Case 1:20-cv-00393-LO-TCB Document 1093 Filed 02/25/22 Page 1 of 27 PageID# 29927
`
`UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF VIRGINIA
`ALEXANDRIA DIVISION
`
`
`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.
`
`Case No. 1:20-cv-00393-LO-TCB
`
`
`ORAL ARGUMENT REQUESTED
`
`
`
`
`
`REPLY IN SUPPORT OF PMI/ALTRIA’S DAUBERT MOTION TO EXCLUDE THE
`OPINIONS OF RJR’S DAMAGES EXPERT, DR. RYAN SULLIVAN
`
`
`
`
`
`

`

`Case 1:20-cv-00393-LO-TCB Document 1093 Filed 02/25/22 Page 2 of 27 PageID# 29928
`Case 1:20-cv-00393-LO-TCB Document 1093 Filed 02/25/22 Page 2 of 27 PagelD# 29928
`
`TABLE OF CONTENTS
`
`Page
`
`I.
`
`Il.
`
`INTRODUCTION000. oocccc ccc ccc cccccc ccc eeeccccceeeccccceecececcecececsuceeececsececcsseececccseeeeesseeeceeseeeees 1
`
`ARGUMENT oon. oo cecc cc cccccccccceccccccceececccceecececceeeecccceceececceceececseeeeececteeeecececeecssteeseceuteeeceeseeesees 2
`
`A.
`
`B.
`
`Cc.
`
`Dr. Sullivan Unreliably Relies Exclusively On A
`
`1.
`
`
`RJR Provides No Justification For Dr. Sullivan’s Arbitrar5
`
`cecesecesesseessesseesseesecsssessessscsseesscesscsseesscesecesecseceseseaeeaceseceaeeeeseseeaeesees 3
`
`2.
`
`RJR’s Remaining Arguments Fail 00.2.0. ..0..cceeeeceeeceeeeeesceeeceeeseeesseeeseeeseeees 8
`
`
`Dr. Sullivan Ignored
`
`His Effective Royalty Rate -.......0..0.e ee 10
`
`Dr. Sullivan’s Design-Around Opinions Should Be Excluded..................0...0......- 14
`
`1.
`
`2.
`
`3.
`
`RJR Mischaracterizes PMI/Altria’s Position And Invites Legal
`EYQQOD 0... eeeeeeeeeeeeceeeeeseeeeeeeesceeeeeeseeeeeeeseeeeeeeseeeeceeeeseeeceeeeeeeeeeeeeeeeeseeeeeeeeeees 14
`
`Dr. Sullivan’s Assumption Of Availability Lacks Any Factual
`BAIS .0.......cccecceeccesceeccesceeseesseeseceseesecseecsaeesaeeseeeseceseeseeeseceaeesecsaeeaeeeaeeeeeeeeeees 17
`
`Dr. Sullivan’s Opinions Are Properly Excluded At The Daubert
`Stage And Inadmissible For Any Purpose....................:::ccccceeeeeeeeseeeeeeeees 19
`
`
`
`TH.©.CONCLUSION 000... eecccccccceccccecceccesceeseesceeseeseeessesacessecseceseeaecsaeesecsecseceseeeaeeeaeeeseaeeneeeaeeess 21
`
`*All emphasis added, and internalcitations and quotations omitted, unless otherwise noted
`
`** Citations to “Mot.” and “Opp.” are to Dkt. Nos. 915 and 960, respectively.
`
`

`

`Case 1:20-cv-00393-LO-TCB Document 1093 Filed 02/25/22 Page 3 of 27 PageID# 29929
`
`TABLE OF AUTHORITIES
`
`CASES
`
`Aqua Shield v. Inter Pool Cover Team,
`774 F.3d 766 (Fed. Cir. 2014) ............................................................................................. 15, 16
`
`AstraZeneca AB v. Apotex Corp.,
`782 F.3d 1324 (Fed. Cir. 2015) ................................................................................................. 15
`
`Baltimore Aircoil Co. v. SPX Cooling Techs. Inc.,
`No. 13-cv-2053, 2016 WL 4426681 (D. Md. Aug. 22, 2016) ..................................................... 3
`
`Baxter Int'l, Inc. v. Becton, Dickinson & Co.,
` No. 17-cv-7576, 2020 WL 424918 (N.D. Ill. Jan. 27, 2020) ........................................... 16, 17
`
`Biedermann Techs. GmbH & Co. KG v. K2M, Inc.,
`No. 18-cv-585, 2021 WL 6034269 (E.D. Va. Dec. 10, 2021)..................................................... 7
`
`Biscotti Inc. v. Microsoft Corp.,
`No. 13-cv-01015-JRG-RSP, 2017 WL 2607882 (E.D. Tex. 2017) .......................................... 20
`
`Carnegie Mellon University v. Marvell Technology Group, Limited,
`No. 09-cv-290, 2012 WL 3686736 (W.D. Pa. Aug. 24, 2012) ................................................. 20
`
`Commonwealth Sci. & Indus. Rsch. Org. v. Cisco Sys., Inc.,
`809 F.3d 1295 (Fed. Cir. 2015) ................................................................................................... 6
`
`Commonwealth Sci. & Indus. Rsch. Org. v. Mediatek Inc.,
`No. 12-cv-578, 2015 WL 12806515 (E.D. Tex. June 29, 2015) ........................................... 9, 10
`
`Contour IP Holding, LLC v. GoPro, Inc.,
`No. 17-cv-04738, 2020 WL 5106845 (N.D. Cal. Aug. 31, 2020) ............................................... 9
`
`Covidien Sales LLC v. Ethicon Endo-Surgery, Inc.,
`No. 11-cv-871, 2020 WL 7040643 (S.D. Ohio Dec. 1, 2020) .................................................. 16
`
`Enzo Biochem, Inc. v. Gen-Probe Inc.,
`424 F.3d 1276 (Fed. Cir. 2005) ................................................................................................. 12
`
`ePlus, Inc. v. Lawson Software, Inc.,
`764 F. Supp. 2d 807 (E.D. Va. 2011) .................................................................................. 2, 3, 9
`
`Ericsson, Inc. v. D-Link Systems, Inc.,
`773 F.3d 1201 (Fed. Cir. 2014) ................................................................................................. 16
`
`Fresenius Medical Care Holdings, Inc. v. Baxter International, Inc.,
`No. 03-cv-1431, 2006 WL 1390416 (N.D. Cal. May 18, 2006) ......................................... 19, 20
`
`ii
`
`

`

`Case 1:20-cv-00393-LO-TCB Document 1093 Filed 02/25/22 Page 4 of 27 PageID# 29930
`
`Fuma Int’l LLC v. R.J. Reynolds Vapor Co.,
`No. 19-cv-260, Dkt. 159 (M.D.N.C. July 8, 2021) ................................................................. 1, 9
`
`Gibson v. Argus Energy, LLC,
`No. 10-cv-725, 2011 WL 1791339 (S.D.W. Va. May 10, 2011) .............................................. 13
`
`i4i Ltd. Partnership v. Microsoft Corp.,
`598 F.3d 831 (Fed. Cir. 2010) ................................................................................................... 10
`
`Interactive Pictures Corp. v. Infinite Pictures, Inc.,
`274 F.3d 1371 (Fed. Cir. 2001) ............................................................................................... 4, 7
`
`LaserDynamics, Inc. v. Quanta Computer, Inc.,
`No. 06-cv-348, 2011 WL 197869 (E.D. Tex. Jan. 20, 2011) .............................................. 15, 19
`
`LinkCo, Inc. v. Fujitsu Ltd.,
`232 F. Supp. 2d 182 (S.D.N.Y 2002) .......................................................................................... 6
`
`Looksmart Grp., Inc. v. Microsoft Corp.,
`No. 17-cv-4709, 2019 WL 4009263 (N.D. Cal. Aug. 5, 2019) ................................................... 9
`
`Lucent Tech., Inc. v. Gateway, Inc.,
`580 F.3d 1301 (Fed. Cir. 2009) ............................................................................................... 5, 7
`
`Mars, Inc. v. Coin Acceptors, Inc
`527 F.3d 1359 (Fed. Cir. 2008) ................................................................................................. 16
`
`Open Text S.A. v. Box, Inc.,
`No. 13-cv-4910, 2015 WL 349197 (N.D. Cal. Jan. 23, 2015) .................................................... 9
`
`Opticurrent, LLC v. Power Integrations, Inc.,
`No. 17-cv-03597, 2018 WL 6727826 (N.D. Cal. Dec. 21, 2018) ............................................... 8
`
`Prism Techs. LLC v. Sprint Spectrum L.P.,
`849 F.3d 1360 (Fed. Cir. 2017) ........................................................................................... 14, 15
`
`Sherwin-Williams Co. v. PPG Indus., Inc.,
`No. 17-cv-1023, 2020 WL 1283465 (W.D. Pa. 2020) .............................................................. 15
`
`Sundance, Inc. v. DeMonte Fabricating Ltd.,
`550 F.3d 1356 (Fed. Cir. 2008) ................................................................................................... 9
`
`TC Tech. LLC v. Sprint Corp.,
`No. 16-cv-153, 2019 WL 2515779 (D. Del. June 18, 2019) ..................................................... 20
`
`Versata Software Inc. v. SAP Am., Inc.,
`No. 2012-cv-1029, 2011 WL 4017939 (E.D. Tex. 2011) ......................................................... 14
`
`iii
`
`

`

`Case 1:20-cv-00393-LO-TCB Document 1093 Filed 02/25/22 Page 5 of 27 PageID# 29931
`
`Visteon Glob. Techs., Inc. v. Garmin Int’l, Inc.,
`903 F. Supp. 2d 521 (E.D. Mich. 2012) .................................................................................... 17
`
`Webasto Thermo & Comfort N. Am., Inc. v. BesTop, Inc.,
`No. 16-cv-13456, 2019 WL 3334563 (E.D. Mich. July 25, 2019)...................................... 19, 20
`
`Wordtech Sys., Inc. v. Integrated Networks Sols., Inc.,
`609 F.3d 1308 (Fed. Cir. 2010) ................................................................................................... 5
`
`Xodus Med., Inc. v. Prime Med., LLC,
`No. 18-cv-413, 2021 WL 5832785 (E.D. Tenn. Dec. 6, 2021) ................................................. 13
`
`RULES
`
`FED. R. EVID. 702 .......................................................................................................................... 12
`
`
`
`
`
`iv
`
`

`

`Case 1:20-cv-00393-LO-TCB Document 1093 Filed 02/25/22 Page 6 of 27 PageID# 29932
`
`I.
`
`INTRODUCTION
`
`RJR’s opposition confirms that Dr. Sullivan’s proffered effective royalty rates amount to
`
`speculation and guesswork bootstrapped with his own ipse dixit. RJR admits that they “directly
`
`contradict[]”
`
` And RJR argues
`
`they are nonetheless “reasonable” as compared to the cost of redesigning products that RJR has
`
`in the United States. Dr. Sullivan’s opinions should be excluded.
`
`First, RJR admits that Dr. Sullivan calculated the effective royalty rate of
`
`
`
`
`
` executed their agreement. Opp. at 11. That
`
`is legal error. As the law and economic articles on which Dr. Sullivan relies explain, in order to
`
`“deconstruct a lump-sum royalty payment into a derived royalty rate,” projected sales must be
`
`measured “at the time of the license’s issuance.” Ex. 1 at 904-06. RJR admits that Dr. Sullivan’s
`
`improper approach led him to
`
`
`
`. That fundamental methodological and legal flaw
`
`is not a matter for cross examination. As RJR argued in another e-cigarette patent case, “damage
`
`models based on speculative sales projections that are contrary to reality are inadmissible.” Fuma
`
`Int’l LLC v. R.J. Reynolds Vapor Co., No. 19-cv-260, Dkt. 159 at 10 (M.D.N.C. July 8, 2021).
`
`Second, RJR admits that Dr. Sullivan ignored the results
`
` Dkt. 915-3 § 6.10.2. That
`
`
`
`
`
`
`
`
`
`
`
` RJR admits that Dr. Sullivan’s calculated effective royalty
`
`rate “directly contradicts”
`
` but fails to reconcile them. Opp. at 20.
`
`1
`
`

`

`Case 1:20-cv-00393-LO-TCB Document 1093 Filed 02/25/22 Page 7 of 27 PageID# 29933
`Case 1:20-cv-00393-LO-TCB Document 1093 Filed 02/25/22 Page 7 of 27 PagelD# 29933
`
`Third, RJR admits that its theoretical design arounds must be “available” to be relevant to
`
`damages. RJR also admits that FDA authorization is required to sell a hypothetically redesigned
`
`product in the United States. And RJR admits that its design arounds have not beenP|
`ee. RJR’s speculative argument—that they are
`
`“available”if there is a mere “possibility” that they “could have gained regulatory approval during
`
`the life of the patents”—1s legally erroneous. Regardless, Dr. Sullivan performed no suchanalysis.
`
`The Court should grant this motion and exclude Dr. Sullivan’s unreliable opinions.
`
`IL.
`
`ARGUMENT
`
`Dr. SullivanaReliesel Oni
`A.
`First, RJR admits that Dr. Sullivan exclusively used aPe
`eee
`Po Opp. at 1. Second, RJR admits the salesry
`wasavailablePO was negotiated, whereas the data ina
`a2s not. Opp. at 15. Yet the economicrealities ofRJR’s business and the e-vapor market
`changed dramatically during that time, andPe
`RE eco, 208 acsrrr
`ee Id. at 13. Because RJR identifies
`no basis for Dr. Sullivan’s arbitrary (and exclusive) use ofae. these undisputed
`
`facts warrant excluding his opinions for the ’545, °911, ’265, and ’374 Patents. See, e.g., ePlus,
`
`
`
`

`

`Case 1:20-cv-00393-LO-TCB Document 1093 Filed 02/25/22 Page 8 of 27 PageID# 29934
`Case 1:20-cv-00393-LO-TCB Document 1093 Filed 02/25/22 Page 8 of 27 PagelD# 29934
`
`Inc. v. Lawson Software, Inc., 764 F. Supp. 2d 807, 815 (E.D. Va. 2011) (excluding expert’s
`
`opinions where he converted “lump sum royalty rates to running royalty rates using a speculative
`
`royalty base”); Baltimore Aircoil Co. v. SPX Cooling Techs. Inc., No. 13-cv-2053, 2016 WL
`
`4426681, at *25 (D. Md. Aug. 22, 2016) (same).
`
`RJR Provides No Justification For Dr. Sullivan’sa Reliance
`1.
`None ofRJR’s six arguments provide a basis for Dr. Sullivan’s use ofFo
`First, RJR contends that Dr. Sullivan relies iii because it was created in
`
`the ordinary course of business and used to “mak[e] business decisions.” Opp. at 1. But there is
`
`no support for RJR’s claim. Scott Peddycord (the sole RJR financial employee on whom Dr.
`
`w=sa-coO
`
`Dkt. 915-9 (Peddycord Dep.) at 70:23-71:1, 72:10-23. RJR cites Mr. Peddycord’s testimony to
`
`argue that the 2020 Forecast was “not created for purposesoflitigation,” but that self-serving
`
`testimony was given on re-direct in response to (objectionable) /eading questions from RJR’s
`
`lawyer. See Opp.at 11 (citing Dkt. 960-2 (Peddycord Dep.) at 133:18-134:3). Regardless, RJR’s
`
`argumentis irrelevant because (1) RJR admitsP wascreated in the ordinary course
`
`? RJR argues that the Fontem-RJR Agreementis “the undisputed most comparablelicense.” Opp.
`at 5, 8-10. Thatis incorrect but irrelevant. The parties dispute the relative comparability of those
`agreements and, as PMI/Altria explained,
`is more comparable.
`See Dkt. 1011 at 13-16; Dkt. 1011-4 at 58:24-59:23.
`It is wrelevant because, regardless of
`comparability, Dr. Sullivan’s methodology is unreliable and divorced from the facts ofthis case.
`
`Ww
`
`

`

`Case 1:20-cv-00393-LO-TCB Document 1093 Filed 02/25/22 Page 9 of 27 PageID# 29935
`
`of business and (ii) it is Dr. Sullivan’s methodology, not
`
`inspired and unreliable. Regardless of the origins or purpose of
`
`, that is litigation-
`
`, the simple fact
`
`is that it was prepared during the wrong time period and provides no basis for disregarding
`
`
`
`Second, RJR contends that “PMI/Altria’s real complaint” is that
`
`.
`
` projects
`
`sales that are
`
` Opp. at 12. Not so. Dr. Sullivan’s methodology is unreliable whether
`
`projects undisputedly
`
` sales—
`
`. That the former
`
` Opp. at 13—merely
`
`reveals RJR’s motivation for spuriously relying on an improper methodology.
`
`
`
`
`
`
`
` Interactive Pictures Corp. v. Infinite Pictures, Inc., 274 F.3d 1371,
`
`1385 (Fed. Cir. 2001) (“[T]hat Infinite did not subsequently meet those projections is irrelevant to
`
`Infinite’s state of mind at the time of the hypothetical negotiation.”). And Dr. Sullivan provides
`
`no evidence
`
`Third, RJR contends that
`
` is the “most reliable” because it
`
`
`
`thus yields
`
`
`
`
`
` and
`
`.
`
`Opp. at 11-12. But RJR cites no case holding, or even suggesting, that an expert should calculate
`
` using forecast data available at the time of his
`
`report. Id. Not one. That should be dispositive. Moreover, it defies common sense (and the law)
`
`4
`
`

`

`Case 1:20-cv-00393-LO-TCB Document 1093 Filed 02/25/22 Page 10 of 27 PageID# 29936
`
`to assert that the amount of recoverable damages should somehow be dependent on the timing of
`
`an expert report set by a Court deadline (whether or not driven by the timing of a complaint).
`
`Indeed, the economic articles on which Dr. Sullivan relies (Dkt. 960-1 n. 605) refute RJR’s
`
`argument: to “deconstruct a lump-sum royalty payment into a derived royalty rate,” projected sales
`
`are measured “at the time of the license’s issuance.” Ex. 1 (Sidak) at 905-06; id. at 903 (“[P]arties
`
`typically agree upon the amount of a lump-sum royalty before the royalty-bearing sales occur,”
`
`i.e., “in advance by using the licensee’s projected sales”). Basic valuation principles make plain
`
`that “valuation analyst[s] should consider only circumstances existing at the valuation date and
`
`events occurring up to the valuation date,” not “[s]ubsequent events” that “are indicative of
`
`conditions that were not known or knowable at the valuation date.” Ex. 5 (AICPA) at 14; Ex. 11
`
`(ASA Valuation Standards) at 6 (“An appraisal … considers all relevant information as of the
`
`appraisal date available.”). And determining an “effective royalty rate” requires “placing yourself
`
`in the shoes of the parties at the time they were originally negotiating the license to determine the
`
`true value that each party agreed to” using “the sales projections that the parties were expecting.”
`
`Ex. 12 (BRG article) at 3. Dr. Sullivan’s analysis contradicts the law and economic principles by
`
`using forecasted sales that
`
`
`
`. See Lucent Tech., Inc. v. Gateway, Inc., 580 F.3d
`
`1301, 1330 (Fed. Cir. 2009) (explaining that “[p]arties agreeing to a lump-sum royalty agreement
`
`may, during the license negotiation, consider the expected or estimated usage (or, for devices,
`
`production) of a given invention” and criticizing Lucent for “submitt[ing] no evidence” showing
`
`“the parties’ expectations as to usage … at the time of the negotiation”); Wordtech Sys., Inc. v.
`
`Integrated Networks Sols., Inc., 609 F.3d 1308, 1320 (Fed. Cir. 2010) (criticizing expert for relying
`
`on lump sum licenses without showing “how many products each licensee expected to produce”);
`
`5
`
`

`

`Case 1:20-cv-00393-LO-TCB Document 1093 Filed 02/25/22 Page 11 of 27 PageID# 29937
`
`LinkCo, Inc. v. Fujitsu Ltd., 232 F. Supp. 2d 182, 188 (S.D.N.Y 2002) (“A reasonable royalty may
`
`be computed in various ways, including a lump-sum royalty based on expected sales.”).
`
`Fourth, it is RJR, not PMI/Altria, that “misinterprets … the role of comparable license[s].”
`
`Opp. at 14. Under RJR’s position, the
`
`
`
`would constantly change, merely based on the date an expert submitted their report. That cannot
`
`be correct. For example,
`
`
`
`
`
`. Ex. 2 (Meyer Dep.) at 109:24-115:24. That rate, however,
`
`would be untethered to how the parties negotiating
`
`
`
`That is antithetical to the market approach and “the purpose of looking to a comparable license
`
`agreement” which, according to RJR, “is to ascertain the value of the patent by comparing it to
`
`similar market transactions.”3 Opp. at 14. The
`
` data is divorced from any market
`
`transaction between Fontem and RJR, and using such data to calculate
`
`
`
` contradicts the requirement that parties using comparable licenses are
`
`“constrained by the market’s actual valuation of the patent[s].” Commonwealth Sci. & Indus. Rsch.
`
`Org. v. Cisco Sys., Inc., 809 F.3d 1295, 1303 (Fed. Cir. 2015). Instead, the most reliable way to
`
`understand how the negotiating parties
`
`Mot. at 8-9; Ex. 2 (Meyer Dep.) at 113:13-115:24. Dr. Sullivan undisputedly failed to do that.
`
`
`
`3 RJR’s argument that Dr. Sullivan “conservatively” assigned
`
` confirms his opinions are flawed. Opp. at 13.
`
`
`
`6
`
`
`
`.
`
`
`
`
`
`
`
`

`

`Case 1:20-cv-00393-LO-TCB Document 1093 Filed 02/25/22 Page 12 of 27 PageID# 29938
`
`Fifth, RJR contends without citation that the valuation of a comparable license “is properly
`
`made based on an actual performance in the marketplace.” Opp. at 15. Not so. “A per-unit
`
`running royalty” is based on actual market performance because it “is paid based on the number
`
`of units ultimately sold (or made, etc.), which is of course directly related to product revenues.”
`
`Lucent Tech., 580 F.3d at 1330. In contrast, “once a lump-sum license is duly executed, the
`
`licensee is obligated to pay the entire, agreed-upon amount for the licensed technology, regardless
`
`of whether the technology is commercially successful or even used.” Id. at 1326. As RJR’s cited
`
`articles explain, a lump-sum royalty “is independent of the licensee’s actual sales” and “might not
`
`accurately reflect the licensee’s ex post use of the patented technology.” Ex. 1 at 903-04. RJR’s
`
`attempt to conflate these distinct royalty structures invites legal error. Interactive, 274 F.3d at
`
`1385 (explaining the law “does not require that estimates of sales revenues, as referenced in a
`
`hypothetical negotiation at the time infringement began, must later bear a close relation to actual
`
`sales revenue,” as “[s]uch a proposition would essentially eviscerate the rule that recognizes sales
`
`expectations at the time when infringement begins as a basis for a royalty base as opposed to an
`
`after-the-fact counting of actual sales”).
`
`Relying solely on Biedermann Techs. GmbH & Co. KG v. K2M, Inc., RJR argues that is
`
`“proper to look to current, actual data regarding covered sales” to calculate an effective royalty
`
`rate. Opp. at 15. RJR mischaracterizes Biedermann. The court never mentioned using “current”
`
`data. Instead, the court excluded an expert’s opinions for relying on non-comparable licenses and
`
`merely noted the expert could have calculated an effective royalty “based on actual sales.” No.
`
`18-cv-585, 2021 WL 6034269, at *10 (E.D. Va. Dec. 10, 2021). The Biedermann court did not
`
`authorize the use of “current” or after-arising data to calculate an effective royalty rate, as Dr.
`
`Sullivan undisputedly did. Nor does any other case RJR cites. That should be dispositive.
`
`7
`
`

`

`Case 1:20-cv-00393-LO-TCB Document 1093 Filed 02/25/22 Page 13 of 27 PageID# 29939
`Case 1:20-cv-00393-LO-TCB Document 1093 Filed 02/25/22 Page 13 of 27 PagelD# 29939
`
`Sixth, RJR contends that Dr. Sullivan’s use iii is proper under“the book
`
`of wisdom”becauseit is “information post-dating the hypothetical negotiation.” Opp. at 16. But,
`
`as RJR admits, “the hypothetical negotiation framework does not apply to the non-hypothetical,
`
`executed agreement between Fontem and RJR.” Jd. at 14. It was actually negotiated in the real-
`
`world and,thus, the book ofwisdom doesnot apply.* Jd. That is whyit was proper for Mr. Meyer
`
`to usePo and, conversely, improper for Dr. Sullivan to us:i. Ex.
`
`(Meyer Dep.) 2 at 113:5-115:24, 116:12-20. While RJR cites cases standing for the unremarkable
`
`proposition that experts may use ex post information for hypothetical negotiation purposes (Opp.
`
`at 16-17), none hold that the book of wisdom allows an expert to use ex post sales data to calculate
`
`the effective royalty rate of a “non-hypothetical” agreement. Indeed, “the book of wisdom 1s not
`
`a blank canvas on which an expert may consider any piece of evidence.” Opfticurrent, LLC v.
`
`PowerIntegrations, Inc., No. 17-cv-03597, 2018 WL 6727826, at *9 (N.D. Cal. Dec. 21, 2018).
`
`That Mr. Meyer usedthat dctini
`(Opp. at 17) is irrelevant because, as RJR concedes,PO
`
`2.
`
`RJR’s Remaining ArgumentsFail
`
`Unable to prove a factual or legal basis supporting Dr. Sullivan’suse of|a.
`
`RJR contends that the Court should not exclude his opinions for two reasons. Bothfail.
`
`First, RJR contends that Dr. Sullivan’s calculation is “conservative” becausehe(1) “adopts
`
`PM/Altria’s apportionment” and(ii) uses a “modest royalty base”i Opp.at
`
`4 RJR argues that PMI/Altria “conflates” comparable licenses and the hypothetical negotiation
`framework.
`.at 14. RJRis wrong. As RJR admits, unlike Dr. Sullivan, Mr. Meyer calculated
`
`
`
`

`

`Case 1:20-cv-00393-LO-TCB Document 1093 Filed 02/25/22 Page 14 of 27 PageID# 29940
`
`13-14. As an initial matter,
`
`
`
` In any event, that RJR believes Dr. Sullivan’s “analysis was conservative
`
`is not a substitute for applying a reliable methodology,” as “[t]he Federal Circuit has rejected this
`
`method of compensating for a flawed premise.” Contour IP Holding, LLC v. GoPro, Inc., No. 17-
`
`cv-04738, 2020 WL 5106845, at *14 (N.D. Cal. Aug. 31, 2020); Looksmart Grp., Inc. v. Microsoft
`
`Corp., No. 17-cv-4709, 2019 WL 4009263, at *5 (N.D. Cal. Aug. 5, 2019). “Such purportedly
`
`conservative gestures do not come with the reward of using over-inclusive calculations elsewhere,”
`
`such as Dr. Sullivan’s use of
`
`. Open Text S.A. v. Box, Inc., No. 13-cv-4910, 2015
`
`WL 349197, at *6 (N.D. Cal. Jan. 23, 2015). That he “adopts PM/Altria’s apportionment” only
`
`confirms RJR’s motion to exclude Mr. Meyer’s opinions should be denied. And it is unsurprising
`
`that Dr. Sullivan
`
`. Mot. at 15.
`
`Second, RJR’s argument that Dr. Sullivan’s flawed methodology can be addressed through
`
`cross-examination ignores that the Court’s “gatekeeping role” is “to ensure that expert testimony
`
`admitted into evidence is both reliable and relevant.” Sundance, Inc. v. DeMonte Fabricating Ltd.,
`
`550 F.3d 1356, 1360 (Fed. Cir. 2008). As RJR told the Fuma court: “damages models based on
`
`speculative sales projections that are contrary to reality are inadmissible.” Dkt. 159 at 10. That
`
`applies here, as Dr. Sullivan’s ipse dixit is “precisely that kind of opinion that Daubert, Kumho,
`
`and Joiner require the district courts to exclude.” ePlus, 764 F. Supp. 2d at 815.
`
`Neither of RJR’s cited cases suggest otherwise. The court in Commonwealth Scientific &
`
`Industrial Research Organisation v. Mediatek Inc. expressed “serious concerns” with the effective
`
`royalty rate, noted that admissibility was a “close call” (even though, unlike here, the calculated
`
`rate had “support”), but denied the motion because “the Court asked Defendants if they would
`
`agree to exclude effective royalty calculations from both CSIRO and their own expert reports, and
`
`9
`
`

`

`Case 1:20-cv-00393-LO-TCB Document 1093 Filed 02/25/22 Page 15 of 27 PageID# 29941
`Case 1:20-cv-00393-LO-TCB Document 1093 Filed 02/25/22 Page 15 of 27 PagelD# 29941
`
`they declined.” No. 12-cv-578, 2015 WL 12806515, at *4 (E.D. Tex. June 29, 2015). And,in i4i
`
`Ltd. Partnership v. Microsoft Corp., the defendant challenged the expert’s use of a benchmark
`
`product and survey evidence instead of “other facts” in the record. 598 F.3d 831, 854-55 (Fed.
`
`Cir. 2010). In contrast, Dr. Sullivan’s methodology ofarbitrarily using datam0
`I so:
`B.
`Dr. Sullivan Ignored The Conclusion OfPo
`NIN 15;5 irectve Royalty Tare
`RI adsAr
`NS 1.915: (Sutivan Dep.)a
`
`ee
`Pe Ex. 13 at 209:14-210:6, 214:17-21. And RJR admits that (i) Dr. Sullivan did not
`considerPo and (ii) hisPo “directly contradicts the
`notion that [RJR] pidi_ Opp. at 20. These admissions
`
`confirm his opinions contradict the facts of this case and should be excluded. RJR makesno effort
`
`5 at 1. It cannot. Instead, RJR advances three attorney arguments that are belied by the evidence.
`
`First, RJR contends that “it is unknown whetherPo
`I ©. 2¢ 18. This srzument strain
`credulity. RIR adaits (ht(tIDs
`
`° RJR’s assertion that “PMI/Altria never produced” is immaterial. Opp.
`at 18. PMI/Altria could not produce a document it never had. Ex. 3 (11/5/20 Ltr.) at 1. While
`RJR cherry
`picks two lines of Mr. Meyer’s testimony to incorrectly argue that he does not know
`
`Opp. at 18), RJR omits his tctinony
`
`Ex. 2 (Meyer Dep.) at 105:15-106:1.
`
`10
`
`

`

`Case 1:20-cv-00393-LO-TCB Document 1093 Filed 02/25/22 Page 16 of 27 PageID# 29942
`Case 1:20-cv-00393-LO-TCB Document 1093 Filed 02/25/22 Page 16 of 27 PagelD# 29942
`
`Sulivendit
`13 (Sivan Dep) af 221:6-11. BIR
`
`identifies no “other agreement”(there is none), much less any evidence of another agreement (none
`
`exists). In any event, Dr. Sullivan’s testimony directly refutes RJR’s speculative misdirection:
`
`
`
`Dkt. 915-4 (Sullivan Dep.) at 214:22-215:10.
`
`RJR also criticizes PMI/Altria’s 30(b)(6) witness, Michael Manson,
`
`Opp. at 18-20. But RJR omits
`
`That RJR’s lawyers failed to further question Mr. Manson provides no basis for disregarding his
`
`testimony. Regardless, it does not change the fact thatPe
`
`Second, RJR contends that “there is no evidence of how”Po
`Po Opp. at 19. That is wrong. As Dr. Sullivan admits,PO
`
`EE © 5 s01i02 Dep)
`at 210:20-211:16; see also Ex. 2 (MeyerDep.) at 106:2-109:13.
`
`BE «-Dkt. 915-3 §§ 6.10.1(a)-Gi),6.10.3, 6.10.5, 6.10.6.
`
`11
`
`

`

`Case 1:20-cv-00393-LO-TCB Document 1093 Filed 02/25/22 Page 17 of 27 PageID# 29943
`Case 1:20-cv-00393-LO-TCB Document 1093 Filed 02/25/22 Page 17 of 27 PagelD# 29943
`
`RJR contends that Po “mayhave relied on publicly available data” and
`
`nothing shows “her determination wasreliable.” Opp. at 20. That, too, is mere “[a]ttorney
`
`argument [that] is no substitute for evidence.” Enzo Biochem, Inc. v. Gen-Probe Inc., 424 F.3d
`
`1276, 1284 (Fed. Cir. 2005). Dr. Sullivan failed to identify any alleged unreliability at deposition
`
`and, regardless, it is RJR’s burden to show that his opinions are admissible. FED. R. Evip. 702.
`
`Norcould RJR identify any such unreliability.ee
`
`6.10.1(a)—is the same methodology Dr. Sullivanused,
`
`Third, RJR contends that “there is no evidence of theP| conclusions on the
`ctecive wytcI O50.319
`
`(Sullivan Dep.) at 209:14-210:6, 225:22-226:13; Opp., passim. These admissionsare consistent
`
`with the undisputed testimony of Altria’s 30(b)(6) witness, Michael Manson:
`
`12
`
`

`

`Case 1:20-cv-00393-LO-TCB Document 1093 Filed 02/25/22 Page 18 of 27 PageID# 29944
`Case 1:20-cv-00393-LO-TCB Document 1093 Filed 02/25/22 Page 18 of 27 PagelD# 29944
`
`a7
`
`a
`
`a
`Dkt. 892-6 at 172:24-173:9, 175:18-176:6.
`EE©. 13 (Sullivan Dep.) at 212:21-213:5, 225:17-21. Thus,
`contrary to RJR’s unsupported speculation, the evidence uniformly showsthatPo
`eee
`eee
`RUR contends that the[a
`Po Opp. at 19. That is, again, unsupported attorney speculation. It also
`con
`
`Pe Dkt. 960-5 at -4620. Nothing in the agreement or
`
`RJR’s incorrect and unsupported attorney argumentis not a license for Dr. Sullivan to
`
`perform an analysis “like the proverbial ostrich whosticks his head in the sand to avoid seeing the
`
`obvious.” Gibson v. Argus Energy, LLC, No. 10-cv-725, 2011 WL 1791339, at *4 (S.D.W. Va.
`
`May10, 2011). As RJR admits, hisPo “directly contradicts” the results
`
`>
`
`© RJR’s arguments regardinga (Opp. at20-21) are incorrectandrelevant. SeeDkt. 1011 at 10-18;Xodus
`
`Med., Inc. v. Prime Med., LLC, No. 18-cv-413, 2021 WL 5832785, at *3 (E.D. Tenn. Dec. 6, 2021)
`(rejecting argument that expert’s use of agreement was “impermissibly speculative” because it was
`not producedor reviewed, as the expert had sufficient knowledgeofits terms).
`
`13
`
`

`

`Case 1:20-cv-00393-LO-TCB Document 1093 Filed 02/25/22 Page 19 of 27 PageID# 29945
`
`. Opp. at 20. That confirms his “reasonable royalty analysis relied
`
`on speculation and guesswork,” and is “divorced from the factual and economic realities.” Versata
`
`Software Inc. v. SAP Am., Inc., No. 2012-cv-1029, 2011 WL 4017939, at *2 (E.D. Tex. 2011).
`
`C.
`
`Dr. Sullivan’s Design-Around Opinions Should Be Excluded
`
`RJR’s opposition confirms that Dr. Sullivan’s opinions should be excluded. Dkt. 960-1
`
`¶¶ 285-95, 378. RJR does not dispute that (i) a design around must be “available” to be properly
`
`considered and (ii) it has the burden to make this showing.
`
`
`
`
`
` Nor does RJR dispute that FDA’s Deeming Rule would
`
`bar RJR from selling any redesigned product until FDA authorizes such products via a PMTA.
`
`And RJR does not dispute that it never sought or obtained such authorization. These undisputed
`
`facts confirm that Dr. Sullivan’s assumption of availability should be excluded.
`
`1.
`
`RJR Mischaracterizes PMI/Altria’s Position And Invites Legal Error
`
`RJR’s opposition is premised on two incorrect arguments that mischaracterize PMI/Altria’s
`
`position and the law. Even if RJR were correct, Dr. Sullivan’s opinions should still be rejected.
`
`First, RJR contends that PMI/Altria imposes “an absolute bar” on considering alternatives
`
`unless they were “on the market, or ready for market.” Opp. at 22. That is a straw man. PMI/Altria
`
`expressly argued that (i) “to be an acceptable noninfringing substitute, the substitute must be
`
`available or on the market” and (ii) if RJR cannot show either, the substitute is unavailable and
`
`irrelevant to damages. Mot. at 20. That is faithful to controlling law which, as RJR’s cases show
`
`(Opp. at 8), requires an alternative to be available to be relevant. Prism Techs. LLC v. Sprint
`
`Spectrum L.P., 849 F.3d 1360, 1376 (Fed. Cir. 2017) (“[A] hypothetical license may appropriately
`
`be based on consideration of the costs and availability of non-infringing alternatives.”). Indeed,
`
`Dr. Sullivan previously testified to this Court that, in a reasonable royalty analysis, “the impact or
`
`14
`
`

`

`Case 1:20-cv-00393-LO-TCB Document 1093 Filed 02/25/22 Page 20 of 27 PageID# 29946
`
`cost of [] non-infringing alternatives limits the amount of royalties that would be agreed upon,
`
`which is another way of saying that [the royalty] for the technology is well above the non-
`
`infringing alternatives that would be available.” Ex. 6 (Adobe Day 4 Tr.) at 1009:6-16. Absent a
`
`factual basis for such availability, Dr. Sullivan’s opinions are “speculation that it might have been
`
`theoretically possible” to sell redesigned products, which is “irrelevant.” LaserDynamics, Inc. v.
`
`Quanta Computer, Inc., No. 06-cv-348, 2011 WL 197869, at *3 (E.D. Tex. Jan. 20, 2011).
`
`Second, RJR contends t