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David C. Bohrer (Bar No. 212397) [email protected] VALOREM LAW GROUP, LLP 60 South Market Street, Suite 1400 San Jose, California 95113-2396 Telephone: (408) 938-3882 Facsimile: (408) 915-2672 Pat Heptig (Bar No. 00793940) [email protected] Of Counsel VALOREM LAW GROUP, LLP 15050 E. Beltwood Pkwy. Addison, Texas 75001 Telephone: (214) 451-2154 Facsimile: (312) 676-5499 Patrick Lamb (Bar No. 6182882) [email protected] Margot Klein (Bar No. 6256215) [email protected] (pro hac vice pending) VALOREM LAW GROUP, LLP 35 East Wacker Drive, Suite 3000 Chicago, Illinois 60601 Telephone: (312) 676-5477 Facsimile: (312) 676-5499 Attorneys for Plaintiff PLANTRONICS, INC.

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN FRANCISCO DIVISION

PLANTRONICS, INC.,

Plaintiff, vs. ALIPH, INC. and ALIPHCOM, INC.,

Defendants.

Case No. C 09-01714 (WHA) PLANTRONICS’ OPPOSITION TO MOTION TO STRIKE THE DAMAGES EXPERT REPORTS OF DR. LYNDE AND MR. NAPPER Date: February 19, 2014 Time: 1:30 p.m. Courtroom: 8, 19th floor Judge: Hon. William Alsup

Plaintiff’s Opp. to Motion to Strike Damage Reports

Case No. C 0901714 (WHA)

Case3:09-cv-01714-WHA Document352 Filed02/06/14 Page1 of 32

Paula Aboud

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Paula Aboud

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REDACTED VERSION

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TABLE OF CONTENTS

Page I. INTRODUCTION .......................................................................................................... 1

II. REPLY TO STATEMENT OF FACTS ....................................................................... 2

A. Aliph Mischaracterizes the Invention .............................................................. 2

B. Leading Up to Infringement, Jawbone Experienced Huge Fit Problems ..... 4

C. Aliph Solves Fit Problem By Copying Plantronics’ Patented Concha-Style Headset Stabilizer ............................................................................................... 6

III. DR. LYNDE’S DAMAGES OPINIONS ARE ADMISSIBLE ................................... 8

A. Dr. Lynde Reliably Applies the Well-Accepted Panduit Methodology to Determine Lost Profits ....................................................................................... 8

1. The Four Factor Panduit Test, Including the Modification of the Test in Mor-Flo, Is a Well-Accepted Method for Determining Lost Profits ... 8

2. Dr. Lynde Reliably Ties This Methodology To the Facts of the Case ..... 9

a. Panduit # 1 - Demand for Patented Product .................................... 10 b. Panduit #2/Mor-Flo Market Share of Reconstructed Market ........ 10 c. Panduit #3 - Manufacturing and Marketing Capacity ..................... 13 d. Panduit #4 - Amount of Profit ........................................................ 13

B. Aliph Ignores Apportionment Conducted By Dr. Lynde in the Course of Applying Mor-Flo to Facts of the Case ........................................................... 13

1. The Substantial Contribution of the Infringing Features to Consumer Demand .................................................................................................. 13

2. 450,000 Reasons (and Other Evidence) Why 2008 Sales Do Not Refute the Reliability of Dr. Lynde’s Apportionment ........................... 15

3. A Consumer Survey Was Not Required and In Any Event Would Have Been of Limited Value .................................................................. 16

4. Plantronics’ Testimony On the Critical Role of Fit in the Hiearchy of Headset Features .................................................................................... 16

IV. MR. NAPPER’S DAMAGES OPINIONS ARE ADMISSIBLE .............................. 17

A. Mr. Napper Reliably Ties His Use of the Well-Accepted Georgia-Pacific Methodology To The Facts of This Case ........................................................ 17

i TABLE OF CONTENTS


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B. Mr. Napper Properly Analyzed Per Unit Data Points That Account for the Smallest Salable Unit, And Therefore Does Not Apply the Entire Market Value Rule ................................................................................................................ 18

1. Mr. Napper Analyzes the Motorola Agreement, Which Applies Only to the Earbud Portion of the End Product .............................................. 20

2. Mr. Napper Analyzes Plantronics’ Offer to License the ‘453 Patent to Primax ................................................................................................ 21

3. Mr. Napper Considered Comparable Licenses That Contain a Per Unit Royalty on End Product Sales ........................................................ 22

C. Mr. Napper Properly Considers the Available Evidence Regarding Alleged Noninfringing Alternatives .............................................................................. 23

D. Mr. Napper’s Reasonable Royalty Rate is Based on Sound Economic and Factual Predicates ............................................................................................ 25

V. CONCLUSION ............................................................................................................. 25

ii TABLE OF CONTENTS


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TABLE OF AUTHORITIES

Cases

Abbott Diabetes Care Inc. v. Roche Diagnostics Corp.

2007 WL 4166030 (N.D. Cal. Nov. 19, 2007) ................................................................................. 9

Barnes & Noble, Inc. v. LSI Corp, 2012 WL 1029939 (N.D. Cal. Mar. 26, 2012) ............................................................................... 21

BIC Leisure Prods., Inc. v. Windsurfing Int’l, Inc. 1 F.3d 1214 (Fed. Cir. 1993) .......................................................................................................... 11

Bose Corp. v. JBL, Inc.,

112 F.Supp.2d 138 (2000) .............................................................................................................. 16

Bose Corp. v. JBL, Inc. 274 F.3d 1354 (2001) ............................................................................................................... 13, 16

Broadcom Corp. v. Emulex Corp. 2011 WL 7560650 (C.D. Cal. Dec. 13, 2011) ............................................................................... 19

Carnegie Mellon Univ. v. Marvell Tech Grp. Ltd. 2012 WL 5451567 (W.D. Pa Nov. 7, 2012) ...................................................................................... 21 Crystal Semiconductor Corp. v. Tritech Microelectronics Int'l., Inc. 246 F.3d at 1355 (Fed. Cir. 2001) .................................................................................................... 9 Dynetix Design Solutions, Inc. v. Synopsis, Inc.

2013 WL 4538210 (N.D. Cal. Aug. 22, 2013) ............................................................................... 19

Ericsson, Inc. v. D-Link Corp. 2013 WL 2442444 (E.D. Tex. May 21, 2013 ................................................................................ 19

Georgia-Pacific Corp. v. U.S. Plywood 318 F. Supp. 116 (S.D.N.Y. 1970) ................................................................................................. 17

Grain Processing Corp. v. Am. Maize–Prods. 185 F.3d 1341 (Fed. Cir. 1999) ........................................................................................................ 9

LaserDynamics, Inc. v. Quanta Computer, Inc. 694 F.3d 51 (Fed. Cir. 2012); ......................................................................................................... 19

Lucent Techs., Inc. v. Gateway, Inc. 580 F.3d 1301 (Fed. Cir. 2009) ...................................................................................................... 19

Microsoft Corp. v. Motorola, Inc. 904 F. Supp. 2d 1109 (W.D. Wash. 2012) ..................................................................................... 22

Mondis Tech., Ltd. v. LG Elecs. 2011 WL 2417367 (E.D. Tex. June 14, 2011) ............................................................................... 22

iii TABLE OF AUTHORITIES


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Oracle Am. Inc. v. Google Inc. (“Oracle 2011”), 798 F. Supp. 2d 1111 (N.D. Cal. 2011).............................................................. 19

Oracle Am., Inc. v. Google Inc. (“Oracle 2012”), 847 F. Supp. 2d 1178 (N.D. Cal. 2012).............................................................. 19

Panduit Corp. v. Stalin Bros. Fibre Works, Inc. 575 F.2d 1152 (6th Cir. 1978) .......................................................................................................... 8

Paper Converting Mach. Co. v. Magna-Graphics Corp. 745 F.2d 11 (Fed. Cir. 1984) .......................................................................................................... 13

Riles v. Shell Exploration and Production Co. 298 F.3d 1302 (Fed. Cir. 2002) ...................................................................................................... 17

Rite-Hite Corp. v. Kelley Co. 56 F.3d 1538, 1550 (Fed. Cir. 1998) .................................................................................................. 14 Standard Havens Products, Inc. v. Gencor Indus., Inc. 953 F.2d 1360 (Fed. Cir. 1991) 148……………………………………………………………….8 State Indus., Inc. v. Mor-Flo Indus., Inc. 883 F.2d 1573 (Fed. Cir. 1989)……………………………………………………………………….8

SynQor, Inc. v. Artesyn Techs., Inc. 709 F.3d 1365 (Fed. Cir. 2013) ...................................................................................................... 19

The Boeing Co. v. U.S. 86 Fed. Cl. 303 (2009) ................................................................................................................... 21

Unisplay, S.A. v. American Elec. Sign Co., Inc. 69 F.3d 512 (Fed. Cir. 1995) .......................................................................................................... 21

iv TABLE OF AUTHORITIES


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EXPLANATION OF CITATION FORMS

Citations to “P-Ex. ” are citations to exhibits to the Declaration of David C. Bohrer in Support of Plantronics’ Opposition to Aliph’s Motion to Strike, submitted herewith.

Citations to A-Ex. ” are citations to exhibits to the Declaration of Dane W. Reinstedt in Support of Aliph’s Opposition to this Motion (D.N. 324), submitted by defendants on January 10, 2014.

Citations to “Lynde Rpt.” are citations to the Expert Report of Matthew Lynde, which is

submitted as Exhibt A to the Declaration of Dane W. Reinstedt (D.N. 324).

Citations to “Lynde Dep.” are citations to the Transcript of the January 19, 2012 Deposition of Matthew Lynde, submitted herewith as Exhibit B to the Declaration of Dane W. Reinstedt. (D.N. 324).

Citations to “Napper Rpt.” are citations to the expert Report of Brian Napper, which is submitted as Exhibit C to the Declaration of Dane W. Reinstedt (D.N. 324).

Citations to “Leonard Rpt.” are citations to the expert Report of Dr. Gregory Leonard, which is submitted with the Declaration of David C. Bohrer on December 2, 2013, as Docket Number 284-8.

Citations to “Ducote Decl.” are citations to the Declaration of Jeff Ducote In Support of Plantronics’ Opposition to Aliph’s Motion to Strike, submitted herewith.

v Plaintiff’s Opp. to Motion to Strike Damage Reports



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I. INTRODUCTION

Aliph builds its motion to strike by disregarding voluminous evidence that undermines

its position. In 2008, Aliph was a new entrant in the premium Bluetooth headset market. It had been

selling a single product, the Jawbone 1, a larger mono Bluetooth headset that was in its end-of-life

stage. Aliph bet heavily on the smaller Jawbone 2, but when it was being tested before release to

market, users, including the venture investors in the company, experienced major fit issues which

prevented the headset from working as designed. When it was released to market, Aliph’s biggest

customer complained forcefully about the fit issue. So within months of releasing the product on

which Aliph’s future was based, Aliph found itself in danger of losing the funding of its largest VC

investor, its biggest customers, and its recent and still-fragile market share unless the headset “fit

problem” was fixed swiftly. The situation was described by Aliph’s CEO as a “huge deal” and a

“threat level red priority.” P-Ex. A. Aliph solved the problem by--in the words of Aliph’s director

of product development-- “knocking off” Plantronics’ patented headset stabilizer (“the fact is we

knocked it off deliberately”). P-Ex. B.

Dr. Lynde has a Ph.D in economics and analyzed lost profits in the hypothetical, “but

for” world where Aliph’s infringement has been factored out of the economic picture. He applied

the well-accepted Panduit factors and Mor-Flo market reconstruction theory. He closely tied the

application of his model to the facts of the case. He relies upon evidence showing that the accused

Aliph headsets are direct competitors of Plantronics headsets using the patented concha stabilizer

feature in a segment of the premium Bluetooth market directed to style-focused consumers. The

style-focused consumers, in the words of Aliph’s lead designer, wanted “bling that rings” – stylish

headsets that did not use any ear loops, hooks or head bands to stabilize their headsets. For at least

this portion of Aliph’s accused products there were no noninfringing substitutes for the infringing

technology and the fit, performance and design benefits provided by the patented stabilizing

techonology formed the basis for consumer demand. Although Plantronics’ market share in the but-

for premium Bluetooth market was 66%, Dr. Lynde concluded that only 17% of the infringing sales

caused lost profits to Plantronics; the remaining 83% of infringing sales were reallocated according 1

Plaintiff’s Opp. to Motion to Strike Damage Reports Case No. C 0901714 (WHA)


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to Mor-Flo to the other competitors in the market. The resulting lost profits through September

2011 was $10.3 million.

Mr. Napper was asked to determine the reasonable royalty on 83% of infringing sales for

which lost profits are not claimed. He applied the well-accepted methodology of a hypothetical

negotiation for the patented technology guided by the Georgia-Pacific factors. His opinions on this

subject matter have been deemed admissible and reliable in numerous cases, including, but certainly

not limited to, his testimony on behalf of Microsoft on reasonable royalty damages in Uniloc. He

closely tied his methodology to the facts of the case, including the determination that an earbud

combined with a concha stabilizer was the smallest saleable unit on which a running royalty per unit

could be assessed and that this did not implicate the entire market value rule. He also closely

examined evidence regarding alleged noninfringing alternatives such as the inadequate fit provided

by conventional art round earbud and ear loop used by Aliph, and Aliph’s inability to design an

alternative because of the fact that its headset had to maintain constant contact with the cheek of the

user in order to perform better than competitors. He concluded that the hypothetical negotiation

would result in a reasonable royalty of $1 per unit on the 83% of residual infringing sales and

calculated damages in the amount of $4.1 million.

Aliph’s objections to Dr. Lynde’s and Mr. Napper’s opinions apply the wrong legal

standards and ignore the evidence they relied upon to tie their methodologies to the facts. Aliph

may be unhappy with this evidence, and once they acknowledge its existence they may even dispute

it, but this does not change the fact that the challenged opinions easily satisfy threshold tests for

admissibility and reliability. The issues raised by Aliph do not implicate the court’s gatekeeping

function, but rather go to the weight to be given any disputed evidence and are therefore for the jury

to decide in fulfilling its fact finder role. The motion to strike should be denied in its entirety.

II. REPLY TO STATEMENT OF FACTS

A. Aliph Mischaracterizes the Invention

Aliph incorrectly states that the ‘453 patent does not cover any aspect of the Jawbone

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headset itself. See, e.g., Mot. at 2. To the contrary, the headset or specific structures on the headset

such as the receiver are required components of all of the claims in the patent. For example, claim 1

is directed to “an apparatus . . . including a receiver” and claim 10 is directed to “a headset”. A-Ex.

D.

Aliph’s comments reflect a fundamental mischaracterization of the invention, which

concerns the stabilization of headsets that have small receivers that fit in the lower concha of the ear

(in front of the ear canal) and are therefore known as concha-style headsets. Id., 1:13-16. When

supporting and stabilizing concha-style headsets, a designer has three basic approaches: headband

headsets, ear loop headsets and conventional earbud-style headsets. Id., 1:13-55. The headband

headset arches over the top of the head id.,1:51-56; the ear loop headset has a hook-shaped portion

that loops over and behind the ear id.,1:32-35; and the conventional earbud-style headset positions

the receiver inside the lower concha id.,1:20-22. Each of the headsets are shown at P-Exs. SS-UU.

For conventional earbud-style headsets prior to the invention, different ear shapes and sizes made it

difficult for a single design to both fit the ear correctly, stabilize the headset and be comfortable to

wear. Id.,1:23-25 Moreover, any offset mass of the boom or voice tube coupled to the receiver in

headsets added to the challenge of stabilizing conventional earbud headsets. Id.

Like conventional earbud-style headsets, the concha-stabilized headsets in the ‘453 patent

have a “small receiver which is sized to fit in the lower concha in front of the ear canal.” Id.,1:14-

16. Unlike prior efforts, however, the inventors of the ‘453 patent set out to develop a new way to

stabilize a concha-style headset that did not add the significant weight or mechanical complexity of

conventional stabilizers, such as ear hooks or headbands. Id.,1:27-31, 1:57-63. In particular, they

developed a single covering for the receiver (ear cushion 11) with a stabilizing structure (in one

embodiment the stabilizer support 17 and pad 21), which engages the upper concha 43 when the

receiver is placed in the lower concha 41 between the tragus 35 and antitragus 39. Id.,2:2-6.

The stabilizer is critical to the ‘453 patent: the concha-stabilized headsets in the ‘453 patent

are kept in place or “stabilized” by pushing against the upper concha 43 to provide a stabilizing

force towards the intertragic notch 37. Id., 3:43-51. This approach represents a departure both from 3



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conventional (unstabilized round) earbuds and from prior attempts at stabilizing earpieces, which

relied on appendages such as hooks to fit (or hook) into the crux of the helix. Id.,1:13-56.

The invention’s simple design and absence of mechanical parts provide several benefits:

fit, comfort and stability without having to use an ear loop; fast and easy one-handed insertion;

proper placement of the receiver to obtain better performance; symmetry for either ear; improved fit

over a conventional round earbud; increased wearability and decreased fatigue; and reduced

manufacturing costs. Id., 2:29-39; see also Id.,1:39-49; 1:50. Prior to the invention, these benefits

were not available in concha-style headsets. Id., 1:53-63.

B. Leading Up to Infringement, Jawbone Experienced Huge Fit Problems

Aliph alleges that its Jawbone headsets are “multi-featured,” but the reality is that enjoyment

of these features entirely depends upon earbuds that provide the proper fit. As admitted by Richard

Drysdale, Aliph’s 30(b)(6) witness on earbud design:

Q: Earbuds are critical to the performance of the headset, correct?

A: Any headsets, yes

P-Ex. E (Drysdale 155:4-6).

As Aliph explained to its investors in October 2008, “Good fit drives usage and customer

satisfaction. Bad fit erodes brand.” P-Ex. F (at ALIPH00064085). Similarly, as explained by Jeff

Ducote of Plantronics, “every time you have a new headset platform the ear interface is paramount

to that … the ear interface was the cornerstone of that design. P-Ex. G (Ducote 179:23-181:1-19).

The concha stabilizing feature on Aliph’s earbud was particularly critical to the

functioning of Aliph’s Jawbone headsets. It is undisputed that the accused Jawbone headsets have a

voice activity sensor (“VAS”) 1 that must be positioned correctly and touch the skin in order to

properly detect and transmit the user’s speech. P-Ex. E. When the VAS does not touch the skin

because of a poor fit, the Jawbone headset loses its competitive advantage. Id. At 129. Aliph’s

accused headsets, “need to have a functional fit” that presses the headset against the user’s face. Id.

1 VAS and Skin Surface Microphone (SSM) are interchangeable terms. P-Ex. H and I. 4



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As Mr. Drysdale explained, “[w]hen we touch your face, no [competitor] gets close to our

performance” and our competitive “advantage comes in touching.” Id. at 129-130.

Aliph first entered the Bluetooth headset business with the release of the Jawbone 1 in

late December 2006. As Jawbone 1 reached its end of life, Aliph focused its future on the release

of Jawbone 2 in May 2008. Based upon their MSRP and technological features, these headsets

competed in the premium market for mono Bluetooth headsets. Lynde Rpt. at 7-10. As of the time

it was released, the Jawbone 2, like its predecessor Jawbone 1, offered two conventional art

stabilizers in the consumer packaging: a round earbud and an ear loop. See Mot at 5:20 citing A-Ex.

G; see also P-Ex. K and M.

Aliph asserts that the round earbud and ear loop worked well for the vast majority of

Jawbone users, see Mot. at 23, completely ignoring the marketing reality that negative impressions

of even a minority can kill a product. As a result, early criticisms were potentially devasting. As of

early 2008, the failure of the round earbud and ear loop was causing a huge fit problem.

, See P-Ex. I, repeatedly complained that the Jawbone 2 earbuds

were not providing a proper fit. See, e.g. P-Exs. N, O, and P. Aliph’s largest customers,

, were pressuring Aliph to correct sound quality issues resulting from poor fit and they

believed poor fit was driving high rates of product returns. P-Ex. Q, R, J, S and F. The huge scope

of the fit problem was repeatedly acknowledged at the highest level of Aliph management. P-Ex. A

(Rahman: Is defcon 5, threat level red priority. It’s a huge deal.”); P-Ex. T (Simmons: “[W]e know

the magnitude of the fit issue is large.”); P-Ex. U (“Asseily: “We’ve got a major fit issue for this

product and we’ve also got a technology which is now (oddly) more sensitive to correct fit.”); P-Ex.

H (Asseily: As of August 2008 “the board was concerned there was a lack of customer satisfaction

because of bad fit.”).

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P-Ex. V. By fall 2008, Aliph had determined that resolving the fit

problem required swift introduction of a new earbud with a concha-stabilizing feature. 2

C. Aliph Solves Fit Problem By Copying Plantronics’ Patented Concha-Style Headset Stabilizer

Aliph’s “Ergo” and “Spout” earbuds and the headsets on which they are used infringe the

‘453 patent. Of the two, the Ergo earbud came first; a beta version of the Ergo earbud was

distributed in “New Fit Earbud” bags in November 2008 and a production version was shipped with

headsets beginning in late November or early December 2008. P-Ex. K, N and X. Highlighting the

magnitude and urgency of the Jawbone “fit” problem, Aliph launched its new Ergo earbud and

provided over bags of the infringing earbud to Jawbone users. P. Exs. NN, OO, PP and

RR. The Ergo and subsequently released Spout earbuds combine an ear cushion (sometimes

referred to as the “bud” or “earbud” (P-Ex. E and K)) with a concha-stabilizer structure (sometimes

referred to as a “ring” (P-Ex. E and K)). P-Ex. Z.

The design of Aliph’s accused products literally began with the patented Plantronics’ concha-

style headset stabilizer. P-Ex. L and MM. Specifically, the catalyst for developing the Ergo earbud

was Aliph’s discovery that the patented concha-stabilizer earbud from the Plantronics’ 925 headset

“fit” Aliph’s Jawbone 2 headset and provided the necessary VAS skin contact for the Jawbone 2

headset. P-Exs. K and EE (“The stabilizer really works for me (borrowed from the PLT 925), it

drives the SSM to my cheek very effectively.”). See also P-Ex. FF.

As stated in an internal Aliph email describing “the history of [the] ergo cushion speaker

openings,” the first Ergo headset design literally copied the “Plantronics 925 earbud dimension. P-

Ex. MM. While Aliph then purported to develop its own earbud, the internal Aliph email shows a

pictorial progression of the “Ergo” earbud from the Plantronics’ earbud and back again. Aliph

2 Aliph falsely asserts that its introduction of AVAD in October 2008 provided a “fail safe mechanism for when the VAS does not touch the user’s face.” Mot. at 5. Unless the Jawbone headset physically touches the skin, however, Aliph’s noise cancellation is no better than its competitors. As stated by Mr. Drysdale, Aliph’s Senior VP Operations and Engineering: “When we touch your face, no one gets close to our performance. [Using AVAD], we are on par with everybody else in the marketplace. So our advantage comes in touching.” P-Ex. E and H. 6



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ended up where they started; the accused Aliph design was the same in all material respects to the

Plantronics’ patented design. Id.

Aliph engaged in the unauthorized copying of Plantronics’ patented concha stabilizer with

full knowledge of what it was doing. Aliph’s engineers and design consultants refer to “rip[ping]

off PLT,” P-Ex. HH, “ripping off the competition,” P-Ex. GG, and “look[ing] like we copied

Plantronics” and being “too close to Plantronics earbud (U-shaped) tail,” P-Ex. JJ. Aliph’s Vice

President of Product Development said “In our meeting with the design team Fuse and Heidi are

going to make the ring less of a knockoff—the fact is we knocked it off deliberately to see how it

worked-but it is too much of a knock off in it’s current manifestation.” P-Ex. B. In the rush to

prevent further adverse reviews by the media, Aliph distributed Jawbone 2 headsets with

Plantronics’ own patented earbuds that Aliph passed off as its own. See, e.g., P-Ex. KK (“send a

pack of the Plantronics (shhh) earbuds over to [CBS podcast reviewer]”). The enormity of the

stakes explains the blantant copying. Aliph founder Asseily aptly and succinctly explains the

motivation behind Aliph’s copying: “These new earbuds will literally save us or make us millions

of dollars as soon as they become available – and the whole ATT reset and EU launch rests of [sic]

them.” P-Ex. HH.

Aliph features the infringing Ergo and Spout earbuds by attaching them to the headsets as

sold and displaying the infringing earbud and headset combination in transparent commercial

packaging. P-Exs. C and D. The old round earbud and ear loop options are relegated to secondary

status in the packaging. They are not attached to the headset and they are visible only after the

packaging is opened. Id. See also A-Exs. R-V (showing the accused concha-stabilizer attached to

the headset in Jawbone Prime, Era and Icon online product descriptions and package inserts).

Aliph has achieved significant commercial success with its headsets incorporating he

‘453 patented technology. Indeed, since incorporating Plantronics’ patented stabilizer in 2008,

Aliph had sold more than 4 million infringing headsets as of September 2011. D.N. 226. Aliph

also was generally able to retain its top customers in the premium mono Bluetooth market. P-Exs.

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AA-DD. Within a year of solving its fit problem through the use of the infringing headset stabilizer,

Aliph was reporting to its investors that it had “solidified our business viability.” P-Ex. II.

III. DR. LYNDE’S DAMAGES OPINIONS ARE ADMISSIBLE

A. Dr. Lynde Reliably Applies the Well-Accepted Panduit Methodology to Determine Lost Profits

Aliph’s motion ignores the well-accepted methodology applied by Dr. Lynde, namely, the

four factor Panduit test as modified by the Federal Circuit in Mor-Flo, and fails to discuss let alone

refute the substantial evidence supporting Dr. Lynde’s determination of lost profits under this

methodology.

1. The Four Factor Panduit Test, Including the Modification of the Test in Mor-Flo, Is a Well-Accepted Method for Determining Lost Profits

To receive lost profits, "the patent holder must demonstrate that there was a reasonable

probability that, but for the infringement, it would have made the infringer's sales.” State Indus. v.

Mor-Flo Indus., Inc., 883 F.2d 1573, 1577 (Fed. Cir. 1989).

The Federal Circuit has adopted the "Panduit factors" as an acceptable method of

determining causation. Standard Havens, 953 F.2d at 1373. “To obtain as damages the profits on

sales he would have made absent the infringement, i.e., the sales made by the infringer, a patent

owner must prove: (1) demand for the patented product, (2) absence of acceptable noninfringing

substitutes, (3) his manufacturing and marketing capability to exploit the demand, and (4) the

amount of profit he would have made.” Panduit Corp. v. Stalin Bros. Fibre Works, Inc., 575 F.2d

1152, 1156 (6th Cir. 1978).

In 1989, the Federal Circuit in State Industries Inc. v. Mor-Flo Industries Inc. modified the

second Panduit factor. Before Mor-Flo, the Federal Circuit had traditionally required a two-

supplier market (as was the case in Panduit) in order to endorse a lost-profits award. But few real-

world markets are like this, meaning it was difficult if not impossible to recover otherwise

warranted lost profits. Accordingly, in Mor-Flo, the Federal Circuit reasonably changed the

analysis from a two-supplier market to an analysis based on market shares. Under this approach, a 8



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patent holder can recover lost profits based on lost sales in proportion to its (adjusted) market share

even where there are non-infringing substitutes in the relevant market. Mor-Flo, 883 F.2d at 1577-

78 (“So we think that in these circumstances the presence or absence of acceptable noninfringing

alternatives does not matter.”)

In Grain Processing, the Federal Circuit cited Mor-Flo as an example of a viable approach to

market reconstruction. Grain Processing Corp. v. Am. Maize–Prods., 185 F.3d 1341, 1350 (Fed.

Cir. 1999) ([T]rial courts, with this court's approval, consistently permit patentees to present market

reconstruction theories showing all of the ways in which they would have been better off in the “but

for world,” and accordingly to recover lost profits in a wide variety of forms. See, e.g., . . . State

Indus., 883 F.2d at 1580 (upholding award of lost profits in proportion to patentee's market share of

the relevant market including acceptable noninfringing substitutes). See also Crystal

Semiconductor, 246 F.3d at 1355 (Fed. Cir. 2001) (Federal Circuit affirmed award of lost profits

based upon market share of relevant segment of the market); Abbott Diabetes Care Inc. v. Roche

Diagnostics Corp., 2007 WL 4166030 at *2 (N.D. Cal. Nov. 19, 2007) (“Where there are non-

infringing alternatives, a patentee may still be able to recover lost profits based on market share of

the reconstructed market, without the defendant's infringing products.); 2011 N.D. Cal. Model

Patent Jury Instructions, Instr. 5.3 (“[Patent holder] is entitled to lost profits if it proves … there

were no non-infringing substitutes, or, if there were, the number of the sales made by [alleged

infringer] that [patent holder] would have made despite the availability of other non-infringing

substitutes.”) and 5.3 (“One way [patent holder] may prove the number of sales it would have made

if the infringement had not happened is to prove its share of the relevant market excluding

infringing products. You may award [patent holder] a share of profits equal to that market share.”)

Aliph fails to even discuss the well-accepted lost profit methodology used by Dr. Lynde, let

alone establish that he has not reliably tied this methodology to the facts of this case. Therefore the

motion to strike Dr. Lynde’s opinions should be denied.

2. Dr. Lynde Reliably Ties This Methodology To the Facts of the Case

Whether the evidence shows causation under Panduit is question of fact for the jury to 9



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decide. Dr. Lynde’s lost profit opinion is founded upon ample admissible evidence, which, if

accepted by the jury, shows the Panduit factors have been satisfied.

a. Panduit #1 – Demand for Patented Product

Dr. Lynde sets forth clear and ample evidence, both with respect to the infringing products of

Aliph, as well as the patented products of Plantronics, that there is demand for the patented

product.3 With millions of units and tens of millions of dollars sold of products that include the

‘453 patented technology, this is hardly a controversial point (and is not contested by the opposing

damages expert nor in the Motion to Strike). Lynde Rpt., Schedules 2, 2A and 4.

b. Panduit #2/Mor-Flo Market Share of Reconstructed Market

To determine the relevant market, Dr. Lynde first examined the mono Bluetooth headset

market using U.S. retail sales data gathered by the NPD Group. Lynde Rpt. at 16-17, and Schedule

3B. Dr. Lynde amended this original NPD list of products to add products he found in his own

research as well as products identified in Plantronics or Aliph documents and/or identified by

Plantronics personnel. Lynde Rpt. at 7-10, 16-17 and Schedule 3B. Using this refined list, Dr.

Lynde conducted further research on the identified Bluetooth headsets regarding among other

things, product features and MSRP. Lynde Rpt. at 7-10, 16-17 and Schedule 3B.4

Next Dr. Lynde identified the premium product segment of the mono Bluetooth headset

market: He concluded that the premium market is defined by retail prices at an MSRP of $99 or

more which was a price point threshold acknowledged in the market and in contemporaneous

3The patentee need not show demand for a particular feature to establish demand for the patented product, i.e. the first Panduit factor “does not require any allocation of consumer demand among the various limitations recited in a patent claim.” DePuy Spine, 567 F.3d 1314, 1330 (Fed. Cir. 2009). 4 As part of his investigation, Dr. Lynde requested the assistance of Plantronics’ personnel to review the hundreds of alleged (in most cases without foundation) noninfringing substitute products identified by Aliph in its interrogatory answers. Lynde Rep. at 9 n. 29. Working under Lynde’s supervision, the Plantronics personnel screened for criteria Dr. Lynde deemed material to determining the relevant market and market segments: monaural; Bluetooth; MSRP; in-the-ear style headset; noise cancellation or suppression technology; and commercial availability from November 2008 to the date of Dr. Lynde’s report. (Id.) On the deadline for the expert disclosures, in addition to Dr. Lynde’s and Mr. Napper’s reports, Plantronics produced Rule 26(a)(2)(c) Witnesses Disclosures identifying the personnel who performed the review, their specialized market knowledge and the underlying reports that they prepared. Id. 10



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marketing documents. Lynde Rpt. at 8. Such a distinction also naturally addresses the concern

about market segmentation across very different prices that were the subject of BIC Leisure Prods.,

Inc. v. Windsurfing Int’l, Inc., 1 F.3d 1214, 1219 (Fed. Cir. 1993) (“a patentee must show the

infringing units do not have a disparately higher price or possess characteristics significantly

different from the patented product”). Dr. Lynde further restricted the premium headset market to

headsets that “all have premium level features such as high performance on both transmit and audio

quality, noise suppression technology, [and] reduced size and weight.” (Id. at 8, and Schedules 3A-

3B.) Neither Aliph nor its damages expert dispute Dr. Lynde’s determination of the premium mono

Bluetooth headset market.5

The next step in Dr. Lynde’s premium market analysis (under Mor-Flo) was to estimate the

but-for market shares in the premium mono Bluetooth headset market. In this exercise, Aliph’s

infringing sales were reallocated to all the other competitors in the premium Bluetooth market based

on their relative market shares, including Plantronics. Thus, Plantronics was not allocated 100% of

the infringing sales, but originally was allocated around 66% (which as discussed below was further

refined). Lynde Rpt., Revised Schedule 3. The other non-infringing products and competitors were

allocated the remainder.

Thus, while Plantronics has a large market share in the overall premium market, and as a

result was allocated the largest single amount of but-for sales for Plantronics to claim as lost profits,

Dr. Lynde did not conclude his application of Mor-Flo at this point. Rather, Dr. Lynde went further

and evaluated whether and to what extent the patented concha stabilizer “formed the basis for

consumer demand.” Lynde Rpt. At 13. He focused his lost profits analysis on the style-focused

segment of the premium market. This segment of the premium market is represented not only by

Aliph’s accused Jawbone headsets, but also Plantronics’ 925, 975, and M1100 headsets that practice

5 Dr. Leonard uses this same premium market in his own market share analysis. Leonard Rpt. Exhibit 4. 11



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the ‘453 patented technology.6 Lynde Rpt. at 8. As the evidence produced in this case illustrates,

customers in this style focused premium segment, require not only high tech devices, but also have

expectations with regard to fit, comfort and performance (without having to use an ear loop or a

head band). See Sec. II.B and C, supra; Sec. III.B.2, infra; See also P-Ex. LL (125:24-126:2)

The table below summarizes Plantronics’ (and other competitors’) but-for market share of

the premium market after Aliph’s infringing sales were reallocated to other market participants

(including those Aliph sales reallocated to Plantronics products that practice the ‘453 patented

technology (i.e., 925, 975, M1100)).

But-For Market Shares after Reallocation of Aliph’s Infringing Sales

Company 11/08-12/08 2009 2010 1/11-8/11 Total

Plantronics – All

(D925/D975/M1100 Only)

52.90%

(14.10%)

59.88%

(15.18%)

73.51%

(18.04%)

68.71%

(18.80%)

65.93%

(16.79%)

Other 47.10% 40.12% 26.49% 31.29% 34.07%

Source: Lynde Report, Revised Schedule 3.

The result of this further apportionment is that Dr. Lynde’s application of the Mor-Flo

methodology results in only about 17% of Aliph’s infringing sales causing lost profits to

Plantronics. Lynde Rpt., Revised Schedules 1 and 3. As the table indicates, Plantronics had a large

share of the premium Bluetooth market, especially after removing Aliph’s infringing sales.

However, Dr. Lynde conservatively only includes in his lost profits analysis his estimate of those

sales for customers who likely chose Aliph headsets based on the style-focused design that is

achieved with the ‘453 patented technology. In addition, the fact that Plantronics would have

recaptured at least this portion of diverted sales is further supported by Dr. Lynde’s conclusion that

6 For example, Plantronics differentiates the premium segment between performance focused products like its Voyager Pro series and more style-focused products like the D925, D975 and M1100. Alternatively, Aliph’s accused Jawbone products since they are sold with an optional earloop, potentially cross-over among these two segments based on the design and functionality of the headsets. Lynde Rpt. at 8, and footnote 27. 12



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for at least a portion of the premium market there were no acceptable, non-infringing substitutes for

the infringing Aliph headsets during the accounting period. Lynde Rpt. at 12-13.

Aliph’s counsel assert that it is odd to use the plaintiff’s sales to estimate but-for sales. But it

is not odd at all; in fact, it is indeed the plaintiff’s sales that are being analyzed; and in the context of

market shares it is all the competitors sales whose historical pattern is used to estimate the but-for

sales – exactly as called for in the Mor-Flo case.

c. Panduit #3 – Manufacturing and Marketing Capacity

It is not disputed that Plantronics had the marketing and manufacturing capacity to make the

small amount of additional incremental sales that Plantronics’ is claiming as lost profits. Lynde Rpt.

at 13-14.

d. Panduit #4 – Amount of Profit

Neither Aliph nor its damages expert dispute the methods used by Dr. Lynde to determine the

incremental lost profit on each additional Plantronics headset sale in his lost profits analysis.

B. Aliph Ignores Apportionment Conducted By Dr. Lynde in the Course of Applying Mor-Flo to Facts of the Case

1. The Substantial Contribution of the Infringing Features to Consumer Demand

Plantronics should not be required to apportion consumer demand for infringing and

noninfringing features. The accused Ergo and Spout earbuds act together with the headsets to

provide the benefits sought by consumers. Without these earbuds, Aliph’s Jawbone headsets were

unable to uniquely benefit from its VAS technology and were also drawing heavy criticism of the

poor fit and related sound quality issues, see Sec. II.B. supra, which is why Aliph considered the

initial fit issues with its headsets to be a huge problem, see Id. Where, as here, two components

function together to form a complete whole, it is the value of the complete whole that must be used

for damages computations. See, e.g., Bose Corp. v. JBL, Inc., 274 F.3d 1354, 1361 (Fed. Cir. 2001)

(holding that where the patented invention “inextricably worked with other components” to provide

the benefit to consumers, it supported damages based on the value of the larger product); Paper

Converting Mach. Co. v. Magna-Graphics Corp., 745 F.2d 11, 23 (Fed. Cir. 1984) (holding that 13



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damages may rely on the value of the large product when the patentee anticipates sale of unpatented

components with patented components); Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1550 (Fed.

Cir. 1998) (same).

Accordingly, there was sound precedent for Dr. Lynde to apply Mor-Flo without

apportionment. He reasonably could have calculated lost profits on Aliph’s infringing sales

proportionate to Plantronics’ 66% market share of the premium Bluetooth market (adjusted to

remove Aliph). See Sec. III.A.2 supra. However, Dr. Lynde did not stop there but proceeded to

evaluate whether and to what extent the patented concha stabilizing feature “formed the basis for

consumer demand.” Lynde Rpt. at 13. Entirely consistent with the fundamental policy of tying

damage models to the facts of each case, he apportioned between infringing and noninfringing

features as part of his application of Mor-Flo. Id.

Dr. Lynde determined that the accused Ergo and Spout earbuds contributed substantially to

consumer demand for Jawbone headsets for a certain segment of style-focused customers based

upon the evidence of Aliph’s fit problems and copying of Plantronics’ 925 earbud, and evidence of

Aliph’s acknowledgement (i) of the critical importance of earbuds to their headsets, (ii) its best

customers and largest VCs were complaining about fit issues, (iii) “good fit drives usage and

customer satisfaction” while “bad fit erodes brand,” (iv) in addition to comfort and stability

problems with its headsets, there were “functional fit” issues attributable to unique VAS (“bad fit” if

it “does not maintain constant contact with your skin”) technologies, and (v) the infringing earbud

needed to be featured in the packaging and marketing over the other, conventional options such as

the round earbud or ear loop. Lynde Rpt. at 5-7 and fns. 13-20 (specific references). Dr. Lynde

further determined that the segment of the premium market targeted by Aliph, and for which it

directly competed with the Plantronics headsets using the patented feature, was the style focused

consumer who would not accept conventional ear loops or head bands to stabilize their headsets. Id.

at 12-13 and fns. 34-36 (specific references).

Dr. Lynde ultimately concludes that, for at least those sales in the in the style-focused

segment of the premium market, “the patented feature forms the basis of demand.” Lynde Rpt. at 13. 14



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His opinion is reliably tied to the case based on both the evidence considered by Dr. Lynde in his

report as well as the wealth of additional apportionment evidence to be supplied through

foundational testimony at trial. See e.g. Sec. II.C. supra; Napper Rpt. fns. 56-69, 75-77. Aliph

grudgingly acknowledges apportionment by Dr. Lynde, but ignores and mischaracterizes the ample

evidence he relied upon. Essentially, there is a dispute over the weight to be given the

apportionment evidence that is properly decided by the fact finder and not the Daubert gatekeeper.

2. 450,000 Reasons (and Other Evidence) Why 2008 Sales Do Not Refute the Reliability of Dr. Lynde’s Apportionment

Aliph introduces sales data and market share information for a limited time before and after

the infringement began in 2008. Aliph alleges that since there was limited or no change in these

comparisons the infringing feature had little impact on demand. This logic cannot hold given the

fact that during this period Aliph provided massive quantities of the accused Ergo (aka “New Fit”)

earbuds to customers that had already purchased noninfringing Jawbone headsets. Specifically,

Aliph initially provided 42,500 units of a beta version of its New Fit earbuds (i.e. “beta bags”) free

of charge to customers via its website and into the retail and carrier channels in November 2008. P-

Exs. NN, OO, PP. This “beta bag” inventory was depleted in the first two weeks due to

“skyrocketing demand.” P-Ex. RR. In addition, Aliph’s “Final Bag Solution” consisted of providing

450,000 “Baggies” beginning in the December 2008 period, which were the same as the New Fit

“beta” earbuds but were “without the ‘Beta’ indicator.” Napper Rpt. 71-72. These final baggies

were distributed into Aliph’s sales channels “based on the assumption that [it would] need 1 baggie

per inventory currently in stores.” Id. fn. 73. Thus, the sales and market share comparisons

proffered by Aliph are wholly unreliable indicators of the true impact of the infringing features on

demand. P-Ex. QQ.

The comparative data is further suspect in view of the effects of the across the board decline

in sales and revenue that Aliph’s CFO testified hit Aliph in late 2008 due to the onset of what

economists have identified as the deepest recession since the 1930s. P-Ex. X. Given these

simultaneous events, Dr. Lynde concluded that the sales data available were insufficient to prove the 15



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impact, or lack thereof, due to the Aliph’s hurried introduction of the infringing ear buds. See also

P-Ex. LL (31:18-32:3).

3. A Consumer Survey Was Not Required and In Any Event Would Have Been of Limited Value

Aliph also challenges that Dr. Lynde’s apportionment based on his failure to conduct a

consumer survey showing impact of the infringing feature on demand. The same argument was

rejected by the court in Bose Corp. v. JBL, Inc:

JBL argues that there is no evidence (such as a customer survey) that the average customer purchased a loud speaker because of an elliptical port tube. This is an unfair way of framing the issue. Few purchasers of home electronics are aware of the design and function of each internal component, but by all accounts purchasers of high-end speaker systems value sound quality and performance above all else. Mr. Harary, Brand Manager of Infinity Systems, said it best: “[N]obody wants to buy something that sounds bad or makes weird noises.”

In sum, I find that Bose produced sufficient, unrebutted evidence that the ‘721 invention contributed substantially to consumer demand and to overall sales of the Acoustimass and Lifestyle products.

Bose Corp. v. JBL, Inc., 112 F.Supp.2d 138, 160 (2000), aff’d, Bose Corp. v. JBL, Inc., 274 F.3d 1354, 1361 (2001).

Bose shows that a consumer survey is not required in every case and that where, as here, the

connection between a patented technology critical to realizing performance benefits (think

“functional fit” required by VAS) is difficult to frame in a meaningful survey question for the

average consumer, a survey is of limited value. As expressed by the brand manager in Bose “nobody

wants to buy something that sounds bad or makes weird noises [or falls out of their ear].” Aliph, by

its words and deeds, has acknowledged over and over again the critical role played by the patented

concha stabilizer in addressing this same demand of Jawbone headsets.

4. Plantronics’ Testimony On the Critical Role of Fit in the Hiearchy of Headset Features

Aliph describes the headset of each company as having “bundles” of features that are

different from the “bundles” of features in the headsets of others. See Mot at 14 and 16. Aliph

never asked whether the fit provided by the patented feature is more important than other features.

It is, indeed crucial. See, e.g., Sec. II.B. supra. Having ignored the evidence that the fit provided by

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the patented feature resides atop a hierarchy, Aliph cannot exclude Dr. Lynde based simply upon

listing other, less important features that attract demand only when essential features like fit are

provided.

For example, Aliph cites testimony from Jeff Ducote where he was asked about features that

may drive demand. Aliph never asked whether these features were of equal significance. Three

headset features are the base upon which all other features are considered: (i) comfort and fit, (ii)

design, and (iii) audio performance. Ducote Decl.¶3. Just as few people would buy a car missing

its engine no matter how much they like the color, most people will not buy a headset unless it

comfortably fits the buyer’s ear, is aesthetically desirable and performs as the buyer expects. Id.

The ear interface or earbud used with the headset is critical to achieving each and every one of the

three base features. Id. ¶4. This anticipated trial testimony by Ducote as well as other evidence from

both Plantronics and Aliph witnesses, see Sec. II.B. supra, shows that Aliph’s motion hangs on the

hope that the court will ignore volumes of evidence at odds with that selectively presented in the

moving papers.

IV. MR. NAPPER’S DAMAGES OPINIONS ARE ADMISSIBLE

A. Mr. Napper Reliably Ties His Use of the Well-Accepted Georgia-Pacific Methodology To The Facts of This Case

Mr. Napper’s applies the well-accepted Georgia-Pacific factors to frame his determination

of a reasonable royalty. Riles v. Shell Exploration and Production Co., 298 F.3d 1302, 1311 (Fed.

Cir. 2002); Georgia-Pacific Corp. v. U.S. Plywood, 318 F. Supp. 116 (S.D.N.Y. 1970). These

factors properly tie the reasonable royalty calculation to the facts of the hypothetical negotiation

between Plantronics and Aliph shortly before the infringement began. Uniloc, 632 F.3d at 1317.

Mr. Napper’s evidence applying these factors is tied to the relevant facts and circumstances of this

case and accordingly his opinions are admissible and reliable. Id.

In its Motion to Strike, Aliph overlooks the evidence Mr. Napper considered and twists Mr.

Napper’s extensive, fact-based analysis into three meritless attacks on his methodology. First,

Aliph argues that Mr. Napper failed to properly apportion his royalty between the value of patented 17



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and unpatented features in the end products, the Aliph Bluetooth headsets. But Aliph ignores that

Mr. Napper predicated his analysis on comparable agreements covering the smallest salable unit—

an earbud combining an ear cushion and the patented concha-stabilizer—the entire market value

rule therefore is not implicated by his analysis. Second, Aliph asserts that Mr. Napper failed to

account for noninfringing alternatives. Mr. Napper, however, specifically analyzes the alternatives

available to Aliph, including continued use of noninfringing round earbuds and ear loops as well

as the introduction of the AVAD technology in October 2008, none of which resolved the poor fit

and resulting performance issues for Aliph’s Jawbone headsets. Third, Aliph makes the conclusory

accusation that Mr. Napper’s $1.00 per unit royalty is speculative and without economic or

quantitative support, but identifies no actual flaws in Mr. Napper’s calculations or the facts

underlying them.

B. Mr. Napper Properly Analyzed Per Unit Data Points That Account for the Smallest Salable Unit, And Therefore Does Not Apply the Entire Market Value Rule

Aliph’s argument that Mr. Napper’s reasonable royalty analysis improperly includes unpatented

features and fails to apportion value between patented and unpatented features in the hypothetical

negotiation—essentially, accusing Mr. Napper of failing to correctly apply the entire market value

rule (“EMVR”)—is legally flawed.7 (Mot. at 21-23.) Aliph incorrectly assumes, as a threshold

matter, that the EMVR is implicated in this case. The EMVR, however, is an exception to the

requirement to determine the smallest saleable unit when arriving at a reasonable royalty. Uniloc,

7 Aliph argues that Mr. Napper’s opinion was excluded in Apple, Inc. v. Motorola, Inc., 2012 WL 1959560 (N.D. Ill. May 22, 2012) on similar grounds: that his apportionment analysis was lacking. (Mot. at 22, n. 6.) Aliph’s blatant and repeated attempts to influence this court’s review of the admissibility and reliability of Mr. Napper’s opinions in this case with the decision of the district court judge in Apple are offensive and ill-founded. There are important distinctions between Apple and this case. In Apple, Mr. Napper was not criticized for invoking the EMVR; rather, Mr. Napper performed a complex, multi-step EMVR analysis based on consumer survey evidence to apportion value between software-based functionality and Motorola’s device, with which the Illinois district court took issue, Apple, Inc. 2012 WL 1959560 at *4-5. There were no licenses or offers available for the patented software inventions or related inventions. Id. In contrast, in this case, there are offers and relevant agreements based on the smallest salable unit, which when used as a basis for Mr. Napper’s royalty rate, renders further apportionment uncessary Mr. Napper has testified five times at trial since the Apple decisions without any exclusion. See Napper Rpt., Ex. 1. Nor had his opinions been excluded in any of the more than 40 trials and 90 depositions in which he testified prior to Apple. (Id.) The same result should obtain here. 18



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632 F.3d at 1318, citing Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1336 (Fed. Cir. 2009).

Here, to arrive at his reasonable royalty, Mr. Napper relied on evidence of comparable royalty rates

covering the smallest salable patent-practicing unit – earbuds having the patented concha-stabilizer

feature – from agreements and license negotiations and used those data points as the basis for his

royalty rate. As such, Mr. Napper’s royalty rate is already apportioned to the smallest salable

patent-practicing unit. Reliance on such evidence as a basis for a royalty rate does not implicate the

EMVR. Versata Software, Inc., 717 F.3d at 1255 (holding that the reasonable royalty did not

violate EMVR where the expert, while accounting for all infringing sales, applied the royalty rate to

only some but not all sales), citing LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51, 67

(Fed. Cir. 2012); see also Broadcom Corp. v. Emulex Corp., 2011 WL 7560650, at *14 (C.D. Cal.

Dec. 13, 2011) (“The requirements of the EMVR must be met only if the royalty base is not the

smallest saleable unit with close relation to the claimed invention”). Mr. Napper did exactly as he is

required to do. Indeed, Mr. Napper’s royalty rate, which is already apportioned to reflect the value

of the patented invention as it relates to the smallest salable unit, does not fluctuate with the price of

the end product, further illustrating that he does not rely on the value of the end product and the

EMVR is not implicated. Ericsson, Inc. v. D-Link Corp. 2013 WL 2442444 at *3 (E.D. Tex. May

21, 2013), citing SynQor, Inc. v. Artesyn Techs., Inc., 709 F.3d 1365, 1383 (Fed. Cir. 2013).

Aliph’s argument is predicated on inapposite cases excluding expert reports for failure to tie

the reasonable royalty closely enough to the patented feature. (Mot. at 22, citing Dynetix Design

Solutions, Inc. v. Synopsis, Inc., 2013 WL 4538210 at *4 (N.D. Cal. Aug. 22, 2013); Oracle Am.,

Inc. v. Google Inc. (“Oracle 2012”), 847 F. Supp. 2d 1178 (N.D. Cal. 2012); Oracle Am. Inc. v.

Google Inc. (“Oracle 2011”), 798 F. Supp. 2d 1111 (N.D. Cal. 2011)). In Dynetix, even though the

expert based the royalty on the smallest salable unit, the court determined that the expert should

have conducted additional apportionment because the smallest salable unit was an entire multi-

component product and was not closely tied to the patented feature, which was just one component

in an optional feature of the larger, multi-component product. See Dynetix, 2013 WL 4538210 at

*3-4. Similarly, in Oracle 2011, the Court held that the expert failed to tie his analysis to the 19



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specific patent claims at issue, instead, using the entire Java platform as a stand-in for the asserted

claims and the entire Android platform as the royalty base. See Oracle 2011, 798 F. Supp. 2d at

1115. In Oracle 2012, the expert’s second attempt at a reasonable royalty opinion, the expert used

as a starting place for a reasonable royalty a real-world negotiation between the parties that

included an offer to license thousands of software features, but failed to evaluate the value of the

specific features of the Java technology in suit as compared to the remainder of the features offered.

See Oracle 2012, 847 F. Supp. 2d at 1185-86. Here, in contrast, Mr. Napper establishes that the

smallest salable unit – the accused earbud combining an ear cushion and the patented concha-

stabilizer – is closely tied to the patented features and he also considered license agreements

comparable to the hypothetical negotiation for the patented features. Napper Rpt. at 11-12, 15-16,

29-30, 33-36, 37-8. Aliph’s “apportionment” criticisms legally miss the mark and Mr. Napper’s

reasonable royalty opinion should not be excluded on this ground.

1. Mr. Napper Analyzes the , Which Applies Only to the Earbud Portion of the End Product

Mr. Napper considers an agreement between Plantronics and , which relates only to

earbuds—the smallest salable unit. Plantronics and entered into a

whereby Plantronics exclusively manufactured earbuds for

Napper Rpt. at 19-20. The was limited to payment

for Plantronics’ production of the earbud covered by the ‘453 patent. Id. As Mr. Napper notes, the

is tied specifically to the ‘453 patent and the benefits of the technology: An added feature of this headset is a patented product that increases comfort and wearability provided to us by the headset manufacturer. The products are called Ear- Budeez™. They are colored rubberized stabilizers that go over the speaker…The Ear- Budeez™ provide stabilization of the earbud speaker for extended wear comfort. They also increase the fit of the earbud speaker from approximately 80% of the market to almost 95%. This means that more people will be able to comfortably wear a headset with the Ear-Budeez™ attached than a similarly sized competitive headset without.” (Napper Rpt. at 19-20; Att. 5B)

From the , Mr. Napper calculated that Plantronics’ estimated gross

margins per earbud unit ranged from . Napper Rpt. at 20. This calculation is 20



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separate, limited to the patented earbud portion provided to prior to its incorporation into

the headsets, and does not depend on the value of the end headset product—exactly as

required by Federal Circuit law.

Aliph impugns Mr. Napper’s methodology, but its own expert utilized the same information

to arrive at his reasonable royalty opinion. Aliph’s damages expert, Mr. Leonard, agrees that the

is indicative of the incremental value added by the ‘453 patent. Leonard Rpt.

¶ 68. Mr. Leonard also recognized that there is no data in the that would

enable further apportionment of the selling price of the earbud product specifically to the invention

covered by the ‘453 patent. Id. Aliph’s only real issue is with the weight Mr. Napper accords the

, which is not proper grounds for exclusion under Daubert.

2. Mr. Napper Analyzes Plantronics’ the ‘453 Patent to

Mr. Napper also considered and relied upon negotiations between Plantronics and for

a license to the ‘453 patent. Licenses to and offers to license the patent-in-suit carry “considerable

weight in calculating a reasonable royalty rate.” The Boeing Co. v. U.S., 86 Fed. Cl. 303, 312

(2009), quoting Unisplay, S.A. v. American Elec. Sign Co., Inc., 69 F.3d 512, 519 (Fed. Cir. 1995);

see also Carnegie Mellon Univ. v. Marvell Tech Grp. Ltd., 2012 WL 5451567 at *4 (W.D. Pa Nov.

7, 2012) (finding that offer to license not excluded because, among other reasons, it “provides

insight as to the position [plaintiff] may have taken during the hypothetical negotiation as to the

type of royalty and the value of the royalty”); Barnes & Noble, Inc. v. LSI Corp., 2012 WL

1029939 at *13-14 (N.D. Cal. Mar. 26, 2012) (regarding relevance of draft license agreements,

noted that “Federal Circuit has held that draft license agreements and proposals, depending on their

comparability, may be relevant to determining a reasonable royalty” and citing cases).

The relates specifically to the technology covered by the ‘453 patent and

includes a per unit royalty assessed for the patented concha-stabilizer. Plantronics was approached

by for a license to the ‘453 patent, for which Plantronics proposed a per unit

of earbuds – the smallest salable unit. Napper Rpt. at 21-25. Rather than simply adopting that

proposal wholesale as the reasonable royalty Plantronics and Aliph would have agreed to in their 21



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hypothetical negotiation, as Aliph’s expert Mr. Leonard does, Mr. Napper conducted extensive

analysis on the , including calculating a range of effective royalty rates and the

comparable effective royalty rate adjusted for Aliph’s profitability. Napper Rpt. at 21. Mr. Napper

also considers the context and circumstances surrounding the . Id. For example, Mr.

Napper considered that the agreement was “going to be a very restricted license because

[Plantronics] would have a veto over the… recipient…of headsets with the earbud made by

” Id. at 21-22 and required that only sell Bluetooth headsets with the patented ear

bud “attached or included, and not as a separate item” in order “to prevent large quantities of loose

ear buds from getting into the hands of the wrong party” such as Plantronics competitors. Id. The

, which is linked directly to the patented technology, not to end products incorporating

other, non-patented features, is another data point on which Mr. Napper properly based his

reasonable royalty opinion.

3. Mr. Napper Considered Comparable Licenses That Contain a Per Unit Royalty on End Product Sales

Aliph’s argument for “apportionment” predicated upon application of the EMVR fails to

recognize that, in the mono Bluetooth headset market, parties customarily agree to per unit royalty

rates for earbuds, whether sold separately or with the headset (in other words, assessed on end

product sales of headsets). Courts have recognized that it is economically justified to assess a per

unit royalty rate for the accused component on end product unit sales – without implicating the

EMVR – where there is reliable evidence supporting such a structure. See Mondis Tech., Ltd. v.

LG Elecs., 2011 WL 2417367 at *3 (E.D. Tex. June 14, 2011) (stating that “even when the patented

invention is a small component of a much larger commercial product, awarding a reasonable

royalty based on either sale price or number of units sold can be economically justified”) (quoting

Lucent, 580 F.3d at 1336, 1339)); see also Microsoft Corp. v. Motorola, Inc., 904 F. Supp. 2d 1109,

1119 (W.D. Wash. 2012) (“the court declines to adopt a per se rule that a royalty rate may never be

applied to the entire product price without satisfaction of the entire market value rule,” stating that

“district courts have permitted license agreements based on the entire product value as evidence of 22



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a reasonable royalty rate despite a lack of showing that the patented feature formed the basis for

customer demand”) (citing cases).

In addition to the offer and agreements relating to the patented concha stabilizer, Mr. Napper

considered comparable licenses containing per unit royalties assessed on end product unit sales.

Napper Rpt. at 19-27. Mr. Napper also considered Plantronics’ license agreements related to

technology, software, and/or patents for headsets, including an agreement with

related to Bluetooth mono headset products, each of which provides for a per unit royalty. Id. at

37. Indeed, Mr. Leonard relies upon the same agreements to conclude that a per unit royalty for the

earbuds assessed on end product unit sales is the proper structure. Leonard Rpt. ¶ 62. Thus, Mr.

Napper properly considered the industry-accepted practice of applying per unit earbud royalties to

end product headset unit sales.

C. Mr. Napper Properly Considers the Available Evidence Regarding Alleged Noninfringing Alternatives

Aliph’s second attack centers on the allegation that Mr. Napper “never considered – let alone

calculated the economic impact of – alternatives to pursuing a license[.]” Mot. at 24. Aliph is

simply wrong. Specifically, in his analysis of Georgia-Pacific Factor 9, Mr. Napper considers and

accounts for Aliph’s non-accused alternatives. Aliph’s issue is that it cannot change the facts: the

non-infringing alternatives were simply inferior to and less desirable than the patented technology.

Aliph notes that it “initially sold Jawbone 1 and Jawbone 2 products without the Accused

Earbud, and continued to sell Jawbone 2 products with a choice of numerous ear fasteners, only

one of which is accused.” Mot. at 24. The problem for Aliph is that the truth is inconvenient: as

discussed in Section II.B. supra, the evidence establishes that Aliph had received substantial

negative feedback related to the earbud fit of its Jawbone 2 product following the product launch

and the company realized that “fit” was a significant issue which was driving product returns

driving Aliph to release the infringing New Fit (or Ergo) earbud only six months later. Napper Rpt.

at 35.

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Mr. Napper considered the facts related to the fit issues and the alternatives available to

Aliph in Georgia-Pacific Factor 9. Mr. Napper quantified the increased profit per unit achieved by

reducing the actual return rate of 15-20% to its target rate of 10% for sales of its Jawbone 2 and

future generation Jawbone products, including Prime, Icon, and Era, resulting in additional per unit

profits of $0.80 to $1.60. Id. at 36; Att. 6. Conversely, had Aliph chosen to forego using the

accused earbuds and instead continued to sell the predecessor products with higher return rates, Mr.

Napper estimated the negative impact on per unit profit. Id. at 36.8

Aliph also ignores the evidence of its own research comparing the effectiveness of its

products with and without the accused technology. As discussed above in Section II.B and C,

supra, it was crucial for Aliph that it solve the “fit” problems and related performance issues. See

also Napper Rpt. at 13.

Aliph conducted research that found that the new infringing earbud design allowed for 100%

of wearers to achieve VAS contact versus “83% of old earbud wearers.” Id. at 15, 29, 31, 33.

Shortly thereafter, Aliph distributed nearly a half million baggies containing infringing earbuds to

existing customers as a curative measure and included the accused earbuds with its new headsets –

meaning that the actual alternative chosen by Aliph to remedy its fit and performance issues was

the infringing technology. See Section II.C., supra: see also Napper Rpt. at 15-16.

In his analysis of Aliph’s research and financial statements, Mr. Napper considered that

Aliph could have chosen not to introduce the accused earbuds, thereby choosing not to solve its

performance issues. Napper Rpt. at 33-36 However, the considerable negative economic impacts

on Aliph – such as forgoing sales to 17% of potential consumers due to the inability to achieve

proper VAS contact – dwarfs the hypothetical reasonable royalty expenditure. Aliph’s objections

to Mr. Napper’s findings go to the weight that should be afforded Mr. Napper’s testimony, a jury

issue, not his methodology for analyzing Aliph’s alternatives.

8 In fact, Mr. Napper’s analysis understates the value of the accused technology to Aliph because it excludes other likely impacts on Aliph, such as lower customer satisfaction, less usage, and brand degradation caused by poor earbud “fit” and performance. Napper Rpt. at 36-37. 24



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D. Mr. Napper’s Reasonable Royalty Rate is Based on Sound Economic and Factual Predicates

Aliph accurately states that a “reasonable royalty ‘hypothetical negotiation’ analysis ‘requires

sound economic and factual predicates.’” Riles, 298 F.3d at 1311. Aliph’s criticism of Mr. Napper’s

economic analysis and quantitative calculations amounts to a conclusory statement that “Napper

provides no sound economic analysis or quantitative support that would allow a jury to accept his $1

per unit royalty without resorting to speculation.” Mot. at 25. Aliph offers no support for this

contention, nor can it. As described above, Mr. Napper’s royalty rate determination is the result of

his application of the fifteen Georgia-Pacific factors, which involved consideration of comparable

license agreements and offers, economic calculations of effective royalty rates and margins,

analyses of the patented features and benefits, multi-level profitability metrics, and comparison of

the economic effects of alternatives available to Aliph. In sum, Mr. Napper’s methodology for

determining his opinion of the applicable reasonable royalty for the patent-in-suit is reliable,

supported by economic analysis and quantitative support, and should not be excluded.

V. CONCLUSION

For all of the reasons discussed, there is no justification for excluding the opinions of Dr.

Lynde and Mr. Napper and Aliph’s motion to strike should be denied.

Dated: January 24, 2014

VALOREM LAW GROUP, LLP

By: /s/ David C. Bohrer David C. Bohrer

Attorneys for Plaintiffs PLANTRONICS, INC

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CERTIFICATE OF SERVICE

I hereby certify that on January 24, 2014, I electronically filed the foregoing with the Clerk

of the Court using the CM/ECF system which will send notification of such filing to the e-mail

address on file with the Clerk of the Court.

Dated: January 24, 2014

/s/ David C. Bohrer David C. Bohrer

Plaintiff’s Opp. to Motion to Strike Damage Reports



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