Case 1:17-cv-00687-WO-JLW Document 381 Filed 08/09/22 Page 1 of 241
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`IN THE UNITED STATES DISTRICT COURT
`MIDDLE DISTRICT OF NORTH CAROLINA
`
`
`OPTOLUM, INC., )
`
` Greensboro, North Carolina )
` Plaintiff, November 8, 2021
` )
` vs. )
`
`)
`CREE, INC., )
`
` Case No. 1:17CV687 )
` Defendant. )
`_________________________________ )
`
`
`
`)
`
`TRANSCRIPT OF TRIAL DAY 8
`BEFORE THE HONORABLE WILLIAM L. OSTEEN, JR.
`UNITED STATES DISTRICT JUDGE
`
`
`APPEARANCES:
`
`For the Plaintiff: ROBERT BROOKS
`LEAH R. MCCOY
`KEITH TOMS
`MCCARTER & ENGLISH, LLP
`265 FRANKLIN STREET
`BOSTON, MA 02110
`
`
`
`JACOB S. WHARTON
`WOMBLE BOND DISKINSON (US) LLP
`1 W. 4th STREET
`WINSTON-SALEM, NC 27101
`
`
`For the Defendant: BLANEY HARPER
`JONES DAY
`51 LOUISIANA AVE., N.W.
`WASHINGTON, DC 20001
`
`
`
`PETER D. SIDDOWAY
`SAGE PATENT GROUP
`4242 SIX FORKS ROAD, SUITE 1550
`RALEIGH, NC 27609
`
`
`Joseph B. Armstrong, FCRR
`Court Reporter:
` 324 W. Market, Room 101
`Greensboro, NC 27401
`
`
`
`Proceedings reported by stenotype reporter.
`Transcript produced by Computer-Aided Transcription.
`
`November 8, 2021 - Trial Day 8
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`IN THE UNITED STATES DISTRICT COURT
`MIDDLE DISTRICT OF NORTH CAROLINA
`
`
`OPTOLUM, INC., )
`
` Greensboro, North Carolina )
` Plaintiff, November 8, 2021
` )
` vs. )
`
`)
`CREE, INC., )
`
` Case No. 1:17CV687 )
` Defendant. )
`_________________________________ )
`
`
`
`)
`
`TRANSCRIPT OF TRIAL DAY 8
`BEFORE THE HONORABLE WILLIAM L. OSTEEN, JR.
`UNITED STATES DISTRICT JUDGE
`
`
`APPEARANCES:
`
`For the Plaintiff: ROBERT BROOKS
`LEAH R. MCCOY
`KEITH TOMS
`MCCARTER & ENGLISH, LLP
`265 FRANKLIN STREET
`BOSTON, MA 02110
`
`
`
`JACOB S. WHARTON
`WOMBLE BOND DISKINSON (US) LLP
`1 W. 4th STREET
`WINSTON-SALEM, NC 27101
`
`
`For the Defendant: BLANEY HARPER
`JONES DAY
`51 LOUISIANA AVE., N.W.
`WASHINGTON, DC 20001
`
`
`
`PETER D. SIDDOWAY
`SAGE PATENT GROUP
`4242 SIX FORKS ROAD, SUITE 1550
`RALEIGH, NC 27609
`
`
`Joseph B. Armstrong, FCRR
`Court Reporter:
` 324 W. Market, Room 101
`Greensboro, NC 27401
`
`
`
`Proceedings reported by stenotype reporter.
`Transcript produced by Computer-Aided Transcription.
`
`November 8, 2021 - Trial Day 8
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`Case 1:17-cv-00687-WO-JLW Document 381 Filed 08/09/22 Page 2 of 241
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`WITNESSES FOR THE DEFENDANT:
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`I N D E X
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` PAGE
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`ROBERT YERMAN
`Direct Examination By Mr. Harper
`Cross-Examination By Mr. Wharton
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`
`DEFENSE RESTS
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`WITNESSES FOR THE PLAINTIFF:
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`78
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`95
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`BRENT YORK
`Direct Examination By Mr. Toms
`Cross-Examination By Mr. Harper
`Redirect Examination By Mr. Toms
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`PLAINTIFF RESTS
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`100
`162
`179
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`181
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`EXHIBITS: RCVD
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`PTX 0075
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`November 8, 2021 - Trial Day 8
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`PTX 0287
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`DX 288
`DX 0322
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`PTX 0843
`PTX 0846
`PTX 0849
`PTX 0986
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`PTX 1219
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`DX 1220
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`DX 1223
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`DX 1225
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`4/17/2012 Email thread from M. Fallon re:
`THD discussion
`9/14/2011 Email thread from G. Negley re:
`A-Lamp Plan
`CREEAZ_00401883-896
`Monochromatic Hex Specification (2001-107),
`Norlux Corp, 2002 (Bretschneider Invalidity
`Exhibit A-9)
`Decision Denying Institution, IPR2017-01261
`Decision Denying Institution, IPR2017-01260
`Decision Denying Institution, IPR2017-01511
`OPTOLUM-AZ00002674 (Baker Deposition Exhibit
`115)
`The Milani Declaration, Exhibit CC
`PTX 1155
`Cree Xlamp LED Thermal Management
`PTX 1158
`PTX 1204 {TR:6}{P}
`DX 1215
`Summary of Cree’s Filament Tower Costs v.
`Total Material Costs
`Written Description of 5 percent calculation
`(Yerman)
`Summary Chart of Reasonable Royalties March
`2013-2019 (Yerman Expert Report Exhibit 1)
`Revenue and Costs of Various Cree Products
`FY 17 (Yerman Expert Report Exhibit 14)
`Historical Financial Performance Bulbs with
`Filament Tower (Yerman Expert Report Exhibit
`6)
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`Case 1:17-cv-00687-WO-JLW Document 381 Filed 08/09/22 Page 3 of 241
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`I N D E X
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`EXHIBITS: RCVD
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`DX 1344
`DX 1345
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`CREEAZ_00379203-379266
`Https:www.cree.com/news-media/news-article/c
`ree-announces-patent-license-agreement-with-
`ledvance
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`November 8, 2021 - Trial Day 8
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`P R O C E E D I N G S
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`November 8, 2021
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`(At 9:16 a.m., proceedings commenced.)
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`THE COURT: Good morning, everyone. Anything we need
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`to take up this morning?
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`MR. WHARTON: Your Honor, there were several slides
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`that we still objected to. I previewed that on Friday. I'm
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`happy to discuss that in greater detail.
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`THE COURT: All right. Let's put them up on the
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`screen.
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`MR. WHARTON: I can hand up a hard copy as well, Your
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`Honor.
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`THE COURT: Just pull them up on the screen. We'll
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`all be looking at the same thing.
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`MR. WHARTON: Okay. They're coming.
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`Okay. Thank you, Mr. Gibson.
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`The first slide is actually slides 5 and -- no, if we
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`could go to slide 5. So there's no infringement. Damages,
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`zero.
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`Then the next slide, 5-6, no infringement -- or
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`patents not valid. Damages, zero.
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`We object to these as misleading and prejudicial.
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`The damages expert is supposed to assume both validity and
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`infringement. So this is a backdoor way of allowing Mr. Yerman
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`to testify about either validity and/or infringement, neither
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`November 8, 2021 - Trial Day 8
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`Case 1:17-cv-00687-WO-JLW Document 381 Filed 08/09/22 Page 5 of 241
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`of which he's an expert on.
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`THE COURT: Mr. Harper?
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`MR. HARPER: Your Honor, this slide just goes to his
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`methodology. The reason that he assumes patents are valid and
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`infringed is because, otherwise, the damages would be zero in
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`either case. He's just explaining the methodology, and I think
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`that that's perfectly appropriate.
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`THE COURT: All right. Let me see the next one.
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`MR. WHARTON: The next slide that we object to is
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`slide 14. And here, Mr. Yerman appears to be testifying as to
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`what the patents do not claim. And the slide itself is
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`problematic because he's not an expert on the patents, the
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`scope of the claims, the claim language.
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`If it's fit into the context of commercial success,
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`apportionment, that would be one thing, but the --
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`THE COURT: Doesn't that come directly from
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`Bretschneider's testimony?
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`MR. WHARTON: He testified -- yes, in part. The part
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`that we object to, Your Honor, is the title at the top, that
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`the patents do not claim.
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`If Mr. Yerman testifies that he was here and present
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`for Dr. Bretschneider's testimony, and he heard him discuss
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`that, in Mr. Bretschneider's opinion, that the patents do not
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`enable these characteristics, that's one thing. But for
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`Mr. Yerman to take the stand and say, I, as an expert, do not
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`November 8, 2021 - Trial Day 8
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`Case 1:17-cv-00687-WO-JLW Document 381 Filed 08/09/22 Page 6 of 241
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`believe the patents claim X, Y, and Z puts him into the
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`position of Dr. Bretschneider.
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`THE COURT: All right. Mr. Harper?
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`MR. HARPER: Your Honor has already indicated the
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`factual situation. He's been told that by Dr. Bretschneider.
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`In fact, there's no dispute about, you know, what's not in the
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`claim. Omnidirectional light's not in the claim. Effective
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`thermal management's not in the claim. Form factor is not in
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`the claim. Those are objective indicia that come from
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`everybody.
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`It's not the question of whether they're in the claim
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`or not. The question is, you know, what does he assume? And
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`the answer is that he has assumed what the technical expert has
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`told him. He's entitled to do that.
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`THE COURT: All right. Next slide.
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`MR. WHARTON: That's all we have, Your Honor.
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`THE COURT: All right. So with respect to each of
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`these, I'll start with slide 5, patents not valid, damages are
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`zero. I think there's multiple things wrapped up in that,
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`including a legal opinion as to what result ensues, depending
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`on the jury's finding. I don't think Mr. Yerman is qualified
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`to give that, so I'm going to sustain that objection.
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`In terms of the patents do not claim, to the extent
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`Mr. Yerman is relying on the testimony of Mr. Bretschneider, he
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`heard that testimony, and he makes it clear in his testimony
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`November 8, 2021 - Trial Day 8
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`Case 1:17-cv-00687-WO-JLW Document 381 Filed 08/09/22 Page 7 of 241
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`that he was here and is relying on Bretschneider's testimony to
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`the following facts. I'll overrule that objection and allow
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`that slide to be presented.
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`But there has to be a sufficient foundation laid such
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`that it's clear to the jury that that's not Mr. Yerman's
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`opinion, that he's relying on Mr. Bretschneider's testimony to
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`testify to these things as part of his opinion.
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`Anything else we need to address?
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`MR. WHARTON: Your Honor, just for clarity, I believe
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`you sustained the objection as to 5.
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`Does that also apply to 6, the slide that indicates
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`patents not valid --
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`THE COURT: No, both of them were --
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`MR. WHARTON: Thank you.
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`THE COURT: -- no infringement, damages are zero; and
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`validity, damages are zero. I think there's a combination --
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`that there are a number of things going on within that
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`statement, so I'll sustain that.
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`Anything else, Mr. Harper?
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`MR. HARPER: Yeah. I think, since we're at it, to
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`try to limit the interruptions today, there were -- I intend to
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`move into evidence a series of exhibits, three of which have
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`been objected to as being under 401 and 402 being relevance.
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`They are documents that Mr. Yerman prepared. They
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`relate to his opinion, and they're -- actually just express the
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`mathematics behind his opinion. They're documents that he
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`prepared, and they're relevant to the case.
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`THE COURT: Can you put them up on the screen so I
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`can see them?
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`MR. HARPER: Sure, if we could have 1220, please.
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`MR. WHARTON: Your Honor, we withdraw our objection
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`as to 1220.
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`MR. HARPER: Okay. What about 1223?
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`MR. WHARTON: Yeah. Your Honor, the concern we have
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`with this is we're trying to determine where -- this is a
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`slide, based on our understanding, that attempts to separate
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`out the double-ring bulbs from the single-ring bulbs. And,
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`where Mr. Yerman is drawing the line, that is, what is he
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`including in the double-ring bulb counting, is where we're
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`having problems with this.
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`THE COURT: What's the 20 LEDs? That's the
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`double-ring bulb?
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`MS. McCOY: That's double ring.
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`MR. WHARTON: Correct.
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`THE COURT: All right. And the other one?
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`MR. HARPER: If we could put up 1215 -- DX 1215.
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`THE COURT: Objection to this one?
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`MR. WHARTON: No, Your Honor. We'll withdraw our
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`objection to DX 1215.
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`THE COURT: So 1223 is the only one remaining.
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`November 8, 2021 - Trial Day 8
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`Certainly, single ring versus double ring. I mean, the single
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`rings, we've got some issues, so breaking out the calculations
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`between the two, I think, is appropriate. I think his
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`methodology in breaking those out, I confess, I certainly
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`haven't read his report closely enough to pass judgment on
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`that, but the numbers have been presented, and I think that's
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`appropriate for cross-examination.
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`So, as long as a foundation is laid that would allow
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`him to make that calculation reflected in 1223, I'll overrule
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`the objection at this point.
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`MR. HARPER: Thank you, Your Honor.
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`THE COURT: At this point, for purposes of pretrial,
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`I'm going to overrule the objection, but that -- you can bring
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`it up again depending on the foundation that's laid before it
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`comes in.
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`All right. Anything else this morning?
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`MR. HARPER: No. There's one housekeeping item in
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`terms of admitting an exhibit that was published to the jury
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`for Mr. Safarikas that, apparently, wasn't moved in, and I'd
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`just like to clean that up this morning as well.
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`THE COURT: Okay. Do you know the number?
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`MR. HARPER: Yes, I do. DX 288.
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`THE COURT: All right. Do y'all know what that is?
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`I have no idea.
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`MS. McCOY: Sorry.
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`MR. WHARTON: I do not know what that is.
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`THE COURT: I don't recall there being any objections
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`sustained if it was published to the jury. Let's see if
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`Ms. Welch can find it for us real quick.
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`MR. HARPER: It's on the screen, Your Honor.
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`THE COURT: LED bulbs, the publication relating to
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`the LED bulbs?
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`MR. WHARTON: No objection to this coming in.
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`THE COURT: Move it in front of the jury. I don't
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`know whether they're keeping up with exhibit numbers or not --
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`MR. WHARTON: That's fine.
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`THE COURT: -- but I like for them to know what's
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`admitted and what's not.
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`MR. WHARTON: And we have some housekeeping stuff,
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`but we'll attend to that. I think it's appropriate to do at
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`the beginning of the rebuttal case.
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`THE COURT: Okay. All right. We'll be in recess for
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`five minutes, and we'll come back and bring the jury in.
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`(At 9:26 a.m., break taken.)
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`(At 9:35 a.m., break concluded.)
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`(At 9:36 a.m., jurors arrive.)
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`THE COURT: All right. Mr. Harper, you may call your
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`next witness.
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`MR. HARPER: Thank you, Your Honor. Defendant Cree
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`calls Robert Yerman.
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`November 8, 2021 - Trial Day 8
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`(Witness sworn by the clerk.)
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`THE COURT: Good morning, ladies and gentlemen.
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`Forgot to greet you when you came in this morning. Welcome
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`back.
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`MR. HARPER: May I approach, Your Honor?
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`THE COURT: You may.
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`MR. HARPER: Your Honor, before we get started, I'd
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`like to move in a few exhibits that will be used here.
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`THE COURT: All right.
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`MR. HARPER: The first one is DX 288, DX 1225,
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`DX 1344, DX 1345, DX 1215, DX 1220, and DX 1223.
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`THE COURT: No other objections?
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`MR. WHARTON: No objection, Your Honor.
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`THE COURT: All right. Those exhibits are admitted.
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`You had an exhibit from earlier in the week you
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`wanted --
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`MR. HARPER: That was the first one I moved in,
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`DX 288. Thank you.
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`THE COURT: Okay. Those exhibits -- 288, 1225, 1344,
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`1345, 1215, 1220, and 1223 are admitted.
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`I'm sorry. You may proceed.
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`MR. HARPER: Just want to make sure I was not
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`stepping on anything.
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`THE COURT: Sorry about that.
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`November 8, 2021 - Trial Day 8
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`Case 1:17-cv-00687-WO-JLW Document 381 Filed 08/09/22 Page 12 of 241
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`Yerman - Direct
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`ROBERT YERMAN,
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`DEFENDANT'S WITNESS, SWORN AT 9:40 a.m.
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`DIRECT EXAMINATION
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`BY MR. HARPER:
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`Q
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`Good morning. Mr. Yerman, would you please introduce
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`yourself to the jury.
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`A
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`Q
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`A
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`Yes, sir. Good morning. I am Robert Yerman.
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`And where do you live?
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`I live in a town called Bethesda, Maryland, just outside
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`of Washington, D.C.
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`Q
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`What is your current position?
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`I am a managing director at a company called AlixPartners.
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`And what is AlixPartners?
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`AlixPartners is a consulting firm, an accounting
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`consulting firm with over 2,000 employees, and is a firm that
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`works in a few different areas.
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`I am involved in what is called financial advisory
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`services. In addition to that division, the firm has
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`enterprise improvement, which is consulting like you see
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`McKinsey doing, Bain & Company. Those are some of the
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`companies that we compete with for our enterprise improvement.
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`We also do -- maybe the largest firm in the world in
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`what's called troubled debt restructuring. When a company gets
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`in trouble, and before they file, or if they consider filing
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`for bankruptcy, we work with them, help them set up their
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`systems, their actions, their plan, so they can reorganize if
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`they don't go into bankruptcy.
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`We also have a division that does digital work, helps
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`companies. In today's era, digital is the most important thing
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`that companies are facing, the challenges with digital and how
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`to use it to their advantage.
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`We also do -- in the financial advisory services
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`group, which I am in, we do litigation. We work for
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`plaintiffs, we work for defendants, we work in patent cases.
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`We work in all sorts of disputes between parties.
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`Q
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`Does your job at AlixPartners have anything to do with
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`intellectual property valuation?
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`A
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`Yes, sir. As part of the financial advisory services, we
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`do business valuations, we do license evaluations, we do
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`technology evaluations. We're called upon by different
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`companies to value their patents, their trademarks, copyrights.
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`These are all part of the valuations that we do, value the
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`companies themselves.
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`Q
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`A
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`And your work, in particular, how does it relate to this?
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`That's what I have done over my 30-some-odd years doing
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`this type of work. I have been involved in all of those areas
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`at one point or another.
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`Q
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`A
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`Mr. Yerman, what have you been asked to do in this matter?
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`I have been asked to assume -- in fact, every expert must
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`assume -- that the patents are not invalid, they are valid, and
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`that the Defendant, Cree, in this case, has infringed them.
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`Based on those two assumptions, I have been asked to
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`determine what the damages -- what is OptoLum entitled to?
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`What were the value of the patents, the technology in the
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`patents to OptoLum? And I've also been asked to comment on
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`Mr. Scally, some of his assumptions and his conclusions.
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`Q
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`A
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`Please describe your background.
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`I was -- my first real position in accounting -- first, I
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`am a certified public accountant. I was also what's called a
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`certified fraud examiner, which is really what you do in
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`investigations.
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`I was a partner in a firm called Touche Ross. Many
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`years ago, when I first started in public accounting, there
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`were eight large firms, and they were called the Big 8. Touche
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`Ross was one of the big accounting firms. I was a partner in
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`charge at Touche Ross. I was an audit partner, so in that
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`role, what I did was I ran the audits. I also ran some of our
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`consulting that we did. So that was the first -- my first real
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`auditing, accounting, consulting work.
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`I was with Touche Ross for about 20 years. In 1989
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`or '90, I believe, Touche Ross merged with another of the Big 8
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`firms, a firm called Deloitte. So the combination became
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`Deloitte & Touche. I stayed with that firm for one year, and
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`then I had an opportunity. I was approached by another firm,
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`which I thought would be more interesting to me, and I really
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`changed what I was doing.
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`I was approached by a firm called Coopers & Lybrand,
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`which was another of the Big 8 firms. And what I did was I
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`joined Coopers & Lybrand, but instead of doing auditing -- I
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`was an audit partner -- a senior audit partner at Touche. What
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`I did at Coopers was financial advisory services.
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`So I did consulting within the industries. I helped
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`companies value their businesses, their assets. I was involved
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`as an expert in litigation. I started to do patent, trademark,
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`copyright, trade secret cases. I did breach of contract. I
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`became what's called an expert witness at Coopers & Lybrand.
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`In fact, I ran Coopers & Lybrand's intellectual property
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`practice for the Greater Washington area. So it's the East
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`Coast, mid-Atlantic area.
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`I stayed with Coopers until it merged with
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`Pricewaterhouse. I had lived through one merger, and, for me,
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`that's not what I like to do. Mergers create all sorts of
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`issues, some good, some bad. I just felt that this was not
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`what I wanted to do.
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`And, at that time, while the firm had announced their
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`merger, I was approached by a company called Law & Economics
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`Consulting Group, LECG. This is a firm that was made up of
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`some of the foremost economists in the world, and they asked me
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`to join them. I joined them.
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`I became their national director of the intellectual
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`property practice, so I ran -- intellectual property is
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`referred to as IP, the intellectual property. I ran the
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`intellectual property practice for -- Law & Economics
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`Consulting changed their name to LECG, so I ran the IP
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`practice.
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`I also was the partner in charge, we called it
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`managing director. I was the in-charge person for the
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`Washington office, which was the largest office in the firm,
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`and I stayed with LECG until the company literally went out of
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`business about 10 years ago. Just internal problems. We were
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`a public company. We were bought -- control was bought by an
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`investor. There were problems with the way it was run. The
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`company went out of business.
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`Fortunately, before we really went out of business,
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`AlixPartners, some of the people, the leaders of the financial
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`advisory practice of AlixPartners, had approached me and asked
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`me if I would be willing to leave LECG and join AlixPartners,
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`do essentially the same thing.
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`So I joined AlixPartners, I believe, in 2011, about
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`10 years ago. So I have been with AlixPartners as a managing
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`director and doing, essentially, expert witness, mostly
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`patents, trademarks, copyrights, trade secrets. I also did
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`some investigations. I've also done consulting. I've done
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`valuation. I've been asked to value intellectual property.
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`I've performed valuations of companies, and that's where
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`essentially I am at today.
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`Q
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`Explain how your job, your work experience applies or is
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`relevant to the task that you've been asked to undertake in
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`this matter.
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`A
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`Well, what I do in a non -- let's start with
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`non-litigation work. I am asked to value -- to help companies
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`value their assets, their what's called intangible assets.
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`Maybe let me just jump into that.
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`Intangible assets are things you cannot touch. A
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`tangible asset is something we all know. It's the furniture,
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`it's your computer, it's your machinery. Those are assets you
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`can touch or feel. Intangible assets are very valuable, can be
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`very valuable. Sometimes they have no value, the range is
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`tremendous, but you can't just -- you can't touch them.
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`So a patent, for example, on technology is an
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`intangible asset. So I have been doing that over my career for
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`not tangible assets. I don't value tangible assets. I'm not
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`qualified to do that. But intangible assets, especially
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`intellectual property, that's what I do, that's what I have
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`been doing. And that's, in a sense, what I've done for today.
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`Q
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`Now, you've mentioned intellectual property a few times.
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`What is it?
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`A
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`Yeah. It's really, as I said, something you can't touch,
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`so a patent is intellectual property. A trademark, the name
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`that you see -- Coca-Cola is the most valuable trademark in the
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`world. The name Coca-Cola has the most value. They put
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`Coca-Cola on a product, that has tremendous value. So it's an
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`asset that you can't touch, but it may have value, and it may
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`not.
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`The difference between a tangible asset and an
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`intangible asset is an intangible asset -- well, let's start
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`with -- the tangible asset has value from its own -- from
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`itself. So a piece of furniture has value just as being a
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`piece of furniture. A car has value being a car. A computer
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`has value because it's a computer. You look up and see what it
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`sold for, either new or used.
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`Intangible assets, you don't just look at the asset.
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`You have to look at how it's going to be used, how it compares
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`with other items, other intangible assets that are similar to
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`it. That is the major difference between a tangible and an
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`intangible asset.
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`Q
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`And describe, if you would, the industries for which
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`you've done this intangible asset valuation over the years.
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`A
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`Oh, well, I've been involved in so many patent cases that
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`the industries range from -- I value fan blades on the A380
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`aircraft. That's the largest aircraft I have ever seen. And
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`Pratt Whitney, who made the engine, was sued by Rolls-Royce.
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`And Rolls-Royce asked the Court, the jury, to pay it damages of
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`$4 billion for what they claimed was the infringement of the
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`fan blades in the engines on the A380 aircraft.
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`Ultimately, I said the damages were much less, much
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`less, in the -- less than $50 million; a lot of money, but
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`still a lot different than $4 billion. The Court agreed with
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`me, and, in fact, the Court did not permit the expert in
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`trial -- when this was going to trial, the Court did not permit
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`the expert to testify. He told the expert she could not
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`testify to $4 billion. She limited the testimony to no greater
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`than $400 million. She knocked it down by over 90 percent
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`because of the objections and what we pointed out to the judge,
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`and the judge agreed with that.
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`THE COURT: All right. Mr. Yerman, in terms of what
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`the judge did or didn't do, the question was -- I'm going to
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`strike that.
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`The question was, describe the industries --
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`THE WITNESS: I'm sorry --
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`THE COURT: -- on each case.
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`THE WITNESS: Sorry, Your Honor.
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`Okay. So aircraft is one industry, and I've done a
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`number of cases in the aircraft. I've done what's called the
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`auxiliary power unit on aircraft. I valued that. I've worked
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`in the medical industry. I have valued pharmaceutical
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`products, pills. I've worked in the equipment industry. I
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`valued technology used in data readers where you scan and the
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`numbers that you see on the bar codes.
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`I've worked in the oil and gas industry on fracking,
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`refracking. That's an industry where you go in -- and fracking
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`means you go back in and dig it up and try and get more oil or
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`gas out of the ground. Refracking is the secondary -- when oil
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`prices are so high, you can afford to go in and do it twice and
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`get the remainder out.
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`I think -- I mean, I've worked in a dozen other
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`industries, also.
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`BY MR. HARPER:
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`Q
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`Now, you've indicated that you've worked on a number of
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`intellectual property litigation. Have you testified before?
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`A
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`Yes, sir. I've testified in various cases, probably 30,
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`40 times.
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`MR. HARPER: Your Honor, at this time, I offer up
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`Mr. Yerman as an expert in the valuation and licensing of
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`intellectual property.
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`THE COURT: Voir dire?
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`MR. WHARTON: No objection, Your Honor.
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`THE COURT: All right. Mr. Yerman may testify as an
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`expert in the field of intellectual property valuation and
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`licensing.
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`You may proceed.
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`MR. HARPER: Thank you.
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`BY MR. HARPER:
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`Q
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`Mr. Yerman, what is your opinion concerning the proper
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`amount of damages that should be awarded based on the
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`assumption that the '028 patents are valid and infringed?
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`A
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`You can see on this slide how I came to my assumption.
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`I'll just quickly walk through this.
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`What you do is you start with the net sales. And I
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`think Mr. Scally talked about the gross sales and returns and
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`allowances and net sales. Net sales are what companies pay
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`royalties on if they have a licensing agreement.
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`So I talked to Jason Young, who's testified in court,
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`asked him how he compiled the numbers. We talked about what
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`his responsibility was to produce the sales -- gross and net
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`sales for all bulbs that contain or practice what OptoLum
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`alleges is their patented technology. That came out to about
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`312 million. That's the 311,768 that you see up on the screen.
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`The next thing that you must do, and every damage
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`expert has to do this, is we do what's called apportionment.
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`You have to separate the value that the technology provides to
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`the ultimate product. So, for example, a bulb has multiple
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`features. It clearly has -- this bulb had a filament tower,
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`but this bulb also had electronics. It had dimmability. It
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`had all sorts of other features.
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`So I had to -- or all experts have to do what's
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`called an apportionment, is determine how much -- assuming that
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`the patents are valid, and assuming that the patents are
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`infringed, how much value do those -- did that technology bring
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`to the final product?
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`I went and made a determination that 71 percent of
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`the value of the bulbs is attributable to what OptoLum has
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`claimed -- or OptoLum's expert has claimed is the value of
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`their patents, the two patents that they have.
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`So, therefore, you see the royalty base is the net
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`sales apportioned appropriately, which everyone has to do. All
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`experts must do that.
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`I then had to determine what the appropriate royalty
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`rate was, and I came up with a rate from an existing license.
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`This is what Cree has been paying -- this is what Cree has
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`received from another company when Cree licensed its
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`technology. OptoLum has not licensed its technology to anyone
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`else as far as I know.
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`So I multiplied the $221 million net sales by the
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`1.1 percent reasonable royalty, and that gives you damages of
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`2,400,000-some-odd. This is under the assumption that all of
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`the bulbs that OptoLum has claimed infringe actually do
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`infringe.
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`Yeah, there's a counterclaim, though, or a
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`counter-assumption that Cree has made, and I have been asked to
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`determine what the damages are -- can I see the next slide,
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`please.
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`23
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`Q
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`If we go to the next slide -- if you could tell us what
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`this next slide is about, please.
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`25
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`A
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`Yes, sir. I've been asked to make the assumption that
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`only the bulbs with multiple rings infringe. So it's a
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`subsection of that $300 million in sales. You've got bulbs
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`with one ring and you've got bulbs with multiple rings. I have
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`been asked -- if you, the jury, find that only the bulbs with
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`multiple rings infringe, how much would damages be?
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`And the only difference between this slide and the
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`previous slide is there are only 90 -- only -- there's
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` 8
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`$92 million of sales of these bulbs, the bulbs with multiple
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`rings, as compared to the 312 million of sales of bulbs with
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`multiple and single ring.
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`So if it's only the bulbs -- if you find that it's
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`only the bulbs with multiple rings, the damages are the same --
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`I did the same process. I did an apportionment. I applied the
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`1.1 percent. You come up with $721,000 of damages.
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`15
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`Q
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`We'll come back to this calculation in a moment, but
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`explain what were the materials that you looked at in your
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`evaluation of the reasonable royalty opinion in this case
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