Case 1:17-cv-00770-JDW Document 249-3 Filed 10/25/23 Page 1 of 9 PageID #: 25103
`Case 1:17-cv-00770-JDW Document 249-3 Filed 10/25/23 Page 1 of 9 PagelD #: 25103
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`EXHIBIT 3
`EXHIBIT 3
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`

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`Case 1:17-cv-00770-JDW Document 249-3 Filed 10/25/23 Page 2 of 9 PageID #: 25104
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`HIGHLY CONFIDENTIAL—SUBJECT TO PROTECTIVE ORDER
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`IN THE UNITED STATES DISTRICT COURT
`
`BEFO RE T HE
`
`DISTRICT OF DELAWARE
`
`WIRTGEN AMERICA, INC.
`
`Plaintiff
`
`v.
`
`CATERPILLAR, INC.
`
`Defendant
`
`C.A. No. 17-770-JDW
`
`
`
`
`
`REPL Y EXPERT REPORT OF
`
`DR. PALLAVI SETH
`
`ON B EHAL F OF
`
`WIRTGEN AMERICA, INC.
`
`JU LY 7, 2 023
`
`
`
`

`

`Case 1:17-cv-00770-JDW Document 249-3 Filed 10/25/23 Page 3 of 9 PageID #: 25105
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`HIGHLY CONFIDENTIAL—SUBJECT TO PROTECTIVE ORDER
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`I.C.
`
`Information Relied Upon
`
`10. In conducting the analysis and developing the opinions reflected in my opening report, in my
`
`rebuttal report, and in this reply report, I, and Brattle staff working at my direction, reviewed
`
`various pleadings in this investigation, documents produced by the parties, written discovery
`
`served by the parties, deposition transcripts, certain publicly available information, as well as a
`
`conversation with Mr. Jan Schmidt, Vice President of Product Support, Wirtgen America on June
`
`30, 2023; Mr. James McEvoy, President and Chief Executive Officer, Wirtgen America on July 5,
`
`2023; Mr. Jeffrey Wiley, Senior Vice President of Sales, Wirtgen America; and Mr. Brad
`
`McKinney, Chief Financial Officer (“CFO”), Wirtgen America, on July 6, 2023.8
`
`11. A list of the information upon which I relied is contained in Exhibit 2 to my opening report and
`
`Exhibit 17 to my rebuttal report. Exhibit 19 to this report contains a list of the additional materials
`
`I relied upon in reaching the conclusions in this reply report.
`
`12. To avoid confusion, the table and exhibit numbering in this reply report continues the sequence
`
`taken in my rebuttal report. Therefore, the first table in this reply report is Table 11, the first figure
`
`is Figure 8, and the first exhibit is Exhibit 19.
`
`13. My findings are based on information available to me at the time this report was prepared. I reserve
`
`the right to supplement and/or amend this report if other information relevant to this assignment
`
`becomes available.
`
`I.D. Summary of Opinions
`
`14. Based on my review of the information provided to me as of the date of this report, other publicly
`
`available information, my education, my experience, and for the reasons stated below, it is my
`
`opinion that:
`
` The Panduit Factors are irrelevant for a reasonable royalty damages calculation. Mr.
`
`Reed’s criticism that my reasonable royalty analysis does not satisfy the Panduit Factors
`
` Conversation with Mr. Schmidt, June 30, 2023; Conversation with Mr. McEvoy, July 5, 2023; Conversation with
`Mr. Wiley, July 6, 2023; and Conversation with Mr. McKinney, July 6, 2023.
`
` 8
`
`Reply Expert Report of Pallavi Seth, Ph.D.
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`C.A. No. 17-770-JDW | Page 3 of 48
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`Case 1:17-cv-00770-JDW Document 249-3 Filed 10/25/23 Page 4 of 9 PageID #: 25106
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`HIGHLY CONFIDENTIAL—SUBJECT TO PROTECTIVE ORDER
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`for a lost profits analysis is a misplaced criticism, because I have not done a lost profits
`
`analysis. As I calculated a reasonable royalty, I ensured my analysis satisfied the relevant
`
`criteria, the Georgia-Pacific Factors. Section II.A details my conclusions in this regard.
`
` Caterpillar’s own internal documents show that it would not have brought the Accused
`
`Products to market without the features enabled by the Asserted Patents. Internal
`
`Caterpillar documents around the time of the Hypothetical Negotiation are clear that
`
`Caterpillar considered features covered by the Asserted Patents as essential to a profitable,
`
`worthwhile relaunch of its cold milling machine product line, and also stated that without
`
`those features, Caterpillar believed the entirety of its market successes from its cold milling
`
`machine product line was at risk. Section II.B details my conclusions in this regard.
`
` Sales of the Accused Products were diverted from Wirtgen by design, and Mr. Reed’s
`
`claims to the contrary are based on demonstrably inaccurate information. Caterpillar’s
`
`internal stated strategy and objectives around the time of the Hypothetical Negotiation were
`
`to directly compete against Wirtgen specifically on features and quality at a lower price
`
`point, and the available evidence bears this out. Mr. Reed’s assertions to the contrary are
`
`based on demonstrably incorrect information. Section II.C details my conclusions in this
`
`regard.
`
` The “errors” Mr. Reed claims to identify in my opening report have no material impact on
`
`my damages calculation. I disagree that the items he identifies are “errors” and any
`
`adjustments to my calculations do not meaningfully impact my results. In fact in many
`
`instances Mr. Reed either provides no alternative approach, or when he does, his alternative
`
`approach is flawed. Section II.D details my conclusions in this regard.
`
` Mr. Reed’s assertions in the Reed Commercial Success Report do not establish a nexus
`
`between the commercial success of the Wirtgen Accused Products and the Caterpillar
`
`Asserted Patent. Mr. Reed presents no evidence that the accused spray bar component is
`
`determinative of any customer’s purchasing decision. As I understand, the accused spray
`
`bar component embodies additional functionality above and beyond the features claimed
`
`by the Caterpillar Asserted Patent—Mr. Reed ignores this. Mr. Reed similarly ignores the
`
`simple observation that if the features of the Caterpillar Asserted Patent were a driver of
`
`Reply Expert Report of Pallavi Seth, Ph.D.
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`C.A. No. 17-770-JDW | Page 4 of 48
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`Case 1:17-cv-00770-JDW Document 249-3 Filed 10/25/23 Page 5 of 9 PageID #: 25107
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`HIGHLY CONFIDENTIAL—SUBJECT TO PROTECTIVE ORDER
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`commercial success, Caterpillar would likely have implemented those features in its own
`machines—however, it has not. Section III details my conclusions in this regard.
`
`II. Damages Reply
`
`II.A. The Panduit Factors are Irrelevant for a Reasonable Royalty
`Damages Calculation
`
`15. Mr. Reed agrees with me that a reasonable royalty is the appropriate damages remedy.9
`Nevertheless, he criticises me for taking a lost profits damages approach.10 I made clear in my
`Opening Report that I estimated a reasonable royalty,11 I supported my analysis with a thorough
`consideration of the relevant legal criteria as I understand them,12 and I discussed the reasons why
`a reasonable royalty—specifically, one based on an income approach—is economically
`appropriate in this case.13
`
`16. Mr. Reed characterizes my analysis as “a damages estimate claimed to be based on a reasonable
`royalty approach, but the claimed damages exceed even the amount she asserts to be a measure of
`Wirtgen America’s lost profits.”14 Though neither Mr. Reed nor I are lawyers, as experts we
`require a general understanding of the relevant statutes and case law governing our work. Mr. Reed
`seems unaware of the relevant statutes governing remedies for patent infringement, which I quoted
`in my Opening Report and will repeat here: “[u]pon finding for the claimant the court shall award
`the claimant damages adequate to compensate for the infringement, but in no event less than a
`reasonable royalty for the use made of the invention by the infringer.”15 I am aware of no case law
`or statute that says the reasonable royalty must be less than the patentee’s lost profits. Given the
`facts here, including that Wirtgen does not license its patents and would need an economic
`
` 9
`
` Mr. Reed states his analysis “supports a reasonable royalty for the patents-in-suit.” Reed Rebuttal Report, p. 4.
`10 Reed Rebuttal Report, pp. 2-4.
`11 Seth Opening Report, ¶ 11.
`12 Seth Opening Report, Section III.A.
`13 Seth Opening Report, Section III.
`14 Reed Rebuttal Report, p. 5.
`15 Seth Opening Report, ¶ 129, citing 35 U.S.C. § 284.
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`Reply Expert Report of Pallavi Seth, Ph.D.
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`C.A. No. 17-770-JDW | Page 5 of 48
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`Case 1:17-cv-00770-JDW Document 249-3 Filed 10/25/23 Page 6 of 9 PageID #: 25108
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`that the water spray system is a “talking point[]” with Wirtgen customers, he does not include any
`
`direct customer evidence showcasing that the accused spray bar component is relevant to their
`
`purchasing decision.197 Neither does Mr. Reed consider that the accused spray bar component
`
`embodies additional functionality above and beyond the features claimed by the ’618 patent, as
`
`discussed in my Rebuttal Report.198
`
`96. Even if there were evidence connecting the accused spray bar component directly to customers’
`
`purchase decisions (which Mr. Reed has not put forward), that evidence would not be sufficient to
`
`establish nexus. Caterpillar would need to further show that the reason the accused spray bar
`
`component was important to the purchase decision was because of the ’618 patent. Again,
`
`Mr. Reed has not established such a connection.
`
`97. Further, if the accused spray bar was truly driving the success of the Wirtgen Accused Products
`
`and responsible for a “market share of approximately 80% or more,” then surely Caterpillar would
`
`have found it beneficial to incorporate the component in its own machines.199 However, I
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`understand that Caterpillar has confirmed that it does not include the patented feature in any
`
`product it sells.200
`
`Respectfully Submitted,
`
`
`
`
`
`Pallavi Seth, Ph.D.
`
`
`
`
`
`
`197 Reed Commercial Success Report, pp. 8-9.
`198 Seth Rebuttal Report, ¶¶ 15, 28, and 42.
`199 Reed Commercial Success Report, p. 3.
`200 Caterpillar Inc.’s Responses and Objections to Wirtgen America, Inc’s First Set of Interrogatories (Nos. 1-20),
`Wirtgen America, Inc. v. Caterpillar, Inc, C.A. No. 17-770-JDW, February 7, 2023, response to Interrogatory
`No. 18.
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`Reply Expert Report of Pallavi Seth, Ph.D.
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`C.A. No. 17-770-JDW | Page 41 of 48
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`Case 1:17-cv-00770-JDW Document 249-3 Filed 10/25/23 Page 7 of 9 PageID #: 25109
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`HIGHLY CONFIDENTIAL—SUBJECT TO PROTECTIVE ORDER
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`UPDATED TABLE 2: WIRTGEN PRACTICING PRODUCTS
`
`Machine
`Model
`
`[A]
`
`Cut
`Width
`(inches)
`[B]
`
`Four‐way Full
`Floating
`
`Driving
`Backwards
`
`Path
`Measurement
`
`Sensor
`Switching
`
`Vibration
`Mounting
`
`Parallel to
`Surface
`
`[C]
`
`[D]
`
`[E]
`
`[F]
`
`[G]
`
`[H]
`
`Cold Milling Machines
`[1] W 35 DC
`[2] W 35 R
`[3] W 35 Ri
`[4] W 350 E
`[5] W 50
`[6] W 50 DC
`[7] W 50 DCi
`[8] W 50 HR
`[9] W 50 R
`[10] W 50 Ri
`[11] W 55 HR
`[12] W 60
`[13] W 60 i
`[14] W 60 R
`[15] W 60 Ri
`[16] W 100
`[17] W 100 CF
`[18] W 100 CFi
`[19] W 100 F
`[20] W 100 Fi
`[21] W 100 H
`[22] W 100 HR
`[23] W 100 i
`[24] W 100 R
`[25] W 100 Ri
`[26] W 1000 F
`[27] W 120 CF
`[28] W 120 CFi
`[29] W 120 F
`[30] W 120 Fi
`[31] W 120 FTi
`[32] W 120 R
`[33] W 120 Ri
`[34] W 1200 F
`[35] W 125 CF
`[36] W 130 CF
`[37] W 130 CFi
`[38] W 130 F
`[39] W 130 Fi
`[40] W 130 H
`
`14
`14
`14
`14
`20
`20
`20
`20
`20
`20
`20
`24
`24
`24
`24
`39
`39
`39
`39
`39
`39
`39
`39
`39
`39
`39
`47
`47
`47
`47
`47
`47
`47
`47
`47
`51
`51
`51
`51
`51
`
`X
`
`X
`X
`X
`
`X
`X
`
`X
`X
`X
`X
`X
`X
`X
`X
`X
`X
`
`X
`X
`X
`
`X
`X
`X
`X
`X
`X
`X
`
`X
`X
`X
`X
`X
`X
`
`X
`X
`X
`X
`X
`X
`X
`
`X
`X
`
`X
`X
`X
`X
`X
`X
`X
`X
`X
`
`X
`X
`X
`X
`X
`X
`X
`X
`X
`X
`X
`X
`
`X
`X
`X
`X
`
`X
`X
`X
`X
`X
`X
`X
`X
`X
`X
`X
`X
`X
`X
`X
`X
`
`X
`X
`X
`X
`X
`X
`X
`X
`X
`X
`X
`X
`X
`X
`X
`X
`X
`X
`
`X
`
`
`
`Reply Expert Report of Pallavi Seth, Ph.D.
`
`C.A. No. 17-770-JDW | Page 43 of 48
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`

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`Case 1:17-cv-00770-JDW Document 249-3 Filed 10/25/23 Page 8 of 9 PageID #: 25110
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`HIGHLY CONFIDENTIAL—SUBJECT TO PROTECTIVE ORDER
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`UPDATED TABLE 2: WIRTGEN PRACTICING PRODUCTS (CONT.)
`
`Machine
`Model
`
`[A]
`
`Cut
`Width
`(inches)
`[B]
`
`Four‐way Full
`Floating
`
`Driving
`Backwards
`
`Path
`Measurement
`
`Sensor
`Switching
`
`Vibration
`Mounting
`
`Parallel to
`Surface
`
`[C]
`
`[D]
`
`[E]
`
`[F]
`
`[G]
`
`[H]
`
`Cold Milling Machines
`[41] W 130 HR
`[42] W 1300 F
`[43] W 150
`[44] W 150 CF
`[45] W 150 CFi
`[46] W 150 i
`[47] W 155 CF
`[48] W 185 CF
`[49] W 1900
`[50] W 195
`[51] W 200
`[52] W 200 i
`[53] W 2000
`[54] W 205
`[55] W 210
`[56] W 210 i
`[57] W 210 XP
`[58] W 215
`[59] W 200 H
`[60] W 200 Hi
`[61] W 220
`[62] W 220 i
`[63] W 2200
`[64] W 250 i
`
`51
`51
`59
`59
`59
`59
`59
`75
`79
`79
`79
`79
`79
`79
`79
`79
`79
`79
`83
`83
`87
`87
`87
`87
`
`Road Recycler Machines
`[65] WR 200
`79
`[66] WR 2000
`79
`[67] WR 200i
`79
`[68] 2200 CR
`87
`[69] W 240 CR
`93
`[70] WR 200 XLi
`94
`[71] WR 240
`94
`[72] WR 240 i
`94
`[73] WR 250
`94
`[74] WR 250 i
`94
`[75] WR 2500
`120
`[76] W 380 CR
`150
`[77] 3800 CR
`150
`
`Count
`
`77
`
`X
`X
`X
`X
`
`X
`X
`
`X
`X
`X
`
`X
`X
`X
`X
`
`X
`
`X
`
`X
`
`X
`X
`X
`X
`X
`X
`X
`X
`X
`X
`X
`X
`X
`X
`X
`X
`X
`X
`X
`X
`X
`X
`
`X
`X
`X
`X
`X
`
`X
`X
`
`X
`X
`X
`
`X
`X
`X
`X
`
`X
`
`X
`X
`X
`X
`
`X
`X
`X
`X
`X
`X
`
`X
`
`X
`X
`X
`X
`X
`X
`X
`X
`
`X
`X
`X
`
`X
`X
`X
`X
`X
`X
`X
`X
`X
`
`X
`
`X
`
`X
`
`X
`X
`X
`X
`
`X
`X
`
`X
`X
`X
`
`X
`X
`X
`X
`
`X
`
`X
`X
`X
`X
`
`X
`X
`X
`X
`X
`X
`
`X
`
`X
`X
`X
`X
`X
`X
`
`X
`X
`
`X
`X
`X
`
`X
`X
`X
`X
`
`X
`
`X
`
`X
`
`
`
`Reply Expert Report of Pallavi Seth, Ph.D.
`
`C.A. No. 17-770-JDW | Page 44 of 48
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`Case 1:17-cv-00770-JDW Document 249-3 Filed 10/25/23 Page 9 of 9 PageID #: 25111
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`HIGHLY CONFIDENTIAL—SUBJECT TO PROTECTIVE ORDER
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`Sources and Notes:
`
`
`The W 50 H and W 250 machines are not included in my Updated Table 2.
`I segment Wirtgen’s Practicing Products into those with a cut width of less than 26 inches (small), between 26 inches
`and 71 inches (medium), and greater than 71 inches (large).
`[A]: List of cold milling machines and road recycler machines contained in: “U.S. Intellectual Property Rights,”
`Wirtgen Group, February 14, 2023, accessed April 13, 2023,
`https://www.wirtgengroup.com/webspecial/wirtgen/patents.pdf.
`[B]: Exhibit 20, column [D].
`[C]-[H]: “U.S. Intellectual Property Rights,” Wirtgen Group, February 14, 2023, accessed April 13, 2023,
`https://www.wirtgengroup.com/webspecial/wirtgen/patents.pdf.
`
`
`
`99. As discussed above in Section II.D.1, the net effect of using 13 percent in place of the WACC
`
`for Caterpillar reduces reasonable royalties from $56,096,267 to $55,638,498, or 0.8 percent, as
`
`shown in Table 11 below. The results reflect a change in Exhibit 7 of my opening report as
`
`demonstrated in Exhibit 22 of this report; all other calculations are unchanged.
`
`TABLE 11: SUMMARY OF REASONABLE ROYALTIES WITH UPDATED HURDLE RATE
`
`Patent
`
`Four‐way Full Floating Family
`7,828,309
`
`Driving Backwards Family
`7,530,641
`
`Path Measurement Family
`9,656,530
`
`Sensor Switching Family
`7,946,788
`8,690,474
`
`Vibration Mounting Family
`RE48,268
`
`Parallel to Surface Family
`8,424,972
`
`Total ‐ All Asserted Patents
`
`Reasonable Royalty, Lump Sum
`
`Caterpillar Accused, Machine Revenues
`Reasonable Royalty Rate, Machine Revenues
`
`Caterpillar Accused, Total Revenues
`Reasonable Royalty Rate, Total Revenues
`
`Sources and Notes:
`[1]-[7]:
`[A]: See Table 7, column [G].
`[B]: See Table 8, column [G].
`
`Joint Surplus Value
`Allocated to Wirtgen,
`Medium Machines
`[A]
`
`Joint Surplus Value
`Allocated to Wirtgen,
`Large Machines
`[B]
`
`Joint Surplus Value
`Allocated to Wirtgen,
`All Machines
`[C]
`
`[1]
`
`[2]
`
`[3]
`
`[4]
`[5]
`
`[6]
`
`[7]
`
`[8]
`
`[10]
`
`[11]
`[12]
`
`[13]
`[14]
`
`$0
`
`$267,053
`
`$267,053
`
`$90,945
`
`$537,953
`
`$628,898
`
`$0
`
`$310,004
`
`$310,004
`
`$137,132
`$137,132
`
`$0
`
`$0
`
`$1,018,939
`$1,018,939
`
`$26,099
`
`$42,412
`
`$1,156,071
`$1,156,071
`
`$26,099
`
`$42,412
`
`$228,076
`
`$2,202,460
`
`$2,430,536
`
`$16,020,681
`
`$39,617,817
`
`$55,638,498
`
`$49,077,010
`32.64%
`
`$75,714,045
`21.16%
`
`$128,540,448
`30.82%
`
`$198,307,054
`19.98%
`
`$177,617,458
`31.32%
`
`$274,021,098
`20.30%
`
`
`
`Reply Expert Report of Pallavi Seth, Ph.D.
`
`C.A. No. 17-770-JDW | Page 45 of 48
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`