Case 5:19-cv-00036-RWS Document 439 Filed 07/24/20 Page 1 of 8 PageID #: 24228
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF TEXAS
`TEXARKANA DIVISION
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`MAXELL, LTD.,
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`Plaintiff
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`Civil Action NO. 5:19-cv-00036-RWS
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`v.
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`APPLE INC.,
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`Defendant.
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`JURY TRIAL DEMANDED
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`APPLE INC.’S REPLY BRIEF IN SUPPORT OF ITS DAUBERT MOTION TO
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`EXCLUDE THE OPINIONS AND TESTIMONY OF CARLA MULHERN (ECF NO. 362)
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`Case 5:19-cv-00036-RWS Document 439 Filed 07/24/20 Page 2 of 8 PageID #: 24229
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`In conducting her analysis, Ms. Mulhern willfully ignored record evidence, relied on data
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`untethered to the patented features, failed to apportion her inflated damages figure, and thus her
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`opinion does not meet Rule 702’s expert reliability requirements. Maxell’s Response (D.I. 400,
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`“Resp.”) did not materially challenge those fatal criticisms, did not dispute the applicable
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`standard, and did not point to evidence contradicting Apple’s arguments. Instead, Maxell
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`attempted to recast Ms. Mulhern’s opinions (and those of the other experts on which she relies)
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`to save their admissibility. But Ms. Mulhern’s own deposition testimony prevents that, and so,
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`her damages calculations should be excluded.
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`I.
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`MS. MULHERN CALCULATED A RUNNING ROYALTY BUT HAS NO
`EVIDENCE
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`Applying Georgia Pacific Factor No. 2, requiring her to determine whether Apple and
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`Maxell would have agreed to a lump sum or a running royalty at the hypothetical negotiation,
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`Ms. Mulhern ignored all of the record evidence
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` and instead relied on her own say-so to conclude the opposite. See Lucent Techs. Inc. v.
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`Gateway, Inc., 580 F.3d 1301, 1326 (Fed. Cir. 2009) (reciting factors). Maxell’s response,
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`unable to point to actual evidence in the case, attempts to dodge this problem in two ways.
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`First, it misconstrues Apple’s argument, insisting that Ms. Mulhern’s calculation is “not
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`a royalty rate to be applied later.” Resp. at 1. But Apple never said it was. A “royalty rate to be
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`applied later” concerns future damages, not the amount to which the parties would have agreed at
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`a hypothetical negotiation. Thus it is irrelevant that Ms. Mulhern expressed her damages
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`calculation as a total dollar figure. That calculation is unreliable because, instead of rendering it
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`based on the lump sum structure
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`, see Lucent, 580 F.3d at
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`1326, Ms. Mulhern ignored that evidence to render it “based on a running royalty calculated as a
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`fee per unit applied to the number of units sold.” Second Declaration of Cameron W. Westin
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`1
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`Case 5:19-cv-00036-RWS Document 439 Filed 07/24/20 Page 3 of 8 PageID #: 24230
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`(filed concurrently herewith), Ex. 31 at 45:9-13. Maxell even concedes that doing so allowed her
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`to improperly use Apple’s “massive” unit sales to reach a “high damages” number. Resp. at 3.
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`Second, Maxell—incredibly—argues there is just no difference between lump sum and
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`running royalty licenses, and thus there “is no evidence that Apple would not have agreed to a
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`lump-sum agreement calculated based on the application of a running royalty.” Resp. at 2-3.
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`But Ms. Mulhern admitted that the record evidence shows
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` See D.I. 362 (“Mot.”) at 6. Lucent and other Federal Circuit precedent require
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`experts to consider the significant differences between these license forms and conform their
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`opinions to “the form that a hypothetical license agreement would likely have taken.” See Mot.
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`at 4-5. Maxell’s mischaracterization of
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` is also no excuse. Resp. at 2 and Ex. 18 at 50:18-25. Rather than
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`support Ms. Mulhern’s opinion, this testimony confirms what she conveniently ignores: Apple
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`would have insisted on a lump sum structure at the hypothetical negotiation.
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`Maxell’s post hoc excuses for Ms. Mulhern’s decision to ignore Apple’s licenses,
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`claiming that she relied on opinions from Maxell’s technical experts and an alleged absence of
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`evidence “from Apple that the agreements are economically comparable,” Resp. at 5, is
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`contradicted by Ms. Mulhern herself. She testified that she did not seek or rely on any testimony
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`from Maxell’s technical experts about the technical comparability of Apple’s licenses. Mot. Ex.
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`3 at 118:13-119:4. And she concedes in her report that, regardless of their technical
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`comparability,
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`. Mot. Ex. 1 ¶ 76.
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`II. MS. MULHERN’S FLAWED MARKET APPROACH IS INADMISSIBLE
`A.
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`Maxell agrees that “proposed, but unaccepted, offers” are too unreliable to serve as the
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`Case 5:19-cv-00036-RWS Document 439 Filed 07/24/20 Page 4 of 8 PageID #: 24231
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`basis for quantifying damages. Resp. at 7.
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`unsuccessful attempt to distinguish Whitserve, LLC v. Computer Packages, Inc., 694 F.3d 10, 29
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`(Fed. Cir. 2012). That case excluded a rate “based on a proposed, but unaccepted, license,” but
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`Maxell never explains the difference (in either form or reliability) between a never-accepted
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`offer on one hand and
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`Nor does it explain why those semantics negate the risk of a patentee using the sleight of hand
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`Whitserve warned about to “artificially inflat[e] the royalty rate.” Resp. at 7.
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`B. Ms. Mulhern Based Her “Apportionment” on Irrelevant Component Costs
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`Maxell and Ms. Mulhern both acknowledge that the two portfolio royalty rates in her
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`“Market Approach” are meant to “capture[] the value of the overall mobile device,” and thus
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`must be apportioned. Resp. at 10 (quoting Mulhern Rpt. ¶ 261). But rather than actually
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`apportioning these rates based on the value attributable to the patented technology, as required,
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`Ms. Mulhern uses the entire cost of non-patented device components. This approach, for which
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`Maxell cites no authority, leads to the bizarre scenario where Ms. Mulhern’s value for accused
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`software features changes based on hardware components’ costs, such as the varying cost of the
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`accused devices’ displays. See Mot. at 10 n.5. That is precisely what’s not allowed. See Power
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`Integrations, Inc. v. Fairchild Semiconductors Int’l, Inc., 904 F.3d 965, 977 (Fed. Cir. 2018).
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`Maxell’s desk analogy, see Resp. at 8, fails to explain what the patented feature would
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`be, only that it implicates something about “drawers of the desk,” and does not explain why the
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`differential cost of all of the materials used to make that drawer—whether plywood, ornate oak,
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`or rare metals—bear any relationship to the incremental value provided by this hypothetical
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`3
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`Case 5:19-cv-00036-RWS Document 439 Filed 07/24/20 Page 5 of 8 PageID #: 24232
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`patent. Under this analogy of “apportionment,” the value of a patented desk drawer guide would
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`nonsensically vary based on a non-patented feature (the material used to make the drawer).
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`Maxell insists that the Court consider “the whole opinion,” pointing to another
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`calculation by Ms. Mulhern that is again based on component costs. But this “Patented
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`Component Cost Weighting” is merely her attempt “to avoid double-counting components that
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`incorporate technology from more than one of the Accused Patents.” Mot. Ex. 1 ¶ 151. And it
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`does nothing to address other non-patented technology facilitated by those components or other
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`unrelated factors (such as materials or size) impacting component costs. This gets her no closer
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`to apportioning the “value of the overall mobile device” (Resp. at 10) down to the “incremental
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`value that the patented invention adds to the end product,” which is what the law requires.
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`Ericsson Inc. v. D-Link Sys., 773 F.3d 1201, 1226 (Fed. Cir. 2014). Indeed, Maxell admits that
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`this approach only “minimiz[es] impact on the component cost share” when, for example, Apple
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`uses a more expensive display on its iPhone. Resp. at 10 n. 5. That is not apportionment.
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`III. MS. MULHERN’S “INCOME APPROACH” IS INADMISSIBLE SPECULATION
`A. Maxell Cannot Now Fix Her Unfounded Opinions By Rewriting Them
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`Maxell concedes that Ms. Mulhern’s “Income Approach” is “tied to her understanding
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`that no acceptable non-infringing alternatives exist.” Resp. at 11. But that understanding is
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`demonstrably false: Maxell’s other experts actually identified such alternatives. Using
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`unsupported (and flatly contradicted) attorney argument to recast them as merely “next best
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`alternatives” does not save her opinion. Resp. at 12. Not only do neither Ms. Mulhern nor Dr.
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`Erdem ever use that term, but Dr. Erdem squarely asked Maxell’s technical experts to provide
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`non-infringing alternatives: “what was the non-infringing way of doing something similar, what
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`are some alternatives.” Mot. Ex. 13 at 36:18-23. And those technical experts answered her.
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`See, e.g., id. at 39. Indeed, many of the non-infringing alternatives Maxell’s experts gave Dr.
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`Case 5:19-cv-00036-RWS Document 439 Filed 07/24/20 Page 6 of 8 PageID #: 24233
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`Erdem match those identified by Apple, and yet Ms. Mulhern ignored them.1
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`B.
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`Attorney Speculation Cannot Tie ESP Values to the Accused Features
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`Maxell does not seriously dispute that (1) the “ESP” values are for “future unspecified
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`software upgrades and features,” (2) Apple calculates them assuming that it may not “provide
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`upgrades at a particular time or at all,” and (3) Apple “do[es] not specify to customers which
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`upgrades or features will be delivered” in future upgrades. See Mot. at 13 and Ex. 15. Instead,
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`Maxell speculates, without evidence, that “it is unlikely that Apple itself does not know” what
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`upgrades will be included, and that these are nevertheless Apple’s “best estimates” of the market
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`value. Resp. at 13-14. This rank speculation fundamentally misses the point. Maxell cites
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`nothing—not Apple’s public filings, not Ms. Mulhern’s opinions, and not even Maxell’s
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`speculation—that ties the dollar value of deferred revenues associated with ESPs to the value of
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`features unknown to Apple at the time the ESP is decided that Apple later happens to include in
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`software updates it releases within the two-year window of those ESPs.
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`C.
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`Dr. Erdem’s “Importance” Measurement Does Not Translate to “Value”
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`Maxell’s response does little more than summarize Ms. Mulhern’s comparison of “value
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`to Apple” to Dr. Erdem’s measurements of “relative importance” to customers. Resp. at 15. But
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`it never argues that using this metric—which Dr. Erdem concedes does not measure the value of
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`a feature—is appropriate as a proxy for the value to Apple, likely because the law does not allow
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`such use. Laser Dynamics v. Quanta Comput., 694 F.3d 51, 69 (Fed. Cir. 2012).
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`1 Compare Mot. Ex. 14 (Erdem Rpt.) at 14 (For the ’306 Patent, “[w]ithout this feature, your
`iPhone could either ring (for example, audible ring only)”) and Ex. 32 (Apple’s Tenth Supp.
`Objs. and Resps. to Maxell’s First Set of Interr.) at 103 (“Another non-infringing alternative or
`substitute is . . . having only one sound source capable of generating different ringing sounds.”);
`see also Mot. Ex. 14 at 14 (For the ’317 Patent, “[w]ithout this feature, the map would face in
`one constant direction, such as north”) and Ex. 32 at 95 (“Another non-infringing alternative or
`substitute to the alleged invention is . . . by having a fixed display direction.”).
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`5
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`Case 5:19-cv-00036-RWS Document 439 Filed 07/24/20 Page 7 of 8 PageID #: 24234
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`July 22, 2020
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`/s/Luann L. Simmons
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`
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`Luann L. Simmons (Pro Hac Vice)
`lsimmons@omm.com
`O’MELVENY & MYERS LLP
`Two Embarcadero Center
`28th Floor
`San Francisco, CA 94111
`Telephone: 415-984-8700
`Facsimile: 415-984-8701
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`Xin-Yi Zhou (Pro Hac Vice)
`vzhou@omm.com
`O’MELVENY & MYERS LLP
`400 S. Hope Street
`Los Angeles, CA 90071
`Telephone: 213-430-6000
`Facsimile: 213-430-6407
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`Marc J. Pensabene (Pro Hac Vice)
`mpensabene@omm.com
`Laura Bayne Gore (Pro Hac Vice)
`lbayne@omm.com
`O’MELVENY & MYERS LLP
`Times Square Tower, 7 Times Square
`New York, NY 10036
`Telephone: 212-326-2000
`Facsimile: 212-326-2061
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`Melissa R. Smith (TX #24001351)
`melissa@gilliamsmithlaw.com
`GILLIAM & SMITH, LLP
`303 South Washington Avenue
`Marshall, Texas 75670
`Telephone: (903) 934-8450
`Facsimile: (903) 934-9257
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`Attorneys for Defendant Apple Inc.
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`Case 5:19-cv-00036-RWS Document 439 Filed 07/24/20 Page 8 of 8 PageID #: 24235
`Case 5:19-cv-OOO36-RWS Document 439 Filed 07/24/20 Page 8 of 8 PageID #: 24235
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`CERTIFICATE OF SERVICE
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`The undersigned hereby certifies that all counsel of record who are deemed to have
`consented to electronic service are being served with a copy of this document via the Comt's
`CM/ECF system per Local Rule CV—5(a)(3) 011 July 22, 2020.
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`/s/ Melissa R. Smith
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`Melissa R. Smith
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`