PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT This memorandum is a privileged and confidential attorney-client communication and constitutes attorney work product prepared in anticipation of litigation. It is intended solely for the use of the addressees identified herein and should not be disclosed, copied, or distributed to any third party without the prior written consent of Calderwood & Harkness LLP.
MEMORANDUM
April 28, 2025
FROM: Marcus Delgado, Partner, intellectual Property Practice Calderwood & Harkness LLP
TO: Rachel Nguyen, Vice President & Associate General Counsel Vantage Mobility Systems Corp. 4200 Innovation Drive, Auburn Hills, MI 48326
David Mercer, Partner (Portfolio Oversight) Ridgeline Capital Management, LLC 600 Lexington Avenue, 38th Floor, New York, NY 10022
RE: Settlement Recommendation — Pinnacle Innovations LLC v. Vantage Mobility Systems Corp., No. 2:24-cv-00187-JRG (E.D. Tex.)
C&H MATTER NO.: 1007-00003
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I. Executive Summary
The purpose of this memorandum is to set forth Calderwood & Harkness LLP's ("C&H") recommendation that Vantage Mobility Systems Corp. ("VMS") accept a nuisance-value settlement in the amount of $385,000 to resolve all claims and counterclaims in Pinnacle Innovations LLC v. Vantage Mobility Systems Corp., No. 2:24-cv-00187-JRG (E.D. Tex.) (the "Action"). We have conducted a thorough assessment of the merits of the defense positions, the cost of continued litigation, the insurance coverage available to VMS, and the business considerations implicated by a trial scheduled for October 6, 2025. This memorandum presents the results of that assessment and our recommendation in full.
The core rationale for the settlement recommendation is straightforward: the proposed settlement amount of $385,000 represents a small fraction of the estimated $2.8 million to $3.4 million in additional legal fees, expert fees, and other litigation expenses that VMS would be required to incur to take the case through trial. While VMS holds favorable defense positions on both invalidity and non-infringement, those positions are not dispositive. The claim construction ruling entered by the Honorable J. Rodney Gilstrap on December 19, 2024, while generally favorable, left the critical "network congestion metric" claim term ambiguously construed, preserving a meaningful path for the plaintiff to argue infringement at trial. In our judgment, the settlement is economically rational even under the most optimistic view of the defense.
The proposed settlement would be structured as a covenant not to sue — not a patent license — covering U.S. Patent No. 9,847,312 (the "'312 Patent") and all patents in Pinnacle Innovations LLC's ("Pinnacle") portfolio as of the effective date of the settlement agreement. The covenant-not-to-sue structure is advantageous for VMS because it avoids the accounting and financial-disclosure complications that would arise from a license grant, while providing equivalent practical protection against future assertions by Pinnacle relating to its entire patent portfolio.
Importantly, insurance coverage under VMS's Commercial General Liability policy with Northbridge Specialty Insurance Company (Policy No. NSI-CGL-2024-08821) will fund $310,000 of the $385,000 settlement amount. VMS's out-of-pocket expense attributable to the settlement itself will be limited to the $75,000 self-insured retention ("SIR"). When combined with defense costs already incurred during the C&H representation period (approximately $512,800), VMS's total cost to resolve the Action will be approximately $587,800 — a fraction of the total cost that continued litigation through trial would entail.
Finally, we note that the proposed $385,000 settlement exceeds the $250,000 threshold established under Section 7.04(c) of the VMS Operating Agreement, which requires Ridgeline board-designee written consent before VMS may execute any single litigation expenditure or settlement in excess of that amount. This memorandum is therefore directed to both Ms. Nguyen and Mr. Mercer so that both VMS management and Ridgeline Capital Management, LLC ("Ridgeline") may evaluate the recommendation and, if appropriate, authorize the settlement.
II. Background and Current Litigation Posture
A. The Parties and the Action
The Plaintiff. Pinnacle Innovations LLC ("Pinnacle") is a Texas limited liability company organized under the laws of the State of Texas. Pinnacle is a non-practicing entity — it does not manufacture, sell, or offer for sale any products or services. Its sole business activity is the assertion and monetization of patents acquired from third parties. Pinnacle's Managing Member is Grayson Holt, who has been involved in the management of several patent-assertion entities in the Eastern District of Texas over the past decade.
Pinnacle acquired its patent portfolio from DataStream Automotive, Inc. ("DataStream"), a defunct Illinois corporation that designed and marketed aftermarket vehicle telematics systems from approximately 2010 through 2020. DataStream was dissolved by voluntary dissolution in the State of Illinois in 2021, following a period of declining revenue and failure to secure additional venture financing. In connection with the dissolution, DataStream's intellectual property — consisting of approximately 35 United States patents and patent applications — was sold to Pinnacle pursuant to an asset purchase agreement dated July 1, 2023. The assignment of the '312 Patent to Pinnacle was recorded with the United States Patent and Trademark Office on August 14, 2023.
Pinnacle's patent-assertion activities are financed by Arcadia Litigation Finance, LP, a Delaware limited partnership that specializes in funding patent monetization campaigns. Arcadia's involvement is relevant to the settlement calculus because it means Pinnacle has access to capital sufficient to prosecute the Action through trial if it chooses to do so, but also that Pinnacle faces pressure from its funder to resolve matters efficiently if a reasonable return can be obtained.
The Asserted Patent
The asserted patent is U.S. Patent No. 9,847,312 B2 (the "'312 Patent"), entitled "System and Method for Aggregated Vehicle Telemetry Data Transmission Over Cellular Networks," issued on March 6, 2018, to named inventor Dr. Alan Prescott, who served as Chief Technology Officer of DataStream Automotive, Inc. from 2009 to 2020. The '312 Patent was originally assigned to DataStream as the original assignee. It was subsequently assigned to Pinnacle, as noted above, and the recorded assignment is effective as of August 14, 2023. The '312 Patent has a statutory expiration date of September 12, 2035, which means it has approximately ten years of remaining patent term.
Pinnacle has asserted three independent claims of the '312 Patent in the Action: Claims 1, 7, and 14. Each of these claims is directed, in general terms, to a method for aggregating OBD-II diagnostic and GPS telemetry data from multiple vehicle sensors, compressing and encrypting the aggregated data packets, and transmitting the data over a cellular data connection at adaptive intervals based on network congestion metrics. The precise scope of these claims was the subject of the claim construction proceedings discussed in Section II.C below.
The technology at issue is central to the modern connected-vehicle and fleet-management ecosystem. The '312 Patent claims a specific approach to managing the cellular transmission of vehicle telemetry data in which the system dynamically adjusts the frequency and timing of data transmissions based on measured conditions of cellular network congestion. This adaptive-interval approach is alleged to improve bandwidth efficiency and reduce data loss in environments where cellular network connectivity is intermittent or congested.
Plaintiff's Counsel. Pinnacle is represented by Whitfield & Gaines PLLC, a boutique intellectual property litigation firm based in Tyler, Texas. The lead partner is Nolan Whitfield, who has significant experience litigating patent cases in the Eastern District of Texas. He is assisted by associate Priya Madan. Based on information obtained during discovery, Whitfield & Gaines is operating on a 35% contingency fee arrangement with Pinnacle and/or Arcadia Litigation Finance, which means that the plaintiff's counsel's fee incentives are aligned with maximizing the recovery rather than prolonging the litigation.
The Defendant. Vantage Mobility Systems Corp. ("VMS") is a Delaware corporation with its principal place of business at 4200 Innovation Drive, Auburn Hills, Michigan 48326. VMS designs, manufactures, and markets telematics hardware and cloud-based fleet management software for commercial and consumer vehicle applications. VMS reported annual revenue of approximately $218 million for fiscal year 2024. VMS has been majority-owned by Ridgeline Capital Partners Fund IV, LP since a recapitalization transaction completed in 2019.
The Accused Products
Pinnacle alleges that two VMS products infringe the asserted claims of the '312 Patent:
1. VMS DriveLink™ 4.0 Telematics Control Unit — a hardware device installed in vehicles that collects data from the vehicle's OBD-II diagnostic port and CAN-bus network, and transmits that data over cellular networks to VMS's cloud platform.
2. VMS FleetPulse™ Cloud Platform — a cloud-based software platform that receives, processes, and presents vehicle telemetry data collected by DriveLink™ devices to fleet operators and individual vehicle owners.
Pinnacle's infringement theory focuses on the manner in which DriveLink™ 4.0 aggregates sensor data from the OBD-II and CAN-bus interfaces, compresses and encrypts the aggregated data, and transmits the data to the FleetPulse™ platform over a cellular connection. Pinnacle contends that the DriveLink™ 4.0 firmware implements an adaptive transmission interval that adjusts based on cellular network congestion metrics, thereby practicing the methods claimed in Claims 1, 7, and 14 of the '312 Patent.
B. Procedural History
The Action was commenced on February 28, 2024, when Pinnacle filed its Complaint for Patent Infringement in the United States District Court for the Eastern District of Texas, marshall Division. The case was assigned to the Honorable J. Rodney Gilstrap, United States District Judge, and designated as Case No. 2:24-cv-00187-JRG.
VMS, through its original defense counsel, Hargrove Dunn LLP ("Hargrove Dunn"), filed its Answer and Counterclaims on April 15, 2024. The Answer denied all allegations of infringement and asserted the following affirmative defenses and counterclaims:
• Invalidity under 35 U.S.C. § 102 (anticipation by prior art);
• Invalidity under 35 U.S.C. § 103 (obviousness in view of prior art);
• Non-infringement of the asserted claims; and
• Inequitable conduct during prosecution of the '312 Patent before the USPTO.
The initial defense of the Action was handled by Hargrove Dunn from the date of filing through the conclusion of the Markman (claim construction) proceedings. Hargrove Dunn subsequently withdrew from the representation due to a conflict of interest that arose in connection with an unrelated transaction involving one of its other clients. Prior to its withdrawal, Hargrove Dunn billed VMS total fees and expenses of approximately $624,000 for its work on the Action.
Calderwood & Harkness LLP assumed the defense of the Action on January 15, 2025, following the completion of a conflicts check and the execution of an engagement letter with VMS. C&H retained local counsel Caldwell Barrow LLP (Sandra Caldwell, lead partner) in Tyler, Texas, to handle local filings and appear at routine scheduling conferences.
The key procedural milestones in the Action are as follows:
The fact discovery period closed on March 28, 2025. The parties exchanged written discovery requests and responses, produced documents, and conducted depositions of fact witnesses from both sides. The expert report deadline is currently set for May 30, 2025, and if the proposed settlement is consummated, that deadline will be mooted. The original trial date remains October 6, 2025.
C. Claim Construction Results
The Markman hearing was held on November 14, 2024, and Judge Gilstrap entered his Claim Construction Order on December 19, 2024. The parties disputed the construction of three key claim terms, and the Court's rulings were as follows:
1. "Adaptive Interval" — Construed favorably to VMS. The Court adopted a construction of "adaptive interval" that requires the claimed system to dynamically adjust the time period between successive data transmissions based on a feedback mechanism that measures network conditions in real time. This narrow construction supports VMS's non-infringement argument because the DriveLink™ 4.0 firmware uses a batch queuing approach — not a real-time feedback loop — to manage the timing of data transmissions. Under this construction, VMS can argue that the DriveLink™ 4.0 system does not practice the "adaptive interval" limitation as construed by the Court.
2. "Aggregated Data Packet" — Construed favorably to VMS. The Court construed "aggregated data packet" to require a single data packet that contains data from multiple distinct vehicle sensors, rather than a series of packets transmitted in sequence. This construction is helpful to VMS because the DriveLink™ 4.0 system transmits data from different sensor categories (OBD-II diagnostic codes, GPS coordinates, CAN-bus performance data) in separate data streams rather than in a single consolidated packet. VMS can argue that its architecture does not produce an "aggregated data packet" within the meaning of the Court's construction.
3. "Network Congestion Metric" — Left ambiguous. The Court declined to adopt either party's proposed construction of "network congestion metric" and instead held that the term carries its "plain and ordinary meaning to a person of ordinary skill in the art." This ruling is the most significant unresolved issue in the case. Pinnacle will argue that a "network congestion metric" encompasses any measurement or indicator of cellular network performance, which would include VMS's cellular-link quality-of-service ("QoS") monitoring feature in the DriveLink™ 4.0 firmware. VMS will argue that a "network congestion metric" requires a specific, quantitative measurement of network congestion (e.g., packet loss rate, latency measurements) and that VMS's QoS monitoring does not constitute such a measurement.
Net Assessment: The Markman outcome is, on balance, favorable to VMS. The constructions of "adaptive interval" and "aggregated data packet" support the non-infringement defense and narrow the scope of the asserted claims. However, the ambiguous construction of "network congestion metric" preserves a meaningful path for Pinnacle to argue infringement at trial. This single unresolved term represents the largest residual exposure for VMS in the Action, and it is a significant factor in our settlement recommendation. A jury presented with Pinnacle's broad reading of "network congestion metric" could find that VMS's cellular QoS monitoring satisfies this limitation, which would undermine the non-infringement defense with respect to all three asserted independent claims.
III. Defense Merits Assessment
We set forth below our assessment of VMS's defense positions on invalidity, non-infringement, and inequitable conduct. This assessment reflects input from C&H's patent litigation team, our local counsel at Caldwell Barrow LLP, and VMS's retained technical expert, Dr. Franklin Yeoh.
A. Invalidity Positions
Retained Expert. VMS has retained Dr. Franklin Yeoh, Ph.D., of Greystone Technical Consulting LLC, located at 900 Research Park Drive, Suite 210, Ann Arbor, Michigan 48105, as its technical expert on issues of patent validity and claim construction. Dr. Yeoh holds a doctorate in electrical engineering from the University of Michigan and has over twenty years of experience in vehicle telematics, embedded systems design, and wireless communications. He is retained at a rate of $650 per hour and has been engaged in connection with this matter since February 2025. Dr. Yeoh's total fees through the date of this memorandum are approximately $47,750.
Dr. Yeoh has prepared detailed claim charts and invalidity contentions mapping the prior art references discussed below to the asserted claims of the '312 Patent. These materials were prepared to support VMS's invalidity contentions served during the fact discovery phase. Dr. Yeoh's formal expert report has not yet been filed, as the expert report deadline is May 30, 2025, and the settlement posture of the case has led C&H to defer finalization of the report pending the outcome of settlement negotiations.
1. Anticipation Under 35 U.S.C. § 102
The primary prior art reference supporting VMS's anticipation defense is Tanaka et al., U.S. Patent No. 8,214,097 (the "Tanaka Patent"), issued on July 3, 2012. The Tanaka Patent is titled "Vehicle Diagnostic Data Collection and Wireless Transmission System" and was assigned to Fujimoto Electronics Co., Ltd. of Osaka, Japan. The Tanaka Patent qualifies as prior art under 35 U.S.C. § 102(a)(1) because it was issued more than five years before the earliest effective filing date of the '312 Patent.
The Tanaka Patent discloses a system for collecting OBD-II diagnostic telemetry data from a vehicle's on-board sensors, aggregating the collected data, and transmitting the aggregated data over a cellular data connection to a remote server. Dr. Yeoh's claim charts demonstrate that the Tanaka Patent teaches or discloses each of the key limitations of Claims 1 and 14 of the '312 Patent, including:
• Collection of OBD-II diagnostic data from multiple vehicle sensors;
• Aggregation of the collected data into a composite data structure;
• Compression and encryption of the aggregated data for transmission;
• Transmission of the data over a cellular data connection; and
• A scheduling mechanism for determining the timing of data transmissions.
Strength of position: The Tanaka Patent maps well to the key elements of Claims 1 and 14 of the '312 Patent. However, there is a gap in the Tanaka reference with respect to the "network congestion metric" limitation. While Tanaka discloses a transmission scheduling mechanism, it does not explicitly teach that the scheduling is based on a measurement of network congestion. Given the Court's ambiguous construction of "network congestion metric," this gap may or may not be fatal to the anticipation argument. If the jury or the Court (on summary judgment) interprets "network congestion metric" broadly, Tanaka's scheduling mechanism could be found to satisfy the limitation. If interpreted narrowly, Tanaka may fall short. We assess the anticipation argument based on Tanaka alone as having a moderate-to-strong probability of success, contingent on the interpretation of "network congestion metric."
2. Obviousness Under 35 U.S.C. § 103
In addition to the anticipation defense, VMS has a strong obviousness argument based on the combination of the Tanaka Patent with a secondary prior art reference: Morales, Published PCT Application WO 2014/036281 (the "Morales Application"), published on March 13, 2014. The Morales Application is titled "Adaptive Data Transmission Scheduling Based on Wireless Network Load Conditions" and describes a method for dynamically adjusting the interval between data transmissions from a mobile device based on real-time measurements of cellular network load and congestion.
The obviousness combination is directed primarily at Claim 7 of the '312 Patent, which includes specific limitations relating to adaptive transmission intervals based on network congestion metrics. The Morales Application fills the gap in Tanaka by explicitly disclosing:
• Measurement of cellular network congestion indicators, including packet loss rates and signal-to-noise ratios;
• Dynamic adjustment of transmission intervals based on the measured congestion indicators; and
• A feedback mechanism for continuously updating the transmission schedule in response to changing network conditions.
Strength of position: The combination of Tanaka and Morales is strong. A person of ordinary skill in the art at the time of the invention would have been motivated to combine Tanaka's OBD-II telemetry aggregation and cellular transmission system with Morales's adaptive-interval technique in order to improve bandwidth efficiency and reduce data loss during periods of network congestion. The prior art references are in closely related technical fields (vehicle telematics and wireless data transmission), and the combination produces a predictable result. Dr. Yeoh has prepared a detailed analysis supporting the motivation to combine and the reasonable expectation of success.
Pinnacle will likely respond to the obviousness argument by presenting evidence of secondary considerations of non-obviousness (e.g., commercial success of products practicing the '312 Patent, industry praise, failure of others, long-felt but unmet need). However, Pinnacle's ability to present such evidence is limited by the fact that it is a non-practicing entity and did not commercialize the patented technology. Any secondary considerations evidence would need to be drawn from DataStream's historical operations, and DataStream's commercial history is not particularly strong — the company ultimately failed and was dissolved.
3. Overall Invalidity Probability
Based on Dr. Yeoh's analysis and C&H's independent assessment of the prior art and the claim construction rulings, we assess the overall probability of invalidating at least one of the three asserted independent claims at trial as 65% to 70%. This reflects the strength of the Tanaka anticipation argument with respect to Claims 1 and 14, the strong Tanaka/Morales obviousness combination with respect to Claim 7, and the residual uncertainty created by the ambiguous "network congestion metric" construction.
We note that while a 65–70% probability is favorable, it is not overwhelming. Pinnacle will have full opportunity to present rebuttal expert testimony, to distinguish the prior art references, and to argue that the '312 Patent claims represent a non-obvious advance over the prior art. Patent invalidity must be established by clear and convincing evidence, which is a higher burden of proof than the preponderance standard. Moreover, juries in the Eastern District of Texas have historically been receptive to patent holders' arguments, and there is inherent uncertainty in any jury trial.
B. Non-Infringement Positions
Following the Markman ruling, we have assessed VMS's non-infringement positions in light of the Court's claim constructions. Our overall assessment is that VMS has a 55% to 60% probability of prevailing on non-infringement at trial.
The favorable constructions of "adaptive interval" and "aggregated data packet" support VMS's argument that the DriveLink™ 4.0 and FleetPulse™ architecture does not practice the methods claimed in the '312 Patent. Specifically:
• Under the Court's construction of "adaptive interval," VMS can argue that the DriveLink™ 4.0 batch-queuing approach to data transmission scheduling does not constitute a "dynamic adjustment" based on "real-time feedback," as required by the claim language as construed.
• Under the Court's construction of "aggregated data packet," VMS can argue that the DriveLink™ 4.0 system's practice of transmitting data from different sensor categories in separate data streams — rather than consolidating all data into a single composite packet — means that no "aggregated data packet" within the meaning of the claims is ever formed or transmitted.
However, the residual risk created by the ambiguous construction of "network congestion metric" significantly limits the strength of the non-infringement defense. The DriveLink™ 4.0 firmware includes a cellular-link quality-of-service ("QoS") monitoring feature that tracks signal strength, latency, and data throughput on the device's cellular connection. While VMS characterizes this feature as a basic connectivity-management function (not a "network congestion metric"), Pinnacle will argue that any monitoring of cellular link quality constitutes a "network congestion metric" under the plain and ordinary meaning of the term. If the jury accepts Pinnacle's broad interpretation, the QoS monitoring feature could be found to satisfy the "network congestion metric" limitation across all three asserted claims, which would significantly undermine VMS's non-infringement defense.
The 55–60% probability of prevailing on non-infringement is lower than the 65–70% probability assessed for the invalidity defense. Accordingly, non-infringement is the weaker of the two primary defenses when considered in isolation. The non-infringement defense is most effective when presented to the jury in combination with the invalidity defense, as the combination increases the overall probability of obtaining a defense verdict on at least one ground.
C. Inequitable Conduct Counterclaim
VMS asserted a counterclaim for inequitable conduct in its Answer filed on April 15, 2024. The inequitable conduct counterclaim is based on allegations that Dr. Alan Prescott, the named inventor of the '312 Patent, failed to disclose material prior art references to the USPTO during prosecution of the patent application, including the Tanaka Patent and a technical publication by researchers at the University of Tokyo that disclosed related concepts.
The inequitable conduct counterclaim provides some litigation leverage because it creates a credible threat of rendering the '312 Patent unenforceable and places reputational pressure on Pinnacle and its counsel. However, we caution that inequitable conduct is extremely difficult to prove at trial. Under Brightmoor & Co., Inc. v. Becton, Dickinson & Co., 649 F.3d 1276 (Fed. Cir. 2011) (en banc), a party asserting inequitable conduct must establish by clear and convincing evidence that the patent applicant (1) knew of the withheld reference, (2) knew that the reference was material, and (3) made a deliberate decision to withhold the reference with the specific intent to deceive the USPTO. The "specific intent to deceive" element is a particularly high bar, and courts have emphasized that mere negligence or inadvertence in failing to disclose a reference is insufficient.
We do not view the inequitable conduct counterclaim as a primary basis for the defense strategy. However, it contributes to VMS's overall settlement leverage by increasing the litigation risk and cost that Pinnacle faces if the case proceeds to trial, and it serves as a counterbalance to Pinnacle's infringement claims in the context of settlement negotiations.
IV. Cost-Benefit Analysis
A. Settlement Amount
The proposed settlement calls for a lump-sum payment of $385,000, payable by VMS to Pinnacle within 30 calendar days after the full execution of the settlement agreement. The payment is non-refundable and is not contingent on any future events or conditions (other than the execution of the agreement itself).
We note that the proposed settlement amount represents a nuisance-value resolution of the Action. It is significantly below any reasonable estimate of the damages that Pinnacle could obtain at trial if it were to prevail on its infringement claims. VMS's DriveLink™ 4.0 and FleetPulse™ products generated combined revenue of approximately $74 million in fiscal year 2024. Even under a conservative reasonable royalty analysis, Pinnacle's damages expert could likely present a damages case in the range of $3 million to $8 million (based on a royalty rate of 4–10% applied to the apportioned revenue attributable to the allegedly infringing functionality). The $385,000 settlement represents approximately 5% to 13% of the low end of that damages range, confirming its nuisance-value character.
B. Cost to Trial
C&H estimates that the additional legal fees and litigation expenses required to take the Action from its current posture through trial and potential post-trial motions would be in the range of $2.8 million to $3.4 million. This estimate is based on our experience with comparable patent infringement cases in the Eastern District of Texas and reflects the following phases of work:
A detailed breakdown of the cost-to-trial estimate by phase and task is provided in Appendix C to this memorandum.
In addition to the forward-looking cost-to-trial estimate, VMS has already incurred total defense costs during the C&H representation period (January 15, 2025 through the present) of approximately $512,800, broken down as follows:
A detailed breakdown of defense costs to date is provided in Appendix A to this memorandum.
If the case proceeds to trial, VMS's total litigation spend during the C&H representation period would be approximately $3.3 million to $3.9 million ($512,800 already incurred plus $2.8 million to $3.4 million in additional costs). This figure does not include the approximately $624,000 in fees billed by Hargrove Dunn during its prior representation, which would bring the all-in lifetime litigation cost to approximately $3.9 million to $4.5 million — and that estimate is before any adverse judgment or damages award.
C. Risk-Adjusted Expected Outcome
The economic analysis of the settlement must account for the probability-weighted outcomes of continued litigation. As discussed in Section III, VMS's two primary defenses — invalidity and non-infringement — have assessed probabilities of success of 65–70% and 55–60%, respectively. These defenses are partially independent: a jury could accept one defense and reject the other. The combined probability of prevailing on at least one of the two defenses is higher than either individual probability, but we cannot simply add the two percentages.
Using a conservative combined-probability analysis, we estimate that VMS has an approximately 80% to 85% probability of obtaining a defense verdict at trial on at least one of the invalidity or non-infringement grounds. This means that VMS faces a corresponding 15% to 20% probability of an adverse verdict.
If VMS loses at trial, the damages exposure is significant. As noted above, Pinnacle's damages case could reasonably support an award in the range of $3 million to $8 million. In addition, while the evidence of willful infringement is weak (given the favorable Markman constructions and the existence of substantial defenses), the risk of enhanced damages under 35 U.S.C. § 284 cannot be entirely eliminated. In a worst-case scenario, enhanced damages could increase the total damages award to as much as $16 million (treble the high end of the base damages estimate), though we consider such an outcome highly unlikely.
The risk-adjusted expected cost of continued litigation can be approximated as follows:
• Cost-to-trial: $2.8M – $3.4M (certain cost, incurred regardless of outcome)
• Probability-weighted damages exposure: 15–20% × $3M–$8M = $450,000 – $1,600,000
• Potential appeal costs: $350,000 – $500,000 (if either party appeals the trial outcome)
• Risk-adjusted total expected cost: approximately $3.6M – $5.5M
By contrast, the settlement path results in a certain total cost of $897,800 ($385,000 settlement plus $512,800 in defense costs already incurred), of which only $587,800 is borne by VMS after the $310,000 insurance recovery. The settlement path eliminates all uncertainty and all future expenditure.
Even under the most optimistic view of the defense — assuming an 85% probability of prevailing at trial and zero damages if VMS wins — the expected cost of continued litigation significantly exceeds the settlement amount. The settlement is the economically rational choice under any reasonable set of assumptions.
D. Management Distraction and Business Costs
Beyond the direct financial costs of continued litigation, taking the Action through trial would impose significant indirect costs on VMS in the form of management distraction and business disruption.
The expert discovery phase, which would commence immediately if the case is not settled, will require VMS engineering and product development personnel to devote substantial time to supporting the preparation of expert reports and responding to Pinnacle's expert discovery requests. Pinnacle's technical expert will likely seek access to the DriveLink™ 4.0 firmware source code, the FleetPulse™ platform architecture documentation, and internal engineering communications related to the design and development of the accused products. Responding to these requests and supervising the expert's review of confidential technical materials will require the attention of VMS's Director of Engineering and other senior technical staff.
In addition, VMS personnel — including members of the executive team — will be required to sit for depositions and, if the case proceeds to trial, to provide live testimony before the jury. Trial preparation alone is estimated to require 80 to 120 hours of VMS management time over the two to three months preceding the October 2025 trial date.
Settlement eliminates these indirect costs entirely and allows VMS management to devote its full attention to business operations, including the upcoming DriveLink™ 5.0 product launch and the FleetPulse™ platform expansion that are currently scheduled for the second half of 2025.
E. Settlement vs. Trial: Summary Table
The following table summarizes the comparative analysis of the settlement and trial paths:
The conclusion is clear: settlement is the economically rational outcome under any reasonable assessment of the costs, risks, and business considerations.
V. Proposed Settlement Structure and Key Terms
We set forth below the key terms of the proposed settlement, which have been negotiated with Pinnacle's counsel, Whitfield & Gaines PLLC, on a preliminary basis subject to client approval.
A. Covenant Not to Sue (Not a License)
The settlement will be structured as a covenant not to sue rather than a patent license grant. Under the covenant, Pinnacle will covenant and agree not to assert, and not to cause or authorize any third party to assert, any claim of patent infringement against VMS or any of its affiliates, successors, assigns, customers, or end users based on:
(a) U.S. Patent No. 9,847,312 B2 (the "'312 Patent"); and
(b) all patents and patent applications owned by Pinnacle Innovations LLC as of the effective date of the settlement agreement, including the approximately 35 patents and patent applications acquired from DataStream Automotive, Inc.
The covenant extends not only to the DriveLink™ 4.0 and FleetPulse™ products that are the subject of the current Action, but to all products and services manufactured, sold, offered for sale, used, or imported by VMS and its affiliates, now or in the future. This broad scope provides VMS with comprehensive protection against future assertions by Pinnacle relating to its entire patent portfolio.
Rationale for covenant structure over license: A covenant not to sue provides equivalent practical protection to a patent license but avoids several complications associated with a license grant:
• Accounting treatment: A license agreement could require VMS to recognize the settlement payment as a prepaid royalty or intangible asset, potentially triggering amortization and financial reporting obligations. A covenant not to sue is more naturally treated as a litigation settlement expense.
• Financial disclosure: Under certain circumstances, a patent license agreement could be deemed a material contract requiring disclosure in VMS's financial statements or in filings associated with Ridgeline's fund reporting. The covenant structure minimizes these disclosure complications.
• Recording: A patent license would typically be recorded with the USPTO. A covenant not to sue does not require recordation, avoiding the creation of a public record of the transaction (consistent with the confidentiality provisions discussed below).
The settlement agreement will contain a clear statement that no admission of liability, infringement, or validity is made by either party. VMS does not admit that the DriveLink™ 4.0 or FleetPulse™ products infringe the '312 Patent, and Pinnacle does not admit that the '312 Patent is invalid or unenforceable.
B. Mutual General Releases
The settlement agreement will include mutual general releases under which each party releases the other from all claims, counterclaims, demands, causes of action, obligations, and liabilities of any kind, whether known or unknown, that arise out of or relate to the Action, Pinnacle Innovations LLC v. Vantage Mobility Systems Corp., No. 2:24-cv-00187-JRG (E.D. Tex.). The mutual releases will encompass all claims and counterclaims asserted in the Action, as well as any potential claims between the parties that could have been asserted in the Action relating to the '312 Patent or any other patent in the Pinnacle portfolio.
C. Payment Terms
The settlement requires a lump-sum payment of $385,000 from VMS to Pinnacle, payable within 30 calendar days after the full execution of the settlement agreement by all parties. The payment will be funded as follows:
• VMS self-insured retention: $75,000
• Northbridge Specialty Insurance Company indemnity payment: $310,000
VMS will be responsible for coordinating the insurance payment with Northbridge, and the settlement agreement will provide that payment is deemed timely if both the SIR payment and the insurance indemnity payment are received by Pinnacle within the 30-day payment period.
D. Confidentiality
The settlement amount and all material terms of the settlement agreement will be subject to confidentiality provisions under which neither party may disclose the terms of the settlement to any third party except:
(a) as required by applicable law, regulation, or court order;
(b) to the parties' respective legal, tax, and financial advisors who have a need to know and who agree to be bound by equivalent confidentiality obligations;
(c) in connection with the filing of the joint stipulation of dismissal in the Action;
(d) in connection with regulatory, tax, or financial reporting obligations, including Ridgeline's fund reporting obligations; and
(e) to Northbridge Specialty Insurance Company in connection with the processing of the insurance claim.
The existence of the settlement (as distinct from the specific terms) may be publicly disclosed to the extent necessary in connection with the dismissal filing or other required disclosures.
E. Dismissal
Within 14 days of confirmation that the full $385,000 settlement payment has been received by Pinnacle, the parties will execute and file a joint stipulation of dismissal with prejudice of all claims and counterclaims in the Action, pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(ii). The stipulation will provide that each party shall bear its own attorneys' fees and costs.
F. Other Terms
The settlement agreement will contain the following additional provisions:
• No ongoing obligations: VMS will have no ongoing obligations to Pinnacle of any kind following the payment of the settlement amount and the filing of the stipulation of dismissal. There are no reporting requirements, royalty obligations, audit rights, or other continuing duties.
• No restrictions on VMS's business: The settlement agreement will not restrict VMS's right to continue manufacturing, selling, offering for sale, using, or importing the DriveLink™ 4.0, FleetPulse™, or any other VMS products or services. VMS will be free to continue its business operations without any limitations arising from the settlement.
• Governing law: The settlement agreement will be governed by the laws of the State of Delaware, without regard to conflict-of-laws principles.
• Dispute resolution: Any dispute arising under the settlement agreement will be subject to binding arbitration administered by JAMS in Detroit, Michigan.
VI. Insurance Coverage Analysis
A. Applicable Policy
VMS maintains a Commercial General Liability insurance policy issued by Northbridge Specialty Insurance Company ("Northbridge"), located at 200 Harbor Boulevard, Stamford, Connecticut 06902. The relevant policy details are as follows:
The Northbridge policy includes an intellectual Property Infringement Defense sublimit that provides coverage for both defense costs and indemnity payments arising from claims of patent, copyright, trademark, or trade secret infringement, subject to the per-occurrence and aggregate sublimits and the SIR.
B. Coverage Status
On February 12, 2025, Northbridge confirmed in writing that it would provide coverage for the defense of the '312 Patent action, subject to the SIR and a standard reservation of rights. The reservation of rights letter preserved Northbridge's right to contest coverage in the event that certain policy exclusions were found to apply, including exclusions for willful or intentional infringement and for claims arising from pre-policy-period conduct. However, based on our review of the reservation of rights letter and the facts of the Action, we do not believe that any of the reserved exclusions are implicated by the proposed settlement. The reservation of rights does not affect Northbridge's obligation to fund the indemnity portion of a bona fide settlement of the covered claim.
C. Allocation of Settlement Payment
The allocation of the proposed $385,000 settlement payment between VMS and Northbridge is as follows:
The $310,000 Northbridge indemnity payment is well within the $500,000 per-occurrence sublimit under the policy. Moreover, there are no prior claims against the $1,000,000 aggregate sublimit for the current policy period, so the full aggregate capacity remains available.
D. Defense Costs
It is important to note that under the Northbridge policy, defense costs are the responsibility of VMS and are not covered under the IP Infringement Defense sublimit. Northbridge's coverage obligation is limited to the indemnity portion of the settlement — that is, the amount paid to resolve the underlying claim, net of the SIR. VMS has borne, and will continue to bear, the full cost of the defense.
Accordingly, VMS's total out-of-pocket expenditure in connection with the Action, assuming the settlement is consummated, will be as follows:
This figure does not include the approximately $624,000 in fees billed by Hargrove Dunn prior to C&H's engagement. Including the Hargrove Dunn period costs, VMS's all-in out-of-pocket expenditure for the Action is approximately $1,211,800.
E. Northbridge Consent
Before VMS executes the settlement agreement, C&H will correspond separately with Northbridge (attention: Tanya Whitcomb, Claims Adjuster) to:
(a) confirm Northbridge's agreement to fund the $310,000 indemnity portion of the settlement;
(b) obtain any consent to the specific settlement terms that may be required under the policy; and
(c) coordinate the timing and mechanics of the indemnity payment to ensure that the 30-day payment deadline in the settlement agreement is met.
We do not anticipate any difficulty in obtaining Northbridge's consent. The settlement amount is well within policy limits, the terms are reasonable, and resolution by settlement is in Northbridge's interest as it avoids the risk of a significantly larger indemnity obligation in the event of an adverse trial verdict.
VII. Ridgeline Approval Requirement
Section 7.04(c) of the VMS Operating Agreement provides that VMS may not execute any single litigation expenditure or settlement in excess of $250,000 without the prior written consent of the Ridgeline board-designee. This consent requirement was established as part of the governance provisions negotiated in connection with the 2019 recapitalization and is intended to ensure that Ridgeline, as the majority equity holder, retains oversight of significant litigation-related expenditures.
The proposed settlement of $385,000 exceeds the $250,000 threshold established under Section 7.04(c). Accordingly, written consent from the Ridgeline board-designee is required before VMS may execute the settlement agreement. We note that the $250,000 threshold applies to the gross settlement amount — that is, the total amount payable to Pinnacle — and not to VMS's net out-of-pocket cost after insurance recovery. Even though VMS's actual cash outlay for the settlement itself is limited to the $75,000 SIR, the gross amount of $385,000 triggers the consent requirement.
C&H recommends that VMS seek written consent from David Mercer, Partner at Ridgeline Capital Management, LLC, acting on behalf of Ridgeline Capital Partners Fund IV, LP, in his capacity as the Ridgeline board-designee. To facilitate this process, C&H will prepare:
(a) a formal approval request letter from VMS to Mr. Mercer, summarizing the basis for the settlement recommendation; and
(b) a form of written consent for Mr. Mercer's execution, substantially in the form attached as Appendix D to this memorandum.
We strongly recommend that the Ridgeline approval be obtained before VMS executes the settlement agreement, in order to ensure compliance with the Operating Agreement and to avoid any question as to the enforceability of the settlement. Given the time sensitivity of the settlement negotiations, we respectfully request that Ms. Nguyen and Mr. Mercer endeavor to complete the approval process within ten business days of the date of this memorandum.
VIII. Recommendation
Based on the foregoing analysis, Calderwood & Harkness LLP recommends that VMS proceed with the proposed nuisance-value settlement of $385,000 to resolve all claims and counterclaims in Pinnacle Innovations LLC v. Vantage Mobility Systems Corp., No. 2:24-cv-00187-JRG (E.D. Tex.).
Our recommendation is based on the following key factors:
1. Cost efficiency. The $385,000 settlement amount is a small fraction of the estimated $2.8 million to $3.4 million in additional legal fees and expenses that would be required to take the case through trial. Even including defense costs already incurred, the total cost of the settlement path ($897,800) is significantly less than the cost of the trial path ($3.3 million to $3.9 million, before any adverse judgment).
2. Favorable but uncertain defense positions. While VMS holds favorable positions on both invalidity (65–70% probability) and non-infringement (55–60% probability), these positions are not dispositive. The ambiguous construction of "network congestion metric" preserves a meaningful infringement risk that could result in a substantial damages award if VMS loses at trial.
3. Insurance recovery. Northbridge Specialty Insurance Company's coverage reduces VMS's out-of-pocket cost for the settlement itself to just $75,000 (the SIR). The $310,000 insurance indemnity makes the settlement a particularly attractive resolution from a cash-flow perspective.
4. Broad portfolio-wide protection. The covenant not to sue extends to the '312 Patent and all approximately 35 patents in the Pinnacle portfolio as of the effective date. This eliminates the risk of future patent assertions by Pinnacle — a significant strategic benefit that could not be obtained through a trial victory on the '312 Patent alone.
5. No admission of liability. The settlement includes no admission of liability, infringement, or validity by either party. VMS's reputation and its ability to assert the validity of its products and technologies are fully preserved.
6. Elimination of management distraction. Settlement allows VMS management and engineering teams to focus on business operations — including the DriveLink™ 5.0 product launch and FleetPulse™ platform expansion — rather than devoting months of time and attention to expert discovery, trial preparation, and trial testimony through October 2025 and beyond.
7. Favorable settlement structure. The covenant-not-to-sue structure (as opposed to a license) avoids accounting, financial-disclosure, and recordation complications, while providing equivalent practical protection.
Recommended Next Steps
If VMS and Ridgeline approve the recommended settlement, C&H will proceed with the following steps in the order indicated:
1. Obtain Ridgeline approval. Secure written consent from David Mercer under VMS Operating Agreement § 7.04(c), using the form of written consent attached as Appendix D.
2. Confirm Northbridge coverage. Correspond with Northbridge Specialty Insurance Company (attention: Tanya Whitcomb) to confirm Northbridge's agreement to fund the $310,000 indemnity portion and to obtain any required consent to the settlement terms.
3. Finalize settlement agreement. Negotiate and finalize the definitive settlement agreement with Whitfield & Gaines PLLC, incorporating all of the terms described in Section V of this memorandum.
4. Execute settlement agreement. Arrange for execution of the settlement agreement by all parties.
5. Remit payment. Coordinate the payment of $385,000 to Pinnacle within 30 calendar days of execution ($75,000 from VMS; $310,000 from Northbridge).
6. File stipulation of dismissal. File a joint stipulation of dismissal with prejudice of all claims and counterclaims within 14 days of confirmation that Pinnacle has received the full settlement payment.
7. Close the matter. Close the C&H matter file and provide final accounting to VMS.
IX. Conclusion
For the reasons set forth in this memorandum, Calderwood & Harkness LLP believes that the proposed settlement of $385,000 represents the most prudent and economically rational resolution of the Pinnacle Innovations action. The settlement eliminates significant ongoing litigation expense, resolves meaningful (if not dispositive) infringement risk, and provides VMS with broad protection against future assertions from Pinnacle's entire patent portfolio — all at a net out-of-pocket cost to VMS of just $587,800 (inclusive of all defense costs already incurred and the SIR).
We are available to discuss this recommendation with Ms. Nguyen and Mr. Mercer at their earliest convenience. If approved, we will proceed promptly to finalize the settlement documentation and coordinate with both Northbridge and Ridgeline to ensure a timely and efficient conclusion of the matter.
Please do not hesitate to contact me with any questions.
Marcus Delgado Partner, intellectual Property Practice Calderwood & Harkness LLP One Fountain Square, 11th Floor Detroit, MI 48226 Telephone: (313) 555-4200
Email: mdelgado@calderwoodharkness.com