Case 1:20-cv-00393-LO-TCB Document 911 Filed 01/21/22 Page 1 of 31 PageID# 25598
`
`
`
`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
`
`
`
`
`
`
`
`
`
`BRIEF 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 911 Filed 01/21/22 Page 2 of 31 PageID# 25599
`Case 1:20-cv-00393-LO-TCB Document 911 Filed 01/21/22 Page 2 of 31 PagelD# 25599
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`TABLE OF CONTENTS
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`Page
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`I.
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`Il.
`
`INTRODUCTION0000... ccc cc ccccccc ccc ceccccccceeeccccceeeccccceecccccuecccccueeeccecueeecceueeececsueeeecseneeeecseeeeees 1
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`‘)
`
`tn
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`B.
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`The Opinions Of PMI/Altria’s Damages Expert, Paul Meyet....................:::::000-5
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`1.
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`2:
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`Mr. Meyer’s Reasonable Royalty Opimions...............0....0:ccesceeeeeeeeeeeeeeeteeeeee
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`Mr. Meyer’s Opinions On RJR’s Theoretical Design Arounds................... 6
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`C.
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`Dr. Sullivan’s Rebuttal Damages Opimions...................ecccceeceeseceesceeseeeseceeeeeeseeesees 7
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`L,
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`2
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`Dr. Sullivan’s Opinions For The 545, 7911, ’265, And °374
`PGRNMANS icicicscsaacce 7
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`Dr. Sullivan’s Design Around Opimions................0..cccceccceseceeeeeeeeeeseeeeeeees9
`
`Il.
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`BIGaTacaesar ea emia 10
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`A.
`
`B.
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`Admissibility Of Expert Testimony ...................ecccecceeceeseeeseeeeeeseeeeeeeeeeseeeseeeenseeeees 10
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`Expert Testimony On Reasonable Royalty Damages Must Be “Tied To
`The Facts” Of The Case .............cccceccesceeseeeseeseeeseeseeeseeseeseceseeeseeseeeaeeeaeeeeseaeeeseeeees 11
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`IV.
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`FARUMIBINGY ee scencrrnereersmerneriesmepy npr ne megimsy preemies prope agent py mer memes open ese ey 11
`
`A.
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`Dr. Sullivan’s Reliance On A
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`Renders His Opinions For The *545,
`7911, ’265, And ’374 Patents Unreliable 2000.........0ccceccccecccecccceeeeeeeecceecccecceeeeeececeeees 11
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`B.
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`Dr. Sullivan’s
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`RIS cee eecre cence mene meecescie ces iee EIS UERES ETERS SEES SEES EERIE 18
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`And The Facts Of This
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`€:
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`Dr. Sullivan’s Design-Around Opinions Are Based On Flawed
`ASSUMPTIONS... 2... .ceeeeeeeceeeceeeeeceeesecessecssecesseessceessecsaecesaeceseseseeeesecesseesaeeesseeeeeees 19
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`V. CeIN oi cstscs nina nine tininninaimcuacis minus ReR Tate timisinaicai cmc eeTsticisiRiiin 24
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`

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`Case 1:20-cv-00393-LO-TCB Document 911 Filed 01/21/22 Page 3 of 31 PageID# 25600
`
`
`
`TABLE OF AUTHORITIES
`
`CASES
`
`Acceleration Bay LLC v. Activision Blizzard Inc.,
`No. 16-cv-453, 2019 WL 4194060 (D. Del. Sep. 4, 2019) ....................................................... 20
`
`Aqua Shield v. Inter Pool Cover Team,
`774 F.3d 766 (Fed. Cir. 2014) ............................................................................................. 11, 20
`
`AstraZeneca AB v. Apotex Corp.,
`782 F.3d 1324 (Fed. Cir. 2015) ................................................................................................. 23
`
`Baltimore Aircoil Co., Inc. v. SPX Cooling Techs. Inc.,
`No. 13-cv-2053, 2016 WL 4426681 (D. Md. Aug. 22, 2016),
`aff’d, 721 F. App’x 983 (Fed. Cir. 2018) ...................................................................... 12, 13, 18
`
`Bayer HealthCare LLC v. Baxalta Inc.,
`No. 16-cv-1122, 2019 WL 330149 (D. Del. Jan. 25, 2019) .................................................. 1, 12
`
`Cooper v. Smith & Nephew, Inc.,
`259 F.3d 194 (4th Cir. 2001) ............................................................................................... 10, 11
`
`Datascope Corp. v. SMEC, Inc.,
`879 F.2d 820 (Fed. Cir. 1989) ................................................................................................... 21
`
`Daubert v. Merrell Dow Pharms.,
`509 U.S. 579 (1993) .................................................................................................................. 11
`
`DePuy Spine, Inc. v. Medtronic Sofamor Danek, Inc.,
`567 F.3d 1314 (Fed. Cir. 2009) ................................................................................................. 20
`
`DUSA Pharms., Inc. v. Biofrontera Inc.,
`495 F. Supp. 3d 21 (D. Mass. 2020) ................................................................................ 3, 20, 22
`
`ePlus, Inc. v. Lawson Software, Inc.,
`764 F. Supp. 2d 807 (E.D. Va. 2011), aff’d, 700 F.3d 509 (Fed. Cir. 2012) ..................... passim
`
`Exmark Mfg. Co. v. Briggs & Stratton Power Prods. Grp., LLC,
`879 F.3d 1332 (Fed. Cir. 2018) ..................................................................................... 11, 18, 19
`
`In re Lipitor (Atorvastin Calcium) Mktg., Sales Practices & Prods. Liab. Litig.,
`174 F. Supp. 3d 911 (D.S.C. 2016) ........................................................................................... 15
`
`Kumho Tire Co. v. Carmichael,
`526 U.S. 137 (1999) ............................................................................................................ 10, 17
`
`ii
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`

`

`Case 1:20-cv-00393-LO-TCB Document 911 Filed 01/21/22 Page 4 of 31 PageID# 25601
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`
`
`LaserDynamics, Inc. v. Quanta Computer, Inc.,
`No. 06-cv-348, 2011 WL 197869 (E.D. Tex. Jan. 20, 2011) .................................. 20, 21, 22, 23
`
`Lucent Techs., Inc. v. Gateway, Inc.,
`580 F.3d 1301 (Fed. Cir. 2009) ................................................................................................. 12
`
`Mars, Inc. v. Coin Acceptors, Inc.,
`527 F.3d 1359 (Fed. Cir. 2008) ................................................................................................. 20
`
`Pavo Sols. LLC v. Kingston Tech. Co.,
`No. 14-cv-1352, 2019 WL 8138163 (C.D. Cal. Nov. 20, 2019) ................................... 12, 13, 14
`
`ResQNet.com, Inc. v. Lansa, Inc.,
`594 F.3d 860 (Fed. Cir. 2010) ................................................................................................... 14
`
`Sherwin-Williams Co. v. PPG Indus., Inc.,
`No. 17-1023, 2020 WL 1283465 (W.D. Pa. 2020) ................................................................... 24
`
`Smart Skins LLC v. Microsoft Corp.,
`No. 15-cv-544, 2016 WL 4148091 (W.D. Wash. July 1, 2016) ............................................... 20
`
`Sound View Innovations, LLC v. Hulu, LLC,
`No. 17-cv-4146, 2019 WL 9047211 (C.D. Cal. Nov. 18, 2019) ............................................... 21
`
`SPEX Techs. v. Apricorn, Inc.,
`No. 16-cv-7349, 2020 WL 1289546 (C.D. Cal. Jan. 21, 2020) ................................................ 20
`
`SynQor, Inc. v. Artesyn Tech., Inc.,
`709 F.3d 1365 (Fed. Cir. 2013) ................................................................................................. 23
`
`TecSec, Inc. v. Adobe Sys., Inc.,
`No. 10-cv-115, Dkt. 1152 (E.D. Va. June 8. 2018) ................................................................... 18
`
`Trudell Med. Int’l v. D R Burton Healthcare, LLC,
`No. 18-cv-9, 2021 WL 684200 (E.D.N.C. Feb. 22, 2021) ........................................................ 14
`
`Uniloc USA, Inc. v. Microsoft Corp.,
`632 F.3d 1292 (Fed. Cir. 2011) ........................................................................................... 11, 18
`
`Webasto Thermo & Comfort N. Am., Inc. v. BesTop, Inc.,
`No. 16-cv-13456, 2019 WL 3334563 (E.D. Mich. July 25, 2019)............................................ 21
`
`Whitserve, LLC v. Computer Packages, Inc.,
`694 F.3d 10 (Fed. Cir. 2012) ..................................................................................................... 12
`
`STATUTES
`
`35 U.S.C. § 284 ............................................................................................................................. 11
`
`iii
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`Case 1:20-cv-00393-LO-TCB Document 911 Filed 01/21/22 Page 5 of 31 PageID# 25602
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`
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`RULES
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`FED. R. EVID. 403 .......................................................................................................................... 24
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`FED. R. EVID. 702 .......................................................................................................................... 11
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`iv
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`Case 1:20-cv-00393-LO-TCB Document 911 Filed 01/21/22 Page 6 of 31 PageID# 25603
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`
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`I.
`
`INTRODUCTION
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`RJR’s damages expert, Ryan Sullivan, opines that a
`
`
`
` across all five Asserted Patents is “reasonable” to compensate PMI/Altria for RJR’s
`
`infringement. To arrive at his
`
`, Dr. Sullivan arbitrarily relies on a
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`
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`the facts of this case. Dr. Sullivan compounds that error by opining that his royalty rates for the
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`that cannot be squared with
`
`’265 and ’911 Patents are an “upper bound” on damages, based on
`
`
`
`. Because
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`Dr. Sullivan’s opinions regarding four of the five Asserted Patents1 fail to meet the requirements
`
`of Daubert and Rule 702, they should be excluded for three reasons.
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`First, Dr. Sullivan bases his reasonable royalty for the ’545, ’374, ’265, and ’911 Patents
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`on an
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`.2 Dr. Sullivan does so by arbitrarily relying on an
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`. In so doing, Dr. Sullivan ignores entirely (without any
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`plausible, let alone reliable, explanation) an
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`
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` and produced in this case, which RJR’s own financial employee
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` to calculate damages for the ’556 Patent.
`
`
`1 Dr. Sullivan does not use the
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`2 Although not the basis for this Motion,
` requires enhanced scrutiny generally in light of the probative concerns regarding such
`analyses and the assumptions underlying them. See ePlus, Inc. v. Lawson Software, Inc., 764 F.
`Supp. 2d 807, 814 (E.D. Va. 2011), aff’d, 700 F.3d 509 (Fed. Cir. 2012) (“[L]ump sum settlement
`agreements have minimal, if any, probative value in establishing a reasonable running royalty.”);
`Bayer HealthCare LLC v. Baxalta Inc., No. 16-cv-1122, 2019 WL 330149, at *5 (D. Del. Jan. 25,
`2019) (explaining that lump sum and running royalties “rely on different considerations and have
`fundamental differences”).
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`
`
`

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`
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`(on whom Dr. Sullivan elsewhere relies) testified was
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`. The
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`. As a consequence, Dr. Sullivan’s
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`corresponding running royalty calculation is wildly diluted. Dr. Sullivan’s opinions, based on
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`fiction and failed assumptions rather than the admitted, real-world
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`
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`must be precluded in keeping with the Court’s gate-keeping function regarding expert testimony.
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`Second, Dr. Sullivan’s
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`It cannot be. Dr. Sullivan’s failure to address, let alone give weight to, this
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` further confirms the inherent unreliability of Dr. Sullivan’s contrived analysis,
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`Third, Dr. Sullivan opines that his royalty rates for the ’265 and ’911 Patents are an “upper
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`bound” on damages because,
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`, according to Dr. Sullivan), RJR
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`
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`alternative if it does not have FDA approval,” as it would not be “available.” DUSA Pharms., Inc.
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`. But a product “is not an acceptable non-infring[ing]
`
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`3 Nu Mark is a former affiliate of Altria Client Services LLC (“ACS”) and Philip Morris USA Inc.
`(“PM USA”) that sold e-vapor products in the United States.
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`2
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`
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`v. Biofrontera Inc., 495 F. Supp. 3d 21, 30 (D. Mass. 2020). As Dr. Sullivan and RJR’s corporate
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`witness admit,
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` Dr. Sullivan’s reliance on a purported non-infringing alternative that was
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` is further grounds for precluding his opinions as inherently unreliable.
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`The Court should exclude Dr. Sullivan’s unreliable damages opinions for the ’545, ’374,
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`’911, and ’265 Patents.
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`II.
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`FACTUAL BACKGROUND
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`PMI/Altria assert five patents against RJR’s VUSE Solo, Ciro, Vibe, and Alto e-vapor
`
`products (“Accused Products”): U.S. Patent Nos. 6,803,545 (“the ’545 Patent”), 10,420,374 (“’374
`
`Patent”), 9,814,265 (“’265 Patent”), 10,104,911 (“’911 Patent”) and 10,555,556 (“’556 Patent”).
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`Dkts. 65, 66. PMI/Altria assert the ’556 and ’265 Patents against the Vibe and Alto, respectively,
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`and the other three asserted patents against all four Accused Products. See generally id.
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`A.
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`Both parties’ damages expert rely on
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` Ex. 1 (Gilley Dep.) at 211:23-212:8; Ex. 5 (Sullivan Rbt.)
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`¶ 217.
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`. Ex. 4 (Sullivan Dep.) at 215:7-10.
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`. Ex. 2 (Meyer Op.) ¶¶ 197, 245.
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`3
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`Case 1:20-cv-00393-LO-TCB Document 911 Filed 01/21/22 Page 9 of 31 PageID# 25606
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`Id. 99 248-51.
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`. Id.§6.10.
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`. Ex. 3 § 6.10.9.
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`Id. §§ 6.10.2, 6.10.3.
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`(Sullivan Dep.) at 205:8-13, 207:18-209:6, 213:19-214:6.
`
`See id. § 6.10.4; Ex. 4
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`Ex. 3 § 6.10.4; Ex. 4 (Sullivan Dep.) at 213:6-18.
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`a. Ex. 4 (Sullivan Dep.) at 214:22-215:10.
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`

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`Case 1:20-cv-00393-LO-TCB Document 911 Filed 01/21/22 Page 10 of 31 PageID# 25607
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`
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` See id. at 209:14-210:6, 214:17-21.
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`2.
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`. Ex. 11 §§ 1.30, 3.1; Ex. 2 (Meyer Op.) ¶¶ 196-99.
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`4 (Sullivan Dep.) at 113:12-19.
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`113:12-15.
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`. Id. at 67:5-11.
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` Ex.
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`. Id. at
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` Id. at 82:18-83:16, 84:4-85:4; see also id. at 85:9-22 (’545
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`Patent), 88:17-21 (’265 Patent), 89:13-90:3 (’911 Patent); Ex. 5 (Sullivan Rbt.) ¶ 263.
`
`B.
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`The Opinions Of PMI/Altria’s Damages Expert, Paul Meyer
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`PMI/Altria’s damages expert, Paul Meyer, calculates a reasonable running royalty rate for
`
`the five Asserted Patents. For the ’545, ’911, and ’265 Patents, he calculates a baseline royalty
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`rate and adjusts those baseline rates in view of his analysis of the 15 Georgia Pacific factors.
`
`1.
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`Mr. Meyer’s Reasonable Royalty Opinions
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`Because there is
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`. Ex. 2 (Meyer Op.) ¶ 266. He explains that
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`5
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`Case 1:20-cv-00393-LO-TCB Document 911 Filed 01/21/22 Page 11 of 31 PageID# 25608
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`. See Ex. 3 (
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`) at cover, § 6.10.9; Ex.
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`6 (Meyer Dep.) at 58:24-59:19. Based on input from PMI/Altria’s technical experts, Mr. Meyer
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`
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`81. Mr. Meyer then
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`
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`. Ex. 2 (Meyer Op.) ¶¶ 271-
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` Id. ¶¶ 313-14.
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`2.
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`Mr. Meyer’s Opinions On RJR’s Theoretical Design Arounds
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`Mr. Meyer addressed RJR’s design arounds to the ’265 and ’911 Patents when analyzing
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`Georgia-Pacific Factor 9. Id. ¶¶ 438-39, 449-51. These design arounds
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`. Ex. 7 (Hunt Dep.) at 300:5-301:13, 363:6-15, 367:7-369:10, 370:6-22;
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`Ex. 4 (Sullivan Dep.) at 292:16-294:18. While RJR contends the
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`. Ex. 4 (Sullivan Dep.) at 297:17-299:22, 300:17-301:6.
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`Mr. Meyer explains, based on his conversations with PMI/Altria’s FDA expert, Stacy
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`Ehrlich, that
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`Ex. 8 (Ehrlich Op.) ¶¶ 21, 28.
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`. Ex. 2 (Meyer Op.) ¶ 486.
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` See Ex. 5 (Sullivan Rbt.) ¶¶ 24-26;
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`. See, e.g., Ex. 4 (Sullivan Dep.) at 291:16-292:15 (admitting
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`); Ex. 7 (Hunt Dep.) at
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`6
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`Dr.Sullivan adn(ti
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`(Sullivan Dep.) at 294:3-9. Mr. Meyer explained that RJR neverdisclosed, in discovery or
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`oth,
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`Pe Ex. 2 (MeyerOp.) § 486. Because there is no evidence that
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`any Redesigned Product for the ’265 and ’911 Patents would have been “available”at the time of
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`the hypothetical negoi\ons,nd
`eex. 4 (Sullivan Dep.) at 281:1-6), Mr. Meyer found that Georgia Pacific
`ocr 9I E> (sever Op) 511
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`c.
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`Dr. Sullivan’s Rebuttal Damages Opinions
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`1.
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`Dr. Sullivan’s Opinions For The °545, ’911, ’265, And ’374 Patents
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`Dr. Sullivan agrees that the correct form of damagesisa. Ex. 4 (Sullivan
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`a. calculate a reasonable royalty for four Asserted Patents. Jd. at 114:9-14.
`Dr, Suivenre
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`I© See ic. at 114:9-115:13, 119:2-120:11; Ex. 5
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`Id. at 114:15-115:19.
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`. Ex. 4 (Sullivan Dep.) at 128:21-129:10.
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`Case 1:20-cv-00393-LO-TCB Document 911 Filed 01/21/22 Page 13 of 31 PageID# 25610
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`(Sullivan Rbt.) at Att. D-5. Using PMI/Altria’s
`(Ex. 4 (Sullivan Dep.) at 91:3-92:21), Dr. Sullvaiii___
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`IEE x. 5 (Sullivan Rbt) at Att. D-6 to D9
`Dr. Sullivan madea significant error inPo Rather
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`ae Dkt. 591 at 18. Specifically, he used the|
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`An RJR financial employee, Scott Peddycord, created
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`GE. ©. 9 (Peddycord Dep.) 124:12-16; Ex. 4 (Sullivan Dep.) at 129:19-130:13. While
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`Dr. Sullivan had a brief conversation with Scott Peddycord to form his opinions (Ex. 5 (Sullivan
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`Rt) at At. A),I
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`(Peddycord Dep.) at 70:16-71:1, 72:24-73:8. Had he done so, Dr. Sullivan would have knownthat
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`pe See Sections IV.A-B.
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`© All emphasis added, andinternal citations and quotation marks omitted, unless otherwise noted.
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`

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`Case 1:20-cv-00393-LO-TCB Document 911 Filed 01/21/22 Page 14 of 31 PageID# 25611
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`(Sullivan Dep.) at 120:1-122:3. That is important:
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`. Ex. 4
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` which forms the basis for his
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`royalty opinions for the ’545, ’911, ’265, and ’374 Patents. See id. at 122:11-123:5, 124:15-125:2.
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`2.
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`Dr. Sullivan’s Design Around Opinions
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`Dr. Sullivan contends his royalty rates for the ’265 and ’911 Patents are “reasonable” and
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`an “upper bound” on damages because RJR
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` Ex. 5 (Sullivan Rbt.) ¶¶ 345, 378.
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`Dr. Sullivan is an economist.
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`(Sullivan Dep.) at 283:10-21, 285:22-286:10.
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` Ex. 5 (Sullivan Rbt.) ¶¶ 285-86.
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`. See id. ¶¶ 290-95.
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` Ex. 4
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`. Id. ¶¶ 289, 291.
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`Dr. Sullivan admits
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`. Id. ¶ 286.
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` See Ex. 4 (Sullivan
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`Dep.) at 283:22-284:4. But he spends only two paragraphs in his report (paragraphs 286 and 287)
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`addressing
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`.
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`9
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`First,
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`I5 sitive201) 7286
`Second, Dr. Sullivan asserts without citationthat,ee
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`Po Id. § 287. Based on this conclusory assertion, Dr. Sullivan opines|
`er :
`Dr. Silvan as noopinion
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`Il.
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`LEGAL STANDARDS
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`A.
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`Admissibility Of Expert Testimony
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`This Court is the “gatekeeper” to “ensure the reliability and relevancy of expert testimony,”
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`and “make certain that an expert ... employs in the courtroom the samelevel of intellectual rigor
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`that characterizes the practice of an expert in the relevant field.” Kamho Tire Co. v. Carmichael,
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`526 U.S. 137, 152 (1999). RJR has the burden to showthat Dr. Sullivan’s testimony is admissible.
`
`See Cooperv. Smith & Nephew, Inc., 259 F.3d 194, 199 (4th Cir. 2001). To be admissible, RJR
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`at 292:16-20.
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`10
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`Case 1:20-cv-00393-LO-TCB Document 911 Filed 01/21/22 Page 16 of 31 PageID# 25613
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`must show that: (1) Dr. Sullivan is qualified, (2) the reasoning or methodology underlying his
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`opinions is reliable, and (3) his opinions are relevant—that is, they help the jury understand the
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`evidence or determine a factual issue. Daubert v. Merrell Dow Pharms., 509 U.S. 579, 588 (1993).
`
`Expert opinions are unreliable where, as here, they are merely based “on belief or speculation.”
`
`Cooper, 259 F.3d at 200.
`
`B.
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`Expert Testimony On Reasonable Royalty Damages Must Be “Tied To The
`Facts” Of The Case
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`PMI/Altria can recover no less than “a reasonable royalty for the use made of the invention”
`
`by RJR. 35 U.S.C. § 284. Damages experts often “attempt[] to ascertain the royalty upon which
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`the parties would have agreed had they successfully negotiated an agreement just before
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`infringement began.” Aqua Shield v. Inter Pool Cover Team, 774 F.3d 766, 770-72 (Fed. Cir.
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`2014). “To be admissible, expert testimony opining on a reasonable royalty must” be sufficiently
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`tied “to the facts of the case.” Exmark Mfg. Co. v. Briggs & Stratton Power Prods. Grp., LLC,
`
`879 F.3d 1332, 1349 (Fed. Cir. 2018); see also Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d
`
`1292, 1318 (Fed. Cir. 2011) (explaining that damages experts must rely on evidence “tied to the
`
`relevant facts and circumstances of the particular case at issue and the hypothetical negotiations
`
`that would have taken place … at the relevant time”). If the expert “fails to tie the theory to the
`
`facts of the case, the testimony must be excluded.” Exmark, 879 F.3d at 1349.
`
`IV. ARGUMENT
`A.
`
`
`Dr. Sullivan’s Reliance On A
`, Renders His Opinions For The ’545, ’911, ’265,
`And ’374 Patents Unreliable
`
`The Court should exclude Dr. Sullivan’s analysis for the ’545, ’911, ’265, and ’374 Patents
`
`because he
`
`
`
`. FED. R. EVID. 702.
`
`11
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`

`

`Case 1:20-cv-00393-LO-TCB Document 911 Filed 01/21/22 Page 17 of 31 PageID# 25614
`
`
`
`There is no basis, much less a reliable one, for Dr. Sullivan’s arbitrary decision to
`
`
`
`
`
`Dep.) at 92:1-22, 99:17-10, 101:3-10,
`
`, see Ex. 9 (Peddycord
`
` used by Dr. Sullivan.
`
`It is “settled that lump sum settlement agreements have minimal, if any, probative value in
`
`establishing a reasonable running royalty.”8 ePlus, 764 F. Supp. 2d at 814. “A damages expert
`
`who relies on lump-sum licenses when calculating a reasonable running royalty must offer
`
`testimony explaining how the lump sum rates apply to the facts of the case.” Pavo Sols. LLC v.
`
`Kingston Tech. Co., No. 14-cv-1352, 2019 WL 8138163, at *4 (C.D. Cal. Nov. 20, 2019). “Even
`
`when a lump sum royalty agreement can be extrapolated to suggest a reasonable running royalty,
`
`the methodology must itself be sound and not speculative and not far removed from the facts of
`
`the case.” ePlus, 764 F. Supp. 2d at 814; Bayer, 2019 WL 330149, at *6 (excluding running
`
`royalty based on conversion of lump sum where expert made “no effort to reconcile” differences).
`
`Courts have applied these principles to exclude damages opinions where, as here, the
`
`methodology and basis for converting a lump sum to a running royalty is unreliable. For example,
`
`the ePlus court excluded an expert’s opinions where he converted “lump sum royalty rates to
`
`running royalty rates using a speculative royalty base.” 764 F. Supp. 2d at 815. The expert used
`
`
`8 In Lucent, the Federal Circuit “made clear that lump-sum and running royalty licenses rely on
`different considerations and have fundamental differences.” Bayer, 2019 WL 330149, at *5
`(“Defendants provide no support for their proposition that a lump-sum license may easily support
`a running royalty license, but not vice versa.”); see also Whitserve, LLC v. Computer Packages,
`Inc., 694 F.3d 10, 29-30 (Fed. Cir. 2012) (finding expert’s reliance on lump sum “cause[d] his
`ultimate opinion … to be speculative” where he “did not … explain how those payments could be
`converted to a royalty rate”); Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1330 (Fed. Cir.
`2009). Because there are “questions about the reliability of lump sum agreements in calculating
`royalty rates,” Baltimore Aircoil Co., Inc. v. SPX Cooling Techs. Inc., No. 13-cv-2053, 2016 WL
`4426681, at *25 (D. Md. Aug. 22, 2016), aff’d, 721 F. App’x 983 (Fed. Cir. 2018), such analyses
`warrant particular care and scrutiny of the underlying assumptions and data.
`
`12
`
`

`

`Case 1:20-cv-00393-LO-TCB Document 911 Filed 01/21/22 Page 18 of 31 PageID# 25615
`
`
`
`“past and projected” sales data from an expert report served in another case “as an assumed basis
`
`for projecting future [] sales,” which was unreliable because (1) the “lump sum payments …
`
`differ[ed] considerably from the … hypothetical negotiation,” which did “not involve a lump sum,”
`
`and (2) the expert “us[ed] sales figures … to extrapolate the base for a running royalty rate
`
`calculated using the lump sum[s] … without explaining why it was appropriate to do so.” Id. at
`
`811, 813-14; id. at 814 (“[The expert did] not explain why use of the method is sound in perspective
`
`of the economic realities which appear during the projection period.”).
`
`Similarly, in Baltimore Aircoil, the court excluded an expert’s opinions because her
`
`“calculation of a running royalty rate arising from” a lump sum payment “raise[d] significant
`
`reliability issues,” as the expert gave “no justification—besides lacking information on Evapco’s
`
`sales—for using [defendant’s] projected sales in her calculation.” 2016 WL 4426681, at *24-25.
`
`And the Pavo court excluded an expert’s conversion of a lump sum to a running royalty rate
`
`because it was based on “sizable assumptions related to [licensed] sales” acting “as a stand-in for
`
`actual sales figures under the [agreement].” 2019 WL 8138163, at *5. The court also found that
`
`the expert failed to “demonstrate[] how the lump sums extracted from those agreements could be
`
`accurately converted to a royalty rate,” and merely “assumed significant sales” based on “the
`
`number of relevant Staples stores,” which “could be vastly different from the actual licensed sales
`
`under the settlement.” Id.
`
`The same result follows here. Dr. Sullivan admits
`
` Ex. 4 (Sullivan Dep.) at 28:13-29:5. But he ignores
`
`
`
`
`
`
`
`, which
`
`13
`
`

`

`Case 1:20-cv-00393-LO-TCB Document 911 Filed 01/21/22 Page 19 of 31 PageID# 25616
`Case 1:20-cv-00393-LO-TCB Document 911 Filed 01/21/22 Page 19 of 31 PagelD# 25616
`
`“differ[s] considerably from the ... hypothetical negotiation”in this case.” eP/us, 764 F. Supp. 2d
`
`at 813-14, While Dr,Sula
`
`Po he commits the sameerroras the experts in the cases above. Specifically,
`
`a e
`
`e. Pavo, 2019 WL 8138163, at *5. Both errors “raise significant reliability
`
`issues” that warrant exclusion. Baltimore Aircoil, 2016 WL 4426681, at *25; see also, e.g., ePlus,
`
`764 F. Supp. 2d at 813-14 (“The disparity of circumstances between the settlement agreement
`
`lump sum licenses and the hypothetical negotiation for a running royalty ... makeit difficult to
`
`find that the fit componentis met”).
`
`First, Dr. Sullivan’s use (iit is arbitrary, legally erroneous, and contradicts
`the fects of hisse,
`
`° Dr. Sullivan’s
`
`1s an independentbasis to exclude his ’374 Patent opinions. While the parties agree ResONet.com, Inc. v. Lansa, Inc., 594 F.3d 860, 872 (Fed. Cir. 2010) (explaming that it only
`
`appropriate to rely on a settlement agreement whenitis “the mostreliable license in this record”);
`Trudell Med. Int’] v. D R Burton Healthcare, LLC, No. 18-cv-9, 2021 WL 684200,at *4 (E.D.N.C.
`Feb. 22, 2021) (finding the “limited circumstances”set forth in ResONet underwhicha settlement
`agreement may be used to calculate a reasonable royalty “do not apply” because other reliable
`agreements for the patent-in-suit were available).
`
`14
`
`

`

`Case 1:20-cv-00393-LO-TCB Document 911 Filed 01/21/22 Page 20 of 31 PageID# 25617
`Case 1:20-cv-00393-LO-TCB Document 911 Filed 01/21/22 Page 20 of 31 PagelD# 25617
`
`see
`
`92:1-22, 99:17-10, 101:3-10. Yet Dr. Sullivan, who admittedly has no basis to dispute Mr.
`
`Peddycord’s testimony, ignoresPo without explanation. Ex. 4 (Sullivan Dep.) at
`
`147:12-148:2, 173:19-174:5; In re Lipitor (Atorvastin Calcium) Mktg., Sales Practices & Prods.
`
`Liab. Litig., 174 F. Supp. 3d 911, 931 (D.S.C. 2016) (excluding opinion under Rule 702 because
`
`2g
`expert’s “cherry-picking of data is unreliable”).
`
`Second, Dr. Sullivan’s reliance onPF is not a trivial mistake because it
`essito matter, s
`Mr. Peddycordtested,
`EE ©. 9 (Peddycord Dep.) at 39:23-41:17, 90:12-19 (testifying that
`
`RS <0 puting tht aside,vineA is
`improperbec
`
`x.4 (Sullivan Dep.) at 136:8-11, 137:18-138:10.
`
` Ex. 4 (Sullivan Dep.) at 128:21-129:10.
`
`15
`
`

`

`Case 1:20-cv-00393-LO-TCB Document 911 Filed 01/21/22 Page 21 of 31 PageID# 25618
`
`i!
`
`144:5-146:1.
`
`heyXQ 2 = i AXY Te
`
`See id. at 142:2-21,
`
`. Id. at 143:21-144:4.
`
` Ex. 12 (2018 Forecast); Ex. 13 (2021 Forecast).
`
`a. Dr. Sullivan applies the exact type of “dubious royalty base” that courts have found
`
`to be unreliable. eP/us, 764 F. Supp. 2d at 815.
`
`16
`
`

`

`Case 1:20-cv-00393-LO-TCB Document 911 Filed 01/21/22 Page 22 of 31 PageID# 25619
`Case 1:20-cv-00393-LO-TCB Document 911 Filed 01/21/22 Page 22 of 31 PagelD# 25619
`
`aa. ePlus, 764 F. Supp. 2d at 814. For example,|
`
`a. Id. at 181:10-182:6. These “economic realities,” among others, did not exist in
`BEE 20625 Dr. Sulivncones,
`
`The onlybasis for Dr. Sullivan’s use ofthei is his incorrect assertion that he
`
`PO Ex. 10 (Sullivan Supp.) at 10. Dr. Sullivan’s “disagree[ment]” cannot
`
`save his unreliable opinions forat least three reasons. First, he is not a legal expert and cannot
`
`declare what“the relevant inquiry”is underthe law, particularly whenhis assertion is unsupported
`
`by any evidence orcase law. See id. (no citation). Second, Dr. Sullivan’s assertion is incorrect
`
`becausethe relevant inquiry is to determine[ie
`
`ee. Ex. 6 (MeyerDep.) at 111:9-113:4. Third, even
`
`if it were correct, Dr. Sullivan’s conclusory assertion is merely ipse dixit that the Court can—and
`
`should—teject. See Kumho, 526 U.S. at 157 (“[N]othing in either Daubert or the Federal Rules
`
`. Ex. 4 (Sullivan Dep.) at 153:17-154:25.
`
`17
`
`

`

`Case 1:20-cv-00393-LO-TCB Document 911 Filed 01/21/22 Page 23 of 31 PageID# 25620
`Case 1:20-cv-00393-LO-TCB Document 911 Filed 01/21/22 Page 23 of 31 PagelD# 25620
`
`of Evidence requires a district court to admit opinion evidence that is connected to existing data
`
`only by the ipse dixit of the expert.”); TecSec, Inc. v. Adobe Sys., Inc., No. 10-cv-115, 2018 WL
`
`3656370, at *2 (E.D. Va. June 8. 2018) (excluding “ipse dixif’ lacking “corroborating evidence’’).
`
`“Simply put, [Dr. Sullivan’s] opinion offers mere speculation masquerading as quantitative
`
`analysis.” Baltimore Aircoil, 2016 WL 4426681, at *25. Because his
`
`forms the starting point for his reasonable royalty calculations for the °545, ’911, ’265, and ’374
`
`Patents, his entire analysis for those asserted patents should be excluded. See Ex. 4 (Sullivan Dep.)
`
`at 123:6-124:18 (admitting that
`
`Uniloc, 632 F.3d at 1317 (“Beginning from a fundamentally flawed premise and adjusting [the
`
`royalty rate] based on legitimate considerations specific to the facts of the case nevertheless results
`
`in a fundamentally flawed conclusion.”).
`
`ba
`
`B.
`
`Dr. Sullivan’s
`
`
`
`Evenifhis reliance 1iii were proper(it is not), Dr. Sullivan’ opinions for
`
`And The Facts Of This Case
`
`the ’545, 7911, ’265, and ’374 Patents should be excluded because his
`
`BE 820: beionoresI. Sullivan's opinionsar
`
`not “sufficiently tied to the facts of the case” and “must be excluded.” Exmark, 879 F.3d at 1349.
`
`As discussed above,
`
`undisputed that
`
`See supra at 4-5.
`
`It is
`
`

`

`Case 1:20-cv-00393-LO-TCB Document 911 Filed 01/21/22 Page 24 of 31 PageID# 25621
`
`
`
`that an
`
`. See id.; see also Ex. 4 (Sullivan Dep.) at 214:22-215:10. It is also undisputed
`
`
`
`
`
`
`
`. See supra at 4-5; Ex. 4 at 209:14-210:6, 214:17-21.
`
`Dr. Sullivan ignores these undisputed facts and opines that the
`
`
`
` See supra at 7-8; Ex. 4 (Sullivan Dep.) at 115:9-13. That
`
`conclusion is directly contradicted by the
`
`
`
` Ex. 3
`
`§ 6.10.2; Ex. 4 (Sullivan Dep.) at 213:6-18. Even if these differences could be reconciled—and
`
`they cannot—Dr. Sullivan makes no attempt to do so. His report never even mentions
`
`
`
`, rendering his opinion inherently unreliable.
`
`Dr. Sullivan has no basis (stated or otherwise) for ignoring
`
`, other
`
`than that it does not support his opinions. Because Dr. Sullivan’s proffered reasonable royalty
`
`rates are based on
`
` that is wholly
`
`divorced from, and contradicted by, the undisputed facts of this case, his “reasonable” royalty
`
`opinions for the ’545, ’911, ’265, and ’374 Patents “must be excluded.” Exmark, 879 F.3d at 1349.
`
`C.
`
`Dr. Sullivan’s Design-Around Opinions Are Based On Flawed Assumptions
`
`The Court should exclude Dr. Sullivan’s design-around opinions for the ’265 and ’911
`
`Patents because they are based on the flawed assumption that
`
`
`
`(Sullivan Rbt.) ¶¶ 282-95, 345, 378; Acceleration Bay LLC v. Activision Blizzard Inc., No. 16-cv-
`
` See Ex. 5
`
`19
`
`

`

`Case 1:20-cv-00393-LO-TCB Document 911 Filed 01/21/22 Page 25 of 31 PageID# 25622
`
`
`
`453, 2019 WL 4194060, at *8 (D. Del. Sep. 4, 2019) (“A damages’ expert’s assumption is not
`
`sufficient to support a damages opinion based on a particular non-infringing alternative.”).
`
`“[M]any variables affect the hypothetical [negotiation],” Aqua Shield, 774 F.3d at 772,
`
`including “[w]hether the accused infringer had acceptable non-infringing alternatives available to
`
`it at the time of the hypothetical negotiation.” LaserDynamics, Inc. v. Quanta Computer, Inc.,
`
`No. 06-cv-348, 2011 WL 197869, at *2 (E.D. Tex. Jan. 20, 2011). “To be an acceptable non-
`
`in