[00:00:41] Speaker 02:
Okay, the next argued case is number 19-1201, Alfred E. Mann Foundation against Huckley or Corporation.

[00:00:49] Speaker 02:
Mr. Jakes.

[00:00:54] Speaker 00:
Good morning and may it please the court.

[00:00:57] Speaker 00:
After originally granting a new trial on damages here, the district court did a complete reversal on Rehman and reinstated the verdict.

[00:01:05] Speaker 00:
how the evidence doesn't support that verdict for multiple reasons.

[00:01:09] Speaker 00:
Cochlear also categorically denies that they were a willful infringement.

[00:01:13] Speaker 00:
They did not copy AB's design.

[00:01:16] Speaker 00:
District court originally found there was no substantial evidence of willfulness the first time he decided this issue, but the court reversed itself again and made further errors on its enhancement.

[00:01:29] Speaker 00:
Before I get to the substance of our damages argument, I'd like to address AMF's waiver argument.

[00:01:35] Speaker 00:
Both AMF and the district court in this case are wrong in saying that Cochlear can't challenge damages.

[00:01:42] Speaker 00:
At most, a waiver in this case might preclude Cochlear from arguing that based on the lack of differentiation in the verdict form, we can't challenge that.

[00:01:54] Speaker 00:
But Cochlear made many other arguments, in particular the failure of AMF's expert

[00:01:59] Speaker 00:
to apportion the royalty rate in the license agreement, down to the patents in suit when there were multiple patents and know-how, or the expert's use of the stock price, which was speculative and unforeseeable six years after the hypothetical negotiation, or the expert's use of the entire sales revenue without proving the entire market value.

[00:02:23] Speaker 00:
We raised these arguments in a motion in Lemony before trial.

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which the district court denied, and Cochlear raised them again in its new trial motion, and again on remand.

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These arguments don't in any way depend on the verdict form and can't be weighed by any failure to object to the form.

[00:02:44] Speaker 00:
There's also another problem here, though.

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On this record, the evidence doesn't support the jury verdict based on the 616 patent alone.

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AMF could have accepted the new trial,

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presented its evidence tailored to the 616 patent but it argued that the verdict should be reinstated because the entire damages award was supported by the 616 patent alone.

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Now remember AMF tried this case originally arguing that the patents covered back telemetry generally.

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There's no way they would be able to do that in a new trial because the 616 patent doesn't cover back telemetry generally.

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It covers it in a particular way, which is the use of a physician's tester or a display in the office.

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AMF did not invent back telemetry.

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And after the vernetics case was decided, apportionment down to the smallest saleable unit

[00:03:45] Speaker 00:
couldn't be done either.

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There had to be further apportionment.

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So there would be a problem.

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And AMF said, we're going to go on this record and argue that there's enough evidence based on the 616 patent alone.

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Now, the district court here originally granted a new trial based on this court's normal rule, such as in the Verizon case, that if you have multi-patents in a case and a verdict that doesn't specify between them,

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One of the patents is held invalid.

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The normal rule is you get a new trial.

[00:04:19] Speaker 00:
That was one argument raised in our new trial motion.

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I've already listed several of the other ones.

[00:04:26] Speaker 00:
And that's not our argument here, though.

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Consistent with the jury verdict, we've assumed that the jury awarded all the damages based on the 616 patent.

[00:04:36] Speaker 00:
But that's what the jury did.

[00:04:38] Speaker 00:
But the question then is, does the evidence support that?

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And this was the approach this court took in the Omega case, where the court could have applied the Verizon rule, but instead said there's one claim left, there's no substantial evidence to support it, and remanded for a new trial.

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That's the approach we're taking here.

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Now, in arguing that the damages verdict should be reinstated, AMF said, we can stand on this record.

[00:05:05] Speaker 00:
The problem is the 616 patent is limited to

[00:05:11] Speaker 00:
more than just back telemetry.

[00:05:14] Speaker 00:
It requires use in the doctor's office, either with a physician's tester or in the method claim.

[00:05:19] Speaker 00:
It requires a display, which AMF said is a physician's tester.

[00:05:24] Speaker 01:
Didn't the jury have evidence of infringement with respect to both patents?

[00:05:31] Speaker 00:
Oh, yes, Your Honor, they did.

[00:05:33] Speaker 01:
And they found infringement.

[00:05:34] Speaker 01:
And the question asked of them in the jury forum was a general question that said, you know,

[00:05:42] Speaker 01:
Does the party infringe either patent?

[00:05:46] Speaker 00:
Well, as to infringement, they were broken out separately.

[00:05:48] Speaker 00:
It was on the damages question.

[00:05:50] Speaker 01:
The damages, yes.

[00:05:51] Speaker 00:
Right.

[00:05:53] Speaker 00:
What damages should be awarded for infringement of either?

[00:05:56] Speaker 00:
Of either patent.

[00:05:57] Speaker 00:
Either 616 or 691.

[00:05:58] Speaker 01:
So there was no separate determination of damages for one compared to the other?

[00:06:07] Speaker 00:
There was not.

[00:06:08] Speaker 00:
And so we now know that damages could not be awarded on the 691 patent because it's invalid.

[00:06:13] Speaker 00:
So we look at that and say, is there substantial evidence to support the verdict on the 616 patent alone, as the court did in the Omega case?

[00:06:23] Speaker 02:
I mean, that is the difficult aspect, is it not?

[00:06:28] Speaker 02:
This verdict form apparently was suggested by Cochlear in the alternative, and now

[00:06:36] Speaker 02:
Essentially what you're asking us to do is to separate them out, ask the jury again, now go back, and do it patent by patent.

[00:06:47] Speaker 00:
Well, that's what would happen if we were granted a new trial, is the new trial would be limited to one patent.

[00:06:53] Speaker 00:
What I'm asking the court to do is, regardless of what the verdict says, we can assume the jury found the damages were based on the 616 patent entirely, in fact,

[00:07:05] Speaker 00:
If that's not the case, then there's nothing to support the verdict.

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Normally in these situations like the Verizon rule, the problem is you don't know what the jury did.

[00:07:14] Speaker 00:
And so they could have relied on the 6-9-1 patent for the damages.

[00:07:18] Speaker 00:
That's not our argument.

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It's not based on the verdict form.

[00:07:22] Speaker 00:
It's just a straight, substantial evidence question.

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And here, there isn't any where there was a portion that tailored to the 616 patent alone, which is narrower than back telemetry generally.

[00:07:34] Speaker 00:
Now, as I said at the beginning, there are other arguments that we have that have nothing to do with the verdict form or even this one patent versus the other, such as the expert's failure to value the other patents in the AB license agreement.

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Something more was required than an expert to say, I talked to some people and they told me that all the value is due to these two patents.

[00:08:02] Speaker 00:
The expert said, I assume the primary value is attributed to the patents in suit.

[00:08:08] Speaker 00:
An expert can do that.

[00:08:09] Speaker 00:
That's not proof of that fact.

[00:08:11] Speaker 00:
So where is the evidence?

[00:08:14] Speaker 00:
The expert said, there's been no basis presented for identifying any portion that could be attributed to other things.

[00:08:20] Speaker 00:
She didn't know what she was supposed to.

[00:08:22] Speaker 00:
In cases like this, you have a multi-patent license agreement.

[00:08:27] Speaker 00:
Only two of the patents are at issue.

[00:08:29] Speaker 00:
There's also a know-how license.

[00:08:31] Speaker 00:
You can't just take that royalty rate.

[00:08:32] Speaker 00:
You have to figure out what was due to those two patents.

[00:08:37] Speaker 00:
And the expert completely failed to that.

[00:08:39] Speaker 00:
Her methodology was unreliable.

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And if you actually look at what's in the record,

[00:08:44] Speaker 00:
Nobody testified, no fact witness, no other expert testified.

[00:08:50] Speaker 00:
The value is due to only these two patents.

[00:08:53] Speaker 00:
In fact, you have AMF's witnesses testifying about all the other great features in their products, that all these features contributed to its success.

[00:09:03] Speaker 00:
There were such things as the hermetic seal.

[00:09:07] Speaker 00:
They listed them all as they were touting their product.

[00:09:10] Speaker 00:
Well, those are covered by the patents in this license agreement.

[00:09:14] Speaker 00:
AMF Advanced Bionics, they mark their products with every one of these patents in the license agreement.

[00:09:20] Speaker 00:
So they cover the product.

[00:09:22] Speaker 00:
And then to just say, well, we assume that all the value is to these two patents, that's wrong.

[00:09:28] Speaker 00:
That's wrong methodology.

[00:09:29] Speaker 00:
It's very much like the Apple versus Motorola case, where an expert did that exact same thing.

[00:09:36] Speaker 00:
She relied on another witness who said, well, in this multi-patent license agreement,

[00:09:42] Speaker 00:
I would give 40 to 50 percent to just one of the patents.

[00:09:47] Speaker 00:
This court said that's unreliable.

[00:09:49] Speaker 00:
It was unrealistic.

[00:09:50] Speaker 00:
Here, the expert gave 100 percent.

[00:09:54] Speaker 00:
In that case, both the expert and the other witness were excluded.

[00:09:57] Speaker 00:
It's unreliable.

[00:09:58] Speaker 00:
So we have a fundamental problem with what the expert did on the license agreement.

[00:10:04] Speaker 00:
That's not all.

[00:10:06] Speaker 00:
The stock price.

[00:10:08] Speaker 00:
The agreement between AMF and AB provided

[00:10:12] Speaker 00:
that AMF would get a million shares of stock.

[00:10:16] Speaker 00:
Now, remember the hypothetical negotiation is in 1998.

[00:10:20] Speaker 00:
This is a fairly contemporary agency agreement, 1999.

[00:10:24] Speaker 00:
We're not arguing otherwise.

[00:10:26] Speaker 00:
What was the value of that stock at the time of the agreement?

[00:10:30] Speaker 00:
It was $2.80 a share.

[00:10:33] Speaker 00:
What the expert did was say, well look, in 2004, six years later,

[00:10:38] Speaker 00:
When Boston Scientific came in and bought the company, it was worth a lot more.

[00:10:43] Speaker 00:
It was worth over $100 a share.

[00:10:45] Speaker 00:
Well, they didn't know that in 1998.

[00:10:48] Speaker 00:
No one could have known that in 1998 or 1999.

[00:10:52] Speaker 00:
That's just speculation.

[00:10:55] Speaker 00:
In fact, Mr. Mann, the founder of AMF, he said that was a crazy deal and he couldn't have even expected

[00:11:04] Speaker 00:
And that was used to inflate the royalty rate to almost 9% when the agreement otherwise said 2% to 3%.

[00:11:12] Speaker 01:
Wasn't that part of the experts' analysis following the so-called Book of Wisdom?

[00:11:19] Speaker 00:
Yes, Your Honor.

[00:11:20] Speaker 00:
There is something called the Book of Wisdom.

[00:11:23] Speaker 00:
Tell us why that was wrong.

[00:11:25] Speaker 00:
The Book of Wisdom allows you to look at some data in the future.

[00:11:30] Speaker 00:
I'll grant that.

[00:11:32] Speaker 00:
where it was something that the parties would ordinarily estimate at the time and to confirm that that was correct.

[00:11:39] Speaker 01:
The jury heard evidence to that effect, did they not?

[00:11:43] Speaker 00:
Not really.

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I mean, our expert did challenge that and say that it was unforeseeable.

[00:11:47] Speaker 00:
The only evidence here is that it was unforeseeable.

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If the book of wisdom stretches this far, then the time of the hypothetical negotiation really doesn't mean much.

[00:11:59] Speaker 00:
If you can do that six years later,

[00:12:01] Speaker 00:
and look at a stock price that no one had any idea would increase this much, then the book of wisdom is not really wisdom.

[00:12:09] Speaker 00:
It's speculation.

[00:12:11] Speaker 00:
And that was a further mistake that the district court made in not granting a new trial.

[00:12:18] Speaker 00:
These are problems we raised before trial.

[00:12:21] Speaker 00:
This evidence shouldn't have come in.

[00:12:23] Speaker 00:
Same with the entire market value rule.

[00:12:26] Speaker 00:
The expert was allowed to testify that the entire revenue base

[00:12:31] Speaker 00:
was the royalty base without proving that these particular features drove the demand.

[00:12:38] Speaker 00:
And we know now from cases like power integrations that the features that are patented have to be the sole driver of demand.

[00:12:47] Speaker 00:
And yet we have AMF's witnesses testifying about all the other features, how they contributed to the commercial success of the product, and how important they were.

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In this case, using the entire royalty base without proving

[00:13:00] Speaker 00:
that it was without proving that that demand was created by the patents.

[00:13:08] Speaker 00:
It violates the entire market value rule.

[00:13:10] Speaker 00:
Now, I'll grant that this case, it was tried in January of 2014, and this court's had a lot of law since then, such as the vernetics case among others.

[00:13:20] Speaker 00:
And it certainly has developed since then.

[00:13:23] Speaker 00:
But we apply the law as it is today.

[00:13:25] Speaker 00:
And under the laws that exist, there is no substantial evidence to support the jury's verdict on damages because of these failures.

[00:13:35] Speaker 00:
The expert's evidence was unreliable, and it shouldn't have come in.

[00:13:39] Speaker 00:
Even if it did, it's not enough to support the verdict.

[00:13:43] Speaker 00:
I mentioned willful infringement at the beginning.

[00:13:47] Speaker 00:
We maintain that cop player was not a willful infringer.

[00:13:49] Speaker 00:
These are not the kind of egregious facts that rise to willful infringement.

[00:13:54] Speaker 00:
If I could just touch on the enhancement part of it though, the judge here doubled the damages.

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And under this court's law, if the court makes mistakes in its assessment of those factors,

[00:14:06] Speaker 00:
this court vacates and sends it back.

[00:14:08] Speaker 00:
I think that's the Polara case that we cited where the court made a mistake in evaluating the closeness of the case.

[00:14:15] Speaker 00:
That was enough to vacate and remand the enhancement decision.

[00:14:19] Speaker 00:
We believe that should happen here too because the court made at least four mistakes in those factors.

[00:14:24] Speaker 00:
The most problematic, I'd say, is the finding of litigation misconduct based on Cochlear filing an ex-party re-exam

[00:14:35] Speaker 00:
I just, the court must have not understood what ex-party re-exams are.

[00:14:40] Speaker 00:
There's a statutory right that says the party can file a re-exam anytime during the enforceability period.

[00:14:49] Speaker 00:
And somehow this was a litigation misconduct.

[00:14:52] Speaker 01:
The re-exam was filed

[00:14:54] Speaker 01:
What, seven years into the litigation?

[00:14:57] Speaker 00:
It was filed post-verdict, yes.

[00:14:59] Speaker 01:
And the patent had expired at that point?

[00:15:03] Speaker 00:
It was right in that time period, but it was certainly post-verdict.

[00:15:07] Speaker 00:
And what has happened, that has been done multiple times.

[00:15:10] Speaker 00:
And in this court has vacated judgments where the Patent Office is post-verdict.

[00:15:18] Speaker 00:
found that the patent claims are invalid on an ex-party re-exam.

[00:15:23] Speaker 00:
There's nothing improper about that.

[00:15:25] Speaker 00:
It has happened.

[00:15:26] Speaker 00:
The judge didn't seem to appreciate that that could happen.

[00:15:30] Speaker 00:
He somehow thought that Cochlear was trying to vexatiously increase the litigation.

[00:15:36] Speaker 00:
The request for re-examination was initially granted as a substantial question.

[00:15:40] Speaker 00:
It was ultimately denied.

[00:15:42] Speaker 00:
But it's not the kind of litigation misconduct.

[00:15:45] Speaker 00:
that the court could rely on to double the damages here.

[00:15:49] Speaker 00:
We're talking $140 million.

[00:15:50] Speaker 00:
The court made several other mistakes that we have in our brief.

[00:15:54] Speaker 00:
And was there any specific questions?

[00:15:58] Speaker 02:
No, let's hear from the other side and we'll save you rebuttal time.

[00:16:09] Speaker 02:
Mr. Fegersen.

[00:16:15] Speaker 03:
May it please the court?

[00:16:18] Speaker 03:
My friend describes this in large part as a substantial evidence challenge.

[00:16:22] Speaker 03:
And that obviously brings with it some very important and deferential standards of review.

[00:16:26] Speaker 03:
But there's one point I'd like to note at the outset, which I think you need to also keep in mind when you think about this.

[00:16:32] Speaker 03:
There's no Daubert challenge here.

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There was a Daubert challenge in the district court, but it hasn't been renewed in this court.

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And this court has recognized there's an important distinction then that comes with that, which means that if the objection is to the methodology of the expert,

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That's what you take up by way of Daubert.

[00:16:48] Speaker 03:
That's the Versata software case.

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And if your complaint is just about the facts and the persuasiveness and the rest of it, that's what the jury's for.

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And consistently, that's what Verizon is complaining.

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I'm sorry.

[00:16:59] Speaker 03:
That's what my friend and Cochlear are complaining about in this case.

[00:17:04] Speaker 03:
And so we've got to keep that

[00:17:05] Speaker 03:
marker line very much in mind.

[00:17:07] Speaker 03:
So I'd like to turn first then to his point about the waiver.

[00:17:11] Speaker 03:
As Judge Newman noted in her separate opinion in the last go around here, there's no question that Cochlear proposed these forms, that that's the way the submission was given.

[00:17:25] Speaker 03:
The foundation proposed a form that would have broken down the damages by claim.

[00:17:29] Speaker 03:
There's certainly a waiver with respect to that.

[00:17:31] Speaker 03:
But more importantly, the waiver goes broader.

[00:17:35] Speaker 03:
The key point here with respect to differentiating the 616 and the 691 patent is both experts agreed on the royalty base, $1.8 plus billion.

[00:17:47] Speaker 03:
Their own expert, Mr. Parr, testified, I couldn't come up with another way to derive the base.

[00:17:54] Speaker 03:
Verizon, I'm sorry, Cochlear itself has said that using the royalty rate as the means to adjust the base, page 20 of their reply brief, is perfectly permissible exercise.

[00:18:07] Speaker 03:
So when I hear my friend, and the other key point with respect to the two patents is, both experts kept the royalty rate that they applied to the base consistent even after the 691 patent expired five years before the other.

[00:18:23] Speaker 03:
So there's no basis to differentiate the damages with respect to the two patents in this case.

[00:18:29] Speaker 03:
And my friend talks about what he calls the Verizon rule of this court.

[00:18:34] Speaker 03:
In the Verizon case, in the DDR case that they cite, what this court did is it remanded to let the district court make a determination of whether or not the verdict could be upheld because there was no prejudice based upon the partial reversal.

[00:18:49] Speaker 03:
But more importantly, this is an issue which is governed by regional circuit law.

[00:18:54] Speaker 03:
The Ninth Circuit has their traverse factors.

[00:18:57] Speaker 03:
which were derived by Justice Kennedy when he sat on that court.

[00:19:00] Speaker 03:
And they go through and talk about when it becomes necessary to upset a general verdict based upon a partial reversal.

[00:19:07] Speaker 03:
And if you apply those factors here, which Cochlear has never even tried to do, it becomes very clear that there's no basis whatsoever for suggesting that the verdict has to be reversed with respect to the 691 patent's presence.

[00:19:22] Speaker 03:
Now, my friend talks about the entire market value

[00:19:26] Speaker 03:
the Vernetics case.

[00:19:28] Speaker 03:
Let's stop for a minute.

[00:19:29] Speaker 03:
The entire market value rule, the single smallest saleable patented product rule, those have to do with the base.

[00:19:39] Speaker 03:
Here, both experts agreed on the base.

[00:19:42] Speaker 03:
Second, the Vernetics case of this court was decided in 2014 before the remand proceedings occurred.

[00:19:49] Speaker 03:
It was never presented to the district court.

[00:19:52] Speaker 03:
The entire market value argument that you heard this morning was never presented to the district court.

[00:19:57] Speaker 03:
It doesn't have any relevance in a case where you use the rate.

[00:20:01] Speaker 03:
And even after the Vernetics case was decided,

[00:20:05] Speaker 03:
In the Commonwealth scientific case, the chief judge who wrote the Vernetics case wrote yet again something this court has said many times, which is in many cases it is perfectly proper to allocate the responsibility between the patented and the non-patented features of a product by way of the royalty rate.

[00:20:25] Speaker 03:
And that's exactly what their expert did, and that's what our expert did.

[00:20:29] Speaker 03:
Now I'd like to turn for a minute to the question about

[00:20:34] Speaker 03:
whether the patent, the 616 patent, is entirely applicable to a so-called physician's tester.

[00:20:44] Speaker 03:
That's just plainly incorrect if you look at the two claims.

[00:20:47] Speaker 03:
It's certainly true that claim one involves a physician tester, but claim 10 is a broad method claim with respect to back telemetry.

[00:20:57] Speaker 02:
But we don't really know.

[00:21:00] Speaker 02:
where the jury placed their emphasis.

[00:21:03] Speaker 02:
But their problem, it seems to me, is the jury instruction.

[00:21:09] Speaker 02:
Can you shed some light on the origin of that instruction and the alternative for either pattern?

[00:21:15] Speaker 03:
You mean the alternative of the verdict form, Your Honor, that it's either or?

[00:21:20] Speaker 03:
Yeah.

[00:21:20] Speaker 03:
Yeah.

[00:21:21] Speaker 03:
So this is a subject Your Honor addressed or thought about the last time we were here.

[00:21:26] Speaker 03:
That verdict form was prepared by Cochlear.

[00:21:29] Speaker 03:
submitted by Cochlear, the district court said, I want you to try to break down liability with respect to the separate damages and link them up to the particular patent claims.

[00:21:42] Speaker 03:
The foundation presented a verdict form that would have done that.

[00:21:45] Speaker 03:
The district judge went with the form that Cochlear used.

[00:21:49] Speaker 03:
And as Your Honor suggested last time, that constitutes a waiver of their ability to object.

[00:21:54] Speaker 03:
Particularly again in a case like this where the damages both experts did not vary their damage calculation one wit based upon the point at which the six nine one patent expired the same damages were calculated and they're awardable under both patents because both patent Co clears use of the patent and that after all is what the hypothetical negotiation is supposed to be focused on valuing the use of

[00:22:19] Speaker 03:
of the infringing of the patent and the infringement.

[00:22:23] Speaker 03:
What was the use?

[00:22:24] Speaker 03:
It was impedance based back telemetry testing and that was true with respect to the 691 claims, that was true with which which were narrower claims but nevertheless certainly true with respect to the 616 claims

[00:22:38] Speaker 03:
That's what the case was about.

[00:22:39] Speaker 03:
And it's true.

[00:22:40] Speaker 03:
All of it had to do with the various testing that went on in the office.

[00:22:45] Speaker 03:
The 691 claims do not, by their terms, talk about the necessity of displaying these measurements that were being made.

[00:22:52] Speaker 03:
But without the measurements, they weren't of any particular use.

[00:22:56] Speaker 03:
I mean, if you have a thermometer in your head and no one knows what it's determining,

[00:23:01] Speaker 03:
It's not of any it's not of any value and no value would be specifically assigned to that so there's really no differentiation with respect to the back telemetry use nor is there any basis to differentiate between the two patents I'd like to turn my attention to the To the to the AB license my friend says that the AB license somehow was inappropriate because it

[00:23:27] Speaker 03:
the expert in this case, again, whose methodology hasn't been challenged, that the expert in this case inappropriately relied on a license which was to 12 patents and assigned the value to two.

[00:23:41] Speaker 03:
And somehow she had no basis for doing that.

[00:23:44] Speaker 03:
It's not at all correct to say that she had no basis for doing that.

[00:23:48] Speaker 03:
Her testimony was that she talked to five knowledgeable people to help ascertain what the value was of this patent

[00:23:55] Speaker 03:
these various patent rights which were being licensed.

[00:23:58] Speaker 03:
This included the co-inventor as to nine of the patents, included a gentleman who was with AB at the time of the negotiation for the AB license, which was one year after the infringement started in this case.

[00:24:14] Speaker 03:
Each of them caused her to conclude that it was reasonable to assign the value to these patents.

[00:24:20] Speaker 03:
These other patents, which are described in that license, are not in the record.

[00:24:26] Speaker 03:
There's no evidence that they were ever practiced by the infringing products.

[00:24:31] Speaker 03:
And so there's no indication that they had any particular value in this particular setting.

[00:24:37] Speaker 03:
And moreover, my friend talks about a memorandum that Alfred Mann, the founder of the foundation, noted in which he made some comments about getting value for all the various parts of the technology.

[00:24:50] Speaker 03:
Mr. Mann was an astute negotiator.

[00:24:52] Speaker 03:
He was impatient by the fact that there hadn't yet been an agreement that he thought should have been reached by that point.

[00:24:58] Speaker 03:
And most importantly, he's also talking about a totally different technology in that memo called the Beyond Battery, which has nothing to do with what brings us here.

[00:25:07] Speaker 03:
And I reiterate, none of those patents are in the, they're not even in the record of the case.

[00:25:12] Speaker 03:
There's no evidence that they played any role with respect to the use that Cochlear made

[00:25:18] Speaker 03:
of the foundation's technology, which of course is what we're trying to view in this kind of a context.

[00:25:24] Speaker 03:
I'd like to turn to the stock and to the book of wisdom.

[00:25:29] Speaker 03:
With respect to the stock in this case, let's keep something in mind.

[00:25:34] Speaker 03:
AB was not some mere startup company.

[00:25:39] Speaker 03:
By the time we're doing the negotiation, it had entered into the market.

[00:25:43] Speaker 03:
It had seized 30% of it from Cochlear, which had been the undisputed monopolist up until that point.

[00:25:50] Speaker 03:
And it had gotten FDA approval to become the second entrant in the Cochlear implant market.

[00:25:56] Speaker 03:
My friend urges use of a $2.8 million stock value, which is book value, of a nonpublic company.

[00:26:04] Speaker 03:
It's an accounting entry, which has no meaningful market value.

[00:26:09] Speaker 03:
for the jury, again, which is supposed to do the evaluation in this kind of situation, to consider the evidence of what had been developed by the organization in this context.

[00:26:19] Speaker 03:
This court has specifically endorsed the notion that you look at the future, not just through the book of wisdom.

[00:26:27] Speaker 03:
Integral Life Sciences, 331 F-3 at 871, this court held in the context of reversing a lump sum patent royalty.

[00:26:37] Speaker 03:
that on remand the court should take into consideration the fact that the company had thereafter been sold for a price which would inform the relative value of that lump sum royalty and whether it made sense.

[00:26:50] Speaker 02:
But the actual value six years later might have been a wish or a hope?

[00:26:57] Speaker 02:
But if you go back to the time at which these negotiations are supposed to have taken place, that was quite an optimistic figure, was it not?

[00:27:08] Speaker 03:
No, it wasn't unreasonable.

[00:27:10] Speaker 03:
At first, the court has made clear that there's an element of guesswork made necessary as to all of this by virtue of the fact that it's an infringement and we're being forced to do an evaluation, which was made necessary by the infringement.

[00:27:23] Speaker 03:
Judge Markey in the Fromson case, which the court also relied on the Lucent case, said of this exercise that what it requires is that it permits and often requires a court to look to events thereafter, and that could not have been known or even predicted by the hypothetical negotiators.

[00:27:43] Speaker 03:
But nevertheless, there was a history.

[00:27:45] Speaker 02:
Isn't that true?

[00:27:46] Speaker 03:
I beg your pardon?

[00:27:47] Speaker 02:
They might have hoped, but could they have predicted?

[00:27:50] Speaker 03:
Well, Judge Markey says that we don't close our eyes under the book of wisdom to what we know proved to be the facts of the case, even though it might not have been fully predicted of the outcome.

[00:28:02] Speaker 03:
But here, there's plenty of evidence of foreseeability based upon the pattern of the foundation consistently taking equity and the fact that Mr. Hank and the CEO pointed out that as the organization did that,

[00:28:16] Speaker 03:
They consistently received greater revenue from their equity stake than they did from the revenue stream that they got.

[00:28:24] Speaker 03:
And here the expert used those numbers to help derive her calculation.

[00:28:29] Speaker 02:
Let's change the subject to willfulness.

[00:28:31] Speaker 03:
Yes, certainly, Your Honor.

[00:28:34] Speaker 02:
Explain to us what's wrong with

[00:28:38] Speaker 02:
exercising your right to challenge a patent in the Patent Office.

[00:28:42] Speaker 03:
Well, that is not the basis for that one element of the enhancement factor to which... It's not?

[00:28:49] Speaker 02:
It looked like it.

[00:28:50] Speaker 03:
No, no, no, Your Honor.

[00:28:51] Speaker 02:
Do you think that was harassing?

[00:28:52] Speaker 03:
No, no, no.

[00:28:53] Speaker 02:
It was litigation... Because she could spend more money?

[00:28:55] Speaker 03:
Correct.

[00:28:56] Speaker 03:
That's true.

[00:28:56] Speaker 03:
Litigation misconduct.

[00:28:57] Speaker 03:
But it's not predicated merely on pursuing the reexamination.

[00:29:02] Speaker 03:
The key part of that with respect to the reexamination was,

[00:29:07] Speaker 03:
that Cochlear took the position that with respect to an expired patent, that the foundation was not allowed to rely upon the attorneys who had represented it in the case by that point for what, 10 years during the long history of this?

[00:29:20] Speaker 02:
Is that what you're relying on?

[00:29:22] Speaker 02:
That there was an eyes only kind of agreement?

[00:29:25] Speaker 02:
That's correct, Your Honor.

[00:29:27] Speaker 02:
That suffices to...

[00:29:29] Speaker 02:
Did that prevent the response to the challenge in the office?

[00:29:37] Speaker 03:
What it did, Your Honor, is it meant that the foundation had to go through the entire process of litigating the ability of having its lawyers participate, a very expensive, lengthy litigation process, whereupon they dropped the issue.

[00:29:54] Speaker 03:
And they allowed the attorneys to participate anyway.

[00:29:56] Speaker 03:
But that's not the only thing that we're talking about.

[00:29:59] Speaker 03:
sanctioned Cochlear for also the conduct that occurred in his courtroom, among other things.

[00:30:06] Speaker 03:
If you look particularly at page 37 of the appendix, he talks about a kitchen sink approach to the litigation and in particular... Yes, the judge thought it was very strange that you have all these paths of attacking the patent.

[00:30:19] Speaker 02:
I agree.

[00:30:19] Speaker 02:
I think it's very strange, but it's in the law.

[00:30:23] Speaker 03:
Again, but the one element we're talking about is I don't think you look at it as the initiation of the reexamination.

[00:30:33] Speaker 03:
You have to look at it more broadly as the conduct of disputing the ability of the foundation to have its attorneys present and then dropping the idea, and also the conduct in the case, including refusing to agree to all sorts of

[00:30:45] Speaker 03:
very basic sort of stipulated facts that are routinely undertaken in the course of litigation.

[00:30:52] Speaker 02:
But how does that make the infringement willful?

[00:30:56] Speaker 03:
Your Honor, this goes, I think, to the enhancement element.

[00:30:59] Speaker 03:
That's what my friend was talking about.

[00:31:01] Speaker 03:
This is one of the read factors that the Court was talking about.

[00:31:05] Speaker 03:
And of course, there were 15 of them, and there's a whole series of them that they don't even contest.

[00:31:10] Speaker 03:
established the basis for the enhancement.

[00:31:12] Speaker 03:
If we go back to the willfulness, the judge relied, as the jury was permitted to, on the clear evidence of copying, on the fact that they never ever had a defense that they asserted to claim 10, on the fact that there was a stipulated fact they finally agreed to let the jury hear that they had no opinion of counsel in the case.

[00:31:32] Speaker 03:
So those are among the factors that support the willfulness determination, which, again, was a fact question for the jury.

[00:31:40] Speaker 03:
And I notice my time is up, and I don't want to overstay my welcome unless there's questions or you'd like me to address any of the other issues.

[00:31:48] Speaker 02:
Any more questions?

[00:31:49] Speaker 02:
Anything else?

[00:31:50] Speaker 02:
Thank you.

[00:31:50] Speaker 02:
Thank you.

[00:31:52] Speaker 02:
Mr. Jakes, you have your rebuttal time.

[00:32:02] Speaker 00:
We did challenge the experts methodology in a motion in limiting, and we've made those same arguments on this appeal.

[00:32:09] Speaker 00:
Whether it's styled as a Daubert motion or not, we have challenged the reliability of the experts methodology throughout.

[00:32:17] Speaker 00:
Now, my colleague says that both experts agreed on the royalty rate and that apportionment can be done by apportioning the rate.

[00:32:27] Speaker 00:
Their expert didn't know apportionment of the rate.

[00:32:29] Speaker 00:
She only increased it.

[00:32:31] Speaker 00:
apportionment came based on an arbitrary adjustment that she did after looking at the income approach.

[00:32:42] Speaker 00:
She testified there had to be an apportionment of this profit premium because there were other non-infringing features.

[00:32:49] Speaker 00:
And then she said, but she couldn't find it in the numbers.

[00:32:52] Speaker 00:
She didn't do what she was supposed to.

[00:32:54] Speaker 00:
So then she arbitrarily reduced the rate by about

[00:32:59] Speaker 00:
a little over 1% based on our common sense and experience.

[00:33:03] Speaker 00:
That's not adjusting the rate for apportionment where you use the entire market value.

[00:33:09] Speaker 00:
I don't want us to get hung up on this Verizon case and this rule because that's really not our argument.

[00:33:14] Speaker 00:
That's what the judge did the first time.

[00:33:16] Speaker 00:
And that's based on the verdict form.

[00:33:19] Speaker 00:
Our argument says, OK, we accept that the jury could have awarded all the damages based on the 616 patent and that it becomes a substantial evidence question.

[00:33:28] Speaker 00:
as in the Omega case, not whether the jury made a mistake in awarding damages for the 691 patent, which has been invalidated.

[00:33:37] Speaker 00:
On the 616 patent scope, counsel says that claim 10 is a method claim and it's not limited to a physician's tester.

[00:33:46] Speaker 00:
It requires a visual display.

[00:33:49] Speaker 00:
Patients don't wear a visual display.

[00:33:52] Speaker 00:
AMF took the position on validity that it required a physician's tester.

[00:33:57] Speaker 00:
They're changing their tune on that.

[00:33:59] Speaker 01:
But claim 10 is considerably broader than claim 1, basically.

[00:34:04] Speaker 00:
Not by requiring a visual display.

[00:34:07] Speaker 00:
Whether you call it a physician's tester or a visual display.

[00:34:09] Speaker 01:
It could be any display of any sort.

[00:34:11] Speaker 00:
It could be.

[00:34:12] Speaker 00:
And the physician's tester, our laptop computer was basically found to infringe as a physician's tester.

[00:34:18] Speaker 00:
So there really isn't a differentiation based on that.

[00:34:22] Speaker 00:
There is a difference with the 691 patent, though.

[00:34:25] Speaker 00:
There are other uses for back telemetry other than in the doctor's office.

[00:34:29] Speaker 00:
It's used in the automated features of the implant.

[00:34:33] Speaker 00:
When the patient turns it on, there's no visual display.

[00:34:36] Speaker 00:
But it does that same back telemetry testing.

[00:34:39] Speaker 00:
It adjusts the power that is delivered to the electrodes.

[00:34:43] Speaker 00:
All the patient is wearing it, not in the office.

[00:34:45] Speaker 00:
So that's a different aspect of back telemetry.

[00:34:48] Speaker 00:
And to suggest both patents have the same scope is not right.

[00:34:53] Speaker 00:
On the license agreement, the people that the expert talked to,

[00:34:58] Speaker 00:
None of them testified.

[00:34:59] Speaker 00:
They didn't come in and say, all the value is in these two patents.

[00:35:03] Speaker 00:
And it was established also at trial that none of them were there at the companies at the time of the hypothetical negotiation.

[00:35:11] Speaker 00:
The point that AB is not a startup, well, I'm not really sure what difference that makes.

[00:35:17] Speaker 00:
But anticipating this type of increase in the value of the company six years earlier, even the founder of AMF said that was not foreseeable.

[00:35:30] Speaker 00:
And finally, on the actual value of the stock at the time, they were properly looking at the book value.

[00:35:38] Speaker 00:
OK.

[00:35:38] Speaker 00:
Where was the market value at the time?

[00:35:40] Speaker 00:
They didn't establish a market value.

[00:35:43] Speaker 00:
They could have said, here's how we would do this.

[00:35:45] Speaker 00:
Here's what's happened in other situations.

[00:35:48] Speaker 00:
Instead, the expert just went to the very highest point of the stock price and said, I'm going to use that and called it the Book of Wisdom.

[00:35:57] Speaker 00:
Any questions?

[00:35:58] Speaker 00:
OK.

[00:35:59] Speaker 00:
Thank you.

[00:36:00] Speaker 02:
Thank you.

[00:36:01] Speaker 02:
Thank you both.

[00:36:02] Speaker 02:
The case is seconded under submission.