Case 1:20-cv-00393-LO-TCB Document 1092-5 Filed 02/25/22 Page 1 of 3 PageID# 29924
`Case 1:20-cv-00393-LO-TCB Document 1092-5 Filed 02/25/22 Page 1 of 3 PagelD# 29924
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`EXHIBIT 5
`EXHIBIT 5
`PUBLIC
`PUBLIC
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`

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`Case 1:20-cv-00393-LO-TCB Document 1092-5 Filed 02/25/22 Page 2 of 3 PageID# 29925
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`I N T E N SI T Y
`
`INTENSITY, LLC
`12730 High Bluff Drive, Suite 300
`San Diego, California 92130
`telephone 858.876.9101
`
`www.intensity.com
`
`UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF VIRGINIA
`ALEXANDRIA DIVISION
`
`Case No. 1:20-cv-00393
`
`REPORT OF
`RYAN SULLIVAN, Ph.D.
`
`RAI STRATEGIC HOLDINGS, INC. and
`R.J. REYNOLDS VAPOR COMPANY,
`
`Plaintiffs and Counterclaim
`Defendants,
`
`v.
`
`ALTRIA CLIENT SERVICES LLC; PHILIP
`MORRIS USA, INC.; and PHILIP
`MORRIS PRODUCTS S.A.,
`
`Defendants and Counterclaim
`Plaintiffs.
`
`____________________________________
`
`Ryan Sullivan, Ph.D.
`March 24, 2021
`
`CONFIDENTIAL BUSINESS INFORMATION, SUBJECT TO PROTECTIVE ORDER
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`

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`Case 1:20-cv-00393-LO-TCB Document 1092-5 Filed 02/25/22 Page 3 of 3 PageID# 29926
`CONFIDENTIAL BUSINESS INFORMATION, SUBJECT TO PROTECTIVE ORDER
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`11.4. Royalty structure
`(211) As discussed in Section 1.3, a reasonable royalty is designed to compensate the patent owner
`for the accused infringement. Thus, it is the amount of total royalties, not the royalty
`structure per se, that is relevant for an evaluation of economic damages. As described herein,
`reasonable royalties are calculated by “applying sound economic principles to case-specific
`facts.”438
`
`(212)
`
`In theory, a reasonable royalty could be determined using different royalty structures, yet as
`a practical matter, licenses often have a defined royalty structure, such as a lump-sum
`payment, a per-unit royalty, a percentage royalty, or some combination of these.
`
`(213) Several factors indicate that a running royalty is the economically appropriate royalty
`structure in this case. A running royalty structure allows for payments to be commensurate
`with the actual value contribution of the technology over time as sales may grow or shrink
`due to marketplace factors and/or other factors. A running royalty also allows for the sharing
`between licensor and licensee of risks associated with overpayment or underpayment relative
`to the value earned in the marketplace on licensed products.439 Furthermore,
`
`.440
`
`(214) Accordingly, it is likely that the parties at the hypothetical negotiation would have agreed to a
`running royalty, either as a percentage of net sales or as a per-unit royalty.
`
`438 Sullivan, Ryan and John Scherling (2011), “Rational Reasonable Royalty Damages: A Return to the Roots,” Landslide 4(2): 1–
`4, at 1.
`439 Razgaitis, Richard (2003), Valuation and Pricing of Technology-Based Intellectual Property, New Jersey: John Wiley & Sons,
`Inc., at 299. (“[Running royalties] provide an opportunity for the seller to receive more than the parties would have or could
`have expected because the outcome of the license has been greater than expected. Likewise, they can be an advantage to
`the buyer if the market turns out to be much smaller than expected.”)
`Teece, David (2002), Managing Intellectual Capital, New York: Oxford University Press Inc., at 153. (“The payment mechanism
`itself (up front lump sum versus royalties) may also impact the amount actually paid, as it may significantly impact risk
`sharing. An attractive feature of a licensee running with a royalty on sales is that the licensee does not have to pay unless
`it is successful with the licensed technology and/or intellectual property. As compared to a lump sum, the running royalty
`tends to delay the payment of cash and results in risk sharing between licensor and licensee.”)
`440 Nicholas Gilley, Dep. Tr., 12/3/2020, at 26:23–28:22. (“
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`Report of Ryan Sullivan, Ph.D.
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