PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP One Embarcadero Center, 34th Floor San Francisco, California 94111
MEMORANDUM
TO: Alan Ngo, Responsible Partner, Calderwood & Harkness LLP Sandra Ellison, General Counsel, Optiwave Semiconductor Corp. Rebecca Torres, Operating Partner, Vantage Point Capital Partners Fund IV, LP
FROM: Marcus Delgado, Billing Partner, intellectual Property Group, Calderwood & Harkness LLP
DATE: September 15, 2022 (Original); Updated January 20, 2023
RE: Matter Budget Memorandum and Forecast Update — 1014-00003, Optiwave Semiconductor Corp. v. Lumos Photonics, Inc., Case No. 5:22-cv-03417-EJD (N.D. Cal.)
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I. Purpose and Executive Summary
The purpose of this memorandum is to set forth a detailed phase-based litigation budget for Matter No. 1014-00003, Optiwave Semiconductor Corp. v. Lumos Photonics, Inc., Case No. 5:22-cv-03417-EJD (N.D. Cal.), and to track actual expenditures against the Board-approved budget of $4.2 million through trial. This memorandum was originally prepared in September 2022 and has been updated as of January 20, 2023 to reflect actual spend through year-end 2022 and to provide a revised forecast incorporating significant case developments, including the Markman hearing now scheduled for January 30, 2023.
On April 28, 2022, the Board of Directors of Optiwave Semiconductor Corp. ("OWS" or the "Company") authorized a total litigation budget of $4.2 million (inclusive of a 5% contingency reserve) to prosecute this patent infringement action through trial. That authorization was made with the concurrence of Vantage Point Capital Partners Fund IV, LP ("Vantage Point" or "VPCP"), which holds an approximately 62% ownership interest in OWS and is the Company's majority institutional shareholder. The budget authorization followed detailed presentations to the Board regarding the strength of OWS's patent portfolio, the infringement exposure of Lumos Photonics, Inc. ("Lumos") through its LumosBridge 800G and LumosEdge 400ZR+ product lines, and the expected damages recovery, which exceeds $75 million based on a reasonable royalty analysis.
The engagement letter between OWS and Calderwood & Harkness LLP ("C&H" or the "Firm") was executed on May 12, 2022. The Complaint for Patent Infringement was filed on June 3, 2022 before the Honorable Edward J. Torvelis in the United States District Court for the Northern District of California, San Jose Division, and was assigned Case Number 5:22-cv-03417-EJD. The Complaint asserts infringement of four OWS patents: U.S. Patent Nos. 10,123,567 (the "'567 Patent"), 10,456,234 (the "'234 Patent"), 10,789,678 (the "'678 Patent"), and 11,012,890 (the "'890 Patent").
September 2022 Version. The original version of this memorandum, dated September 15, 2022, presented the projected budget by litigation phase, covering all seven phases of the litigation from pre-suit investigation through trial. At that time, Phases 1 and 2 were substantially complete, Phase 3 (Claim Construction) was just beginning, and all remaining phases were projected based on the Firm's experience with matters of comparable size and complexity in this district.
January 2023 Update. This updated version reflects actual expenditures through December 31, 2022, covering nearly eight months of active litigation, and provides a revised forward-looking forecast. The update incorporates several developments that have affected the budget trajectory, most notably: (i) the filing of OWS's Opening Claim Construction Brief (45 pages) on December 5, 2022; (ii) the filing of OWS's Reply Claim Construction Brief on January 9, 2023; (iii) the Court's grant of leave for Lumos to file a Sur-Reply on January 19, 2023; (iv) intensive preparation for the Markman hearing scheduled for January 30, 2023; and (v) the commencement of overlapping fact discovery.
The following summary table provides a high-level comparison of the approved budget, actual spend-to-date, and projected total cost:
As of December 31, 2022, approximately 34% of the total approved budget has been consumed. The Firm currently projects that the matter will remain within the $4.2 million Board-approved budget through trial, though this projection is subject to material revision depending on the outcome of the Markman hearing, as discussed in greater detail in Section VI below.
II. Engagement Team and Billing Rates
A. Staffing. The Calderwood & Harkness team assigned to this matter was selected for their deep technical expertise in semiconductor and photonics patent litigation, their familiarity with the practices and procedures of the Northern District of California Patent Local Rules, and their prior experience representing OWS and its portfolio companies in intellectual property matters. The core team is as follows:
Alan Ngo — Responsible Partner. Mr. Ngo is the senior partner responsible for overall case strategy, substantive briefing, and client communication. He brings twenty-two years of patent litigation experience to this matter, with a particular focus on semiconductor, photonics, and integrated circuit technologies. Mr. Ngo is a registered patent attorney with the United States Patent and Trademark Office (Registration No. 52,871) and holds a Bachelor of Science degree in Electrical Engineering from the University of California, Los Angeles. He has served as lead trial counsel in over fifteen patent infringement actions in the Northern District of California and other federal courts, including several matters involving silicon photonics and optical interconnect technologies closely related to the patents at issue here. Mr. Ngo leads all key depositions, oral arguments, and strategic decision-making on the matter.
Marcus Delgado — Billing Partner. Mr. Delgado serves as the billing partner, responsible for managing the client billing relationship and fee arrangements, budget tracking, and coordination with OWS's finance team and Vantage Point's operating partner on all financial aspects of the engagement. Mr. Delgado also provides substantive support on selected strategic matters, including the pre-litigation funding analysis and the review of the Resolute Litigation Finance, LP term sheet. His involvement in substantive legal work is limited to preserve cost efficiency.
Omar Siddiqui — Lead Associate. Mr. Siddiqui is the lead associate on the matter, responsible for day-to-day case management, discovery coordination, research, brief drafting, and expert coordination. He has six years of experience in patent litigation, with a concentrated focus on semiconductor and electrical engineering patent cases. Mr. Siddiqui holds a Master of Science degree in Electrical Engineering from the Georgia Institute of Technology and a Juris Doctor from Stanford Law School. He has played a central role in drafting all claim construction briefs, coordinating the three inventor depositions completed to date, and managing the document review and ESI protocol.
Christy Bauer — Working Associate. Ms. Bauer is a third-year associate providing research, drafting, document review, and expert coordination support. She holds a Bachelor of Science degree in Physics from the California Institute of Technology and a Juris Doctor from the University of Chicago Law School. Ms. Bauer's technical background has been particularly valuable in the prosecution history analysis for the '567 and '678 Patents and in supporting Dr. Whitfield's technical expert work.
Additional Support Personnel. The team is further supported by paralegals, litigation support specialists, and e-discovery personnel as needed. Paralegal and litigation support time is billed at standard rates (ranging from $275 to $385 per hour before the volume discount). E-discovery vendor costs are tracked as costs and disbursements rather than professional fees.
B. Billing Rates and Fee Arrangement
Under the engagement letter executed on May 12, 2022, OWS and C&H agreed to a blended hourly rate arrangement incorporating a 10% volume discount on the Firm's standard hourly rates for all timekeepers assigned to this matter. The following table summarizes the applicable rates:
The 10% volume discount was negotiated in recognition of the anticipated duration and scope of this matter and reflects the ongoing relationship between C&H and OWS, which includes prior engagements in patent prosecution and portfolio counseling matters. The discount applies to all professional fees and is reflected in each monthly invoice.
Retainer Arrangement. The engagement letter provides for a $100,000 evergreen retainer, to be replenished quarterly. The retainer is held in the Firm's client trust account and is applied against outstanding invoices as they become due. The following deposits have been received and applied:
• Initial Deposit: $100,000 — received May 2022
• Q3 2022 Replenishment: $100,000 — received August 2022
• Q4 2022 Replenishment: $100,000 — received November 2022
• Q1 2023 Replenishment: $100,000 — due February 2023 (forthcoming)
Total retainer deposits received through the date of this update: $300,000. These deposits have been applied against professional fees and costs as invoiced. The current retainer account balance and application details are maintained separately and are available upon request.
C. Expert Consultants
Two expert consultants have been retained to support OWS's claims in this matter. Their fees are tracked separately from C&H's professional fees and are invoiced directly by the respective expert firms, with copies of all invoices forwarded to OWS's accounts payable department and to Ms. Ellison for approval prior to payment.
Dr. Harold Whitfield — Whitfield Technical Consulting Group, Inc. (Palo Alto, California). Dr. Whitfield was retained in August 2022 to serve as OWS's technical expert for claim construction and infringement analysis. Dr. Whitfield holds a Ph.D. in Electrical Engineering from the Massachusetts Institute of Technology and has over twenty-five years of experience in silicon photonics, including design and fabrication of photonic integrated circuits for high-speed optical communication. He has previously served as a testifying expert in more than thirty patent cases involving semiconductor and photonics technologies in federal courts across the country. For this matter, Dr. Whitfield has prepared a detailed declaration in support of OWS's Opening Claim Construction Brief, developed a technical tutorial presentation for the Markman hearing, and provided ongoing technical consultation regarding the four asserted patents and Lumos's accused products. Dr. Whitfield's standard rate is $850 per hour.
Dr. Lawrence Kessler — Apex Claim Analytics LLC (Chicago, Illinois). Dr. Kessler was retained in October 2022 as OWS's damages expert to prepare a reasonable royalty analysis under the Georgia-Pacific factor framework. Dr. Kessler is a Certified Public Accountant and holds a Ph.D. in Economics from the University of Pennsylvania. He has extensive experience in patent damages analysis, with a particular focus on technology licensing and semiconductor industry royalty structures. Dr. Kessler's preliminary analysis applies a 7.5% reasonable royalty rate to Lumos's accused product revenue of approximately $148.6 million for calendar year 2022, yielding a preliminary damages estimate in excess of $75 million (subject to further refinement based on the Court's claim constructions and the scope of surviving infringement theories). Dr. Kessler's standard rate is $725 per hour.
Expert fees are reported separately in this memorandum and in Appendix C to provide transparency into the allocation of the overall budget between C&H professional fees and expert engagement costs.
III. Phase-Based Budget — Original (September 2022)
This section presents the original phase-based budget as prepared in September 2022. The budget is organized into seven litigation phases, each corresponding to a distinct stage of the proceedings. The phase structure is consistent with the Firm's standard approach to litigation budgeting in patent cases in the Northern District of California and is designed to provide the client with granular visibility into anticipated costs at each stage.
A. Phase 1: Pre-Suit Investigation and Engagement (Completed)
Scope and Activities. Phase 1 encompassed all work performed prior to and in connection with the filing of the Complaint, including:
• Pre-suit infringement analysis of all four asserted patents: the '567 Patent (directed to adiabatically coupled waveguide structures for silicon photonic transmitters), the '234 Patent (directed to continuously varying germanium concentration profiles in photodetectors), the '678 Patent (directed to monolithically formed co-integrated photonic and electronic circuits), and the '890 Patent (directed to thermal management structures for high-density photonic integrated circuits)
• Validity risk assessment, including prior art searches and analysis of prosecution histories for each of the four patents
• Preparation of a litigation strategy memorandum for presentation to the OWS Board of Directors, including an assessment of the merits, estimated damages recovery, anticipated duration and cost, and recommended forum
• Litigation funding analysis, including review and evaluation of a term sheet from Resolute Litigation Finance, LP for third-party funding of the litigation; the term sheet was ultimately declined in favor of self-funding by OWS and Vantage Point to retain full control of the litigation and avoid profit-sharing with the funder
• Execution of the engagement letter between OWS and C&H (May 12, 2022)
• Comprehensive conflict check across all C&H offices and affiliated entities
Estimated Budget: $185,000 (C&H professional fees) + $10,000 (costs and disbursements) = $195,000 total.
Status as of September 2022: Phase 1 was largely completed by the time of the Complaint filing on June 3, 2022. This phase included a significant amount of pre-engagement work, including the Board presentation and the litigation funding analysis, which were necessary to obtain the required corporate and shareholder approvals. The phase was completed within budget.
B. Phase 2: Pleadings and Initial Case Management
Scope and Activities. Phase 2 encompassed all pleadings-related work and initial case management activities, including:
• Drafting and filing the Complaint for Patent Infringement (filed June 3, 2022), including detailed claim charts for each of the four asserted patents against both the LumosBridge 800G and LumosEdge 400ZR+ product lines
• Preparation and filing of the civil cover sheet, summons, and corporate disclosure statement
• Service of process on Lumos Photonics, Inc. via Ashgrove Services Inc., its registered agent for service of process in California (service effected June 28, 2022)
• Review and analysis of Lumos's Answer and Counterclaims (filed August 1, 2022), which included counterclaims for declaratory judgment of non-infringement and invalidity under 35 U.S.C. §§ 102, 103, and 112
• Preparation and filing of OWS's Answer to Lumos's Counterclaims
• Attendance at the Initial Case Management Conference before Judge Torvelis on August 15, 2022, including preparation of the Joint Case Management Statement and Proposed Case Management Order
• Negotiation and filing of a Stipulated Protective Order governing the treatment of confidential and highly confidential information produced in discovery
• Issuance of litigation hold notices to all relevant OWS custodians and verification of document preservation procedures
• Preparation and delivery of a notification letter to First Pacific Commerce Bank, N.A. ("FPCB"), as required under the covenants of OWS's $40 million revolving credit facility, advising FPCB of the commencement of material litigation (letter delivered June 6, 2022)
Estimated Budget: $200,000 (C&H professional fees) + $10,000 (costs and disbursements) = $210,000 total.
Status as of September 2022: Phase 2 was substantially completed by the date of this memorandum. The Initial Case Management Conference was held on August 15, 2022, and the Court set the Markman hearing for January 30, 2023. The Stipulated Protective Order was entered by the Court on August 22, 2022. All Phase 2 activities were completed within budget.
C. Phase 3: Claim Construction / Markman Phase
Scope and Activities. Phase 3 is the claim construction phase of the case and represents the single largest budget allocation. The Markman phase is critical to the outcome of this litigation because the Court's constructions of the disputed claim terms will determine the scope of the asserted patent claims and, accordingly, the viability of OWS's infringement theories and Lumos's invalidity defenses. The activities encompassed within this phase include:
• Preparation and service of OWS's Preliminary Claim Construction Contentions pursuant to Patent Local Rule 4-1 (served September 12, 2022), identifying the claim terms for which OWS seeks construction and proposing claim constructions for each
• Review and analysis of Lumos's Responsive Claim Construction Contentions pursuant to Patent Local Rule 4-2 (served October 3, 2022)
• Preparation and filing of the Joint Claim Construction and Prehearing Statement pursuant to Patent Local Rule 4-3 (filed October 14, 2022), identifying eleven (11) disputed claim terms across the four asserted patents for which the parties were unable to agree on constructions
• Claim construction discovery, including:
• Depositions of three named inventors: Dr. Kevin Fong (co-inventor, '567 and '234 Patents), Hideo Tanaka (co-inventor, '567 Patent and inventor of prior art U.S. Patent No. 9,456,012), and Dr. Amara Osei (co-inventor, '678 and '890 Patents)
• Comprehensive review and analysis of the prosecution histories for all four asserted patents, including file wrapper analyses, identification of prosecution history estoppel arguments, and assessment of the impact of applicant arguments and amendments made during prosecution
• Close of claim construction discovery: October 31, 2022
• Preparation and filing of OWS's Opening Claim Construction Brief (45 pages, filed December 5, 2022), addressing all eleven disputed terms with supporting intrinsic and extrinsic evidence
• Preparation and filing of OWS's Reply Claim Construction Brief (15 pages, due January 9, 2023)
• Markman hearing preparation and attendance (January 30, 2023), including:
• Preparation for an anticipated 6.5-hour hearing before Judge Torvelis
• Internal moot court sessions to prepare Mr. Ngo for oral argument
• Preparation of demonstrative exhibits, including annotated patent figures, claim term comparison charts, and prosecution history timelines
• Coordination with Dr. Harold Whitfield for preparation and delivery of a technical tutorial presentation to the Court, covering the relevant technology background in silicon photonics, waveguide coupling, germanium concentration profiles, and photonic-electronic co-integration
• Engagement and coordination of technical expert, Dr. Harold Whitfield, including preparation of his declaration in support of the Opening Claim Construction Brief and preparation for his technical tutorial testimony
• Preparation of internal memoranda addressing prosecution history estoppel rebuttal strategies for the '567 and '678 Patents and a claim construction discovery plan
Estimated Budget: $875,000 (C&H professional fees) + $225,000 (expert fees — Dr. Whitfield) + $40,000 (costs and disbursements) = $1,140,000 total.
Status as of September 2022: Phase 3 had just commenced at the time of the original memorandum. OWS's Preliminary Claim Construction Contentions were served on September 12, 2022. This phase is expected to extend through February 2023 (post-hearing briefing, if any). This is the largest single phase of the budget and is expected to be critical to the ultimate outcome of the case.
D. Phase 4: Fact discovery
Scope and Activities. Phase 4 encompasses all fact discovery activities, including both offensive and defensive document discovery, interrogatories, and fact depositions. Because the Northern District of California's Case Management Order establishes overlapping discovery and claim construction periods, certain fact discovery activities will run concurrently with Phase 3. The activities encompassed within this phase include:
• Preparation and service of OWS's First Set of Requests for Production of Documents to Lumos (112 requests, served November 21, 2022), targeting technical design documents, source code, testing data, marketing materials, financial records, and licensing agreements related to the LumosBridge 800G and LumosEdge 400ZR+ products
• Preparation and service of OWS's First Set of Interrogatories to Lumos (25 interrogatories), addressing the factual bases for Lumos's defenses and counterclaims, the development history of the accused products, and Lumos's knowledge of OWS's patents prior to suit
• Review and response to Lumos's First Set of Requests for Production of Documents to OWS (98 requests, served November 7, 2022), including collection, review, and production of responsive documents from OWS's files and ESI systems
• Review and response to Lumos's Interrogatories
• ESI protocol development, including negotiation of search terms, identification of custodians, and coordination with e-discovery vendors. Eight key custodians have been identified on the OWS side: Dr. Suresh Ramanathan (CEO), Dr. Kevin Fong (VP Research), Dr. Amara Osei (Senior Scientist), Theodore "Ted" Marchetti (CFO), Sandra Ellison (General Counsel), Priya Iyer (VP Business Development), Wei Zhang (Director of Engineering), and Hideo Tanaka (Principal Engineer)
• Document review and production, including first-level review, privilege review, and quality control
• Privilege log preparation for all withheld or redacted documents
• Meet-and-confer correspondence with Lumos's counsel at Brannick Howell & Stein LLP regarding production sufficiency, search term disputes, and custodian scope
• Potential discovery motion practice, including motions to compel production of technical design documents and source code, if meet-and-confer efforts are unsuccessful
• Fact depositions (estimated 8–12 depositions), including depositions of Lumos personnel with knowledge of the design, development, and commercialization of the accused products
Estimated Budget: $720,000 (C&H professional fees) + $60,000 (costs and disbursements) = $780,000 total.
Note: Certain fact discovery activities overlap with the claim construction phase and have already commenced. The document review protocol was finalized in November 2022, and the first round of document productions has been exchanged.
E. Phase 5: Expert discovery
Scope and Activities. Phase 5 encompasses the expert discovery phase, including the preparation, service, and defense of expert reports and expert depositions. This phase involves both of OWS's retained experts and the review and rebuttal of Lumos's experts. The activities encompassed within this phase include:
• Preparation of Dr. Lawrence Kessler's damages expert report, presenting a reasonable royalty analysis under the Georgia-Pacific factor framework. Dr. Kessler's preliminary analysis applies a 7.5% royalty rate to Lumos's accused product revenue of approximately $148.6 million for calendar year 2022, yielding a damages estimate in excess of $75 million. The final damages figure will depend on the Court's claim constructions and the scope of surviving infringement theories
• Preparation of Dr. Harold Whitfield's technical expert report, presenting a detailed infringement analysis for all four asserted patents against both the LumosBridge 800G and LumosEdge 400ZR+ product lines, including element-by-element claim charts and supporting technical analysis
• Preparation of rebuttal expert reports for both Dr. Kessler and Dr. Whitfield, responding to the opinions of Lumos's designated experts
• Review and analysis of Lumos's expert reports, which are expected to include reports from:
• Dr. Patricia Moreno, Compass Forensic Accounting LLP — Damages expert, expected to offer an alternative damages analysis contesting the royalty rate and/or the royalty base
• Dr. Raymond Ng — Technical expert, expected to offer non-infringement and/or invalidity opinions
• Expert depositions, including depositions of Lumos's experts and defense of depositions of Dr. Whitfield and Dr. Kessler
• Coordination between Dr. Whitfield and Dr. Kessler to ensure consistency between the technical infringement analysis and the damages model
Estimated Budget: $550,000 (C&H professional fees) + $350,000 (expert fees — Dr. Whitfield and Dr. Kessler combined) + $35,000 (costs and disbursements) = $935,000 total.
F. Phase 6: Dispositive Motions
Scope and Activities. Phase 6 encompasses the dispositive motion phase, which may include summary judgment motions on infringement, invalidity, and/or damages, as well as Daubert motions regarding expert testimony. The scope of this phase will depend significantly on the outcomes of claim construction and fact discovery. The activities encompassed within this phase include:
• Preparation of any OWS motions for partial summary judgment (e.g., on infringement of specific patents or claims, on the issue of willfulness)
• Opposition to Lumos's anticipated motions for summary judgment of non-infringement and/or invalidity
• Daubert motions challenging the admissibility of Lumos's expert testimony (Dr. Moreno and/or Dr. Ng), and defense of any Daubert challenges to OWS's experts
• Briefing on the issue of willful infringement, including evidence of Lumos's pre-suit knowledge of OWS's patents and any evidence of copying or deliberate design-around failures
• Opposition briefs and any sur-reply or supplemental briefing as permitted by the Court
Estimated Budget: $400,000 (C&H professional fees) + $25,000 (costs and disbursements) = $425,000 total.
G. Phase 7: Pre-Trial and Trial
Scope and Activities. Phase 7 encompasses all pre-trial preparation and the trial itself. The current Case Management Order contemplates a jury trial, and the estimated trial length is 7 to 10 court days. The activities encompassed within this phase include:
• Attendance at the pretrial conference and preparation of the final pretrial order, including agreed-upon and disputed facts, exhibit lists, witness lists, and deposition designations
• Preparation and briefing of motions in limine to exclude or limit certain evidence and testimony
• Preparation of trial briefs addressing key legal issues for the Court
• Preparation of proposed jury instructions and verdict form, and briefing of any disputed instructions
• Voir dire preparation, including development of juror questionnaires and jury selection strategy
• Preparation of trial presentation materials and demonstrative exhibits, including technology tutorials, infringement comparison charts, damages calculations, and product demonstrations
• Witness preparation, including preparation of all OWS fact witnesses, Dr. Whitfield, and Dr. Kessler for direct examination and cross-examination
• Trial attendance (estimated 7–10 court days), including opening and closing statements, direct and cross-examinations, and daily trial team coordination
• Post-trial motions, including motions for judgment as a matter of law (renewed JMOL), motions for new trial, and post-trial briefing on any outstanding legal issues
Estimated Budget: $620,000 (C&H professional fees) + $100,000 (expert fees — trial testimony by Dr. Whitfield and Dr. Kessler) + $80,000 (costs and disbursements) = $800,000 total.
H. Summary Budget Table — Original (September 2022)
The following table summarizes the original phase-based budget as approved by the OWS Board of Directors on April 28, 2022:
The total aligns with the Board-approved $4.2 million budget through trial, inclusive of a 5% contingency reserve of $215,000 to account for unanticipated developments such as additional motion practice, discovery disputes, or schedule changes.
IV. Actual Spend-to-Date — September 2022 Snapshot
As of the date of the original memorandum (September 15, 2022), actual expenditures on the matter were as follows:
Period Covered: May 12, 2022 (engagement date) through September 15, 2022 (approximately four months of active work).
C&H Professional Fees Billed: Approximately $385,000. This figure reflects professional time spent on Phases 1 and 2 (both substantially complete) and the commencement of Phase 3 (Claim Construction). Key activities during this period included the pre-suit infringement analysis, Board presentation, engagement letter negotiation and execution, Complaint drafting and filing, service of process, review of Lumos's Answer and Counterclaims, preparation for and attendance at the Initial Case Management Conference, negotiation of the Stipulated Protective Order, and the commencement of claim construction contentions preparation.
Costs and Disbursements: Approximately $42,000. This figure includes court filing fees ($402 for the initial filing), service of process fees, court reporter charges (for the Initial Case Management Conference transcript), attorney travel expenses, copying and printing, and legal research database charges (Westmark Data Systems and Calderon Systems).
Expert Fees: Approximately $45,000. This figure reflects the initial retention of Dr. Harold Whitfield in August 2022 and his preliminary claim term analysis work. Dr. Whitfield's engagement during this period focused on a high-level review of the four asserted patents, identification of claim terms likely to be disputed, and preliminary analysis of the relevant technology background. Dr. Kessler had not yet been retained at the time of the original memorandum.
Total Spend Through September 15, 2022: Approximately $472,000.
Budget Tracking Assessment: As of September 15, 2022, approximately 11% of the total $4.2 million budget had been consumed. This was consistent with expectations, given that Phases 1 and 2 (combined budget of $405,000) were substantially complete and Phase 3 was in its early stages. The matter was on pace with the budget at this point, with no anticipated overruns. OWS's Preliminary Claim Construction Contentions had been served on September 12, 2022, and the team was preparing for the exchange of responsive contentions and the filing of the Joint Claim Construction and Prehearing Statement.
V. January 2023 Update — Revised Actual Spend and Forecast
A. Actual Spend Through December 31, 2022
This section provides a detailed accounting of actual expenditures on the matter from the date of engagement (May 12, 2022) through December 31, 2022, encompassing approximately seven and one-half months of active litigation.
C&H Professional Fees. Total C&H professional fees billed through December 31, 2022 are approximately $1,010,385. The following table provides an approximate breakdown by timekeeper:
The key billing activities during this period include:
• Phase 1 Activities (Completed): Pre-suit infringement analysis, Board presentation, litigation funding analysis, engagement letter execution, conflict check
• Phase 2 Activities (Completed): Complaint drafting and filing, answer to Lumos's counterclaims, Initial Case Management Conference preparation and attendance, Stipulated Protective Order negotiation, litigation hold implementation, FPCB notification letter
• Phase 3 Activities (In Progress): Preparation and service of Preliminary Claim Construction Contentions (Patent L.R. 4-1), review and analysis of Lumos's Responsive Contentions (Patent L.R. 4-2), preparation and filing of Joint Claim Construction and Prehearing Statement (Patent L.R. 4-3, covering 11 disputed claim terms), three inventor depositions (Dr. Kevin Fong, Hideo Tanaka, Dr. Amara Osei), comprehensive prosecution history review and analysis for all four asserted patents, drafting and filing of the Opening Claim Construction Brief (45 pages, filed December 5, 2022), commencement of Reply Brief preparation
• Phase 4 Activities (Commenced): Preparation and service of OWS's First Set of Requests for Production and First Set of Interrogatories, review of Lumos's First Set of Requests for Production, ESI custodian identification and search term negotiation, initial document collection and review, commencement of privilege review
• Internal Memoranda: Prosecution history estoppel rebuttal analysis for the '567 and '678 Patents, claim construction discovery plan, case strategy update memorandum to OWS Board
Costs and Disbursements. Total costs and disbursements through December 31, 2022 are approximately $156,000. This figure includes the following categories:
• Court filing fees (initial complaint filing, motion filing fees)
• Service of process fees (Ashgrove Services Inc.)
• Court reporting fees (transcript costs for inventor depositions and Initial Case Management Conference)
• Attorney travel expenses (depositions in San Jose, Palo Alto, and Los Angeles; client meetings at OWS headquarters in Santa Clara)
• Copying, printing, and binding (claim construction briefs and appendices)
• Legal research database charges (Westmark Data Systems, Calderon Systems, and patent database subscriptions)
• E-discovery vendor costs (data collection, processing, and hosting for ESI review platform)
• Demonstrative exhibit preparation (preliminary charts and figures for claim construction briefing)
• Expert-related costs (travel, facility charges for deposition preparation sessions)
The costs-to-date figure is somewhat elevated relative to the original projection for Phases 1–3, primarily due to higher-than-anticipated e-discovery vendor costs associated with the collection and processing of ESI from eight OWS custodians and the hosting of the document review platform. These costs are expected to normalize as the document review progresses and the initial processing surcharge is absorbed.
Expert Fees. Total expert fees through December 31, 2022 are approximately $247,000, broken down as follows:
• Dr. Harold Whitfield (Whitfield Technical Consulting Group, Inc.): Approximately $185,000. Dr. Whitfield's work during this period included claim term analysis for all eleven disputed terms, preparation of his declaration in support of OWS's Opening Claim Construction Brief, development of the technical tutorial presentation for the Markman hearing, review of prosecution histories for all four asserted patents, and deposition preparation support for the three inventor depositions.
• Dr. Lawrence Kessler (Apex Claim Analytics LLC): Approximately $62,000. Dr. Kessler's work during this period included development of the preliminary damages framework, initial Georgia-Pacific factor analysis, review of Lumos's publicly available financial data (including Lumos's Form 10-K for fiscal year 2022, identifying accused product revenue of approximately $148.6 million), and preliminary reasonable royalty rate analysis (arriving at a preliminary estimate of 7.5%).
Total Actual Spend Through December 31, 2022.
The total actual spend of approximately $1,413,385 represents approximately 34% of the Board-approved $4.2 million budget. This level of expenditure is consistent with expectations, given that Phases 1 and 2 are complete and Phase 3 is substantially advanced, with the Opening Claim Construction Brief filed and the Reply Brief nearing completion at the time of this update.
B. Retainer Account Status (January 2023)
The following summarizes the status of the evergreen retainer account as of the date of this update:
These deposits have been applied against monthly invoices as they have become due. The Q1 2023 replenishment of $100,000 is due in February 2023, and a replenishment request will be issued to OWS's accounts payable department in the ordinary course.
C. January 2023 Projected Spend
The month of January 2023 is expected to be one of the most intensive billing periods on the matter due to the concentration of Markman hearing preparation activities. The following is a summary of anticipated January 2023 expenditures:
Reply Claim Construction Brief. OWS's Reply Claim Construction Brief (15 pages) was filed on January 9, 2023. The costs associated with this brief are included in the Phase 3 estimate and have been reflected in the January 2023 billing cycle.
Lumos's Sur-Reply. By leave of Court granted on January 12, 2023, Lumos filed a Sur-Reply Claim Construction Brief on January 19, 2023. This additional briefing was not anticipated in the original budget and has required review and analysis by the team. The modest additional cost associated with this unanticipated briefing is estimated at approximately $15,000. The Sur-Reply raised new arguments regarding the prosecution history of the '567 Patent and cited additional prior art references not previously addressed in the parties' Joint Claim Construction and Prehearing Statement, necessitating a focused analysis by Mr. Ngo and Mr. Siddiqui.
Markman Hearing Preparation (January 20–29, 2023). The team is engaged in intensive preparation for the Markman hearing, including:
• Multiple internal moot court sessions to prepare Mr. Ngo for oral argument on all eleven disputed claim terms
• Finalization of demonstrative exhibits, including annotated patent figures, claim term comparison charts, prosecution history timelines, and technology illustrations
• Coordination with Dr. Whitfield for finalization and rehearsal of his technical tutorial presentation to the Court
• Preparation of a detailed hearing binder containing all relevant authorities, exhibits, and demonstrative materials
• Final strategy session with Ms. Ellison and the OWS technical team regarding the practical implications of various construction outcomes
Markman Hearing Attendance (January 30, 2023). The Markman hearing is scheduled for January 30, 2023 before the Honorable Edward J. Torvelis. The hearing is expected to last approximately 6.5 hours, including opening presentations, argument on each disputed term, the technical tutorial by Dr. Whitfield, and questions from the Court. Mr. Ngo will present the argument on OWS's behalf, with Mr. Siddiqui and Ms. Bauer providing support. Dr. Whitfield will appear as a technical tutorial witness to assist the Court in understanding the relevant technology.
Estimated January 2023 Expenditures:
• C&H Professional Fees: approximately $175,000
• Expert Fees (Dr. Whitfield): approximately $45,000
• Costs and Disbursements: approximately $12,000 (travel, demonstratives, hearing materials)
• Total Estimated January 2023 Spend: approximately $232,000
D. Revised Phase 3 Forecast
Based on actual expenditures through December 31, 2022 and projected January 2023 costs, the revised Phase 3 forecast is as follows:
The Phase 3 overrun of approximately $70,000 (6.1% above the original budget) is attributable to three primary factors:
1. Unanticipated Briefing. The Court's grant of leave for Lumos to file a Sur-Reply Claim Construction Brief on January 19, 2023 was not anticipated in the original budget. While the Sur-Reply itself did not require a formal response, it necessitated careful review and analysis to identify new arguments and assess whether they warranted supplemental presentation at the hearing. The additional cost attributable to this unanticipated briefing is approximately $15,000.
2. Extended Inventor Depositions. The three inventor depositions (Dr. Fong, Mr. Tanaka, and Dr. Osei) ran longer than anticipated, particularly the deposition of Hideo Tanaka. Mr. Tanaka's deposition was especially complex given his dual role as a named inventor on the '567 Patent and as the inventor of prior art U.S. Patent No. 9,456,012, which Lumos has cited in support of its invalidity contentions. The interplay between Mr. Tanaka's testimony regarding the claimed invention and his testimony regarding the prior art required extensive preparation and careful deposition technique. The additional cost attributable to extended deposition time is approximately $35,000.
3. Prosecution History Estoppel Analysis. The prosecution histories of the '567 and '678 Patents proved more complex than initially anticipated, requiring deeper analysis of the applicant arguments and claim amendments made during prosecution. In particular, an office action response filed during the prosecution of the '567 Patent included narrowing arguments that Lumos has seized upon to argue prosecution history estoppel with respect to the "adiabatically coupled" claim term. Rebutting this argument required a more extensive factual and legal analysis than originally budgeted, including coordination with Dr. Whitfield on the technical aspects of the prosecution history. The additional cost attributable to this analysis is approximately $20,000.
E. Revised Forward-Looking Budget (Post-Markman Through Trial)
The following table presents the revised budget forecast as of January 20, 2023, incorporating actual expenditures, the Phase 3 overrun, and revised estimates for remaining phases:
Key Observations:
The Phase 3 overrun of $70,000 is offset by three adjustments, resulting in a net-zero variance against the overall budget:
• Phase 1 Savings ($3,000). Phase 1 was completed slightly under budget due to efficiencies in the pre-suit investigation process, including the ability to leverage existing OWS technical documentation and prior prosecution work.
• Phase 2 Savings ($5,000). Phase 2 was completed slightly under budget due to the parties' prompt agreement on a Stipulated Protective Order, which avoided contested motion practice on this issue.
• Phase 4 Revised Estimate ($30,000 reduction). The Firm has revised its Phase 4 budget estimate downward by $30,000 based on the expectation that the claim construction outcome — regardless of whether it is favorable or unfavorable to OWS — will narrow certain discovery issues. A favorable construction of key terms will likely simplify and focus the infringement discovery, reducing the scope of document requests and depositions. Conversely, an adverse construction that eliminates certain infringement theories would reduce the number of patents and claims at issue, similarly narrowing discovery. In either scenario, some reduction in Phase 4 costs is expected.
• Contingency Reduction ($32,000). The remaining $32,000 of the Phase 3 overrun is absorbed by a reduction in the contingency reserve, from $215,000 to $183,000. This reduced contingency reserve remains at approximately 4.6% of the total budget, which the Firm considers adequate at this stage of the litigation.
Important Caveat. All forward-looking phase estimates remain subject to significant revision depending on the outcome of the Markman hearing on January 30, 2023. The eleven disputed claim terms are of fundamental importance to OWS's infringement theories, and the Court's constructions will materially affect the trajectory of the case. The possible outcomes range from highly favorable (with most or all terms construed consistent with OWS's proposed constructions) to highly adverse (with most or all terms construed consistent with the constructions advocated by Lumos's counsel, Victoria Ashworth of Brannick Howell & Stein LLP, supported by the opinions of Dr. Raymond Ng).
In an adverse scenario — particularly if the Court adopts narrow constructions for the terms "adiabatically coupled," "continuously varying germanium concentration," "monolithically formed," and "co-integrated" — OWS's infringement theories may be significantly impaired or eliminated entirely. In such a scenario, the matter could resolve pre-trial through settlement or voluntary dismissal, which would dramatically reduce remaining expenditures well below the budgeted amounts but would also eliminate the expected damages recovery.
In a favorable scenario, the case would proceed through fact discovery completion, expert discovery, dispositive motions, and trial as currently budgeted, with the expectation of pursuing the full damages claim in excess of $75 million.