Case 1:20-cv-00393-LO-TCB Document 881-3 Filed 01/21/22 Page 1 of 6 PageID# 23566
`Case 1:20-cv-00393-LO-TCB Document 881-3 Filed 01/21/22 Page 1 of 6 PagelD# 23566
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`EXHIBIT 3
`EXHIBIT3
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`Case 1:20-cv-00393-LO-TCB Document 881-3 Filed 01/21/22 Page 1 of 6 PagelD# 23566
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`EXHIBIT 3
`EXHIBIT3
`(PUBLIC)
`(PUBLIC)
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`Case 1:20-cv-00393-LO-TCB Document 881-3 Filed 01/21/22 Page 2 of 6 PageID# 23567
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`RAI Strategic Holdings, Inc.
`and
`R.J. Reynolds Vapor Company
`v.
`Altria Client Services LLC,
`Philip Morris USA, Inc.,
` and Philip Morris Products S.A.
`
`
`Civil Action No. 1:20-cv-00393-LO-TC
`
`Amended and Supplemental Opening Expert Report
`of Paul K. Meyer
`
`TM Financial Forensics, LLC
`April 26, 2021
`
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`CONFIDENTIAL BUSINESS INFORMATION – SUBJECT TO THE PROTECTIVE ORDER
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`Case 1:20-cv-00393-LO-TCB Document 881-3 Filed 01/21/22 Page 3 of 6 PageID# 23568
`Case 1:20-cv-00393-LO-TCB Document 881-3 Filed 01/21/22 Page 3 of 6 PagelD# 23568
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`Table 14: Summary of First Hypothetical Negotiation
`
`Georgia-Pacific
`
`.
`
`Licensing history, comparable license
`agreements, and industry royalty rates
`
`Profitability ofproducts that practice the
`Asserted Patents and the competitive
`relationship of the parties to the hypothetical
`negotiation
`
`Factor 5
`
`The nature of the invention andits
`importance to the licensee and the Accused
`VUSEProducts
`
`;
`;
`Starting Point
`
`Neutral
`=
`Upward
`inenl
`
`727
`
`Upward
`Upward”28
`
`
`
`The nature and scope of the hypothetical
`license
`
`Upward
`
`512. Reasonable Royalty for the ’545 Patent:
`
`513. Opinion: The reasonable royalty to compensate PM USA for RJRV’s use of the
`technology claimedin the ’545 Patentis|net sales ofAccused VUSEProducts. The
`| royalty rate is based on the iz baseline royalty derived from my analysis of the
`and takes into account the adjustments set forth in my
`Georgia-Pacific analysis.’”? The appropriate royalty base for the 545 Patent is RIRV’s
`
`net sales of Power Units and Cartridges for the Accused VUSE Products beginning June
`29, 2014 and continuing through the expiration of the *545 Patent. Applying the Hi
`royalty rate to RIRV’s net sales ofAccused VUSE Products for the ’545 Patent fii
`BEbased on the sales data available to date), calculates royalty damages of Hl
`
`7 Prior to consideration of PMTAgrantrisk.
`?8 Prior to consideration of PMTAgrantrisk.
`9 Th
`reasonable royalty does not consider the position, and corresponding enhanced economic andfinancial
`risk to Reynolds, that it would be unlikely for the Accused VUSE Products to receive FDA PMTAauthorization
`withouta license to the ‘545 Patent.
`
`CONFIDENTIAL BUSINESS INFORMATION —___168 of 178
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`SUBJECT TO PROTECTIVE ORDER
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`Case 1:20-cv-00393-LO-TCB Document 881-3 Filed 01/21/22 Page 4 of 6 PageID# 23569
`Case 1:20-cv-00393-LO-TCB Document 881-3 Filed 01/21/22 Page 4 of 6 PagelD# 23569
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`a for a license to the technology claimed in the ’545 Patent through December31,
`2020.7%°
`
`514.
`
`In addition, thei reasonable royalty rate addressed above does not accountfor the °545
`Patent’s importance to the Accused VUSE Products receiving PMTA authorization from
`
`the FDA.
`
`I understand from Stacy Ehrlich that, without the battery safety features as
`
`expressed in the ‘545 Patent, it would be unlikely for the FDA to grant the VUSE
`
`PMTAs.”?!
`
`Pe In my opinion, when considering the significant importance of the
`technology claimed in the ’545 Patent to the PMTA authorization process (in addition to
`the considerations that formed mybasis for the a royalty rate), a a reasonable royalty
`rate would result from the hypothetical negotiation between the parties. From a royalty
`
`valuation and financial and economic perspective, the increased royalty is reasonable as
`
`it allows Reynolds to avoid identified PMTA authorization risks and considers: (1) the
`
`investments made by Reynolds in the Accused VUSE Products; (2) the significant
`
`commercial success achieved by the Accused VUSE Products including sales and market
`share;”*? and (3) RIRV’s investments in the accused product PMTAs.
`
`515. Applying 7 royalty rate to RJRV’s net sales ofAccused VUSEProducts for the ’545
`Patent ofFo (based on the sales data available to date), results in royalty
`damages iii for a license to the technology claimed in the ’545 Patent through
`December31, 2020.74
`
`30 Attachment 5A.U.
`731 Based on discussions with Mr. McAlexander: Based ondiscussions with Ms. Ehrlich.
`732
`
`.
`
`
`See Attachments 6, 12.1.U and Attachment 17.Useries.
`4 Attachment 5A.U.
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`CONFIDENTIAL BUSINESS INFORMATION —__
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`169 of 178
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`SUBJECT TO PROTECTIVE ORDER
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`Case 1:20-cv-00393-LO-TCB Document 881-3 Filed 01/21/22 Page 5 of 6 PageID# 23570
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`516. To the extent the trier of fact determines the ’545 Patent to be enforceable, valid, and
`infringed by RJRV, it is my opinion that an ongoing running reasonable royalty rate
`applied to RJRV’s relevant net sales of Power Units and Cartridges for the Accused
`VUSE Products would be appropriate for the ’545 Patent. I reserve my right to render an
`opinion on a post-verdict royalty rate for the ’545 Patent.
`2. The Second Hypothetical Negotiation
`517. The Second Hypothetical Negotiation would occur in August 2018 and involve PMP and
`RJRV negotiating a license to the’265, ’911 and ’556 Patents. In the sections below, I
`discuss my analysis of the Georgia-Pacific factors and their influence on the baseline
`royalty rates for these patents.
`
`a. The ’265 Patent
`518. As discussed above in Section VI.D.2, RJRV, a party at the hypothetical negotiation,
`entered into an agreement with Fontem that included a license to patents that cover
`technology (the Air Channel Family) comparable to the technology claimed in the ’265
`Patent.
`
`519. As discussed above, I used the Fontem-RJRV Agreement to calculate a baseline royalty
`of
` based on the relative value of the technology claimed in the ’265 Patent.
`
`520. In addition, as discussed above, I used the
`baseline royalty rate of
`the technology claimed in the ’265 Patent.
`
` to determine a
` based on the relative value of
`
`521. Table 15 below summarizes my analysis of the Georgia-Pacific factors and their
`influence on the baseline royalty rate for the ’265 Patent.
`
`
`
`
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`CONFIDENTIAL BUSINESS INFORMATION – 170 of 178
`SUBJECT TO PROTECTIVE ORDER
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`Case 1:20-cv-00393-LO-TCB Document 881-3 Filed 01/21/22 Page 6 of 6 PageID# 23571
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`Summary of Royalties through December 31, 2020
`
`Attachment 5A.U
`
`[A]
`
`[B]
`
`[C]=[A]*[B]
`
`U.S Patent No.
`
`6,803,545
`
`9,814,265
`
`10,104,911
`
`10,420,374
`
`10,555,556
`
`Total
`
`[2]
`
`[3]
`
`[4]
`
`[5]
`
`[6]
`
`Notes:
`[1] Based on discussions with Mr. McAlexander, Dr. Abraham and Dr. Walbrink.
`[2] Attachment 12B.U.
`[3] Attachment 13.U.
`[4] Attachment 14.U.
`[5] Attachment 15A.U.
`[6] Attachment 16.U.
`[7] Meyer Report: Table 1.
`
`
`
`
`
`
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`CONFIDENTIAL BUSINESS INFORMATION -
`SUBJECT TO PROTECTIVE ORDER
`
`Page 1 of 1
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