Contract analysis

I. INTRODUCTION Optiwave Semiconductor Corp. respectfully moves this Court to exclude three discrete categories of opinions offered by Lumicore Technologies, Inc.'s damages expert, Dr. Natasha Volkov, because those opinions fail to satisfy the reliability requirements of Federal Rule of Evidence 702 and Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), and its progeny. Dr. Volkov's report, served on

II. LEGAL STANDARD A. Federal Rule of Evidence 702 Federal Rule of Evidence 702, as amended effective December 1, 2023, provides: A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if the proponent demonstrates to the court that it is more likely than not that: (a) the expert's scientific, technical, or other specialized k

III. FACTUAL BACKGROUND A. The Parties and the Asserted Patents Optiwave Semiconductor Corp. OWS is a Delaware corporation headquartered at 4810 Bayside Technology Parkway, Suite 300, Santa Clara, California 95054. OWS is a fabless semiconductor company specializing in the design and commercialization of silicon-photonics chipsets for data-center interconnects. In Fiscal Year 2023, OWS reported revenue of $487.3 mill

IV. ARGUMENT A. Dr. Volkov's Artificially Disaggregated Royalty Base Should Be Excluded Dr. Volkov's decision to apply her proposed royalty rate to an artificially constructed "photonic engine" sub-assembly, rather than to the smallest salable patent-practicing unit — the completed transceiver module — is methodologically unsound, unsupported by the evidentiary record, and contrary to controlling Federal Circuit auth

1. The SSPPU Doctrine Requires Use of the Smallest Salable Unit That Practices the Patented Invention. The Federal Circuit has made clear that, where a patent covers a component of a multi-component product, the royalty base should ordinarily be the smallest salable patent-practicing unit rather than the entire product. LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51, 67 (Fed. Cir. 2012); VirnetX, Inc. v. S

2. Dr. Volkov's Disaggregation Lacks Evidentiary Support and Reliable Methodology. Dr. Volkov's "photonic engine" sub-assembly is not a recognized product unit, cost center, or accounting category in Lumicore's systems. It is a construct of Dr. Volkov's own making, developed solely for purposes of this litigation. The evidentiary deficiencies underlying this construct are numerous and fatal to its reliability. No Lum

3. The Resulting Royalty Is Untethered to Economic Reality. The practical effect of Dr. Volkov's disaggregation is dramatic. By defining the "photonic engine" as representing only approximately 28% of the module-level selling price, Dr. Volkov reduces the royalty base from the full projected accused-product revenue of $714.6 million to approximately $200.1 million — before even applying her proposed royalty rate. (Ex

1. Georgia-Pacific Requires Consideration of All Relevant Factors. The Georgia-Pacific framework sets forth fifteen factors that an expert should consider in conducting a hypothetical-negotiation analysis to determine a reasonable royalty. Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970). Those fifteen factors are:

1. The royalties received by the patentee for the licensing of the patent in suit, proving or tending to prove an established royalty.

2. The rates paid by the licensee for the use of other patents comparable to the patent in suit.

3. The nature and scope of the license, as exclusive or non-exclusive, or as restricted or non-restricted in terms of territory or with respect to whom the manufactured product may be sold.

4. The licensor's established policy and marketing program to maintain his patent monopoly by not licensing others to use the invention or by granting licenses under special conditions designed to preserve that monopoly.

5. The commercial relationship between the licensor and licensee, such as whether they are competitors in the same territory in the same line of business, or whether they are inventor and promoter.

6. The effect of selling the patented specialty in promoting sales of other products of the licensee; the existing value of the invention to the licensor as a generator of sales of his non-patented items; and the extent of such derivative or convoyed sales.

7. The duration of the patent and the term of the license.

8. The established profitability of the product made under the patent; its commercial success; and its current popularity.

9. The utility and advantages of the patent property over the old modes or devices, if any, that had been used for working out similar results.

10. The nature of the patented invention; the character of the commercial embodiment of it as owned and produced by the licensor; and the benefits to those who have used the invention.

11. The extent to which the infringer has made use of the invention and any evidence probative of the value of that use.

12. The portion of the profit or of the selling price that may be customary in the particular business or in comparable businesses to allow for the use of the invention or analogous inventions.

13. The portion of the realizable profit that should be credited to the invention as distinguished from non-patented elements, the manufacturing process, business risks, or significant features or improvements added by the infringer.

14. The opinion testimony of qualified experts.

15. The amount that a licensor (such as the patentee) and a licensee (such as the infringer) would have agreed upon (at the time the infringement began) if both had been reasonably and voluntarily trying to reach an agreement. While courts recognize that not every Georgia-Pacific factor will be relevant in every case, damages experts are expected to address all applicable factors and to provide a reasoned and support

2. Dr. Volkov Omitted or Dismissed at Least Eight Factors Without Adequate Justification. Dr. Volkov's report addresses only Factors 1, 3, 4, 6, 7, 14, and 15 of the Georgia-Pacific framework. She dismisses the remaining eight factors — Factors 2, 5, 8, 9, 10, 11, 12, and 13 — as either "not relevant to the hypothetical negotiation in this case" or "indeterminate based on the available evidence." (Ex. A, Volkov Repor

3. Cherry-Picking Favorable Factors Is Methodologically Unreliable. The seven factors that Dr. Volkov does address are, predictably, the factors that favor a lower royalty rate. Factor 1 (established royalty) — she finds no established royalty, which she argues weighs against OWS. Factor 3 (nature and scope of the license) — she argues a broad, non-exclusive license would command a lower rate. Factor 4 (licensor's po

1. The Federal Circuit Requires Comparability of License Benchmarks. The use of comparable license agreements as benchmarks is a central component of the Georgia-Pacific reasonable-royalty analysis. However, the Federal Circuit has imposed rigorous comparability requirements to ensure that the licenses an expert relies upon are probative of the hypothetical negotiation at issue — rather than serving as arbitrary star

2. Dr. Volkov's Three Primary License Benchmarks Are Facially Non-Comparable. Dr. Volkov relies on three license agreements as her primary benchmarks for deriving a reasonable-royalty rate. None of these licenses involves silicon-photonics technology, optical transceivers, waveguide multiplexing, data-center interconnect products, or any technology that is comparable to the asserted patents. License 1 — MEMS Accelero

3. Dr. Volkov Ignored Readily Available Comparable Licenses. The unreliability of Dr. Volkov's license-benchmarking analysis is compounded by her decision to ignore five readily available and facially comparable licenses that were identified by OWS and analyzed in detail by Dr. Keating. These five licenses are: (1) OWS–Terralink Semiconductor License Agreement (2020): 6.5% running royalty rate on silicon-photonics tr

V. THE COURT SHOULD EXERCISE ITS GATEKEEPING FUNCTION TO EXCLUDE THESE OPINIONS In summary, OWS challenges three discrete categories of Dr. Volkov's opinions, each of which independently fails the reliability requirements of Rule 702 and Daubert: First, Dr. Volkov's artificially disaggregated royalty base — based on a fictional "photonic engine" sub-assembly that is not separately sold, separately priced, or recogniz