[00:00:00] Speaker 04: This is case number 201413, MLC intellectual property, MLC against Micron Technology, Incorporated. [00:00:09] Speaker 04: Mr. Marino. [00:00:11] Speaker 02: Good morning, and may it please the court. [00:00:14] Speaker 02: We seek reversal for three reasons. [00:00:17] Speaker 02: It was error to exclude evidence of how the compatible license was negotiated under the parole evidence law. [00:00:24] Speaker 02: It was abuse of discretion to exclude expert opinions rooted in established methodologies and intimately tied to the facts of this case. [00:00:34] Speaker 02: And Rule 37 does not justify excluding a timely filed expert report. [00:00:41] Speaker 02: To my first point, parole evidence. [00:00:45] Speaker 02: The comparable licenses were both lump sum agreements that the district court concluded. [00:00:52] Speaker 02: to tie his analysis to the facts of the case. [00:00:55] Speaker 03: Mr. Marico? [00:00:56] Speaker 03: Yes, Your Honor. [00:00:57] Speaker 03: Mr. Marico, can you address the over... The court held that there was an overstatement by your expert, Mr. Milano, regarding the Heineck and Toshiba agreements and specifically whether those reflected or used a 0.25% [00:01:19] Speaker 03: How do you respond to that? [00:01:23] Speaker 03: Because there seems to be a number of statements, you know, in the expert report itself, for example, at page A906 and also in the deposition testimony of your expert at page A1145 that suggests that in fact your expert said that he was understanding that the rate applied in those [00:01:47] Speaker 03: license agreements was 0.25% to calculate the lump sum. [00:01:52] Speaker 03: And how do you respond to that conclusion of the district court? [00:01:56] Speaker 03: I think that's more important than the parole evidence point. [00:01:59] Speaker 02: Sure. [00:02:00] Speaker 02: So that goes to the abuse of discretion point, Your Honor. [00:02:03] Speaker 02: And I would say that this court specifically set the boundaries for the district court review on the Dauber in the Apple v. Motorola case. [00:02:12] Speaker 02: The court essentially said [00:02:14] Speaker 02: The court cannot question factual underpinnings for the expert's conclusions. [00:02:20] Speaker 03: How is that? [00:02:20] Speaker 03: What methodology did your expert use to come up with that understanding? [00:02:26] Speaker 03: What is the accepted methodology in the field of damages experts or economists that allow you to look at a favored customer clause and think that it was actually used to compute the lump sum? [00:02:41] Speaker 02: Yes, Your Honor. [00:02:42] Speaker 02: So this court has expressly endorsed the use of the most favorite customer clothes, for example, in the Studion Gen Shelf Kohler case versus Dyer. [00:02:56] Speaker 02: That was the case that was cited in our brief. [00:03:00] Speaker 02: It's 862F second at 1564 and specifically 1569. [00:03:06] Speaker 03: In that case... We specifically said it was OK to use [00:03:10] Speaker 03: a most favored customer rate to assume that that's the rate that was used in the particular agreement in which it's included? [00:03:21] Speaker 02: Yes, Your Honor. [00:03:22] Speaker 02: This court, and I believe it was Judge Markey, wrote the opinion, especially looked at a most favored customer clause, recognized it provided a strong financial incentive for the plaintiff to demand that rate. [00:03:39] Speaker 03: It also... I understand that. [00:03:41] Speaker 03: I mean, just to back up, I understand the relevance of that, fully appreciate the relevance of that, what you just said in a hypothetical negotiation. [00:03:53] Speaker 03: I think what the district court had a problem with, and I'm also having a problem with, is extrapolating that information to say that in fact that .25% was [00:04:08] Speaker 03: the rate that was used in the Hynix and Toshiba license agreements. [00:04:15] Speaker 02: Okay. [00:04:15] Speaker 02: So what I think, the way the experts analyzed that fact is to look not at the Hynix agreement itself, but to see what that agreement, what the MFC clause [00:04:29] Speaker 02: obligated BTG, the licensee, to do in the hypothetical negotiation with Micra, which is to demand a 0.25% rate. [00:04:39] Speaker 02: He also looked at other evidence of how BTG, the same licensor, was going to, had been negotiating both with Hynix and Toshiba and with Micra. [00:04:50] Speaker 02: All three of those negotiations occurred at the same time. [00:04:54] Speaker 02: There is one of the other pieces of evidence that the expert looked at was the actual demand letter BTG sent to Micron. [00:05:01] Speaker 02: That's in the appendix 12.4. [00:05:03] Speaker 02: But in fact, BTG demanded 0.25% from Micron applied to worldwide sales. [00:05:10] Speaker 01: Council, it seems to me that all you're doing right now is identifying where the 0.25% number comes from. [00:05:20] Speaker 01: You're identifying the documents in the different areas. [00:05:24] Speaker 01: I do have a difficulty with the methodology that was used. [00:05:31] Speaker 01: This kind of underlying methodology for the numbers. [00:05:36] Speaker 01: For getting for the moment that the documents you're talking about were not produced on a timely basis and that's also a big hill you have to climb today in my view. [00:05:49] Speaker 01: But what's the methodology? [00:05:51] Speaker 01: And the court, as a gatekeeper, says that the methodology was not reasonable. [00:06:01] Speaker 02: There are two points. [00:06:02] Speaker 02: First, I want to point out that the documents were, in fact, timely produced. [00:06:06] Speaker 02: What the district court focused on was whether they were identified in a responsible interrogatory. [00:06:12] Speaker 02: But to answer your question, the methodology was to evaluate the negotiations that led to the comparable licenses [00:06:20] Speaker 02: to understand how that lump sum number had been determined. [00:06:26] Speaker 02: So he looks at all the demands that the licensure made. [00:06:31] Speaker 02: They all consistently demanded 0.25% applied to worldwide sales. [00:06:37] Speaker 02: That is in the record if I cited those documents. [00:06:40] Speaker 02: And he then concluded, I believe reasonably, that the same licensure would have in fact demanded the same royalty. [00:06:49] Speaker 02: from Micron, as it did, because we have the letter where they made that demand. [00:06:57] Speaker 02: The expert did not say that the license document itself reflects the 0.25 rate, other than in the MFC clause. [00:07:06] Speaker 02: And it does clearly reflect, contains, that rate in the MFC clause. [00:07:12] Speaker 02: And the students' film shop case tells us [00:07:16] Speaker 02: what this court found was reasonable to infer from the presence of the MFC clause, which is the licensee that demanded that clause to be included was ensuring that subsequent competitors wouldn't pay a lesser rate. [00:07:32] Speaker 02: So that was a reason to try to generalize. [00:07:34] Speaker 03: And something you said, I want to ask you about something you said. [00:07:39] Speaker 03: You said that the expert wasn't saying that the actual rate used was 0.25%. [00:07:46] Speaker 03: But on page A1145, I'm looking at Mr. Milani's deposition testimony. [00:07:54] Speaker 03: He specifically said, I would tell the jury that when this agreement was negotiated, [00:07:59] Speaker 03: that the parties to the agreement considered 0.25% to be the effective royalty rate to which they were agreeing. [00:08:06] Speaker 03: And so that seems to be inconsistent with your view. [00:08:10] Speaker 02: No, I think it's perfectly consistent. [00:08:14] Speaker 02: So the records of the negotiations show that the negotiation was conducted based on a demand calculated with 0.25 rate. [00:08:24] Speaker 02: The ultimate document didn't contain the rate other than in the MFC clause, but it had a lump sum. [00:08:31] Speaker 02: And so the expert looked both at the lump sum. [00:08:35] Speaker 02: He said, that's what the license says. [00:08:36] Speaker 02: That's the evidence that there was an agreement. [00:08:39] Speaker 02: I need to now unpack that license to understand I was negotiated to reconstruct how BTG would behave in the hypothetical negotiation with Microsoft. [00:08:50] Speaker 03: There's another way to do that that might have been more reliable perhaps, which would have been to actually look at the product sold, look at the value of the patent portfolio itself, really try to unpack it that way as opposed to the methodology that was used by Mr. Maloney. [00:09:10] Speaker 03: Isn't there an alternative methodology that could have been used but he didn't use? [00:09:14] Speaker 02: Absolutely. [00:09:16] Speaker 02: As this court has recognized in Apple v. Motorola, there are always alternative methodologies that can be used. [00:09:24] Speaker 02: But here, the district court went beyond just looking at the methodology. [00:09:28] Speaker 02: It looked at the actual conclusions. [00:09:30] Speaker 02: It evaluated the evidence, and it said, and the court concluded, that the evidence led to a different conclusion. [00:09:37] Speaker 02: That, I think, goes beyond the gatekeeping role. [00:09:41] Speaker 02: Two experts can look at different facts and adopt different methodologies. [00:09:47] Speaker 03: I understand. [00:09:48] Speaker 03: Thank you. [00:09:48] Speaker 03: Let me ask you something else. [00:09:49] Speaker 03: I just want to ask you about, I have a question about the discovery issues and the early discovery of the damages theories. [00:09:58] Speaker 03: What is the downside to a patent owner when required to identify the specifics around its damages theories [00:10:06] Speaker 03: before the exchange of expert reports. [00:10:08] Speaker 03: Like for example, what is the downside of answering interrogatory by giving, we think the royalty rate should be this amount, but we reserve our rights to update that when additional discovery is provided or we have more opportunity to review the discovery. [00:10:27] Speaker 03: Why, I mean in this case in particular where most of the documents that you're relying on for that 0.25%, [00:10:35] Speaker 03: Are they your own documents? [00:10:37] Speaker 03: So I'm having a hard time seeing the downside of you being required to provide specifics earlier in the case. [00:10:47] Speaker 02: First of all, the documents were produced by a third party for the most part, BTG. [00:10:51] Speaker 02: MLC was not the party to these license negotiations. [00:10:55] Speaker 02: But the problem MLC encountered there was that the opinions of the expert, which is ultimately what the district court [00:11:04] Speaker 02: that we should have disclosed were not formed at the time of the effect discovery. [00:11:11] Speaker 02: So we gave the methodology to the extent that... Why not? [00:11:15] Speaker 03: Why do, in patent cases, why does it take so long for that to be provided? [00:11:21] Speaker 03: Why can't that be... I mean, you're saying your damages expert hadn't yet done the work, I guess, but why is that? [00:11:28] Speaker 02: Yeah, because the court in this case adopted a phase discovery schedule. [00:11:34] Speaker 02: I see my time is up. [00:11:35] Speaker 04: May I finish my answer? [00:11:38] Speaker 02: Yes. [00:11:39] Speaker 02: So what happens is when you face discovery, the expert does his or her analysis once he or she is in possession of the path. [00:11:51] Speaker 02: So we disclosed the fact that MLC was in possession, and we specifically said in the rogue response, and we will supplement with the expert's conclusions once the expert does his analysis. [00:12:02] Speaker 02: Had there been an order either through a patent local rule or through the courts taking action to set an earlier discovery schedule, then we would have done differently. [00:12:12] Speaker 02: There was no hide-and-seek. [00:12:18] Speaker 04: All right. [00:12:19] Speaker 04: Thank you. [00:12:20] Speaker 04: Let's hear from the other side. [00:12:21] Speaker 04: You have your rebuttal time, Mr. Marino. [00:12:24] Speaker 02: Thank you, Your Honor. [00:12:25] Speaker 04: Mr. Cordell. [00:12:28] Speaker 00: Thank you, Your Honor. [00:12:28] Speaker 00: Good morning. [00:12:29] Speaker 00: May it please the Court. [00:12:30] Speaker 00: Ruffin Cordell on behalf of Micron. [00:12:34] Speaker 00: This Court has repeatedly reminded patentees that they must demand any demand for royalty damages to the, quote, claimed inventions footprint in the marketplace, such that it reflects the actual value attributable to the infringing features of the product and no more. [00:12:48] Speaker 00: The law also universally holds that parties must disclose the evidence and positions that they will advance at trial. [00:12:55] Speaker 00: Absent following those basic rules, the litigation process devolves into chaos. [00:13:00] Speaker 00: And that's essentially what happened here, and that's what led Judge Ilston to enter the orders that she did. [00:13:08] Speaker 03: Mr. Cordell, this is just... [00:13:11] Speaker 03: You know, I want to ask you the same question that I just asked Mr. Marino, which is about, I mean, you've, I think you've got a lot of experience on both sides of these cases. [00:13:22] Speaker 03: And so I want to ask you, what do you think is the downside to a patent owner when required to identify the specific damage theory before the exchange of expert reports? [00:13:33] Speaker 03: And I mean, do parties ever provide a specific role to create in response to interrogatories during fact discovery? [00:13:42] Speaker 00: The answer is absolutely, Your Honor. [00:13:44] Speaker 00: In fact, the local rules in the Northern District of California were amended in 2017 to make clear that those kinds of damages disclosures have to be done right at the outset. [00:13:56] Speaker 00: Current Rule 26A1A3 requires that your initial disclosures include those kinds of information. [00:14:06] Speaker 00: And the policy there is very clear that we want parties to know far in advance [00:14:12] Speaker 00: of committing significant resources to a case, what's at stake? [00:14:17] Speaker 00: It informs the settlement discussions. [00:14:19] Speaker 00: It informs the resources that will be devoted to a case. [00:14:22] Speaker 00: The downside is nonexistent, frankly. [00:14:27] Speaker 00: It only requires that the parties do the homework that they should have done prior to bringing the case. [00:14:33] Speaker 00: If additional information is required, for example, revenue information may not be immediately available to the plaintiff. [00:14:40] Speaker 00: Right. [00:14:41] Speaker 03: You might not know the amount of the base, but you might have enough information to at least give a preliminary rate. [00:14:47] Speaker 00: That's exactly right. [00:14:48] Speaker 00: Particularly in this case, where the plaintiff is relying on agreements that had existed for many years. [00:14:57] Speaker 00: And certainly, at least in the advanced stages of this case, could have provided those. [00:15:05] Speaker 01: And who provided those agreements in this case? [00:15:08] Speaker 00: They were ultimately produced in Discovery, Your Honor, albeit at a late date. [00:15:14] Speaker 00: They were produced in a listing of documents without any indication of their relevance. [00:15:21] Speaker 00: And that was difficult here for a couple of reasons. [00:15:25] Speaker 00: But who produced them? [00:15:28] Speaker 00: MLC did produce them, ultimately. [00:15:32] Speaker 00: OK. [00:15:33] Speaker 00: They may have been sourced from third parties, so I don't want to overstep. [00:15:37] Speaker 00: BTG was a predecessor in interest to MLC, and so the exact genesis of the documents is less clear. [00:15:46] Speaker 00: But they certainly were in the possession of MLC in the latter part of 2018 when they sat for their 30b6 deposition, when the CEO and general counsel of MLC sat for that deposition. [00:16:00] Speaker 00: They had long been in the possession of MLC. [00:16:03] Speaker 00: And so when he told us affirmatively that not only did they not have any facts to inform the royalty rate, in particular with respect to the Hynex and Toshiba agreements that formed so much of their case, he said that MLC could not infer a royalty rate from those agreements. [00:16:23] Speaker 03: Right. [00:16:24] Speaker 03: Hey, Mr. Cordell, could I move you to apportionment for a minute? [00:16:29] Speaker 03: I have some questions. [00:16:31] Speaker 03: Our case is told that a patent owner can apportion through the royalty face or the royalty rate. [00:16:36] Speaker 03: Isn't that right? [00:16:38] Speaker 00: The original lucent opinion at the very end, Judge Michelle, does inform us that essentially you have two degrees of freedom, but the labor cases from this court caution against [00:16:51] Speaker 03: What about Erickson and Exmark? [00:16:52] Speaker 03: I mean, Erickson and Exmark both say that an expert can apportion through the royalty base, or the royalty rate, or both. [00:17:01] Speaker 03: And doesn't Georgia Pacific Factor 13 address apportioning for the rate, of course? [00:17:08] Speaker 00: So here's the difficulty. [00:17:10] Speaker 00: And it's set forth in Burnettics, citing Erickson, that if we don't apportion the royalty base properly, [00:17:18] Speaker 00: what you end up with is an overly inflated royalty base that then permits the damages expert for the plaintiff to come up with an eminently reasonable royalty rate, you know, a fraction of a percent, but because the royalty base has been overstated, [00:17:36] Speaker 00: it ends up being an inflated damages number. [00:17:41] Speaker 00: So the two degrees of freedom are there. [00:17:44] Speaker 00: You can adjust one. [00:17:45] Speaker 00: It's a simple calculation at the end of the day. [00:17:47] Speaker 00: Rate times base equals damages. [00:17:50] Speaker 00: But if you don't properly proportion the royalty base, you get that overly inflated effect that Fernetix cautions against and actually goes on to suggest that it ends up essentially swallowing the entire market value rule [00:18:04] Speaker 00: because you are allowed to overinflate the royalty base, so you have to do both. [00:18:15] Speaker 03: your argument against the position that just because you think you have a comparable license doesn't necessarily mean that you don't have to apportion. [00:18:24] Speaker 03: I understand your position, but on the blue brief on page 52, MLC argues that the scope of the claim here is commensurate with the accused product and relies on Exmark to say that because of this, [00:18:42] Speaker 03: The use of the smallest tool is appropriate. [00:18:46] Speaker 03: You know, I guess the die, right? [00:18:49] Speaker 03: So I have two questions for you. [00:18:51] Speaker 03: What is your response to that is one of them. [00:18:53] Speaker 03: And the other question is, did they argue this below? [00:18:59] Speaker 00: So the answer to the first question is that there's no evidence to show that claim 30, which is the only claim at issue here, [00:19:09] Speaker 00: in any way, shape, or form reflects the entirety of the SSPPU. [00:19:15] Speaker 00: What Claim30 talks about is a simple programming sequence where reference voltages are used in a multi-level cell. [00:19:24] Speaker 00: That is a part of the operation of these devices, no doubt, but a very small part. [00:19:31] Speaker 00: You not only have to program them, you have to read them, you have to erase them, [00:19:36] Speaker 00: These devices are a little unique in the semiconductor world in that they wear out fairly quickly. [00:19:43] Speaker 00: A statistically significant number of them fail with every operation. [00:19:49] Speaker 00: And so error correction and something called wear leveling are critical components. [00:19:55] Speaker 00: And that was set forth at length in our interrogatory responses at Appendix 1242. [00:20:04] Speaker 00: And our expert, Mr. Meyer, did a deep dive into it at appendix A2398 through 2399. [00:20:13] Speaker 00: So we absolutely dispute any suggestion and if you, as I've turned quickly to page 52 of the blue brief, I don't see a citation to their expert or to any source of evidence. [00:20:24] Speaker 03: No, but I do see that one thing that's interesting is your statement that you're just talking about claim 30. [00:20:32] Speaker 03: At page 52, they say the asserted apparatus claims are claim 1, claim 9, and claim 30. [00:20:37] Speaker 03: And claim 1 and 9 talk about a memory device. [00:20:40] Speaker 03: And you're noted correctly that claim 30 is an apparatus for programming, which seems to be different. [00:20:47] Speaker 03: But how do you respond? [00:20:50] Speaker 03: It seems like there's a dispute. [00:20:52] Speaker 03: Is claim 1 and 9 asserted or not? [00:20:55] Speaker 00: No, those were excluded by the judge. [00:20:59] Speaker 00: And I can find the ruling if that would be helpful. [00:21:02] Speaker 00: But I would quickly point out that claims 1 and 9 are a [00:21:07] Speaker 00: or an alternate form of claim 30, they still relate to the programming operation. [00:21:12] Speaker 00: So again, a portion of, and I'm not suggesting that it's not part of the DAI, but it's only a portion of the DAI. [00:21:22] Speaker 03: And then the other question I had asked you, and I apologize if you already answered this, was do you think that MLC really focused on this scope of claim argument that it's making here on page 52 below, either in its precamp? [00:21:36] Speaker 03: Because it is a legal argument. [00:21:39] Speaker 00: It is a legal argument and the answer is no, they did not. [00:21:42] Speaker 00: Okay. [00:21:51] Speaker 00: And Your Honor, I've just confirmed looking back to my notes that MLC did in fact have the Hynex and Toshiba license before the case began. [00:22:01] Speaker 00: So this was not a late acquired set of documents. [00:22:10] Speaker 04: Okay, any more questions for Mr. Cordell? [00:22:14] Speaker 03: No, thank you. [00:22:16] Speaker 04: Okay, thank you. [00:22:17] Speaker 04: Mr. Marino, you have a couple of minutes for the last word. [00:22:20] Speaker 02: Thank you, Your Honor. [00:22:23] Speaker 02: So one quick point. [00:22:25] Speaker 02: Claim 30 as the court has recognized is an apparatus claim, not a method claim. [00:22:29] Speaker 02: So trying to limit it to a method is being proper. [00:22:35] Speaker 02: I want to point out one issue. [00:22:38] Speaker 02: Council talked about the patent local rules. [00:22:42] Speaker 02: There were no patent local rules that apply to this case, certainly with respect to damages. [00:22:47] Speaker 02: As Council said, they were enacted after the fact. [00:22:49] Speaker 02: And that is extremely relevant, because it distinguishes the cases that the micron relies on. [00:22:57] Speaker 02: Because the patent local rules, as this Court has recognized, do create additional discovery obligations that go beyond Rule 26. [00:23:05] Speaker 02: And that was simply not the case here. [00:23:10] Speaker 02: So there was no hiding the ball. [00:23:12] Speaker 02: MLC disclosed the information it had when it had it. [00:23:15] Speaker 02: It even specified in the response to the rug that it was going to supplement with the expert report, as it did. [00:23:23] Speaker 02: The moment it received the report, it turned it over. [00:23:27] Speaker 02: NYCRA never disputed that, never filed a motion to compel. [00:23:31] Speaker 02: That's what happened in the cases at the district court level they rely upon. [00:23:35] Speaker 02: Corning, and Brandywine. [00:23:37] Speaker 02: In those cases, the court made its views known on what was required in terms of damages contention early in the case with a meaningful opportunity for the plaintiff to comply. [00:23:46] Speaker 02: That never happened here. [00:23:48] Speaker 03: Mr. Marino, this is Judge Stoll, just very quickly. [00:23:51] Speaker 03: Do you agree that claim 30 is the only claim at issue? [00:23:55] Speaker 02: At this, at the CRETA conference, that is correct. [00:23:58] Speaker 02: At the time the expert report was prepared and the motion was filed. [00:24:02] Speaker 03: I just asked right now, on appeal, [00:24:05] Speaker 03: What claim, is claim 30 the only claim that's at issue? [00:24:09] Speaker 02: It's the only claim that's left in the case, subject to subsequent ruling. [00:24:15] Speaker 02: The other point I want to make is that, and that's why it's abuse of discretion, because the court never gave any indication to MLC that it was holding it to a higher requirement than the 26. [00:24:30] Speaker 02: And most important, as we highlighted in the gray brief, [00:24:33] Speaker 02: Because it amounted to exterminating sanctions, the court was required under nine circuit precedent to make a finding of malfeasance. [00:24:42] Speaker 02: And the court never addressed that issue, let alone make any findings. [00:24:46] Speaker 02: So that's an independent basis where the Rule 37 sanctions should be reversed and demanded. [00:24:52] Speaker 02: Finally, I submit that Mr. Milani's opinion [00:24:58] Speaker 02: was eminently reasonable. [00:25:01] Speaker 02: If we had the unusual circumstance of having the same license or contact three direct competitors and offer them the exact same deal. [00:25:10] Speaker 02: Toshiba took a deal for $25 million. [00:25:14] Speaker 02: Hynix won for $21 million. [00:25:15] Speaker 02: And the evidence that Mr. Milani would have presented at trial was $19 million to $22 million. [00:25:21] Speaker 02: So perfectly in line with those licenses. [00:25:26] Speaker 02: I think my time is concluded. [00:25:27] Speaker 02: Thank you. [00:25:29] Speaker 04: All right. [00:25:30] Speaker 04: Thank you. [00:25:31] Speaker 04: Thank you to counsel for both sides. [00:25:33] Speaker 04: The case is taken under submission.