Case 1:20-cv-00393-LO-TCB Document 491-11 Filed 03/12/21 Page 1 of 15 PageID# 11092
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`Exhibit K
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`Exhibit K
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`Case 1:20-cv-00393-LO-TCB Document 491-11 Filed 03/12/21 Page 2 of 15 PageID# 11093
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`UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF VIRGINIA
`
`RAI STRATEGIC HOLDINGS, INC.
`et al.,
`Plaintiffs,
`v.
`ALTRIA CLIENT SERVICES, LLC
`et al.,
`Defendants.
`TRANSCRIPT OF MOTION HEARING PROCEEDINGS
`BEFORE THE HONORABLE THERESA C. BUCHANAN,
`UNITED STATES DISTRICT COURT MAGISTRATE JUDGE
`
`)))))))))))))
`
`Civil Action
`No. 1:20-cv-00393-LO-TCB
`October 15, 2020
`10:00 a.m.
`
`APPEARANCES:
`For the Plaintiffs:
`
`Charles Bennett Molster, III, Esq.
`The Law Offices of Charles B.
`Molster III, PLLC
`2141 Wisconsin Ave NW, Suite M
`Washington, DC 20007
`703-346-1505
`Email: Cmolster@molsterlaw.com
`Sanjiv Prakash Laud, Esq.
`Jones Day
`90 South Seventh Street,
`Suite 4950,
`Minneapolis, MN, 55402
`612-217-8800
`Email: Slaud@jonesday.com
`Amelia Allison DeGory, Esq.
`Jones Day
`51 Louisiana Ave., N.W.,
`Washington, D.C. 20001-2113
`202-879-3939
`Email: Adegory@jonesday.com
`
`(703)549-4626 * scottwallace.edva@gmail.com
`
`
`
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`2
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`APPEARANCES: (Cont.)
`For the Defendants:
`
`Official Court
`Reporter:
`
`Maximilian Antony Grant, Esq.
`Latham & Watkins LLP (DC)
`555 11th St NW, Suite 1000
`Washington, DC 20004-1304
`202-637-2200
`Fax: 202-637-2201
`Email: Max.grant@lw.com
`Clement Joseph Naples, Esq.
`Latham & Watkins, LLP
`885 Third Avenue 25th Floor
`New York, NY 10022
`212-906-1200
`Email: Dement.naples@lw.com
`Will Orlady, Esq.
`Lathan & Watkins, LLP
`555 Eleventh Street, Suite 1000,
`Washington, D.C. 20004
`202-637-2200
`Email:will.orlady@lw.com
`Scott L. Wallace, RDR, RMR, CRR
`Official Court Reporter
`United States District Court
`401 Courthouse Square
`Alexandria, VA 2231-5798
`703.549.4626
`scottwallace.edva@gmail.com
`
`Proceedings reported by machine shorthand, transcript produced
`by computer-aided transcription.
`
`(703)549-4626 * scottwallace.edva@gmail.com
`
`
`
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`THURSDAY MORNING SESSION, OCTOBER 15, 2020
`(10:00 a.m.)
`THE COURTROOM CLERK: RAI Strategic Holdings, Inc., et
`al., versus Altria Client Services, LLC, et al., Case 20-cv-393.
`Counsel, please note your appearances for the record.
`MR. MOLSTER: Good morning, Your Honor.
`THE COURT: Good morning.
`MR. MOLSTER: Charles Molster on behalf of the Reynolds
`plaintiffs. With me at counsel table is Sanjiv Laud, who's a
`member in good standing of the Bar of D.C. and Minnesota and has
`been admitted pro hac vice in this case. With the Court's
`permission, Sanjiv will argue both of the motions for leave to
`amend.
`THE COURT: All right.
`MR. MOLSTER: Also with me is Amelia DeGory from the D.C.
`office of Jones Day. She's a member of the D.C. Bar and
`Pennsylvania Bar, and she has a pending pro hoc vice motion. And
`with the Court's permission, Ms. DeGory will argue the motion to
`compel source code.
`THE COURT: Thank you. And I have signed, by the way, all
`of the recently submitted motions to be admitted pro hoc vice.
`MR. MOLSTER: Thank you, Your Honor.
`THE COURT: Okay.
`MR. GRANT: Good morning, Your Honor.
`THE COURT: Good morning.
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`MR. GRANT: Max Grant on behalf of the defendants and the
`counter plaintiffs, and with me are my two colleagues, Clem
`Naples, who will argue the motions to amend, and Will Orlady, who
`will argue the motion to compel the source code, and they're also
`admitted pro hoc.
`THE COURT: All right. Let me first off just with the
`motions for leave to amend, I have read all of the pleadings on
`both of those motions. I can't find that either proposed
`amendments are futile. We're still early in the game, and I
`think they both need to be allowed. I don't think that there's
`any real deficiency with regard to those pleadings. So, I'm
`going to go ahead and grant both of those motions, and I don't
`need argument on that. Let's deal next with the motion to
`compel.
`MR. GRANT: Okay. Mr. Orlady -- My fault, Your Honor.
`THE COURT: That's okay. When you're at the podium --
`MR. GRANT: {Indiscernible}.
`THE COURT: I understand. I understand.
`MR. ORLADY: Good morning, Your Honor. Will Orlady from
`Latham Watkins on behalf of the defendants and counterclaim
`plaintiffs. Just before we begin, I do have with me courtesy
`copies of our reply brief that we filed.
`THE COURT: I read it already.
`MR. ORLADY: Okay. Very well.
`THE COURT: I did have one question for you. I went
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`through all the exhibits, and Exhibit 6 was the First Union
`agreement; 7 was Smoore. Those two dealt with Ciro and Alto, and
`then Shenzhen produces -- is it Vuse? I'm sorry, I can't even
`read my own writing anymore. So which -- I didn't see that as an
`exhibit, though, their agreement, but I think you mentioned that
`it was a similar agreement. Which one was it similar to?
`MR. ORLADY: Yes, Your Honor. What we have in our
`possession right now are the contracts that have been attached to
`the brief as exhibits.
`THE COURT: Um-hmm.
`MR. ORLADY: That is the Smoore agreement which pertains
`to the Vuse Alto.
`THE COURT: Right.
`MR. ORLADY: And then the first -- the Shenzhen First
`Technology, which pertains to the Ciro. The Vibe agreement,
`which is the third product --
`THE COURT: Wait a minute. Now I'm confused again.
`MR. ORLADY: Yep.
`THE COURT: First Union was Ciro; is that right?
`MR. ORLADY: That's correct.
`THE COURT: And Smoore is Alto?
`MR. ORLADY: That's correct.
`THE COURT: And Shenzhen is Vuse?
`MR. ORLADY: Shenzhen Happy Technology is the Vuse Vibe.
`THE COURT: Okay. So, do you have that agreement?
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`Because I did not see that as an exhibit.
`MR. ORLADY: We do not have that agreement, Your Honor.
`It's not been produced to us.
`THE COURT: Okay. All right. But is your understanding
`that it's similar to the other agreements?
`MR. ORLADY: That's correct, Your Honor. It is our
`understanding that that is similar. I would point out, though,
`that it was discussed in the opposition that plaintiffs filed
`in -- for the proposition that it was not supportive of the
`arguments we were making that Reynolds has control over the
`source code in question.
`THE COURT: Right.
`MR. ORLADY: The fact that we've not received the
`agreement, though, is, in our view, problematic given that now
`we're discussing it in a brief.
`THE COURT: Okay. All right. Did you have anything to
`add to your motion, then?
`MR. ORLADY: We would like to make a few points. The
`first is that we moved the Court for production of this source
`code, and in their opposition Reynolds does not dispute critical
`facts; that the source code is relevant; that the requested
`source code is custom, not off-the-shelf; that Reynolds prepares
`the requirements and statements of work that govern how the
`source code is created; that the source code is produced
`exclusively for Reynolds by the suppliers; and that the suppliers
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`cannot materially change the source code without Reynolds'
`consent; and that Reynolds has continuous access to the
`suppliers' facilities, and continued managerial oversight as
`stated in the premarket tobacco application that they filed with
`FDA.
`
`And, Your Honor, we want to highlight the fact that,
`despite all of these facts not being in dispute, there's also no
`dispute that Reynolds at this time has not requested the source
`code we've been disputing.
`THE COURT: Okay. Thank you.
`MR. ORLADY: And that is, in our view, inconsistent with
`Rule 34 pursuant to the cases that we provided to the Court in
`our reply brief.
`THE COURT: All right. Thank you. Let me hear from the
`plaintiff.
`MS. DeGORY: Good morning, Your Honor.
`THE COURT: Good morning.
`MS. DeGORY: Amelia DeGory for the plaintiffs.
`THE COURT: Good morning. Did you have anything that you
`wanted to add to your opposition? I read it.
`MS. DeGORY: I just would like to highlight a response to
`what my colleague just shared, which is that none of the items
`that he identifies as allegedly not in dispute show that my
`client has control over the source code that its suppliers used
`to develop products according to Reynolds' specifications. And
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`the exhibits, the supplier agreements also do not show that
`Reynolds has control over that source code.
`THE COURT: I assume that Reynolds prepared these supplier
`agreements, didn't it?
`MS. DeGORY: Um, I don't know for sure, but that would be
`my guess, Your Honor.
`THE COURT: That would be my guess, too. Okay.
`MS. DeGORY: So, when the suppliers create the source
`code, which is readable by humans but not computers and then
`transferred into the computer 001 code, and then it goes into a
`chip that Reynolds can then test in its facility to make sure
`that it's complying with the specifications that it gave to the
`suppliers, that does not mean that Reynolds controls the source
`code. That is the supplier's proprietary IP, and Reynolds --
`THE COURT: I understand that that is their proprietary
`IP, but from what I understand what you're say now, Reynolds does
`have the ability to, essentially, inspect the source code to make
`sure that it is compliant with the specifications that Reynolds
`has given the supplier.
`MS. DeGORY: Not quite, Your Honor. It's my understanding
`that Reynolds has the right to inspect the final output that the
`source code creates. So, when they program the chip using the
`source code, if they send the chip to Reynolds, Reynolds can
`verify this chip is doing what we want, it's regulating the power
`in the way that we asked them to design it to do, but that
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`doesn't give Reynolds the right to demand and inspect the source
`code itself.
`THE COURT: Well, then, what would be the point of Section
`5 that both of these agreements have -- both of these agreements
`has, that clearly provides for -- or anticipates sharing
`confidential information, including, it says, "confidential
`business and technical information, matters that are considered
`proprietary to it, highly sensitive and valuable trade secrets,
`specifically trade secrets." That seems to me right on point
`with what a source code is, and it seems to me that the parties
`have already anticipated that they would be exchanging or that
`Reynolds would have the ability to look at the source code.
`MS. DeGORY: Your Honor, my understanding is that Reynolds
`does not have the ability to actually look at the source code.
`THE COURT: Well, what's your understanding based on?
`MS. DeGORY: That's based on the supply agreements, the
`documents, the internal documents that my colleagues have
`attached as exhibits.
`THE COURT: And Reynolds has not discussed this with their
`suppliers, have they?
`MS. DeGORY: No.
`THE COURT: Why not?
`MS. DeGORY: Your Honor, I don't believe the caselaw
`requires Reynolds to ask the suppliers to produce the source
`code.
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`THE COURT: Okay. Okay. Anything else?
`MS. DeGORY: No, Your Honor.
`THE COURT: Thank you. And let me just ask you one other
`question. The Shenzhen agreement as to Vuse is similar to which
`one of these agreements? Is it the one with Smoore or the one
`with First Union or is it --
`MS. DeGORY: So, I believe Your Honor is referring to the
`agreement with Happy Vaping for the Vibe product.
`THE COURT: Did I write -- excuse me, hold on a minute.
`You know, not being familiar with vape, vapes --
`MS. DeGORY: I think we're in the same boat, Your Honor.
`I think all these products would be called Vuse, and so my
`colleagues can correct me if I --
`THE COURT: Right, okay. I kept going back and forth
`trying to find the third one, so that is Vype?
`MS. DeGORY: Right.
`THE COURT: Okay. And what agreement is that similar to?
`MS. DeGORY: So, I have not reviewed the agreement because
`we've been waiting on a third party authorization to be able to
`produce the agreement which Reynolds will be doing this week.
`THE COURT: So, you haven't even looked at it?
`MS. DeGORY: I have not, Your Honor.
`THE COURT: Okay. And I assume, though, that that was
`probably drafted in the same manner that these were drafted by
`Reynolds?
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`MS. DeGORY: It would not surprise me if they were.
`THE COURT: All right. Thank you very much. All right.
`I find that, pursuant -- both agreements that we have, and I
`assume that the Shenzhen Happy whatever agreement as to the Vype
`product, which you've admitted is virtually the same as these
`others, they -- both of those agreements have the provision in
`5.1 that I believe clearly anticipates the sharing or inspection
`by Reynolds of source code. It's, as I mentioned before, as I
`read before, technical information, matters that are considered
`proprietary, highly sensitive and valuable trade secrets, that's
`clearly source code.
`The Smoore agreement, as to Alto, specifically provides in
`Section 6.1E that they will provide assistance in defense of
`litigation. And it's clear that the vendor owns that
`intellectual property, but that doesn't mean that they don't
`anticipate sharing the source code. I think Reynolds, by all of
`the terms of these agreements, clearly has a right to inspect the
`source code, and since this agreement -- these agreements were
`probably, we all think, drafted by Reynolds, sort of admitted by
`Reynolds, I think that this needs to be construed in a manner
`that would be really not in their favor here. I think that
`there's no question but that these suppliers would turn over the
`source code when requested by Reynolds. I really -- and the fact
`that Reynolds hasn't even asked, I think, is rather telling.
`I think that you do have control over the ability to
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`produce the source code. I am going to grant the motion. I'm
`going to order Reynolds to produce the source code to be
`inspected in a manner that you've inspected the other source
`codes.
`I would think that you could get this done within a couple
`of weeks. Is there any reason that you think that this couldn't
`be done within two weeks?
`MR. LAUD: Good morning, Your Honor.
`THE COURT: Good morning.
`MR. LAUD: Sanjiv Laud on behalf of Reynolds, just to
`speak to this question. I don't know that it will take longer
`than a few weeks, but we'll have to see what the suppliers say
`when we request the source code, so --
`THE COURT: Listen. What I don't want here is
`gamesmanship. I don't see that this should take more than two
`weeks, and if it takes more than two weeks, then I want some
`explanation as to why it does.
`MR. LAUD: Absolutely, Your Honor.
`THE COURT: Okay. But I don't think it should, and I
`expect Reynolds to comply with that order. Now, let's deal with
`the letter that I got. And let me tell you all that this Court
`generally does not rule on letters; we discourage them, and we
`usually want motions, and to get one late last night that, you
`know, that you want me to deal with today is really not something
`that we usually do, but I do have the response. And did you want
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`to say something as to that?
`MR. MOLSTER: No, Your Honor. I just wanted to confirm
`that we did respond to it.
`THE COURT: Yes, and I read it this morning. I did read
`it this morning.
`MR. MOLSTER: Thank you.
`THE COURT: Let me ask Reynolds when you anticipate
`finalizing the claim terms. Do you anticipate doing that
`tomorrow?
`MR. LAUD: Yes, we do, Your Honor.
`MR. MOLSTER: I'm not sure it will be finalized by
`tomorrow. She's asking finalized.
`THE COURT: The number, which claim terms you want to
`have --
`MR. MOLSTER: We can get it done by 5 tomorrow.
`THE COURT: By 5 p.m. Well, then, I'm going to order that
`whatever the claim terms are you say that need to be part of the
`Markman hearing, at 5:00 p.m. tomorrow will be fully briefed by
`both parties so that you cannot cut back after 5:00 tomorrow,
`okay. Is there anything else?
`MR. MOLSTER: No, Your Honor, thank you for your time.
`MR. GRANT: Thank you, Your Honor, and I apologize for the
`letter, but I appreciate the Court's guidance.
`THE COURT: I understand, but it seems this could have
`been raised a week ago probably. But at any rate, we really
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`don't like -- we don't favor letters in this -- I know other
`courts do, but we don't. But I want to tell you all you all are
`fighting a lot already, and I understand the history between
`these parties, and I know that this is valuable patents that
`we're speaking of here, but this Court, and I'm sure your local
`counsel can tell you, really hate gamesmanship, and I expect the
`parties to try to cooperate and work together, and I hope I don't
`have to have you in every Friday on motions. All right. Is
`there anything else today?
`MR. ORLADY: No, Your Honor, thank you.
`MR. GRANT: Thank you.
`MR. MOLSTER: Thank you.
`THE COURT: All right. Thank you. Court stands in
`recess.
`(Proceedings adjourned at 10:17 a.m.)
`
` C E R T I F I C A T E
`
` I, Scott L. Wallace, RDR-CRR, certify that
`the foregoing is a correct transcript from the FTR
`recording of proceedings in the above-entitled matter.
`
`10/19/20
` /s/ Scott L. Wallace
` ---------------------------- ----------------
` Scott L. Wallace, RDR, CRR
` Date
` Official Court Reporter
`
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