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CONTAINS INFORMATION DESIGNATED "HIGHLY CONFIDENTIAL — ATTORNEYS' EYES ONLY" PURSUANT TO THE STIPULATED PROTECTIVE ORDER ENTERED IN THIS ACTION

APPENDIX C: ROYALTY RATE BENCHMARKING ANALYSIS

Expert Report of Dr. Lawrence Keating — Damages

Optiwave Semiconductor Corp. v. Lumicore Technologies, Inc. Case No. 2:24-cv-00319-JRG United States District Court for the Eastern District of Texas

DRAFT — ATTORNEY WORK PRODUCT / PRIVILEGED AND CONFIDENTIAL

Prepared by:

Dr. Lawrence Keating Managing Director Meridian Economic Consulting Group, LLC 233 South Wacker Drive, Suite 4400 Chicago, Illinois 60606

Prepared at the direction of:

Calderwood & Harkness LLP Alan Ngo, Responsible Partner Wendy Schultz, Lead Associate

On behalf of:

Optiwave Semiconductor Corp. ("OWS" or "Plaintiff")

Date: Draft for finalization by June 15, 2025 (Plaintiff Expert Report Deadline)

This document contains information designated "Highly Confidential — Attorneys' Eyes Only" pursuant to the Stipulated Protective Order entered by the Court on September 12, 2024 (Dkt. 47). This document and its contents may not be disclosed except in accordance with the terms of that Order. Unauthorized disclosure is subject to sanctions under the Federal Rules of Civil Procedure and the Court's inherent authority.

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I. INTRODUCTION AND PURPOSE OF THIS APPENDIX

I.A. Scope of Analysis

1. I have been retained by counsel for Optiwave Semiconductor Corp. ("OWS" or "Plaintiff") to provide expert opinions regarding the economic damages sustained by OWS as a result of the alleged patent infringement by Lumicore Technologies, Inc. ("Lumicore" or "Defendant"). This Appendix C sets forth my royalty rate benchmarking analysis in support of the reasonable royalty damages theory presented in the main body of my expert report. The analysis contained herein is performed under the framework established in Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970), which provides the governing analytical structure for determining a reasonable royalty in patent infringement matters.

2. The purpose of this Appendix is to determine the royalty rate that a willing licensor (OWS) and a willing licensee (Lumicore) would have agreed to in a hypothetical negotiation occurring in the second quarter of 2022 ("Q2 2022"), immediately prior to Lumicore's commercial launch of the first accused product, the LumiLink 400G-ZR+, in the third quarter of 2022 ("Q3 2022"). This date is selected because it represents the latest point at which the parties could have reached a license agreement before Lumicore began selling products that embody the patented technology. I understand from counsel that this date is not in dispute for purposes of the hypothetical negotiation analysis.

3. Based on the comprehensive benchmarking analysis set forth in this Appendix, I have concluded that the appropriate royalty rate for the hypothetical negotiation is 8.5% of accused-product net sales. This rate is derived from an extensive examination of comparable license agreements and industry licensing data in the silicon-photonics and optical transceiver technology space. It reflects the central tendency of five identified comparable data points, adjusted for case-specific factors that bear on the relative bargaining positions of the parties and the value of the asserted intellectual property.

4. The proposed royalty rate of 8.5% is applied to the royalty base — the portion of Lumicore's accused-product revenues to which the lost-profits theory does not apply — to calculate the reasonable royalty component of OWS's total damages. The reasonable royalty damages of approximately $37.5 million, when combined with the lost-profits damages of approximately $128.9 million (set forth in Appendix A), yield a combined base damages figure of approximately $166.4 million prior to any enhancement for willful infringement.

5. This Appendix should be read in conjunction with, and is cross-referenced to, the following components of my expert report:

• Appendix A (Lost Profits Model), which sets forth the Panduit analysis and identifies the portion of Lumicore's accused-product sales to which lost-profit damages apply versus the portion to which a reasonable royalty is applied;

• Appendix B (Georgia-Pacific Factor Analysis), which provides the full fifteen-factor analysis under the Georgia-Pacific framework; this Appendix C specifically supports and elaborates upon the analysis of Georgia-Pacific Factors 1 (existing royalties), 2 (rates paid by licensee), 3 (nature and scope of the license), 12 (portion of profit customarily allowed), and 15 (the amount a prudent licensee would pay);

• Appendix D (Willful Infringement Enhancement), which addresses the basis for enhanced damages under 35 U.S.C. § 284.

I.B. Qualifications and Data Sources

6. My qualifications to render the opinions set forth in this Appendix are described in detail in the main body of my expert report and in my curriculum vitae, which is attached thereto as Exhibit 1. In summary, I am the Managing Director of Meridian Economic Consulting Group, LLC, a nationally recognized economic consulting firm with offices in Chicago, New York, and San Francisco. I hold a Ph.D. in Economics from Northwestern University and an M.B.A. from the University of Chicago Booth School of Business. I have over twenty-two years of experience in the fields of intellectual property damages analysis, licensing economics, and technology valuation. I have been qualified as an expert witness in over forty-five patent infringement matters in federal district courts across the United States, including more than a dozen matters in the Eastern District of Texas. My billing rate for this engagement is $875 per hour.

7. In forming the opinions set forth in this Appendix, I have reviewed, considered, and relied upon the following categories of data and information:

(a) OWS's own licensing history. OWS has entered into three patent license agreements covering one or more of the asserted patents in this case. I have reviewed each of these agreements in their entirety, including all amendments, schedules, and exhibits. These agreements were produced in this litigation under the "Highly Confidential — Attorneys' Eyes Only" designation of the Stipulated Protective Order.

(b) Industry comparable transactions. I identified two industry comparable licensing transactions involving patent portfolios in the silicon-photonics and optical transceiver technology sectors. I have reviewed the relevant terms of these transactions as disclosed in publicly available court filings and SEC disclosures.

(c) Publicly available licensing data. I reviewed licensing data derived from SEC filings (Forms 10-K, 10-Q, and 8-K), litigation settlement agreements available through court records, industry licensing reports published by recognized licensing research organizations, and analyst publications covering the silicon-photonics and optical transceiver markets.

(d) Lumicore's product-level financial data. I reviewed product-level revenue, cost-of-goods-sold, and margin data for each of the three accused products, as produced by Lumicore in discovery. This data is designated as "Highly Confidential — Attorneys' Eyes Only" under the Stipulated Protective Order.

(e) OWS financial data. I reviewed OWS's audited financial statements, including OWS's fiscal year 2023 revenue of $487.3 million and gross margin of 47.3% on competing products. OWS's financial statements are audited by Gresham & Whitfield LLP (San Jose office).

(f) Input from FairPoint Licensing Group, LLC. I received and reviewed information from Angela Reeves, Managing Director of FairPoint Licensing Group, LLC (500 Sansome Street, Suite 1400, San Francisco, CA 94111), regarding OWS's pre-suit licensing outreach to Lumicore and market licensing norms in the silicon-photonics sector. FairPoint was retained by OWS to conduct its patent licensing program and has direct knowledge of the licensing negotiations with each of OWS's existing licensees, as well as the licensing outreach to Lumicore.

(g) Lumicore's audited financial data. I reviewed Lumicore's audited financial statements. Lumicore's financial statements are audited by Brennan Kellogg & Associates LLP (Austin office).

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

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

II. METHODOLOGY

II.A. Framework for Royalty Rate Determination

10. The reasonable royalty damages analysis in this case is governed by the fifteen-factor framework established in Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970). Under this framework, the finder of fact must determine the royalty rate that would have resulted from a hypothetical negotiation between a willing licensor and willing licensee, conducted against the backdrop of the fifteen enumerated factors. The Georgia-Pacific framework is the standard analytical framework recognized and applied by the Federal Circuit and by courts in the Eastern District of Texas for determining a reasonable royalty under 35 U.S.C. § 284.

11. As set forth above, the hypothetical negotiation date for this analysis is Q2 2022. This date was selected because it represents the period immediately preceding Lumicore's launch of the first accused product, the LumiLink 400G-ZR+, in Q3 2022. It is the point in time at which a willing licensee, having decided to manufacture and sell the accused products, would have approached OWS (or vice versa) to negotiate a patent license. Both parties are assumed to be willing, informed, and rational negotiators who are aware of all relevant facts that would have been available as of the negotiation date.

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

13. I note that as of the Q2 2022 hypothetical negotiation date, three of the four asserted patents had already issued: the '562 Patent (issued March 15, 2017), the '847 Patent (issued March 19, 2019), and the '193 Patent (issued January 12, 2021). The '015 Patent issued on August 2, 2022, approximately one month after the close of Q2 2022 but before the launch of the LumiLink 400G-ZR+ in Q3 2022. Under the hypothetical negotiation construct, both parties are assumed to be aware that the '015 Patent was pending and expected to issue. This is consistent with the reality that the '015 Patent application was publicly available and that a willing, informed licensee would have been aware of its existence and anticipated issuance. For purposes of this analysis, I treat all four patents as part of the licensed portfolio in the hypothetical negotiation.

II.B. Selection Criteria for Comparable Licenses

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

(1) Technology field. The licensed technology must relate to silicon photonics, optical transceivers, photonic integrated circuits ("PICs"), waveguide multiplexing, thermal management in PICs, or closely related semiconductor photonic technologies. Licenses involving unrelated semiconductor technologies (e.g., CMOS logic, memory, RF/analog) were excluded because the licensing economics in those sectors differ materially from the silicon-photonics sector in terms of patent density, product margins, competitive dynamics, and the relationship between patented features and product value.

(2) Patent type. The licensed patents must be U.S. utility patents covering semiconductor photonic technology. Design patents, foreign-only patents, and trade secret licenses were excluded from the analysis because they present different licensing economics and valuation considerations.

(3) Licensing structure. The license must include a running royalty expressed as a percentage of net sales, with or without an accompanying upfront or lump-sum payment component. Pure lump-sum licenses were excluded unless the effective per-unit or percentage royalty rate could be reliably calculated from available data. This criterion ensures that the comparable rates are expressed on the same basis as the proposed royalty rate in this case.

(4) Licensee profile. The licensee must be an operating company that manufactures and sells photonic transceiver products. Licenses to patent assertion entities ("PAEs") or non-practicing entities ("NPEs") were excluded because such licenses typically reflect different economic motivations and bargaining dynamics than licenses to operating companies that compete in the product market.

(5) Temporal relevance. The license must have been executed within approximately seven years of the Q2 2022 hypothetical negotiation date — that is, between 2015 and 2022. This temporal window is sufficiently broad to capture meaningful market data while excluding transactions that may reflect materially different market conditions, technology maturity levels, or competitive landscapes.

(6) Comparable patent portfolios. The licensed patents must be of comparable quality, breadth, and commercial significance to the OWS asserted patent portfolio. I considered factors such as the number of licensed patents, the breadth of their claims, the technology areas they cover, and their demonstrated commercial significance (as evidenced by licensing activity, citation rates, and the absence of successful validity challenges).

(7) Arm's length transactions. The transaction must have been negotiated at arm's length between unaffiliated parties. Cross-licenses with significant offsetting consideration were included only where the effective one-way royalty rate could be isolated and reliably calculated from available data. Intra-company transfers, settlement agreements involving non-monetary consideration of indeterminate value, and licenses between affiliated entities were excluded.

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

II.C. Analytical Approach

16. My analytical approach to determining the appropriate royalty rate proceeds in five steps, which I describe briefly here and implement in detail in the subsequent sections of this Appendix:

Step 1: Identify and analyze OWS's own licensing history. Under Georgia-Pacific Factor 1, the royalties received by the patentee for licensing the patents in suit are the most probative evidence of the royalty rate. Accordingly, I begin my analysis by examining OWS's three existing patent license agreements covering one or more of the asserted patents. I analyze the terms of each agreement, calculate effective royalty rates where applicable, and assess the comparability of each agreement to the hypothetical OWS-Lumicore negotiation.

Step 2: Identify and analyze industry comparable transactions. Under Georgia-Pacific Factor 12 and the broader comparable-license methodology, I examine licensing transactions between third parties in the same or closely related technology fields. I identified two industry comparable transactions that meet my selection criteria and analyze their terms and relevance.

Step 3: Determine the range of comparable royalty rates. I aggregate the data from Steps 1 and 2 to establish a range of comparable royalty rates. This range provides the analytical foundation for the proposed rate and ensures that the rate is grounded in real-world transactional data rather than theoretical constructs.

Step 4: Adjust for case-specific factors. I apply adjustments to account for differences between the comparable transactions and the hypothetical OWS-Lumicore negotiation. These adjustments reflect the specific circumstances of this case, including the scope of the patent portfolio, the competitive relationship between the parties, the scale of Lumicore's infringement, and other factors identified in the Georgia-Pacific analysis set forth in Appendix B.

Step 5: Validate the proposed rate against check metrics. I perform reasonableness checks to confirm that the proposed royalty rate is consistent with Lumicore's operating economics, industry licensing norms, and the overall damages framework. These checks include a profitability analysis, an apportionment analysis, a consistency check against pre-suit licensing activity, and a sensitivity analysis.

III. OWS'S OWN LICENSING HISTORY

III.A. Overview.

17. OWS has entered into three patent license agreements covering one or more of the asserted patents in this case. Each of these agreements was negotiated at arm's length with an operating company in the silicon-photonics transceiver market. None of these agreements involved affiliated entities, patent assertion entities, or non-practicing entities. Each agreement includes a running royalty expressed as a percentage of the licensee's net sales of licensed products, which is the same royalty structure I propose for the hypothetical OWS-Lumicore negotiation.

18. Under Georgia-Pacific Factor 1, the royalties received by the patentee for licensing the patents in suit constitute the most probative evidence of the reasonable royalty rate. See Georgia-Pacific, 318 F. Supp. at 1120; Laser Dynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51, 79 (Fed. Cir. 2012) ("Where the evidence of record includes the patentee's own real-world licensing of the patent-in-suit, that evidence is 'highly probative.'"). OWS's three existing licenses involve the very patents at issue in this litigation and reflect OWS's established licensing practices, as developed and implemented through OWS's licensing agent, FairPoint Licensing Group, LLC.

19. I note that OWS's licensing program was conducted through FairPoint Licensing Group, LLC (Angela Reeves, Managing Director, 500 Sansome Street, Suite 1400, San Francisco, CA 94111). Ms. Reeves has over eighteen years of experience in patent licensing and technology valuation in the semiconductor and photonics industries. FairPoint managed the identification of prospective licensees, the preparation of claim charts and licensing presentations, the negotiation of license terms, and the outreach to Lumicore that preceded this litigation. I spoke with Ms. Reeves on multiple occasions during the course of my engagement and reviewed FairPoint's records regarding the negotiation of each of the three existing licenses and the pre-suit outreach to Lumicore.

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

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

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

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

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

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

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

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

27. Adjustments for Comparability. While the Terralink License is an arm's-length license involving patents in suit and is therefore highly probative, several factors distinguish it from the hypothetical OWS-Lumicore negotiation and necessitate adjustments:

(a) Smaller licensee with narrower product line. Terralink is a smaller company than Lumicore, with a narrower product line focused on a limited segment of the optical transceiver market. Terralink's licensed revenue base of approximately $45 million is substantially smaller than Lumicore's accused-product revenue, which totaled $264.9 million in FY 2023 alone. While in some licensing contexts a larger revenue base may command a modest volume discount, the magnitude of Lumicore's infringement — and the concomitant competitive harm to OWS — supports a higher rate rather than a discount. I address this dynamic further in Section V.B below.

(b) Partial patent portfolio. The Terralink License covers only two of the four asserted patents (the '847 and '562 Patents). The '193 Patent, which covers coherent transceiver integration technology, and the '015 Patent, which covers the polarization-diverse grating coupler, had not yet issued at the time of the Terralink negotiation. The subsequent issuance of these two additional patents meaningfully expanded the scope and commercial value of OWS's patent portfolio. The inclusion of the full four-patent portfolio in the hypothetical OWS-Lumicore negotiation supports an upward adjustment from the Terralink 6.5% rate.

(c) Pre-dispute negotiation context. The Terralink License was negotiated in a pre-dispute context — that is, Terralink proactively engaged with OWS (through FairPoint) to obtain a license before any infringement allegations were made. It is well recognized in the licensing literature and in case law that pre-dispute licenses tend to yield lower royalty rates than licenses negotiated in the context of litigation or after the patentee has established a pattern of enforcement. See, e.g., Prism Techs. LLC v. Sprint Spectrum L.P., 849 F.3d 1360, 1373 (Fed. Cir. 2017). This factor supports an upward adjustment when comparing the Terralink rate to the hypothetical OWS-Lumicore negotiation, which would have been informed by OWS's active licensing enforcement program.

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

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

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

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

31. Licensed Patents. The NovaWave License grants a license under a portfolio of OWS patents that includes the '847 Patent, the '193 Patent, and the '562 Patent. The inclusion of the '193 Patent — which had issued on January 12, 2021, shortly before the NovaWave License was negotiated — reflects the expanded scope of OWS's patent portfolio relative to the earlier Terralink License. However, the NovaWave License does not include the '015 Patent, which did not issue until August 2, 2022.

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

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

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

35. Adjustments for Comparability. The following factors distinguish the NovaWave License from the hypothetical OWS-Lumicore negotiation:

(a) Smaller licensed revenue base. NovaWave's licensed revenue of approximately $22 million is significantly smaller than Lumicore's accused-product revenue. As noted above, the scale differential is relevant to the bargaining dynamics but does not, standing alone, compel a lower rate for Lumicore. Indeed, the far greater magnitude of Lumicore's infringement — and the correspondingly greater competitive injury to OWS — supports a rate at or above the NovaWave level.

(b) Higher royalty rate reflects expanded portfolio. The increase from 6.5% (Terralink, two patents) to 9.0% (NovaWave, three patents) is consistent with the economic principle that a broader patent portfolio commanding greater coverage of the licensed technology justifies a higher royalty rate. The addition of the '193 Patent, covering coherent transceiver integration, added significant value to the licensed portfolio because coherent detection is a core functional requirement of modern optical transceiver modules for data-center interconnects.

(c) NovaWave's smaller scale and limited bargaining leverage. NovaWave's smaller scale may have limited its bargaining leverage relative to a larger licensee like Lumicore. However, the 9.0% rate reflects the value of the core patent portfolio as assessed by two arm's-length parties in a commercially reasonable negotiation. I do not view NovaWave's smaller scale as a basis for discounting the rate when comparing to the hypothetical Lumicore negotiation, particularly given the countervailing factors (direct competition, larger infringement base, full portfolio) that favor a higher rate.

(d) Absence of the '015 Patent. As with the Terralink License, the NovaWave License does not include the '015 Patent covering the polarization-diverse grating coupler. The inclusion of this fourth patent in the hypothetical OWS-Lumicore negotiation supports a rate that accounts for the incremental value of this technology. However, the NovaWave 9.0% rate, even without the '015 Patent, falls within the range that I propose for the full four-patent portfolio, suggesting that the '015 Patent's incremental contribution may be offset in part by the scale-related and competitive factors discussed in Section V.B.

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

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

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

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

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

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

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

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

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

• Upfront payment: $2.5 million

• Annual licensed revenue at execution: approximately $68 million

• First-year equivalent rate of upfront payment: $2.5M ÷ $68M ≈ 3.7%

• First-year all-in rate: 7.75% + 3.7% ≈ 11.45%

• Blended effective rate over five-year term (assuming modest annual revenue growth of 5%–7%): approximately 8.5%–8.7%

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

45. Adjustments for Comparability. The Helix License is the most comparable of the three OWS licenses to the hypothetical OWS-Lumicore negotiation for several reasons:

(a) Full four-patent portfolio. The Helix License is the only OWS license that includes all four asserted patents. Because the hypothetical OWS-Lumicore negotiation would involve the same four-patent portfolio, the Helix License provides the most direct benchmark.

(b) Closer licensed-revenue base. At approximately $68 million, Helix's licensed revenue base is closer to Lumicore's accused-product revenue than either Terralink's ($45 million) or NovaWave's ($22 million). However, Helix's base remains substantially below Lumicore's accused-product revenue ($264.9 million in FY 2023 alone; projected $714.6 million from Q3 2022 through Q4 2025), which is a relevant factor in assessing the competitive harm associated with Lumicore's infringement.

(c) Temporal proximity. The Helix License was executed in 2022, the same year as the hypothetical negotiation date (Q2 2022). This temporal proximity means that the Helix License reflects market conditions, technology maturity, and competitive dynamics that are substantially similar to those that would have prevailed at the hypothetical negotiation date.

(d) Pre-litigation context. Like the Terralink and NovaWave Licenses, the Helix License was negotiated in a pre-dispute, voluntary licensing context. As discussed above, pre-dispute licenses generally yield lower royalty rates than litigation-context licenses. The hypothetical negotiation with Lumicore, by contrast, would have been informed by the fact that Lumicore was preparing to launch a product that OWS would contend infringes its patents. Moreover, Lumicore had actual notice of OWS's patents through FairPoint's January 15, 2023 licensing letter (identifying the '847, '193, and '562 Patents) and the May 15, 2023 supplemental letter (identifying the '015 Patent), although this notice post-dates the hypothetical negotiation date. Under the hypothetical negotiation construct, the parties are assumed to be aware that the patents are valid and infringed, which is the economic equivalent of a litigation-informed negotiation. This factor supports a rate at or above the Helix effective rate of 8.5%–8.7%.

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

III.E. Summary of OWS Licensing History

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

48. The range established by OWS's own licensing history is 6.5% to 9.0% on a nominal basis, and approximately 6.5% to 9.0% on an effective basis when the Helix upfront payment is amortized over the license term. The weighted average of these three licenses, weighted by the licensed-revenue base of each licensee, is approximately 7.8% nominal and approximately 8.2% effective. This weighted average gives greater weight to the Helix License, which has the largest licensed-revenue base and covers the full four-patent portfolio.

49. Importantly, OWS's licensing history shows a clear trend of increasing royalty rates as the patent portfolio expanded over time. The Terralink License, covering two patents, was negotiated at 6.5%. The NovaWave License, covering three patents (with the addition of the '193 Patent), was negotiated at 9.0%. The Helix License, covering all four patents, was negotiated at 7.75% nominal but with an upfront payment that raises the effective rate to approximately 8.5%–8.7%. This trend is consistent with the economic principle that the addition of commercially significant patents to a licensed portfolio increases the value of the license and supports a higher royalty rate. While the NovaWave rate (9.0%) is nominally higher than the Helix effective rate (8.5%–8.7%), this is explained by NovaWave's smaller scale and more limited bargaining leverage; when the full context of each negotiation is considered, the trajectory is upward as the portfolio strengthened.

IV. INDUSTRY COMPARABLE TRANSACTIONS

IV.A. Selection and Identification Process

50. In addition to OWS's own licensing history, I reviewed publicly available information regarding patent licensing transactions in the silicon-photonics, optical transceiver, and photonic integrated circuit technology sectors to identify industry comparable transactions that satisfy my selection criteria. This review was conducted with the assistance of FairPoint Licensing Group, LLC, which has extensive knowledge of licensing activity in the silicon-photonics sector.

51. The sources I reviewed in identifying industry comparable transactions include: SEC filings (Forms 10-K, 10-Q, and 8-K) of publicly traded companies in the photonics and optical communications sectors; litigation settlement agreements and consent judgments available through the PACER electronic filing system and from public court records; industry licensing reports and surveys published by recognized intellectual property research organizations, including the Licensing Executives Society, the intellectual Property Owners Association, and certain proprietary licensing databases to which Meridian Economic Consulting Group maintains subscriptions; and analyst reports and market research publications covering the silicon-photonics and optical transceiver markets.

52. From this review, I identified two industry comparable transactions that are sufficiently comparable to the hypothetical OWS-Lumicore negotiation to provide meaningful benchmarking data. I discuss each of these transactions below.

IV.B. Stratos Photonics v. ArcLight Systems Settlement (2019)

53. Parties. Stratos Photonics (licensor/plaintiff) and ArcLight Systems (licensee/defendant).

54. Context. The Stratos-ArcLight transaction arose from a settlement of patent infringement litigation between Stratos Photonics and ArcLight Systems in the Northern District of California. The litigation involved allegations that ArcLight's optical transceiver modules infringed a portfolio of Stratos patents covering coherent detection and waveguide integration technologies. The settlement was reached after the completion of claim construction and the close of fact discovery but before trial. The terms of the settlement, including the royalty rate, are reflected in the settlement agreement filed with the court and available in the public court record. Relevant excerpts are attached as Exhibit C-4.

55. Royalty Rate. The settlement provided for a running royalty of 8.0% on ArcLight's sales of the accused transceiver products. The royalty was structured as a percentage of net sales, consistent with the royalty structure in OWS's own licenses and in the proposed rate for the hypothetical OWS-Lumicore negotiation.

56. Date. The settlement agreement was executed in 2019, approximately three years before the hypothetical negotiation date in this case.

57. Technology. The Stratos patents covered optical transceiver modules for data-center applications, with particular focus on coherent detection architecture and waveguide integration for silicon-photonics platforms. This technology is closely related to the technology covered by OWS's asserted patents, which address waveguide multiplexing, coherent transceiver integration, thermal management, and grating coupler technologies within the same silicon-photonics transceiver product category.

58. Relevance. The Stratos-ArcLight settlement is relevant to the hypothetical OWS-Lumicore negotiation for several reasons:

(a) Litigation-context settlement. The 8.0% royalty rate was negotiated in the context of pending patent infringement litigation, which is relevant because the hypothetical negotiation in this case would have been informed by the risk of Lumicore's continued infringement and OWS's demonstrated willingness to enforce its patents through litigation. Courts and commentators have recognized that litigation-context licenses may carry higher royalty rates than pre-dispute voluntary licenses, reflecting the litigation premium and the reduced bargaining leverage of a defendant who faces the risk of an injunction or enhanced damages. See, e.g., ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860, 872 (Fed. Cir. 2010).

(b) Comparable technology field. The Stratos patents cover optical transceiver technology for data-center applications — the same product category and end-market as OWS's asserted patents and Lumicore's accused products. This technological comparability enhances the probative value of the Stratos-ArcLight rate.

(c) Running royalty structure. The 8.0% running royalty is expressed on the same basis (percentage of net sales of accused products) as the proposed rate in this case, facilitating direct comparison without the need for conversion or imputation.

59. Adjustments for Comparability. While the Stratos-ArcLight settlement is a useful comparable, certain adjustments are warranted:

(a) Narrower patent portfolio. The Stratos patent portfolio was fewer in number and narrower in scope than OWS's four-patent portfolio. The Stratos patents covered coherent detection and waveguide integration, whereas OWS's asserted patents cover a broader technological footprint encompassing waveguide multiplexing (the '847 Patent), coherent transceiver integration (the '193 Patent), thermal management micro-channels (the '562 Patent), and the polarization-diverse grating coupler (the '015 Patent). This broader coverage means that OWS's patent portfolio addresses a greater share of the core functionality of the accused transceiver modules, which supports a rate above the Stratos 8.0%.

(b) Patent strength. OWS's asserted patents have been maintained with all maintenance fees current and have not been subjected to inter partes review ("IPR") or other post-grant validity challenges, suggesting perceived strength by potential challengers. By contrast, I am not aware of the maintenance and challenge history of the Stratos patents, and to the extent that the Stratos patents were perceived as less robust, the 8.0% rate may understate the rate that OWS's stronger portfolio would command.

(c) Temporal difference. The Stratos settlement was executed in 2019, approximately three years before the hypothetical negotiation date. While the silicon-photonics market has grown significantly over this period — driven by the expansion of hyperscale data-center buildouts and the increasing demand for high-bandwidth optical interconnects — I do not believe this temporal gap introduces a material distortion in the rate comparison. If anything, the growth in market demand for silicon-photonics transceiver technology has increased the commercial significance of core patents in this space, supporting a rate at or above the 2019 level.

60. In summary, the Stratos-ArcLight settlement supports a rate at or above 8.0%, and when adjusted for the broader scope and greater strength of OWS's patent portfolio, supports a rate in the 8.0%–9.0% range.

IV.C. Coreline Technologies v. Prisma Semiconductor Cross-License (2021)

61. Parties. Coreline Technologies (licensor) and Prisma Semiconductor (licensee).

62. Context. The Coreline-Prisma transaction was a cross-license agreement with a balancing royalty payment, entered into to resolve a patent dispute between the parties. The terms of the agreement, including the financial terms, were disclosed by Prisma Semiconductor in its SEC filings (Form 8-K and subsequent Form 10-K). Relevant excerpts of these filings are attached as Exhibit C-5.

63. Effective Royalty Rate. The Coreline-Prisma cross-license involved bilateral grants of patent rights, with Prisma paying a net balancing royalty to Coreline reflecting the differential value of the two parties' respective patent portfolios. Based on the net balancing payments disclosed in Prisma's SEC filings and the revenue data reported by Prisma for the relevant product lines, I calculated the effective one-way royalty rate attributable to the Coreline patent portfolio at 10.2% of Prisma's net sales of the licensed products.

64. The calculation methodology was as follows: Prisma's SEC filings disclosed aggregate net balancing payments over a three-year period, along with the revenue of Prisma's licensed product lines during the same period. By dividing the net payments by the corresponding licensed-product revenue, I derived the effective royalty rate. I adjusted the gross payments reported in the filings to exclude the imputed value of the patent rights granted by Prisma to Coreline (the "cross-license offset"), using Coreline's publicly reported licensed-product revenue as the denominator for the Prisma-to-Coreline direction. The resulting 10.2% effective rate represents the net price paid by Prisma for access to Coreline's patent portfolio, expressed as a percentage of Prisma's licensed-product net sales.

65. Date. The Coreline-Prisma cross-license was executed in 2021, approximately one year before the hypothetical negotiation date in this case.

66. Technology. The Coreline patents covered silicon-photonics chipsets for telecommunications and data-center interconnects, with particular emphasis on polarization management and wavelength-division multiplexing ("WDM") technologies. These technologies are closely related to the technology covered by OWS's asserted patents, which include waveguide multiplexing (a form of WDM implemented in photonic integrated circuits) and polarization-diverse grating coupler technology.

67. Relevance. The Coreline-Prisma cross-license is relevant to the hypothetical OWS-Lumicore negotiation for several reasons:

(a) Directly comparable technology field. The licensed technology — silicon-photonics for data-center interconnects, including polarization management and WDM — is directly comparable to the technology covered by OWS's asserted patents. The end-market application (data-center interconnects) is the same as the primary market for Lumicore's accused products.

(b) Arm's length negotiation between operating companies. Both Coreline and Prisma are operating companies that manufacture and sell silicon-photonics products. The cross-license was negotiated at arm's length to resolve a genuine patent dispute, and the financial terms reflect the parties' good-faith assessment of the relative value of their respective patent portfolios.

(c) Temporal proximity. The 2021 execution date is close to the Q2 2022 hypothetical negotiation date, ensuring that the rate reflects market conditions and technology valuations that are substantially similar to those that would have prevailed at the time of the hypothetical negotiation.

68. Adjustments for Comparability. The following adjustments are warranted:

(a) Cross-license structure. The cross-license structure complicates direct comparison because the effective rate includes an implicit deduction for the value of the patent rights that Prisma granted to Coreline. While I have endeavored to isolate the effective one-way rate attributable to the Coreline portfolio, there is inherent uncertainty in this calculation. The cross-license structure may cause the 10.2% effective rate to overstate or understate the rate that would have been negotiated in a unilateral license (i.e., a one-way license from Coreline to Prisma without a cross-grant). I treat the 10.2% rate as the upper boundary of the comparable range and note that it provides a useful check on the proposed rate rather than a precise benchmark.

(b) High technology overlap. Notwithstanding the cross-license complication, the high degree of technology overlap between the Coreline portfolio and OWS's asserted patents — both covering core silicon-photonics technologies for data-center interconnects — enhances the relevance of this transaction. The 10.2% effective rate reflects the value that sophisticated operating companies placed on core silicon-photonics IP in an arm's-length negotiation, which is directly probative of the value of OWS's asserted patents.

69. In summary, the Coreline-Prisma cross-license supports a rate within the 8.0%–10.2% range for unilateral licenses involving core silicon-photonics patent portfolios.

IV.D. Additional Industry Data Points

70. In addition to the two specific comparable transactions discussed above, I reviewed broader industry licensing data for semiconductor and photonics technologies to provide context for the proposed royalty rate. This review encompassed published licensing surveys, analyst reports, and aggregated data from intellectual property research organizations covering licensing transactions in the semiconductor, photonics, and optical communications sectors.

71. Based on this review, the observed range of running royalty rates in comparable semiconductor-photonics transactions is approximately 4.0% to 12.5%, with the following general distribution:

• Lower end (4.0%–5.0%): Licenses involving peripheral or non-core patents, older technology with diminishing commercial relevance, or high-volume/low-margin products where the royalty burden must be moderated to preserve licensee profitability. These transactions typically involve patents that cover ancillary or incremental features rather than core product functionality.

• Mid-range (6.0%–9.0%): Licenses involving core technology patents for differentiated products in competitive markets. This range encompasses the majority of arm's-length licensing transactions in the silicon-photonics and optical transceiver sectors and reflects the value of patents that cover significant — but not necessarily blocking — aspects of the licensed technology.

• Upper end (10.0%–12.5%): Licenses involving foundational or blocking patents, litigation-context settlements where the licensee faced significant infringement liability, or situations where the licensee had limited or no commercially viable design-around options. These transactions reflect the premium that a licensee must pay when the patented technology is essential to its product offering and no acceptable alternatives are available.

72. OWS's asserted patents fall in the mid-to-upper range of this distribution. The patents cover core transceiver module functionality — waveguide multiplexing, coherent transceiver integration, thermal management, and polarization-diverse grating coupling — that is integral to the operation and performance of the accused products. As discussed in the main report and in Appendix A (Panduit analysis), there are no commercially viable non-infringing alternatives for the patented features. This combination of core technology coverage and absence of design-around options places OWS's patents squarely in the category of high-value patents that command royalty rates in the 7.0%–10.0%+ range.

IV.E. Summary of Industry Comparables

73. The following table summarizes the two industry comparable transactions identified in my analysis:

74. The industry comparable transactions establish a range of 8.0% to 10.2% for running royalty rates on core silicon-photonics patent portfolios. This range is consistent with and slightly above the range established by OWS's own licensing history (6.5%–9.0% nominal; 6.5%–8.7% effective), reflecting the fact that the industry comparables include one litigation-context settlement and one cross-license with a substantial balancing payment.

75. The broader industry range of 4.0%–12.5% provides additional context and confirms that the proposed 8.5% rate falls well within the range of rates observed in the relevant technology sector.

V. SYNTHESIS AND RATE DETERMINATION

V.A. Convergence of Data Points

76. The analysis of OWS's own licensing history and industry comparable transactions yields a robust set of data points from which to determine the appropriate royalty rate for the hypothetical OWS-Lumicore negotiation. The following table summarizes all five identified comparable data points:

77. The data points converge on the following ranges:

• OWS own-license range: 6.5%–9.0% (nominal); approximately 6.5%–8.7% (effective, with lump-sum adjustments)

• Industry comparable range: 8.0%–10.2%

• Combined comparable range: 6.5%–10.2%

78. The central tendency of the five comparable data points is as follows:

• Arithmetic mean: (6.5% + 9.0% + 8.5% + 8.0% + 10.2%) ÷ 5 = 8.44%

• Median: 8.5% (the third-ranked value when the five data points are ordered from lowest to highest: 6.5%, 8.0%, 8.5%, 9.0%, 10.2%)

79. Both the arithmetic mean (8.44%) and the median (8.5%) of the five comparable data points are effectively identical and correspond to the proposed royalty rate of 8.5%. This convergence provides strong statistical support for the proposed rate and demonstrates that it is firmly grounded in the available transactional evidence.

V.B. Case-Specific Adjustments

80. While the central tendency of the comparable data points provides a sound starting point, it is necessary to evaluate whether case-specific factors warrant adjustments to the rate. I identified six case-specific factors that bear on the appropriate royalty rate for the hypothetical OWS-Lumicore negotiation. On balance, these factors support a rate at or slightly above the 8.5% central tendency, but I have elected to propose a rate at the median rather than at the upper end of the range in order to present a conservative and well-supported damages figure.

81. Adjustment 1 — Full Patent Portfolio. The hypothetical negotiation would involve all four asserted patents: the '847 Patent (waveguide multiplexer), the '193 Patent (coherent transceiver integration), the '562 Patent (thermal management micro-channels), and the '015 Patent (polarization-diverse grating coupler). Of OWS's three existing licenses, only the Helix License covers the full four-patent portfolio. The Terralink License (6.5%) covers only two patents and the NovaWave License (9.0%) covers three patents. The incremental value of the '193 Patent and the '015 Patent — each of which covers a distinct and commercially significant aspect of transceiver module technology — supports a rate above the Terralink floor of 6.5%. The Helix effective rate of 8.5%–8.7% already reflects the full four-patent portfolio, and I view this as the most directly comparable data point for this adjustment.

82. Adjustment 2 — Scale of Infringement. Lumicore's accused-product revenue is far larger than the licensed-revenue bases of any of OWS's prior licensees. Lumicore's FY 2023 accused-product revenue was $264.9 million, and the projected total accused-product revenue from Q3 2022 through Q4 2025 is $714.6 million. By comparison, the largest of OWS's existing licensees (Helix) had a licensed-revenue base of approximately $68 million — less than one-quarter of Lumicore's FY 2023 accused-product revenue alone. While it is sometimes argued that larger revenue bases should command volume discounts in licensing negotiations, this argument is not compelling in the present context. The magnitude of Lumicore's infringement inflicts correspondingly large competitive harm on OWS, which competes directly with Lumicore in the silicon-photonics transceiver market. OWS's market-share analysis in Appendix A demonstrates that Lumicore's accused products displaced approximately 38.2% of the relevant market share that OWS would otherwise have captured. The scale of this competitive injury — measured in hundreds of millions of dollars of displaced revenue — far exceeds the competitive injury from the smaller licenses and supports a rate at the upper end of the own-license range.

83. Adjustment 3 — Competitive Relationship. This adjustment is among the most significant in the analysis. Unlike Terralink, NovaWave, and Helix — none of which were direct competitors of OWS in the silicon-photonics transceiver market — Lumicore is a direct, head-to-head competitor. OWS and Lumicore compete for sales of silicon-photonics transceiver modules to the same customer base: hyperscale data-center operators and cloud service providers. The evidence in this case demonstrates that OWS and Lumicore compete directly at twelve of the top twenty hyperscale data-center operators, including major cloud providers and internet infrastructure companies. Georgia-Pacific Factor 6 — the "effect of selling the patented specialty in promoting sales of other products of the licensor" — and the broader policy of the Georgia-Pacific framework recognize that the competitive relationship between the licensor and the licensee is a critical determinant of the royalty rate. When the licensee is a direct competitor, the licensor faces not only the loss of royalty income but also the loss of sales and market position, which supports a higher royalty rate. See, e.g., Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1554 (Fed. Cir. 1995) (en banc) (recognizing the relevance of competitive harm in the damages analysis). I view this factor as supporting a rate at or above the central tendency of the comparables.

84. Adjustment 4 — Pre-Suit Notice and Willfulness. Although the hypothetical negotiation is dated to Q2 2022, the conduct of the parties after the negotiation date is relevant to assessing the Georgia-Pacific factors, including Factor 15 (the amount a prudent businessman would have been willing to pay, knowing the patent to be valid and infringed). The record in this case reflects the following chronology:

• January 15, 2023: FairPoint Licensing Group, LLC, on behalf of OWS, sent a detailed licensing letter to Lumicore identifying the '847, '193, and '562 Patents and presenting claim charts demonstrating infringement by Lumicore's LumiLink 400G-ZR+ and LumiLink 800G-DR8 products.

• April 20, 2023: OWS representatives (including Ms. Reeves of FairPoint) met in person with Lumicore representatives in Austin, Texas, to discuss licensing terms.

• May 15, 2023: FairPoint sent a supplemental licensing letter to Lumicore identifying the '015 Patent and presenting an additional claim chart demonstrating infringement.

• July 10, 2023: Lumicore formally declined to take a license, referencing "competent legal opinions" regarding the asserted patents but declining to provide copies of those opinions or to engage in further licensing discussions.

• Q4 2023: Lumicore launched the LumiEdge 1600G-LR, its third accused product, notwithstanding its knowledge of OWS's patents and licensing demands.

85. This pattern of conduct — receiving actual notice, engaging in a single meeting without meaningful negotiation, declining to license, and then launching an additional accused product — is relevant to the hypothetical negotiation analysis because it demonstrates that Lumicore was unwilling to pay any royalty for OWS's patented technology. Under the hypothetical negotiation construct, both parties are assumed to act rationally, which means Lumicore would have been willing to pay a royalty that reflects the value of the patented technology. Lumicore's actual refusal to negotiate supports the inference that the patents have substantial commercial value that Lumicore preferred to capture without payment. This conduct supports an upward adjustment under Georgia-Pacific Factor 15.

86. Adjustment 5 — No Viable Non-Infringing Alternatives. The Panduit analysis presented in Appendix A and discussed in the main report concludes that there are no commercially viable non-infringing alternatives to the patented features. Specifically, I analyzed four potential alternative designs that might avoid infringement of one or more of the asserted patents:

(a) Arrayed waveguide grating ("AWG") multiplexer in place of the patented waveguide multiplexer;

(b) Separate discrete-component coherent receiver in place of the p

CONTAINS INFORMATION DESIGNATED "HIGHLY CONFIDENTIAL — ATTORNEYS' EYES ONLY" PURSUANT TO THE STIPULATED PROTECTIVE ORDER ENTERED IN THIS ACTION
APPENDIX C: ROYALTY RATE BENCHMARKING ANALYSIS
Expert Report of Dr. Lawrence Keating — Damages
Optiwave Semiconductor Corp. v. Lumicore Technologies, Inc. Case No. 2:24-cv-00319-JRG United States District Court for the Eastern District of Texas
DRAFT — ATTORNEY WORK PRODUCT / PRIVILEGED AND CONFIDENTIAL
Prepared by:
Dr. Lawrence Keating Managing Director Meridian Economic Consulting Group, LLC 233 South Wacker Drive, Suite 4400 Chicago, Illinois 60606
Prepared at the direction of:
Calderwood & Harkness LLP Alan Ngo, Responsible Partner Wendy Schultz, Lead Associate
On behalf of:
Optiwave Semiconductor Corp. ("OWS" or "Plaintiff")
Date: Draft for finalization by June 15, 2025 (Plaintiff Expert Report Deadline)
This document contains information designated "Highly Confidential — Attorneys' Eyes Only" pursuant to the Stipulated Protective Order entered by the Court on September 12, 2024 (Dkt. 47). This document and its contents may not be disclosed except in accordance with the terms of that Order. Unauthorized disclosure is subject to sanctions under the Federal Rules of Civil Procedure and the Court's inherent authority.
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I. INTRODUCTION AND PURPOSE OF THIS APPENDIX
I.A. Scope of Analysis
1.  I have been retained by counsel for Optiwave Semiconductor Corp. ("OWS" or "Plaintiff") to provide expert opinions regarding the economic damages sustained by OWS as a result of the alleged patent infringement by Lumicore Technologies, Inc. ("Lumicore" or "Defendant"). This Appendix C sets forth my royalty rate benchmarking analysis in support of the reasonable royalty damages theory presented in the main body of my expert report. The analysis contained herein is performed under the framework established in Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970), which provides the governing analytical structure for determining a reasonable royalty in patent infringement matters.
2.  The purpose of this Appendix is to determine the royalty rate that a willing licensor (OWS) and a willing licensee (Lumicore) would have agreed to in a hypothetical negotiation occurring in the second quarter of 2022 ("Q2 2022"), immediately prior to Lumicore's commercial launch of the first accused product, the LumiLink 400G-ZR+, in the third quarter of 2022 ("Q3 2022"). This date is selected because it represents the latest point at which the parties could have reached a license agreement before Lumicore began selling products that embody the patented technology. I understand from counsel that this date is not in dispute for purposes of the hypothetical negotiation analysis.
3.  Based on the comprehensive benchmarking analysis set forth in this Appendix, I have concluded that the appropriate royalty rate for the hypothetical negotiation is 8.5% of accused-product net sales. This rate is derived from an extensive examination of comparable license agreements and industry licensing data in the silicon-photonics and optical transceiver technology space. It reflects the central tendency of five identified comparable data points, adjusted for case-specific factors that bear on the relative bargaining positions of the parties and the value of the asserted intellectual property.
4.  The proposed royalty rate of 8.5% is applied to the royalty base — the portion of Lumicore's accused-product revenues to which the lost-profits theory does not apply — to calculate the reasonable royalty component of OWS's total damages. The reasonable royalty damages of approximately $37.5 million, when combined with the lost-profits damages of approximately $128.9 million (set forth in Appendix A), yield a combined base damages figure of approximately $166.4 million prior to any enhancement for willful infringement.
5.  This Appendix should be read in conjunction with, and is cross-referenced to, the following components of my expert report:
•  Appendix A (Lost Profits Model), which sets forth the Panduit analysis and identifies the portion of Lumicore's accused-product sales to which lost-profit damages apply versus the portion to which a reasonable royalty is applied;
•  Appendix B (Georgia-Pacific Factor Analysis), which provides the full fifteen-factor analysis under the Georgia-Pacific framework; this Appendix C specifically supports and elaborates upon the analysis of Georgia-Pacific Factors 1 (existing royalties), 2 (rates paid by licensee), 3 (nature and scope of the license), 12 (portion of profit customarily allowed), and 15 (the amount a prudent licensee would pay);
•  Appendix D (Willful Infringement Enhancement), which addresses the basis for enhanced damages under 35 U.S.C. § 284.
I.B. Qualifications and Data Sources
6.  My qualifications to render the opinions set forth in this Appendix are described in detail in the main body of my expert report and in my curriculum vitae, which is attached thereto as Exhibit 1. In summary, I am the Managing Director of Meridian Economic Consulting Group, LLC, a nationally recognized economic consulting firm with offices in Chicago, New York, and San Francisco. I hold a Ph.D. in Economics from Northwestern University and an M.B.A. from the University of Chicago Booth School of Business. I have over twenty-two years of experience in the fields of intellectual property damages analysis, licensing economics, and technology valuation. I have been qualified as an expert witness in over forty-five patent infringement matters in federal district courts across the United States, including more than a dozen matters in the Eastern District of Texas. My billing rate for this engagement is $875 per hour.
7.  In forming the opinions set forth in this Appendix, I have reviewed, considered, and relied upon the following categories of data and information:
(a) OWS's own licensing history. OWS has entered into three patent license agreements covering one or more of the asserted patents in this case. I have reviewed each of these agreements in their entirety, including all amendments, schedules, and exhibits. These agreements were produced in this litigation under the "Highly Confidential — Attorneys' Eyes Only" designation of the Stipulated Protective Order.
(b) Industry comparable transactions. I identified two industry comparable licensing transactions involving patent portfolios in the silicon-photonics and optical transceiver technology sectors. I have reviewed the relevant terms of these transactions as disclosed in publicly available court filings and SEC disclosures.
(c) Publicly available licensing data. I reviewed licensing data derived from SEC filings (Forms 10-K, 10-Q, and 8-K), litigation settlement agreements available through court records, industry licensing reports published by recognized licensing research organizations, and analyst publications covering the silicon-photonics and optical transceiver markets.
(d) Lumicore's product-level financial data. I reviewed product-level revenue, cost-of-goods-sold, and margin data for each of the three accused products, as produced by Lumicore in discovery. This data is designated as "Highly Confidential — Attorneys' Eyes Only" under the Stipulated Protective Order.
(e) OWS financial data. I reviewed OWS's audited financial statements, including OWS's fiscal year 2023 revenue of $487.3 million and gross margin of 47.3% on competing products. OWS's financial statements are audited by Gresham & Whitfield LLP (San Jose office).
(f) Input from FairPoint Licensing Group, LLC. I received and reviewed information from Angela Reeves, Managing Director of FairPoint Licensing Group, LLC (500 Sansome Street, Suite 1400, San Francisco, CA 94111), regarding OWS's pre-suit licensing outreach to Lumicore and market licensing norms in the silicon-photonics sector. FairPoint was retained by OWS to conduct its patent licensing program and has direct knowledge of the licensing negotiations with each of OWS's existing licensees, as well as the licensing outreach to Lumicore.
(g) Lumicore's audited financial data. I reviewed Lumicore's audited financial statements. Lumicore's financial statements are audited by Brennan Kellogg & Associates LLP (Austin office).
8.  All financial data upon which I have relied has been verified against audited financial statements prepared in accordance with generally accepted accounting principles ("GAAP"). Where product-level financial data was not available in audited form, I verified it against internal management accounting records produced by Lumicore in discovery and confirmed its consistency with Lumicore's consolidated audited financial statements.
9.  A complete list of the materials I reviewed and considered is provided in Exhibit 1 to the main body of my expert report. Exhibits specific to this Appendix are identified in the Exhibits List at the conclusion of this Appendix.
II. METHODOLOGY
II.A. Framework for Royalty Rate Determination
10.  The reasonable royalty damages analysis in this case is governed by the fifteen-factor framework established in Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970). Under this framework, the finder of fact must determine the royalty rate that would have resulted from a hypothetical negotiation between a willing licensor and willing licensee, conducted against the backdrop of the fifteen enumerated factors. The Georgia-Pacific framework is the standard analytical framework recognized and applied by the Federal Circuit and by courts in the Eastern District of Texas for determining a reasonable royalty under 35 U.S.C. § 284.
11.  As set forth above, the hypothetical negotiation date for this analysis is Q2 2022. This date was selected because it represents the period immediately preceding Lumicore's launch of the first accused product, the LumiLink 400G-ZR+, in Q3 2022. It is the point in time at which a willing licensee, having decided to manufacture and sell the accused products, would have approached OWS (or vice versa) to negotiate a patent license. Both parties are assumed to be willing, informed, and rational negotiators who are aware of all relevant facts that would have been available as of the negotiation date.
12.  Consistent with the hypothetical negotiation construct, the analysis assumes that the four asserted patents — U.S. Patent No. 10,234,847 (the "'847 Patent"), U.S. Patent No. 10,891,193 (the "'193 Patent"), U.S. Patent No. 9,678,562 (the "'562 Patent"), and U.S. Patent No. 11,402,015 (the "'015 Patent") — are valid and infringed. This assumption is inherent in the Georgia-Pacific framework and does not reflect an opinion on the ultimate merits of Lumicore's invalidity or non-infringement defenses.
13.  I note that as of the Q2 2022 hypothetical negotiation date, three of the four asserted patents had already issued: the '562 Patent (issued March 15, 2017), the '847 Patent (issued March 19, 2019), and the '193 Patent (issued January 12, 2021). The '015 Patent issued on August 2, 2022, approximately one month after the close of Q2 2022 but before the launch of the LumiLink 400G-ZR+ in Q3 2022. Under the hypothetical negotiation construct, both parties are assumed to be aware that the '015 Patent was pending and expected to issue. This is consistent with the reality that the '015 Patent application was publicly available and that a willing, informed licensee would have been aware of its existence and anticipated issuance. For purposes of this analysis, I treat all four patents as part of the licensed portfolio in the hypothetical negotiation.
II.B. Selection Criteria for Comparable Licenses
14.  The identification and selection of comparable license agreements is a critical step in the royalty rate benchmarking analysis. Not all licenses are created equal, and it is essential to apply rigorous selection criteria to ensure that the transactions identified as comparables are, in fact, sufficiently similar to the hypothetical OWS-Lumicore negotiation to provide meaningful benchmarking data. I applied the following selection criteria to identify and evaluate comparable transactions:
(1) Technology field. The licensed technology must relate to silicon photonics, optical transceivers, photonic integrated circuits ("PICs"), waveguide multiplexing, thermal management in PICs, or closely related semiconductor photonic technologies. Licenses involving unrelated semiconductor technologies (e.g., CMOS logic, memory, RF/analog) were excluded because the licensing economics in those sectors differ materially from the silicon-photonics sector in terms of patent density, product margins, competitive dynamics, and the relationship between patented features and product value.
(2) Patent type. The licensed patents must be U.S. utility patents covering semiconductor photonic technology. Design patents, foreign-only patents, and trade secret licenses were excluded from the analysis because they present different licensing economics and valuation considerations.
(3) Licensing structure. The license must include a running royalty expressed as a percentage of net sales, with or without an accompanying upfront or lump-sum payment component. Pure lump-sum licenses were excluded unless the effective per-unit or percentage royalty rate could be reliably calculated from available data. This criterion ensures that the comparable rates are expressed on the same basis as the proposed royalty rate in this case.
(4) Licensee profile. The licensee must be an operating company that manufactures and sells photonic transceiver products. Licenses to patent assertion entities ("PAEs") or non-practicing entities ("NPEs") were excluded because such licenses typically reflect different economic motivations and bargaining dynamics than licenses to operating companies that compete in the product market.
(5) Temporal relevance. The license must have been executed within approximately seven years of the Q2 2022 hypothetical negotiation date — that is, between 2015 and 2022. This temporal window is sufficiently broad to capture meaningful market data while excluding transactions that may reflect materially different market conditions, technology maturity levels, or competitive landscapes.
(6) Comparable patent portfolios. The licensed patents must be of comparable quality, breadth, and commercial significance to the OWS asserted patent portfolio. I considered factors such as the number of licensed patents, the breadth of their claims, the technology areas they cover, and their demonstrated commercial significance (as evidenced by licensing activity, citation rates, and the absence of successful validity challenges).
(7) Arm's length transactions. The transaction must have been negotiated at arm's length between unaffiliated parties. Cross-licenses with significant offsetting consideration were included only where the effective one-way royalty rate could be isolated and reliably calculated from available data. Intra-company transfers, settlement agreements involving non-monetary consideration of indeterminate value, and licenses between affiliated entities were excluded.
15.  I applied these criteria systematically to a universe of potential comparable transactions identified through my own research, the assistance of FairPoint Licensing Group, LLC, and the review of publicly available licensing data. The application of these criteria yielded two categories of comparable transactions: (a) OWS's own licensing history (three agreements), and (b) industry comparable transactions (two agreements). I discuss each category in detail in Sections III and IV below.
II.C. Analytical Approach
16.  My analytical approach to determining the appropriate royalty rate proceeds in five steps, which I describe briefly here and implement in detail in the subsequent sections of this Appendix:
Step 1: Identify and analyze OWS's own licensing history. Under Georgia-Pacific Factor 1, the royalties received by the patentee for licensing the patents in suit are the most probative evidence of the royalty rate. Accordingly, I begin my analysis by examining OWS's three existing patent license agreements covering one or more of the asserted patents. I analyze the terms of each agreement, calculate effective royalty rates where applicable, and assess the comparability of each agreement to the hypothetical OWS-Lumicore negotiation.
Step 2: Identify and analyze industry comparable transactions. Under Georgia-Pacific Factor 12 and the broader comparable-license methodology, I examine licensing transactions between third parties in the same or closely related technology fields. I identified two industry comparable transactions that meet my selection criteria and analyze their terms and relevance.
Step 3: Determine the range of comparable royalty rates. I aggregate the data from Steps 1 and 2 to establish a range of comparable royalty rates. This range provides the analytical foundation for the proposed rate and ensures that the rate is grounded in real-world transactional data rather than theoretical constructs.
Step 4: Adjust for case-specific factors. I apply adjustments to account for differences between the comparable transactions and the hypothetical OWS-Lumicore negotiation. These adjustments reflect the specific circumstances of this case, including the scope of the patent portfolio, the competitive relationship between the parties, the scale of Lumicore's infringement, and other factors identified in the Georgia-Pacific analysis set forth in Appendix B.
Step 5: Validate the proposed rate against check metrics. I perform reasonableness checks to confirm that the proposed royalty rate is consistent with Lumicore's operating economics, industry licensing norms, and the overall damages framework. These checks include a profitability analysis, an apportionment analysis, a consistency check against pre-suit licensing activity, and a sensitivity analysis.
III. OWS'S OWN LICENSING HISTORY
III.A. Overview.  
17.  OWS has entered into three patent license agreements covering one or more of the asserted patents in this case. Each of these agreements was negotiated at arm's length with an operating company in the silicon-photonics transceiver market. None of these agreements involved affiliated entities, patent assertion entities, or non-practicing entities. Each agreement includes a running royalty expressed as a percentage of the licensee's net sales of licensed products, which is the same royalty structure I propose for the hypothetical OWS-Lumicore negotiation.
18.  Under Georgia-Pacific Factor 1, the royalties received by the patentee for licensing the patents in suit constitute the most probative evidence of the reasonable royalty rate. See Georgia-Pacific, 318 F. Supp. at 1120; Laser Dynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51, 79 (Fed. Cir. 2012) ("Where the evidence of record includes the patentee's own real-world licensing of the patent-in-suit, that evidence is 'highly probative.'"). OWS's three existing licenses involve the very patents at issue in this litigation and reflect OWS's established licensing practices, as developed and implemented through OWS's licensing agent, FairPoint Licensing Group, LLC.
19.  I note that OWS's licensing program was conducted through FairPoint Licensing Group, LLC (Angela Reeves, Managing Director, 500 Sansome Street, Suite 1400, San Francisco, CA 94111). Ms. Reeves has over eighteen years of experience in patent licensing and technology valuation in the semiconductor and photonics industries. FairPoint managed the identification of prospective licensees, the preparation of claim charts and licensing presentations, the negotiation of license terms, and the outreach to Lumicore that preceded this litigation. I spoke with Ms. Reeves on multiple occasions during the course of my engagement and reviewed FairPoint's records regarding the negotiation of each of the three existing licenses and the pre-suit outreach to Lumicore.
20.  I discuss each of the three OWS licenses below, in chronological order.
III.B. OWS–Terralink Semiconductor License (2020)
21.  Parties. The first license agreement was executed between Optiwave Semiconductor Corp., as licensor, and Terralink Semiconductor, as licensee (the "Terralink License"). A copy of the Terralink License, redacted in accordance with the Stipulated Protective Order's AEO designation, is attached as Exhibit C-1.
22.  Execution Date. The Terralink License was executed in 2020.
23.  Licensed Patents. The Terralink License grants a license under a portfolio of OWS patents that includes the '847 Patent and the '562 Patent, among other OWS patents in the silicon-photonics field. Notably, the Terralink License does not include the '193 Patent, which did not issue until January 12, 2021, or the '015 Patent, which did not issue until August 2, 2022. As a result, the Terralink License covers only two of the four asserted patents in this litigation.
24.  Royalty Structure. The Terralink License provides for a running royalty of 6.5% on licensed-product net sales. "Licensed products" are defined in the agreement as transceiver modules and related assemblies that, but for the license, would infringe one or more claims of the licensed patents. "Net sales" are defined in the agreement as gross revenues from the sale of licensed products, less returns, allowances, shipping charges, and applicable sales taxes, consistent with standard licensing practice.
25.  Licensed Revenue Base. At the time of execution, Terralink's annual revenue from licensed products was approximately $45 million. This figure is based on Terralink's reported revenue data for the most recent fiscal year preceding the execution of the Terralink License, as reflected in the agreement's royalty-base projections and confirmed by publicly available financial data.
26.  Scope. The Terralink License is a non-exclusive, worldwide license for the manufacture and sale of transceiver products incorporating the licensed technology. The license does not include sublicensing rights.
27.  Adjustments for Comparability. While the Terralink License is an arm's-length license involving patents in suit and is therefore highly probative, several factors distinguish it from the hypothetical OWS-Lumicore negotiation and necessitate adjustments:
(a) Smaller licensee with narrower product line. Terralink is a smaller company than Lumicore, with a narrower product line focused on a limited segment of the optical transceiver market. Terralink's licensed revenue base of approximately $45 million is substantially smaller than Lumicore's accused-product revenue, which totaled $264.9 million in FY 2023 alone. While in some licensing contexts a larger revenue base may command a modest volume discount, the magnitude of Lumicore's infringement — and the concomitant competitive harm to OWS — supports a higher rate rather than a discount. I address this dynamic further in Section V.B below.
(b) Partial patent portfolio. The Terralink License covers only two of the four asserted patents (the '847 and '562 Patents). The '193 Patent, which covers coherent transceiver integration technology, and the '015 Patent, which covers the polarization-diverse grating coupler, had not yet issued at the time of the Terralink negotiation. The subsequent issuance of these two additional patents meaningfully expanded the scope and commercial value of OWS's patent portfolio. The inclusion of the full four-patent portfolio in the hypothetical OWS-Lumicore negotiation supports an upward adjustment from the Terralink 6.5% rate.
(c) Pre-dispute negotiation context. The Terralink License was negotiated in a pre-dispute context — that is, Terralink proactively engaged with OWS (through FairPoint) to obtain a license before any infringement allegations were made. It is well recognized in the licensing literature and in case law that pre-dispute licenses tend to yield lower royalty rates than licenses negotiated in the context of litigation or after the patentee has established a pattern of enforcement. See, e.g., Prism Techs. LLC v. Sprint Spectrum L.P., 849 F.3d 1360, 1373 (Fed. Cir. 2017). This factor supports an upward adjustment when comparing the Terralink rate to the hypothetical OWS-Lumicore negotiation, which would have been informed by OWS's active licensing enforcement program.
28.  In summary, the Terralink License establishes 6.5% as the floor of the reasonable royalty range. The narrower patent portfolio, smaller licensed-revenue base, and pre-dispute negotiation context all support a rate above 6.5% for the hypothetical OWS-Lumicore negotiation.
III.C. OWS–NovaWave Corp. License (2021)
29.  Parties. The second license agreement was executed between Optiwave Semiconductor Corp., as licensor, and NovaWave Corp., as licensee (the "NovaWave License"). A copy of the NovaWave License, redacted in accordance with the Stipulated Protective Order's AEO designation, is attached as Exhibit C-2.
30.  Execution Date. The NovaWave License was executed in 2021.
31.  Licensed Patents. The NovaWave License grants a license under a portfolio of OWS patents that includes the '847 Patent, the '193 Patent, and the '562 Patent. The inclusion of the '193 Patent — which had issued on January 12, 2021, shortly before the NovaWave License was negotiated — reflects the expanded scope of OWS's patent portfolio relative to the earlier Terralink License. However, the NovaWave License does not include the '015 Patent, which did not issue until August 2, 2022.
32.  Royalty Structure. The NovaWave License provides for a running royalty of 9.0% on licensed-product net sales. The definitions of "licensed products" and "net sales" in the NovaWave License are substantively similar to those in the Terralink License.
33.  Licensed Revenue Base. At the time of execution, NovaWave's annual revenue from licensed products was approximately $22 million. NovaWave is a smaller, more specialized manufacturer of silicon-photonics components with a focused product line serving the telecommunications and data-center interconnect markets.
34.  Scope. The NovaWave License is a non-exclusive license limited to specific product lines identified in the agreement. Unlike the Terralink License, which covers all transceiver products incorporating the licensed technology, the NovaWave License is narrower in scope, applying only to NovaWave's coherent transceiver module product family.
35.  Adjustments for Comparability. The following factors distinguish the NovaWave License from the hypothetical OWS-Lumicore negotiation:
(a) Smaller licensed revenue base. NovaWave's licensed revenue of approximately $22 million is significantly smaller than Lumicore's accused-product revenue. As noted above, the scale differential is relevant to the bargaining dynamics but does not, standing alone, compel a lower rate for Lumicore. Indeed, the far greater magnitude of Lumicore's infringement — and the correspondingly greater competitive injury to OWS — supports a rate at or above the NovaWave level.
(b) Higher royalty rate reflects expanded portfolio. The increase from 6.5% (Terralink, two patents) to 9.0% (NovaWave, three patents) is consistent with the economic principle that a broader patent portfolio commanding greater coverage of the licensed technology justifies a higher royalty rate. The addition of the '193 Patent, covering coherent transceiver integration, added significant value to the licensed portfolio because coherent detection is a core functional requirement of modern optical transceiver modules for data-center interconnects.
(c) NovaWave's smaller scale and limited bargaining leverage. NovaWave's smaller scale may have limited its bargaining leverage relative to a larger licensee like Lumicore. However, the 9.0% rate reflects the value of the core patent portfolio as assessed by two arm's-length parties in a commercially reasonable negotiation. I do not view NovaWave's smaller scale as a basis for discounting the rate when comparing to the hypothetical Lumicore negotiation, particularly given the countervailing factors (direct competition, larger infringement base, full portfolio) that favor a higher rate.
(d) Absence of the '015 Patent. As with the Terralink License, the NovaWave License does not include the '015 Patent covering the polarization-diverse grating coupler. The inclusion of this fourth patent in the hypothetical OWS-Lumicore negotiation supports a rate that accounts for the incremental value of this technology. However, the NovaWave 9.0% rate, even without the '015 Patent, falls within the range that I propose for the full four-patent portfolio, suggesting that the '015 Patent's incremental contribution may be offset in part by the scale-related and competitive factors discussed in Section V.B.
36.  In summary, the NovaWave License supports a rate in the 8.5%–9.0% range when the full four-patent portfolio is considered and when adjustments are made for the case-specific factors described above.
III.D. OWS–Helix Integrated Photonics License (2022)
37.  Parties. The third license agreement was executed between Optiwave Semiconductor Corp., as licensor, and Helix Integrated Photonics, as licensee (the "Helix License"). A copy of the Helix License, redacted in accordance with the Stipulated Protective Order's AEO designation, is attached as Exhibit C-3.
38.  Execution Date. The Helix License was executed in 2022.
39.  Licensed Patents. The Helix License grants a license under a portfolio of OWS patents that includes all four of the asserted patents in this litigation: the '847 Patent, the '193 Patent, the '562 Patent, and the '015 Patent. This is the only OWS license that covers the full asserted patent portfolio.
40.  Royalty Structure. The Helix License provides for a running royalty of 7.75% on licensed-product net sales, plus a $2.5 million upfront lump-sum payment made at execution. The running royalty and lump-sum components are both expressly denominated as consideration for the patent license and are not allocable to other agreements or arrangements between the parties.
41.  Licensed Revenue Base. At the time of execution, Helix's annual revenue from licensed products was approximately $68 million. Helix is a mid-sized manufacturer of photonic integrated circuit products for data-center and telecommunications applications.
42.  Scope. The Helix License is a non-exclusive, worldwide license for the manufacture and sale of transceiver products incorporating the licensed technology. The scope is comparable to the Terralink License and covers all of Helix's transceiver products that practice the licensed patents.
43.  Effective Rate Calculation. The inclusion of a $2.5 million upfront lump-sum payment in addition to the 7.75% running royalty means that the nominal running-royalty rate understates the total economic consideration paid by Helix for the license. To determine the effective all-in royalty rate, I amortized the upfront payment over Helix's projected licensed-revenue stream for the initial five-year term of the license:
•  Upfront payment: $2.5 million
•  Annual licensed revenue at execution: approximately $68 million
•  First-year equivalent rate of upfront payment: $2.5M ÷ $68M ≈ 3.7%
•  First-year all-in rate: 7.75% + 3.7% ≈ 11.45%
•  Blended effective rate over five-year term (assuming modest annual revenue growth of 5%–7%): approximately 8.5%–8.7%
44.  The blended effective rate of approximately 8.5%–8.7% reflects the total economic value of the license to OWS and the total cost of the license to Helix, expressed on a consistent basis with the running-royalty rates in the other comparable agreements. This effective rate calculation is conservative because it assumes growth in Helix's licensed-product revenue over the five-year term; if licensed revenue were flat, the effective rate would be higher.
45.  Adjustments for Comparability. The Helix License is the most comparable of the three OWS licenses to the hypothetical OWS-Lumicore negotiation for several reasons:
(a) Full four-patent portfolio. The Helix License is the only OWS license that includes all four asserted patents. Because the hypothetical OWS-Lumicore negotiation would involve the same four-patent portfolio, the Helix License provides the most direct benchmark.
(b) Closer licensed-revenue base. At approximately $68 million, Helix's licensed revenue base is closer to Lumicore's accused-product revenue than either Terralink's ($45 million) or NovaWave's ($22 million). However, Helix's base remains substantially below Lumicore's accused-product revenue ($264.9 million in FY 2023 alone; projected $714.6 million from Q3 2022 through Q4 2025), which is a relevant factor in assessing the competitive harm associated with Lumicore's infringement.
(c) Temporal proximity. The Helix License was executed in 2022, the same year as the hypothetical negotiation date (Q2 2022). This temporal proximity means that the Helix License reflects market conditions, technology maturity, and competitive dynamics that are substantially similar to those that would have prevailed at the hypothetical negotiation date.
(d) Pre-litigation context. Like the Terralink and NovaWave Licenses, the Helix License was negotiated in a pre-dispute, voluntary licensing context. As discussed above, pre-dispute licenses generally yield lower royalty rates than litigation-context licenses. The hypothetical negotiation with Lumicore, by contrast, would have been informed by the fact that Lumicore was preparing to launch a product that OWS would contend infringes its patents. Moreover, Lumicore had actual notice of OWS's patents through FairPoint's January 15, 2023 licensing letter (identifying the '847, '193, and '562 Patents) and the May 15, 2023 supplemental letter (identifying the '015 Patent), although this notice post-dates the hypothetical negotiation date. Under the hypothetical negotiation construct, the parties are assumed to be aware that the patents are valid and infringed, which is the economic equivalent of a litigation-informed negotiation. This factor supports a rate at or above the Helix effective rate of 8.5%–8.7%.
46.  In summary, the Helix License provides the strongest direct support for the proposed 8.5% royalty rate. Its effective all-in rate of approximately 8.5%–8.7%, negotiated for the full four-patent portfolio in a temporal period proximate to the hypothetical negotiation date, closely corresponds to my proposed rate.
III.E. Summary of OWS Licensing History
47.  The following table summarizes the key terms of OWS's three existing patent license agreements:
48.  The range established by OWS's own licensing history is 6.5% to 9.0% on a nominal basis, and approximately 6.5% to 9.0% on an effective basis when the Helix upfront payment is amortized over the license term. The weighted average of these three licenses, weighted by the licensed-revenue base of each licensee, is approximately 7.8% nominal and approximately 8.2% effective. This weighted average gives greater weight to the Helix License, which has the largest licensed-revenue base and covers the full four-patent portfolio.
49.  Importantly, OWS's licensing history shows a clear trend of increasing royalty rates as the patent portfolio expanded over time. The Terralink License, covering two patents, was negotiated at 6.5%. The NovaWave License, covering three patents (with the addition of the '193 Patent), was negotiated at 9.0%. The Helix License, covering all four patents, was negotiated at 7.75% nominal but with an upfront payment that raises the effective rate to approximately 8.5%–8.7%. This trend is consistent with the economic principle that the addition of commercially significant patents to a licensed portfolio increases the value of the license and supports a higher royalty rate. While the NovaWave rate (9.0%) is nominally higher than the Helix effective rate (8.5%–8.7%), this is explained by NovaWave's smaller scale and more limited bargaining leverage; when the full context of each negotiation is considered, the trajectory is upward as the portfolio strengthened.
IV. INDUSTRY COMPARABLE TRANSACTIONS
IV.A. Selection and Identification Process
50.  In addition to OWS's own licensing history, I reviewed publicly available information regarding patent licensing transactions in the silicon-photonics, optical transceiver, and photonic integrated circuit technology sectors to identify industry comparable transactions that satisfy my selection criteria. This review was conducted with the assistance of FairPoint Licensing Group, LLC, which has extensive knowledge of licensing activity in the silicon-photonics sector.
51.  The sources I reviewed in identifying industry comparable transactions include: SEC filings (Forms 10-K, 10-Q, and 8-K) of publicly traded companies in the photonics and optical communications sectors; litigation settlement agreements and consent judgments available through the PACER electronic filing system and from public court records; industry licensing reports and surveys published by recognized intellectual property research organizations, including the Licensing Executives Society, the intellectual Property Owners Association, and certain proprietary licensing databases to which Meridian Economic Consulting Group maintains subscriptions; and analyst reports and market research publications covering the silicon-photonics and optical transceiver markets.
52.  From this review, I identified two industry comparable transactions that are sufficiently comparable to the hypothetical OWS-Lumicore negotiation to provide meaningful benchmarking data. I discuss each of these transactions below.
IV.B. Stratos Photonics v. ArcLight Systems Settlement (2019)
53.  Parties. Stratos Photonics (licensor/plaintiff) and ArcLight Systems (licensee/defendant).
54.  Context. The Stratos-ArcLight transaction arose from a settlement of patent infringement litigation between Stratos Photonics and ArcLight Systems in the Northern District of California. The litigation involved allegations that ArcLight's optical transceiver modules infringed a portfolio of Stratos patents covering coherent detection and waveguide integration technologies. The settlement was reached after the completion of claim construction and the close of fact discovery but before trial. The terms of the settlement, including the royalty rate, are reflected in the settlement agreement filed with the court and available in the public court record. Relevant excerpts are attached as Exhibit C-4.
55.  Royalty Rate. The settlement provided for a running royalty of 8.0% on ArcLight's sales of the accused transceiver products. The royalty was structured as a percentage of net sales, consistent with the royalty structure in OWS's own licenses and in the proposed rate for the hypothetical OWS-Lumicore negotiation.
56.  Date. The settlement agreement was executed in 2019, approximately three years before the hypothetical negotiation date in this case.
57.  Technology. The Stratos patents covered optical transceiver modules for data-center applications, with particular focus on coherent detection architecture and waveguide integration for silicon-photonics platforms. This technology is closely related to the technology covered by OWS's asserted patents, which address waveguide multiplexing, coherent transceiver integration, thermal management, and grating coupler technologies within the same silicon-photonics transceiver product category.
58.  Relevance. The Stratos-ArcLight settlement is relevant to the hypothetical OWS-Lumicore negotiation for several reasons:
(a) Litigation-context settlement. The 8.0% royalty rate was negotiated in the context of pending patent infringement litigation, which is relevant because the hypothetical negotiation in this case would have been informed by the risk of Lumicore's continued infringement and OWS's demonstrated willingness to enforce its patents through litigation. Courts and commentators have recognized that litigation-context licenses may carry higher royalty rates than pre-dispute voluntary licenses, reflecting the litigation premium and the reduced bargaining leverage of a defendant who faces the risk of an injunction or enhanced damages. See, e.g., ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860, 872 (Fed. Cir. 2010).
(b) Comparable technology field. The Stratos patents cover optical transceiver technology for data-center applications — the same product category and end-market as OWS's asserted patents and Lumicore's accused products. This technological comparability enhances the probative value of the Stratos-ArcLight rate.
(c) Running royalty structure. The 8.0% running royalty is expressed on the same basis (percentage of net sales of accused products) as the proposed rate in this case, facilitating direct comparison without the need for conversion or imputation.
59.  Adjustments for Comparability. While the Stratos-ArcLight settlement is a useful comparable, certain adjustments are warranted:
(a) Narrower patent portfolio. The Stratos patent portfolio was fewer in number and narrower in scope than OWS's four-patent portfolio. The Stratos patents covered coherent detection and waveguide integration, whereas OWS's asserted patents cover a broader technological footprint encompassing waveguide multiplexing (the '847 Patent), coherent transceiver integration (the '193 Patent), thermal management micro-channels (the '562 Patent), and the polarization-diverse grating coupler (the '015 Patent). This broader coverage means that OWS's patent portfolio addresses a greater share of the core functionality of the accused transceiver modules, which supports a rate above the Stratos 8.0%.
(b) Patent strength. OWS's asserted patents have been maintained with all maintenance fees current and have not been subjected to inter partes review ("IPR") or other post-grant validity challenges, suggesting perceived strength by potential challengers. By contrast, I am not aware of the maintenance and challenge history of the Stratos patents, and to the extent that the Stratos patents were perceived as less robust, the 8.0% rate may understate the rate that OWS's stronger portfolio would command.
(c) Temporal difference. The Stratos settlement was executed in 2019, approximately three years before the hypothetical negotiation date. While the silicon-photonics market has grown significantly over this period — driven by the expansion of hyperscale data-center buildouts and the increasing demand for high-bandwidth optical interconnects — I do not believe this temporal gap introduces a material distortion in the rate comparison. If anything, the growth in market demand for silicon-photonics transceiver technology has increased the commercial significance of core patents in this space, supporting a rate at or above the 2019 level.
60.  In summary, the Stratos-ArcLight settlement supports a rate at or above 8.0%, and when adjusted for the broader scope and greater strength of OWS's patent portfolio, supports a rate in the 8.0%–9.0% range.
IV.C. Coreline Technologies v. Prisma Semiconductor Cross-License (2021)
61.  Parties. Coreline Technologies (licensor) and Prisma Semiconductor (licensee).
62.  Context. The Coreline-Prisma transaction was a cross-license agreement with a balancing royalty payment, entered into to resolve a patent dispute between the parties. The terms of the agreement, including the financial terms, were disclosed by Prisma Semiconductor in its SEC filings (Form 8-K and subsequent Form 10-K). Relevant excerpts of these filings are attached as Exhibit C-5.
63.  Effective Royalty Rate. The Coreline-Prisma cross-license involved bilateral grants of patent rights, with Prisma paying a net balancing royalty to Coreline reflecting the differential value of the two parties' respective patent portfolios. Based on the net balancing payments disclosed in Prisma's SEC filings and the revenue data reported by Prisma for the relevant product lines, I calculated the effective one-way royalty rate attributable to the Coreline patent portfolio at 10.2% of Prisma's net sales of the licensed products.
64.  The calculation methodology was as follows: Prisma's SEC filings disclosed aggregate net balancing payments over a three-year period, along with the revenue of Prisma's licensed product lines during the same period. By dividing the net payments by the corresponding licensed-product revenue, I derived the effective royalty rate. I adjusted the gross payments reported in the filings to exclude the imputed value of the patent rights granted by Prisma to Coreline (the "cross-license offset"), using Coreline's publicly reported licensed-product revenue as the denominator for the Prisma-to-Coreline direction. The resulting 10.2% effective rate represents the net price paid by Prisma for access to Coreline's patent portfolio, expressed as a percentage of Prisma's licensed-product net sales.
65.  Date. The Coreline-Prisma cross-license was executed in 2021, approximately one year before the hypothetical negotiation date in this case.
66.  Technology. The Coreline patents covered silicon-photonics chipsets for telecommunications and data-center interconnects, with particular emphasis on polarization management and wavelength-division multiplexing ("WDM") technologies. These technologies are closely related to the technology covered by OWS's asserted patents, which include waveguide multiplexing (a form of WDM implemented in photonic integrated circuits) and polarization-diverse grating coupler technology.
67.  Relevance. The Coreline-Prisma cross-license is relevant to the hypothetical OWS-Lumicore negotiation for several reasons:
(a) Directly comparable technology field. The licensed technology — silicon-photonics for data-center interconnects, including polarization management and WDM — is directly comparable to the technology covered by OWS's asserted patents. The end-market application (data-center interconnects) is the same as the primary market for Lumicore's accused products.
(b) Arm's length negotiation between operating companies. Both Coreline and Prisma are operating companies that manufacture and sell silicon-photonics products. The cross-license was negotiated at arm's length to resolve a genuine patent dispute, and the financial terms reflect the parties' good-faith assessment of the relative value of their respective patent portfolios.
(c) Temporal proximity. The 2021 execution date is close to the Q2 2022 hypothetical negotiation date, ensuring that the rate reflects market conditions and technology valuations that are substantially similar to those that would have prevailed at the time of the hypothetical negotiation.
68.  Adjustments for Comparability. The following adjustments are warranted:
(a) Cross-license structure. The cross-license structure complicates direct comparison because the effective rate includes an implicit deduction for the value of the patent rights that Prisma granted to Coreline. While I have endeavored to isolate the effective one-way rate attributable to the Coreline portfolio, there is inherent uncertainty in this calculation. The cross-license structure may cause the 10.2% effective rate to overstate or understate the rate that would have been negotiated in a unilateral license (i.e., a one-way license from Coreline to Prisma without a cross-grant). I treat the 10.2% rate as the upper boundary of the comparable range and note that it provides a useful check on the proposed rate rather than a precise benchmark.
(b) High technology overlap. Notwithstanding the cross-license complication, the high degree of technology overlap between the Coreline portfolio and OWS's asserted patents — both covering core silicon-photonics technologies for data-center interconnects — enhances the relevance of this transaction. The 10.2% effective rate reflects the value that sophisticated operating companies placed on core silicon-photonics IP in an arm's-length negotiation, which is directly probative of the value of OWS's asserted patents.
69.  In summary, the Coreline-Prisma cross-license supports a rate within the 8.0%–10.2% range for unilateral licenses involving core silicon-photonics patent portfolios.
IV.D. Additional Industry Data Points
70.  In addition to the two specific comparable transactions discussed above, I reviewed broader industry licensing data for semiconductor and photonics technologies to provide context for the proposed royalty rate. This review encompassed published licensing surveys, analyst reports, and aggregated data from intellectual property research organizations covering licensing transactions in the semiconductor, photonics, and optical communications sectors.
71.  Based on this review, the observed range of running royalty rates in comparable semiconductor-photonics transactions is approximately 4.0% to 12.5%, with the following general distribution:
•  Lower end (4.0%–5.0%): Licenses involving peripheral or non-core patents, older technology with diminishing commercial relevance, or high-volume/low-margin products where the royalty burden must be moderated to preserve licensee profitability. These transactions typically involve patents that cover ancillary or incremental features rather than core product functionality.
•  Mid-range (6.0%–9.0%): Licenses involving core technology patents for differentiated products in competitive markets. This range encompasses the majority of arm's-length licensing transactions in the silicon-photonics and optical transceiver sectors and reflects the value of patents that cover significant — but not necessarily blocking — aspects of the licensed technology.
•  Upper end (10.0%–12.5%): Licenses involving foundational or blocking patents, litigation-context settlements where the licensee faced significant infringement liability, or situations where the licensee had limited or no commercially viable design-around options. These transactions reflect the premium that a licensee must pay when the patented technology is essential to its product offering and no acceptable alternatives are available.
72.  OWS's asserted patents fall in the mid-to-upper range of this distribution. The patents cover core transceiver module functionality — waveguide multiplexing, coherent transceiver integration, thermal management, and polarization-diverse grating coupling — that is integral to the operation and performance of the accused products. As discussed in the main report and in Appendix A (Panduit analysis), there are no commercially viable non-infringing alternatives for the patented features. This combination of core technology coverage and absence of design-around options places OWS's patents squarely in the category of high-value patents that command royalty rates in the 7.0%–10.0%+ range.
IV.E. Summary of Industry Comparables
73.  The following table summarizes the two industry comparable transactions identified in my analysis:
74.  The industry comparable transactions establish a range of 8.0% to 10.2% for running royalty rates on core silicon-photonics patent portfolios. This range is consistent with and slightly above the range established by OWS's own licensing history (6.5%–9.0% nominal; 6.5%–8.7% effective), reflecting the fact that the industry comparables include one litigation-context settlement and one cross-license with a substantial balancing payment.
75.  The broader industry range of 4.0%–12.5% provides additional context and confirms that the proposed 8.5% rate falls well within the range of rates observed in the relevant technology sector.
V. SYNTHESIS AND RATE DETERMINATION
V.A. Convergence of Data Points
76.  The analysis of OWS's own licensing history and industry comparable transactions yields a robust set of data points from which to determine the appropriate royalty rate for the hypothetical OWS-Lumicore negotiation. The following table summarizes all five identified comparable data points:
77.  The data points converge on the following ranges:
•  OWS own-license range: 6.5%–9.0% (nominal); approximately 6.5%–8.7% (effective, with lump-sum adjustments)
•  Industry comparable range: 8.0%–10.2%
•  Combined comparable range: 6.5%–10.2%
78.  The central tendency of the five comparable data points is as follows:
•  Arithmetic mean: (6.5% + 9.0% + 8.5% + 8.0% + 10.2%) ÷ 5 = 8.44%
•  Median: 8.5% (the third-ranked value when the five data points are ordered from lowest to highest: 6.5%, 8.0%, 8.5%, 9.0%, 10.2%)
79.  Both the arithmetic mean (8.44%) and the median (8.5%) of the five comparable data points are effectively identical and correspond to the proposed royalty rate of 8.5%. This convergence provides strong statistical support for the proposed rate and demonstrates that it is firmly grounded in the available transactional evidence.
V.B. Case-Specific Adjustments
80.  While the central tendency of the comparable data points provides a sound starting point, it is necessary to evaluate whether case-specific factors warrant adjustments to the rate. I identified six case-specific factors that bear on the appropriate royalty rate for the hypothetical OWS-Lumicore negotiation. On balance, these factors support a rate at or slightly above the 8.5% central tendency, but I have elected to propose a rate at the median rather than at the upper end of the range in order to present a conservative and well-supported damages figure.
81.  Adjustment 1 — Full Patent Portfolio. The hypothetical negotiation would involve all four asserted patents: the '847 Patent (waveguide multiplexer), the '193 Patent (coherent transceiver integration), the '562 Patent (thermal management micro-channels), and the '015 Patent (polarization-diverse grating coupler). Of OWS's three existing licenses, only the Helix License covers the full four-patent portfolio. The Terralink License (6.5%) covers only two patents and the NovaWave License (9.0%) covers three patents. The incremental value of the '193 Patent and the '015 Patent — each of which covers a distinct and commercially significant aspect of transceiver module technology — supports a rate above the Terralink floor of 6.5%. The Helix effective rate of 8.5%–8.7% already reflects the full four-patent portfolio, and I view this as the most directly comparable data point for this adjustment.
82.  Adjustment 2 — Scale of Infringement. Lumicore's accused-product revenue is far larger than the licensed-revenue bases of any of OWS's prior licensees. Lumicore's FY 2023 accused-product revenue was $264.9 million, and the projected total accused-product revenue from Q3 2022 through Q4 2025 is $714.6 million. By comparison, the largest of OWS's existing licensees (Helix) had a licensed-revenue base of approximately $68 million — less than one-quarter of Lumicore's FY 2023 accused-product revenue alone. While it is sometimes argued that larger revenue bases should command volume discounts in licensing negotiations, this argument is not compelling in the present context. The magnitude of Lumicore's infringement inflicts correspondingly large competitive harm on OWS, which competes directly with Lumicore in the silicon-photonics transceiver market. OWS's market-share analysis in Appendix A demonstrates that Lumicore's accused products displaced approximately 38.2% of the relevant market share that OWS would otherwise have captured. The scale of this competitive injury — measured in hundreds of millions of dollars of displaced revenue — far exceeds the competitive injury from the smaller licenses and supports a rate at the upper end of the own-license range.
83.  Adjustment 3 — Competitive Relationship. This adjustment is among the most significant in the analysis. Unlike Terralink, NovaWave, and Helix — none of which were direct competitors of OWS in the silicon-photonics transceiver market — Lumicore is a direct, head-to-head competitor. OWS and Lumicore compete for sales of silicon-photonics transceiver modules to the same customer base: hyperscale data-center operators and cloud service providers. The evidence in this case demonstrates that OWS and Lumicore compete directly at twelve of the top twenty hyperscale data-center operators, including major cloud providers and internet infrastructure companies. Georgia-Pacific Factor 6 — the "effect of selling the patented specialty in promoting sales of other products of the licensor" — and the broader policy of the Georgia-Pacific framework recognize that the competitive relationship between the licensor and the licensee is a critical determinant of the royalty rate. When the licensee is a direct competitor, the licensor faces not only the loss of royalty income but also the loss of sales and market position, which supports a higher royalty rate. See, e.g., Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1554 (Fed. Cir. 1995) (en banc) (recognizing the relevance of competitive harm in the damages analysis). I view this factor as supporting a rate at or above the central tendency of the comparables.
84.  Adjustment 4 — Pre-Suit Notice and Willfulness. Although the hypothetical negotiation is dated to Q2 2022, the conduct of the parties after the negotiation date is relevant to assessing the Georgia-Pacific factors, including Factor 15 (the amount a prudent businessman would have been willing to pay, knowing the patent to be valid and infringed). The record in this case reflects the following chronology:
•  January 15, 2023: FairPoint Licensing Group, LLC, on behalf of OWS, sent a detailed licensing letter to Lumicore identifying the '847, '193, and '562 Patents and presenting claim charts demonstrating infringement by Lumicore's LumiLink 400G-ZR+ and LumiLink 800G-DR8 products.
•  April 20, 2023: OWS representatives (including Ms. Reeves of FairPoint) met in person with Lumicore representatives in Austin, Texas, to discuss licensing terms.
•  May 15, 2023: FairPoint sent a supplemental licensing letter to Lumicore identifying the '015 Patent and presenting an additional claim chart demonstrating infringement.
•  July 10, 2023: Lumicore formally declined to take a license, referencing "competent legal opinions" regarding the asserted patents but declining to provide copies of those opinions or to engage in further licensing discussions.
•  Q4 2023: Lumicore launched the LumiEdge 1600G-LR, its third accused product, notwithstanding its knowledge of OWS's patents and licensing demands.
85.  This pattern of conduct — receiving actual notice, engaging in a single meeting without meaningful negotiation, declining to license, and then launching an additional accused product — is relevant to the hypothetical negotiation analysis because it demonstrates that Lumicore was unwilling to pay any royalty for OWS's patented technology. Under the hypothetical negotiation construct, both parties are assumed to act rationally, which means Lumicore would have been willing to pay a royalty that reflects the value of the patented technology. Lumicore's actual refusal to negotiate supports the inference that the patents have substantial commercial value that Lumicore preferred to capture without payment. This conduct supports an upward adjustment under Georgia-Pacific Factor 15.
86.  Adjustment 5 — No Viable Non-Infringing Alternatives. The Panduit analysis presented in Appendix A and discussed in the main report concludes that there are no commercially viable non-infringing alternatives to the patented features. Specifically, I analyzed four potential alternative designs that might avoid infringement of one or more of the asserted patents:
(a) Arrayed waveguide grating ("AWG") multiplexer in place of the patented waveguide multiplexer;
(b) Separate discrete-component coherent receiver in place of the p

APPENDIX C: ROYALTY RATE BENCHMARKING ANALYSIS

I. INTRODUCTION AND PURPOSE OF THIS APPENDIX

II. METHODOLOGY

III. OWS'S OWN LICENSING HISTORY

IV. INDUSTRY COMPARABLE TRANSACTIONS

V. SYNTHESIS AND RATE DETERMINATION

Record

Parties

Dates

Amounts