[00:00:57] Speaker 03:
Next case is Mentor Graphics versus Eve synopsis, 2015, 1470, 1554, and 1556.

[00:01:09] Speaker 03:
Mr. Rosencrantz.

[00:01:14] Speaker 01:
Good morning, Your Honors.

[00:01:15] Speaker 01:
Thank you.

[00:01:15] Speaker 01:
May it please the court, Josh Rosencrantz representing synopsis.

[00:01:21] Speaker 01:
To state the obvious, there are a lot of issues in this appeal.

[00:01:26] Speaker 01:
I'd like to focus first on the 376 infringement question.

[00:01:32] Speaker 01:
That could resolve four of the issues in this case.

[00:01:36] Speaker 01:
That'll turn to damages.

[00:01:38] Speaker 01:
And if the court permits, I'd like to discuss very briefly one of the issues on the cross-appeal, the 828.

[00:01:46] Speaker 01:
So on infringement, this court has held three times that if a patent says that a device must identify or indicate something,

[00:01:56] Speaker 01:
It must identify or indicate that thing, not some other information that will let you figure out that thing.

[00:02:04] Speaker 01:
So applying that principle here, whatever indicate means, what this device does is really far repealed from indicating that which must be indicated, which is the execution status of a statement.

[00:02:21] Speaker 01:
There is no dispute about what this device does.

[00:02:24] Speaker 01:
refer the court to page 14 of our brief where you have a picture of the display of our device and you see that all it does is to give you signal names and then it tells you what the signal value is.

[00:02:47] Speaker 01:
The only way to figure out which line of code executed from that signal value

[00:02:53] Speaker 01:
is to go through an sometimes arduous mental process that is described in Mentor's Brief on page 16 to 18.

[00:03:02] Speaker 01:
This is Mentor's Brief in mind-numbing detail.

[00:03:06] Speaker 02:
OK, perhaps you're going to tell me my question oversimplifies things, and certainly it's about to.

[00:03:13] Speaker 02:
Do you ever go to Baskin-Robbins or any other ice cream place?

[00:03:16] Speaker 02:
Yes, Your Honor.

[00:03:17] Speaker 02:
OK.

[00:03:17] Speaker 02:
So you're in Baskin Robbins, and you want chocolate chip ice cream, right?

[00:03:21] Speaker 02:
And each of the tubs of ice cream in the bin have a little nameplate, chocolate chip, whatever.

[00:03:27] Speaker 02:
And each of the tubs are color-coded.

[00:03:29] Speaker 02:
We don't know why.

[00:03:30] Speaker 02:
Maybe it's random.

[00:03:31] Speaker 02:
But it turns out that chocolate chip is the only one in the pink tub.

[00:03:34] Speaker 02:
And so you say to the clerk, I'll have the ice cream in the pink tub.

[00:03:37] Speaker 02:
Have you indicated to him that you're going to have the chocolate chip ice cream?

[00:03:41] Speaker 01:
Yes, Your Honor, because he sees it right there in front of him and knows automatically without any mental process which one you're indicating.

[00:03:50] Speaker 01:
But what this device does, to take your analogy one step further, is you walk into Baskin-Robbins, you say, here's my ice cream preference.

[00:04:00] Speaker 01:
I want a chocolate-based ice cream that is named for a moment in the Great Depression.

[00:04:05] Speaker 01:
And if you Google that, you will get a bunch of entries.

[00:04:09] Speaker 01:
You will definitely find

[00:04:11] Speaker 01:
that it's rocky road.

[00:04:12] Speaker 01:
That's what this invention does.

[00:04:14] Speaker 01:
If you look at this signal.

[00:04:15] Speaker 02:
Can somebody tell you about my ice cream analogy before you came?

[00:04:18] Speaker 02:
Because that's really very swift on your feet.

[00:04:21] Speaker 01:
Well, thank you, your honor.

[00:04:25] Speaker 01:
So what this does is it gives you a signal value.

[00:04:29] Speaker 01:
And Mender's own expert acknowledges that this signal value, what do you do with that signal value?

[00:04:37] Speaker 01:
This is what the patent itself says is difficult, if not impossible, to do.

[00:04:44] Speaker 01:
And it's worth reading from the specification.

[00:04:48] Speaker 01:
It's on column two, line seven.

[00:04:52] Speaker 01:
What the specification says is, although signals can be analyzed during gate level simulation, mapping signal values to particular source code lines, that's what we're supposed to do with this.

[00:05:06] Speaker 01:
can be difficult, if not impossible.

[00:05:09] Speaker 01:
So what does mentors' experts say we're supposed to do?

[00:05:12] Speaker 01:
First, you've got the signal value.

[00:05:14] Speaker 01:
You have to write down the signal name.

[00:05:15] Speaker 01:
Then you have to enter that into a search tool, the text editor.

[00:05:20] Speaker 01:
Then you have to find it.

[00:05:21] Speaker 01:
Now, it could be in 1,000 places.

[00:05:24] Speaker 01:
You've got to go to each of those 1,000 neighborhoods.

[00:05:27] Speaker 01:
And when you find one of those neighborhoods, you first have to check, OK, do I have all of the other signal values I need in order to solve this?

[00:05:35] Speaker 01:
Then you have to work through the mental process of figuring out what the answer is.

[00:05:39] Speaker 01:
We have an example, the simplest if-then-else statement.

[00:05:42] Speaker 01:
I have to tell you, I had trouble plugging in the values with that very simple one.

[00:05:47] Speaker 01:
There are lines of code.

[00:05:48] Speaker 01:
There are processes that have 15 embedded.

[00:05:52] Speaker 01:
or nested, if then else, statements.

[00:05:55] Speaker 02:
OK.

[00:05:55] Speaker 02:
I think that we understand your argument on this.

[00:05:57] Speaker 02:
And 10 minutes, and you've got like 27 issues to cover.

[00:05:59] Speaker 02:
So why don't you move to damages?

[00:06:01] Speaker 02:
Because I am very interested in hearing your arguments on damages with regard to 376, if you don't mind.

[00:06:06] Speaker 01:
I don't mind at all.

[00:06:08] Speaker 01:
No questions?

[00:06:08] Speaker 01:
Excellent.

[00:06:09] Speaker 01:
So on damages, the district court conceded that it made an error in the jury instructions.

[00:06:15] Speaker 01:
And this court has to correct that error.

[00:06:20] Speaker 01:
Mentor accused just two features out of thousands in the device.

[00:06:23] Speaker 01:
Now, a century and a half of Supreme Court precedent says, in the context of lost profits, that you have to apportion quote in every case.

[00:06:34] Speaker 01:
At least four times the Supreme Court has done that in a lost profits case.

[00:06:39] Speaker 01:
It did it in Seymour.

[00:06:41] Speaker 01:
And I'll quote, the Supreme Court described that case as involving an award quote of profits which, in the judgment of the law,

[00:06:49] Speaker 01:
the patentee would have made, provided the defendants had not infringed with his rights.

[00:06:55] Speaker 01:
Garretson does it too.

[00:06:57] Speaker 01:
Possibly the best example is Blake, where there is actually a but for causation that was proved in that case.

[00:07:06] Speaker 02:
Now I understand- Just so I just want to be clear, the four cases that you point to, are each of them patent lost profits cases or any of them defendant disgorgement cases?

[00:07:16] Speaker 01:
So they all involved patent lost profits.

[00:07:19] Speaker 01:
Some of them also involved disgorgements.

[00:07:22] Speaker 01:
It is simply not true that none of them involved lost profits.

[00:07:26] Speaker 01:
And you can see the quotes in our brief.

[00:07:28] Speaker 02:
I can give you... Which ones in particular are lost profits as opposed to exclusively disgorgement cases?

[00:07:33] Speaker 02:
Which one of the four?

[00:07:34] Speaker 02:
Oh, sorry.

[00:07:37] Speaker 01:
I may have been unclear.

[00:07:38] Speaker 01:
Every single one of the four involved lost profits.

[00:07:41] Speaker 01:
No, no, no.

[00:07:42] Speaker 01:
Every single one of the four involved lost profits.

[00:07:45] Speaker 01:
Some of them also involved disgorgement.

[00:07:47] Speaker 01:
And by the way, this was at a time when lost profits was the leading way to evaluate actual damages.

[00:07:55] Speaker 01:
So I'll give you, for example, Blake, and I'll quote here, it was not shown how much of the patentee's profits

[00:08:02] Speaker 01:
was due to those other patents, nor how much of it.

[00:08:07] Speaker 02:
All of those cases way preempted Panduit, right?

[00:08:10] Speaker 02:
These are much older Supreme Court cases.

[00:08:13] Speaker 02:
They're still Supreme Court cases.

[00:08:14] Speaker 02:
They clearly are the law of the land.

[00:08:17] Speaker 02:
But they way preempted Panduit, right?

[00:08:20] Speaker 01:
Proceeded Panduit.

[00:08:21] Speaker 01:
Yeah, yeah.

[00:08:22] Speaker 02:
Yes.

[00:08:23] Speaker 02:
And so here is my question to you.

[00:08:26] Speaker 02:
The district court,

[00:08:28] Speaker 02:
I thought, in a very artful way, explained as part of the trial transcript, which I read, in response to whether there is a problem with regard to damages, he explained that he views the Panduit factors as incorporating all of the principles of apportionment that are otherwise necessary.

[00:08:50] Speaker 02:
You want me to view the Panduit as step one and some sort of apportionment or entire market value analysis as step two and require it in every case.

[00:08:58] Speaker 02:
What the district court judge said here, quite artfully in the transcript, is, wait a minute, doesn't Panduit actually, in order to prove the Panduit factors, haven't you actually proved your entitlement to all of the lost profits on the entire product?

[00:09:14] Speaker 02:
Because that's what Panduit requires you to prove.

[00:09:17] Speaker 02:
And he concluded that that was the case, and that's why he didn't grant your motion.

[00:09:21] Speaker 02:
So why doesn't it?

[00:09:22] Speaker 02:
Why is it not the case?

[00:09:25] Speaker 02:
that Panduit already accounts for exactly what you're asking us to add on as another layer of review.

[00:09:31] Speaker 01:
Here's why, Your Honor.

[00:09:33] Speaker 01:
Panduit, and particularly focused on factor two, so Panduit proves but for causation, right?

[00:09:40] Speaker 02:
No.

[00:09:40] Speaker 02:
Panduit proves there are no non-infringing substitutes

[00:09:45] Speaker 02:
that this particular customer would have been willing to accept.

[00:09:49] Speaker 01:
Yes.

[00:09:52] Speaker 01:
No non-infringing substitutes for the feature so that therefore... Oh, see, that's what I thought you were going to say.

[00:09:58] Speaker 02:
So I went back and read the jury instruction very carefully.

[00:10:01] Speaker 02:
You should pull it out.

[00:10:01] Speaker 02:
It's on A164.

[00:10:04] Speaker 02:
The district court didn't say feature.

[00:10:05] Speaker 02:
He said for the entire emulator.

[00:10:08] Speaker 02:
He said an emulator with this feature

[00:10:11] Speaker 02:
would anyone have thought a different emulator that didn't include this feature?

[00:10:15] Speaker 02:
He didn't say feature.

[00:10:18] Speaker 02:
Had he focused on feature, that would be a very good response to me.

[00:10:21] Speaker 02:
But that's not what you agreed on.

[00:10:22] Speaker 02:
This jury instruction was agreed upon within this regard by the parties, and you haven't appealed it apart from or outside of the context of this entire market value roll.

[00:10:31] Speaker 02:
Page A, 164.

[00:10:33] Speaker 02:
And you can see... Sorry, 164, I see it.

[00:10:35] Speaker 01:
And where are you reading from?

[00:10:37] Speaker 02:
The entire jury instruction is on A, 164 and 165.

[00:10:41] Speaker 02:
entire thing talks about, is there a substitute for the emulator?

[00:10:45] Speaker 02:
And it goes on and it actually lists every substitute that was potentially argued by the parties, the cadence emulator system, the FPGA prototype, the software simulator, and then it says, or anything else synopsis could have made available or developed during the time.

[00:11:02] Speaker 02:
So what he is clearly saying, and at the very top even he talks about emulator,

[00:11:06] Speaker 02:
Is there a substitute?

[00:11:08] Speaker 02:
We have an emulator.

[00:11:09] Speaker 02:
Now granted, an emulator probably has 100 functions, and only two are patented here, right?

[00:11:14] Speaker 02:
But what he charged the jury with is would Intel, because that's where these standards really come from, have been willing to buy an emulator without these two features?

[00:11:24] Speaker 02:
And the conclusion the jury reached was no.

[00:11:26] Speaker 01:
Well, so that is correct.

[00:11:28] Speaker 01:
So let me state it in a context that's very familiar to this court.

[00:11:33] Speaker 01:
Take that same exact jury instruction.

[00:11:35] Speaker 01:
assume, as is the case here, a two-supplier market.

[00:11:40] Speaker 01:
At least, that's what the jury found.

[00:11:43] Speaker 01:
And let's just say it's a laptop with 1,000 features.

[00:11:48] Speaker 01:
So what this judge is telling the jury is, if you find that a juror would not have bought a laptop without the keyboard, then Mentor gets all of the lost profits.

[00:11:59] Speaker 01:
And it says, in other words, Mentor graphics must show that but for the infringement by synopsis,

[00:12:05] Speaker 01:
There is a reasonable probability that Mentor Graphics would have earned higher profits.

[00:12:09] Speaker 01:
So if you prove one penny, you get 100%.

[00:12:11] Speaker 01:
Hold on.

[00:12:13] Speaker 02:
But here's my problem with your logic as you're explaining it now.

[00:12:17] Speaker 02:
You have acquiesced in and even encouraged us to adopt the entire market value rule as the second layer of analysis for possible apportionment.

[00:12:27] Speaker 02:
Correct.

[00:12:28] Speaker 02:
The entire market value rule entitles you to all of the profits on something.

[00:12:32] Speaker 02:
So long as that thing was the basis for the customer wanting it.

[00:12:36] Speaker 00:
Yes.

[00:12:37] Speaker 02:
So if you're selling a computer that doesn't have a keyboard, and I'm selling a computer with a keyboard, and if nobody's willing to buy a computer without a keyboard, it doesn't mean the rest of the stuff you're selling doesn't have value.

[00:12:49] Speaker 02:
But the basis for the customer demand for the product is I'm only going to buy a computer with a keyboard.

[00:12:55] Speaker 02:
Your Honor, here's where I- Then hasn't the patentee lost

[00:12:58] Speaker 02:
all of the value of the whole thing.

[00:13:00] Speaker 01:
So here's where we disagree.

[00:13:03] Speaker 01:
I was with you up until the point at which you described what I would call a but for cause.

[00:13:09] Speaker 01:
A customer will also not buy a laptop without a high resolution screen or without

[00:13:20] Speaker 01:
a long life.

[00:13:21] Speaker 02:
We're trying to figure out what the patentee lost here.

[00:13:24] Speaker 01:
Yes.

[00:13:24] Speaker 02:
And if the patentee would have made every sale of the whole emulator but for your infringement because they wouldn't have purchased an emulator without these features.

[00:13:35] Speaker 02:
These two features drove the demand for the emulator.

[00:13:38] Speaker 01:
These two features were a driver of the demand.

[00:13:41] Speaker 01:
That same customer also would not have bought the laptop

[00:13:45] Speaker 01:
without the other 999 patents that are incorporated into it.

[00:13:49] Speaker 01:
Let me give you the perfect example of the mischief that occurs.

[00:13:53] Speaker 01:
Mentor accused us of infringing five patents.

[00:13:56] Speaker 01:
It sought lost profits, 100% of lost profits as to all five.

[00:14:01] Speaker 01:
It was intending to prove but for causation as to all five.

[00:14:05] Speaker 01:
When the case was down to one, it was still demanding 100% of the lost profits.

[00:14:13] Speaker 02:
But you haven't distinguished for me in a way that I can wrap my head around.

[00:14:20] Speaker 02:
Why?

[00:14:21] Speaker 02:
Panduit doesn't already account for the entire market value rule quite frankly why these two things are not virtually interchangeable Because you want me to add a layer of entire market value rule one to go on top of Panduit But the way I read the jury instruction that's exactly what you're charged with doing no with the jury what the jury was charged with doing was finding that this was a Cause this particular part of this particular feature which was the only feature that the jury had in front of it

[00:14:50] Speaker 01:
If those other four patents had been owned by four other patentees, every single one of them would have come in.

[00:14:57] Speaker 01:
They would have shown but for causation.

[00:15:00] Speaker 01:
One is but for causation of the battery.

[00:15:03] Speaker 01:
The other is but for causation of the high resolution screen.

[00:15:07] Speaker 01:
They all would have gotten 100% of our profits.

[00:15:10] Speaker 01:
We're now up to 500%.

[00:15:11] Speaker 01:
And that's before we even accounted for the other 996 patented features in here.

[00:15:18] Speaker 01:
for which other patentees will demand royalties.

[00:15:23] Speaker 02:
So you think entire market value rule means there can only be one basis for the customer demand of a product, and that way you can only get sued one time, because there's only one thing that's really the basis for the demand?

[00:15:34] Speaker 01:
It's not what I think.

[00:15:35] Speaker 01:
This court has said the basis for customer demand, the driver of customer demand, not one driver of customer demand.

[00:15:43] Speaker 02:
No, that's fine.

[00:15:43] Speaker 02:
But why isn't this jury instruction meeting that standard?

[00:15:47] Speaker 02:
What is wrong with this jury instruction?

[00:15:50] Speaker 02:
It expressly says, would not have made some or all of the diverted sales but for infringement.

[00:15:56] Speaker 02:
And it goes through all of the options, which could have been acceptable, available, non-infringing alternatives.

[00:16:02] Speaker 02:
And it even has a catch-all or anything else synopsis.

[00:16:05] Speaker 01:
All that is proven is that Intel would not buy a laptop without the keyboard.

[00:16:12] Speaker 01:
Intel would also not buy a laptop without the high resolution screen.

[00:16:16] Speaker 01:
So everyone can come in, not everyone.

[00:16:18] Speaker 02:
OK, but here's the facts of this case.

[00:16:20] Speaker 02:
We have two suppliers and only two suppliers with regard to Intel, Mentor and Synopsys.

[00:16:24] Speaker 02:
They're each selling emulators.

[00:16:26] Speaker 02:
What this proves is Emulator would never have bought the Synopsys emulator without these two functions.

[00:16:33] Speaker 02:
That's what this proves.

[00:16:34] Speaker 01:
Yes, yes.

[00:16:35] Speaker 01:
And the testimony in this case, and by the way, I just.

[00:16:39] Speaker 02:
No, because in this case, there's no evidence that Intel would have bought it.

[00:16:47] Speaker 01:
That is incorrect, Your Honor.

[00:16:48] Speaker 01:
All of the testimony in this case said that these two particular probes were nowhere near the top of the list of the most important things.

[00:17:02] Speaker 01:
Intel itself said we wouldn't have cared that much about these two features.

[00:17:08] Speaker 01:
Intel said, and by the way, Mentor agreed.

[00:17:11] Speaker 02:
But that all went to the jury, and the jury found otherwise.

[00:17:14] Speaker 01:
No, what the jury found was that no one would buy an emulator without the keyboard.

[00:17:21] Speaker 02:
Actually, that's not true, because the jury denied them lost profits on the bulk of their sales and gave them only a reasonable amount.

[00:17:28] Speaker 01:
Incorrect.

[00:17:29] Speaker 01:
Incorrect.

[00:17:30] Speaker 01:
Yes.

[00:17:30] Speaker 02:
The only sales that they gave lost profits for were the Intel sales, but they wanted lost profits for everything.

[00:17:36] Speaker 01:
No, Your Honor.

[00:17:36] Speaker 01:
And the jury parsed them.

[00:17:37] Speaker 01:
That is not correct.

[00:17:38] Speaker 01:
The vast majority of the sales here... Okay, the jury parsed them.

[00:17:42] Speaker 02:
Maybe I got the vast majority was the wrong word.

[00:17:44] Speaker 02:
Maybe I got the quantum wrong.

[00:17:47] Speaker 02:
But isn't it true that they asked for lost profits on everything and only got lost profits on a portion of what they asked for?

[00:17:55] Speaker 01:
The answer is the jury awarded less than, they sought 47 million.

[00:18:00] Speaker 01:
All I know in this black box is that the jury awarded 36 million.

[00:18:05] Speaker 01:
They asked for $50,000 in royalties.

[00:18:08] Speaker 01:
All I know from this record is that the jury awarded $250,000 in royalties.

[00:18:14] Speaker 01:
We have no idea what the jury actually did, but all the jury was asked to do was to say,

[00:18:20] Speaker 01:
Not that this was the driver, because there were lots of other drivers.

[00:18:24] Speaker 01:
The testimony in this record is clear.

[00:18:26] Speaker 01:
It meant to his own witness that there were 13 features that drove consumer demand.

[00:18:33] Speaker 03:
Mr. Rosencrantz, you've consumed your time and run over.

[00:18:36] Speaker 03:
We'll give you your four-minute rebuttal time back.

[00:18:40] Speaker 01:
Thank you, Your Honors.

[00:18:41] Speaker 03:
And we'll hear from Mr. Miller.

[00:18:45] Speaker 03:
Mr. Miller, I hadn't understood that you were reserving time for a rebuttal on your cross appeal.

[00:18:52] Speaker 05:
Yes, Your Honor, we asked to reserve one minute of time on the cross appeal.

[00:18:56] Speaker 03:
I see.

[00:18:56] Speaker 03:
All right.

[00:18:58] Speaker 03:
No doubt you'll want to respond on damages, but I want to ask you first about the 5-2-6 patent.

[00:19:11] Speaker 03:
The district court had

[00:19:15] Speaker 03:
found that claim one was not patent-eligible because among the stated possibilities for the machine-readable medium was a carrier wave.

[00:19:30] Speaker 03:
Now, there's a list of several examples of the medium, a ROM, a RAM, a CD-ROM, tape,

[00:19:41] Speaker 03:
and a carrier wave, which doesn't sound like it's a storage medium.

[00:19:50] Speaker 03:
If one has a generic chemical claim encompassing a lot of species, and one of them is found not to have the utility of the others, that doesn't normally invalidate the generic claim.

[00:20:03] Speaker 03:
Why does the presence of this carrier wave

[00:20:07] Speaker 03:
make that claim not patent eligible?

[00:20:12] Speaker 05:
In this case, Your Honor, I believe we're distinct from the case of a chemical case, which is an unpredictable art.

[00:20:18] Speaker 05:
We are in the area of predictable arts here, where the claim in this case covers, as written, something that is non-patentable subject matter.

[00:20:29] Speaker 05:
And because it includes non-patentable subject matter, it's invalid.

[00:20:34] Speaker 03:
It looks like it's an afterthought.

[00:20:36] Speaker 03:
The carrier wave is not like a ROM or a RAM or a tape.

[00:20:42] Speaker 03:
It's of a different nature.

[00:20:44] Speaker 05:
This example of a carrier wave is called out specifically in the MPEP, which describes this scenario identically where there

[00:20:53] Speaker 05:
is a claim that covers both a ROM and a carrier wave.

[00:20:57] Speaker 05:
And the guidance from the Patent Office says in that scenario, the claim, because it encompasses non-patentable subject matter, must be rejected as covering too much, including non-patentable subject matter.

[00:21:12] Speaker 05:
It would be like a claim that covers the prior art as well as the invention.

[00:21:16] Speaker 05:
It's invalid because it covers more than it's entitled to.

[00:21:19] Speaker 05:
Here, the claim covers something that's not entitled to be covered.

[00:21:22] Speaker 03:
All right, I've preempted your argument and other issues, so why don't you proceed.

[00:21:27] Speaker 04:
Thank you, Your Honor.

[00:21:28] Speaker 04:
Can I ask you about the lost profits?

[00:21:31] Speaker 04:
Just to follow up on, I think, what Mr. Rosenkranz was driving at.

[00:21:35] Speaker 04:
Just a hypothetical assume that there's some very complex product that is covered by 1,000 patents.

[00:21:44] Speaker 04:
And the manufacturer has either owns or has licensed 600 of those patents.

[00:21:50] Speaker 04:
but is infringing the other 400, and then gets sued 100 times on 100 patents, and then ultimately is found to infringe, I guess, 50 of them, but 25 of the 50 are competitors seeking lost profits.

[00:22:10] Speaker 04:
And then 20 of the 25 successful infringement suits by competitors, they succeed in

[00:22:20] Speaker 04:
going through the Panduit factors to establish lost profits.

[00:22:25] Speaker 04:
And if there's a million sales, but there's 20 lost profits verdicts on those million sales, now the manufacturer is responsible essentially for lost profits on 20 million sales.

[00:22:41] Speaker 04:
Is that a logical outcome?

[00:22:43] Speaker 05:
Well, Your Honor, I don't believe that that's the correct outcome.

[00:22:46] Speaker 05:
I believe that under this court's guidance,

[00:22:49] Speaker 05:
when you have multiple parties in the marketplace, the buck-four test in Panduit would divide the market, as this court did in Morphlo, would divide the market up among the parties.

[00:23:02] Speaker 05:
In theory, and the way it should apply, is that a defendant who infringes should only pay a lot of their lost profits once.

[00:23:11] Speaker 05:
So if I may take a slightly simpler example, let's take a three-party market.

[00:23:19] Speaker 05:
Each party has 33%.

[00:23:21] Speaker 05:
They've got an equal share of the market.

[00:23:25] Speaker 05:
So if party A sues party B for infringement, and party C also sues party B for infringement, and because they're competitors, so that puts us in this lost profits analysis, party A will only get

[00:23:42] Speaker 05:
lost profits for their market share and party C will get lost profits for their market share so they'll divide the market up and that will be true for a larger market where you have many competitors.

[00:23:54] Speaker 04:
So it's your understanding of Panduit that even if party A and party B are able to prove that for their particular patented component there's no acceptable non-infringing substitute

[00:24:06] Speaker 04:
the district court still has to continue through the inquiry to figure out whether it's truly a but for causation.

[00:24:16] Speaker 05:
Well, and that happened in this case.

[00:24:17] Speaker 05:
The jury instruction required Mentor to demonstrate that it was a two-party market.

[00:24:24] Speaker 05:
And the jury found that it was a two-party market and on that basis awarded lost profits.

[00:24:29] Speaker 05:
I want to address one other point on lost profits.

[00:24:32] Speaker 04:
So I guess, are you saying if it's a

[00:24:34] Speaker 04:
25 party market going back to my Hypothetical then maybe that would be an instance where we have to think of apportionment I don't think of it as apportionment.

[00:24:45] Speaker 05:
I think of it is satisfying the but for test in a way that addresses the multiple competitor market and You have would have to divide the market up among the competitors no one

[00:24:59] Speaker 05:
In that circumstance, no one competitor can claim that they would have made all of the sales.

[00:25:04] Speaker 05:
They would make their portion of the sales based on their market share.

[00:25:10] Speaker 05:
And that is what Morphlo addressed was the market share analysis and whether damages and lost profits should be awarded for the entire market or only for the market share of the patentee.

[00:25:22] Speaker 05:
And that's what happened.

[00:25:23] Speaker 05:
They got their market share.

[00:25:25] Speaker 04:
In this case,

[00:25:27] Speaker 04:
So is it, just so I understand, when it comes to damages theory, is it your understanding that when it comes to lost profits for a large machine where there's a lot of little patented components and the patent owner has a patent on one of those components, the way it's going to work out is he's either going to succeed in proving lost profits and therefore will get lost profits on the lost sales of the entire machine

[00:25:55] Speaker 04:
or he's going to be run through reasonable royalty and just get an apportioned incremental value of the patented component.

[00:26:04] Speaker 04:
And so therefore, there's no in-between situation where a patent owner in this kind of circumstance would be getting lost profits just for the patented component itself.

[00:26:17] Speaker 05:
If the BEB-4 test under Panduit is satisfied, yes, I agree with that.

[00:26:22] Speaker 05:
It's either lost profits or it's a reasonable royalty.

[00:26:24] Speaker 05:
On the whole machine or reasonable royalty just on the component?

[00:26:29] Speaker 05:
I can't say on the whole machine in every case.

[00:26:31] Speaker 05:
In the case where you establish, under the Panduit factors, that the demand is for the whole machine and that there are no reasonable non-infringing substitutes.

[00:26:41] Speaker 05:
And in this case, Synopsis was given many opportunities to demonstrate that.

[00:26:46] Speaker 05:
And the jury did come back with an award of reasonable royalty on some of the sales.

[00:26:51] Speaker 05:
They did not find that Mentor Graphics would have made all of the sales.

[00:26:56] Speaker 05:
There was a division.

[00:26:57] Speaker 05:
There were lost profits on some of the sales.

[00:26:59] Speaker 05:
There was a reasonable royalty on a portion of the sales.

[00:27:03] Speaker 05:
In the Intel market, there was also a jury instruction on the non-Intel market.

[00:27:10] Speaker 05:
Now, if I may turn to the infringement question for a moment, I think it's very important to look at the evidence in this case.

[00:27:19] Speaker 05:
And there was substantial evidence supporting the jury finding of infringement of claims 1, 24, 26, 27, and 28.

[00:27:26] Speaker 05:
And what I'd like to focus on with respect to claims 1 and 28 for the moment is the fact that Synopsys doesn't dispute that the Zeeboos server

[00:27:38] Speaker 05:
and its software create instrumentation signals.

[00:27:41] Speaker 05:
That's at the reply brief at nine.

[00:27:44] Speaker 05:
And in the words of Manner's expert, Dr. Sarasade, the instrumentation signals precisely indicate which statement in the RTL is active.

[00:27:55] Speaker 05:
So Dr. Sarasade used the example of a two-to-one multiplexer, a description of that multiplexer, the two-to-one multiplexer in the associated software, including two statements in the software

[00:28:06] Speaker 05:
appears beginning at 41.127 of the appendix.

[00:28:11] Speaker 05:
Using that diagram as an example, Dr. Soroside demonstrated that the value of the select line on the multiplexer, that was a signal S, would help you determine precisely which line of code was being executed.

[00:28:28] Speaker 05:
In other words, which of the two inputs, the input A or the input B to the multiplexer, would appear at the output C.

[00:28:35] Speaker 05:
In Dr. Sarasade's testimony, appearing at appendix 42438, he stated, S will tell you, is it statement one or is it statement two?

[00:28:46] Speaker 05:
No mistake about it.

[00:28:47] Speaker 05:
It is precise.

[00:28:49] Speaker 05:
This testimony established that the instrumentation signal indicated precisely which statement in the source code was being executed.

[00:29:04] Speaker 05:
appears in a claim that requires two steps, identifying a statement in the RTL and synthesizing the source code to create a net list that has that instrumentation signal in it.

[00:29:19] Speaker 05:
The example at synopsis use of a picture of the waveform viewer has nothing to do with this claim.

[00:29:24] Speaker 02:
Can I get you to turn to your appeal on race judicata, please?

[00:29:29] Speaker 05:
Yes.

[00:29:30] Speaker 02:
If my colleagues have any more questions for you on infringement, I don't want to preempt them.

[00:29:35] Speaker 05:
If I do, I'll come back.

[00:29:37] Speaker 05:
All right.

[00:29:38] Speaker 05:
Yes, Your Honor.

[00:29:39] Speaker 02:
Would you go ahead and give us your argument on the race to Dakota?

[00:29:43] Speaker 05:
Yes.

[00:29:44] Speaker 05:
Your Honor, on race to Dakota, our position is that the Supreme Court decision in law or controls.

[00:29:50] Speaker 05:
Because in the acts of infringement that were at issue,

[00:29:56] Speaker 05:
did not occur until after the prior judgment in this case.

[00:30:01] Speaker 04:
How about just answering what do we do with Foster 1, Foster 2, and Nystrom?

[00:30:08] Speaker 04:
Or just Foster 1, Foster 2 first?

[00:30:09] Speaker 05:
Well, either Foster 1 and Foster 2 have to be distinguished from Lawler, or we have a problem because we believe that they would be inconsistent with Lawler if applied to our facts.

[00:30:22] Speaker 05:
So Foster 1 related to a challenge to validity.

[00:30:26] Speaker 05:
And in that case, the argument was that Foster raised the same claim of invalidity.

[00:30:32] Speaker 05:
And Foster, too, the argument was about a breach of a license agreement.

[00:30:36] Speaker 05:
And in both cases, the question is whether the issue of validity could be re-litigated.

[00:30:43] Speaker 05:
It wasn't a question of whether there was a new claim based on accident infringement that occurred after a prior judgment.

[00:30:51] Speaker 05:
Those two cases both deal with the situation

[00:30:55] Speaker 05:
an issue of infringement being, excuse me, an issue of invalidity being precluded.

[00:31:02] Speaker 05:
So that's how I would distinguish those two cases.

[00:31:06] Speaker 05:
So if we come back to Lawler as being the controlling law and this court's decision, subsequent decisions in aspects and brain life, which all state that if the infringing act that's an act of making, using, or selling occur after the prior

[00:31:25] Speaker 05:
decision, then those acts may be litigated.

[00:31:30] Speaker 05:
There's a cause of action.

[00:31:32] Speaker 05:
The Kessler doctrine, we would assert, is inapplicable in this case because it only relates to findings of non-infringement.

[00:31:40] Speaker 05:
In this case, there was no finding of non-infringement in the prior litigation.

[00:31:43] Speaker 05:
To the contrary, there was a license agreement that was entered into.

[00:31:51] Speaker 02:
So you think that the facts of Lollar are very different from the facts of this case.

[00:31:57] Speaker 02:
That the facts of this case are kind of on all fours with brain life and aspects.

[00:32:01] Speaker 02:
I mean, I'm sorry.

[00:32:02] Speaker 02:
When I said Lollar, I meant to say foster.

[00:32:04] Speaker 02:
The two foster cases.

[00:32:05] Speaker 02:
The facts are different.

[00:32:07] Speaker 02:
And so you think to the extent that those foster cases use language, which might be unfortunate for you, we should not follow them.

[00:32:18] Speaker 05:
In this circumstance, that is correct, Your Honor.

[00:32:20] Speaker 05:
We don't believe that they should be followed here.

[00:32:22] Speaker 05:
We are consistent with the Lawler facts, with the Brain Line facts, and the Aspects facts.

[00:32:31] Speaker 05:
And I think that we have to, in order to make all of the pieces fit, we have to distinguish the two foster cases based on the fact that they dealt with the issue of invalidity and not with a claim of infringement.

[00:32:52] Speaker 03:
Anything further?

[00:32:54] Speaker 05:
Not unless the court has questions.

[00:32:56] Speaker 05:
Thank you.

[00:32:56] Speaker 03:
We can save your remaining rebuttal time for the cross appeal.

[00:33:00] Speaker 05:
Thank you, Your Honor.

[00:33:01] Speaker 03:
Mr. Rosencrantz, we'll give you four minutes.

[00:33:04] Speaker 01:
Thank you, Your Honor.

[00:33:05] Speaker 01:
I actually don't intend to address the cross appeal unless the court asks questions.

[00:33:11] Speaker 01:
Let me just turn to the questions that were asked about damages.

[00:33:14] Speaker 01:
I'll start with one overarching point, which is,

[00:33:17] Speaker 01:
If Judge Moore's view as described of how but for causation works is the law, there should still be a reversal.

[00:33:27] Speaker 01:
Because we were not allowed to present our evidence that would go to all of the factors.

[00:33:32] Speaker 01:
I mean, we called it evidence of apportionment.

[00:33:34] Speaker 01:
But it would have gone to all the factors that Judge Moore is suggesting were incorporated in but for causation.

[00:33:41] Speaker 01:
And that is reversible error.

[00:33:43] Speaker 01:
But that is not the correct view of the law.

[00:33:46] Speaker 01:
One way to know that.

[00:33:48] Speaker 01:
Panduit but for cause is not a substitute for apportionment or EMVR, is that the evidence on apportionment slash EMVR was so powerful that mentor disavowed any intention to try to satisfy EMVR.

[00:34:07] Speaker 01:
And to Judge Chen's question, I think, Your Honor, you hit the nail on the head.

[00:34:13] Speaker 01:
Mr. Miller forgets that there are patentees beyond

[00:34:17] Speaker 01:
just competitors.

[00:34:19] Speaker 01:
So now that the competitor gets 100% of the profits, there are all these other features for which the maker of a device has to pay royalties, not to mention the features that we developed, and we've lost all of the profits on the sale.

[00:34:36] Speaker 01:
No one's going to sell devices anymore in a world, especially a world where there are just a handful of competitors, if that is the law.

[00:34:46] Speaker 01:
And I just want to emphasize

[00:34:47] Speaker 01:
We're not writing on a clean slate here.

[00:34:50] Speaker 01:
We have, as Judge Moore recognized, the Supreme Court.

[00:34:53] Speaker 01:
Now, I recognize that was pre-Panduit.

[00:34:56] Speaker 01:
But we've got this court citing the Supreme Court cases.

[00:35:00] Speaker 01:
It's not like 1946 changed the world.

[00:35:03] Speaker 01:
The Supreme Court will view the 284 as a continuation on lost profits, on that body of damages awards, as a continuation of what existed

[00:35:16] Speaker 01:
We've got this court saying in Erickson that damages must be apportioned in every case, including non-royalty cases.

[00:35:26] Speaker 01:
Lost profits is the only other option there.

[00:35:28] Speaker 02:
I know that this is where all the money is, so I don't blame you for standing up and wanting to talk about it.

[00:35:31] Speaker 02:
But I really want to hear your argument on race judicata.

[00:35:33] Speaker 01:
Yes, of course, Your Honor.

[00:35:36] Speaker 01:
So a few things to say about race judicata.

[00:35:43] Speaker 01:
The issue presents a direct clash between two completely irreconcilable views of race judicata.

[00:35:52] Speaker 01:
There is no way to reconcile brain life with the foster cases.

[00:35:58] Speaker 01:
The Foster cases were not just validity cases.

[00:36:01] Speaker 01:
They were also.

[00:36:01] Speaker 02:
Is there a way to reconcile Foster with Lawler?

[00:36:04] Speaker 02:
Because that seems important.

[00:36:05] Speaker 02:
It doesn't cite or discuss Lawler anywhere.

[00:36:08] Speaker 02:
And we tried to go back in the briefs.

[00:36:10] Speaker 02:
We don't see a discussion.

[00:36:11] Speaker 01:
Well, Your Honor, I beg to differ.

[00:36:12] Speaker 01:
It does cite Lawler.

[00:36:14] Speaker 01:
Oh, it does?

[00:36:14] Speaker 02:
Yes.

[00:36:15] Speaker 02:
Which one?

[00:36:15] Speaker 02:
Foster one or two?

[00:36:18] Speaker 01:
I think it's Foster one, but we'll verify that.

[00:36:21] Speaker 01:
It's definitely one of the Fosters.

[00:36:22] Speaker 01:
But it's very easy to distinguish Lawler.

[00:36:25] Speaker 01:
So Lawlor clearly was the law.

[00:36:28] Speaker 01:
It was 1955 or so before the Foster cases.

[00:36:33] Speaker 01:
Lawlor was a case about, it was an antitrust case, not a patent case.

[00:36:37] Speaker 01:
It was a case about a new tort.

[00:36:40] Speaker 01:
It was a tort that was similar in nature, but there were new tort feesers in Lawlor, and there are new accusations of tort in Lawlor, including tie-ins.

[00:36:51] Speaker 01:
In a patent case, it's very different.

[00:36:53] Speaker 01:
The patentee.

[00:36:55] Speaker 01:
is always suing not just about today's products, but about tomorrow's products as well.

[00:37:01] Speaker 01:
And there are all sorts of ways that the patentee can protect himself that are very understandable to this court when they settle.

[00:37:09] Speaker 01:
Excuse me, when they litigate or when they settle.

[00:37:10] Speaker 01:
When they litigate, the patentee addresses the future sales with an injunction, with an ongoing royalty.

[00:37:18] Speaker 01:
If they settle, the patentee can always write in the settlement agreement or in the dismissal

[00:37:24] Speaker 02:
And I emphasize that this was a... You said that there's an irreconcilable difference, or that the cases are actually irreconcilable, brain life and aspects on the one hand, and the two Foster cases on the other, with regard to this claim preclusion issue.

[00:37:39] Speaker 02:
Correct.

[00:37:40] Speaker 02:
So what do we do?

[00:37:41] Speaker 02:
We follow the earlier cases then, since you think that they're irreconcilable.

[00:37:44] Speaker 02:
Clearly under... Okay, look under Foster.

[00:37:48] Speaker 02:
If I read foster the way you read foster, you prevail.

[00:37:51] Speaker 02:
Under brain life and aspects, were there no foster, they would clearly prevail.

[00:37:56] Speaker 02:
So what do we do?

[00:37:58] Speaker 01:
Well, so two things to say about that.

[00:38:00] Speaker 01:
First is this court's law is clear that what you do is you recognize that the later panels did not have the authority to override foster one and foster two, and you're bound by foster one.

[00:38:13] Speaker 01:
A very easy way out of this is

[00:38:15] Speaker 01:
is to recognize that Mentor waived the argument.

[00:38:19] Speaker 01:
This was the reason that the district court gave for deciding against Mentor.

[00:38:24] Speaker 01:
The reason is Foster 1 prevails.

[00:38:27] Speaker 02:
OK, but let's pretend that I don't want to hear about waiver.

[00:38:30] Speaker 01:
OK, then.

[00:38:31] Speaker 02:
So it's just the earlier case.

[00:38:34] Speaker 01:
Well, then I'll turn to the other two judges who may want to hear about waiver.

[00:38:37] Speaker 01:
But yes, earlier case wins, or this court

[00:38:41] Speaker 01:
can, this panel that is, can refer to an unbanked panel.

[00:38:46] Speaker 04:
As I understand it, it was synopsis here that filed the DJ action of invalidity and non-infringement, right?

[00:38:53] Speaker 04:
Yes, and that was what precipitated... And then Mentor Graphics counterclaimed for infringement.

[00:38:59] Speaker 04:
Correct.

[00:39:00] Speaker 04:
So, I mean, maybe there's a way to think about it as if it was your team that opened the door.

[00:39:08] Speaker 04:
I mean, why should we bar them from

[00:39:10] Speaker 04:
being able to file a counterclaim.

[00:39:12] Speaker 01:
I understood, Your Honor.

[00:39:13] Speaker 01:
Also an argument that Mentor doesn't make, but I just want to be clear.

[00:39:17] Speaker 01:
We were being accused of infringement.

[00:39:20] Speaker 01:
Even in a case of race judicata, we are allowed to file a lawsuit to settle rights.

[00:39:25] Speaker 01:
I mean, we had just acquired this company to settle rights to demonstrate that race judicata actually precludes them from accusing us of infringement.

[00:39:34] Speaker 01:
I mean, a huge industry is riding on the answer to the question

[00:39:40] Speaker 01:
whether they could accuse us of infringement.

[00:39:44] Speaker 04:
Last quick question.

[00:39:45] Speaker 04:
Only two of the three patents got barred by race judicata.

[00:39:49] Speaker 04:
Correct, Your Honor.

[00:39:50] Speaker 04:
Why didn't you try to bar the third one?

[00:39:53] Speaker 01:
Well, because we got licenses only to the first two.

[00:39:57] Speaker 01:
We could have stretched and made a race judicata argument as to the 376.

[00:40:03] Speaker 01:
But that's the reason.

[00:40:07] Speaker 03:
Thank you, Mr. Rosencrantz.

[00:40:10] Speaker 03:
Mr. Miller, you can robot on the one cross-appeal issue that was dealt with by Mr. Rosencrantz.

[00:40:18] Speaker 03:
That's race to the car, if you wish.

[00:40:21] Speaker 01:
You're right.

[00:40:23] Speaker 01:
To judge Moore's question, both foster cases cite a lawler.

[00:40:33] Speaker 05:
Your Honor, in the Foster One case, the court held that a challenge to validity was not exempt from the normal principles of race judicata.

[00:40:45] Speaker 05:
And it talked about litigants being given a second chance to litigate the issue of validity.

[00:40:50] Speaker 05:
This is a property dispute.

[00:40:53] Speaker 05:
And if you have a dispute about a trespass and somebody's infringement on your property,

[00:41:00] Speaker 05:
And in the first case, you decide where the property line is.

[00:41:04] Speaker 05:
And you come back in the second case, you don't get to re-litigate the question of where the property line is.

[00:41:09] Speaker 05:
But it's undisputable that setting foot on the property a second time creates a new cause of action for trespass.

[00:41:17] Speaker 05:
Same situation here.

[00:41:19] Speaker 05:
New acts of infringement that occurred afterward.

[00:41:22] Speaker 05:
And the foster cases, we believe, address the question of re-litigating the issue of validity.

[00:41:29] Speaker 05:
If litigants were given a second chance to litigate the issue of validity, the court stated, alleged infringers might well accept the license under a consent decree and forego an attack on validity until favored by a stronger financial position.

[00:41:44] Speaker 05:
So that shows the Foster I decision from Foster I that relates to a question of validity, not to the underlying claim of infringement.

[00:41:58] Speaker 05:
did not move for raise judicata on the 376 patent.

[00:42:03] Speaker 05:
We don't know why, but we do know that the accused feature for the 376 patent was not inserted into their product until after the first litigation was over.

[00:42:17] Speaker 05:
Thank you, Your Honor.

[00:42:18] Speaker 01:
Robert, may I correct a misstatement on Judge Chen's last question?

[00:42:22] Speaker 01:
Yes.

[00:42:24] Speaker 01:
That is my own misstatement.

[00:42:27] Speaker 01:
So we were licensed to the 376 too.

[00:42:29] Speaker 01:
We decided not to press race judicata because the product changed.

[00:42:34] Speaker 01:
Race judicata would only apply as to the devices that are essentially the same.

[00:42:41] Speaker 01:
So the product changed in a way that triggered the 376 and we decided not to

[00:42:46] Speaker 01:
press our lock because race judicata is only as two products that are essentially the same.

[00:42:51] Speaker 03:
Thank you, Mr. Rosencrantz.

[00:42:53] Speaker 03:
We will take the case under advisement.

[00:42:56] Speaker 03:
We appreciate the thorough arguments.