Case 2:17-cv-00514-JRG Document 241 Filed 02/27/19 Page 1 of 9 PageID #: 20044
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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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`HTC CORPORATION,
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`Defendant.
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`LG ELECTRONICS INC.,
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`Defendant.
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`Case No. 2:17-CV-0514-JRG
`(LEAD CASE)
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`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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`PLAINTIFF AGIS SOFTWARE DEVELOPMENT LLC’S
`SUR-REPLY 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 241 Filed 02/27/19 Page 2 of 9 PageID #: 20045
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`Plaintiff AGIS Software Development LLC (“Plaintiff” or “AGIS”) submits this sur-
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`reply in opposition to the motion by Defendant LG Electronics Inc. (“Defendant” or “LG”) to
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`exclude certain opinions of AGIS’s damages expert, Alan Ratliff, under Daubert v. Merrell Dow
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`Pharm., Inc., 509 U.S. 579 (1993). For the reasons set forth below, LG’s motion should be
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`denied.
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`I.
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`MR. RATLIFF’S “MARKET VALUE” IS A RELIABLE STARTING
`POINT FOR THE HYPOTHETICAL NEGOTIATION
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`LG’s argument that Mr. Ratliff’s market value is an unreliable basis for the hypothetical
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`negotiation rests on LG’s assumption that the Accused Apps are “free.” See Dkt. 179 at 1. LG
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`argues that the Accused Products would sell for the same price with or without the Accused
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`Apps. Id. However, LG’s assumption that the pre-installed software has no value leads to the
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`erroneous conclusion that LG’s Accused Products would sell for the same price without the
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`Android operating system and pre-installed apps. The Accused Products in this case are
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`comprised of hardware and software, and one without the other would not work. Moreover,
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`expert opinion is not needed to comprehend the reality that as more software features are
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`included in a smartphone, the higher the cost of the phone. LG’s faulty assumption that the pre-
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`installed software is “free” is fatal to its argument.
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`The demand for the Accused Apps is necessarily factored into the price of the Accused
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`Products. As discussed, the Accused Products are comprised of both hardware and software, and
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`the phone hardware would not function without the software which includes the Accused Apps.
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`As explained in Mr. Ratliff’s report, the Accused Apps promote the purchase of additional
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`Android devices, including the LG Accused Devices. Dkt. 153-2 at ¶¶ 22-26, 33, 44, 52, 76-80.
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`LG’s argument that Mr. Ratliff “could have measured” other things does not make Mr. Ratliff’s
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`analysis unreliable. Dkt. 179 at 1. Mr. Ratliff’s use of the market value of comparable
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`Case 2:17-cv-00514-JRG Document 241 Filed 02/27/19 Page 3 of 9 PageID #: 20046
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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. That Mr. Ratliff didn’t use the particular measurements in his
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`damages analysis that LG prefers is not a basis on which to exclude Mr. Ratliff’s testimony and
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`LG’s criticisms are arguments best left to cross-examination at trial.
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`In its reply, LG again tries to fit a square peg into a round hole by arguing that Exmark
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`Mfg. Co. v. Briggs & Stratton Power Prods. Group, LLC, 879 F.3d 1332, 1350 (Fed. Cir. 2018)
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`supports its argument that Mr. Ratliff’s starting point of a market value of fee-based apps with
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`similar features to the accused features is unreliable. Dkt. 179 at 2. The portion of Exmark cited
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`by LG states that the expert had acknowledged that elements, such as durability, reliability,
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`brand position, etc., affect sales of lawnmowers, but that the expert did not conduct an analysis
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`on the impact of these elements on the market value or profitability of the mowers, making the
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`analysis unreliable. See 879 F.3d at 1350. Here, Mr. Ratliff’s starting value is the market value of
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`comparable fee-based apps having the accused features, not the LG Accused Device. Exmark
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`contains no discussion that suggests Mr. Ratliff’s starting point is unreliable.
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`II. MR. RATLIFF’S “USAGE APPORTIONMENT” IS RELIABLE AND
`SUPPORTED
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`LG argues that Mr. Ratliff’s “usage apportionment” is unreliable because it does not
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`compare usage of accused functionality versus non-accused functionality, and because “nowhere
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`does he assess demand or usage of the accused features themselves.” Dkt. 179 at 2-3. First,
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`Mr. Ratliff’s usage apportionment is not meant to apportion for non-infringing versus infringing
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`functionality; that apportionment comes later in the separate technical apportionment that
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`considers
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`the
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`importance of
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`infringing versus non-infringing features, and relies on
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`Mr. McAlexander Dkt. 153-2 at ¶94; Dkt. 153-3 at StoneTurn Exhibit 2. Including the
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`infringing versus non-infringing feature apportionment in the “usage apportionment” would
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`2
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`Case 2:17-cv-00514-JRG Document 241 Filed 02/27/19 Page 4 of 9 PageID #: 20047
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`result in a double apportionment. Second, Mr. Ratliff did assess the usage of the accused
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`features, as he considered the range of usage of the Accused Apps. See Dkt. 153-2 at ¶¶ 73-74;
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`Dkt. 153-3 at StoneTurn Exhibit 4. LG argues that Mr. Ratliff only considered “user interest in
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`non-accused features like navigation.” Dkt. 179 at 3. LG is merely using Mr. Ratliff’s
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`terminology in Stoneturn Exhibit 4 to misconstrue the analysis. Dkt. 153-3 at StoneTurn Exhibit
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`2. Two of the surveys covered “Navigation Apps” which are apps such as the Accused App
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`Google Maps. Id. The terminology “Navigation Apps” does not signify that Mr. Ratliff only
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`considered user interest in “navigation,” as LG would like the Court to believe. Dkt. 179 at 3.
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`Mr. Ratliff’s usage apportionment is tailored to the facts of the case and is based on reliable
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`information and methods, and thus should not be excluded.
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`III. MR. RATLIFF’S “TECHNICAL APPORTIONMENT” IS RELIABLE
`AND SUPPORTED
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`Mr. Ratliff relies on Mr. McAlexander’s opinions while forming his analysis, which is
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`normal and acceptable in connection with apportionment analyses. See, e.g., Beneficial
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`Innovations, Inc. v. Advance Publications, Inc., Case No. 2:11-cv-0029-JRG-RSP (E.D. Tex.
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`July 9, 2014) at *5; Freeny v. Murphy Oil Corp., Case No. 2:13-cv-791-RSP, Dkt. 151, at *4
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`(E.D. Tex. June 4, 2015). LG attempts to distinguish Chrimar Holding Company, LLC v. ALE
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`USA Inc., 2018 WL 2120618, at *9 (Fed. Cir. 2018) by stating that the expert in Chrimar
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`provided statements describing the importance and success of the patented technology, and that
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`Mr. Ratliff did not. Dkt. 179 at 4. However, LG misreads Chrimar, where it was the technical
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`expert who provided the statements and the damages expert relied on those statements for the
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`technical apportionment. See 2018 WL 2120618, at *9. Mr. Ratliff does the same here, basing
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`his estimate on Mr. McAlexander’s substantial analysis and ultimate opinion that the accused
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`features are “very significant.” See Dkt. 153-2 at ¶¶ 91-93; see also Dkt. 153-5 at §§ 9.3, 9.4.1-
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`3
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`Case 2:17-cv-00514-JRG Document 241 Filed 02/27/19 Page 5 of 9 PageID #: 20048
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`9.4.4, 9.4.6, 9.5. While LG may differ with Mr. Ratliff and Mr. McAlexander’s analyses and
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`question the ultimate result, the proper time for addressing LG’s concerns is at trial where LG
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`will have an opportunity to cross-examine Mr. Ratliff and Mr. McAlexander.
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`A. Mr. Ratliff’s “Mobile Telephone Industry” and “Profit Split”
`Factors are Relevant
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`LG argues that Mr. Ratliff used “irrelevant profitability data” and that his “profit split”
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`has “no basis in fact.” Dkt. 179 at 4. LG produced inconsistent and incomplete revenue and cost
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`data, and LG’s witnesses could not correct the deficiencies. Dkt. 153-2 at ¶¶ 39, 65-66; Dkt. 153-
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`4, StoneTurn Second Supplemental Workpaper, at 14; Dkt. 153-7, Jang Dep., at 38:5-39:19,
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`40:12-41:16. In light of LG’s discovery shortcomings, Mr. Ratliff performed an acceptable
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`alternative computation specifically tied to the facts of the case as it is based on industry data for
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`the Accused Devices. See Dkt. 153-2 at ¶¶ 68-69.
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`Regarding Mr. Ratliff’s “profit split,” even if the analysis is not “simple or direct,”
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`simplicity is not a prerequisite for admissibility. Dkt. 179 at 4. LG may disagree with the data
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`points, but the proper time for addressing LG’s concerns is at trial where LG will have an
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`opportunity to cross-examine Mr. Ratliff. Moreover, Mr. Ratliff’s “profit split” is not “fictional,”
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`but is based on arrangements between device makers, operating system providers, app providers,
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`and wireless carriers, all of which are participants in the ecosystem discussed in his report. Dkt.
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`153-2 at ¶¶ 76-80.
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`IV. MR. RATLIFF’S REASONABLE ROYALTY ANALYSIS IS NOT BASED
`ON THE EMVR
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`In its reply, LG argues that Mr. Ratliff’s analysis is based on the EMVR by merely
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`quoting AGIS’s opposition brief out of context, claiming AGIS stated the value of the Accused
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`Apps is represented in the sales numbers for the Accused Devices. Dkt. 179 at 4. However, any
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`alleged “error” was manufactured by LG, as AGIS’s opposition clearly states that “decreased
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`4
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`Case 2:17-cv-00514-JRG Document 241 Filed 02/27/19 Page 6 of 9 PageID #: 20049
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`demand due to price is” represented in the sales numbers. Id. In any event, LG admits that Mr.
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`Ratliff bases his royalty analysis on the starting price of comparable apps for which users pay.
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`Dkt. 179 at 4. Mr. Ratliff does not base his analysis on LG’s sales revenues, but rather he further
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`apportions the price based on the comparable fee-based apps using factors such as the number of
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`activations, the contribution of the patents to the technology, and other relevant factors. See Dkt.
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`153-3 at Exhibit 2. Further, Mr. Ratliff expressly limited this portion of his opinion to the context
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`of Georgia-Pacific factor 15, wherein a damages expert is supposed to determine a royalty that
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`would leave the infringer with a “normal profit.” Dkt. 153-2 at ¶ 117. Mr. Ratliff’s opinion
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`concerning the amount of the reasonable royalty, and its portion of LG’s estimated profits on the
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`Accused Apps, is an opinion limited to the SSPPU and not part of an EMVR analysis.
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`V.
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`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 22, 2019
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`BROWN RUDNICK LLP
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` /s/ Alfred R. Fabricant
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`
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`Alfred R. Fabricant
`NY Bar No. 2219392
`Email: afabricant@brownrudnick.com
`Lawrence C. Drucker
`NY Bar No. 2303089
`Email: ldrucker@brownrudnick.com
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`NY Bar No. 2894392
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`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
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`Case 2:17-cv-00514-JRG Document 241 Filed 02/27/19 Page 7 of 9 PageID #: 20050
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`NY Bar No. 4573192
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`John A. Rubino
`NY Bar No. 5020797
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`NY Bar No. 5526280
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`NY Bar No. 5430558
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`NY Bar No. 5604483
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`BROWN RUDNICK LLP
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`ATTORNEYS FOR PLAINTIFF, AGIS
`SOFTWARE DEVELOPMENT LLC
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`Case 2:17-cv-00514-JRG Document 241 Filed 02/27/19 Page 8 of 9 PageID #: 20051
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`CERTIFICATE OF AUTHORIZATION TO FILE UNDER SEAL
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`The undersigned certifies that the foregoing document is authorized to be filed under seal
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`pursuant to the Protective Order entered in this case.
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`/s/ Alfred R. Fabricant
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` Alfred R. Fabricant
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`Case 2:17-cv-00514-JRG Document 241 Filed 02/27/19 Page 9 of 9 PageID #: 20052
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`CERTIFICATE OF SERVICE
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`The undersigned hereby certifies that, on February 22, 2019, all counsel of record who
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`are deemed to have consented to electronic service are being served with a copy of this document
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`via the Court’s CM/ECF system per Local Rule CV-5(a)(3).
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`/s/ Alfred R. Fabricant
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`Alfred R. Fabricant
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