[00:00:37] Speaker 03:
Okay, we'll hear the second case.

[00:00:40] Speaker 03:
Appeal number 17-2247.

[00:00:42] Speaker 03:
Sprint Communications Company versus Time Warner Cable.

[00:00:50] Speaker 03:
Mr. O'Quinn, whenever you're ready.

[00:01:13] Speaker 02:
Thank you, Judge Chen, and may it please the court, John O'Quinn, on behalf of Time Warner Cable.

[00:01:17] Speaker 02:
I'm happy to address any questions the panel may have this morning on any of the issues, but I intend to focus on two, the improper admission and use of the Vonage verdict and the finding on written description.

[00:01:28] Speaker 02:
Now, starting with the Vonage verdict, there are a number of reasons that it should not have been admitted and should not have been used in this case, any one of which requires vacating at least the damages award, and I would submit the entire verdict.

[00:01:38] Speaker 02:
But let me start with the most obvious problem.

[00:01:41] Speaker 02:
The Vonage verdict

[00:01:42] Speaker 02:
is evidence relying on the 25% rule of thumb, which this court held was categorically inadmissible in Uniloc.

[00:01:50] Speaker 02:
And so the question before you then is whether it is permissible for a second jury to be exposed to and indeed invited to follow an earlier jury's verdict on damages when that verdict is admittedly infected by legal error.

[00:02:04] Speaker 01:
Let me ask you this question.

[00:02:06] Speaker 01:
Since we're talking principally about the role of the Vonage verdict

[00:02:11] Speaker 01:
in the hypothetical negotiation.

[00:02:13] Speaker 01:
That's the way the parties characterized the use of the Vonage verdict in this case, as I understand it.

[00:02:19] Speaker 01:
The Vonage verdict, excuse me, the hypothetical negotiation would have taken place no later than 2010.

[00:02:28] Speaker 01:
You contend earlier, but certainly it was no later than 2010.

[00:02:32] Speaker 01:
The Unilot case was not decided until 2011.

[00:02:36] Speaker 01:
Why isn't it a perfectly permissible use of the Vonage verdict

[00:02:42] Speaker 01:
to look at that verdict, which was not, as of that time, invalid because of a later decision in Uniloc, just as a data point that the parties would have been aware of.

[00:02:54] Speaker 01:
Sure.

[00:02:55] Speaker 02:
So Judge Bryson, first, a couple of points.

[00:02:58] Speaker 02:
You're right that at that point in time, Uniloc had not been decided.

[00:03:02] Speaker 02:
But imagine this case, that the Vonage case had actually gone up on appeal, had been Uniloc.

[00:03:07] Speaker 02:
The argument would be, oh, well, you have the jury verdict that gets

[00:03:11] Speaker 02:
that gets decided and could be considered at the time of the hypothetical negotiation, but it subsequently then gets reversed on appeal.

[00:03:18] Speaker 02:
Are they saying that they could then rely on that verdict in those situations?

[00:03:23] Speaker 01:
I think not, but the question is, if all you look at is the Vonage verdict, you say, okay, the parties would have been aware of a number of circumstances.

[00:03:33] Speaker 01:
They would have been aware of the Paytech license.

[00:03:36] Speaker 01:
They would have been aware of the VoiceGlo license, and they would have been aware of this verdict.

[00:03:41] Speaker 01:
which was not something that they could have looked at and say, we can disregard that because it's obviously invalid under the Unilot case.

[00:03:51] Speaker 01:
The Unilot didn't exist, so they would at best have had a supposition that somebody might have been able to get that verdict overturned.

[00:04:00] Speaker 01:
But why wouldn't that be at least a fact, the existence of that verdict that could be taken into account in the hypothetical negotiation?

[00:04:08] Speaker 02:
So Judge Bryson, a couple of points.

[00:04:11] Speaker 02:
The hypothetical negotiation, of course, is a legal construct.

[00:04:14] Speaker 02:
I mean, Panduit calls it a, quote, legal fiction, 575F2, 1159.

[00:04:20] Speaker 02:
And it relies on information that parties could not have known in the real world, like licenses between other companies.

[00:04:27] Speaker 02:
And it excludes information that parties would have known in the real world.

[00:04:31] Speaker 02:
So for example, not all comparable licenses are admitted.

[00:04:35] Speaker 02:
Settlements are kept out if they're too influenced by the coercive effects of litigation.

[00:04:39] Speaker 02:
And here, what you're talking about is a verdict that ultimately is a matter of law, whether it would have been known at the time or not, wrong.

[00:04:48] Speaker 02:
And whenever a jury is exposed to a prior jury's verdict, there is a tremendous risk that the second jury is going to follow it.

[00:04:55] Speaker 02:
That is exactly the concerns of the third, the fifth, the ninth, the DC circuits in cases like Coleman and the kind of improper influence that this court has warned about in its precedence.

[00:05:05] Speaker 02:
And so there's a reason that most courts, as Inguist put it,

[00:05:09] Speaker 02:
do not permit this kind of use of a verdict or any kind of use of a verdict at all.

[00:05:13] Speaker 02:
But when I think the first one is now, with the benefit of hindsight, unquestionably infected by legal error.

[00:05:19] Speaker 01:
Well, suppose, just to complete this thought, suppose that, you know, it had not yet been decided, and in fact, wasn't even decided as of this day, do you think you would be entitled to come in and say that Vonage verdict was infected by the 25% rule, which we think

[00:05:36] Speaker 01:
is invalid and we think you, in deciding whether the Vonage verdict should be used, ought to take an account that it was infected by a rule which you should now override.

[00:05:47] Speaker 02:
Sure, so Judge Bryson, that would obviously present us with additional hurdles.

[00:05:51] Speaker 02:
Here, you clearly have a verdict that is admittedly infected by legal error and it wasn't offered for some ancillary purpose.

[00:06:00] Speaker 02:
It's not like the verdict came in to be used to test somebody's credibility or some entirely ancillary purpose.

[00:06:06] Speaker 02:
It was offered precisely for damages, the very issue on which the error occurred.

[00:06:11] Speaker 02:
And the jury comes back and awards the same per subscriber royalty of $1.37.

[00:06:16] Speaker 02:
Respectfully, this is a wolf in wolf's clothing.

[00:06:19] Speaker 02:
There is too much risk that the second jury is just going to simply follow the first.

[00:06:25] Speaker 03:
Isn't it right that the jury was informed that this wolf was, in fact, a wolf?

[00:06:30] Speaker 03:
Well, not by the wolf.

[00:06:31] Speaker 03:
They knew that the Vonage verdict

[00:06:35] Speaker 03:
was premised at least in part on this problematic 25% rule, and so therefore they should take that into account in trying to figure out how much meaning they should accord to it.

[00:06:47] Speaker 02:
Is that fair to say?

[00:06:48] Speaker 02:
Well, Judge Chin, not by the court.

[00:06:49] Speaker 02:
I mean, it's true that the parties essentially had a mini trial in front of the jury about what was wrong in the Vonage verdict itself, and that puts

[00:06:58] Speaker 02:
Again, this goes to why I think as a general proposition, these types of verdicts should never be admitted in order to prove damages or otherwise, because I now have to convince this jury, the jury I'm in front of, that the prior jury was wrong.

[00:07:12] Speaker 02:
I mean, that creates serious due process issues as this court has referenced in cases like Mendenhall.

[00:07:18] Speaker 02:
And I think it's all the worst where the second jury here was specifically invited, instructed that it could consider the first jury's

[00:07:25] Speaker 02:
damages award.

[00:07:27] Speaker 02:
And in this case, the Vonage verdict ultimately, of course, serves as a roadmap for the jury.

[00:07:32] Speaker 02:
It ultimately decides the same issues the same way on infringement, validity, and damages.

[00:07:36] Speaker 02:
And if you think it's okay in this case, well, get ready because you're going to see verdicts coming in in case after case after case where there are going to be many trials where plaintiffs will bring in the damages verdicts that they like from one jurisdiction, defendants will bring in the verdicts they like from another jurisdiction,

[00:07:53] Speaker 02:
And that's, that's never happened.

[00:07:54] Speaker 02:
They're verdicts have been around.

[00:07:55] Speaker 01:
It's never happened.

[00:07:56] Speaker 01:
What do you say to the applied medical resources case in which the court, as I read the court's decision, said that the prior verdict could be used for purposes among others of the hypothetical negotiation?

[00:08:12] Speaker 02:
Sure.

[00:08:13] Speaker 01:
So, Judge Bryson, first... Well, you distinguished that case on the ground that there was the same party in the first case, but I'm not sure I see why that's a persuasive distinction.

[00:08:21] Speaker 02:
I think there are multiple differences in that case.

[00:08:23] Speaker 02:
First, that didn't involve a verdict, as far as I'm aware, that was infected with legal error.

[00:08:27] Speaker 01:
Well, okay.

[00:08:28] Speaker 01:
Set the 25% argument aside.

[00:08:30] Speaker 01:
You're arguing now for a per se rule, don't let verdicts in, and I'm wondering why that per se rule isn't inconsistent with applied medical resources.

[00:08:39] Speaker 02:
Right.

[00:08:40] Speaker 02:
And what I would say, Judge Bryson, is that

[00:08:42] Speaker 02:
Um, first of all, this didn't involve the use of a prior jury's damages number.

[00:08:47] Speaker 02:
It was about whether or not the prior jury's finding on willfulness was then, was, was itself.

[00:08:51] Speaker 01:
And there were two issues in applied.

[00:08:54] Speaker 01:
Willfulness was one of them and hypothetical negotiation, i.e.

[00:08:57] Speaker 01:
damages was the other.

[00:08:59] Speaker 01:
And I looked at the briefs in that case and they were absolutely arguing in favor of.

[00:09:03] Speaker 01:
damages as well as willfulness.

[00:09:05] Speaker 02:
Sure.

[00:09:05] Speaker 02:
So the finding of willfulness was relevant to damages.

[00:09:09] Speaker 02:
That was the argument being made in that case.

[00:09:10] Speaker 02:
But both parties were in agreement.

[00:09:12] Speaker 01:
Hypothetical negotiation was a separate argument for willfulness, as I read the record in that case.

[00:09:19] Speaker 02:
And the other point, Judge Bryson, both sides were actually arguing that it was relevant there.

[00:09:23] Speaker 02:
So I don't think that you had the same issue that was presented here.

[00:09:26] Speaker 02:
In the time that I have, let me make one other point with respect to the Vonage verdict as it relates to the issue of apportionment.

[00:09:34] Speaker 02:
Because whatever you think of the Vonage verdict and whether it should be admissible because it's infected with error or whether it should be admissible at all because of the threat of improper influence on the second jury, Sprint's use of the Vonage verdict raises fundamental apportionment issues as well.

[00:09:54] Speaker 02:
Nothing about reliance on that verdict is consistent with apportionment principles.

[00:09:58] Speaker 02:
Dr. Rao doesn't try to apportion either the rate or the base from Vonage when converting to a per subscriber dollar figure.

[00:10:04] Speaker 02:
He instead uses the entire value of VOIP.

[00:10:07] Speaker 02:
And indeed, none of Dr. Rao's methodologies assign value to those aspects of VOIP that are not covered by the claims.

[00:10:14] Speaker 02:
There's no carve out for IP to IP calls that don't interconnect with PSTN.

[00:10:19] Speaker 02:
And in fact, there was testimony at the trial transcript, page 2535, that the majority of TWC's calls by the end of the damages period didn't involve interconnecting with the PSTN.

[00:10:30] Speaker 03:
Is it fair to say, you know, if you need a little more time, we'll give you a little bit more time.

[00:10:35] Speaker 03:
Thank you, Judge Schenkel.

[00:10:36] Speaker 03:
But is it fair to say that the two licenses, Judge Bryson referred to them already, Paytech and VoiceGLOW, those were 5% rates based on

[00:10:49] Speaker 03:
end-to-end VOIP service.

[00:10:51] Speaker 03:
Is that right?

[00:10:53] Speaker 02:
Yes, those were settlement licenses.

[00:10:55] Speaker 03:
And those rates for those two licenses are consistent with the monthly subscription rate that was being proposed off of the Vonage verdict.

[00:11:10] Speaker 03:
Is that fair to say?

[00:11:13] Speaker 03:
Could it be fair to say that there were three data points here and they all lead to the same conclusion, 5%?

[00:11:19] Speaker 03:
I don't think so.

[00:11:20] Speaker 03:
Why is that?

[00:11:21] Speaker 02:
Well, the reason is because Sprint specifically disclaimed offering an opinion on a 5% royalty.

[00:11:28] Speaker 02:
You can see that at appendix 4001.

[00:11:30] Speaker 02:
And it's not like there was ever the identification of a properly apportioned base for a jury to then apply a 5% rate to.

[00:11:39] Speaker 02:
And it certainly wouldn't result in the $1.37 figure that Sprint relied on in opening and in closing.

[00:11:45] Speaker 03:
Am I misremembering Erickson and C?

[00:11:49] Speaker 03:
Cicero.

[00:11:50] Speaker 03:
Cicero.

[00:11:50] Speaker 03:
Siro, I think.

[00:11:51] Speaker 03:
Siro.

[00:11:52] Speaker 03:
Let's go with Siro.

[00:11:53] Speaker 03:
Where in both those cases there were licenses that were being admitted with rates based on the entire product or in the entire service.

[00:12:03] Speaker 02:
Oh, and Judge Shin Erickson, it makes explicitly clear that when that is taking place that you have to engage in apportionment.

[00:12:10] Speaker 02:
That the expert, for that to be admissible, the expert has to then engage in apportionment to explain

[00:12:16] Speaker 02:
how it is apportioned away the non-infringing technology or the technology that does not use the patents.

[00:12:24] Speaker 03:
If we accept that the Paytech and VoiceClo licenses are comparable licenses, then why wouldn't that be evidence that in fact those willing parties are negotiated to those licenses

[00:12:37] Speaker 03:
did build in apportionment in reaching the 5% number on the entire VOIP end-to-end service?

[00:12:44] Speaker 02:
Well, Judge Chen, that would then get into what's the difference between what their services were and what fraction of their services used the interconnection.

[00:12:54] Speaker 02:
Again, these patents are about the interconnection, which actually then leads to the written description points that I'd like to address.

[00:12:59] Speaker 02:
They're not about VOIP.

[00:13:00] Speaker 02:
They didn't invent VOIP, and yet they are taking a slice of the entire value of VOIP, which this court infringed in.

[00:13:07] Speaker 02:
and in power integrations most recently has made clear is exactly what you cannot do.

[00:13:14] Speaker 02:
And here, of course, the jury isn't given a base, an apportioned base on which to apply that 5%.

[00:13:21] Speaker 02:
And even if a license is admissible, there's still the question of what is the base in the particular case.

[00:13:28] Speaker 02:
And as this court recently reiterated,

[00:13:32] Speaker 02:
You generally need a determination of the royalty base in power integrations.

[00:13:36] Speaker 02:
Undertaking apportionment analysis where reasonable royalties are sought generally requires the determination of a royalty base that's properly apportioned.

[00:13:43] Speaker 01:
But I understand apportionment of the kind of apportionment that you're talking about as it applies to multi-component devices.

[00:13:49] Speaker 01:
That makes all sorts of sense.

[00:13:51] Speaker 01:
But I'm not sure how you would do the kind of apportionment you seem to be asking for in a case such as this.

[00:13:58] Speaker 01:
Can you outline how you would go about

[00:14:01] Speaker 01:
formulating an apportionment approach?

[00:14:04] Speaker 02:
Sure, Judge Bryson, I think that in cases like Erickson and Exmark, it made clear that the essential requirement is that the ultimate reasonable royalty be based on incremental value of the patent invention.

[00:14:16] Speaker 02:
Look, what is the footprint of the invention itself?

[00:14:19] Speaker 02:
And it can't be that simply because it is a blocking patent or that it is a toll on the entire value of VoIP, that they get to take from a slice of the entire value of VoIP,

[00:14:30] Speaker 02:
without apportioning out the standard or the non-patented features of which there are legion in this case.

[00:14:37] Speaker 01:
Well, that's fine to say, but then mechanically it's difficult for me to see how you can do that if all you've got, for example, as a way that others have approached this is a 5% of the entire VOIP, which presumably the parties thought was fairly attributable to the contribution of the patents in VoiceGlo and Paytas.

[00:15:00] Speaker 02:
Yeah, well, and Judge Bryson, part of the problem with the reliance on Paytech and VoiceGlo and part of the reason the district court said that Dr. Rao could not say that they supported the use of the $1.37 figure is you don't know what the basis on which they would apply and what kind of actual dollar values that you are talking about.

[00:15:18] Speaker 02:
At the end of the day, whatever you think of the Paytech and the VoiceGlo licenses, there's no dispute that the numbers that were put in front of the jury were numbers that were based on the Vonage verdict.

[00:15:30] Speaker 02:
And indeed, if you look at opening and in closing, it was very clear in appendix 3155, 5897, that they were relying on the Vonage verdict.

[00:15:40] Speaker 02:
Now, I realize that I'm well into my time.

[00:15:42] Speaker 02:
I'd like to turn and address the issue of written description, Judge.

[00:15:46] Speaker 02:
Please take a minute of that, and then we'll give you some rebuttal.

[00:15:48] Speaker 02:
Thank you.

[00:15:49] Speaker 02:
I appreciate it.

[00:15:49] Speaker 02:
So the important point on written descriptions, the key facts are undisputed.

[00:15:54] Speaker 02:
The question that remains is, what is the legal significance of them?

[00:15:58] Speaker 02:
And first, with respect to the call control patents, it is undisputed that the only embodiments are ATM.

[00:16:04] Speaker 02:
And ATM, like the public switch telephone network, requires setting up a communications path.

[00:16:09] Speaker 02:
This is undisputed.

[00:16:11] Speaker 02:
IP does not.

[00:16:12] Speaker 02:
That's undisputed.

[00:16:13] Speaker 02:
And the reason this is significant is because the specification only discloses methods and systems for interconnecting by setting up a communications path between points.

[00:16:25] Speaker 02:
the very thing that ATM needs and that IP does not.

[00:16:28] Speaker 02:
And so the problem being solved is a better way of doing that.

[00:16:32] Speaker 02:
Meanwhile, the claims, however, cover systems and methods where no path needs to set up and instead only a destination is identified.

[00:16:41] Speaker 02:
And identifying a destination like Chicago is not the same as setting up a path to get there as in designating the roads.

[00:16:49] Speaker 02:
Now, with respect to the so-called broadband patents, which this court previously referred to as the ATM

[00:16:55] Speaker 02:
interworking patents in the Cox appeal, they do not disclose, and there is not evidence that a skilled artist would understand using an ATM interworking multiplexer that translates to or from something other than ATM.

[00:17:08] Speaker 02:
I mean, after all, it is an ATM interworking multiplexer.

[00:17:12] Speaker 02:
And the specification, no surprise, only discloses an ATM interworking multiplexer that translates to or from ATM.

[00:17:20] Speaker 02:
That's what it means to be an ATM interworking multiplexer.

[00:17:23] Speaker 02:
The idea of one that doesn't convert to that but instead converts to or from IP is frankly nonsense.

[00:17:29] Speaker 02:
Now that may be an enablement problem, but it is also a possession problem because it's nowhere disclosed in the specification.

[00:17:36] Speaker 02:
Okay.

[00:17:37] Speaker 03:
Got it.

[00:17:37] Speaker 03:
Thank you.

[00:17:38] Speaker 02:
Thank you, Judge Chin.

[00:17:46] Speaker 03:
Could we reset Mr. Jakes' time to 18 minutes?

[00:17:56] Speaker 00:
Good morning.

[00:17:56] Speaker 00:
May it please the court.

[00:17:59] Speaker 00:
This was a fair trial.

[00:18:01] Speaker 00:
The judge very carefully cabined the Vonage verdict with three limiting instructions at Time Warner's request.

[00:18:09] Speaker 00:
It did not infect the entire trial, and really the idea that this was all about Vonage is not true.

[00:18:16] Speaker 01:
Can you answer a question that I've had throughout this?

[00:18:20] Speaker 01:
It just seems to me almost bizarre that we have

[00:18:25] Speaker 01:
the Vonage verdict playing such a central role, because instead of simply taking the 5% number, we go through Vonage's revenues and come out with a 137 per subscriber per month number.

[00:18:42] Speaker 01:
Why didn't we simply say, and it may be because the district court forbid it, but why didn't we simply say that number was 5% and the

[00:18:54] Speaker 01:
The other two licenses were 5% and therefore no need to go into the per subscriber basis.

[00:19:02] Speaker 01:
Because I think you were around $36 to $39 per subscriber total profit.

[00:19:09] Speaker 01:
5% of that would have been more than $1.37.

[00:19:12] Speaker 01:
So I'm not sure why we ended up in this very strange circular maneuver.

[00:19:18] Speaker 00:
Right.

[00:19:20] Speaker 00:
First, I'd say the bondage verdict is not as central.

[00:19:23] Speaker 00:
as it was made out to be.

[00:19:24] Speaker 00:
If you look at Dr. Rowe's testimony on direct, it goes over about three or four pages and it's bookended by the VoiceClo and Paytech agreements.

[00:19:33] Speaker 00:
So I don't believe that characterizing that as the entire basis is fair.

[00:19:37] Speaker 00:
But the 137 comes directly from Vonage.

[00:19:40] Speaker 00:
It does.

[00:19:41] Speaker 00:
Yeah.

[00:19:41] Speaker 00:
And the reason was, your honor, is that Sprint was trying to translate this amount into something that had previously been the basis of the party's relationship.

[00:19:52] Speaker 00:
which was a per subscriber per month cost.

[00:19:56] Speaker 00:
Now, Sprint was also trying to avoid putting up entire revenue numbers and running into problems of Uniloc.

[00:20:03] Speaker 00:
So they carefully tailored it to the $1.37 rather than saying 5% of a billion dollars.

[00:20:11] Speaker 00:
So that was also deliberate as well to make it focused on the per scriber per month royalty.

[00:20:18] Speaker 00:
Now, the Vonage verdict was used to translate that 5%, but there's no doubt that 5% was a reliable number.

[00:20:26] Speaker 00:
These were comparable agreements.

[00:20:29] Speaker 00:
There's no per se rule against jury verdicts.

[00:20:32] Speaker 00:
And in fact, even Time Warner's experts said that verdict would have been in the mix.

[00:20:39] Speaker 01:
And based on that, I'm not sure how... In a nation, the sense of being part of what the parties would have considered an hypothetical negotiation.

[00:20:45] Speaker 01:
Exactly.

[00:20:45] Speaker 03:
Exactly.

[00:20:46] Speaker 03:
It was... Yeah.

[00:20:49] Speaker 03:
monthly subscription number, which was $1.37, somehow undercut the reliance of the two licenses and their 5% numbers, because now we're no longer talking about a rate on a particular base, but now we're talking about these

[00:21:09] Speaker 03:
monthly subscription numbers for each customer.

[00:21:14] Speaker 03:
And so now maybe it's a little bit of an apples and oranges situation in terms of trying to understand to what extent the jury was really looking to and relying on those Paytech and VoiceGlo licenses.

[00:21:27] Speaker 00:
Well, we can't really speculate about what the jury did, but what we do know is both of those were at 5% of the voice over IP revenue.

[00:21:36] Speaker 03:
Obviously, I have to be a little bit concerned as to whether this jury simply blindly deferred to and adopted the Vonage verdict as opposed to

[00:21:45] Speaker 03:
seeing it as just a data point and a compilation of data points and weighed all the evidence and then came to a conclusion that just happened to be to the hundredth decimal point, the exact same verdict as the Vonage jury.

[00:21:58] Speaker 03:
Yes.

[00:21:59] Speaker 00:
At the low end of what Sprint said they could award.

[00:22:02] Speaker 00:
Sprint also presented other numbers, including the expected profit.

[00:22:07] Speaker 01:
Yeah, but the jury picked the Vonage number.

[00:22:09] Speaker 00:
They did.

[00:22:09] Speaker 00:
And that actually tended to push the number down in the hypothetical negotiation.

[00:22:15] Speaker 00:
Because if you looked at apportioning the expected profits, the actual profits, it would have been something more like $12.

[00:22:22] Speaker 00:
Or if you take the actual negotiation for services, it could have been between $184 and $4.

[00:22:30] Speaker 00:
There's a whole series of these apportionments that Dr. Rao did.

[00:22:34] Speaker 00:
And the 5% in some ways favored Time Warner.

[00:22:39] Speaker 01:
I have to say, I find the idea of free use

[00:22:45] Speaker 01:
relatively even free use of prior verdicts to be troubling.

[00:22:49] Speaker 01:
I mean, you obviously wouldn't allow the, say, eight experts to get together, prepare a report, and then submit that report without cross-examination or anything else to the jury and say, well, these eight experts came up with $1.37.

[00:23:07] Speaker 01:
Who are you to disagree?

[00:23:08] Speaker 01:
But why is that fundamentally different from introducing the verdict of eight

[00:23:14] Speaker 01:
lay people at the end of a trial.

[00:23:17] Speaker 00:
Well, first of all, you presume the jury was correctly instructed.

[00:23:20] Speaker 01:
We don't.

[00:23:21] Speaker 01:
But let's assume that the experts were all correctly instructed.

[00:23:25] Speaker 01:
The point is that this is extraneous evidence, powerful to a jury.

[00:23:31] Speaker 01:
A former jury, prior to your having arrived here, came up with $1.37, why shouldn't you?

[00:23:40] Speaker 01:
Now, they didn't make that argument in those words, but

[00:23:43] Speaker 01:
Doesn't that argument kind of loom large in this setting?

[00:23:47] Speaker 00:
I don't believe it does because of the instructions that the jury was given.

[00:23:50] Speaker 00:
The court was very careful to say, this is one factor that you may consider on damages.

[00:23:56] Speaker 00:
It's not something that you have to defer to.

[00:23:58] Speaker 00:
The argument that the jury was supposed to defer to this, that was never made.

[00:24:04] Speaker 00:
It was very carefully limited on validity and infringement.

[00:24:07] Speaker 00:
And so that did not infect the overall trial.

[00:24:10] Speaker 00:
It was a fair trial.

[00:24:12] Speaker 00:
About your concern that just generally allowing jury verdicts, I think that's overstated.

[00:24:19] Speaker 00:
I don't think there are going to be that many circumstances where a prior jury verdict is as comparable as this one.

[00:24:27] Speaker 00:
Here we have the Vonage case.

[00:24:30] Speaker 00:
Time Warner was acutely aware of it.

[00:24:32] Speaker 00:
They had somebody monitor it.

[00:24:35] Speaker 00:
They didn't have somebody in the courtroom because they didn't want to be discovered.

[00:24:38] Speaker 00:
And they knew about it.

[00:24:41] Speaker 00:
during the actual negotiations sprint brought up the bondage for it why wouldn't that's what normally happens is a look here's what we got in this prior case that goes into the hypothetical negotiation it was actually discussed between the parties when they were saying what we got the title though but you know is that should that be the rule just because the defendant knows about the jury verdict and they in fact had some references to the jury verdict therefore it's admissible as evidence

[00:25:10] Speaker 03:
No, but what we're looking at.

[00:25:12] Speaker 03:
What would be the rule?

[00:25:13] Speaker 03:
I mean, I also shared Judge Bryson's concern that we just can't, in a freewheeling way, admit jury verdicts left and right.

[00:25:22] Speaker 03:
There has to be some kind of limiting principle.

[00:25:25] Speaker 03:
And what is that limiting principle?

[00:25:27] Speaker 00:
It should be the same as when we look at either settlement agreements or prior license agreements.

[00:25:32] Speaker 00:
Is it comparable?

[00:25:33] Speaker 00:
And would it be something that would be considered at the hypothetical negotiation?

[00:25:37] Speaker 00:
And the answer to both of those is yes.

[00:25:40] Speaker 00:
Because it is comparable.

[00:25:41] Speaker 00:
It concerns the same patents, the same patent portfolio.

[00:25:48] Speaker 00:
It was something that the parties knew about.

[00:25:51] Speaker 00:
And as Time Warner's expert said, it would have been in the mix at the hypothetical negotiation.

[00:25:56] Speaker 00:
So yes, it is relevant for that purpose.

[00:25:59] Speaker 00:
Is it dispositive?

[00:26:01] Speaker 00:
No.

[00:26:01] Speaker 00:
Is Paytech or VoiceCloud dispositive?

[00:26:04] Speaker 00:
No, they are things for the jury to consider.

[00:26:09] Speaker 01:
limiting instruction had been, you may consider this prior verdict only for purposes of determining what effect it would have had on the parties in the course of the hypothetical negotiation.

[00:26:24] Speaker 01:
It seems to me your argument would be stronger because the court instead said damages, which means it could be used for any damage related issues, including this is what was given before.

[00:26:35] Speaker 01:
Why shouldn't we give the same amount again?

[00:26:38] Speaker 00:
I think the instruction was a little more careful than that, although I don't understand it, Your Honor.

[00:26:42] Speaker 00:
It wasn't to that extreme.

[00:26:46] Speaker 00:
But the judge said, this is something you may consider, not you must consider.

[00:26:50] Speaker 00:
It was among the factors.

[00:26:52] Speaker 00:
There was a complete instruction on the things that need to be considered.

[00:26:55] Speaker 01:
Was there any request for a more restrictive instruction?

[00:27:00] Speaker 00:
The judge said that he would give a limiting instruction no matter whatever Time Warner proposed.

[00:27:05] Speaker 01:
And there was no proposal for a more restrictive instruction along the lines of what I'm... I'm not aware of that.

[00:27:11] Speaker 00:
They did try to move to exclude it, but the judge said he would give a limiting instruction.

[00:27:17] Speaker 00:
The question of reliability of the verdict, I think, is established by the other two agreements.

[00:27:22] Speaker 00:
And as I said, they were bookends.

[00:27:24] Speaker 00:
It's not like Dr. Rouse started with the Vonage verdict.

[00:27:29] Speaker 00:
He actually started with a voice flow agreement.

[00:27:31] Speaker 00:
And he said, these are all consistent.

[00:27:34] Speaker 00:
As for apportionment, well, they're comparable agreements.

[00:27:38] Speaker 00:
So we can assume that the parties in negotiating them or the jury in the Vonage case did some apportionment, down to 5%.

[00:27:45] Speaker 00:
As we know from the Exmark case and others, there are different ways to do apportionment.

[00:27:52] Speaker 00:
And when you have a comparable agreement that would be part of the hypothetical negotiation, that may

[00:27:59] Speaker 00:
What you need to do for apportionment.

[00:28:02] Speaker 00:
Dr. Rao did more apportionment than that.

[00:28:04] Speaker 00:
And the judge said, look, he did apportionment in his analysis.

[00:28:08] Speaker 00:
He looked at the expected profits, the actual profits, and he did take away those things that were not attributable to the invention.

[00:28:16] Speaker 00:
He took away the typical telephone service.

[00:28:21] Speaker 00:
That wasn't part of the cost.

[00:28:22] Speaker 01:
Yeah, that was all part of his calculation, which went down from 38 or 39 down to 12.

[00:28:28] Speaker 01:
But that never found its way into, as I understand it, the $1.37.

[00:28:34] Speaker 01:
As I understand it, the $1.37 was just predicated on an all VOIP loyalty base.

[00:28:40] Speaker 01:
So I said, that just all seems to me to be window dressing, doesn't it?

[00:28:44] Speaker 01:
No, I don't think so.

[00:28:45] Speaker 01:
What effect did his reduction to $12 have on the ultimate determination as to damages?

[00:28:53] Speaker 00:
Well, first of all, we don't know what the jury did, but we know what Dr. Rao did.

[00:28:56] Speaker 00:
Right.

[00:28:56] Speaker 01:
I mean, logically, what effect did it have?

[00:28:58] Speaker 01:
It just seemed to me to be sort of a collateral matter that had no effect on the calculation of the 137.

[00:29:05] Speaker 00:
I think if you read the testimony, it's not collateral.

[00:29:08] Speaker 00:
There was another spirit witness who testified extensively on the profit analysis, and then Dr. Rao did three things.

[00:29:16] Speaker 00:
He put on a chart, here are the three things to look at.

[00:29:19] Speaker 00:
Comparable,

[00:29:21] Speaker 00:
actual profits, expected profits.

[00:29:24] Speaker 00:
And he went through each of those.

[00:29:26] Speaker 00:
And he said, if you do the comparables, you end up at $1.37.

[00:29:28] Speaker 00:
If you do the expected or actual profits, you end up with a larger number.

[00:29:34] Speaker 00:
And then he looked at the last best offer and how much Sprint stood to lose in profits compared to... No, I understand all that.

[00:29:41] Speaker 01:
What I'm focusing in on is his pulling out the

[00:29:47] Speaker 01:
regular phone service and other items, to getting from $36 or $39 down to $12, whatever it was.

[00:29:55] Speaker 01:
And that seemed to me not to bear any relationship to the $1.37.

[00:30:02] Speaker 00:
Well, it's more.

[00:30:04] Speaker 00:
That's the relationship.

[00:30:06] Speaker 01:
Well, $12 is more.

[00:30:07] Speaker 01:
But if you take, for example, 5% of the $12, you're down to $0.65 or $0.60.

[00:30:15] Speaker 00:
Well, the 5% was not of profits.

[00:30:18] Speaker 00:
That was not what was established in the comparables.

[00:30:21] Speaker 00:
It was a 5% of revenue attributable to connecting a voice over IP.

[00:30:27] Speaker 01:
Right.

[00:30:27] Speaker 01:
And that's where the quote failure to apportion argument comes from.

[00:30:32] Speaker 00:
In fact, it's all VOIP.

[00:30:35] Speaker 00:
When Dr. Rao apportioned the profits, it actually turned out to be more than that.

[00:30:40] Speaker 00:
So as I said, that was Time Warner's benefit.

[00:30:43] Speaker 00:
This was the lowest number.

[00:30:45] Speaker 00:
And the jury actually awarded the lowest that Sprint said.

[00:30:48] Speaker 00:
Dr. Well was asked, he said, could it be more?

[00:30:52] Speaker 00:
And he said, yes, it could.

[00:30:54] Speaker 00:
And these were all given as alternatives.

[00:30:57] Speaker 00:
Now, I don't think the 25% rule also tainted things to the degree that Time Warner says.

[00:31:03] Speaker 00:
There was a case that followed Unilock where one of the experts testified about the 25% rule, but there were other things supporting that verdict.

[00:31:12] Speaker 00:
And that was allowed.

[00:31:14] Speaker 00:
I think that's the energy transportation case.

[00:31:16] Speaker 00:
We have that similar thing here, both in the Vonage case and in this case.

[00:31:20] Speaker 00:
There's additional evidence supporting the jury verdict.

[00:31:23] Speaker 00:
In the Vonage case, the expert actually testified as to a 7% royalty, and the jury awarded less.

[00:31:31] Speaker 03:
Isn't that true of the facts of Unilock, though, too?

[00:31:34] Speaker ?:
It is.

[00:31:34] Speaker 03:
The plaintiff relied on the 25% rule of thumb and then proposed a certain rate.

[00:31:40] Speaker 03:
And then the jury came in under that

[00:31:42] Speaker 03:
plaintiff proposed rate and then this court nevertheless said this all started from a tainted place.

[00:31:49] Speaker 03:
So despite the fact that the jury didn't adopt what the plaintiff wanted, it's still not good enough and we have to start over.

[00:31:57] Speaker 03:
So that could potentially happen here too because of the reliance in the Vonage verdict on the 25%.

[00:32:06] Speaker 00:
You're right.

[00:32:07] Speaker 03:
It could have.

[00:32:07] Speaker 03:
It did not.

[00:32:08] Speaker 00:
And as Judge Bryson observed, the hypothetical negotiation took place before Unalak was decided.

[00:32:14] Speaker 00:
This case, this case between Sprint and Time Warner, there was extensive discussion of the time of the 25% rule.

[00:32:22] Speaker 00:
Dr. Rao has cross-examined for quite a long time about it.

[00:32:27] Speaker 00:
Time Warner's expert said Dr. Rao did not use the 25% rule.

[00:32:32] Speaker 00:
His testimony was not tainted.

[00:32:34] Speaker 03:
But he used the varnished verdict.

[00:32:37] Speaker 03:
which did use the 25% rule.

[00:32:39] Speaker 03:
So in that sense, his expert report is premised on the 25% rule.

[00:32:47] Speaker 00:
It's not.

[00:32:48] Speaker 00:
I don't agree with that.

[00:32:49] Speaker 00:
It's premised on three comparable data points that all said 5%.

[00:32:53] Speaker 00:
And one of those, there was evidence of the 25% rule introduced in the case.

[00:33:00] Speaker 00:
But that was not what was actually awarded.

[00:33:03] Speaker 00:
So I don't agree with that.

[00:33:05] Speaker 00:
It was premised on it.

[00:33:07] Speaker 01:
Could you make sure and save some time to talk about the written description, particularly with respect to the broadband patent?

[00:33:13] Speaker 01:
Sure.

[00:33:14] Speaker 01:
And before you do, just a real quick question.

[00:33:16] Speaker 01:
If, for reasons of written description, our doctrine of equivalence, we should find that the broadband claims do not survive, does that make any difference to the judgment in this case?

[00:33:28] Speaker 00:
The short answer is no.

[00:33:29] Speaker 01:
OK.

[00:33:30] Speaker 01:
Now, if you could talk to us about the written description.

[00:33:33] Speaker 01:
Sure.

[00:33:33] Speaker 01:
Broadband especially.

[00:33:35] Speaker 03:
This is a fact.

[00:33:36] Speaker 03:
Could you answer a little more?

[00:33:38] Speaker 03:
Sure.

[00:33:38] Speaker 03:
You've convincingly said no, it wouldn't have, but I would love to hear a because.

[00:33:45] Speaker 03:
Why would it not have any impact on the damages?

[00:33:49] Speaker 00:
Because there was a single verdict and a single number that was answered by the jury.

[00:33:55] Speaker 00:
And Dr. Rao testified that if you infringe one, well, our technical expert, Dr. Wicker, said there's infringement of

[00:34:03] Speaker 00:
any one of these claims when there's an outbound call to the PSTN or an inbound call to the PSTN.

[00:34:10] Speaker 00:
Time Warner did not propose a verdict form that would have separated these out patent by patent.

[00:34:16] Speaker 00:
They proposed a lump sum.

[00:34:18] Speaker 00:
They didn't object to the verdict form.

[00:34:20] Speaker 00:
It's too late now to go back and try to parse that out, especially since there's testimony supporting the fact that if any of these patents were infringed, it would be the same royalty rate.

[00:34:29] Speaker 03:
Is that the standard?

[00:34:31] Speaker 03:
If there's a conceivable way of

[00:34:34] Speaker 03:
of reading the jury's verdict as granting all these damages just based on infringement of any one patent claim, that's good enough to preserve the damages verdict, as opposed to asking the question a little differently, which would be, is there any possible way that the jury needed to rely on those broadband patents in order to reach the $139.8 million judge?

[00:35:00] Speaker 03:
I think it's the first.

[00:35:02] Speaker 00:
Right, but why?

[00:35:03] Speaker 00:
Because that was not the way the case was presented.

[00:35:07] Speaker 00:
If the case had been presented that these are separate, that you need to award damages separately, then we would have a basis for going back and unparsing what the jury did.

[00:35:18] Speaker 00:
Now, given the way things are now, I think it's fair that the assumption is in Sprint's favor that the jury found all the claims infringed as they did on the verdict form.

[00:35:31] Speaker 00:
And that is not challenged on appeal.

[00:35:33] Speaker 00:
except for the doctrine of equipment.

[00:35:34] Speaker 03:
Would you go to the broadband patents?

[00:35:35] Speaker 03:
Sure.

[00:35:36] Speaker 03:
And I'm also a tad confused about using an ATM interworking multiplexer in the context of an otherwise IP-based network.

[00:35:50] Speaker 03:
Yes.

[00:35:50] Speaker 03:
And how is it that the inventor here, Dr. Christie, showed the world that he contemplated something like that in his specification?

[00:36:00] Speaker 00:
First of all, I'd say that it's a factual issue.

[00:36:02] Speaker 00:
This was testified to at length for hours between the two technical experts.

[00:36:07] Speaker 00:
And they both presented their views on that, that a person of ordinary skill in the art would read this specification in the way that Sprint says, and read it broadly enough that it could cover IP.

[00:36:20] Speaker 03:
But even if I were to agree that, OK, at that time of the invention, there were ATM-based networks, and then there were IP-based packet switching networks,

[00:36:32] Speaker 03:
But what is the evidence to give us any comfort that you could be mixing and matching elements from the two asynchronous communication networks into creating, I don't know, a Frankenstein asynchronous communication network?

[00:36:50] Speaker 00:
Actually, the evidence is that ATM and IP were compatible at the time.

[00:36:54] Speaker 00:
And if you actually look at the media gateway, it operated both.

[00:37:00] Speaker 00:
It was basically an ATM

[00:37:02] Speaker 00:
multiplexer, but you could modify it by switching the cards so that it could talk to IP on either side.

[00:37:13] Speaker 00:
So this is not something that was unheard of.

[00:37:15] Speaker 00:
This is something that actually existed.

[00:37:17] Speaker 00:
It's something that Time Warner used in their network.

[00:37:20] Speaker 00:
And the experts testified about that, that these things are not apples and oranges, that you're either all IP or all ATM.

[00:37:28] Speaker 00:
The device itself had an ATM backplane and used

[00:37:32] Speaker 00:
ATM internally as a way to communicate, but on the outside, they used IP.

[00:37:39] Speaker 00:
So it's not really that unusual.

[00:37:41] Speaker 00:
And it comes down to a technical question of the experts that was addressed at length.

[00:37:46] Speaker 03:
OK.

[00:37:47] Speaker 03:
We're out of time.

[00:37:47] Speaker 03:
Thank you.

[00:37:48] Speaker 03:
Thank you.

[00:37:50] Speaker 03:
Can we give Mr. Aucoin four minutes, please?

[00:38:07] Speaker 02:
Thank you, Judge Chen.

[00:38:08] Speaker 02:
So starting where we just ended, of course, the written description inquiry is an objective inquiry into what the specification would disclose to a person of ordinary skill in the art.

[00:38:18] Speaker 02:
And there is nothing in the specification of either the broadband patents, the ATM interworking patents, or the call control patents that shows that you can mix and match between ATM and IP.

[00:38:30] Speaker 02:
And indeed, an IP interworking multiplexer, which is what you would have if you switch out the cards,

[00:38:35] Speaker 02:
is not translating to or from ATM.

[00:38:38] Speaker 02:
And there is nothing in the broadband patents that suggests having an ATM in a working multiplexer translating to or from something other than ATM because it doesn't exist.

[00:38:49] Speaker 02:
It doesn't make sense.

[00:38:51] Speaker 02:
So it is something that they didn't possess.

[00:38:54] Speaker 02:
And there was a reference made to some kind of a backplane argument about ATM.

[00:38:58] Speaker 02:
That was rejected by the jury.

[00:38:59] Speaker 02:
They found that there was no literal infringement of the broadband patents.

[00:39:03] Speaker 02:
Now, I think that the call control patents fail for very similar reasons, for reasons that this court articulated in LizardTech and in Rivera versus ITC.

[00:39:12] Speaker 02:
The question is, what a person of ordinary skill in the art take away from the call control patents, an understanding that you could accomplish interconnecting other than by establishing a communications path between the points.

[00:39:27] Speaker 02:
That is an attribute of ATM.

[00:39:29] Speaker 02:
It is not an attribute of IP.

[00:39:31] Speaker 02:
And a person of ordinary skill in the art, there's no evidence, none, to suggest a person of ordinary skill in the art would understand that you could interconnect simply by identifying a destination.

[00:39:43] Speaker 02:
And that is how they proved infringement at trial, from 3642 to 45.

[00:39:48] Speaker 02:
The network code was just the IP address.

[00:39:50] Speaker 02:
So the broadband patents should all, and the call control patents should be found invalid.

[00:39:56] Speaker 02:
If the court were to find that the broadband patents are invalid, but that the call control patents would survive,

[00:40:01] Speaker 02:
course, under Verizon, the general rule is that the verdict would have to be vacated and remanded.

[00:40:07] Speaker 02:
And to the extent that the argument he's making is, well, the way this was presented was these two entirely different set of patents had the same incremental value, had the same value, no matter how you approach them.

[00:40:20] Speaker 02:
Well, that just shows the intellectual bankruptcy of their position vis-a-vis apportionment.

[00:40:26] Speaker 02:
It shows that there is no apportionment to the incremental value of either set of the patents if you could return

[00:40:31] Speaker 02:
the exact same dollar figure for either one.

[00:40:34] Speaker 02:
Now that actually leads back into some of the other questions.

[00:40:38] Speaker 02:
Judge Bryson, you're absolutely right.

[00:40:40] Speaker 02:
None of this faux apportionment that was done with respect to other numbers that were thrown around in order to skew the damages horizon, and they literally did it, look at appendix 2358, so they could argue in closing, we're not greedy, we're asking for the smallest amount.

[00:40:54] Speaker 02:
None of those numbers fed into the $1.37 figure.

[00:40:58] Speaker 02:
And why is it that they went through all these hoops to come up with the $1.37 figure as opposed to just using 5%?

[00:41:05] Speaker 02:
Because they knew they would run headlong into problems under the entire market value rule because the base that they were going to use is unapportioned VOIP revenue.

[00:41:15] Speaker 02:
And that is exactly what you cannot do.

[00:41:17] Speaker 02:
You cannot use unapportioned VOIP

[00:41:20] Speaker 02:
revenue because that, again, doesn't reflect the incremental value of the invention.

[00:41:25] Speaker 02:
Now, turning back to the issue of the jury verdicts, of course the premise of a hypothetical negotiation is about voluntary agreements.

[00:41:33] Speaker 02:
Voluntary agreements show how the market values something.

[00:41:37] Speaker 02:
As Judge Andrews, I think, persuasively explained in the Acceleration Bay case that we provided a letter on, a jury verdict does nothing like that.

[00:41:45] Speaker 02:
A jury verdict is not voluntary.

[00:41:47] Speaker 02:
and especially not one that is legally flawed, which you have here.

[00:41:52] Speaker 02:
And this idea that the Vonage verdict was just some small thing at trial, I mean, look at opening statement, appendix 3155.

[00:41:57] Speaker 02:
Do you remember the Vonage verdict, the 5% royalty?

[00:42:01] Speaker 02:
Dr. Rao is going to look at that.

[00:42:02] Speaker 02:
He's going to arrive at a royalty of $1.37.

[00:42:04] Speaker 02:
That's the number that we'll offer you to consider.

[00:42:07] Speaker 02:
And the last point that I want to make with respect to the Vonage verdict is this.

[00:42:12] Speaker 02:
The idea of a jury verdict,

[00:42:14] Speaker 02:
being like other comparables, being like other licenses, makes no sense.

[00:42:19] Speaker 02:
A verdict comes with the imprimatur of authority.

[00:42:24] Speaker 02:
It is highly influential when you bring in a jury verdict.

[00:42:28] Speaker 02:
It invites the second jury to follow it.

[00:42:32] Speaker 02:
That raises very serious due process concerns

[00:42:35] Speaker 02:
as the Third Circuit articulated in Coleman, as this court articulated in Mendenhall.

[00:42:40] Speaker 02:
And there's a reason that these are generally not allowed, particularly a verdict that was never appealed.

[00:42:46] Speaker 02:
The parties ended up settling for a fraction.

[00:42:48] Speaker 02:
Thank you, Judge Chin.

[00:42:49] Speaker 02:
I appreciate the court's indulgence.

[00:42:50] Speaker 03:
The case is submitted.