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`41179
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`Philip Morris Products S.A.
`v.
`RAI Strategic Holdings, Inc.
`and
`R.J. Reynolds Vapor Company
`
`Civil Action No. 1:20-cv-00393-LO-TC
`
`Reply Declaration of Paul K. Meyer
`
`TM Financial Forensics, LLC
`September 9, 2022
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`CONFIDENTIAL BUSINESS INFORMATION – SUBJECT TO THE PROTECTIVE ORDER
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`I, Paul K. Meyer, declare as follows:
`
`I. BACKGROUND AND SCOPE
`
`1.
`
`2.
`
`3.
`
`4.
`
`TMF was retained by Latham & Watkins, LLP (“Counsel”) on behalf of Plaintiff Philip
`Morris Products S.A. (“Philip Morris”) to provide expert opinions regarding the damages
`caused by Defendant R.J. Reynolds Vapor Company’s (“Reynolds”) infringement of
`certain claims of U.S. Patent Nos. 9,814,265 (“the ’265 Patent”) and 10,104,911 (“the ’911
`Patent”) (collectively, the “Asserted Patents”).
`
`I previously submitted a Declaration in this case dated August 12, 2022 that included my
`opinions regarding the appropriate royalty for Reynolds’ post-verdict infringement of the
`Asserted Patents (the “Meyer Declaration”). I incorporate by reference the entirety of the
`Meyer Declaration into this declaration.1
`
`Dr. Ryan Sullivan filed a Declaration dated September 1, 2022 “to provide an economic
`analysis pertaining to a potential ongoing royalty” and “to review and respond to” the
`Meyer Declaration (the “Sullivan Declaration”).2
`
`Dr. Sullivan’s opinions are based in part on information from two discussions (on August
`18 and 25, 2022) with Robert Ferris, RAI Services Company’s Director of Commercial
`Finance for New Categories, and a new spreadsheet provided by Mr. Ferris “that provides
`Alto’s fully-burdened operating profitability from 2019 through June 2022 as well as
`certain underlying financial data that were used in creating that summary.”3 I will refer to
`this new spreadsheet and underlying financial data that Dr. Sullivan relies on in the Sullivan
`Declaration as the “Undisclosed Spreadsheet.”4
`
`5.
`
`The Undisclosed Spreadsheet does not provide any information showing, for example, who
`created the spreadsheet, when it was created, who last modified it, or where it was stored.
`The metadata shows a “date created” of “12/31/1899,” which cannot be the accurate date
`it was created. Further, I understand that Reynolds did not previously produce the
`Undisclosed Spreadsheet, or disclose Mr. Ferris in this case, and thus Philip Morris
`
`1 For purposes of completeness, I have attached to this reply declaration in Appendix A copies of certain publicly-
`available materials cited in the Meyer Declaration.
`2 Sullivan Declaration: p. 3
`3 Sullivan Declaration: p. 10.
`4 Sullivan Declaration: pp. 8-9.
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`41181
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`6.
`
`II.
`
`7.
`
`8.
`
`9.
`
`contends that Reynolds should not be permitted to rely on this new evidence. However, to
`the extent the Court permits Reynolds to rely on this new evidence, I respond to Dr.
`Sullivan’s opinions relying on this evidence below.
`
`I have been asked by Counsel to review and respond to Dr. Sullivan’s opinions regarding
`the Undisclosed Spreadsheet and his discussions with Mr. Ferris.
`
`SUMMARY OF DR. SULLIVAN’S OPINIONS RELATED TO REYNOLDS’
`UNDISCLOSED SPREADSHEET
`
`Dr. Sullivan relies on the Undisclosed Spreadsheet and information from his discussions
`with Mr. Ferris to address my calculated net operating profit of
` for Infringing
`Alto Cartridges during the first six months of 2022. Below, I summarize his main critiques
`of my declaration based on the Undisclosed Spreadsheet.
`
`First, Dr. Sullivan states that “it is inaccurate to look at the operating profitability of Alto
`cartridges as being distinct from the profitability of Alto devices, as a consumer must first
`purchase an Alto device before an Alto cartridge can be used.”5 Dr. Sullivan relies on data
`from the Undisclosed Spreadsheet to
` related Alto
`devices, which he uses to
` operating profit to approximately
`
`. I refer to Dr. Sullivan’s critique as “Dr. Sullivan’s Alto Device Cost Deduction.”
`
`Second, Dr. Sullivan states that “I understand that there are certain other costs that RJRV
`incurred during the first half of 2022 that are not reflected on the product-specific
`financials, including costs pertaining to the development and commercialization of the
`VUSE portfolio (e.g., PMTA costs, R&D costs, shared services allocations), the cost of a
`new ERP system that was implemented, and certain accounting accruals that will be
`reversed later in the year.”6 He states that “[a] more complete picture of Alto’s profitability
`would include these costs that are specific to RJRV’s vapor business and that would
`appropriately be allocated to Alto based on Alto’s proportion of the total vapor sales,” and
`adjusts these costs further to reduce Alto profitability in the first half of 2022 to
`
`
`5 Sullivan Declaration: p. 10.
`6 Sullivan Declaration: pp. 10-11.
`
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`41182
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`10.
`
` of additional allocated expenses).7 I refer to this critique
` (based on
`as “Dr. Sullivan’s Cost Allocation Deduction.”8
`
`Third, Dr. Sullivan states: “I disagree with the Meyer Declaration’s implication that the
`parties at the second hypothetical negotiation would look at only six months of Alto
`cartridge profitability as being indicative of future expected profitability over the duration
`of the life of the ’265 patent” and that “according to the summary provided by Mr. Ferris,
`the Alto product line has incurred
`
` from 2019 through June 2022 when accounting
`for the sales of Alto devices and the appropriately allocated operating expenditures not
`reflected in the product-specific financials the Meyer Declaration cites.”9 I refer to Dr.
`Sullivan’s critique as “Dr. Sullivan’s Historical Cost Deduction.”
`
`III. RESPONSE TO DR. SULLIVAN’S CRITIQUES BASED ON THE UNDISCLOSED
`SPREADSHEET
`
`11.
`
`12.
`
` in net
`I disagree with Dr. Sullivan’s attempts to lower the approximately
`operating profits for the Alto Cartridges during the first six months of 2022 which, in turn,
`would lower the resulting post-verdict royalty rate. Dr. Sullivan acknowledges that
`operating profitability of the Alto Cartridge for the first half of 2022 is approximately
`
`, yet he improperly deducts various costs from that profit figure that are, in my
`opinion, improper based on the facts of this case.
`
`First, the cost allocations that Dr. Sullivan makes in his Declaration are inconsistent with
`the cost allocations that, based on my review of the financial spreadsheets that Reynolds
`produced in this case, Reynolds has made in the ordinary course of business. For example,
`Reynolds produced numerous spreadsheets in this case prior to producing the Undisclosed
`Spreadsheet, none of which include the cost allocations Dr. Sullivan is now making to Alto
`product line. I note that Dr. Sullivan does not cite to any previously produced document
`to support these new product-line cost allocations.
`
`
`
`7 Sullivan Declaration: p. 11.
`8 For example, Sullivan Declaration: footnotes 44-46.
`9 Sullivan Declaration: p. 11.
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`41184
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`Table 1: Proforma Analysis: Operating Profit Maintained By Reynolds
`(Including Alto Device Losses)
`Under Different Ongoing Royalty Scenarios Reflecting Post-Verdict Changes
`(Based On Data Covering January 2022 through June 2022)14
`
`A
`Ongoing
`Royalty Rate
`(as a % of
`net sales)
`3.66%
`9.14%
`18.29%
`27.43%
`32.92%
`
`B
`
`Proforma: Operating
`Profit Retained by
`Reynolds
`
`
`
`
`
`
`
`
`C
`
`Percent of Operating
`Profit Retained by
`Reynolds
`
`
`
`
`
`
`As summarized In Table 1, if the Court awards an ongoing royalty of 3.66%, Reynolds
`would maintain approximately
` on sales of Infringing Alto Cartridges for
`the first six months of 2022. If the Court awards an ongoing royalty of 9.14%, Reynolds
`would maintain approximately
` on sales of Infringing Alto Cartridges for
`the first six months of 2022. If the Court awards an ongoing royalty of 18.29%, Reynolds
`would maintain approximately
` on sales of Infringing Alto Cartridges for
`the first six months of 2022. If the Court awards an ongoing royalty of 27.43%, Reynolds
`would maintain approximately
` on sales of Infringing Alto Cartridges for
`the first six months of 2022. And, finally, if the Court awards an ongoing royalty of
`32.92%, Reynolds would maintain approximately
` on sales of Infringing
`Alto Cartridges for the first six months of 2022.
`
`Additionally, to help illustrate the amount of profit that Reynolds would retain if the Court
`were to adopt Reynold’s position of a post-verdict royalty of 0.6% of net sales, or adopt
`Reynolds’ position and treble that post-verdict royalty rate, I summarized the net operating
`profit margin maintained by Reynolds for the first half of 2022 under both scenarios in
`Table 2 below.
`
`17.
`
`18.
`
`
`
`
`
`
`
`14 Attachment 2.
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`Case 1:20-cv-00393-LMB-WEF Document 1469-8 Filed 04/05/23 Page 8 of 130 PageID#
`41185
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`Table 2: Proforma Analysis: Operating Profit Maintained By Reynolds
`With Jury Rate or Trebled Jury Rate
`(Including Alto Device Losses)
`(Based On Data Covering January 2022 through June 2022)15
`
`
`
`B
`Proforma: Operating
`Profit Retained by
`Reynolds
`
`A
`C
`Ongoing
`Percent of Operating
`Royalty Rate
`Profit Retained by
`(as a % of
`Reynolds
`net sales)
`
`
`0.6%
`
`
`1.8%
`Response To Dr. Sullivan’s Cost Allocation Deduction
`
`B.
`
`19.
`
`20.
`
`21.
`
`As discussed, Dr. Sullivan opines, based on the Undisclosed Spreadsheet that Mr. Ferris
`provided, that an additional
` of cost allocations should be deducted from the
`Infringing Alto Cartridges profits for the first half of 2022. The
` consists of
`three allocation cost components: (1)
`
`; (2)
`
`
` and (3)
`
`.16
`
`For these three cost allocations, Dr. Sullivan provides a single sentence purporting to
`explain what they mean. Without linking the abbreviations and his explanation, and relying
`only on Mr. Ferris, Dr. Sullivan states that they “include[e] costs pertaining to the
`development and commercialization of the VUSE portfolio (e.g., PMTA costs, R&D costs,
`shared services allocations), the cost of a new ERP system that was implemented, and
`certain accounting accruals that will be reversed later in the year.”17
`
` in
`Dr. Sullivan’s explanation is wholly insufficient to justify reducing the
`
`stated operating profits for the Alto Cartridges for the first six months of 2022 by
` As an initial matter, I am not aware of any other spreadsheet that either myself or
`Dr. Sullivan relied on in our prior reports served in this case that includes these additional
`operating expense categories allocated to the Alto product line profit and loss statements.
`
`
`
`15 Attachment 1.
`16 Sullivan Declaration: Attachment A-6.
`17 Sullivan Declaration: pp. 10-11.
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`41186
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`22.
`
`23.
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`24.
`
`Putting aside that these allocations are not corroborated by any document that Reynolds
`produced, Dr. Sullivan has not demonstrated that these allocations are proper. For
`example, Dr. Sullivan states that the costs include “PMTA costs” and “R&D costs.”18 Dr.
`Sullivan provides no explanation as to why it would be proper to allocate these costs and,
`based on the facts, they should not be allocated from Reynolds’ operating profits.
`
`It is improper to allocate “PMTA costs” in 2022 to the Alto Cartridges. For example, as
`Dr. James Figlar, Reynolds’ retired Executive Vice President, Research & Development
`and Scientific & Regulatory Affairs, testified, the PMTA for the Alto was completed in
`August 2020 and submitted to FDA no later than September 2020.19 This cost was incurred
`in 2020 and should not be deducted from Infringing Alto Cartridges profits made in 2022.
`Additionally, Dr. Sullivan ignores the PMTA includes aspects of the Alto unrelated to the
`cartridges, such as the device. Dr. Sullivan makes no attempt to explain why this allocation
`is appropriate.
`
`It is improper to allocate millions of dollars in alleged “R&D” costs to the Alto in 2022.
`Dr. Sullivan does not describe what these research and development (“R&D”) costs pertain
`to or how they relate to Alto at all, much less how they were incurred on Alto Cartridges
`in the first six months of 2022. The allocation and cost deduction is particularly improper
`as I understand that the design of the Alto Cartridge was fixed before August 8, 2016, when
`the Deeming Rule was enacted, and that Reynolds cannot sell a modified Alto Cartridge in
`the United States absent Pre-Market Tobacco Authorization from the U.S. Food & Drug
`Administration (“FDA”). Further, Reynolds admitted that it has made no changes to the
`Alto Cartridge since August 8, 2016.20 Dr. Sullivan ignores this and makes no attempt to
`explain why this allocation is appropriate.
`
`25.
`
` of allocated costs includes “shared services
`Dr. Sullivan states that the
`allocations.”21 Dr. Sullivan provides no explanation of what “shared services allocations”
`
`
`
`18 Sullivan Declaration: p. 10.
`19 Deposition of James Figlar, Executive Vice President, Research & Development and Scientific & Regulatory
`Affairs at Reynolds, June 3, 2022: p. 156.
`20 RAI Strategic Holdings, Inc. and R.J. Reynolds Vapor Company’s Responses to Altria Client Services LLC,
`Philip Morris USA, Inc., and Philip Morris Products S.A.’s Fourth Set of Requests for Admission (Nos. 116-263):
`pp. 25-26
`21 Sullivan Declaration: p. 10.
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`Case 1:20-cv-00393-LMB-WEF Document 1469-8 Filed 04/05/23 Page 10 of 130 PageID#
`41187
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`26.
`
` in operating profits
`are or why they are appropriate to deduct from the stated
`for the Alto Cartridges for the first six months of 2022. He does not describe, for example,
`(1) what costs comprises the “shared services”; (2) how the “shared services” benefit the
`Alto product line; (3) which entity incurred the “shared services” costs (e.g., BAT), (4) the
`allocation methodology used to allocate costs to the Alto product line; (5) whether the
`“shared services” costs are variable (i.e., would have been lower had the Alto Cartridges
`not been sold); and (6) whether Reynolds uses an operating margin for the Alto Cartridge
`that includes a deduction for “shared services” allocation when making any business
`decisions. Dr. Sullivan has not demonstrated the nature of these costs or shown that the
`“shared services” costs are appropriate, relevant, variable costs that would be considered
`by Reynolds in any business decision considering the Alto, much less considered by
`Reynolds and Phillip Morris when negotiating a post-verdict royalty for the ’265 Patent.
`
`
`One of the costs on which Dr. Sullivan relies states:
`. Again, Dr. Sullivan does not explain what this cost category means. He
`simply states it refers to “the cost of a new ERP system that was implemented.”22 Likewise,
`regarding the line item cost
`
`, Dr. Sullivan simply states it refers to “certain accounting accruals that will be
`reversed later in the year.”23 Based on the description that Dr. Sullivan provided, it is
`improper to deduct these costs from Reynolds’ operating profits for Alto Cartridges for the
`first six months of 2022. For both alleged cost allocations, the Undisclosed Spreadsheet
`includes no support or explanation for these costs. They are not linked to any other
`spreadsheet that includes a build-up of what comprises the costs, and Dr. Sullivan cites to
`no documents or evidence to corroborate these costs. For both cost allocations, Dr.
`Sullivan fails to provide: (1) the nature of the costs (2) how the costs benefit the Alto
`product line; (3) which entity incurred the costs (e.g., BAT), (4) allocation methodology
`used; (5) evidence the costs are variable (i.e., would have been lower had the Alto
`
`
`22 Sullivan Declaration: pp. 10-11, Attachment A-6; Reynolds new profitability data: Vuse Alto Adjusted PL
`Alto_082422_Reynolds CBI: Tab
`
`23 Sullivan Declaration: pp. 10-11, Attachment A-6; Reynolds new profitability data: Vuse Alto Adjusted PL
`Alto_082422_Reynolds CBI: Tab
`
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`41188
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`27.
`
`Cartridges not been sold); and (6) evidence that Reynolds uses an operating margin for the
`Alto that deducts these costs for any business decisions related to the Alto.
`
`Further, based on Reynolds’ Undisclosed Spreadsheet, the first six months of 2022 is the
`only period since 2019 (the first full year that the Alto was on the U.S. market) that the
`Alto product allegedly received any allocation besides the alleged
`
` allocation. In other words, Dr. Sullivan’s alleged allocations for the first six
`months of 2022 are inconsistent with any other alleged allocation that Reynolds made for
`Alto Cartridges since its inception. Notably, these new allocations result in the Alto
`product allegedly receiving a significant increase—over
` higher than any prior
`6-month period—in allegedly allocated costs, well beyond any costs that Reynolds
`previously allocated.24 Dr. Sullivan does not explain why these alleged one-off, likely
`fixed and sunk costs and “accounting accruals that will be reversed later in the year” would
`have any bearing on the negotiation for a post-verdict royalty for the ’265 patent.
`
`28. Without conceding that these deductions are appropriate, to assist the Court in determining
`the appropriate ongoing royalty rate should the
` operating loss of the Alto
`devices and the
` cost allocation for
`
`be deducted from the
` operating profit, I calculated the ongoing royalty rates
`that would be appropriate and allow Reynolds to maintain
`
`. These numbers, which are set forth in column A of Table 3
`below, were calculated based on Reynolds’ net operating profit of
` for the first
`half of 2022 (and the
`25
`
`
`
`
`
`
` Sullivan Declaration: Attachment A-6;
`24 Second highest allocated amount for six-month period was
`Reynolds new profitability data: Vuse Alto Adjusted PL Alto_082422_Reynolds CBI: Tab
`
`25
`
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`Table 3: Proforma Analysis: Operating Profit Maintained By Reynolds
`(Including Alto Device Losses And “R&D | NBE | OIE” Allocation)
`Under Different Ongoing Royalty Scenarios Reflecting Post-Verdict Changes
`(Based On Data Covering January 2022 through June 2022)26
`
`B
`
`Proforma: Operating
`Profit Retained by
`Reynolds
`
`C
`A
`Ongoing
`
`Percent of Operating
`Royalty Rate
`Profit Retained by
`(as a % of
`Reynolds
`net sales)
`
`
`1.89%
`
`
`4.73%
`
`
`9.46%
`
`
`14.19%
`
`
`17.03%
`As summarized in Table 3, if the Court awards an ongoing royalty of 1.89%, Reynolds
`would maintain approximately
` on sales of Infringing Alto Cartridges for
`the first six months of 2022. If the Court awards an ongoing royalty of 4.73%, Reynolds
`would maintain approximately
` on sales of Infringing Alto Cartridges for
`the first six months of 2022. If the Court awards an ongoing royalty of 9.46%, Reynolds
`would maintain approximately
` on sales of Infringing Alto Cartridges for
`the first six months of 2022. If the Court awards an ongoing royalty of 14.19%, Reynolds
`would maintain approximately
` on sales of Infringing Alto Cartridges for
`the first six months of 2022. And, finally, if the Court awards an ongoing royalty of
`17.03%, Reynolds would maintain approximately
` on sales of Infringing
`Alto Cartridges for the first six months of 2022.
`
`29.
`
`30.
`
`In Table 3, I did not perform a profitability calculation deducting the costs associated with
`the line items
` that Dr.
`Sullivan allocated to the Alto in the first six months of 2022 because Reynolds itself never
`allocated any similar costs for Alto Cartridges at any point since releasing Alto in 2018 and
`there is no evidence the likely fixed, one-time costs are relevant to a royalty determination.
`
`26 Attachment 4.
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`41190
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`31.
`
`Additionally, to help illustrate the amount of profit that Reynolds would retain if the Court
`were to adopt Reynold’s position of a post-verdict royalty of 0.6% of net sales, or adopt
`Reynolds’ position and treble that post-verdict rate, I summarized the net operating profit
`margin maintained by Reynolds for the first half of 2022 under both scenarios in Table 4
`below.
`
`
`
`
`
`32.
`
`33.
`
`Table 4: Proforma Analysis: Operating Profit Maintained By Reynolds
`With Jury Rate or Trebled Jury Rate
` Allocation)
`(Including Alto Device Losses And
`(Based On Data Covering January 2022 through June 2022)27
`
`
`
`A
`Ongoing
`Royalty Rate
`(as a % of
`net sales)
`0.6%
`1.8%
`
`B
`Proforma: Operating
`Profit Retained by
`Reynolds
`
`
`
`
`C
`Percent of Operating
`Profit Retained by
`Reynolds
`
`
`
`C.
`
`Response to Dr. Sullivan’s Historic Cost Deduction
`
`As discussed, Dr. Sullivan opines that the parties at the June 15, 2022 post-verdict
`hypothetical negotiation would consider the historic profitability for the Infringing Alto
`Cartridges, not just the profitability for the post-verdict period (for which Reynolds
`produced relevant sales data in July 2022) of January 1, 2022 to June 15, 2022. I disagree.
`
`The jury awarded damages for Reynolds’ past infringement through December 31, 2021
`based in part of the profitability of Alto Cartridges from its release in August 2018 through
`December 31, 2021. In contrast, the jury did not consider any profitability or sales data for
`the Alto Cartridges after January 1, 2022. Moreover, an ongoing royalty is inherently
`prospective in nature, and is meant to compensate the patentee (here, Philip Morris) for
`future use of its patented technology. As such, the focus of the parties at the post-verdict
`hypothetical negotiation would be on current profits and/or expected profits, not the
`historical profitability (or lack thereof) that the jury considered. As I discussed in the
`
`27 Attachment 3.
`
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`Case 1:20-cv-00393-LMB-WEF Document 1469-8 Filed 04/05/23 Page 14 of 130 PageID#
`41191
`
`Meyer Declaration, which is fully incorporated herein by reference, the significant increase
`in profitability and sales of Infringing Alto Cartridges in the first half of 2022—which was
`not considered in my prior analysis or presented to the jury because Reynolds did not
`produce this sales data before trial—would be the appropriate basis from which the post-
`verdict royalty would be negotiated under the facts of this case.
`
`
`
` I
`
` declare under penalty of perjury under the laws of the United States of America that the foregoing
`is true and correct.
`
`
`
`Executed this 9th day of September, 2022.
`
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`Case 1:20-cv-00393-LMB-WEF Document 1469-8 Filed 04/05/23 Page 15 of 130 PageID#
`41192
`
`Operating Profits On Infringing Alto Cartridges Maintained By Reynolds
`With Jury Awarded Royalty Rate or Trebled Jury Awarded Royalty Rate
`Including Alto Device Operating Losses
`January 1, 2022 through June 30, 2022
`
`Attachment 1
`
`A
`
`B
`
`C
`
`D = A x C
`
`Reynolds Net
`Sales[1]
`
`
`
`Reynolds
`Operating Profits[2]
`
`
`
`Royalty %
`0.60%
`1.80%
`
`Royalty Payment
`
`
`
`
`
`
`E = B - D
`Operating Profit
`Maintained by
`Reynolds
`
`
`
`F = E / B
`Percent of Operating
`Profit Maintained by
`Reynolds
`
`Notes:
`[1] Meyer 8/12/2022 Declaration: Attachment 5.
`Sullivan Declaration: Attachment A-6. Reynolds operating profit considering Device operating loss.
`
`[2]
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`CONFIDENTIAL BUSINESS INFORMATION -
`SUBJECT TO PROTECTIVE ORDER
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`Case 1:20-cv-00393-LMB-WEF Document 1469-8 Filed 04/05/23 Page 16 of 130 PageID#
`41193
`
`Operating Profits On Infringing Alto Cartridges Maintained By Reynolds
`Under Different Ongoing Royalty Scenarios Reflecting Post-Verdict Changes
`Including Alto Device Operating Losses
`January 1, 2022 through June 30, 2022
`
`Attachment 2
`
`B
`Percent of Operating
`Profit Maintained by
`Reynolds
`
`A
`
`Reynolds
`Operating Profits[1]
`
`
`
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`
`
`C = A x B
`Operating Profit
`Maintained by
`Reynolds
`
`
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`
`
`D = A - C
`
`E
`
`F = D / E
`
`Royalty Payment
`
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`
`Reynolds Net
`Sales[2]
`
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`
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`Royalty %
`3.66%
`9.14%
`18.29%
`27.43%
`32.92%
`
`Notes:
`Sullivan Declaration: Attachment A-6. Reynolds operating profit considering Device operating loss.
`
`[1]
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`[2] Meyer 8/12/2022 Declaration: Attachment 5.
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`CONFIDENTIAL BUSINESS INFORMATION -
`SUBJECT TO PROTECTIVE ORDER
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`Page 1 of 1
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`Case 1:20-cv-00393-LMB-WEF Document 1469-8 Filed 04/05/23 Page 17 of 130 PageID#
`41194
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`Case 1:20-cv-00393-LMB-WEF Document 1469-8 Filed 04/05/23 Page 18 of 130 PageID#
`41195
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`Operating Profits On Infringing Alto Cartridges Maintained By Reynolds
`Under Different Ongoing Royalty Scenarios Reflecting Post-Verdict Changes
`Including Alto Device Operating Losses And
` Cost Allocation
`January 1, 2022 through June 30, 2022
`
`Attachment 4
`
`B
`Percent of Operating
`Profit Maintained by
`Reynolds
`
`A
`
`Reynolds
`Operating Profits[1]
`
`
`
`
`
`
`C = A x B
`Operating Profit
`Maintained by
`Reynolds
`
`
`
`
`
`
`D = A - C
`
`E
`
`F = D / E
`
`Royalty Payment
`
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`
`Reynolds Net
`Sales[2]
`
`
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`
`
`Royalty %
`1.89%
`4.73%
`9.46%
`14.19%
`17.03%
`
`Notes:
`[1]
`Sullivan Declaration: Attachment A-6. Reynolds operating profit considering: (1) Device operating loss, and (2) Reynolds “
`. Calculated as
`[2] Meyer 8/12/2022 Declaration: Attachment 5.
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`CONFIDENTIAL BUSINESS INFORMATION -
`SUBJECT TO PROTECTIVE ORDER
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`Page 1 of 1
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`Case 1:20-cv-00393-LMB-WEF Document 1469-8 Filed 04/05/23 Page 19 of 130 PageID#
`41196
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`Appendix A
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`Case 1:20-cv-00393-LMB-WEF Document 1469-8 Filed 04/05/23 Page 20 of 130 PageID#
`41197
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`Case 1:20-cv-00393-LMB-WEF Document 1469-8 Filed 04/05/23 Page 21 of 130 PageID#
`41198
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`Case 1:20-cv-00393-LMB-WEF Document 1469-8 Filed 04/05/23 Page 22 of 130 PageID#
`41199
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`Case 1:20-cv-00393-LMB-WEF Document 1469-8 Filed 04/05/23 Page 23 of 130 PageID#
`41200
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`Case 1:20-cv-00393-LMB-WEF Document 1469-8 Filed 04/05/23 Page 24 of 130 PageID#
`41201
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`Case 1:20-cv-00393-LMB-WEF Document 1469-8 Filed 04/05/23 Page 25 of 130 PageID#
`41202
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`Case 1:20-cv-00393-LMB-WEF Document 1469-8 Filed 04/05/23 Page 26 of 130 PageID#
`41203
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`Case 1:20-cv-00393-LMB-WEF Document 1469-8 Filed 04/05/23 Page 27 of 130 PageID#
`41204
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`Case 1:20-cv-00393-LMB-WEF Document 1469-8 Filed 04/05/23 Page 28 of 130 PageID#
`41205
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`Case 1:20-cv-00393-LMB-WEF Document 1469-8 Filed 04/05/23 Page 29 of 130 PageID#
`41206
`Barclays | British American Tobacco Plc
`
`Links to previous research
`
` Altria/BAT: Nicotine cap rule introduced again by the FDA, 22 Jun 2022
`
` Altria Group Inc.: Int'l expansion needed for innovation, 22 Jun 2022
`
` PM: IQOS vs. glo pricing tracker: v11, 08 Jun 2022
`
` British American Tobacco Plc: E-cig pricing comes to the US market, 07 June 2022
`
` Altria/BAT: Nielsen data: Cigs vol -8.6%, ZYN growth continues, 31 May 2022
`
`
`
`
`
`Japan Tobacco Inc.: JT: Potential SWMA considerations, 25 May 2022
`
`Imperial Brands Plc: Raises FY22 EPS guidance by 7%, 17 May 2022
`
` Swedish Match: SEK106 is too low a price, 12 May 2022
`
` Swedish Match: Outlining our bull case for SWMA, 10 May 2022
`
`
`
`European Consumer Staples: PM in talks to acquire SWMA, 09 May 2022
`
` Tobacco vols set to surprise positively as affordability improves, 06 May 2022
`
` Altria Group Inc.: Resilient in an uncertain environment, 03 May 2022
`
` Philip Morris.: Strong volume driven by improving EU affordability, 26 Apr 2022
`
`
`
`Japan Tobacco Inc.: A quintessential ESG UW, 13 Apr 2022
`
` Philip Morris International Inc.: Exploring self-help options, 12 Apr 2022
`
`
`
`IMB: In-line FY22 trading update, significant share repurchases ahead, 06 Apr 2022
`
` Vector Group Ltd: Volume gains ahead; upgrade to OW, 31 Mar 2022
`
` BAT: Guidance intact ex discontinued Russia operations, 14 Mar 2022
`
` Global Tobacco: Oil price impact on US cig vols, 03 Mar 2022
`
` Turning Point Brands: Back to the drawing board, 24 Feb 2022
`
` British American Tobacco Plc: £11bn share repurchase over 4 years, 15 Feb 2022
`
` Swedish Match: The break-out year, 18 Jan 2022
`
` British American Tobacco Plc: BAT to accelerate to 9% EPS growth, 10 Jan 2022
`
` 22 for 2022 - Tobacco and Cannabis, 05 Jan 2022
`
` SWMA/Altria: Nicotine tax proposal is dropped, 10 Dec 2021
`
`
`
`IMB: Reiterates FY22 guidance, double-digit EPS growth from FY23 likely, 16 Nov 2021
`
` 2021 NYTS: JUUL, Vuse and blu likely to get tobacco e-cig PMTA's, 01 Oct 2021
`
` TPB: Cheapest play on cannabis growth, 26 Aug 2021
`
` STG: US strength continues but low long-term organic growth, 23 Aug 2021
`
` British American Tobacco Plc: Closing the growth gap vs PM, 30 Jul 2021
`
` Global Tobacco: Global tax plans for HNB and cigs, 23 Jun 2021
`
` US Tobacco: US cig pricing accelerates to 7%+, 18 Jun 2021
`
` PM/BATS: HNB market splits into premium and discount, 09 Jun 2021
`
`28 June 2022
`
`10
`
`

`

`Case 1:20-cv-00393-LMB-WEF Document 1469-8 Filed 04/05/23 Page 30 of 130 PageID#
`41207
`Barclays | British American Tobacco Plc
`
` Swedish Match: Where do margins go from here?, 04 May 2021
`
` Global Tobacco: Implications of a smoke-free future, 28 Apr 2021
`
` Global Tobacco: Analysing possible implications of a menthol ban, 26 Apr 2021
`
` Philip Morris International Inc.: Secular mid-teen EPS growth, 22 Apr 2021
`
` Global Tobacco: HNB tax advantage vs. cigs in Europe, 13 Apr 2021
`
` British American Tobacco Plc: HNB: Both challenge and opportunity, 19 Mar 2021
`
` Global oral nicotine market - focus on Denmark and Germany, 02 Mar 2021
`
` Philip Morris International Inc.: Double benefit from mix shift, 24 Feb 2021
`
` Philip Morris International Inc.: Can PM re-rate to 20x+ over 3 years?, 19 Jan 2021
`
` Philip Morris International.: Indonesia: A regulatory and ESG problem, 14 Jan 2021
`
` Turning Point Brands: Investing in growth, initiate with OW, 05 Oct 2020
`
` Global Tobacco: Biodiversity in focus, 24 Sep 2020
`
` Swedish Match: ZYN acceleration ahead; u/g to OW, 07 Sep 2020
`
` Global Tobacco: Downgrade Altria and Swedish Match, 08 Jul 2020
`
`
`
`Imperial Brands Plc: Less is more, 16 Jun 2020
`
` Tobacco ESG: Sustainability is the strategy, 24 Mar 2020
`
` Vaping epidemic and the fallacy of e-cig flavour bans, 21 Oct 2019
`
` Tobacco: Accelerating disruption; uncertain regulation, 23 May 2019
`
` Menthol