[00:00:11] Speaker 03: Okay, the next case is number 15-1603, intelligent verification against Majesco Entertainment Company. [00:00:23] Speaker 03: Before we start the clock, we want to ask you some questions, maybe both sides, about the designations in your briefs of confidentiality. [00:00:32] Speaker 03: So I'll let Judge Bryson tell you what our concern is. [00:00:36] Speaker 02: Yeah, the first concern is that there is material, specifically the district court's opinion, that in the joint appendix has large segments that are marked as confidential. [00:00:51] Speaker 02: But in the addendum to the blue brief, it's not marked as confidential. [00:00:56] Speaker 02: So I'm going to assume that it's not being treated as confidential. [00:01:00] Speaker 03: Would you both approach the microphone so that we hear what you have to tell us? [00:01:05] Speaker 02: The district court's opinion, which it would be very strange to have the district court's opinion confidential on appeal. [00:01:11] Speaker 02: But I just wanted to make sure, because it is marked in the joint appendix, it's confidential, but not in the addendum that's attached to the blue brief. [00:01:23] Speaker 02: Maybe this is something the appellant should speak to. [00:01:26] Speaker 03: If there's an easy answer, we'd like to hear it. [00:01:28] Speaker 03: Otherwise, there'll be. [00:01:31] Speaker 03: We'll give you an opportunity to go through it line by line and be specific if that's what you prefer. [00:01:37] Speaker 01: I don't know specifically the material you're referring to, but I suspect most of it relates to Microsoft information. [00:01:48] Speaker 01: And my colleague can correct me if I'm wrong. [00:01:51] Speaker 01: So perhaps it's something he should [00:01:54] Speaker 01: first address. [00:01:56] Speaker 04: Your honor, I think that's right. [00:01:59] Speaker 04: But I think in an abundance of costs in the district court, or actually it was the master judge that issued that opinion originally, issued it under seal and gave us an opportunity to look at that. [00:02:08] Speaker 04: I think it may just be. [00:02:09] Speaker 02: Right. [00:02:09] Speaker 02: But the sealing in the district court doesn't make it confidential here. [00:02:13] Speaker 04: I understand that, your honor. [00:02:15] Speaker 04: And I don't think that there's anything that's confidential in it that is there now. [00:02:19] Speaker 02: Good. [00:02:19] Speaker 02: I have one more question, though. [00:02:21] Speaker 02: There are a variety of places in the red brief [00:02:25] Speaker 02: that a particular issue comes up and is marked confidential. [00:02:29] Speaker 02: And I would point you to pages 35 at line 123 and 6, where the percentages, I think you'll know what I'm saying. [00:02:39] Speaker 02: Yes. [00:02:39] Speaker 02: The percentages of Connect revenue and Xbox revenue and the apportionment percentages are also marked confidential. [00:02:51] Speaker 02: It would be very difficult for us [00:02:53] Speaker 02: to write an opinion without talking about that, at least with respect to the apportionment issue, because that's sort of the core of the apportionment issue. [00:03:01] Speaker 02: Can we treat those as not confidential? [00:03:04] Speaker 04: I think it would be appropriate to treat that as non-confidential so long as the opinion does not treat as non-confidential the total revenues that are included, because if you were to do that, then you could do the math. [00:03:17] Speaker 02: Yeah, I see no reason that we need to talk about [00:03:22] Speaker 02: total revenues, or if we do, maybe. [00:03:24] Speaker 02: I believe in that case that it would be okay. [00:03:26] Speaker 02: All right. [00:03:27] Speaker 02: Agreed, Your Honor. [00:03:28] Speaker 02: Okay. [00:03:29] Speaker 03: Thank you both. [00:03:30] Speaker 03: Well, then let us proceed with the argument. [00:03:32] Speaker 03: All right. [00:03:33] Speaker 03: Mr. Kenney. [00:03:36] Speaker 01: May it please the Court, the judgment of the District Court in this case cannot stand as a result of several fundamental errors. [00:03:43] Speaker 02: But before you get into the details, I'd like to get a sense owed [00:03:48] Speaker 02: how this plays out if we do anything other than either reverse across the board or affirm across the board. [00:03:54] Speaker 02: Because we have a judgment that was entered predicated effectively on the accuracy of the ruling on the evidentiary, on the expert's testimony. [00:04:07] Speaker 02: What if, for example, we were to say, [00:04:12] Speaker 02: The court was wrong about the immersion Sony license and wrong about saying that the other licenses could not be considered for purposes of determining whether running royalty or a lump sum was the typical licensing system for Microsoft in this context. [00:04:33] Speaker 02: But we were to agree with the appellees with respect to the apportionment issue. [00:04:39] Speaker 02: Does that result in an affirmance in this case? [00:04:42] Speaker 01: Well, the problem with that, Your Honor, of course, is that it leaves the appellant without the ability to establish a base. [00:04:50] Speaker 01: Which was the problem that led to the dismissal, I take it. [00:04:54] Speaker 01: Actually, it was with respect to all of the issues that were addressed by the Magistrate Judge and excluded. [00:05:01] Speaker 01: Right, right. [00:05:01] Speaker 02: What I'm trying to get at is, is it necessary for you, in effect, to win on the apportionment issue in order to get a reversal of the entry of summary judgment? [00:05:13] Speaker 01: Well, there is case law, Your Honor, that says that if there is an infringement and validity of the patent found, then the patentee is entitled to at least reasonable royalties. [00:05:25] Speaker 01: Now, the question becomes, well, how do you prove that? [00:05:28] Speaker 01: And what evidence can be put forth for that purpose? [00:05:30] Speaker 02: But I gather that in the pleadings before the district court, you took the position that if you were deprived of the evidence of the [00:05:39] Speaker 02: effectively the Braddock's apportionment evidence, you weren't going to proceed, even though there was some more money still on the table. [00:05:51] Speaker 02: In fact, there was an offer of judgment, if I recall. [00:05:54] Speaker 01: It would, Your Honor, make it significantly difficult for us to put on a full damages and punishments. [00:06:01] Speaker 02: But I'm trying to get the answer as to what's the consequence [00:06:05] Speaker 02: From our perspective, does that result in an affirmance, a reversal, a remand, or what? [00:06:13] Speaker 01: My position, I guess, would be that, obviously, we think that Mr. Braddock's apportionment was proper. [00:06:19] Speaker 01: I understand. [00:06:20] Speaker 02: But suppose we disagree with you on that issue. [00:06:22] Speaker 01: If you disagree, then I believe what ought to occur is that there should be a remand to the district court to allow Mr. Braddock to make the proper apportionment. [00:06:30] Speaker 01: OK. [00:06:34] Speaker 02: And would you think that would be true if we agree with the appellees on all three questions? [00:06:41] Speaker 01: Yes. [00:06:42] Speaker 02: So no matter what happens here, there's no way for there to be an affirmance? [00:06:46] Speaker 01: No, I think there should be an affirmance. [00:06:47] Speaker 01: And the problem is, with respect to the ruling of the district court, it misses completely the point on both issues, both the comparability and the apportionment issues. [00:07:04] Speaker 01: From our perspective, if you look at the facts in this case, both of those issues should be reversed. [00:07:15] Speaker 01: So there are really three issues, as I mentioned in the district court's order, that exclude the entire damages report of Mr. Braddock. [00:07:22] Speaker 01: First was the finding that the Sony immersion licenses were not minimally technically comparable. [00:07:27] Speaker 01: The second was the finding that Mr. Braddock didn't apportion properly, and the third was the finding that Mr. Braddock applied the incorrect form of royalty. [00:07:36] Speaker 01: With respect to the first of those, the minimum comparability of the Sony immersion licenses, the district court concluded they did not meet the minimum standard of technical comparability, and it's wrong for several reasons. [00:07:48] Speaker 01: Dr. Ryan's opinion on technical comparability upon which the damages expert, Mr. Braddock, relied was not contested under any Daubert motion by the defendants, nor during Dr. Ryan's deposition was his testimony about that technical comparability contested. [00:08:06] Speaker 01: It clearly meets the standards set forth in Daubert. [00:08:10] Speaker 01: The methodology and principles used by Dr. Ryan to identify the discernible link between the technology of the 073 patent [00:08:16] Speaker 01: and the Sony Immersion patents and licenses were clearly reasonable and reliable. [00:08:23] Speaker 01: Now, in Dr. Ryan's expert report, and this is at JA 15276 through JA 15282, he dedicated some 17 paragraphs to a reasoned analysis of the technology of those 73 patents and that of the Immersion patents and of the Sony products, and he came to its conclusion of the comparability of the two. [00:08:45] Speaker 01: He began in paragraph 305 through 311 by defining the scope and the advantages of the 073 patent. [00:08:50] Speaker 01: What page of the joint appendix are you on right there? [00:08:53] Speaker 01: This is starting at JA 15276, Your Honor. [00:08:57] Speaker 01: And this runs in Dr. Ryan's opening expert opinion, paragraphs 305 through 321. [00:09:07] Speaker 01: So he started his opinion with respect to the comparability by looking at what is the technology of the 073 patent. [00:09:13] Speaker 01: He went through a reasoned analysis [00:09:14] Speaker 01: of what the scope of the patent is, how it provides utility during interactive video gameplay, and how it fundamentally changes gameplay. [00:09:23] Speaker 01: In paragraphs 312 through 321, he analyzed the immersion patents. [00:09:26] Speaker 01: He analyzed the immersion products. [00:09:29] Speaker 01: And in paragraph 312, he noted his conclusion as the minimum technical comparability of the 073 patent technology and the patents and products in Sony immersion. [00:09:40] Speaker 01: And he found that they dealt with technologies in the gaming field, including technologies which enhanced game play by providing improvements related specifically to game control during play. [00:09:51] Speaker 01: And then he went on to further break down his analysis. [00:09:55] Speaker 01: By reaching that conclusion in paragraph 313, he analyzed the immersion patents themselves. [00:10:02] Speaker 01: And he noted they cover Sony products in that case. [00:10:05] Speaker 01: He then went on to look at the Sony products. [00:10:08] Speaker 01: He looked at the expert witness report in the Sony case to determine what those products were and how they functioned. [00:10:14] Speaker 01: And he cited specifically to the expert, Mr. Salisbury, in that case. [00:10:20] Speaker 01: Moving on to paragraph 315, he analyzed the value of the patented dual-shock controller in the Sony product. [00:10:26] Speaker 00: But we're not to be evaluating all of that ourselves in taking over. [00:10:31] Speaker 00: We've got an abusive discretion standard, don't we? [00:10:34] Speaker 01: It is a distribution of discretion of the standard, Your Honor, but the point in bringing all this forward is the question here is, the opinion of Dr. Ryan, upon which Mr. Braddock relied in his expert report, is it admissible under the standard in Daubert? [00:10:51] Speaker 01: Did it meet the minimum scientific technical comparability standard? [00:10:57] Speaker 01: It's not his conclusions. [00:10:58] Speaker 01: And that's the issue with the whole order with respect to the comparability issue. [00:11:03] Speaker 01: The court in the order below, it appears never looked at because there's no specific indication in the order that it looked at Dr. Ryan's methodology and made a determination about whether his methodology was reasonable or not and reliable or not. [00:11:19] Speaker 01: It doesn't look at Dr. Ryan's methodology. [00:11:22] Speaker 01: It goes straight to factual conclusions. [00:11:24] Speaker 01: The district court said, here's what the 073 patent relates to. [00:11:28] Speaker 01: Here's what the Sony products relate to. [00:11:30] Speaker 01: And they're not comparable. [00:11:31] Speaker 01: And that was it. [00:11:33] Speaker 01: Any citation in this report's order to opinions is not to Dr. Ryan's opinion at all. [00:11:39] Speaker 01: If you read the order, the opinion, the order cites to Mr. Braddock's reasoning in relying on Dr. Ryan, but never analyzes Dr. Ryan's methodology. [00:11:50] Speaker 01: And that's the test. [00:11:51] Speaker 01: That's the Daubert test. [00:11:53] Speaker 01: And that's why this exclusion of the Sony immersion license is not proper under Daubert. [00:12:02] Speaker 01: The court made the wrong analysis. [00:12:04] Speaker 01: It made factual conclusions rather than looking at Dr. Ryan's methodology and determining whether that methodology met the minimum standard. [00:12:11] Speaker 02: Of course, I suppose in any case in which one is making determination of admissibility of evidence, or at least in many cases, the court is necessarily going to be making factual findings. [00:12:23] Speaker 02: Absolutely. [00:12:23] Speaker 02: So the fact that the court is making findings in the fact that this is outside of the range that would be permitted for an expert to testify doesn't in itself mean that she was wrong. [00:12:37] Speaker 01: I suspect there's sort of two ways to define findings in answer to that question. [00:12:43] Speaker 01: There are factual findings as to what Dr. Ryan did. [00:12:46] Speaker 01: What did he look at? [00:12:48] Speaker 01: And how did he make his analysis? [00:12:51] Speaker 01: There are factual findings as to what he did. [00:12:53] Speaker 01: And that goes to what his methodology was. [00:12:55] Speaker 01: And if it was proper, it's proper that that opinion should be admissible. [00:13:00] Speaker 01: But making findings of fact in the case, such as the 073 patent technology is limited solely to an input device, a fact which is hotly contested in this case, [00:13:11] Speaker 01: Dr. Ryan clearly says that's not the case. [00:13:14] Speaker 01: So that is a factual finding that is not proper for the court to make when it's looking solely at whether his methodology was proper. [00:13:22] Speaker 01: That is a fact for the jury to decide when it's put on before the jury. [00:13:26] Speaker 01: Is the technology 073 patent solely an input device or not? [00:13:30] Speaker 02: You're not suggesting that if the district court were to conclude that, notwithstanding that the expert used appropriate methodology, the experts [00:13:41] Speaker 02: comparison was so wildly far afield that a jury could not possibly find that helpful. [00:13:49] Speaker 02: You're not suggesting that would be an impermissible finding, right? [00:13:53] Speaker 01: No, I'm not suggesting that at all. [00:13:55] Speaker 01: But it would seem that if the conclusion of the expert is so wildly unacceptable, it's very likely his or her methodology was not acceptable either. [00:14:08] Speaker 02: Yeah, but it's always [00:14:11] Speaker 02: appropriate for the court to say, this is too wide of a mark to be admissible. [00:14:16] Speaker 02: I mean, that's what happens. [00:14:18] Speaker 01: That's the gatekeeping function. [00:14:19] Speaker 01: But the problem with that is, it is the gatekeeping function. [00:14:24] Speaker 01: But in exercising that gatekeeping function, it should focus on the methodology and not the ultimate conclusion. [00:14:31] Speaker 02: But even if the methodology is correct, the court can still say the ultimate conclusion is just not plausible. [00:14:41] Speaker 02: Isn't that a gatekeeping function as well? [00:14:43] Speaker 02: Well, not simply saying you checked all the boxes, but you came up with the results. [00:14:48] Speaker 01: Yeah, I suppose it would be on a case by case basis, Your Honor. [00:14:53] Speaker 01: Once the expert meets the minimum standard by reliable methodology in his or her opinion, it ought to be an issue for the jury to decide. [00:15:04] Speaker 01: Now, if it is such a wild conclusion that the judge who is deciding in his or her gatekeeping function that [00:15:11] Speaker 01: Well, I can't see how any jury is going to believe this opinion. [00:15:14] Speaker 01: Then maybe that opinion ought to be tested by vigorous cross-examination, or contrary evidence being submitted by the party, the opposing party, or even, if necessary, an instruction to the jury. [00:15:28] Speaker 01: So to take your argument to its limits, if I use proper methodology and then I conclude that the sky is green, not blue, well, sure, OK, that might be a situation where you would have to say, [00:15:39] Speaker 01: Maybe this person isn't qualified as an expert, not that they didn't come to use a proper methodology. [00:15:46] Speaker 01: But that's not the case here. [00:15:48] Speaker 01: I mean, it's clear from Dr. Ryan's report that he used, as he was qualified as an expert, he was not challenged as an expert. [00:15:56] Speaker 01: His opinion was not challenged under a Daubert motion. [00:16:00] Speaker 01: His opinion was not challenged during his deposition. [00:16:07] Speaker 01: in 17 some odd paragraphs of his expert report, he went through a significant analysis of both the patented technology, the patents in the Sony immersion case, and the products in the Sony immersion case. [00:16:20] Speaker 01: And he came to a detailed description of why he found that they were comparable. [00:16:24] Speaker 01: And that's appropriate for consideration by the jury. [00:16:26] Speaker 02: Well, he said they were the most relevant and most comparable. [00:16:30] Speaker 02: Yes. [00:16:30] Speaker 02: But he doesn't talk about the others, the other licenses. [00:16:34] Speaker 01: Yeah, Mr. Braddock looked at a number of other licenses in this case, and Dr. Ryan looked at a number of licenses in this case, and found that there were none that were more comparable. [00:16:46] Speaker 01: And it's probably not surprising. [00:16:51] Speaker 01: When you have an invention that is sort of a unique invention, as in this case, and the patentee has not been successful in licensing the patent, [00:17:02] Speaker 01: The field of what's comparable licenses is going to be a little bit less populated. [00:17:10] Speaker 01: It doesn't mean you have to advocate the gatekeeping function and allow anything in, but it does mean that you should be, as a patentee, you should not be punished by the fact that this is a unique invention that is new to a field, that is a new application, and that there aren't many, you know, the available field of comparable licenses is not populated. [00:17:31] Speaker 02: Well, now, as I understand it, [00:17:32] Speaker 02: There was the Sony immersion judgment, but there was also an immersion Microsoft settlement, right? [00:17:42] Speaker 02: And Dr. Ryan did not consider the Microsoft immersion settlement as more comparable. [00:17:50] Speaker 01: That's correct, Your Honor, because that settlement related to a number of other things besides just the patented technology of the immersion patents. [00:17:58] Speaker 01: It had a number of other elements. [00:18:00] Speaker 01: I don't want to go into the details of it, but there were a number of other elements to that license that made it. [00:18:07] Speaker 02: The license was broader. [00:18:09] Speaker 02: It was significantly broader. [00:18:11] Speaker 02: Well, that would suggest that if that license would provide you a cap, because if the license is broader, then presumably the license adjusted to this technology would have been cheaper. [00:18:22] Speaker 01: I don't believe so, because you have to understand the circumstances under which that occurred. [00:18:26] Speaker 01: This was a settlement. [00:18:27] Speaker 01: It was a settlement to get Microsoft out of the case. [00:18:30] Speaker 01: And so the conditions under that settlement gave a benefit to immersion that they might not have otherwise taken if it was not for the exchange in that state. [00:18:44] Speaker 03: Is that now off the table, that proposed settlement? [00:18:49] Speaker 01: Off the table in the sense that Mr. Braddock is not and Dr. Ryan are not considering a comparable. [00:18:55] Speaker 03: Yes. [00:18:55] Speaker ?: OK. [00:18:55] Speaker 03: Well, I know your time is up, but would you take another, let's say, five minutes and just touch the highlights of the other two points you mentioned? [00:19:03] Speaker 01: Yes. [00:19:04] Speaker 01: Yes, Your Honor. [00:19:04] Speaker 01: So the second issue is Mr. Braddock's apportionment. [00:19:07] Speaker 01: And it's our position that Mr. Braddock's apportionment was absolutely appropriate in this case. [00:19:14] Speaker 01: He not only apportioned properly, but he apportioned as fully required under the applicable law. [00:19:19] Speaker 01: And it's critical to keep in mind in this case, and with respect to the technology of the 073 patent, the patent claims an apparatus, not a method. [00:19:27] Speaker 01: It's an apparatus claim. [00:19:28] Speaker 01: It doesn't involve a method claim, as almost every other apportionment case cited by the police does, including laser dynamics and Lucent and RescueNet. [00:19:38] Speaker 01: Mr. Braddock apportioned to the patent technology by identifying 19 components out of a total of 30 in the Xbox 360, the console itself. [00:19:47] Speaker 01: He identified 20 out of 34 components in the Xbox One, which is the second generation of that. [00:19:54] Speaker 01: A total of 39 out of 64 that are needed to comprise the apparatus claimed in the 073 patent. [00:20:00] Speaker 01: So this case is very different from cases where, for example, a party used the entire value of the product. [00:20:10] Speaker 01: The infringement here occurs when Microsoft combines a console, a Kinect, and a game. [00:20:17] Speaker 01: That's the infringing apparatus. [00:20:20] Speaker 01: All of those are required to practice the infringing apparatus. [00:20:23] Speaker 01: And in this case, because this is an apparatus claim, the making, using, or selling of that apparatus is an infringement. [00:20:32] Speaker 01: It doesn't go to the issue of end user, if Joe Gamer uses it in his living room. [00:20:37] Speaker 01: Once that sale is made, statute says make or sell, once that sale is made, [00:20:43] Speaker 01: That's an infringing apparatus. [00:20:45] Speaker 01: So all of those components are part of the infringement. [00:20:48] Speaker 01: But Mr. Braddock went further. [00:20:50] Speaker 01: He didn't say, well, I'm just going to take the entire value of the Xbox console, like in the iPhone case where the expert witness said, I'm going to use the entire value of the iPhone. [00:21:02] Speaker 01: Mr. Braddock went inside the console. [00:21:05] Speaker 01: Even though Microsoft doesn't sell subcomponents, they only sell the console as a whole, he went inside the console and said, I'm going to take out [00:21:13] Speaker 01: with help from Dr. Ryan's analysis, those elements that aren't necessary for practicing the patented invention. [00:21:19] Speaker 01: And he removed those. [00:21:20] Speaker 01: And that was the apportionment that he did. [00:21:23] Speaker 01: So he clearly apportioned far enough in this case, down to as far as he could, to get to the value of or the base of what are the components that are necessary to practice the patented invention. [00:21:36] Speaker 01: And that was appropriate. [00:21:37] Speaker 02: And that's where he came up with the 89% and 93%. [00:21:41] Speaker 02: Correct. [00:21:42] Speaker 02: Do you think it is reasonable to say that the value of the facial recognition is 90% of the value of the Xbox? [00:21:52] Speaker 01: Well, that, Your Honor, would be a question for the rate, not necessarily the base. [00:21:57] Speaker 01: So if he's apportioned, Mr. Braddock is apportioned, as far as is required by the law, and in fact further in this case we would contend, [00:22:04] Speaker 01: Once he reaches that base, then the issue becomes, using that base, you can look at the value, and there can be testimony as to what the value of facial recognition is in the accused products, and you can adjust the rate accordingly to get to the value of what facial recognition is in the invention. [00:22:21] Speaker 01: That's common again. [00:22:25] Speaker 01: The last issue is with respect to [00:22:28] Speaker 01: the royalty structure that arrived at by Mr. Braddock. [00:22:33] Speaker 01: Mr. Braddock looked at some 23, 25 licenses of Microsoft, and not for the purpose of whether they were comparable or any of that, but simply to see what their licensing sort of policy practice was. [00:22:50] Speaker 01: And he came to the conclusion that looking at those 23, 25 licenses, [00:22:54] Speaker 01: that the proper royalty structure in this case should be a running royalty rate. [00:22:58] Speaker 01: And that was appropriate. [00:23:01] Speaker 03: OK. [00:23:02] Speaker 01: Thank you. [00:23:03] Speaker 03: Thank you. [00:23:04] Speaker 03: Mr. Kennedy? [00:23:13] Speaker 03: Mr. Davis? [00:23:16] Speaker 04: Good morning, Your Honors. [00:23:17] Speaker 04: May it please the court? [00:23:19] Speaker 02: Could you help me out, Mr. Davis, with the question that I began with your opposing counsel on? [00:23:24] Speaker 02: The question of what happens if we do something other than an across-the-board affirmance or an across-the-board disposition on all three issues, either for you or against you. [00:23:39] Speaker 04: Absolutely, Judge Bryson. [00:23:41] Speaker 04: And I was planning on leading with that point. [00:23:44] Speaker 04: I respectfully disagree with my colleague. [00:23:47] Speaker 04: There are many paths to affirmance here. [00:23:50] Speaker 04: Braddock did in deriving his reasonable royalty was to use an inappropriate royalty rate based on an incomparable license and then to apportion improperly. [00:24:01] Speaker 04: And so if this court were to conclude either that the reliance on the Sony immersion agreement was not appropriate under Dalbert and this court's [00:24:12] Speaker 04: damages cases or that the apportionment was not proper, then either one of those independently would lead to an affirmance. [00:24:21] Speaker 02: I heard Mike. [00:24:21] Speaker 02: What about his argument that if, for example, he should prevail on any of these issues that he should have a remand. [00:24:29] Speaker 02: Let's say he prevails on the issues other than apportionment. [00:24:34] Speaker 02: He loses on apportionment. [00:24:35] Speaker 02: He should have a remand to come up with a new apportionment. [00:24:40] Speaker 04: Respectfully, Your Honor, we disagree. [00:24:43] Speaker 04: Mr. Braddock made and IVS made a strategic decision to make the apportionment that they did. [00:24:52] Speaker 04: He gave lip service to the cases and claimed to be aware of the cases and this court's precedent. [00:24:57] Speaker 04: And he had an opportunity to do that in the first instance in the district court. [00:25:02] Speaker 04: Even after IVS and Mr. Braddock saw Ms. [00:25:07] Speaker 04: Davis's rebuttal report, [00:25:09] Speaker 04: And he put in a supplemental damages report. [00:25:11] Speaker 04: He did not alter or change his analysis in any way. [00:25:15] Speaker 04: And so we think it would be fundamentally unfair and inappropriate to remand it for him to essentially get another bite at the apple. [00:25:25] Speaker 04: So, Your Honors, in this instance, as Judge Laurie mentioned, the standard of review here is, in fact, abuse of discretion. [00:25:35] Speaker 04: And we believe that the magistrate judge in the first instance and the district judge on the objections under Rule 72A did not abuse their discretion at all in excluding Mr. Braddock and in excluding the Sonian Immersion Agreement. [00:25:50] Speaker 04: And there are a number of reasons why that is true. [00:25:54] Speaker 04: The first is, and I will note, that Mr. [00:25:58] Speaker 04: Mr. Braddock relied on Dr. Rhine. [00:26:02] Speaker 04: And Dr. Rhine provided his testimony principally as a gamer to testify about the increased enjoyment of the games that he was talking about. [00:26:14] Speaker 04: And we cite his expert report in our brief at page 31. [00:26:17] Speaker 04: He says, based on his long-term multi-system experience as a gamer, he believed that the Sony immersion agreement [00:26:26] Speaker 04: and the IVS patent were comparable. [00:26:29] Speaker 04: And that in and of itself, Your Honor, is something that we believe wasn't an appropriate thing for Mr. Braddock to rely on. [00:26:35] Speaker 04: And in fact, Mr. Braddock recognized, based on his discussions with Dr. Ryan, that the agreement itself wasn't a comparable. [00:26:43] Speaker 04: And that's why Mr. Braddock believed that he needed to multiply the actual compulsory license that the district court ordered in the Asoni immersion case by three. [00:26:54] Speaker 04: The record was clear. [00:26:55] Speaker 04: that the actual compulsory license that the district court awarded in that case, after a jury determination of infringement and invalidity, and while the entry of a permanent injunction was stayed, was 1.37%. [00:27:09] Speaker 04: And what Dr. Ryan said was, well, I believe that this is several times more valuable. [00:27:20] Speaker 04: He couldn't put a finer point on that. [00:27:22] Speaker 04: And so what Mr. Braddock did was to simply say, [00:27:25] Speaker 04: Well, several means more than two. [00:27:28] Speaker 04: So I'm simply going to multiply that number by three and come up with this 4.11% royalty rate. [00:27:36] Speaker 04: And so for that reason alone, the agreement between Sony and Immersion is not a comparable based on the positions that their experts took. [00:27:47] Speaker 04: Now. [00:27:48] Speaker 02: Well, but if Dr. Ryan is right that the [00:27:53] Speaker 02: immersion that the patent ensued here is much more valuable in its role in the game than the immersion patent was, then if you throw out the three times multiplier, you have a number which probably understates, at least according to Dr. Ryan, the actual value of the patented invention to the game. [00:28:19] Speaker 02: Why isn't that [00:28:20] Speaker 02: albeit understated, still at least a hard number that could be introduced to trial. [00:28:26] Speaker 04: Well, it may be understated in Dr. Ryan's view. [00:28:30] Speaker 04: And it may be a conservative estimate in Mr. Braddock's view. [00:28:33] Speaker 04: But nevertheless, they need to comply and comport with the Supreme Court's precedent in Daubert [00:28:39] Speaker 04: and they need to comply with this court's damages law. [00:28:41] Speaker 04: And there's no basis for Mr. Braddock or for Dr. Ryan to have reached that conclusion other than Dr. Ryan's experience as a gamer. [00:28:52] Speaker 04: My colleague went through a number of the sections of Dr. Ryan's expert report where he purports to go through and compare. [00:29:01] Speaker 04: And in fact, what we see if we look at those, and I agree that this court's job is not to redo what the district court [00:29:09] Speaker 04: did and to look at as an abuse of discretion. [00:29:12] Speaker 04: But what Dr. Ryan did was to identify the key differentiator between the 073 patent here and the patent that was at issue in the Sony immersion case is that this patent relates to biometric identification to identify people and to use that in game play. [00:29:28] Speaker 04: The patents that were at issue in the Sony immersion case [00:29:32] Speaker 04: didn't have to do with biometric identification at all. [00:29:35] Speaker 04: It didn't have to do with facial recognition at all. [00:29:39] Speaker 04: It had to do with a controller that you use that provided haptic feedback. [00:29:43] Speaker 04: And so the connection that Dr. Ryan was drawing here, that both of these technologies and patents related to gameplay and video games, really is akin to what we saw in Lucent, in which the expert improperly said, well, the patents are comparable simply because they are PC related. [00:30:02] Speaker 04: It's not enough. [00:30:03] Speaker 04: There needs to be more that the expert should have done here. [00:30:06] Speaker 04: And I know, Your Honors, that what, in fact, what Dr. Ryan did, even in looking at the Sony immersion agreement that did not relate to facial recognition, he said that that was comparable. [00:30:17] Speaker 04: But none of the four patents that were at issue in the Microsoft licenses that Ms. [00:30:22] Speaker 04: Davis relied on in rebuttal, which there's no dispute related to the specific accused product here, a system that uses facial recognition, [00:30:32] Speaker 04: Dr. Rhine just discounted those because he said they didn't apply to the same technology. [00:30:37] Speaker 04: Well, what's happening here, Your Honor, we believe, is that there was just cherry picking that was going on. [00:30:42] Speaker 04: What Dr. Rhine did was to look at the Sony immersion agreement. [00:30:46] Speaker 04: And Mr. Braddock, in consultation with Dr. Rhine, decided that that was the agreement that allowed them to take the position that they did, that this technology was worth [00:30:57] Speaker 04: far more than it actually was. [00:30:59] Speaker 02: Well, it wasn't a Sony immersion agreement, right? [00:31:02] Speaker 02: It was a verdict. [00:31:03] Speaker 04: That's correct, Your Honor. [00:31:06] Speaker 04: It was actually a verdict that the jury allowed, that the district court affirmed, and then entered a compulsory license going forward. [00:31:16] Speaker 04: And as Your Honor noted during my colleague's presentation, even if [00:31:23] Speaker 04: this court were to conclude somehow that the Sony immersion technology was comparable. [00:31:31] Speaker 04: The license that would have been far more comparable under this court's precedence would have been the settlement agreement that Microsoft and immersion entered into in that case. [00:31:43] Speaker 04: Immersion sued Microsoft and it related to the same technology that was at issue in this case. [00:31:50] Speaker 04: And Mr. Braddock looked at that Microsoft immersion settlement agreement, and he discounted it because he said there were other factors involved. [00:32:01] Speaker 04: But it can't be the case that the technology itself is comparable, and yet a court-imposed compulsory forward-looking license after a jury verdict against another party accusing another system is more comparable than [00:32:19] Speaker 04: an analysis that took place of a negotiation between the Microsoft, in this case, the very party that would have been involved in the 073 hypothetical negotiation and immersion. [00:32:31] Speaker 04: I believe that's a separate and independent reason why the analysis that Mr. Braddock conducted here was inappropriate. [00:32:38] Speaker 04: Now. [00:32:40] Speaker 02: You may not have this at your fingertips. [00:32:42] Speaker 02: Does Dr. Ryan specifically address the immersion Microsoft [00:32:48] Speaker 02: Settlement anywhere in his expert report because I can't remember. [00:32:51] Speaker 04: Dr. Rhine does not address it in his expert report at all. [00:32:57] Speaker 04: Mr. Braddock in his expert report does. [00:33:02] Speaker 04: I've got a record site here in which it's JA 14-010-011. [00:33:14] Speaker 04: And I'm not sure if that's a site to the deposition [00:33:17] Speaker 04: or to the expert report, but he certainly considered it and he rejected it because he believed that it wasn't comparable and it didn't provide the best estimate of what would have been reasonable under the circumstances. [00:33:36] Speaker 04: Now, I'd like to move for a moment to the apportionment issue, if that's OK. [00:33:44] Speaker 04: Even if this court were to somehow conclude that [00:33:47] Speaker 04: The appellees are correct. [00:33:49] Speaker 04: The appellants are correct. [00:33:51] Speaker 04: There's still a fundamental problem, and that is that Mr. Braddock did not apportion properly. [00:33:57] Speaker 04: I took note to write down the cases that my colleague mentioned when he was stating that Mr. Braddock had done the appropriate analysis. [00:34:06] Speaker 04: And I heard him mention some of the earlier cases from this court's jurisprudence, but I didn't hear him mention phonetics, and I didn't hear him mention [00:34:14] Speaker 04: Erickson. [00:34:15] Speaker 04: And those are two of the more recent cases in which this court has said very clearly that oftentimes it's not enough to simply identify the smallest salable patent practicing unit and to ascribe value to that to do a proper apportionment. [00:34:32] Speaker 04: And this case is a classic example of why the law and the standard of verminics and of Erickson has to obtain. [00:34:40] Speaker 04: Because in this particular instance, what [00:34:42] Speaker 04: Dr. Ryan did was to go down a bill of materials and place a check box next to everything that was necessary and required to allegedly practice the alleged invention. [00:34:58] Speaker 04: And then Mr. Braddock took a percentage of that based on the cost and applied that to the actual sales price of those components. [00:35:06] Speaker 04: And he stopped there. [00:35:07] Speaker 04: He didn't do anything further. [00:35:08] Speaker 04: And this is a case in which he was required [00:35:10] Speaker 04: to do something further. [00:35:11] Speaker 04: It wasn't enough to do what he did, because as you noted, Judge Bryson, that essentially suggests that the entirety of those components find their worth, find their value in the claimed invention here. [00:35:24] Speaker 04: And we know that that can't be the case, because in this specific case, even Dr. Bratt, excuse me, Dr. Rine took the position that not all uses of facial recognition in the accused systems practice the asserted claims. [00:35:40] Speaker 04: There are instances in which a gamer can sign in, for example, using biometric facial recognition. [00:35:48] Speaker 04: There are instances, for example, when someone can jump in and jump out of gameplay, and facial recognition is used. [00:35:55] Speaker 04: But those were activities in which facial recognition was not accused of infringement. [00:36:00] Speaker 04: It was only what's called session identity, which is the actual gameplay in which Dr. Ryan said that that entertaining interaction [00:36:10] Speaker 04: practices the claims. [00:36:12] Speaker 02: I saw something in the record that gave me the impression that at least in some iterations there may be an option to purchase a device or a game that has spatial recognition between [00:36:25] Speaker 02: versus one that doesn't. [00:36:26] Speaker 02: Is that the case, or is there not any such option available in any of these products? [00:36:31] Speaker 04: I'm not sure that I specifically recall that. [00:36:35] Speaker 04: What I can tell, Your Honor, though, is two things that I think get to a similar point. [00:36:40] Speaker 04: And that is that there were three series of games here. [00:36:43] Speaker 04: There were games that didn't require the Kinect at all. [00:36:45] Speaker 04: There were games that absolutely required the Kinect. [00:36:48] Speaker 02: Maybe that's what I'm thinking of, the different levels of Kinect. [00:36:50] Speaker 04: And there were some in which you may or may not use the Kinect. [00:36:54] Speaker 04: But the fact is that the Xbox 360 was on the market using the same components that Dr. Ryan and Mr. Braddock rely upon, except for the Kinect, to play games and to provide user enjoyment. [00:37:09] Speaker 02: And there's a difference in the price, I assume. [00:37:11] Speaker 04: And there's a difference in the price. [00:37:12] Speaker 04: And then when the Xbox One came on the market, that is a system that also, where you can play games that don't use the facial recognition technology. [00:37:21] Speaker 04: Mr. Braddock made no effort. [00:37:23] Speaker 04: to carve out or to call out from his so-called apportioned royalty base those instances in which facial recognition is not being used at all, or facial recognition is being used, but it's not being used in a way that he claimed infringement. [00:37:40] Speaker 04: And so for that reason in and of itself, his opinion was not reliable and was properly excluded under Daubert and under this court's precedence. [00:37:52] Speaker 02: Let me ask you, and you may have been just about to turn to this, but in case you weren't, could you address the question that's, I guess, the third issue, which is whether the Microsoft licenses that contained running royalty rates as opposed to lump sum payments were admissible not for the amount [00:38:17] Speaker 02: of the license or anything else, but simply to show that this is the kind of license that Microsoft frequently interests, that is to say a running royalty. [00:38:27] Speaker 02: Why isn't that, if introduced without any reference to the amount or anything else, simply that it's a running royalty as opposed to a fixed amount, why isn't that a reasonable piece of evidence for the jury to have? [00:38:41] Speaker 04: So in some circumstances, Your Honor, it may be that that would be relevant, and it might be that it's admissible. [00:38:48] Speaker 04: But I think one of the threshold questions is whether it is appropriate for an expert to rely on those informing his opinion. [00:38:56] Speaker 04: And given that Mr. Braddock took the express position that none of those licenses was a comparable, not a single one of them was a comparable, then we believe it was inappropriate [00:39:09] Speaker 04: and improper under Daubert for him to rely on those licenses for any purpose. [00:39:20] Speaker 04: Unless you have further questions, we'll see my time. [00:39:23] Speaker 03: We'll see. [00:39:23] Speaker 03: Any more questions from Mr. Davis? [00:39:27] Speaker 03: Thank you, Mr. Davis. [00:39:28] Speaker 03: And you have some rebuttal time, three minutes. [00:39:36] Speaker 01: If I may work backwards from the issues that my colleague raised. [00:39:44] Speaker 01: The important thing to keep in mind here is, IBS accused only those systems which include all the infringing combination. [00:39:55] Speaker 01: Mr. Davis is correct. [00:39:57] Speaker 01: Prior to the advent of the Kinect, the introduction of the Kinect, there were Xbox 360 consoles on the market. [00:40:03] Speaker 01: They are not accused of infringement. [00:40:05] Speaker 01: However, when the Kinect was introduced, and it was sold, bundled with a game, and a party who plot that individually, bundled with a game, could then upgrade the old Xbox, and the software in the game would upgrade it to allow that old console to use the Kinect and play a Kinect game. [00:40:27] Speaker 01: Second thing is, IDS has only accused Kinect games as infringing. [00:40:33] Speaker 01: Only when a Kinect game is sold, used with the Kinect and the console, is that an infringement. [00:40:40] Speaker 01: So there are many times when non-Kinect games could be used, and we're not accusing infringement in that case. [00:40:45] Speaker 02: But I assume that the Xbox without Kinect versus the Xbox with Kinect, the latter was not 10 times as expensive as the former. [00:40:57] Speaker 02: Which, and therefore, it doesn't sound like the 90% figure that you used as a base is really much of an indication of added value, right? [00:41:10] Speaker 01: Again, that's apportioning as far as is absolutely required, but in fact further than is required by the law, to get to those elements where those components are necessary to practice. [00:41:20] Speaker 02: It depends on whether the law requires apportionment by virtue of determination of respective relative value. [00:41:26] Speaker 02: If it does, then I don't think that, I'm dubious that 90% [00:41:32] Speaker 02: of the value of the Xbox is facial recognition. [00:41:35] Speaker 02: And you're not suggesting that. [00:41:37] Speaker 01: No, what I'm suggesting is once you apportion to that point, then when you go to the issue of value, it's handled by the rate, not by the apportionment, not by the base. [00:41:46] Speaker 01: That's where the balance comes. [00:41:49] Speaker 01: So the suggestion that somehow all consoles are accused of infringement in this case is not correct. [00:41:55] Speaker 01: And the real problem here is this. [00:41:57] Speaker 01: The real problem here is this. [00:41:58] Speaker 01: It's the definition of use. [00:42:00] Speaker 01: Because the appellees would say, [00:42:02] Speaker 01: In order to infringe there has to be a person plugging a game into a console and using the Kinect to play a Kinect game and during that Kinect game sometimes facial recognition is used and sometimes it's not. [00:42:18] Speaker 01: That is not the requirement here. [00:42:20] Speaker 01: That is a method claim. [00:42:22] Speaker 01: If there is a method claim that might be the case. [00:42:25] Speaker 01: This is not a method claim. [00:42:27] Speaker 01: This is an apparatus claim. [00:42:29] Speaker 01: And so once [00:42:30] Speaker 01: the combination of elements is sold. [00:42:33] Speaker 01: A console, a Kinect, and a Kinect game. [00:42:36] Speaker 01: Not a game that doesn't use Kinect, but a Kinect game. [00:42:40] Speaker 01: That combination is an infringing combination. [00:42:43] Speaker 01: And once it is sold, Microsoft gets the value of that infringement. [00:42:48] Speaker 01: Done. [00:42:49] Speaker 01: They take their money home. [00:42:50] Speaker 01: It doesn't matter if somebody leaves it in a box [00:42:53] Speaker 01: or opens it and starts playing it on Christmas morning. [00:42:56] Speaker 01: It's still an infringement, regardless of how often it's used. [00:43:00] Speaker 01: And that's the important point. [00:43:02] Speaker 01: Use is not relevant here. [00:43:04] Speaker 01: It's the making, using, or selling of the infringing combination. [00:43:08] Speaker 01: Because this is an apparatus claim, that's an infringement. [00:43:13] Speaker 03: OK. [00:43:13] Speaker 03: Thank you, Mr. Tenney. [00:43:14] Speaker 03: Mr. Davis, the case is taken under submission.