Case 6:12-cv-00799-JRG Document 308-1 Filed 02/20/15 Page 1 of 4 PageID #: 9763
`Case 6:l2—cv—00799—JRG Document 308-1 Filed 02/20/15 Page 1 of 4 Page|D #: 9763
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`EXHIBIT A
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`EXHIBIT A
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`Case 6:12-cv-00799-JRG Document 308-1 Filed 02/20/15 Page 2 of 4 PageID #: 9764
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`DLA Piper LLP (US)
`1000 Louisiana Street, Suite 2800
`Houston, Texas 77002-5005
`www.dlapiper.com
`
`Claudia Wilson Frost
`claudia.frost@dlapiper.com
`T 713.425.8450
`F 713.300.6050
`
`February 20, 2015
`The Honorable Rodney Gilstrap
`U.S. District Court for the Eastern District of Texas
`211 W. Ferguson
`Tyler, Texas 75702
`Re: C.A. No. 6:12-cv-799-JRG; Invensys Sys., Inc. v. Emerson Elec. Co., et al.
`Dear Judge Gilstrap:
`The fundamental flaws in Dr. Ugone’s methodology, which Defendants fail to adequately
`address, are too significant to be cured by cross-examination at trial. Accordingly, as set forth
`below and in Invensys’ letter brief, Dr. Ugone’s report should be struck or substantially limited.
`I.
`Defendants Misrepresent Dr. Ugone’s Consideration of Ex-Post Value Factors.
`In apparent recognition that Dr. Ugone’s analysis of ex-post value factors violates Aqua Shield v.
`Inter Pool Cover Team, 774 F.3d 766, 772 (Fed. Cir. 2014), which prohibits using the alleged
`infringer’s actual profits to set a royalty cap, Defendants focus their response entirely upon the first
`section of Dr. Ugone’s analysis where he considers contemplated price differentials for the accused
`products. Ugone Rep., ¶¶ 148-49. However, Dr. Ugone devotes the following section to
`considering actual price differentials, id. at ¶ 150, and concludes: “These ex-post value indicators
`represent the maximum value Micro Motion hoped to extract from the ability to measure under
`entrained gas and batching conditions, and provide a cap to the amount that Micro Motion would
`have been willing to negotiate for a license to the Patents-in-Suit.” Id. at ¶ 151 (emphasis added).
`Therefore, Dr. Ugone did indeed use ex-post value figures to set a royalty cap, which is improper
`and constitutes a basis for excluding his reasonable royalty opinions. Aqua Shield, 774 F.3d at 772.
`II.
`Dr. Ugone Provides No Basis for His Hypothetical Negotiation Date. Dr. Ugone
`opined that the parties’ hypothetical negotiation would have occurred sometime between April and
`August 2004, citing only the Maginnis Disclosure, which does not contain any reference to that date
`range, Ugone Rep., ¶ 99 n.213 & Maginnis Discl.; and then acknowledged that he could not recall
`where he got that information. Ugone Dep. Tr. at 282:2-5. Defendants now claim at least three
`documents support Dr. Ugone’s opinion, citing MM0728768, MM0729099, and MM0729198;
`however, Dr. Ugone did not cite these documents in his report and, in fact, did not even list them in
`Exhibit 3 (“Facts, Data, and Other Information Considered”). Attempting to “backdoor” evidence
`that Dr. Ugone never relied upon through counsel does not provide Dr. Ugone’s opinion with proper
`evidentiary support. See, e.g., Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1316 (Fed. Cir.
`2011) (noting “one major determinant of whether an expert should be excluded under Daubert is
`whether he has justified the application of a general theory to the facts of the case.”).
`III. Dr. Ugone Improperly Considers Defendants’ Invalidity And Non-Infringement
`Positions In His Reasonable Royalty Analysis. An expert cannot pay lip-service to the
`assumptions of validity and infringement while considering how the alleged infringer’s beliefs as to
`invalidity and non-infringement might impact its negotiating position, as Dr. Ugone has here.
`Dr. Ugone devoted an entire section of his report to outlining Defendants’ invalidity and non-
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`Case 6:12-cv-00799-JRG Document 308-1 Filed 02/20/15 Page 3 of 4 PageID #: 9765
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`infringement positions,1 and concluded these positions “would place significant downward pressure
`on the to-be-negotiated royalty payment.” Ugone Rep., ¶¶ 134-35; see also Ugone Dep. Tr. 299:6-
`16. This is improper and constitutes an additional basis for excluding Dr. Ugone’s reasonable
`royalty opinion. Metris U.S.A., Inc. v. Faro Techs., Inc., No. 08-CV-11187, 2012 WL 12012748, at
`*1 (D. Mass. June 29, 2012) (excluding expert’s opinion that “doubts about the validity of the
`patent” created downward pressure on royalty rates); ThinkOptics, Inc. v. Nintendo of Am., Inc.,
`No. 11-CV-455, 2014 WL 2859578, at **3-4 (E.D. Tex. June 21, 2014) (holding royalty base of
`defendant’s expert “must include the value of all claimed elements”—even elements that defendant
`contended patentee did not invent).
`IV. Dr. Ugone Also Uses Unreliable Methodologies To Evaluate Invensys’ Lost
`Profits. The Litigation Services Handbook criticizes averaging methodology because it “can
`mislead the analysis, especially when used as a benchmark in but-for comparisons.” Litig. Servs.
`Handbook § 4.4(a) (5th ed. 2012). Defendants note the treatise acknowledges the use of averages is
`sometimes necessary, but omit its further qualifications that “[p]ractitioners employ them when they
`cannot obtain sufficient evidential material that provides a more accurate or reliable mechanism
`for estimating a value.” Id. (emphasis added). Dr. Ugone utilizes only three data points, Ugone
`Dep. Tr. 256:5-7, 272:2-5, a sample size too small to yield reliable analysis. Brandeis Univ. v.
`Keebler Co., 12-CV-1508, 2013 WL 5911233, at *7 (N.D. Ill. Jan. 18, 2013) (finding expert had no
`grounds, based upon mere three-year pattern of declining market share, to assume same trend would
`persist for seven more years). “With too small a sample size, the margin of error may include zero
`or another critical value, which means that at least for the particular variable under examination, the
`results of the sample are not useful.” Litig. Servs. Handbook § 6.2. Tellingly, Dr. Ugone testified
`that he did not consider any error rate in his analysis. Ugone Dep. Tr. at 277:7-10 (stating, “…the
`number is what it is. There is no error rate.”). Defendants note that Dr. Ugone’s analyses “were
`performed purely as a rebuttal” and “do not constitute [his] affirmative damages opinion,” Defs.’
`Br. at 3; however, no reduced standard of reliability applies to rebuttal opinions.
`V.
`Defendants Misrepresent Dr. Ugone’s Opinions Regarding Allegedly Non-
`Infringing Alternatives. Defendants argue that Dr. Ugone “does not have an opinion regarding the
`existence of non-infringing alternatives” and relies on opinions of others. Defs.’ Br. at 3 However,
`Dr. Ugone lists the E + H Promass 83F, Krohne Optimass 6400, Yokogawa RotaMASS, Siemens
`FCT030 Transmitter, and unspecified ABB and Rheonik Coriolis flowmeters as alleged substitutes,
`Ugone Rep. ¶¶ 89, 193; and does not cite opinions of other witnesses establishing these products are
`non-infringing alternatives but cites advertisements. Id. Indeed, it does not appear that any witness
`has testified that these alleged substitutes constitute commercially acceptable and available non-
`infringing alternatives, Uniroyal, Inc. v. Rudkin-Wiley Corp., 939 F.2d 1540, 1544-45 (Fed. Cir.
`1991) (“[M]ere existence of a competing device, however, does not make the device an acceptable
`substitute.”); and Dr. Ugone is not qualified to do so. E.g., Broadcom Corp. v. Emulex Corp.,
`No. 09-CV-1058, slip op. at 9-10 (C.D. Cal. Aug. 10, 2011) (noting damages expert was not
`qualified to state third party could provide non-infringing alternatives); Ultratec, Inc. v. Sorenson
`Commc’ns, Inc., No. 13-CV-346, 2014 WL 5361940, at *4 (W.D. Wis. Oct. 21, 2014)
`(“[D]efendants have not shown that Ugone has the qualifications to determine what noninfringing
`alternatives might have existed at the time of the hypothetical negotiation.”); I/P Engine, Inc. v.
`AOL, Inc., No. 11-CV-512, slip op. at 6 (E.D. Va. Oct. 12, 2012) (prohibiting Dr. Ugone from
`providing “technical expert opinion.”).
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`1 In Section X.C.3, Dr. Ugone simply repeats Dr. Sidman’s non-infringement opinions. Compare, e.g., Sidman Rep.,
`¶ 176 (arguing accused products do not “process the sensor signal in sets, wherein each set includes data for a complete
`cycle of the periodic sensor signal”) with Ugone Rep., ¶ 134(f)(i) (same).
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`Case 6:12-cv-00799-JRG Document 308-1 Filed 02/20/15 Page 4 of 4 PageID #: 9766
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`Very truly yours,
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`/s/ Claudia Wilson Frost
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`Claudia Wilson Frost
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`cc:
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`All Counsel of Record (via ECF)
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`EAST\92295332.1
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