Nichia Corporation v. VIZIO, Inc.

OPPOSITION re: NOTICE OF MOTION AND MOTION to Exclude Certain Opinions of Nichia's Expert Witness John C. Jarosz 176

C.D. Cal.November 5, 2018

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Nichia’s Opposition to VIZIO’s Motion to Exclude Case No. 8:16-cv-00545-SJO-MRW SNELL & WILMER LLP William S. O’Hare (#082562) wohare@swlaw.com Deborah S. Mallgrave (#198603) dmallgrave@swlaw.com 600 Anton Boulevard, Suite 1400 Costa Mesa, CA 92626-7689 Telephone: 714-427-7000 Facsimile: 714-427-7799 PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP Kenneth A. Gallo (pro hac vice) kgallo@paulweiss.com David E. Cole (pro hac vice) dcole@paulweiss.com 2001 K Street, NW Washington, DC 20006-1047 Telephone: 202-223-7300 Facsimile: 202-223-7420 Catherine Nyarady (pro hac vice) cnyarady@paulweiss.com Daniel J. Klein (pro hac vice) daklein@paulweiss.com 1285 Avenue of the Americas New York, NY 10019-6064 Telephone: 212-373-3000 Facsimile: 212-757-3990 Attorneys for Plaintiff Nichia Corporation UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA WESTERN DIVISION Nichia Corporation, Plaintiff, v. VIZIO, Inc., Defendant. Case No. 8:16-cv-00545-SJO-MRW Nichia’s Opposition to VIZIO’s Motion to Exclude Certain Opinions of Nichia’s Expert John C. Jarosz Hearing: Nov. 26, 2018 at 10:00 AM Before: The Honorable S. James Otero Case 8:16-cv-00545-SJO-MRW Document 189 Filed 11/05/18 Page 1 of 25 Page ID #:8597 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - i - Nichia’s Opposition to VIZIO’s Motion to Exclude Case No. 8:16-cv-00545-SJO-MRW TABLE OF CONTENTS I. INTRODUCTION ........................................................................................... 1 II. STATEMENT OF FACTS .............................................................................. 3 A. Dr. Wetzel’s Identification of the Patent-Practicing Unit in VIZIO’s Accused Televisions .......................................................... 3 B. Mr. Jarosz’s Damages Analysis ............................................................ 5 III. LEGAL STANDARD ..................................................................................... 8 IV. ARGUMENT REGARDING ROYALTY BASE ........................................ 10 A. Mr. Jarosz’s Reliance on the Backlight Component Costs as the Royalty Base for the ’092 Patent is Proper .............................. 10 B. Mr. Jarosz Further Apportioned the Royalty Base to Account for Unpatented Features in the Base .................................... 14 C. Mr. Jarosz’s Reliance on the Backlight System as the Royalty Base Does Not Risk Biasing the Jury ................................... 17 V. ARGUMENT REGARDING IPR COSTS ................................................... 19 A. The IPR Costs Are Proper Damages Under Section 284 ................... 19 B. Section 285 May Not Be Applicable .................................................. 19 C. VIZIO’s Cases Do Not Support Its Conclusion ................................. 20 D. Mr. Jarosz Was Entitled to Rely on Counsel ...................................... 20 VI. CONCLUSION ............................................................................................. 20 Case 8:16-cv-00545-SJO-MRW Document 189 Filed 11/05/18 Page 2 of 25 Page ID #:8598 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - ii - Nichia’s Opposition to VIZIO’s Motion to Exclude Case No. 8:16-cv-00545-SJO-MRW TABLE OF AUTHORITIES Page(s) CASES Apple Inc. v. Motorola, Inc., 757 F.3d 1286 (Fed. Cir. 2014) .............................................................. 10, 11, 13 Cal. Inst. of Tech. v. Hughes Commc’ns Inc., No. 213CV07245, 2015 WL 11089496 (C.D. Cal. May 5, 2015) ..................... 18 Credit Acceptance Corp. v. Westlake Services, LLC, No. CV13-01523 JSO, 2015 WL 12860462 (C.D. Cal. Nov. 2, 2015) ................................................................................................................... 20 Eidos Display, LLC v. Chi Mei Innolux Corp., No. 6:11-cv-00201-JRG, 2017 WL 1322555 (E.D. Tex. Apr. 6, 2017) ............ 17 Ericsson, Inc. v. D-Link Sys., Inc., 773 F.3d 1201 (Fed. Cir. 2014) ...................................................... 2, 9, 10, 14, 18 Exmark Mfg. Co. v. Briggs & Stratton Power Prods. Grp., LLC, 879 F.3d 1332 (Fed. Cir. 2018) ............................................................ 2, 9, 15, 17 Finjan, Inc. v. Blue Coat Sys., Inc., 879 F.3d 1299 (Fed. Cir. 2018) .......................................................................... 16 Mahurkar v. C.R. Bard, Inc., 79 F.3d 1572 (Fed. Cir. 1996) ............................................................................ 19 MiiCs & Partners, Inc. v. Funai Elec. Co., No. CV 14-804-RGA, 2017 WL 6268072 (D. Del. Dec. 7, 2017) .................... 18 Plastic Omnium Advanced Innovation and Research v. Donghee America, Inc., ---F. Supp. 3d---, No. 16-187-LPS, 2018 WL 2316637 (D. Del. May 22, 2018) ............................................................................................................... 9 Salazar v. HTC Corp., No. 216CV01096JRGRSP, 2018 WL 1783157 (E.D. Tex. Apr. 13, 2018) ............................................................................................................. 10, 11 Sonos, Inc. v. D & M Holdings Inc., 297 F. Supp. 3d 501 (D. Del. 2017) ................................................................... 18 Case 8:16-cv-00545-SJO-MRW Document 189 Filed 11/05/18 Page 3 of 25 Page ID #:8599 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - iii - Nichia’s Opposition to VIZIO’s Motion to Exclude Case No. 8:16-cv-00545-SJO-MRW Summit 6, LLC v. Samsung Elecs. Co., 802 F.3d 1283 (Fed. Cir. 2015) ................................................................ 3, 10, 11 Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011) .......................................................................... 18 Unisplay, S.A. v. Am. Elec. Sign Co., 69 F.3d 512 (Fed. Cir. 1995) .............................................................................. 13 Verinata Health, Inc. v. Ariosa Diagnostics, Inc., ---F. Supp. 3d---, No. 12-cv-05501-SI, 2018 WL 3472168 (N.D. Cal. July 19, 2018) ....................................................................................................... 9 VirnetX, Inc. v. Cisco Sys., Inc., 767 F.3d 1308 (Fed. Cir. 2014) ...................................................... 2, 9, 11, 14, 15 STATUTES 35 U.S.C. § 284 .................................................................................................. 18, 19 OTHER AUTHORITIES Fed. R. Evid. 703 ..................................................................................................... 10 Case 8:16-cv-00545-SJO-MRW Document 189 Filed 11/05/18 Page 4 of 25 Page ID #:8600 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 1 - Nichia’s Opposition to VIZIO’s Motion to Exclude Case No. 8:16-cv-00545-SJO-MRW I. INTRODUCTION VIZIO’s motion to exclude the testimony of Nichia’s damages expert, John Jarosz, focuses solely on how Mr. Jarosz selected his royalty base for the ’092 patent.1 But this is nothing more than a disagreement over the scope of the asserted ’092 patent claims, which is a dispute best left to the jury upon hearing the testimony of the parties’ technical experts. VIZIO’s motion does not seek to exclude Mr. Jarosz’s testimony based on the appropriate royalty rate to be applied. Nor can VIZIO dispute that Mr. Jarosz performed an apportionment analysis with the goal of isolating the contribution of the patented technology to VIZIO’s accused television products. Rather, VIZIO merely disputes Mr. Jarosz’s reliance on the backlight unit of those accused televisions as his royalty base in calculating the appropriate royalty owed for VIZIO’s infringing televisions. In reading VIZIO’s motion, one might think that Mr. Jarosz relied on the backlight unit as the royalty base without basis, but that is decidedly not so. Rather, Mr. Jarosz identified the backlight unit as the smallest saleable patent- practicing unit (“SSPPU”) in VIZIO’s accused televisions—an approach for identifying the royalty base long-endorsed by the Federal Circuit—as informed by the reasoned opinions of Nichia’s technical expert Dr. Christian Wetzel. Dr. Wetzel has opined that the ’092 patent claims are directed to controlling the brightness of LEDs using pulse width modulation based on the image to be displayed. That invention is implemented through the backlight unit, an array of LEDs that illuminates the display of VIZIO’s accused televisions, and that backlight componentry is essential for practicing the ’092 patent claims in those accused televisions. Hence, Mr. Jarosz had sufficient and reliable basis for identifying the backlight system as the royalty base for his damages calculation. 1 VIZIO’s motion is properly considered its first motion in limine. Case 8:16-cv-00545-SJO-MRW Document 189 Filed 11/05/18 Page 5 of 25 Page ID #:8601 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 2 - Nichia’s Opposition to VIZIO’s Motion to Exclude Case No. 8:16-cv-00545-SJO-MRW VIZIO’s disagreement over Mr. Jarosz’s royalty base thus does not justify excluding Mr. Jarosz’s testimony. There is no legal requirement that Mr. Jarosz use a royalty base that does not encompass the features or components that carry out the asserted patent claims, nor is there any legal requirement that the royalty base must be apportioned to the point where no unpatented features remain. That position would rewrite years of Federal Circuit precedent. Notably absent from VIZIO’s motion is any argument, other than a superficial footnote, that Mr. Jarosz engaged in a thorough apportionment analysis through the royalty rate, in addition to reliable, competent apportionment analysis of the royalty base. Apportionment of a damages calculation may occur in the royalty rate, the royalty base, or a combination of both. Ericsson, Inc. v. D-Link Sys., Inc., 773 F.3d 1201, 1226 (Fed. Cir. 2014). As the Federal Circuit has explained, the identification of the SSPPU “may be approximate” so long as said unit has a “sufficiently close relation to the claimed functionality.” VirnetX, Inc. v. Cisco Sys., Inc., 767 F.3d 1308, 1329 (Fed. Cir. 2014). That is what Mr. Jarosz did. Nor did he stop there. Recognizing that the backlight system includes unpatented components, Mr. Jarosz further apportioned this damages calculation by applying a lower royalty rate that accounts for unpatented features. See, e.g., Jarosz Rpt. at 51-52 (“In addition to using the SSPPU to apportion the royalty base, I have further allocated or apportioned for the value of the patented inventions through use of [licensing evidence and other evidence” to “select[] an appropriate royalty rate to be applied to the infringing base.”). This is fully compliant with the Federal Circuit’s directive that apportionment of damages can be conducted in a number of ways, whether it be by apportionment of just the royalty base, just the royalty rate, or some combination thereof. See Ericsson, 773 F.3d at 1226; see also Exmark Mfg. Co. v. Briggs & Stratton Power Prods. Grp., LLC, 879 F.3d 1332, 1348 (Fed. Cir. 2018). Case 8:16-cv-00545-SJO-MRW Document 189 Filed 11/05/18 Page 6 of 25 Page ID #:8602 Case 8:16-cv-00545-SJO-MRW Document 189 Filed 11/05/18 Page 7 of 25 Page ID #:8603 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 4 - Nichia’s Opposition to VIZIO’s Motion to Exclude Case No. 8:16-cv-00545-SJO-MRW As Nichia’s technical expert Dr. Wetzel has explained, the invention is directed to accomplishing image-driven brightness control of LEDs through pulse- width modulation, a function carried out in a display device, such as a backlight unit. Wetzel Rpt. ¶¶ 55, 250-60. This is also apparent from the specification of the ’092 patent, which states: “The LED display device according to the present invention has an LED display device comprising the light emitting devices of the present invention arranged in a matrix and a drive circuit which drives the LED display device according to a display data which is input thereto.” ’092 patent at 5:33-37 (emphasis added). The ’092 patent specification further explains the claimed control unit “retrieves data from the RAM 603 and computes the duration of lighting the light emitting diodes of the LED display device 601, then outputs pulse signals for turning on and off the light emitting diodes to the LED display device 601. In the display device constituted as described above, the LED display device 601 is capable of displaying images according to the pulse signals which are input from the drive circuit.” ’092 patent, 21:17-24 (emphasis added); see also Wetzel Op. Rpt. ¶ 250; Wetzel Tr. at 51:7-14; 140:25-141:7. More specifically, Dr. Wetzel opined that the ’092 patent claims are directed to image- based dimming in a display, implemented through varying the illumination of the LEDs in a backlight unit. See, e.g., id. ¶ 250-260; Wetzel Rebuttal Rpt. ¶ 318 (“Rather, the ’092 patent is directed at creating inconsistent levels of brightness in the backlight.” (emphasis added)); Wetzel Tr. at 140:25-141:7. Therefore, the mere discrete components of a control unit, driver, and LED would not suffice to practice the patent claims. In VIZIO’s accused products, LED televisions, the ’092 patent claims are implemented through the backlight unit, as indicated by Dr. Wetzel’s infringement analysis. Dr. Wetzel explained in his report that the ’092 patent is used in VIZIO’s accused products to “control the brightness of the LEDs in the backlight.” Wetzel Op. Rpt. ¶ 236; see also id. ¶ 240 (“The MT5580 microprocessor and the AMS Case 8:16-cv-00545-SJO-MRW Document 189 Filed 11/05/18 Page 8 of 25 Page ID #:8604 Case 8:16-cv-00545-SJO-MRW Document 189 Filed 11/05/18 Page 9 of 25 Page ID #:8605 Case 8:16-cv-00545-SJO-MRW Document 189 Filed 11/05/18 Page 10 of 25 Page ID #:8606 Case 8:16-cv-00545-SJO-MRW Document 189 Filed 11/05/18 Page 11 of 25 Page ID #:8607 Case 8:16-cv-00545-SJO-MRW Document 189 Filed 11/05/18 Page 12 of 25 Page ID #:8608 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 9 - Nichia’s Opposition to VIZIO’s Motion to Exclude Case No. 8:16-cv-00545-SJO-MRW royalties. The calculation of a damages award in the form of a reasonable royalty must be directed at compensating the patent owner for the value of what was taken; namely, the patented technology. Ericsson, 773 F.3d at 1226. “When the accused infringing products have both patented and unpatented features, measuring this value requires a determination of the value added by such features.” Id. But contrary to VIZIO’s recitation of the law, there is no per se requirement that the apportionment occur entirely and exclusively in the royalty base or that the royalty base be totally devoid of unpatented features. Rather, it has long been the law that, in performing this apportionment exercise, the damages expert can apportion the royalty base, the royalty rate, or a combination of the two. Ericsson, 773 F.3d at 1226; see also Exmark, 879 F.3d at 1348 (“[A]pportionment can be addressed in a variety of ways, including by careful selection of the royalty base to reflect the value added by the patented feature or by adjustment of the royalty rate so as to discount the value of a product’s non-patented features; or by a combination thereof.” (citation and quotation marks omitted)). Moreover, apportionment need not occur through a quantitative analysis, but can be carried out through an analysis of the qualitative Georgia-Pacific factors. Exmark, 879 F.3d at 1350; see also Verinata Health, Inc. v. Ariosa Diagnostics, Inc., ---F. Supp. 3d---, No. 12-cv-05501-SI, 2018 WL 3472168, at *20 (N.D. Cal. July 19, 2018); Plastic Omnium Advanced Innovation and Research v. Donghee America, Inc., --- F. Supp. 3d---, No. 16-187-LPS, 2018 WL 2316637, at *4 (D. Del. May 22, 2018). Furthermore, absolute precision is not required. As the Federal Circuit has stated, “[W]e are cognizant of the difficulty that patentees may face in assigning value to a feature that may not have ever been individually sold. However, we note that we have never required absolute precision in this task; on the contrary, it is well-understood that this process may involve some degree of approximation and uncertainty.” VirnetX, 767 F.3d at 1328. Thus, only an “approximate value of th[e] technological contribution” of the patents at issue must be provided. Case 8:16-cv-00545-SJO-MRW Document 189 Filed 11/05/18 Page 13 of 25 Page ID #:8609 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 10 - Nichia’s Opposition to VIZIO’s Motion to Exclude Case No. 8:16-cv-00545-SJO-MRW Ericsson, 773 F.3d at 1233. See also Summit 6, LLC v. Samsung Elecs. Co., 802 F.3d 1283, 1296 (Fed. Cir. 2015) (“[E]stimating a reasonable royalty is not an exact science. The record may support a range of reasonable royalties, rather than a single value. Likewise, there may be more than one reliable method for estimating a reasonable royalty.”). Importantly, “questions regarding which facts are most relevant or reliable to calculating a reasonable royalty are for the jury.” Apple Inc. v. Motorola, Inc., 757 F.3d 1286, 1315 (Fed. Cir. 2014) overruled on other grounds by Williamson v. Citrix Online, LLC, 792 F.3d 1339 (Fed. Cir. 2015). IV. ARGUMENT REGARDING ROYALTY BASE VIZIO’s arguments to exclude Mr. Jarosz’s use of the backlight system as the royalty base for his ’092 patent damages calculation is based on the incorrect premise that “[t]he ’092 asserted claims are directed to a combination of only LEDs, control unit, and driver.” Mot. at 13 (emphasis in original). That premise is untethered from the scope of the asserted patent claims. It is no surprise then that VIZIO does not cite to any technical expert opinion to support that unduly limited reading of the claims, and instead merely relies on quotes from Nichia’s damages expert taken out of context. VIZIO’s motion thus should be denied because 1) it is based on an incorrect understanding of what practices the asserted ’092 patent claims, 2) Mr. Jarosz did in fact discount unpatented features from the backlight system in his damages calculation, and 3) the sufficiently close ties between the backlight system and the ’092 patent makes the reliance on the backlight system as the base highly probative as opposed to prejudicial. A. Mr. Jarosz’s Reliance on the Backlight Component Costs as the Royalty Base for the ’092 Patent is Proper In light of Dr. Wetzel’s technical analysis of the patent practicing units of the accused products, Mr. Jarosz properly included the backlight unit as part of his royalty base. It is entirely appropriate, and indeed common, for damages experts to rely on the technical expertise of others. See Salazar v. HTC Corp., No. Case 8:16-cv-00545-SJO-MRW Document 189 Filed 11/05/18 Page 14 of 25 Page ID #:8610 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 11 - Nichia’s Opposition to VIZIO’s Motion to Exclude Case No. 8:16-cv-00545-SJO-MRW 216CV01096JRGRSP, 2018 WL 1783157, at *3 (E.D. Tex. Apr. 13, 2018) (“Fed. R. Evid. 703 permits an expert to rely on inadmissible facts or data to form an opinion if they are the kinds of facts or data on which an expert in the field would reasonably rely. No doubt damages experts calculating a reasonable royalty rely on facts or data from a party’s technical expert.”); see also Apple, 757 F.3d at 1321. VIZIO contends that Mr. Jarosz conceded that the control unit, driver, and LEDs represent the full extent of the ’092 patent invention and includes in its motion an incomplete quote from Mr. Jarosz’s report intended to suggest that Mr. Jarosz conceded that the ’092 patent invention does not extend beyond the rote combination of three elements. Mot. at 6. But the section of Mr. Jarosz’s report that VIZIO quotes goes on to say “[m]y understanding from Prof. Wetzel is that the system covered by the [’092] patent includes a backlight, which includes one or more LEDs, along with associated electronic componentry. The ’092 patent covers white LEDs used for local dimming, a critical product feature in the television industry that adjusts separate regions of the backlight LEDs independently depending on the image being displayed, thereby allowing for better color contrast and higher dynamic range of display.” Jarosz Rpt. at 13 (citing Dr. Wetzel). Mr. Jarosz’s selection of the backlight system—an LED array where the brightness is controlled through pulse-width modulation based on the image to be displayed—as his royalty base for the ’092 patent (which he didn’t do for the ’375 patent) has “sufficiently close relation to the claimed functionality.” VirnetX, 767 F.3d at 1329. To the extent VIZIO wants to argue that some other set of components is a more appropriate royalty base, that is a dispute more appropriately resolved through a jury than a motion to exclude. See Summit 6, 802 F.3d at 1299. VIZIO similarly, and inaccurately, asserts that Mr. Jarosz conceded that he “could have limited the royalty base to the LEDs, control unit, and driver—the elements recited in the ’092 patent claim—but chose not to.” Mot. at 7. But, as just discussed above, neither Dr. Wetzel nor Mr. Jarosz agree that the LEDs, Case 8:16-cv-00545-SJO-MRW Document 189 Filed 11/05/18 Page 15 of 25 Page ID #:8611 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 12 - Nichia’s Opposition to VIZIO’s Motion to Exclude Case No. 8:16-cv-00545-SJO-MRW control unit, and driver would be the appropriate base to capture the incremental value of the ’092 patent. Indeed, in answer to VIZIO’s questions during deposition about whether Mr. Jarosz could have calculated the individual costs of the LEDs, control unit, and driver, Mr. Jarosz responded: “Mechanically one could do that with the estimates I have. But the combination of those three things would not be a unit. It would just be three discrete components.”6 Jarosz Dep. Tr. at 99-100. VIZIO’s contention that Mr. Jarosz could have, and therefore should have, relied only on the cost data for these components as the royalty base for the ’092 patent damages calculation imposes a nonexistent legal principle that Mr. Jarosz must select a royalty base that does not include any nonpatented features, even if it does not encompass the asserted patent claims. At the very least, VIZIO’s disagreement with the use of the backlight system as the royalty base turns on a dispute about the scope of the patent claims, not the reliability of Mr. Jarosz’s royalty base. Indeed, VIZIO’s damages expert, Chris Bakewell, never suggested that the SSPPU should be only the combination of those three discrete components. In fact, Mr. Bakewell did not render any opinion about what he thought the SSPPU is and conceded that this issue was one that turned on the opinions of the technical experts. Bakewell Tr. at 159:14-160:6; see also 64:24-65:23; 71:20-72:8; 87:11-22; 92:23-93:17. Mr. Jarosz relied on the cost data in the record for the backlight as part of his royalty base, and did so in a permissible manner. He acknowledged and considered the presence of unpatented, value-adding features in the backlight and engaged in a thorough apportionment analysis so that Nichia is not compensated beyond the value of its patented technology. Thus, VIZIO’s reliance on testimony from Mr. Jarosz about the percentage 6 VIZIO’s assertion that Mr. Jarosz has no admissible reasonable royalty rate opinion relating to these three discrete components is thus incorrect, as Mr. Jarosz testified that one could calculate the combined costs of those components from the information provided in his report. Mot. at 8 n.7. Case 8:16-cv-00545-SJO-MRW Document 189 Filed 11/05/18 Page 16 of 25 Page ID #:8612 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 13 - Nichia’s Opposition to VIZIO’s Motion to Exclude Case No. 8:16-cv-00545-SJO-MRW of the backlight system costs attributable to commodity-like components in a single product, the D55u-D1, is both misleading and taken out of context. Mot. at 16. First and foremost, as Dr. Wetzel has stated, and as discussed at length above, the control unit, driver, and LEDs do not capture the scope of the ’092 patent claims or the incremental value of that patented technology. While the claims do not explicitly recite a backlight, the ’092 patent invention is directed to controlling the brightness of LEDs in a display based on image-based data input. These functions are carried out through the backlight component of the accused products, including a control unit, driver, and LEDs, not just discrete LEDs, and a control unit and driver. Second, the testimony that VIZIO cites was provided in response to a question about what remains of the backlight system base for the ’092 patent if the value of the LED base used for the ’375 patent is subtracted out. See Jarosz Dep. Tr. at 158-160. The fact that this math shows that the LED costs represent only 1% of the costs of the D55u-D1’s backlight system—a system in which the primary function is to act as an array of LEDs with variable brightness—just as easily shows that relying on only the LED costs for the ’092 patent would undervalue that invention. VIZIO thus treats the testimony of a damages expert as conclusive evidence about technical issues regarding the patent claims and the accused products that, at their core, are disputed issues of fact that ought to be heard by the jury.7 Apple, 757 F.3d at 1315. Some imprecision is permissible in the calculation of a reasonable royalty, with the objective always being to compensate the patentee for no more than the incremental value of the infringed patent technology. Unisplay, S.A. v. Am. Elec. Sign Co., 69 F.3d 512, 517 (Fed. Cir. 1995) (“[T]his analysis necessarily 7 VIZIO’s contention that the calculation of individual LED costs is an appropriate way to further apportion the backlight system costs is undermined when VIZIO’s mathematical formula is applied to other accused televisions. For the E60-C3, for example, the LED component costs constitute , which would be roughly 39% of the total backlight costs for that television. Jarosz Rpt. at Tabs 4-5. Case 8:16-cv-00545-SJO-MRW Document 189 Filed 11/05/18 Page 17 of 25 Page ID #:8613 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 14 - Nichia’s Opposition to VIZIO’s Motion to Exclude Case No. 8:16-cv-00545-SJO-MRW involves an element of approximation and uncertainty.”). Indeed, the Federal Circuit routinely acknowledges that such apportionment calculations are inherently imprecise and an approximation of the value added by the patented invention is permissible. See, e.g., Ericsson, 773 F.3d at 1232 n.9 (“[T]he jury should be told of its obligation to approximate the value added by the patented invention and that a degree of uncertainty in setting that value is permissible.”); VirnetX, 767 F.3d at 1328. And rather than arbitrarily subtract dollars from the SSPPU to remove the unpatented features, Mr. Jarosz proceeded with his apportionment analysis based on the totality of the evidence in the record and, recognizing that various unpatented features were included in this already-apportioned royalty base, reduced the royalty rate for the ’092 patent by 40%. B. Mr. Jarosz Further Apportioned the Royalty Base to Account for Unpatented Features in the Base VIZIO wrongly argues that Mr. Jarosz’s reliance on the backlight system as the royalty base for the ’092 patent fails to take into account the value of the nonpatented features in the backlight system. To the contrary, Mr. Jarosz recognized that the backlight system includes nonpatented features and, accordingly, apportioned through the royalty rate. See, e.g., Jarosz Rpt. at 51-52 (“In addition to using the SSPPU to apportion the royalty base, I have further allocated or apportioned for the value of the patented inventions through use of [licensing evidence and other evidence]” to “select[] an appropriate royalty rate to be applied to the infringing base.”). The Federal Circuit allows this—the apportionment of damages to the specific contribution of an infringed patent can occur through the royalty base, the royalty rate, or a combination of the two. Notably, the Federal Circuit decision most applicable to this case— Exmark—is the one VIZIO does not address. In Exmark, the defendant appealed from the district court’s denial of a new trial on damages on the basis that the patentee improperly relied on the entire market value of the accused lawn mower Case 8:16-cv-00545-SJO-MRW Document 189 Filed 11/05/18 Page 18 of 25 Page ID #:8614 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 15 - Nichia’s Opposition to VIZIO’s Motion to Exclude Case No. 8:16-cv-00545-SJO-MRW for its royalty base where the asserted patent was directed to an improved flow control baffle of the lawn mower. 879 F.3d at 1347-48. The Federal Circuit observed at the outset that the patentee was only entitled to “compensat[ion] for the improvement (i.e., the improved flow control baffle) rather than the entire [lawn] mower.” Id. at 1348. However, the Court rejected the defendant’s argument that it was improper for the patentee to use the entire lawn mower as the base because the Court determined that the patentee had appropriately apportioned the royalty base through the royalty rate. Id. at 1348 (“So long as Exmark adequately and reliably apportions between the improved and conventional features of the accused mower, using the accused mower as a royalty base and apportioning through the royalty rate is an acceptable methodology.”) (emphasis added). Mr. Jarosz likewise adequately and reliably apportioned between the patented and nonpatented features in the backlight system through his calculated royalty rate. By contrast, in each of the Federal Circuit decisions VIZIO cites for its argument that Mr. Jarosz’s damages calculation was substantively flawed, the patentee did nothing to apportion out the unpatented features of the base through a downward adjustment of the royalty rate. VIZIO argues that the Federal Circuit’s decision in VirnetX conclusively shows that Nichia’s damages analysis is improper, but that case involved a highly egregious damages calculation that differs from this case in the extreme. In VirnetX, the patentee accused functions related to the FaceTime feature in certain Apple devices, but the patentee relied on the market value of the entire Apple device for its royalty base. The Federal Circuit determined that the patentee’s damages expert “did not even attempt to subtract any other unpatented elements from the base, which therefore included various features indisputably not claimed by VirnetX.” 767 F.3d 1308, 1328-29. The patentee also did nothing to further apportion through the royalty rate. Id. at 1330 (noting that patentee simply used a royalty rate from previous licenses without any downward adjustment). Case 8:16-cv-00545-SJO-MRW Document 189 Filed 11/05/18 Page 19 of 25 Page ID #:8615 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 16 - Nichia’s Opposition to VIZIO’s Motion to Exclude Case No. 8:16-cv-00545-SJO-MRW VIZIO’s reliance on language from VirnetX that the patentee should have excluded unpatented features in its calculation of the royalty base is also inapt. Mot. at 14. That language was within the context of the Federal Circuit responding to the patentee’s argument that the reason it did not use the smaller figure of the cost of the software update that delivered the accused FaceTime feature to the Apple devices was because Apple did not actually charge separately for the FaceTime software update, i.e., there was no smaller saleable unit available. It was in that context that the Federal Circuit said that the patentee was required to apportion the base further. 767 F.3d at 1329 (Fed. Cir. 2014) (“VirnetX cannot simply hide behind Apple's sales model to avoid the task of apportionment.”). Here, by contrast, Mr. Jarosz’s position is not simply that a smaller base is inappropriate because there is no smaller saleable unit. Rather, Mr. Jarosz relies on Dr. Wetzel’s opinion that there is no smaller unit that is both patent practicing and saleable. In other words, the backlight, control unit, and driver are the essential components of a device that practices the asserted claims of the ’092 patent. And unlike the patentee in VirnetX, Mr. Jarosz did discount for unpatented features in the backlight system. This is apparent from the fact that Mr. Jarosz has determined a lower royalty rate to apply the backlight base for the ’092 patent compared to the rate to apply to the LED base for the ’375 patent at a scale of 40%. VIZIO’s reliance on Finjan, Inc. v. Blue Coat Sys., Inc., 879 F.3d 1299 (Fed. Cir. 2018), fares no better. In that case, the Federal Circuit faulted the patentee for focusing its damages analysis solely on the SSPPU, without further apportioning out the substantial, value-adding unpatented features of that unit in the damages expert’s overall reasonable royalty calculation. Id. at 1309-12. Contrary to VIZIO’s reading of that case, the Federal Circuit did not hold that the patentee could only have saved its damages analysis through further apportionment of the base, and nowhere did the court say that the patentee could not have properly calculated a reasonable royalty to compensate the patentee for the incremental Case 8:16-cv-00545-SJO-MRW Document 189 Filed 11/05/18 Page 20 of 25 Page ID #:8616 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 17 - Nichia’s Opposition to VIZIO’s Motion to Exclude Case No. 8:16-cv-00545-SJO-MRW value of its asserted patent by a further apportionment through the royalty rate.8 VIZIO’s reliance on Eidos Display, LLC v. Chi Mei Innolux Corp., No. 6:11-cv-00201-JRG, 2017 WL 1322555 (E.D. Tex. Apr. 6, 2017), is similarly inapposite. There, the patentee relied on the entire market value of the accused product and admitted that it did not use the SSPPU as its base, despite making no real effort to show that the patented technology drove consumer demand for the entire product. As the court found, there was “no evidence” that the patentee had undertaken any analysis to separate the value of the patented features from the unpatented features. Id. at *5. The patentee attempted to justify its reliance on a bigger base, not because it was the SSPPU, but because it “comports with consistent industry practice.” Id. at *3. Here, Mr. Jarosz relied on the backlight system as the royalty base based on record evidence that the backlight system is the smallest unit that practices the ’092 patent claims, which VIZIO ignores. Moreover, the district court’s decision in Eidos predates the Federal Circuit’s decision in Exmark, which reaffirmed the validity of apportioning through the royalty base, or the royalty rate, or both, to derive a damages calculation for the incremental value of the patented technology. Exmark, 879 F.3d at 1348. C. Mr. Jarosz’s Reliance on the Backlight System as the Royalty Base Does Not Risk Biasing the Jury While a vastly over-inclusive royalty base can present evidentiary concerns in unduly skewing a jury’s perspective on damages, that concern is not present here. Ericsson—which VIZIO cites for the evidentiary principle underlying the apportionment requirement—makes clear that the concern that this evidentiary principle is intended to address arises when the patentee did not perform any apportionment whatsoever, such as when the patentee seeks damages as a percentage of the entire accused product under the entire market value (“EMV”) 8 None of the 25 cases citing Finjan stand for the proposition that the royalty base must always be apportioned to exclude all unpatented features. Case 8:16-cv-00545-SJO-MRW Document 189 Filed 11/05/18 Page 21 of 25 Page ID #:8617 Case 8:16-cv-00545-SJO-MRW Document 189 Filed 11/05/18 Page 22 of 25 Page ID #:8618 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 19 - Nichia’s Opposition to VIZIO’s Motion to Exclude Case No. 8:16-cv-00545-SJO-MRW apportionment analysis, the risk of misleading the jury is simply not present. V. ARGUMENT REGARDING IPR COSTS A. The IPR Costs Are Proper Damages Under Section 284 Section 284 does not restrict the form of damages to be awarded when liability for patent infringement is found, but rather simply only provides that courts are to “award the claimant damages adequate to compensate for the infringement,” and makes clear that such an award is “in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.” 35 U.S.C. § 284. Here, as Mr. Jarosz explained in his report, Nichia sued VIZIO for its infringement of Nichia’s patents and, as a result, VIZIO challenged each of those patents by filing IPR petitions at the Patent Office. Nichia was forced to respond to each of those petitions, despite the Patent Office finding they were not even persuasive enough to be instituted. Nichia incurred $800,000 in costs in defending itself against the IPR petitions that VIZIO had filed against the two patents-in-suit.9 That cost was a damage that Nichia incurred as a result of VIZIO’s infringement and Mr. Jarosz thus included them in his report. The statute therefore specifically allows for this exact scenario—damages incurred because of the infringement should be awarded if required to adequately compensate the patentee. B. Section 285 May Not Be Applicable Far from being an end-run around the requirements of obtaining attorneys’ fees under Section 285, as VIZIO contends, it is unclear whether Section 285 covers fees or costs from cases other than the instant litigation. At the same time, nothing in Section 285 precludes Nichia from recovering its IPR costs through the context of adequate compensation for VIZIO’s infringement under Section 284. Had Nichia waited to seek such compensation through a Section 285 motion 9 Nichia is not seeking damages for defending against the IPR petitions filed on the two other original patents-in-suit that the Court has ruled to be indefinite. Case 8:16-cv-00545-SJO-MRW Document 189 Filed 11/05/18 Page 23 of 25 Page ID #:8619 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 20 - Nichia’s Opposition to VIZIO’s Motion to Exclude Case No. 8:16-cv-00545-SJO-MRW instead of through Mr. Jarosz’s damages analysis, VIZIO may well have argued that Nichia should have sought the IPR costs in its damages award instead. Nichia has thus sought its cost of defense through Section 284 to preserve its rights. C. VIZIO’s Cases Do Not Support Its Conclusion VIZIO cites to no authority to support its contention that it was improper to include those costs from the IPR in Mr. Jarosz’s damages calculation. In fact, VIZIO’s cases do not deal with IPRs or Section 284 at all. Mahurkar v. C.R. Bard, Inc., 79 F.3d 1572 (Fed. Cir. 1996), deals with a different issue of trying to arbitrarily increase a royalty rate to account for attorneys’ fees incurred from the district court litigation, for which there is a specific statutory provision, Section 285, to apply when those fees would be appropriate. Furthermore, IPR proceedings did not exist in 1996 when Mahurkar was decided, so that case did not consider whether IPR costs can be recovered under Section 285. Credit Acceptance Corp. v. Westlake Services, LLC, No. CV13-01523 JSO (MRWx), 2015 WL 12860462 (C.D. Cal. Nov. 2, 2015), does not address this situation either. In that case, the movant sought attorneys’ fees for alleged misconduct before the Patent Office, among others, and the court found that the requirements of Section 285 were not met there. The court did not address the proper avenue to recover damages incurred from a party’s IPR petition that was not instituted. D. Mr. Jarosz Was Entitled to Rely on Counsel VIZIO also contends that Mr. Jarosz lacked any factual basis for his opinions. Mr. Jarosz was entitled to and did rely on counsel for a value of the IPR costs, just as he relied on Dr. Wetzel for various facts in his opinion. VIZIO points to no authority indicating that such reliance was improper. VI. CONCLUSION Accordingly, Nichia respectfully requests that VIZIO’s motion be denied. Case 8:16-cv-00545-SJO-MRW Document 189 Filed 11/05/18 Page 24 of 25 Page ID #:8620 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 21 - Nichia’s Opposition to VIZIO’s Motion to Exclude Case No. 8:16-cv-00545-SJO-MRW Dated: November 5, 2018 Respectfully submitted, SNELL & WILMER LLP By: /s/ Deborah S. Mallgrave Deborah S. Mallgrave Attorney for Plaintiff Nichia Corporation Case 8:16-cv-00545-SJO-MRW Document 189 Filed 11/05/18 Page 25 of 25 Page ID #:8621