Contract analysis

I. INTRODUCTION AND PURPOSE OF THIS APPENDIX

1. I have been retained by counsel for Optiwave Semiconductor Corp. ("OWS" or "Plaintiff") to provide expert opinions regarding the economic damages sustained by OWS as a result of the alleged patent infringement by Lumicore Technologies, Inc. ("Lumicore" or "Defendant"). This Appendix C sets forth my royalty rate benchmarking analysis in support of the reasonable royalty damages theory presented in the main body of

2. The purpose of this Appendix is to determine the royalty rate that a willing licensor (OWS) and a willing licensee (Lumicore) would have agreed to in a hypothetical negotiation occurring in the second quarter of 2022 ("Q2 2022"), immediately prior to Lumicore's commercial launch of the first accused product, the LumiLink 400G-ZR+, in the third quarter of 2022 ("Q3 2022"). This date is selected because it represent

3. Based on the comprehensive benchmarking analysis set forth in this Appendix, I have concluded that the appropriate royalty rate for the hypothetical negotiation is 8.5% of accused-product net sales. This rate is derived from an extensive examination of comparable license agreements and industry licensing data in the silicon-photonics and optical transceiver technology space. It reflects the central tendency of fiv

4. The proposed royalty rate of 8.5% is applied to the royalty base — the portion of Lumicore's accused-product revenues to which the lost-profits theory does not apply — to calculate the reasonable royalty component of OWS's total damages. The reasonable royalty damages of approximately $37.5 million, when combined with the lost-profits damages of approximately $128.9 million (set forth in Appendix A), yield a combi

5. This Appendix should be read in conjunction with, and is cross-referenced to, the following components of my expert report: • Appendix A (Lost Profits Model), which sets forth the Panduit analysis and identifies the portion of Lumicore's accused-product sales to which lost-profit damages apply versus the portion to which a reasonable royalty is applied; • Appendix B (Georgia-Pacific Factor Analysis), which provide

I.B. Qualifications and Data Sources

6. My qualifications to render the opinions set forth in this Appendix are described in detail in the main body of my expert report and in my curriculum vitae, which is attached thereto as Exhibit 1. In summary, I am the Managing Director of Meridian Economic Consulting Group, LLC, a nationally recognized economic consulting firm with offices in Chicago, New York, and San Francisco. I hold a Ph.D. in Economics from N

7. In forming the opinions set forth in this Appendix, I have reviewed, considered, and relied upon the following categories of data and information: (a) OWS's own licensing history. OWS has entered into three patent license agreements covering one or more of the asserted patents in this case. I have reviewed each of these agreements in their entirety, including all amendments, schedules, and exhibits. These agreemen

8. All financial data upon which I have relied has been verified against audited financial statements prepared in accordance with generally accepted accounting principles ("GAAP"). Where product-level financial data was not available in audited form, I verified it against internal management accounting records produced by Lumicore in discovery and confirmed its consistency with Lumicore's consolidated audited financi

9. A complete list of the materials I reviewed and considered is provided in Exhibit 1 to the main body of my expert report. Exhibits specific to this Appendix are identified in the Exhibits List at the conclusion of this Appendix.

II.A. Framework for Royalty Rate Determination

10. The reasonable royalty damages analysis in this case is governed by the fifteen-factor framework established in Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970). Under this framework, the finder of fact must determine the royalty rate that would have resulted from a hypothetical negotiation between a willing licensor and willing licensee, conducted against the backdrop of th

11. As set forth above, the hypothetical negotiation date for this analysis is Q2 2022. This date was selected because it represents the period immediately preceding Lumicore's launch of the first accused product, the LumiLink 400G-ZR+, in Q3 2022. It is the point in time at which a willing licensee, having decided to manufacture and sell the accused products, would have approached OWS (or vice versa) to negotiate a

12. Consistent with the hypothetical negotiation construct, the analysis assumes that the four asserted patents — U.S. Patent No. 10,234,847 (the "'847 Patent"), U.S. Patent No. 10,891,193 (the "'193 Patent"), U.S. Patent No. 9,678,562 (the "'562 Patent"), and U.S. Patent No. 11,402,015 (the "'015 Patent") — are valid and infringed. This assumption is inherent in the Georgia-Pacific framework and does not reflect an

13. I note that as of the Q2 2022 hypothetical negotiation date, three of the four asserted patents had already issued: the '562 Patent (issued March 15, 2017), the '847 Patent (issued March 19, 2019), and the '193 Patent (issued January 12, 2021). The '015 Patent issued on August 2, 2022, approximately one month after the close of Q2 2022 but before the launch of the LumiLink 400G-ZR+ in Q3 2022. Under the hypotheti

II.B. Selection Criteria for Comparable Licenses

14. The identification and selection of comparable license agreements is a critical step in the royalty rate benchmarking analysis. Not all licenses are created equal, and it is essential to apply rigorous selection criteria to ensure that the transactions identified as comparables are, in fact, sufficiently similar to the hypothetical OWS-Lumicore negotiation to provide meaningful benchmarking data. I applied the fo

15. I applied these criteria systematically to a universe of potential comparable transactions identified through my own research, the assistance of FairPoint Licensing Group, LLC, and the review of publicly available licensing data. The application of these criteria yielded two categories of comparable transactions: (a) OWS's own licensing history (three agreements), and (b) industry comparable transactions (two agr

16. My analytical approach to determining the appropriate royalty rate proceeds in five steps, which I describe briefly here and implement in detail in the subsequent sections of this Appendix: Step 1: Identify and analyze OWS's own licensing history. Under Georgia-Pacific Factor 1, the royalties received by the patentee for licensing the patents in suit are the most probative evidence of the royalty rate. Accordingl

III. OWS'S OWN LICENSING HISTORY

17. OWS has entered into three patent license agreements covering one or more of the asserted patents in this case. Each of these agreements was negotiated at arm's length with an operating company in the silicon-photonics transceiver market. None of these agreements involved affiliated entities, patent assertion entities, or non-practicing entities. Each agreement includes a running royalty expressed as a percentage

18. Under Georgia-Pacific Factor 1, the royalties received by the patentee for licensing the patents in suit constitute the most probative evidence of the reasonable royalty rate. See Georgia-Pacific, 318 F. Supp. at 1120; Laser Dynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51, 79 (Fed. Cir. 2012) ("Where the evidence of record includes the patentee's own real-world licensing of the patent-in-suit, that evidence

19. I note that OWS's licensing program was conducted through FairPoint Licensing Group, LLC (Angela Reeves, Managing Director, 500 Sansome Street, Suite 1400, San Francisco, CA 94111). Ms. Reeves has over eighteen years of experience in patent licensing and technology valuation in the semiconductor and photonics industries. FairPoint managed the identification of prospective licensees, the preparation of claim chart

20. I discuss each of the three OWS licenses below, in chronological order.

III.B. OWS–Terralink Semiconductor License (2020)

21. Parties. The first license agreement was executed between Optiwave Semiconductor Corp., as licensor, and Terralink Semiconductor, as licensee (the "Terralink License"). A copy of the Terralink License, redacted in accordance with the Stipulated Protective Order's AEO designation, is attached as Exhibit C-1.

22. Execution Date. The Terralink License was executed in 2020.

23. Licensed Patents. The Terralink License grants a license under a portfolio of OWS patents that includes the '847 Patent and the '562 Patent, among other OWS patents in the silicon-photonics field. Notably, the Terralink License does not include the '193 Patent, which did not issue until January 12, 2021, or the '015 Patent, which did not issue until August 2, 2022. As a result, the Terralink License covers only t

24. Royalty Structure. The Terralink License provides for a running royalty of 6.5% on licensed-product net sales. "Licensed products" are defined in the agreement as transceiver modules and related assemblies that, but for the license, would infringe one or more claims of the licensed patents. "Net sales" are defined in the agreement as gross revenues from the sale of licensed products, less returns, allowances, shi

25. Licensed Revenue Base. At the time of execution, Terralink's annual revenue from licensed products was approximately $45 million. This figure is based on Terralink's reported revenue data for the most recent fiscal year preceding the execution of the Terralink License, as reflected in the agreement's royalty-base projections and confirmed by publicly available financial data.

26. Scope. The Terralink License is a non-exclusive, worldwide license for the manufacture and sale of transceiver products incorporating the licensed technology. The license does not include sublicensing rights.

27. Adjustments for Comparability. While the Terralink License is an arm's-length license involving patents in suit and is therefore highly probative, several factors distinguish it from the hypothetical OWS-Lumicore negotiation and necessitate adjustments: (a) Smaller licensee with narrower product line. Terralink is a smaller company than Lumicore, with a narrower product line focused on a limited segment of the op

28. In summary, the Terralink License establishes 6.5% as the floor of the reasonable royalty range. The narrower patent portfolio, smaller licensed-revenue base, and pre-dispute negotiation context all support a rate above 6.5% for the hypothetical OWS-Lumicore negotiation.

III.C. OWS–NovaWave Corp. License (2021)

29. Parties. The second license agreement was executed between Optiwave Semiconductor Corp., as licensor, and NovaWave Corp., as licensee (the "NovaWave License"). A copy of the NovaWave License, redacted in accordance with the Stipulated Protective Order's AEO designation, is attached as Exhibit C-2.

30. Execution Date. The NovaWave License was executed in 2021.

31. Licensed Patents. The NovaWave License grants a license under a portfolio of OWS patents that includes the '847 Patent, the '193 Patent, and the '562 Patent. The inclusion of the '193 Patent — which had issued on January 12, 2021, shortly before the NovaWave License was negotiated — reflects the expanded scope of OWS's patent portfolio relative to the earlier Terralink License. However, the NovaWave License does

32. Royalty Structure. The NovaWave License provides for a running royalty of 9.0% on licensed-product net sales. The definitions of "licensed products" and "net sales" in the NovaWave License are substantively similar to those in the Terralink License.

33. Licensed Revenue Base. At the time of execution, NovaWave's annual revenue from licensed products was approximately $22 million. NovaWave is a smaller, more specialized manufacturer of silicon-photonics components with a focused product line serving the telecommunications and data-center interconnect markets.

34. Scope. The NovaWave License is a non-exclusive license limited to specific product lines identified in the agreement. Unlike the Terralink License, which covers all transceiver products incorporating the licensed technology, the NovaWave License is narrower in scope, applying only to NovaWave's coherent transceiver module product family.

35. Adjustments for Comparability. The following factors distinguish the NovaWave License from the hypothetical OWS-Lumicore negotiation: (a) Smaller licensed revenue base. NovaWave's licensed revenue of approximately $22 million is significantly smaller than Lumicore's accused-product revenue. As noted above, the scale differential is relevant to the bargaining dynamics but does not, standing alone, compel a lower r

36. In summary, the NovaWave License supports a rate in the 8.5%–9.0% range when the full four-patent portfolio is considered and when adjustments are made for the case-specific factors described above.

III.D. OWS–Helix Integrated Photonics License (2022)

37. Parties. The third license agreement was executed between Optiwave Semiconductor Corp., as licensor, and Helix Integrated Photonics, as licensee (the "Helix License"). A copy of the Helix License, redacted in accordance with the Stipulated Protective Order's AEO designation, is attached as Exhibit C-3.

38. Execution Date. The Helix License was executed in 2022.

39. Licensed Patents. The Helix License grants a license under a portfolio of OWS patents that includes all four of the asserted patents in this litigation: the '847 Patent, the '193 Patent, the '562 Patent, and the '015 Patent. This is the only OWS license that covers the full asserted patent portfolio.

40. Royalty Structure. The Helix License provides for a running royalty of 7.75% on licensed-product net sales, plus a $2.5 million upfront lump-sum payment made at execution. The running royalty and lump-sum components are both expressly denominated as consideration for the patent license and are not allocable to other agreements or arrangements between the parties.

41. Licensed Revenue Base. At the time of execution, Helix's annual revenue from licensed products was approximately $68 million. Helix is a mid-sized manufacturer of photonic integrated circuit products for data-center and telecommunications applications.

42. Scope. The Helix License is a non-exclusive, worldwide license for the manufacture and sale of transceiver products incorporating the licensed technology. The scope is comparable to the Terralink License and covers all of Helix's transceiver products that practice the licensed patents.

43. Effective Rate Calculation. The inclusion of a $2.5 million upfront lump-sum payment in addition to the 7.75% running royalty means that the nominal running-royalty rate understates the total economic consideration paid by Helix for the license. To determine the effective all-in royalty rate, I amortized the upfront payment over Helix's projected licensed-revenue stream for the initial five-year term of the licen

44. The blended effective rate of approximately 8.5%–8.7% reflects the total economic value of the license to OWS and the total cost of the license to Helix, expressed on a consistent basis with the running-royalty rates in the other comparable agreements. This effective rate calculation is conservative because it assumes growth in Helix's licensed-product revenue over the five-year term; if licensed revenue were fla

45. Adjustments for Comparability. The Helix License is the most comparable of the three OWS licenses to the hypothetical OWS-Lumicore negotiation for several reasons: (a) Full four-patent portfolio. The Helix License is the only OWS license that includes all four asserted patents. Because the hypothetical OWS-Lumicore negotiation would involve the same four-patent portfolio, the Helix License provides the most direc

46. In summary, the Helix License provides the strongest direct support for the proposed 8.5% royalty rate. Its effective all-in rate of approximately 8.5%–8.7%, negotiated for the full four-patent portfolio in a temporal period proximate to the hypothetical negotiation date, closely corresponds to my proposed rate.

III.E. Summary of OWS Licensing History

47. The following table summarizes the key terms of OWS's three existing patent license agreements: