Case 5:19-cv-00036-RWS Document 450 Filed 07/27/20 Page 1 of 11 PageID #: 25131
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`MAXELL, LTD.,
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`v.
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`APPLE INC.,
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF TEXAS
`TEXARKANA DIVISION
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`Plaintiff,
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`Case No. 5:19-cv-00036-RWS
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`JURY TRIAL DEMANDED
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`Defendant.
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`MAXELL, LTD.’S REPLY IN SUPPORT OF OPPOSED MOTION TO STRIKE
`MR. GUNDERSON’S USE OF OFFERS MADE IN LICENSING NEGOTIATIONS AND
`EXCLUDE TESTIMONY REGARDING THE SAME
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`Case 5:19-cv-00036-RWS Document 450 Filed 07/27/20 Page 2 of 11 PageID #: 25132
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`TABLE OF CONTENTS
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`I.
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`II.
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`ARGUMENT ..................................................................................................................... 1
`A.
`The Offers Relied Were Made Under Threat of Litigation ................................... 1
`B.
`Mr. Gunderson Attempts to Use the Offers In Violation of Rule 408 ................... 4
`C.
`Given the Backdrop of the Negotiations and Offers, They Are Not
`Relevant As a Quantitative Input to a Damages Analysis ..................................... 5
`CONCLUSION .................................................................................................................. 5
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`Case 5:19-cv-00036-RWS Document 450 Filed 07/27/20 Page 3 of 11 PageID #: 25133
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`Cases
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`TABLE OF AUTHORITIES
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`Page(s)
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`Big O Tire Dealers, Inc. v. Goodyear Tire & Rubber Co.,
`561 F.2d 1365 (10th Cir. 1977) .................................................................................................3
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`Cornell Research Found., Inc. v. Hewlett-Packard Co.,
`No. 5:01-CV-1974, 2007 WL 4349135 (N.D.N.Y. Jan. 31, 2007) .......................................3, 5
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`Cybergym Research LLC v. ICON Health & Fitness, Inc.,
`No. 2:05-CV-527-DF, 2007 WL 9724238 (E.D. Tex. Oct. 7, 2007) .........................................4
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`Deere & Co. v. Int’l Harvester Co.
`710 F.2d 1551, 1556–57 (Fed. Cir. 1983)..................................................................................4
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`Fromson v. Advance Offset Plate Inc.,
`Nos. 87-1177, 87-1188, 1987 WL 24566 (Fed. Cir. 1987) .......................................................5
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`Hughes Aircraft Co. v. United States,
`31 Fed. Cl. 481 (1994) ...........................................................................................................4, 5
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`Pioneer Corp. v. Samsung SDI Co.,
`No. 2:06-CV-384 (DF), 2008 WL 11348480 (E.D. Tex. Oct. 15, 2008) ..................................2
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`S.A. Healy Co. v. Milwaukee Metro. Sewerage Dist.,
`50 F.3d 476 (7th Cir. 1995) .......................................................................................................4
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`Studiengesellschaft Kohle, m.b.H. v. Dart Indus., Inc.
`862 F.2d 1564, 1570-71 (Fed. Cir. 1988) ..................................................................................5
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`Other Authorities
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`FRE Rule 408 .......................................................................................................................1, 2, 3, 4
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`Case 5:19-cv-00036-RWS Document 450 Filed 07/27/20 Page 4 of 11 PageID #: 25134
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`Apple admits Mr. Gunderson relies on an exchange of offers between Maxell and Apple
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`during pre-suit negotiations. Opp. at 3. The timing and context of those offers absolutely
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`demonstrate they were made under threat of litigation. Yet Apple asserts that, even if the offers
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`were made under threat of litigation, “they are still admissible to show the form of license the
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`parties would have agreed to at the hypothetical negotiation, and their likely opening positions at
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`that negotiation.” Id. There are certain purposes for which pre-suit offers could be appropriately
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`introduced,1 but Mr. Gunderson’s use of the offers to “
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`” is not such a
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`purpose. See Mot. at Ex. A, Gunderson Rpt. at ¶ 319 (emphasis added). Given that he relies upon
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`negotiations and offers made under threat of litigation directly to arrive at his reasonable royalty
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`damages, the offers and Mr. Gunderson’s opinions related thereto must be stricken and excluded.
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`I.
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`ARGUMENT
`A.
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`The Offers Relied Upon Were Made Under Threat of Litigation
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`The specific offers from the Maxell-Apple negotiations on which Mr. Gunderson relied
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`were exchanged in
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`. Mot. at Ex. A, Gunderson Rpt. at ¶ 295. Well before
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`that time, it was clear that the parties’ negotiations were being held under a threat of litigation.
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`Though Maxell addressed this issue in its motion (Mot. at 6, Exs. C-G), given Apple’s surprising
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`objection, Maxell will elaborate here.
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`While the marking of a communication as covered by “FRE 408” does not alone establish
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`a threat of litigation, that does not mean such marking is irrelevant to the inquiry. Courts in this
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`District have held that such marking “when considered alongside other evidence, do suggest that
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`both parties were no longer acting at arms-length and were beginning to contemplate litigation.”
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`1 Maxell does not challenge Mr. Gunderson’s overview of the parties’ negotiations. The challenge is to his direct
`reliance on offers to value Apple’s infringement and undercut Ms. Mulhern’s analysis of the same.
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`Case 5:19-cv-00036-RWS Document 450 Filed 07/27/20 Page 5 of 11 PageID #: 25135
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`Pioneer Corp. v. Samsung SDI Co., No. 2:06-CV-384-DF, 2008 WL 11348480, at *1‒2 n.1
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`(E.D. Tex. Oct. 15, 2008). For example, it has been held that negotiations were shown to have
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`been conducted under the threat of litigation where the patentee had accused defendant of
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`infringement and provided evidence of such infringement (and vice-versa) and both parties had
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`retained outside counsel and were marking their materials in a manner that contemplated future
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`litigation. Id. at *2. The offers here were made under very similar circumstances.
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`By
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`, the parties had engaged in licensing negotiations for nearly two years—at
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`least
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`validity. For example,
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` positions on infringement and
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`. Mot. at Ex. E. The l
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` Id. Similar positions are set forth in
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`. Mot.
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`at Ex. F. There was a clear accusation of infringement and evidence of infringement exchanged.
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`After a meeting
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`, Maxell engaged Alan Loudermilk as outside counsel for
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`the negotiations. Ex. I, Nakamura Dep. Tr. at 104:2-10; Ex. J, Loudermilk Dep. Tr. at 17:3-11.
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`Maxell retained Mr. Loudermilk
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`Loudermilk Dep Tr. at 47:18-22. It was clear Apple was consulting with counsel as well.
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`. Ex. J,
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`Case 5:19-cv-00036-RWS Document 450 Filed 07/27/20 Page 6 of 11 PageID #: 25136
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`Apple’s attempt to cast the negotiations as being part of a “business consideration” is
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`misleading. The parties were not engaged in business communications that became litigious, they
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`were engaged in licensing negotiations where a potential point of compromise was a business
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`arrangement.2
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`Mot. at Ex. A, Gunderson Rpt. at ¶ 294; Ex. L, Maxell Response to Interrogatory No. 1, at 5. A
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`few months later,
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` The offer still related to Apple’s infringement of Maxell’s patents.
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`Finally, the time that transpired between the offers and the lawsuit is irrelevant, as
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`evidenced by the rationale underlying Federal Rule of Evidence 408. Rule 408 “enshrouds
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`settlement discussions conducted in the context of actual or threatened litigation with a
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`privilege…to foster candor and promote resolution of disputed claims.” Cornell Research
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`Found., Inc. v. Hewlett-Packard Co., No. 5:01-CV-1974, 2007 WL 4349135, at *15 (N.D.N.Y.
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`Jan. 31, 2007). What matters is whether the parties were negotiating under the threat of litigation.
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`That Maxell did not file suit until later does not retroactively alter whether there was a threat of
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`2 Even were the negotiations business communications, that would not prevent their exclusion under Rule 408 if
`held under threat of litigation. See, e.g., Big O Tire Dealers, Inc. v. Goodyear Tire & Rubber Co., 561 F.2d 1365,
`1373 (10th Cir. 1977) (noting the business discussions ultimately crystallized to the point of threatened litigation).
`3 As to Maxell’s Amended Complaint, Maxell never characterized the discussions as a business transaction, but
`rather noted that, in trying to reach a “mutually beneficial solution” to Apple’s infringement, Maxell “considered a
`potential business transaction….” D.I. 111 at ¶ 5.
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`Case 5:19-cv-00036-RWS Document 450 Filed 07/27/20 Page 7 of 11 PageID #: 25137
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`litigation when making the offers. If anything, the fact Maxell began asserting its patents against
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`infringing parties, including Apple, strengthens the conclusion that a threat actually existed.
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`The cases cited by Apple are inapposite. In Deere & Co. v. Int’l Harvester Co., the
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`subject communication was made at a time when the parties agreed defendant was not
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`infringing.4 710 F.2d 1551, 1556–57 (Fed. Cir. 1983). Here, the parties were discussing Apple’s
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`active infringement and the validity of Maxell’s patents. The cases Maxell cited, on the other
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`hand, including that striking Mr. Gunderson’s improper use of an offer in prior litigation, are
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`directly on point and applicable to Maxell’s motion.5
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`B. Mr. Gunderson Attempts to Use the Offers In Violation of Rule 408
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`Apple’s assertion that Mr. Gunderson relies on the offers for admissible purposes is
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`wrong. As to the first proffered purpose—“to show the parties’ preference for the type of
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`license”—Mr. Gunderson can show such preference by pointing to the type of offer made. He
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`need not introduce the actual amounts. As to the second purpose—“to set the bounds of the
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`reasonable royalty”—this absolutely constitutes a use “to prove…the… amount of a disputed
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`claim” and is thus inadmissible under Rule 408.
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`Although Apple cites Hughes in support of its argument (Opp. at 6-7), the offers at issue
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`in that case were held not to be compromise offers, but rather reflected Hughes’ “normal royalty
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`rates…whether or not litigation was pending or infringement was suspected.” Hughes Aircraft
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`Co. v. United States, 31 Fed. Cl. 481, 487 (1994). The offers improperly relied upon by
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`Gunderson do not reflect
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`. Mot. at Ex. A, Gunderson Rpt. at ¶ 295. Given that the offers in Hughes reflected
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`4 Similarly, the statement at issue in S.A. Healy Co. v. Milwaukee Metro. Sewerage Dist., 50 F.3d 476, 480 (7th Cir.
`1995) relied upon by Apple (Opp. at 4) had been made before any dispute had actually arisen.
`5 Apple’s attempt to undermine the holding in Cybergym Research LLC v. ICON Health & Fitness, Inc., No. 2:05-
`CV-527-DF, 2007 WL 9724238 (E.D. Tex. Oct. 7, 2007) by implying that the Court would have reached a different
`holding in view of later cases is without support. (Opp. at n. 2). The cases cited by Apple related to litigation-related
`licenses, not inadmissible offers under Rule 408.
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`Case 5:19-cv-00036-RWS Document 450 Filed 07/27/20 Page 8 of 11 PageID #: 25138
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`normal royalty rates, the Court held such offers could place a ceiling on the consideration of a
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`royalty rate.6 Hughes, 31 Fed. Cl. at 488. The offers at issue here, however, have no similar
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`indicia of reliability and thus the same conclusion cannot be drawn.7
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`Apple’s reliance on Studiengesellschaft Kohle, m.b.H. v. Dart Indus., Inc. is also
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`misplaced. That case dealt with consideration of a settlement reached after an appellate court
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`found infringement. 862 F.2d 1564, 1570-71 (Fed. Cir. 1988). The Court explicitly contrasted
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`the evidence from such settlements as opposed to offers made under threat of litigation. Id.
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`C.
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`Given the Backdrop of the Negotiations and Offers, They Are Not Relevant
`As a Quantitative Input to a Damages Analysis
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`In its Motion against Ms. Mulhern, Apple ardently asserts that Ms. Mulhern should not
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`be permitted to rely on Maxell’s
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` because it is “a proposed, but unaccepted, license.” D.I.
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`362 at 8. This is despite the fact that
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`. D.I. 400 at 5-7. Yet, Apple then states
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`that a single exchange of offers between Apple and Maxell is reliable and should be permitted.
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`That cannot be so. The
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` is relevant to determining a reasonable royalty based upon a
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`hypothetical, arms-length negotiation. The offers Mr. Gunderson relies upon were made under
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`threat of litigation and improperly represent considerations separate from the value of the
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`patents—e.g., avoidance of risk and litigation expense. See Cornell, 2007 WL 4349135, at *17.
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`II.
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`CONCLUSION
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`For the foregoing reasons, Maxell’s Motion should be granted.
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`6 This distinction shows why Mr. Gunderson should be precluded from using offers to set the outer range of his
`analysis but Ms. Mulhern should be permitted to use Maxell’s standard rate as an upper bound. See D.I. 400.
`7 Apple also cites Fromson v. Advance Offset Plate Inc., Nos. 87-1177, 87-1188, 1987 WL 24566, at *2 (Fed. Cir.
`1987). Mot. at 6. But that case dealt with whether an offer was made under threat of litigation. Fromson never even
`reached the issue of what constitutes a permissible purpose.
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`Case 5:19-cv-00036-RWS Document 450 Filed 07/27/20 Page 9 of 11 PageID #: 25139
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`Dated: July 23, 2020
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`By:
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`/s/ Jamie B. Beaber
`Geoff Culbertson
`Kelly Tidwell
`Patton, Tidwell & Culbertson, LLP
`2800 Texas Boulevard (75503)
`Post Office Box 5398
`Texarkana, TX 75505-5398
`Telephone: (903) 792-7080
`Facsimile: (903) 792-8233
`gpc@texarkanalaw.com
`kbt@texarkanalaw.com
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`Jamie B. Beaber
`Alan M. Grimaldi
`Kfir B. Levy
`James A. Fussell, III
`William J. Barrow
`Baldine B. Paul
`Tiffany A. Miller
`Michael L. Lindinger
`Saqib J. Siddiqui
`Bryan C. Nese
`Alison T. Gelsleichter
`Clark S. Bakewell
`MAYER BROWN LLP
`1999 K Street, NW
`Washington, DC 20006
`Telephone: (202) 263-3000
`Facsimile: (202) 263-3300
`jbeaber@mayerbrown.com
`agrimaldi@mayerbrown.com
`klevy@mayerbrown.com
`jfussell@mayerbrown.com
`wbarrow@mayerbrown.com
`bpaul@mayerbrown.com
`tmiller@mayerbrown.com
`mlindinger@mayerbrown.com
`ssiddiqui@mayerbrown.com
`bnese@mayerbrown.com
`agelsleichter@mayerbrown.com
`cbakewell@mayerbrown.com
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`Robert G. Pluta
`Amanda Streff Bonner
`MAYER BROWN LLP
`71 S. Wacker Drive
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`Case 5:19-cv-00036-RWS Document 450 Filed 07/27/20 Page 10 of 11 PageID #: 25140
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`Chicago, IL 60606
`(312) 782-0600
`rpluta@mayerbrown.com
`asbonner@mayerbrown.com
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`Counsel for Plaintiff Maxell, Ltd.
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`Case 5:19-cv-00036-RWS Document 450 Filed 07/27/20 Page 11 of 11 PageID #: 25141
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`CERTIFICATE OF SERVICE
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`The undersigned certifies that all counsel of record who are deemed to have consented to
`electronic service are being served this 23rd day of July, 2020, with a copy of this document via
`electronic mail pursuant to Local Rule CV-5(d).
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`/s/ Jamie B. Beaber
`Jamie B. Beaber
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