Case 2:14-cv-00111-AJS Document 186 Filed 02/13/15 Page 1 of 44
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`REDACTED VERSION
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`UNITED STATES DISTRICT COURT
`FOR THE WESTERN DISTRICT OF PENNSYLVANIA
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`v.
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`Plaintiff,
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`DRONE TECHNOLOGIES, INC.,
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`PARROT S.A., PARROT, INC.,
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`Defendants.
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`C.A. No. 2:14-cv-00111
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`Judge Arthur J. Schwab
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`
`EXPERT REPORT OF
`NED S. BARNES, CPA
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`February 13, 2015
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`1800 M Street, NW
`Washington, DC 20036
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`Case 2:14-cv-00111-AJS Document 186 Filed 02/13/15 Page 2 of 44
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`TABLE OF CONTENTS
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`I.
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`QUALIFICATIONS AND ASSIGNMENT
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`II.
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`SUMMARY OF CONCLUSIONS
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`III.
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`DRONE TECHNOLOGIES
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`IV.
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`PARROT AND THE INFRINGING PRODUCTS
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`A.
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`The Infringing Products
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`B.
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`Popularity, Commercial Success and Profitability
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`C.
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`Importance of Infringing Functionalities
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`D.
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`Efforts to Remove the Infringing Functionalities
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`E. Analysis of AR.Drone Sales
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`F.
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`Price Comparison Analysis
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`V.
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`REASONABLE ROYALTY ANALYSIS
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`VI. DAMAGES CONCLUSION
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`11
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`13
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`15
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`43
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`2
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`Case 2:14-cv-00111-AJS Document 186 Filed 02/13/15 Page 3 of 44
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`QUALIFICATIONS AND ASSIGNMENT
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`I.
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`1.
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`I am a Managing Director in the Washington, D.C. office of the Berkeley
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`Research Group (“BRG”), a financial and economic consulting firm. I am a Certified Public
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`Accountant and a Certified Fraud Examiner. I specialize in financial forensic investigations and
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`the analysis of complex damages in the context of litigation, arbitration, and other commercial
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`dispute settings. I have experience analyzing issues related to the calculation of possible
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`economic damages in various commercial disputes, including those related to intellectual
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`property such as alleged patent infringement. I have authored expert reports and provided expert
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`testimony on economic damages related to various types of intellectual property disputes,
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`including those related to alleged patent infringement.1 I have also been qualified as an expert
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`on the calculation of possible economic damages concerning intellectual property disputes in
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`Federal District Courts and in arbitration proceedings. I have also been retained to consult with
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`clients and counsel on issues related to the valuation of patents and other intellectual property in
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`the context of actual or proposed licensing activities. BRG bills for my work on this matter at a
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`rate of $495 per hour.2
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`2.
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`I was retained by counsel for Drone Technologies Inc. (“Drone Technologies”) to
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`consider issues related to economic damages resulting from the alleged infringement of United
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`States Patent Numbers 7,584,071 (“the 071 Patent”) and 8,106,748 (“the 748 Patent”) by Parrot
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`S.A and Parrot, Inc. (collectively, “Parrot”). Collectively, the 071 Patent and the 748 Patent are
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`referred to herein as the “Drone Patents.” Pursuant to a November 3, 2014 Memorandum
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`Opinion, the Court “enter[ed] default judgment against [Parrot] on liability as to infringement of
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`1 See Exhibit 1 to this report for my curriculum vitae, which includes a list of matters on which I have provided trial
`and/or deposition testimony during the last four years.
`2 BRG’s compensation is not contingent upon the outcome of this matter.
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`3
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`Case 2:14-cv-00111-AJS Document 186 Filed 02/13/15 Page 4 of 44
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`the [Drone Patents].”3 I understand in this respect that products manufactured and/or marketed
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`by Parrot as “AR.Drone,”4 “MiniDrone,”5 and “Bebop Drone” have been determined to infringe
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`the Drone Patents.6 I was asked to estimate the amount of economic damages suffered by Drone
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`Technologies as a result of Parrot’s alleged infringement of the Drone Patents. Specifically, I
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`was asked determine the royalty payments that would be reasonable and appropriate for Parrot’s
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`alleged infringement of the Drone Patents. In consideration of these issues, I analyzed
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`information relevant to estimating the incremental value of the infringing functionalities, as it
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`relates to the Infringing Products. As part of my analysis, I considered issues relevant to
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`determining the likely outcome of a hypothetical negotiation between Drone Technologies and
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`Parrot for a license to the Drone Patents occurring around the time when the alleged
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`infringement began.7 As discussed herein, I have assumed, consistent with available
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`information, that the alleged infringement began on January 31, 2012, the issue date of the 748
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`Patent.8 In connection with my work in this matter, I relied on my educational background and
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`professional training and experience. I reviewed pleadings and other case filings, documents
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`produced by the parties, and certain information obtained from public sources.9
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`3 Memorandum Opinion Re: Plaintiff’s Motion For Order To Show Cause Why Defendants Should Not Be Held In
`Contempt; Document Number 78; November 3, 2014. (“11/3/14 Memorandum Opinion”).
`4 Includes AR.Drone and AR.Drone 2.0 products.
`5 Includes “Jumping Sumo” and “Rolling Spider” drone products.
`6 See, Complaint For Patent Infringement. (“Complaint”) and Order of Court Granting Plaintiff’s Motion to Compel
`Damages Discovery, 12/16/2014 (“12/16/14 Order”). See also, 11/3/14 Memorandum Opinion. The AR.Drone,
`AR.Drone 2.0, MiniDrone, and Bebop Drone products are collectively referred to herein as the “Infringing
`Products.”
`7 Georgia-Pacific v. United States Plywood Corp., 318 F. Supp. 1116, (S.D.N.Y. 1970) modified 446 F.2d 295 (2d
`Cir. 1971), cert. denied 404 U.S. 870 (1971) (“Georgia-Pacific” herein). References to legal cases here and
`elsewhere in this report are not intended to convey any legal opinions or interpretations.
`8 I understand that the 748 Patent is directed at the “accelerometer mode” functionality that has been present in all
`AR.Drone products since they were introduced in 2010. As noted herein, the 071 Patent issued in September 2009.
`However, the 071 Patent, I understand, covers the infringing “absolute control” functionality that was introduced in
`March 2012.
`9 Exhibit 2 to this report includes a list of materials and information that I have considered in connection with my
`work in this matter.
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`4
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`Case 2:14-cv-00111-AJS Document 186 Filed 02/13/15 Page 5 of 44
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`II.
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`SUMMARY OF CONCLUSIONS
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`3.
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`In my opinion, a conservative estimate of the reasonable royalty rates for Parrot’s
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`infringement of the Drone Patents would be approximately $16 per unit for AR.Drone and
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`Bebop Drone products, and approximately $6 per unit for MiniDrone products. It is my opinion
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`that these royalty rates reflect reasonable estimates as to the incremental economic contribution
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`of a license to the Drone Patents as it would relate to the Infringing Products sold by Parrot, and
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`are conservative. This conclusion, in my opinion, is also consistent with a consideration of the
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`relevant Georgia-Pacific factors, in combination with available facts and information. Applying
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`these per-unit royalty rates to the number of unit sales of Infringing Products to date – including
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`estimated sales through June 2015, results in total royalties of approximately
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`. It is
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`my opinion that the aforementioned per-unit royalty rates represent amounts that Parrot would be
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`willing to pay as a royalty while still earning a reasonable profit, consistent with the framework
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`set forth in Georgia-Pacific.
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`4.
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`The above per unit royalty rates would also apply to sales of Infringing Products
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`by Parrot subsequent to June 2015, through the expiration of the Drone Patents. I have also
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`considered the amount of a lump sum payment that would be appropriate for a fully paid-up
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`license to use the Drone Patents in the future. In my opinion, a reasonable lump sum payment
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`for unlimited use of the Drone Patents after July 2015 would be approximately $17.3 million.10
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`This estimated lump sum payment is based on my consideration of Parrot’s historical and
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`projected unit sales data, in combination with available information concerning the estimated
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`life-cycle of the relevant Infringing Products.
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`10 Total reasonable royalties as of June 30, 2015, including this lump sum payment for projected future use, are
`approximately
` million. As discussed herein, however, these total royalties as of June 30, 2015 does not take
`into account new products that may be introduced in the future by Parrot that utilize the infringing functionalities.
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`5
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`Case 2:14-cv-00111-AJS Document 186 Filed 02/13/15 Page 6 of 44
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`III. DRONE TECHNOLOGIES
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`5.
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`Drone Technologies is a Taiwanese company that does not manufacture or market
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`any commercial products.11 The application which led to the 071 Patent, entitled “remote-
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`controlled motion apparatus with sensing terrestrial magnetism and remote control apparatus
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`therefor,” was filed on March 19, 2008 and the 071 Patent issued on September 1, 2009. The
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`application which led to the 748 Patent, entitled “remote-controlled motion apparatus with
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`acceleration self-sense and remote control apparatus therefor,” was filed on March 19, 2008 and
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`the 748 Patent issued on January 31, 2012. The Drone Patents, collectively, describe an
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`“acceleration” and “terrestrial magnetism” self-sensed control apparatus for a remote control
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`device and a remote controller.12 An important benefit of the inventions disclosed in the Drone
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`Patents is that they make “the remote control operation become an easy task, and greatly reduce
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`the risk of out of control situation.”13 In particular, I understand that the patented technology
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`takes advantage of the accelerometer and the magnetometer that are embedded in smartphones
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`and tablets (e.g. Apple’s iPhone; Apple iPad; Android devices) and that movements of a phone
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`or tablet can be used to control remote control devices such as the Infringing Products.14
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`6.
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`It is my understanding that an accelerometer – or acceleration sensing module – is
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`an instrument for measuring acceleration or for detecting and measuring vibrations.15 According
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`to Apple’s website for developers, the accelerometer in an iPhone or iPad can be used to “detect
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`both the current orientation of the device (relative to the ground) and any instantaneous changes
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`11 I understand that Drone Technologies was founded in 2013. Prior to that time, the Drone Patents were owned by
`the inventor of the Drone Patents, Yu-Tuan “Diane” Lee.
`12 Drone Patents.
`13 Drone Patents.
`14 See, for example, Complaint at 15 and 17.
`15 http://www.merriam-webster.com/dictionary/accelerometer.
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`6
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`Case 2:14-cv-00111-AJS Document 186 Filed 02/13/15 Page 7 of 44
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`to that orientation.”16 This allows a device incorporating an accelerometer to sense the angle at
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`which it is being held.17 One common application of the accelerometer in the iPhone is to
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`discern when the phone is being held either vertically or horizontally and then to change the
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`screen display accordingly.18
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`7.
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`As it relates to Parrot’s Infringing Products, the accelerometer in the control
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`device is used to maneuver the drone according to the tilt of the device. For example, by tilting
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`the device to the left, the drone will respond by moving to the left.19 As explained by Parrot’s
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`user guide for the AR.Drone, the “sensitivity of the iPhone accelerometer” can also be adjusted
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`such that either a “large” or “slight” tilting of the phone has a correspondingly similar effect on
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`the drone itself.20
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`8.
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`It is my understanding that a magnetometer is a device that measures the strength
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`and direction of a magnetic field.21 Parrot incorporated a magnetometer on the AR.Drone 2.0 to
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`address problems arising from the orientation of the pilot and the drone itself sometimes
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`differing. As explained by Popular Science, on the initial version of the drone “when you rotate
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`the drone […] to the point where you and the drone are no longer facing the same direction […]
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`all intuition [for piloting] the drone dissolves immediately.”22 A magnetometer, however, “tells
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`the drone precisely how it is oriented respective to the control device” and that as a result the
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`16 “UIAccelerometer Class Reference,” available from the Apple developer website
`<https://developer.apple.com/library/ios/documentation/UIKit/Reference/UIAccelerometer_Class/index.html#//appl
`e_ref/doc/uid/TP40006900-CH3-SW5> accessed on January 6, 2015.
`17 “What does the iPhone accelerometer do?” available from HowStuffWorks.com
`<electronics.howstuffworks.com/iphone-accelerometer.htm> accessed January 6, 2015 (“HSW – Accelerometer”).
`18 HSW – Accelerometer.
`19 See, for example, Joseph Kaminski, “Taking flight: Parrot AR.Drone quadricopter,” CNET Magazine, September
`17, 2010 < http://www.cnet.com/news/taking-flight-parrot-ar-drone-quadricopter> accessed January 6, 2015
`(“Kaminski”).
`20 AR.Drone User Guide, p. 13.
`21 See, for example, “Magnetometer” available from HowStuffWorks.com
`<electronics.howstuffworks.com/magnetometer.htm> accessed January 7, 2015.
`22 Clay Dillow, “Parrot AR.Drone 2.0 Review: Fly Higher, Farther, and More Intuitively,” Popular Science, July 3,
`2012 < http://www.popsci.com/technology/article/2012-07/parrot-ardrone-20-review-enhanced-drone-piloting-
`experience-seeks-long-lasting-battery> accessed January 5, 2015 (“Dillow”).
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`7
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`“drone flies with respect to the way the device is facing, regardless of which way the drone is
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`facing.”23 This is known as the “Absolute Control” option. Popular Science notes the
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`importance of this feature observing:
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`This drastically simplifies piloting. Where version 1.0 took a period of getting
`used to, a user can get comfortable piloting version 2.0 right out of the box. […]
`The enhanced controllability enabled by the magnetometer and the “Absolute
`Control” feature make piloting this drone easy and extremely enjoyable.24
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`
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`IV.
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`PARROT AND THE ACCUSED PRODUCTS
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`9.
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`Parrot is a French company founded in 1994 that “creates, develops, and markets”
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`high-tech, consumer products for smartphones and tablets.25 For its most recently completed
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`fiscal year for which results are available, Parrot reported its operations in three main product
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`areas – automotive, consumer electronics, and drones.26 Parrot’s automotive products primarily
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`include installed hands free kits and infotainment products.27 A key element of most Parrot
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`automotive products is Wi-Fi connectivity and compatibility with popular smartphone and tablet
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`products.28 Parrot’s consumer electronics business includes revenue from audio and plug & play
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`products, as well as certain connected devices and toys.29 Again, a staple of Parrot’s popular
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`consumer electronics products is the capability to interface with popular smartphone and tablet
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`products.30 Parrot’s drone business includes revenues from the sale of Infringing Products, as
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`well as revenues associated with Parrot’s commercial drone business.31
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`
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`23 Dillow.
`24 Dillow.
`25 See, for example, Parrot Press Release, “2013 full-year and fourth quarter earnings,” February 27, 2014.
`26 Parrot 2013 Reference Document at 31.
`27 Parrot 2013 Reference Document at 31-35.
`28 Parrot 2013 Reference Document at 31-35.
`29 Parrot 2013 Reference Document at 35.
`30 Parrot 2013 Reference Document at 35-37.
`31 Parrot 2013 Reference Document at 43 and 135-136 . Prior to 2013, substantially all of Parrot’s drone business
`was related to Infringing Products, or so-called “retail drones.”
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`8
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`Case 2:14-cv-00111-AJS Document 186 Filed 02/13/15 Page 9 of 44
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`
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`A.
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`The Infringing Products
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`10.
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`Prior to 2010, Parrot principally offered automotive and consumer electronics (or
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`multimedia) products that prominently featured “Bluetooth” compatibility and connectivity with
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`consumer devices such as smartphones.32 In early 2010, Parrot “unveiled the first augmented
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`reality quadricopter” – the AR.Drone – at the 2010 CES event in Las Vegas, Nevada, a leading
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`consumer electronics show.33 In support of the launch of the AR.Drone, Parrot rolled out a
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`major advertising campaign.34 “Intuitive piloting” and the ability to be “piloted using an iPhone,
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`an iPod Touch, or an iPad” were highlighted in Parrot’s marketing campaign for the AR.Drone.35
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`In fact, according to Parrot CEO, Henri Seydoux, it was “mandatory” that the Parrot AR.Drone
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`be “easy to control” and that this goal “was supported by the arrival of the iPhone.”36 Parrot
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`introduced the second generation AR.Drone 2.0 in early 2012, which offered an improved
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`piloting experience and enhanced camera functionality.37 Parrot’s AR.Drone products were
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`differentiated in the market from available competing drone products based on the fact that
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`Parrot’s AR.Drone products were intuitively controlled with an app on a smartphone or tablet,
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`rather than a traditional joystick controller; a fact that Parrot specifically advertised in its product
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`description on Amazon.38 In fact, Parrot touted its intuitively controlled drone as a “completely
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`new flying experience.”39
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`32 Parrot 2009 Reference Document at 28-29.
`33 Parrot 2010 Reference Document at 35.
`34 Parrot 2010 Reference Document at 35.
`35 See, for example, Parrot 2010 Reference Document at 35. See also, PARROT50128055; PARROT50125564;
`PARROT50000465; and PARROT50086886.
`36 http://www.ce.org/i3/Innovate/2014/January-February/Parrot%E2%80%99s-Henri-Seydoux.aspx.
`37 PARROT 474788-794.
`38 PARROT50125564 at PARROT50125566. See also, PARROT80455061 at PARROT80455062.
`39 See, PARROT50078498 at PARROT50078500.
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`9
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`Case 2:14-cv-00111-AJS Document 186 Filed 02/13/15 Page 10 of 44
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`In mid-2014, Parrot introduced two new MiniDrones – the Rolling Spider and the
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`11.
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`Jumping Sumo – which were marketed as “the new generation of connected toys.”40 Similar to
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`its AR.Drone products, Parrot’s MiniDrone products are designed to be controlled via an app
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`installed on a smartphone or tablet. “Intuitive control through a smartphone or tablet” is a key
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`point of differentiation between Parrot’s infringing MiniDrone products and less expensive
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`competitive remote control toy products.41 In late 2014, Parrot introduced the Bebop Drone.42
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`Parrot touted the Bebop Drone as a “powerful aerial achievement,” with numerous sensors that
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`provide “impressive stability and easy-to-use piloting via Wi-Fi with a smartphone or a tablet.43
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`Parrot also promotes the Bebop Drone as “astoundingly stable” due to its “3-axes accelerometer,
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`gyroscope, magnetometer, one ultrasound sensor with an 8 meters reach, one pressure sensor and
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`a vertical camera to track speed;” capabilities based in part on the infringing functionalities.44
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`12.
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`Pursuant to the 11/3/14 Memorandum Opinion, Parrot was found liable as to
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`infringement of the Drone Patents. I understand, in this regard, that the Infringing Products
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`utilize the accelerometer and/or magnetometer of a controlling smartphone or tablet device,
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`pursuant to which the Infringing Products are controlled by movement (i.e. tilting) of the
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`controlling device. The AR.Drone product was designed and marketed to be piloted using
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`Parrot’s “AR.FreeFlight” app, which incorporates the infringing functionalities associated with
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`the use of an accelerometer in a smartphone or tablet.45 In describing the infringing
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`functionalities, Parrot noted, “[t]hanks to the accelerometer of the iPhone or iPod touch that
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`40 Parrot Press Release, “Parrot MiniDrones,” June 4, 2014.
`41 See, for example, PARROT50040119.
`42 Parrot Press Release, “Introducing the New Consumer Drone,” May 13, 2014.
`43 PARROT80495016.
`44 http://www.parrot.com/usa/products/bebop-drone/.
`45 http://ardrone2.parrot.com/.
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`10
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`Case 2:14-cv-00111-AJS Document 186 Filed 02/13/15 Page 11 of 44
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`detects the user’s movements, the AR.Drone is very easy to pilot by leaning the iPhone forward
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`to move forward or sidewise to corner or change direction.”46
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`13.
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`Concurrent with the introduction of the AR.Drone 2.0, Parrot released the
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`enhanced piloting app, FreeFlight 2.0, which included the “absolute control” piloting mode.47 In
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`addition to the device accelerometer, absolute control mode incorporates the infringing
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`functionalities associated with use of the device magnetometer to maintain respective orientation
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`of the Infringing Product, regardless of which direction the Infringing Product is
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`facing/travelling.48
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`14.
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`The Parrot MiniDrones are piloted with a smartphone or tablet, via Parrot’s
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`“FreeFlight 3” application, which incorporates the infringing functionalities.49 The Parrot Bebop
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`Drone is also piloted using the “FreeFlight 3.0” app, which incorporates the infringing
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`technology.50
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`
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`B.
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`Popularity, Commercial Success and Profitability
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`15.
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`The Infringing Products have proven to be popular, commercially successful, and
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`the source of significant revenues and profits for Parrot. Parrot noted, for example, that the
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`“AR.Drone’s highly innovative features and technological advances were widely acclaimed by
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`professionals and consumers.”51 The AR.Drone also reportedly won an “Innovation” award at
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`the 2010 Consumer Electronics Show, leading one publication to dub it the “hottest iPhone game
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`
`46 Parrot Press Release, “CES 2010: Parrot AR.Drone allows video games to become reality,” January 5, 2010
`(“Parrot – January 5, 2010”).
`47 PARROT475301 at PARROT475305.
`48 PARROT475009.
`49 Parrot Press Release, “Parrot Minidrones,” June 4, 2014.
`50 Parrot Press Release, “Introducing the New Consumer Drone,” May 13, 2014.
`51 Parrot 2012 Reference Document at 51.
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`11
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`Case 2:14-cv-00111-AJS Document 186 Filed 02/13/15 Page 12 of 44
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`in the world.”52 Parrot in fact
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`REDACTED VERSION
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`featured in such diverse outlets as The New York Times, the Late Show with David Letterman
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`and Popular Science.53 Parrot also observed that
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`and had been
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`54
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`16.
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`The commercial success and popularity of the Infringing Products has translated
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`into significant revenues and profits for Parrot. According to Parrot, “the commercial launch of
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`the Parrot AR.Drone, […] the iPhone/iTouch/iPad-controlled Wi-Fi quadricopter” was the “first
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`major success” in Parrot’s multimedia business.55 According to Parrot, the “AR.Drone
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`represents the main factor behind the continued expansion of the Multimedia range, confirming
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`the validity of the innovation strategy rolled out by Parrot on this segment.”56 Parrot also noted
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`in 2012 that the AR.Drone 2.0 “prove[d] popular with consumers” contributing to a relative
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`increase in Parrot’s Multimedia business, which accounted for 19% of Parrot’s revenues that
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`year. In 2013, Parrot’s Drone revenues declined somewhat due in part, according to Parrot, to
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`the “lower level of Parrot AR.Drone 2 sales two years after its release, pending the launch of a
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`next retail drone.”57 Revenues from infringing AR.Drone products were also likely impacted in
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`2013 by the temporary removal of the infringing functionalities from Parrot’s FreeFlight apps.
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`As discussed below, Parrot experienced a marked increase in customer/retailer complaints,
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`negative media reviews, and product return rates when the infringing functionalities were
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`removed.
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`52 John Gaudiosi, “CES 2010: The Hottest iPhone Game in the World,” <68.169.42.100/articles/ces-2010-hottest-
`iphone-game-world> accessed December 30, 2014 (“Gaudiosi”).
`53 PARROT50000465 at PARROT50000470. See also, PARROT50085643.
`54 PARROT50040251 at PARROT50040255.
`55 Parrot 2010 Reference Document at 35.
`56 Parrot 2011 Reference Document at 37.
`57 Parrot 2013 Reference Document at 37.
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`In 2014, U.S revenues from the sale of Infringing Products
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`17.
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`%.58
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`Moreover, U.S. sales of Infringing Products through from February 2012 to December 2014 have
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`generated approximately
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` million in revenue for Parrot.59 With respect to these revenues,
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`Parrot has earned some
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` million in gross margin from Infringing Products through
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`December 2014 and, accounting for sales and marketing expenses, earned over
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` million in
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`contribution margin.60 In addition, Parrot business documents
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`.61 As discussed below, the infringing functionalities have been a
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`significant driver of demand and a critically important factor in Parrot’s ability to generate these
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`revenues and profits.
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`C.
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`Importance of Infringing Functionalities
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`18.
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`Substantial information I reviewed supports a conclusion that the infringing
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`functionalities are critical to the success of Parrot’s Infringing Products and, in fact, are an
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`important driver of the demand for the Infringing Products. As noted above, the AR.Drone was
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`heavily marketed as the first quadricopter that is piloted using a smartphone or tablet app that
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`offers intuitive control.62 This unique feature was seen as an important point of differentiation
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`between the Infringing Products and other competitive quadricopters in the market that lacked
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`intuitive control.63 An important benefit of piloting the AR.Drone via smartphone or tablet app,
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`58 See, PARROT90000001-002.
`59 See, Exhibit 3.
`60 See, Exhibit 3. Parrot also produced certain financial information apparently prepared for this litigation
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`
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`. (See, for example, Gaul Dep Tr at 108-115, 220-221, and PARROT14782132.
`61 See, for example, PARROT80352774; PARROT80351636; PARROT80351689; and PARROT80351742.
`62 See, for example, PARROT50125564 at PARROT50125566 and PARROT80455061 at PARROT80455062.
`63 Parrot – January 5, 2010.
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`Case 2:14-cv-00111-AJS Document 186 Filed 02/13/15 Page 14 of 44
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`according to Parrot, is the intuitive nature of the control mechanism and its ease of use.64 These
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`benefits are directly related to the infringing functionalities. According to one product review,
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`the AR.Drone is very easy to pilot “thanks to the accelerometer of the iPhone or iPod Touch that
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`detects user’s movements.”65
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`19.
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`Parrot’s retailers have also touted the unique and intuitive nature of piloting via
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`smartphone or tablet in marketing Infringing Products to end customers. Amazon.com, for
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`example, advertises the AR.Drone as being the “first quadricopter that can be controlled by a
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`smartphone or tablet,” and “[b]y tilting your device, you control the direction of your
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`AR.Drone.”66 Product descriptions for the AR.Drone on the web sites of retailers such as
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`Brookstone and Radio Shack contain similar language, noting that the AR.Drone can be piloted
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`by tilting a smartphone.67
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`20. With the introduction of FreeFlight 2.0, Parrot began offering an enhanced
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`version of its drone piloting app, which included “absolute control” mode.68 As discussed above,
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`absolute control mode makes use of the magnetometer in compatible smartphone and tablet
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`products, and allegedly infringes the Drone Patents. Parrot promoted the improvements
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`associated with the enhanced capability of absolute control in marketing the AR.Drone 2.0.69
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`Moreover, third party reviews that are linked to Parrot’s U.S. web site for the AR.Drone 2.0
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`specifically highlight absolute control and enhancements to the intuitive piloting capabilities as
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`64 PARROT50125564 at PARROT50125570.
`65 Gaudiosi.
`66 AR.Drone 2.0 product listing on Amazon.com, accessed December 30, 2014.
`67 Product listing for Parrot AR.Drone Quadricopter Power Edition on Brookstone.com, accessed December 30,
`2014; and product listing for Parrot AR.Drone 2.0 Elite Edition on Radioshack.com, accessed December 30, 2014.
`68 PARROT475301 at PARROT475305.
`69 See, for example, PARROT475301 at PARROT475305.
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`the most important improvements to the second generation product.70 Sales of Parrot’s
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`AR.Drone 2.0
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`
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`.71 This
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`supports a conclusion that the enhancements to the AR.Drone’s intuitive piloting mechanism
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`were important to consumers.
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`
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`D.
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`Efforts to Remove the Infringing Functionalities
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`21.
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`The significant contribution provided by the infringing functionalities to the
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`Infringing Products is further demonstrated by the consumer backlash that resulted when
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`absolute control and intuitive control functionalities were removed from the iTunes app store.
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`When Apple informed Parrot that it was removing the FreeFlight apps from the iTunes app store
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`(March 2013), Parrot initially directed its customers to other apps that did not include absolute
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`control and intuitive control functionalities (e.g. AR.Race 2, AR.Rescue 2, etc.).72 Parrot also
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`launched another app (“FreeFlightUS” or “FreeFlight”) that also lacked both absolute control
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`and intuitive control functionalities.73 A March 27, 2013 internal Parrot email, addressing why
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`the apps that featured absolute control and intuitive control functionalities had been removed
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`from the iTunes app store explains:
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`
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`”74 Reaction to
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`70 See, for example, Dillow and Buster Hein, “The AR Drone 2.0 Is Ready To Become Your Favorite iOS Toy
`[Review],” June 21, 2012 <http://www.cultofmac.com/175039/the-ar-drone-2-0-is-ready-to-become-your-favorite-
`ios-toy-review/> accessed February 11, 2012.
`71 See, PARROT90000001 – 004.
`72 See, for example, PARROT80474762 at PARROT80474765. This effort by Parrot, I understand, was prompted
`by Apple’s decision to remove the FreeFlight 2.0 app from Apple’s app store in response to a communication from
`Drone Technologies regarding alleged infringement. Complaint at ¶ 21. See also, PARROT80541123. See also,
`Gaul Dep Tr at 78-79.
`73 See, for example, PARROT80573846. See also, PARROT50001059 at PARROT50001061 and
`PARROT80542255 at PARROT80542256.
`74 PARROT80295636.
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`Parrot’s decision from customers of AR.Drone products was negative. Specifically, Parrot and
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`its distributors/retailers received a number of complaints from customers expressing displeasure
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`regarding the unavailability of the FreeFlight 2.0 app with absolute control. In response to
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`consumer feedback, an internal Parrot email notes,
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`”75
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`Available information also shows that some potential Parrot customers were considering
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`competitive products as a result of Parrot’s decision to remove the infringing functionalities.
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`One such prospective customer wrote to Parrot in May 2013:
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`
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`The fallout from Parrot’s decision to remove the infringing functionalities also
`
`22.
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`76
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`negatively impacted Parrot’s relationships with its retailers/distributors. A May 6, 2013 Parrot
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`internal email notes:
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`
`
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`
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`In another email Parrot apparently received from a retailer/distributer, the author
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`23.
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`77
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`writes,
`
`
`75 PARROT50053505.
`76 PARROT50057214.
`77 PARROT80474762 at PARROT80474763.
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`REDACTED VERSION
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`78 This same email also notes that
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`customers also apparently complained to Apple about the FreeFlight 2.0 app issue
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`”79 Dissatisfied Apple
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`.80 In forwarding this complaint to Parrot’s
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`attention, the Apple representative commented, “
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`” presumably referring to Parrot’s AR.Drone 2.0.81 Another dissatisfi