc.,
`Case No. 2:11-cv-0029-JRG-RSP (E.D. Tex. July 9, 2014)......................................................8
`
`Chrimar Holding Company, LLC v. ALE USA Inc.,
`2018 WL 2120618 (Fed. Cir. 2018)...................................................................................10, 11
`
`Daubert v. Merrell Dow Pharm., Inc.,
`509 U.S. 579 (1993) ...........................................................................................................1, 3, 4
`
`Freeny v. Murphy Oil Corp.,
`Case No. 2:13-cv-791-RSP (E.D. Tex. June 4, 2015) ...............................................................9
`
`i4i Ltd. Patrnership v. Microsoft Corp.,
`598 F.3d 831 (Fed. Cir. 2010)....................................................................................................3
`
`Kumho Tire Co. v. Carmichael,
`526 U.S. 137 (1999) ...................................................................................................................3
`
`LaserDynamics Inc. v. Quanta Computer, Inc.,
`694 F3.d 51 (Fed. Cir. 2012)....................................................................................................10
`
`ROY-G-BIV Corp. v. ABB, Ltd.,
`2014 WL 12465449 (E.D. Tex. Aug. 1, 2014) ........................................................................10
`
`Salazar v. HTC Corp.,
`Case No. 2:16-cv-01096-JRG-RSP (E.D. Tex. April 13, 2018) ................................................9
`
`Uniloc USA, Inc. v.Microsoft Corp.,
`632 F.3d 1292 (Fed. Cir. 2011)..............................................................................................3, 4
`
`United States v. 14.38 Acres of Land,
`80 F.3d 1074 (5th Cir. 1996) .....................................................................................................3
`
`Virnetx, Inc. v. Cisco Sys., Inc.,
`767 F.3d 1308 (Fed. Cir. 2014)................................................................................................10
`
`Other Authorities
`
`Fed. R. of Evid. 702 .........................................................................................................................3
`
`ii
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`Case 2:17-cv-00514-JRG Document 168 Filed 02/13/19 Page 4 of 21 PageID #: 14903
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`Exhibit
`Number
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`Ex. A
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`TABLE OF EXHIBITS
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`Description
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`iii
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`Case 2:17-cv-00514-JRG Document 168 Filed 02/13/19 Page 5 of 21 PageID #: 14904
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`Plaintiff AGIS Software Development LLC (“Plaintiff” or “AGIS”) submits this
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`memorandum in opposition to the motion by Defendant LG Electronics Inc. (“Defendant” or
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`“LG”) to exclude certain opinions of AGIS’s damages expert, Alan Ratliff, under Daubert v.
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`Merrell Dow Pharm., Inc., 509 U.S. 579 (1993). For the reasons set forth below, LG’s motion
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`should be denied.
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`I.
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`INTRODUCTION
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`AGIS accuses LG’s Android-based smartphones and tablets (the “Accused Devices”) that
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`are pre-configured or adapted with (whether pre-installed, pre-loaded, and/or ready for/capable
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`of downloading) map-based communications applications and/or features, of infringing AGIS’s
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`Patents-in-Suit. See Ex. A, Damages Expert Report of Alan Ratliff (“Ratliff Rep.”), at ¶ 22. As
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`of 2010, LG preconfigured, and as of 2013, LG preloaded all accused LG devices (LG
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`smartphones and tablets) with the Accused Apps. Id. at ¶¶ 27-30. Instead of charging an upfront
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`fee, LG monetizes the Accused Apps by promoting the further adoption of LG devices within its
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`ecosystem. Id. at ¶¶ 22-26, 33, 44, 52, 76-80. As part of his analysis, Mr. Ratliff logically relies
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`on publicly-available information about comparable third-party phone-finding and friend-finding
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`apps. Although these applications charge upfront fees and promote a subscription based model,
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`Mr. Ratliff’s analysis and conclusions were independent of the monetization model used. Id. at
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`¶¶ 53-64; Ex. B at StoneTurn Exhibit B (Article: “How Much is an Active User Worth”). Mr.
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`Ratliff computed a reasonable royalty specific to the value contributed by the accused
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`functionality of the Accused Devices by (1) determining the market value of the Accused Apps
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`which represents in this case, the smallest salable patent practicing unit (“SSPPU”), and then
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`determined the “value [of] the infringed features based on comparable features in the market
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`place” within a hypothetical negotiation framework applying the Georgia-Pacific factors;
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`(2) relying upon similar feature industry usage and mobile device maker profit data for usage and
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`Case 2:17-cv-00514-JRG Document 168 Filed 02/13/19 Page 6 of 21 PageID #: 14905
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`profit apportionments including a specific apportionment to the device maker LG; and
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`(3) applying an additional apportionment based on technical expert testimony about the
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`relationship between the patented and non-patented elements of the core features of the Accused
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`Apps. See Ex. A at ¶ 33; Ex. B at StoneTurn Exhibit 2. Based on this, Mr. Ratliff determined a
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`reasonable royalty of $0.30 per unit. Id. at ¶ 118.
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`Contrary to LG’s assertions, Mr. Ratliff’s use of the market value of comparable
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`applications, while apportioning for the accused functionality within, is an accepted approach
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`recognized by the Federal Circuit. Regarding the usage apportionment, Mr. Ratliff took a
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`reasonable and conservative approach, notwithstanding LG’s failure to produce any Android
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`Device Manager / Find My Device (“ADM” or “FMD,” used interchangeably) usage information
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`before Mr. Ratliff’s report was due. The limited metrics LG did disclose with Mr Bakewell’s
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`report coincide with Mr. Ratliff’s usage calculations.
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`Mr. Ratliff also properly relies on Mr. McAlexander’s opinions while forming his
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`analysis. Contrary to LG’s assertion, Mr. McAlexander did not compare the patented and
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`accused features to an overbroad platform with significant unpatented features, but instead
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`tailored his analysis to the core patented features.
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`Mr. Ratliff’s mobile phone industry and profit split factors were properly and
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`conservatively applied. LG ignores its own inconsistent and incomplete sales and cost data
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`productions, which vary by more than 10 million units, and is unable to explain the 30%
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`difference between its accused sales data and the amounts reflected by reliable industry sources,
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`such as IDC. Instead, LG chooses to criticize Mr. Ratliff’s conservative use of an industry
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`normalized range of incremental profits.
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`Instead, LG relies upon insufficiently supported economic comparability analyses of one
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`lump-sum settlement license unrelated to the accused features and functionality, and an equity
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`2
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`Case 2:17-cv-00514-JRG Document 168 Filed 02/13/19 Page 7 of 21 PageID #: 14906
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`transaction unrelated to the licensing of AGIS’ portfolio for use in connection with mobile
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`handsets and related application.
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`The issues LG raises are best addressed through cross-examination and rebuttal expert
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`testimony at trial. Mr. Ratliff’s apportionment analysis using LG-produced data, reliable and
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`uncontested third-party data and technical expert opinions, in the context of a hypothetical
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`negotiation framework, is sound and sufficiently reliable to be heard by the jury. Therefore,
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`LG’s motion should be denied.
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`II.
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`
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`THE APPLICABLE LEGAL STANDARDS
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`Rule 702 requires a district court to make a preliminary determination, when requested,
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`as to whether the requirements of the rule are satisfied with regard to a particular expert’s
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`proposed testimony. See Daubert, 509 U.S. at 592-93; Kumho Tire Co. v. Carmichael, 526 U.S.
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`137, 149 (1999). “[I]t is not the district court’s role under Daubert to evaluate the correctness of
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`facts underlying an expert’s testimony.” i4i Ltd. Patrnership v. Microsoft Corp., 598 F.3d 831,
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`856 (Fed. Cir. 2010); see also, United States v. 14.38 Acres of Land, 80 F.3d 1074, 1078 (5th
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`Cir. 1996) (The district courts are not “intended to serve as a replacement for the adversary
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`system.”). If a party offering expert testimony can prove by a preponderance of the evidence that
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`the expert is qualified, the expert’s testimony is relevant, and the testimony is reliable, a court
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`should not exclude it. Daubert, 509 U.S. at 590–91. “Under Rule 702, the question is whether
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`the expert relied on facts sufficiently related to the disputed issue.” i4i Ltd. Partnership, 598
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`F.3d at 856; see also Uniloc USA, Inc. v.Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011).
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`3
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`Case 2:17-cv-00514-JRG Document 168 Filed 02/13/19 Page 8 of 21 PageID #: 14907
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`III. ARGUMENT
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`A. Mr. Ratliff’s “Market Value” is a Reliable Starting Point for the
`Hypothetical Negotiation
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`Mr. Ratliff’s starting point is the market value of fee-based apps with similar features to
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`the accused features. LG’s first argument is a misplaced willingness-to-pay criticism, asserting
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`that Mr. Ratliff fails to account for the impact on demand for the Accused Apps/features that
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`would result from charging an upfront or subscription fee for features currently monetized
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`through another business model that does not include upfront fees. Dkt. 118 at 4-5. LG
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`inappropriately concludes that since users currently get the Accused Apps for free, any fees
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`Google might charge would result in lower usage based on the law of supply and demand. Id.
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`But this “apples to oranges” comparison is disconnected from the facts of this case and the
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`SSPPU analysis. Although Google may provide the Accused Apps for free to LG, Accused
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`Apps promote the purchase of additional Android devices, including the LG Accused Devices.
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`Ex. A at ¶¶ 22-26, 33, 44, 52, 76-80. Further, a decreased demand due to price is already
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`represented within the sales numbers for the Accused Devices which are not currently free. For
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`LG to assume otherwise, it would have to rest on the assumption that the price of the Accused
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`Devices would sell for the same price without the accused functionality pre-installed. LG’s
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`concerns regarding the alleged change in number of users that would purchase and subscribe to
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`the Accused Apps based on hypothetical price increases of the apps are issues that should be
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`addressed at Mr. Ratliff’s deposition or through cross-examination at trial, not in a Daubert
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`motion. Moreover, LG provides no case law in support of its argument that Mr. Ratliff’s starting
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`point of a market value of fee-based apps with similar features to the accused features is
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`unreliable.
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`4
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`Case 2:17-cv-00514-JRG Document 168 Filed 02/13/19 Page 9 of 21 PageID #: 14908
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`LG next argues that Mr. Ratliff’s analysis fails to explain how fee-based applications,
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`such as Family Tracker, can be compared to a free application, and that it ignores free versions
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`of apps, such as Life360, that allegedly provide functionality comparable to the Patents-in-Suit.
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`Dkt. 118 at 5. However, as reflected in Mr. Ratliff’s report, comparable third-party apps were
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`considered by Mr. Ratliff, including Life360, which used a monetization model more similar to
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`Google and, therefore, was of no incremental relevance in estimating the ecosystem value of the
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`Accused Apps. Ex. A at ¶¶ 54-58.1 While LG characterizes the Accused Apps and features as
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`“free,” in no economic sense are they free, given their use to promote sales of the Accused
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`Devices by device-makers like LG. As explained in Mr. Ratliff’s report, there are several
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`different monetization models and their range of revenues far exceed his starting point in this
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`case, and the various monetization models generally result in similar revenue streams. Ex. A at
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`¶¶ 49-50; Ex. B at StoneTurn Exhibit B, at 3 (referencing attached article, How Much Is An
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`Active User Worth? found at http://developereconomics.com/how-much-is-an-active-user-worth)
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`(“[A]verage revenue for an active user is fairly constant, regardless of the monetization
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`method”).
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`LG also takes issue with Mr. Ratliff’s assigning of “Android Ecosystem revenue” to the
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`Accused Apps. While LG purports not to understand what Mr. Ratliff means by the “Android
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`Ecosystem” (and LG’s participation in and benefit from it), Mr. Ratliff fully and clearly
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`describes it in his report. See Ex. A at ¶¶ 45-50, 52. In this case, LG only shares in the portion
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`of that ecosystem related to the sales of its Accused Devices (and related accessories that would
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`not be purchased without the devices), and Mr. Ratliff adjusts for this in his final profit split. Id.
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`1 LG incorrectly focuses solely on the Family Tracker pricing. Dkt. 118 at 4-5. Mr. Ratliff
`utilized the low end of the price range of comparable third-party apps and, while that was
`FamilyTracker, the price he used was within the range of all the relevant app pricing he
`considered.
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`5
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`Case 2:17-cv-00514-JRG Document 168 Filed 02/13/19 Page 10 of 21 PageID #: 14909
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`at ¶¶ 76-80. LG’s limited focus solely on Mr. Ratliff’s starting point, to the exclusion of his
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`additional adjustments, leads to LG’s misleading and erroneous conclusion. In the same breath,
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`LG attempts to move back from the specific to the general, claiming that Mr. Ratliff must “tie
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`proof of damages to the claimed invention’s footprint in the market place.” Dkt. 118 at 6.
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`However, that simply recycles the argument that LG does not like Mr. Ratliff’s market value
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`starting point based on comparable third-party apps. In fact, Mr. Ratliff continues to reduce the
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`value to the patented elements, and specifically to LG, before reaching a royalty conclusion. Ex.
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`B StoneTurn Exhibit 2. Again, LG ignores Mr. Ratliff’s complete analysis, resulting in its
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`misleading and erroneous conclusions about individual components of the analysis.
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`Accordingly, Mr. Ratliff’s determinations are based on reliable methods, and relevant and
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`reliable data. Thus, LG’s criticisms are arguments best left to cross-examination at trial and are
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`not a basis on which to exclude Mr. Ratliff’s testimony.
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`B. Mr. Ratliff’s “Usage Apportionment” is Reliable and Supported
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`LG criticizes Mr. Ratliff’s 67% “usage apportionment” arguing that Mr. Ratliff ignores
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`unrelated and non-infringing features of Google Maps in his usage apportionment. Dkt. 118 at 7.
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`However, LG conflates “usage apportionment” with “technical apportionment.” Mr. Ratliff
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`performs a separate technical apportionment that considers the importance of infringing versus
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`non-infringing features, relying on Mr. McAlexander. Ex. A at ¶94; Ex. B at StoneTurn Exhibit
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`2. Further, based on AGIS infringement contentions in this case, it is indisputable that the
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`accused location sharing features are deeply integrated into Google Maps. For example, using
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`Google Maps to navigate to a shared location is merely another step or component performed
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`after the infringing activity. Regardless, the usage apportionment isn’t meant to account for
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`infringing versus non-infringing use, but is instead an apportionment based on analysis of
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`consumer interest and demand for features like the accused features.
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`6
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`Case 2:17-cv-00514-JRG Document 168 Filed 02/13/19 Page 11 of 21 PageID #: 14910
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`. Thus, LG’s
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`argument that there are economic implications of the features being removed from Google Maps
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`does not hold water, as the functionality was available on the Accused Devices for the 2013-
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`2017 timeframe. See Dkt. 118 at 7-8. Moreover, and as already discussed, the usage
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`apportionment is based on a range of usage of geolocation, geosocial, and location-based
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`services, as well as potential usage of phone finding services based on smartphone loss statistics,
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`so LG’s focus on only Google Maps is misplaced.
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`In addition, LG again attempts to oversimplify Mr. Ratliff’s analysis, focusing on the
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`estimated usage percentage he chose (67%) from a group of surveyed usage data points, rather
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`than considering it, as Mr. Ratliff did, as in the
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`Exhibit 4 (
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` Ex. B at StoneTurn
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`). While it is
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`true that one of the usage statistics relates to use of navigation apps with Google Maps, that was
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`simply one specific metric that involved an Accused App with accused FMF features within the
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`range of other surveyed geosocial, geolocation, navigation and location-based services usage.
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`As described above, for purposes of understanding consumer interest in the accused features,
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`7
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`Case 2:17-cv-00514-JRG Document 168 Filed 02/13/19 Page 12 of 21 PageID #: 14911
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`expected usage of features that include the accused features would be most relevant since, once
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`the purchase has been made, actual usage may or may not occur.2
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`Accordingly, Mr. Ratliff’s usage apportionment is tailored to the facts of the case and
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`based on reliable information and methods. That accused functionality was periodically
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`renamed, but remained present in the Accused Devices, does not signify an over-inclusive or
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`flawed apportionment.
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`C. Mr. Ratliff’s “Technical Apportionment” Is Reliable and Supported
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`1.
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`Mr. Ratliff Properly Relied on the Opinions of AGIS’
`Technical Expert
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`LG contends that Mr. Ratliff’s technical apportionment between patented and non-
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`patented elements of the Accused Apps should be rejected because it is based on an opinion
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`supplied by AGIS’ technical expert, Mr. McAlexander. Dkt. 118 at 8. However, it is normal and
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`acceptable for a damages expert to rely upon a technical expert in connection with apportionment
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`analyses. See, e.g., Beneficial Innovations, Inc. v. Advance Publications, Inc., Case No. 2:11-cv-
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`0029-JRG-RSP (E.D. Tex. July 9, 2014) at *5 (denying motion to exclude damages opinions
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`where tied to the expected testimony of technical expert and relevant to the facts of the case and
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`Case 2:17-cv-00514-JRG Document 168 Filed 02/13/19 Page 13 of 21 PageID #: 14912
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`the issues on which expert would be testifying); Freeny v. Murphy Oil Corp., Case No. 2:13-cv-
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`791-RSP, Dkt. 151, at *4 (E.D. Tex. June 4, 2015) (denying motion to exclude damages expert
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`testimony relying on discussions with a technical expert and the technical expert’s report
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`holding); Salazar v. HTC Corp., Case No. 2:16-cv-01096-JRG-RSP, Dkt. 226, at *4 (E.D. Tex.
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`April 13, 2018) (motion to exclude damages expert testimony denied, holding “Damages experts
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`calculating a reasonable royalty routinely rely on facts or data from a party’s technical expert.”)
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`citing Apple Inc. v. Motorola, Inc., 757 F.3d 1286, 1321 (Fed. Cir. 2014) (“patent damages
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`experts often rely on technical expertise outside of their field when . . . valuing the importance of
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`the specific, infringing features in a complex device”). Moreover, Mr. Ratliff was not required
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`to conduct independent surveys, perform market research, or interview focus groups as a check
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`on the opinion of AGIS’ sufficiently qualified technical expert as LG argues. Freeny, Dkt. 151 at
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`*4.
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`In criticizing Mr. McAlexander’s analysis as being a “subjective assertion,” lacking
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`objective evidence or substantial qualitative analysis, LG disregards relevant portions of his
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`analysis. Dkt. 118 at 9. Contrary to LG’s mischaracterization, Mr. McAlexander extensively
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`analyzed LG’s infringement through the Accused Apps including the fundamental and
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`incremental technology used by the core features of those apps. Ex. D, Expert Report of Joseph
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`C. McAlexander III Regarding Infringement dated December 14, 2018 (“McAlexander Report”),
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`at §§ 9.3, 9.4.1-9.4.4, 9.4.6, 9.5. Importantly, LG ignores § 9.4.1 of the McAlexander Report in
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`which the fundamental core technology of the Accused Apps is identified and Mr. McAlexander
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`explains how these core technologies are covered by the Patents-in-Suit. Id. at § 9.4.1.
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`Mr. McAlexander then identifies other features and functionalities of the Accused Apps and
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`opines on their importance. Id. at § 9.4.3.
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`9
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`Case 2:17-cv-00514-JRG Document 168 Filed 02/13/19 Page 14 of 21 PageID #: 14913
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`LG cites to ROY-G-BIV Corp. v. ABB, Ltd., 2014 WL 12465449 (E.D. Tex. Aug. 1,
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`2014) in which the court excluded the testimony of a damages expert whose apportionment was
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`“based on his conversations with the named inventors as well as developers of an invention that
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`practiced the patents-in-suit,” and which lacked any analysis. See Dkt. 118, at 9. LG’s reliance
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`on ROY-G-BIV is misplaced. In ROY-G-BIV, the Court saw no effort to explain an
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`apportionment between patented and unpatented elements of an accused product except for
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`references in a footnote in a supplemental report to unspecified conversations with defendant’s
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`personnel and the infringement expert. Id. The Court concluded that the expert determined a
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`royalty range and landed on a final royalty per unit without any explanation. Id. at *3. Likewise,
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`in LaserDynamics Inc. v. Quanta Computer, Inc., 694 F3.d 51, 69 (Fed. Cir. 2012), the Federal
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`Circuit rejected an expert’s apportionment for its “complete lack of economic analysis to
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`quantitatively support” the apportionment and for being arbitrary and lacking any relation to the
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`facts of the case.
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`In contrast to the experts in ROY-G-BIV and LaserDynamics, Mr. Ratliff expressly cites
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`his reliance upon the McAlexander Report, determined a starting point price associated with the
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`incremental functions and features of the Accused Apps, and based his conclusions on objective
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`evidence and substantial qualitative analysis. Ex. A at ¶¶ 92-93. The fact that Mr. Ratliff’s
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`computation is relatively straightforward does not make the apportionment unreliable, nor does
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`that justify excluding it. See Virnetx, Inc. v. Cisco Sys., Inc., 767 F.3d 1308, 1328 (Fed. Cir.
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`2014) (“[W]e have never required absolute precision in th[e] task [of assigning value to a feature
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`that may not have been individually sold]; on the contrary, it is well-understood that this process
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`may involve some degree of approximation and uncertainty.”).
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`Similar to this case, in Chrimar Holding Company, LLC v. ALE USA Inc., 2018 WL
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`2120618, at *9 (Fed. Cir. 2018), Chrimar’s damages expert relied on the technical expert for
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`Case 2:17-cv-00514-JRG Document 168 Filed 02/13/19 Page 15 of 21 PageID #: 14914
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`apportioning between patented and non-patented features, such as the statement the patents
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`“relate to the majority and the most critical aspects of the standard,” and assigned a value to the
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`patented features. Id. In Chrimar, the Court found that the damages expert’s opinion that his
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`estimate of value attributable to the patented features did not encompass the value of “the
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`nonpatented features does not flunk the standards of reliability and reasonableness.” Id.
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` See
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`Ex. A at ¶¶ 91-93; see also Ex. D at §§ 9.3, 9.4.1-9.4.4, 9.4.6, 9.5. While LG may differ with
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`Mr. Ratliff and Mr. McAlexander’s analyses and question the ultimate result, the proper time for
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`addressing LG’s concerns is at trial where LG will have an opportunity to cross-examine
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`Mr. Ratliff and Mr. McAlexander.
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`D. Mr. Ratliff’s “Mobile Telephone Industry” and “Profit Split”
`Factors are Relevant
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`
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`LG also criticizes Mr. Ratliff’s apportioning of profitability of the Accused Devices. Dkt.
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`118 at 10-12. LG correctly describes Mr. Ratliff’s profit analysis as an estimate of LG’s
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`incremental profits based on the mid-point between gross margin and EBIT for mobile phone
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`industry market participants. Id. While disingenuously characterizing Mr. Ratliff’s approach as
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`novel, LG ignores the fact that it has produced unreliable and incomplete revenue information,
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`and incomplete cost details. LG’s shortcomings necessitated Mr. Ratliff’s performance of an
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`acceptable alternative computation. Ex. A at ¶ 39 (revenue information), ¶¶ 65-66 (undetailed
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`cost information);
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`.
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`11
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`Case 2:17-cv-00514-JRG Document 168 Filed 02/13/19 Page 16 of 21 PageID #: 14915
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`LG’s corporate representative,
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`,
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`.
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` Further, based on its public website, LG Electronics
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`also makes (and incurs costs for) refrigerators, washers, dryers, air conditioners, and TVs.3
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`Faced with three unreconciled sets of accused revenue information varying by more than 10
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`million units, and undetailed cost information that was a mix of parent company costs and
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`allocations from a manufacturer of home appliances and mobile devices, and a U.S. sales
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`organization, Mr. Ratliff elected not to rely upon LG’s unreliable and incomplete financial
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`production. Instead, he chose to normalize his profit apportionment to the range of industry
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`average profits in the mobile phone industry, i.e., the industry for the Accused Devices sold in
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`this case. Ex. A at ¶¶ 68-69. Thus, Mr. Ratliff’s theories are specifically tied to the facts of the
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`case.
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`
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`Mr. Ratliff explains in detail his incremental profit computation which reflects the
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`reasoning behind his determination of an estimate between gross margin and EBIT and is
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`consistent with recognized economic and accounting principles. Id. As reflected in the sources
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`cited above, LG did not provide, using its own words, “data supporting” an incremental profit
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`computation. Dkt. 118 at 10. Accordingly, Mr. Ratliff properly relied on his experience in
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`negotiating and supporting negotiations of patent licenses and as a court-appointed international
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`licensing Special Master (Ex. A at ¶ 4; Ex. B at StoneTurn Exhibit A, CV at 2), his specific prior
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`3 See, e.g., https://www.lg.com/us.
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`12
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`Case 2:17-cv-00514-JRG Document 168 Filed 02/13/19 Page 17 of 21 PageID #: 14916
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`
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`experience with the financial information of LG (as well as co-defendants Apple, HTC and
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`Huawei (Ex. A at ¶ 5; Ex. B at StoneTurn Exhibit A, at 4), and his experience leading to his
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`credentialing as a Certified Global Management Accountant by the AICPA (Ex. A at ¶ 67).4
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`LG next takes issue with Mr. Ratliff’s ecosystem profit split estimate, challenging the
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`relevance of the data points to LGEKR’s business model. Dkt. 118 at 11-12. There is no simple
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`or direct basis for such an estimate, and LG does not suggest otherwise. LG simply disagrees
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`with the data points Mr. Ratliff relied upon. However, Mr. Ratliff’s profit split is tailored to the
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`facts of this case, and considers LGEKR’s business model, by estimating the benefit associated
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`with the sale of the device as opposed to back end monetization by Google. Ex. A at ¶¶ 76-80.
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`Specifically, Mr. Ratliff identified arrangements between device makers, operating system
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`providers, app providers, and wireless carriers, all of which are participants in the ecosystem
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`discussed in his report. Id. Relying on relevant and undisputed facts and data from these
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`arrangements, Mr. Ratliff reasonably estimated the Google / LG profit split. Id.
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`LG’s remaining criticisms merely rehash those made about the starting point price and
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`usage data points already discussed. Specifically, LG mischaracterizes Google’s share of the
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`Android ecosystem as 100%. Dkt. 118, at 12. LG obviously ignores other ecosystem
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`participants, like the device makers, app developers and wireless carriers. Mr. Ratliff clearly
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`limits the portion of the ecosystem he allocates between LG and Google to those profits
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`reasonably attributable to offering the accused features preloaded on the Accused Devices.
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`E. Mr. Ratliff’s Reasonable Royalty Analysis is Not Based on the
`EMVR
`
`
`4 LG also attempts to paint Mr. Ratliff with a bias brush based on his statements about his
`experience with the financial reporting practices of Asian manufacturers. Mr. Ratliff is not
`eluding to anything nefarious or improper, simply identifying their customary practices
`which create comparison issues when performing profit analyses.
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`13
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`Case 2:17-cv-00514-JRG Document 168 Filed 02/13/19 Page 18 of 21 PageID #: 14917
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`Lastly, LG argues that Mr. Ratliff’s opinions related to the total profits associated with
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`the Accused Devices or “ecosystem” should be excluded as an improper invocation of the entire
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`market value rule (“EMVR”). Dkt. 118 at 12-13. This is a straw man argument. Mr. Ratliff
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`expressly limited this portion of his opinion to the context of Georgia-Pacific factor 15, wherein
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`a damages expert is supposed to determine a royalty that would leave the infringer with a
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`“normal profit.” Ex. A at ¶ 117. Mr. Ratliff’s opinion concerning the amount of the reasonable
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`royalty, and its portion of LG’s estimated profits on the Accused Apps, is an opinion limited to
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`the SSPPU, and not part of an EMVR analysis. LG’s argument here with respect to the EMVR
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`should be rejected as Mr. Ratliff clearly bases his royalty analysis on factors such as the price of
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`comparable apps for which users pay, the number of activations, the contribution of the patents
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`to the technology, and other relevant factors, not on LG’s sales revenues. See Ex. B at Exhibit 2.
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`IV. CONCLUSION
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`For all of the foregoing reasons, LG’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: February 11, 2019
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`BROWN RUDNICK LLP
`
`
`
` /s/ Alfred R. Fabricant
`Alfred R. Fabricant
`NY Bar No. 2219392
`Email: afabricant@brownrudnick.com
`Lawrence C. Drucker
`NY Bar No. 2303089
`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
`
`14
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`Case 2:17-cv-00514-JRG Document 168 Filed 02/13/19 Page 19 of 21 PageID #: 14918
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`
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`Email: amessing@brownrudnick.com
`Shahar Harel
`NY Bar No. 4573192
`Email: sharel@brownrudnick.com
`John