Case 1:17-cv-00770-JDW Document 307-6 Filed 02/02/24 Page 1 of 5 PageID #: 30528
`Case 1:17-cv-00770-JDW Document 307-6 Filed 02/02/24 Page 1 of 5 PagelD #: 30528
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`EXHIBIT 13
`EXHIBIT 13
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`Case 1:17-cv-00770-JDW Document 307-6 Filed 02/02/24 Page 2 of 5 PageID #: 30529
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`HIGHLY CONFIDENTIAL—SUBJECT TO PROTECTIVE ORDER
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`IN THE UNITED STATES DISTRICT COURT
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`BEFORE T HE
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`DISTRICT OF DELAWARE
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`WIRTGEN AMERICA, INC.
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`Plaintiff
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`v.
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`CATERPILLAR, INC.
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`Defendant
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`C.A. No. 17-770-JDW
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`REPLY EXPERT REPORT OF
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`DR. PALLAVI SETH
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`ON BEHALF OF
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`WIRTGEN AMERICA, INC.
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`JU LY 7, 2 023
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`Case 1:17-cv-00770-JDW Document 307-6 Filed 02/02/24 Page 3 of 5 PageID #: 30530
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`HIGHLY CONFIDENTIAL—SUBJECT TO PROTECTIVE ORDER
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`compete with Wirtgen and firmly believed that the only way to do so was to copy the features from
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`Wirtgen’s machines.71
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`38. Mr. Reed speculates that Caterpillar could have implemented the new build earlier by using “the
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`PM6xx prototype that was imported in July 2014, … test[ing] [it] elsewhere, or modif[ying] [it] in
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`a temporary way with cut wires and tubes removed in order to be used in the U.S. until the ultimate
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`change was completed for U.S. testing in late 2014 and 2015.”72 This statement directly contradicts
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`Caterpillar’s own beliefs that the necessary changes would be costly and lead to a reduction in
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`sales.73
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`39. Mr. Reed also says that there is a Non-Infringing Alternative for the ’530 patent. Mr. Reed argues
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`that Caterpillar knew about a Non-Infringing Alternative at the time of the Hypothetical
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`Negotiation.74 Mr. Reed says that Caterpillar was able to “remove[] the initial leg sensors and
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`replace[] them with linear sensors”.75 He does not present any real workarounds.76 With respect to
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`the ’530 patent, Mr. Reed says that I acknowledge these alternatives by excluding all machines
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`with a 02B build from my analysis.77 However, once again his timing is off. As of the Hypothetical
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`Negotiation, and after, Caterpillar did not believe there were any alternative designs or ways to
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`avoid infringing the patent and still make the volume of sales it wanted to make. In an internal
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`presentation from 2017 Caterpillar states that the ’530 patent had “[n]o viable design around
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`options at this time”.78 Thus, given Caterpillar’s own admissions, it would not have been aware of
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`this as a viable option at the Hypothetical Negotiation. Instead, as discussed above, as of at least
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`2017, Caterpillar expected to lose $11 million a year if it could not sell machines with the
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`infringing feature.79
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`71 Seth Opening Report, Section II.D.1.
`72 Reed Rebuttal Report, p. 97.
`73 “Caterpillar Presentation - ITC Conference,” November 3, 2017, CAT_00007715, at slide 4.
`74 Reed Rebuttal Report, pp. 35-36.
`75 Reed Rebuttal Report, pp. 98-101.
`76 Reed Rebuttal Report, pp. 35-36, 98-101.
`77 Reed Rebuttal Report, p. 20.
`78 “Caterpillar Presentation - ITC Conference,” November 3, 2017, CAT_00007715, at slides 20-24.
`79 “Caterpillar Presentation - ITC Conference,” November 3, 2017, CAT_00007715, at slide 4.
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`Reply Expert Report of Pallavi Seth, Ph.D.
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`C.A. No. 17-770-JDW | Page 15 of 48
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`how it is determined, or a discussion of whether it is economically appropriate to use in computing
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`a discount rate. In contrast, the WACC is a well-understood, generally-accepted measure whose
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`use in determining a discount rate is entirely standard.174
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`81. However, Mr. Reed seems unaware that using his suggested 13 percent hurdle rate would also shift
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`the bargaining power in the Hypothetical Negotiation in Wirtgen’s favor. Using this rate assumes
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`that Caterpillar is less patient than suggested by the WACC, and would therefore increase
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`Wirtgen’s relative leverage as the relatively more patient party. The net effect of using 13 percent
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`in place of the WACC for Caterpillar is therefore minor: a 0.8 percent reduction in reasonable
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`royalties, as shown in Table 11 of Appendix A.
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`82. Timing of the Hypothetical Negotiation and License Terms: Mr. Reed makes several critiques
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`regarding the timing of the Hypothetical Negotiation and term of the license.175
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`83. For instance, he claims there is a “substantial error” in the date of first infringement I used,
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`asserting the correct date is two years earlier.176 He correctly notes that the first accused act of
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`infringement occurred on April 29, 2016, but then goes on to suggest a date from almost two years
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`earlier. His basis for this claim is a purported prototype machine he states arrived in the U.S. in
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`mid-2014. I understand that no evidence was provided regarding this machine in discovery, and
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`that Caterpillar did not even disclose a serial number for it. Instead, Caterpillar confirmed during
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`discovery in this case that the first PM600 series machine was shipped in 2016.177 Regardless, I
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`take the date of the first accused act of infringement as legal instruction from counsel.
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`84. Similarly, Mr. Reed claims that the date used to identify sales that allegedly infringe the ’641
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`patent is incorrect. Specifically, he claims that a software change documented in a July 2021
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`174 Richard A. Brealey, Stewart C. Myers, and Franklin Allen, Principles of Corporate Finance (New York:
`McGraw-Hill Irwin, 2011), p. 232.
`175 In my Opening Report, I assumed the Hypothetical Negotiation would have taken place shortly before April 29,
`2016. See, Seth Opening Report, ¶ 134.
`176 Reed Rebuttal Report, p. 65.
`177 See, Defendant Caterpillar Inc.’s Objections and Responses to Wirtgen America, Inc.’s Third Set of
`Interrogatories (Nos. 32-33), Wirtgen America, Inc. v. Caterpillar, Inc, C.A. No. 17-770-JDW, April 7, 2023, p.
`4.
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`Reply Expert Report of Pallavi Seth, Ph.D.
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`C.A. No. 17-770-JDW | Page 36 of 48
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`that the water spray system is a “talking point[]” with Wirtgen customers, he does not include any
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`direct customer evidence showcasing that the accused spray bar component is relevant to their
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`purchasing decision.197 Neither does Mr. Reed consider that the accused spray bar component
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`embodies additional functionality above and beyond the features claimed by the ’618 patent, as
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`discussed in my Rebuttal Report.198
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`96. Even if there were evidence connecting the accused spray bar component directly to customers’
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`purchase decisions (which Mr. Reed has not put forward), that evidence would not be sufficient to
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`establish nexus. Caterpillar would need to further show that the reason the accused spray bar
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`component was important to the purchase decision was because of the ’618 patent. Again,
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`Mr. Reed has not established such a connection.
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`97. Further, if the accused spray bar was truly driving the success of the Wirtgen Accused Products
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`and responsible for a “market share of approximately 80% or more,” then surely Caterpillar would
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`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
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`product it sells.200
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`Respectfully Submitted,
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`Pallavi Seth, Ph.D.
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`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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