-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JuH3sam5Hcvy6SKIpmBSYYxVFSXcAxPOHzkhDWVjDXxZH48dAGmVQxdG8qFNS2er QOQ/G4ANvEPfYVviyU9J3w== 0001047469-98-040858.txt : 19981118 0001047469-98-040858.hdr.sgml : 19981118 ACCESSION NUMBER: 0001047469-98-040858 CONFORMED SUBMISSION TYPE: SC 14D1/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19981113 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: QUICKTURN DESIGN SYSTEMS INC CENTRAL INDEX KEY: 0000914252 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 770159619 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1/A SEC ACT: SEC FILE NUMBER: 005-43785 FILM NUMBER: 98749662 BUSINESS ADDRESS: STREET 1: 55 W TRIMBLE ROAD CITY: SAN JOSE STATE: CA ZIP: 951311013 BUSINESS PHONE: 4089146000 MAIL ADDRESS: STREET 1: 55 W TRIMBLE ROAD CITY: SAN JOSE STATE: CA ZIP: 95131-1013 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: MENTOR GRAPHICS CORP CENTRAL INDEX KEY: 0000701811 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 930786033 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1/A BUSINESS ADDRESS: STREET 1: 8005 SW BOECKMAN RD CITY: WILSONVILLE STATE: OR ZIP: 97070 BUSINESS PHONE: 5036857000 SC 14D1/A 1 14D1/A - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 24 TO SCHEDULE 14D-1 TENDER OFFER STATEMENT (PURSUANT TO SECTION 14(D)(1) OF THE SECURITIES EXCHANGE ACT OF 1934) QUICKTURN DESIGN SYSTEMS, INC. (Name of Subject Company) MENTOR GRAPHICS CORPORATION MGZ CORP. (Bidders) COMMON STOCK, PAR VALUE $.001 PER SHARE (including the Associated Rights) (Title of Class of Securities) 74838E102 (CUSIP Number of Class of Securities) ------------------------ WALDEN C. RHINES PRESIDENT AND CHIEF EXECUTIVE OFFICER MENTOR GRAPHICS CORPORATION 8005 S.W. BOECKMAN ROAD WILSONVILLE, OREGON 97070-7777 (503) 685-1200 (Name, Address and Telephone Number of Persons Authorized to Receive Notices and Communications on Behalf of Bidders) COPY TO: JOHN J. HUBER, ESQ. CHRISTOPHER L. KAUFMAN, ESQ. LATHAM & WATKINS LATHAM & WATKINS 1001 PENNSYLVANIA AVENUE, N.W. 75 WILLOW ROAD WASHINGTON, DC 20004 MENLO PARK, CALIFORNIA 94025 (202) 637-2200 (650) 328-4600 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- MGZ Corp., a Delaware corporation ("Purchaser"), and Mentor Graphics Corporation, an Oregon corporation ("Parent"), hereby amend and supplement their Tender Offer Statement on Schedule 14D-1 filed on August 12, 1998 (the "Statement"), as amended, with respect to the offer by Purchaser to purchase all outstanding shares of Common Stock, par value $.001 per share, of Quickturn Design Systems, Inc., a Delaware corporation, for a purchase price of $12.125 per share, net to the seller in cash, without interest thereon, as set forth in this Amendment No. 24. Capitalized terms used herein and not defined have the meanings ascribed to them in the Statement. ITEM 10. ADDITIONAL INFORMATION. Item 10(f) of the Statement is hereby amended and supplemented by the following: 1. On November 13, 1998, Parent is making available on a Mentor Graphics World Wide Web site (http://www.mentorg.com/file) the exhibits to the Interim Supplemental Expert Report of James Mack Folsom, as redacted, a copy of which is attached hereto as Exhibit (a)(46) and is incorporated herein by reference. 2. On November 13, 1998, Parent is making available on a Mentor Graphics World Wide Web site (http://www.mentorg.com/file) the exhibits to the Supplemental Report of Blaine F. Nye, Ph.D., as redacted, a copy of which is attached hereto as Exhibit (a)(47) and is incorporated herein by reference. ITEM 11. MATERIAL TO BE FILED AS EXHIBITS. (a)(46) Redacted Exhibits to Interim Supplemental Expert Report of James Mack Folsom. (a)(47) Redacted Exhibits to Supplemental Report of Blaine F. Nye, Ph.D. 2 SIGNATURES After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: November 13, 1998 MENTOR GRAPHICS CORPORATION By: /s/ GREGORY K. HINCKLEY -------------------------------------- Name Gregory K. Hinckley Title: Executive Vice President, Chief Operating Officer and Chief Financial Officer MGZ CORP. By: /s/ GREGORY K. HINCKLEY -------------------------------------- Name: Gregory K. Hinckley Title: Secretary and Chief Financial Officer
3 EX-11.(A)(46) 2 REPORT OF JAMES FOLSOM JAMES MACK FOLSOM CURRICULUM VITAE POSITION: Economic Consultant Mack Folsom, Inc. ADDRESS: Home: 2664 North Marcey Road Arlington, Virginia 22207 Telephone: 540-527-0102 540-527-1699 Fax: 540-527-1006 Office: Same DATE & PLACE OF BIRTH: May 16, 1932 Barney, Georgia EDUCATION: Institution Attended Dates Degree Georgia Southwestern College 1949-51 University of Georgia 1951-53 BBA (marketing) Vanderbilt University 1953-54 Vanderbilt University 1556-59 (Completed all requirements for Ph.D. except thesis.) Major Fields: Industrial Organization and Agricultural Economics HONORS, SCHOLARSHIPS, FELLOWSHIPS: Special Scholarship, Vanderbilt University Earhart Fellowship - 2 years Ford Foundation Dissertation Fellow Valedictorian, UGA, Class of 1953 Phi Kappa Phi National Honorary Beta Gamma Sigma National Honorary Distinguished Service Award, Federal Trade Commission Exhibit 1, Page 1 of 4 PROFESSIONAL EXPERIENCE: Research Assistant - Displaced Persons' Adjustment to U.S. Economy, Gregor Sebba, UGA. Instructor, Industrial Organization and Statistics, Vanderbilt, Summer 1959. Instructor and Assistant Professor, Duke University, 1959-1964. (Courses Taught: Principles of Economics, Marketing, Managerial Economics, and Industrial Organization) Economist, Division of Economic Evidence, Bureau of Economics, Federal Trade Commission, 1964-68. Assistant to the Director, Bureau of Economics, Federal Trade Commission, 1969. Chief, Division of Economic Evidence, Bureau of Economics, Federal Trade Commission, 1970-72. Assistant Director, Bureau of Economics, Federal Trade Commission, 1972-73. Acting Director, Bureau of Economics, Federal Trade Commission, 1973-74. Deputy Director, Bureau of Economics, Federal Trade Commission, 1974-77 and 1978. Acting Director, Bureau of Economics, Federal Trade Commission, 1977-78. Senior Vice President, Glassman-Oliver Economic Consultants, Inc., 1828 L Street, N.W., Suite 405, Washington, D.C. 20036, 1978-1997. PUBLICATIONS: "Trends in Employment and Earned Income of Older Workers" with Juanita M. Kreps and C.E. Ferguson, Employment, Income, and Retirement Problems of the Aged, Duke University Press, 1963. The Use of Games of Chance in Food and Gasoline Retailing, FTC Economic Staff Report, 1968. The 1973 Line of Business Report, FTC Economic Staff Report, 1976, with F.M. Scherer, et al. Comment on State of Competition in Food, American Journal of Agricultural Economics, Vol. 61, No. 1, Feb. 1979, pp. 186-7. Exhibit 1, Page 2 of 4 TESTIMONY IN SELECTED LEGAL PROCEEDINGS: Allied Custom Gypsum vs. United States Gypsum Company, U.S. District Court for the Western District of Oklahoma, Case No. CIV-91-1409L, Deposition (1992, 1993) Red Eagle Resources Corporation, Inc., and its Two Subsidiaries United Drilling Company and Cimmaron Operating Company, Suits Drilling Company, and B.A. Newman Well Servicing Co., Inc., on Behalf of Themselves And All Others Similarly Situated, v. Baker Hughes Incorporated; Hughes Tool Company; Reed Tool Company, A/K/A Baker RTC, Inc.; Camco International Inc.; Smith International, Inc.; and Dresser Industries, Inc., U.S. District Court, Southern District of Texas, Houston Division, Civil Action No. H-91-627, Deposition (1993) El Cajon Cinema, Inc., A California Corporation v. American Multi-Cinema Inc., et al., U.S. District Court, Southern District of California, Case No. 900710 IEG, Deposition. (1993) J. Webb Shelley, d/b/a Shelley's Inc. v. Kraft General Foods, Inc., a Delaware Corporation, and National Dairy Products Corporation, a Delaware Corporation, U.S. District Court for the Western District of North Carolina, Civil Action No. C-C-91-427-MU, Affidavit. (1993) Cleo Stinnett, et al., Plaintiffs, vs. BellSouth Telecommunications, Inc. D/B/A South Central Bell Telephone Company, Defendant, U.S. District Court, Eastern District of Tennessee, Docket No. CIV-2-92-207. (1994) Irfan Khalid Ali v. His Highness Prince Khalid Bin Fahd Al-Faisal Bin Abdul-Rahman Al-Sa'ud, et al., C.A. No. 94-41-A, United States District Court, Eastern District of Virginia, Alexandria Division, Deposition. (1994) Broadmoor Theatre v. Ralph Slaughter, et al., B.T. A. No. 4137, Board of Tax Appeals, State of Louisiana, Deposition. (1994) The Bon Ton Inc., v. The May Department Stores Co., et al., (94-CV-6454L) and State of New York By G. Oliver Koppell, Attorney General v. The May Department Stores Company, et al. (94-CV-6479L), United States District Court, Western District of New York, Testimony by Affidavit and at hearing. (1994) Cynmarlyn, Inc. v. Hardee's Food System's, Inc., Case No. 94-00540-8C1, United States Bankruptcy Court, Middle District of Florida, Tampa Division, Testified by Affidavit. (1994) Sportmart, Inc., Plaintiff, v. No Fear, Inc., Defendant, Civil Action No. 94C-4890, United States District Court For the Northern District of Illinois, Eastern Division (1995), Deposition. Exhibit 1, Page 3 of 4 Omega Environmental, Inc. et al., Plaintiffs, v. Gilbarco, Inc., et al., Defendants, United States District Court, Western District of Washington at Seattle, No. C94-887Z (1995), Deposition and Trial. In Re: Brand Name Prescription Drugs Antitrust Litigation, United States District Court for the Northern District of Illinois Eastern Division, Case No. 94 C 897, MDL 997, Deposition. (1996) Ameron v. Total Containment, Inc., et al., CV 94-7871 HLH and Environ Products, Inc. v. Total Containment, Inc., et al., CV 95-6464, United States District Court, Central District of California, Deposition and trial. (1996) In The Matter of Hardware Logic Emulation Systems and Components Thereof, Investigation No. 337-TA-383, United States International Trade Commission, Washington, D.C. (1996 and 1997) Mexinox, et al. v. Acerinox, et al. and Mexinonx et al. v. Thyssen, et al., Civ. No. 96-164-A, United States District Court, Eastern District of Virginia, Deposition. (1996) Pat's Auto Parts, Inc. v. DuPont, et al., CV-96-02976-RVM, United States District Court for the Southern District of the Southern Division-AL, Deposition. (1996) Testified in Cinamerica Theatres, et al. v. City of Boulder, Colorado, et al., City's Hearing on Standing. (1997) Dillard's Virginia v. Crown American Financing Partnership, et al., Civil Action No. 4:97cv96, United States District Court for the District of Virginia, Newport News Division, Deposition (1997). General Surgical Innovations, Inc. v. Origin Medsystems, Inc. & Origin v. GSI, United States District Court for the Northern District of California, Deposition (1998). Aptix Corporation v. Quickturn Design Systems, United States District Court for the North District of California, San Jose Division, Deposition (1998). Intermedics, vs. Cardiac Pacemakers Inc., United States District Court for the District of Minnesota, Fourth Division, Deposition (1998). TESTIMONY AND SPEECHES: Testified before several congressional committees on diverse subjects - Sweepstake Promotions, Price Discrimination, Small Business Role in Economy, Food Retailing, Steel Imports and on FTC Budget. Speeches before lawyers (e.g., Practicing Law Institute and Ohio Bar Continuing Legal Education) and business groups. Exhibit 1, Page 4 of 4 [Letterhead of Latham & Watkins] August 7, 1998 Via Fax and Federal Express Lawrence R. LaPorte, Esq. Lyon & Lyon 633 W. Fifth Street, Suite 4700 Los Angeles, CA 90071-2066 Re: Mentor & Meta v. Quickturn: Updating Damages Discovery Dear Larry: I enclose documents on all five of the issues on which you asked for more information: 1. U.S. sales of emulation systems made by Mentor/Meta. 2. U.S. customers to whom Mentor/Meta demonstrated, benchmarked, or price quoted on a SimExpress, in the U.S. 3. Documents showing Mentor's U.S. inventory of emulations systems and replacement parts from January 1996 to the present. 4. Documents reflecting or relating to price quotes, benchmarks, or demos to U.S. customers. 5. Correspondence to/from U.S. Customs relating to emulation systems or replacement parts to emulation systems. Let me briefly run through the documents so it'll be easier for you to review them. Exhibit 2, Page 1 of 3 LATHAM & WATKINS August 7, 1998 Page 2 MGDC0023001 through MGDC002389 are documents prepared by Mentor personnel from a database in Wilsonville, and should reflect every formal price quote and sales order on the SimExpress in the United States. I say "should" with some emphasis. MGDC002390, for example, reflects an instance where the sales person created a quotation on his personal computer instead of using the centralized database. The only way to find that information is to contact every sales person at Mentor who was involved in selling the SimExpress. Towards that end, I have spoken to sales people, account managers, regional managers, and applications engineers across the country to determine the customer sites at which SimExpress was demonstrated, benchmarked, or price quoted. Other than the sites listed in MGDC002300 through MGDC002389, such activity took place at the following sites: Cabletron (NH); Kodak (Rochester, MA); Nat'l Security Agency (MD); Cisco Systems (Raleigh & Santa Clara); Honeywell (FL); LexMark (FL); Motorola (Phoenix, AZ); Brooktree (Austin, TX); TI Semiconductor (Dallas, TX); Cyrix (Dallas, TX); Fujitsu (Dallas, TX), Alcatel Network Systems (Dallas, TX); Chip & Technology (Santa Clara); LSI Logic (Milpitas); and Transmeta (Santa Clara). To my knowledge, after dozens of hours of tracking this information down, that list is complete. However, given the turnover in the sales force, etc., it is possible a few companies may not have turned up in my search. If you believe that to be the case, please feel free to ask me to follow up on any specific companies. Also, don't hesitate to ask for clarification on how to interpret these documents, or what exact activity took place at any customer site. Returning to the documents themselves, MGDC002300 is a chart of quote numbers and corresponding sales orders (where a quote did result in a sales order) from the introduction of the SimExpress to about April 1997, when Mentor switched over to a new database. MGDC002301-12 is a list of the parts numbers we searched under, which should be all of the Meta software and hardware parts. MGDC002313-54 are price quotes issued from introduction of the SimExpress to about April 1997; MGDC002355-64 are corresponding sales orders.2 (Thus, MGDC002300 summarizes MGDC002313-64.) MGDC002365-90 are price quotes from April 1997 through the present; none of these were - ----------------------------- 1 I began with Bates Number MGDC002300, leaving a gap from the last Bates number I am aware of (MGDC002257) out of caution. I labeled them all Attorneys Eyes Only out of convenience, as most are, but I am willing to discuss lowering the level of confidentiality on selected documents. Also, as the financier of the Radix sale is confidential, I have redacted identifying information from MGDC002315, -17, -19-21, -24-26, and -57 (relating to Radix quotes and sales orders). 2 The documents reflect the following sales within the United States:
Customer Sale Amount --------- ----------- UB Networks $580,268.00 Radix $885,939.00 National Semiconductor $590,952.72
Mr. Folsom's initial expert report had also listed Bull HN and Motorola as lost sales. Bull HN is not listed here because the sale occurred outside the United States. (In any case, you already have the documents showing the sale price.) Motorola was not a sale but rather a lease; the documents reflecting the lease amount and the value of the machine that was leased are included in the materials you received (see Quotation nos. 63652 & 65075, and Sales Order 68909). Exhibit 2, Page 2 of 3 converted into sales orders. Attached to this letter is a chart I prepared this morning summarizing MGDC002300 through MGDC002380.3 MGDC002390 is a quotation to VLSI Technologies. MGDC002391-2491 are sales documents relating to UB Networks. MGDC002492-26 are sales documents relating to DEC. MGDC002527-2645 are sales documents relating to 3Com. MGDC002646-54 are sales documents relating to Cardiac Pacemakers. MGDC002655-64 are sales documents relating to Cyrix (Dallas). MGDC002665-79 are the documents I provided you last week relating to alleged lost sales. MGDC002680-85 are sales documents relating to Lucent. MGDC002687-2779 are directed towards answering your questions about inventory. When combined with Gary Hnath's semi-annual declarations in the ITC, which you should have, these documents provide as clear a picture as is possible as to the state of Mentor's inventory at various points in time. MGDC002780-2820 are the documents relating to customs you requested. MGDC002821-2910 are sales documents relating to Ericsson, RTP. Again, do not hesitate to call with questions. Very truly yours, /s/ Sanjay Bhandari ----------------------- Sanjay Bhandari of LATHAM & WATKINS cc: Craig Allison, Esq. - ------------------------- 3 As we discussed, I am not providing this as a formal discovery response, but merely to help you make sense of what you've received -- I felt the need to make it this morning, so I thought I'd spare you the effort. The chart lists every SimExpress price quote and sales order contained in Mentor's database. The "Sale?" column indicates whether a sales order issued on that quote, and if so, the sales order number. In all instances but one (quotation 62344 & sales order 69314), the quoted price was the sales order price. Exhibit 2, Page 3 of 3 EXHIBIT 3 [UB Networks Purchase Order - Exhibit 3, Pages 1-3 of 3] [Letterhead of Latham & Watkins] July 23, 1998 Lawrence R. LaPorte, Esq. Lyon & Lyon 633 W. Fifth Street, Suite 4700 Los Angeles, CA 90071-2066 Dear Larry: I enclose documents relating to the four of the five transactions claimed by Quickturn as diverted sales: Radix (with redactions of third-party financier's identity), National Semiconductor, Motorola, and UB Networks. As to Bull, see the Giordano and Guenthner depositions, the recent Guenthner declaration, and Giordano Dep. Exs. 6, 14. I have not Bates-numbered these documents yet; I will number and formally produce them as soon as I can gather all of the documents responsive to the topics we discussed in our July 14, 1998 conversation. In the meantime, the attached documents should permit you to provide us a preliminary estimate of Quickturn's total damages. Please include in your discounting claims any customer sites / sales in which Mentor may have been the cause of price discounting. I will continue to gather documents and information on customer sites at which Mentor demo'd, benchmarked, or price quoted Meta's emulation system, and will hopefully provide that information shortly after receiving your estimate. Very truly yours, /s/Sanjay Bhandari -------------------- Sanjay Bhandari of LATHAM & WATKINS cc: Craig Allison, Esq. Exhibit 4, Page 1 of 13 EXHIBIT 4 [Purchase Order; Exhibit 4, Page 2 of 13] [Customer Quotation for National Semiconductor Corporation; Exhibit 4, Page 3 of 13] [National Semiconductor Corporation Purchase Order; Exhibit 4, Pages 4-5 of 13] [Customer Quotation for Motorola Inc.; Exhibit 4, Pages 6-7 of 13] [Motorola Inc. Purchase Order; Exhibit 4, Pages 8-9 of 13] [Customer Quotation for Motorola Inc.; Exhibit 4, Page 10 of 13] [Motorola Inc. Purchase Order; Exhibit 4, Pages 11-12 of 13] [Customer Quotation for UB Networks; Exhibit 4, Page 13 of 13] LUCENT TECHNOLOGIES LETTERHEAD LUCENT TECHNOLOGIES Bell Labs Innovations GLOBAL WIRELESS PRODUCTS GROUP Lucent Technologies 101 Crawfords Corner Road Holmdel, NJ 07733 October 2, 1996 Bob Mareiniss Mentor Graphics Corporation 15 Independence Boulevard Warren, NJ 07059 Please use Lucent Purchase Order # xxx in reference to the MGC Corporate Agreement #1214 (Lucent # G17959D). Mentor Graphics SimExpress emulation product (Base systems without options A or B) referenced by Quotation # 60908 which totals $265,413.00 is requested to be shipped immediately to Lucent Technologies. Tax status is non-taxable. Shipping address: 330 South Randolphville Road Piscataway, N.J. 08855 Attention: John Kolchmeyer Billing address: P.O. Box 105466 Atlanta, GA 30348 Regards, - ---------------------------- Sanjay Kasturia Director GWPG, Core Technology Group Exhibit 5, Page 1 of 1 MENTOR GRAPHICS LETTERHEAD October 10, 1996 Lucent Technologies, Inc. Global Wireless Products Group 101 Crawfords Corner Road Holmdel, New Jersey 07733 Attention: Sanjay Kasturia Director, GWPG Core Technology Group Re: SimExpress Product Delivery Thank you for your commitment to purchase Mentor Graphics SimExpress emulation product (Mentor Graphics Customer Quotation No. 60908). This letter confirms that the shipment has been delivered per your request dated October 3, 1996. At the time of your letter, the actual anticipated purchase order number had not been assigned; however, to expedite our project, the system was configured and shipped to Lucent. Please have a Lucent buyer assign the purchase order number, co-sign the original letter dated October 3, 1996 and return a copy to me by October 22, 1996. We look forward to mutual project success in the first phases of SimExpress implementation and to Lucent's long-term satisfaction with Mentor Graphics emulation technology. If you have any questions, please do not hesitate to call me. Sincerely, MENTOR GRAPHICS CORPORATION /s/ Bob Mareiniss Lucent Sr. Global Account Manager cc: Don Cantow, Mentor Graphics Suhas Pai, Lucent Exhibit 6, Page 1 of 1 - ------------------------------------------------------------------------------- Printed By: Matthew Fisch 1/8/4 2:20 AM Page: 1 - ------------------------------------------------------------------------------- From: Steve Duffett (4/1/96) To: Matthew Fisch Steve Duffett NorthEast Sales Q1 Forecasted Orders - not closed Matt: Below is the email I sent to Ken and Mike. FYI. Steve. Ken/Mike: As you know the NorthEast missed our Q1 objective by $190K. The only Q1 deal that we forcasted and did not close was UB Networks for $710K. MA/Com has a Q1 swing order ($1.45M RF Partnership) that we will close in April. What went wrong in the closing of this deal in Q1? First off, this deal is still very much active and we expect to close this by April 12th. We are one signature away (Marius Able Sr. VP and GM of the UB Networks business unit of Tandem Computer). We just ran out of time to get this done in Q1 mainly because of the lawsuit Quickturn filed against MGC. Quickturn's lawyers sent letters to UB management informing them of the ITC suit that will block importation of Sim Express and the patent infringement suit they have brought against MGC. Also, Frank Caufield of Kleiner, Perkins, Caufield & Byers a member of Tandem and Quickturn's board of directors sent a letter on behalf of Quickturn to Roel Piper Pres. of Tandem questioning the UB division's plans to use Sim Express when Tandem is already successfully using six Quickturn systems. The net effect of these two tactics is the deal was slowed down by a few weeks, however UB is committed to move forward with Sim Express and MGC. Matt Fisch and I were at UB until 6PM on Fri. March 29th trying to get Marius Able's approval and then have to PO issued. We never gave up trying to get this done in Q1. The legal T's and C's did not get completed between UB's Legal and MGC's Dean Freed until 4:30pm EST on Friday. UB is sold on Mentor Graphics and Sim Express. They have recently hired two people to work exclusively on the implementation of the SimExpress system. We have told Marius Able, Dan Schumacher, Dir. Eng Serv., Landis Rogers Dir. ATM Dev., and Jim Welch Dir. Ethernet Dev. that the resources we have allocated for the implementation of Sim Express and the development of the 10 Mbit/100Mbit Ethernet and ATM interface boards to enable them to plug their network traffic into Sim Express are at risk if we do not receive a PO by April 12th at the latest. They have been told that the PSD resources they need to be successful will be committed to other customer programs on April 12th. They know that they need to issue a PO ASAP. We started the UB sales campaign in mid Feb. We have run a masterful sales campaign in light of the difficulties we have run into in getting UB to become MGC's first SimExpress customer in the United States. We have overcome the lawsuit, legal issues, and board member intervention, lack of PSD resources, lack of application interfaces, lack of marketing and sales collateral and Exhibit 7, Page 1 of 2 lingering customer problems with our Verilog flow for the BSD Architect and Autologic II licenses we sold to UB in December 95. We have had to create our own solutions to resolve many of these issues. We took UB to Paris for a corporate visit to help overcome and address all of the outstanding questions and concerns Quickturn has raised. The NorthEast needed the win at UB to happen in Q1. We need a local success under our belts to help us in Q2 HW Emulation sales campaigns at 3Com-Chipcom, Cabletron and Digital. Quickturn is going to fight us to the death on these three sales campaigns. Having a SimExpress reference and customer in the US is critical for us to be successful in 1995. We will close the UB business. The NorthEast is working on a number of big Q2 deals that collectively are over $8M. We will be successful. Exhibit 7, Page 2 of 2 EXHIBIT 8 [Target Account Selling Form, Initial Assessment for SimExpress and Services; Exhibit 8, Page 1 of 1] Exhibit 8, Page 1 of 1 EXHIBIT 9 [Spreadsheet titled "Build Configuration"; Exhibit 9, Page 1 of 1] Exhibit 9, Page 1 of 1 - ------------------------------------------------------------------------------- Printed By: Matthew Fisch 1/8/4 2:20 AM Page: 2 - ------------------------------------------------------------------------------- outstanding questions and concerns Quickturn has raised. The NorthEast needed the win at UB to happen in Q1. We need a local success under our belts to help us in Q2 HW Emulation sales campaigns at 3Com-Chipcom, Cabletron and Digital. Quickturn is going to fight us to the death on these three sales campaigns. Having a SimExpress reference and customer in the US is critical for us to be successful in 1995. We will close the UB business. The NorthEast is working on a number of big Q2 deals that collectively are over $8M. We will be successful. Exhibit 10, Page 1 of 1 As of 7/21/98
Part Qty Qty Standard Damaged Number Description good damaged Cost Value Total Value - -------------- ----------------------------------- --------- ------------ ---------------- ----------------- --------------- 61336 Mother board 1 0 $2,008.00 $1,004.00 $2,008.00 61374 Logic board 5 2 2,467.00 1,233.50 14,802.00 61375 I/O board 0 1 2,530.00 1,265.00 1,265.00 61278 Service board Master 1 1 1,193.00 596.50 1,789.00 61279 Service board Slave 1 1 322.00 161.00 483.00 61277 Sbus Board 2 0 346.00 173.00 692.00 61337 Transition - FAR board 0 1 181.00 90.50 90.50 61338 Memory board 12M 1 0 6,013.00 3,006.50 6,013.00 61339 Memory board 64M 1 0 4,040.00 2,020.00 4,040.00 61341 Display multi-rack board 2 0 113.00 56.50 226.00 61342 Safety Supply board 4 0 467.00 233.50 1,868.00 61343 Display Power-on light 2 0 117.00 58.50 234.00 61344 Fan 12V 2 0 46.00 24.00 96.00 61346 Power Supply 5V 1000W 1 0 2,111.00 1,055.50 2,111.00 61347 Service Connection-FAR 1 0 101.00 50.50 101.00 61348 I/O brd Connection-FAR 1 0 88.00 44.00 88.00 61350 POD Connection-FAR 1 0 215.00 107.50 215.00 61300 Board Extractor Tool (pair) 1 0 55.00 0.00 55.00 61340 POD Assembly 0 1 424.00 212.00 212.00 - -------------- ----------------------------------- --------- ------------ ---------------- ----------------- --------------- Total Inventory Value = $36,389.00
Exhibit 11, Page 1 of 1 TABLE 1 SUMMARY OF QUICKTURN'S LOSSES CAUSED BY MENTOR GRAPHICS' INFRINGEMENT
Sales - Lost Profits - ------------------------------------------- Past Sales $3,468,000 Maintenance, Past Sales 1,032,400 Future Sales 20,965,000 Maintenance, Future Sales 5,508,000 ------------ TOTAL: $30,973,700 ------------ ------------
Price Erosion - Lost Profits - ------------------------------------------- Past Price Erosion $19,298,400 Future Price Erosion 28,443,900 ------------ TOTAL: $47,742,300 ------------ ------------ TOTAL LOSSES: $78,716,000
Exhibit 12, Page 1 of 19 TABLE 2 LOST PROFITS ON ACTUAL SALES AND MAINTENANCE
Equipment Sales Sales --------------- ----- UB Network REDACTED Radix REDACTED National Semiconductor REDACTED Motorola REDACTED Bull REDACTED ----------- $4,950,000 70% Margin Lost Profit $3,815,000 $3,468,000
Maintenance Sales Sales ------------------ ----- UB Network REDACTED Radix REDACTED National Semiconductor REDACTED Motorola REDACTED Bull REDACTED ---------- TOTAL: $1,474,900 ---------- 70% Margin ---------- Lost Profit $1,032,400
Exhibit 12, Page 2 of 19 TABLE 3 RADIX -- MAINTENANCE SALES
Radix Q2 `96 Equipment Sale: $REDACTED ------------ --------------------------- Maintenance Sales Q3 `96 $REDACTED Q3 `97 $REDACTED Q3 `98 $REDACTED --------- Lost Maintenance: $REDACTED
Exhibit 12, Page 3 of 19 TABLE 4 NATIONAL SEMICONDUCTOR -- MAINTENANCE SALES
National Seminconductor Equipment Sale: $REDACTED ----------------------- --------------------------- Maintenance Sales Q2 `97 REDACTED Q2 `98 REDACTED Q2 `99 REDACTED -------- Maintenance Sales Lost $REDACTED NPV of Sales Lost $REDACTED
Exhibit 12, Page 4 of 19 TABLE 5 UB NETWORK -- MAINTENANCE SALES
UB Network Equipment Sale: $REDACTED ---------- --------------------------- Maintenance Sale Q3 `96 REDACTED Q3 `97 REDACTED Q3 `98 REDACTED --------- Maintenance Sales Lost $REDACTED NPV of Sales Lost $REDACTED
Exhibit 12, Page 5 of 19 TABLE 6 BULL -- MAINTENANCE SALES
Bull Maintenance Equipment Sale: $REDACTED ----------------- --------------------------- Maintenance Sale Q3 `95 REDACTED Q3 `96 REDACTED Q3 `97 REDACTED --------- Maintenance Sales Lost $REDACTED NPV of Sales Lost $REDACTED
Exhibit 12, Page 6 of 19 TABLE 7 MOTOROLA -- MAINTENANCE SALES
Equipment Sale: $REDACTED -------------------------- Maintenance Sale Q1 `97 REDACTED Q1 `98 REDACTED Q1 `99 REDACTED --------- Maintenance Sales Lost $REDACTED NPV of Sales Lost $REDACTED
TABLE 8 QUICKTURN DESIGN SYSTEMS AVERAGE PRICE PER GATE
Period Average Price ------ ------------- Q3 `94 - Q2 `95 REDACTED(cent) Q3 `95 - Q2 `96 REDACTED(cent) Q3 `96 - Q2 `97 REDACTED(cent) Q3 `97 - Q2 `98 REDACTED(cent)
Exhibit 12, Page 8 of 19 TABLE 9 QUICKTURN'S LOSSES ON FUTURE SALES OF EQUIPMENT AND MAINTENANCE CAUSED BY MENTOR GRAPHICS INFRINGEMENT
MPV Of Lost Profit On NPV Of Lost Profit on Equipment Sales Maintenance Sales ---------------------- --------------------- UB Network $REDACTED $REDACTED Bull REDACTED REDACTED Motorola REDACTED REDACTED National Semiconductor REDACTED REDACTED TOTAL $20,965,000 $5,508,300
Exhibit 12, Page 9 of 19 TABLE 10 QUICKTURN'S LOST PROFIT ON FUTURE EQUIPMENT SALES TO UB NETWORK (TANDEM) CAUSED BY MENTOR GRAPHICS' INFRINGEMENT
Equipment Sales --------------- Q1 `97 $REDACTED Q1 `98 REDACTED $REDACTED 70% Margin Lost Profit $REDACTED
Exhibit 12, Page 10 of 19 TABLE 11 QUICKTURN'S LOST PROFIT ON FUTURE MAINTENANCE SALES TO UB NETWORKS CAUSED BY MENTOR GRAPHICS' INFRINGEMENT
NPV Maintenance Sales --------------------- Q2 `97 $REDACTED Q2 `98 REDACTED Q2 `99 REDACTED Q2 `00 REDACTED --------- $REDACTED 20% Margin NPV of Lost Profit $REDACTED
Exhibit 12, Page 11 of 19 TABLE 12 QUICKTURN'S LOST PROFIT ON FUTURE EQUIPMENT SALES TO MOTOROLA CAUSED BY MENTOR GRAPHICS' INFRINGEMENT
Equipment Sales --------------- Q2 `97 $REDACTED Q3 `97 REDACTED Q4 `97 REDACTED Q1 `98 REDACTED Q2 `98 REDACTED Q3 `98 REDACTED -------- $REDACTED 70% Margin Lost Profit $REDACTED
Exhibit 12, Page 12 of 19 TABLE 13 QUICKTURN'S LOST PROFIT ON FUTURE MAINTENANCE SALES TO MOTOROLA CAUSED BY MENTOR GRAPHICS' INFRINGEMENT
NPV of Maintenance Sales ------------------------ Q3 `97 $REDACTED Q4 `97 REDACTED Q1 `98 REDACTED Q2 `98 REDACTED Q3 `98 REDACTED Q4 `98 REDACTED Q1 `99 REDACTED Q2 `99 REDACTED Q3 `99 REDACTED Q4 `99 REDACTED Q1 `00 REDACTED Q2 `00 REDACTED Q3 `00 REDACTED Q4 `00 REDACTED -------- $REDACTED 70% Margin NPV of Lost Profit $REDACTED
Exhibit 12, Page 13 of 19 TABLE 14 QUICKTURN'S LOST PROFIT ON FUTURE EQUIPMENT SALES TO NATIONAL SEMICONDUCTOR CAUSED BY MENTOR GRAPHICS' INFRINGEMENT
Equipment Sales --------------- Q3 `97 $REDACTED Q4 `97 REDACTED Q1 `98 REDACTED Q2 `98 REDACTED Q3 `98 REDACTED --------- $REDACTED 70% Margin Lost Profit $REDACTED
Exhibit 12, Page 14 of 19 TABLE 15 QUICKTURN'S LOST PROFIT ON FUTURE MAINTENANCE SALES TO NATIONAL SEMICONDUCTOR CAUSED BY MENTOR GRAPHICS' INFRINGEMENT
NPV of Maintenance Sales ------------------------ Q4 `97 $REDACTED Q1 `98 REDACTED Q2 `98 REDACTED Q3 `98 REDACTED Q4 `98 REDACTED Q1 `99 REDACTED Q2 `99 REDACTED Q3 `99 REDACTED Q4 `99 REDACTED Q1 `00 REDACTED Q2 `00 REDACTED Q3 `00 REDACTED Q4 `00 REDACTED -------- $REDACTED 70% Margin NPV of Lost Maintenance Sale $REDACTED
Exhibit 12, Page 15 of 19 TABLE 16 QUICKTURN'S LOST PROFIT ON FUTURE EQUIPMENT SALES TO BULL CAUSED BY MENTOR GRAPHICS' INFRINGEMENT
Equipment Sales --------------- Q1 `97 $REDACTED 70% Margin Lost Profit $REDACTED
Exhibit 12, Page 16 of 19 TABLE 17 QUICKTURN'S LOST PROFIT ON FUTURE MAINTENANCE SALES TO BULL CAUSED BY MENTOR GRAPHICS' INFRINGEMENT
NPV of Future Maintenance Sales ------------------------------- Q2 `97Q4 `97 $REDACTED Q2 `98 REDACTED Q2 `99 REDACTED -------- $REDACTED 70% Margin NPV of Lost Profit $REDACTED
Exhibit 12, Page 17 of 19 TABLE 18 QUICKTURN'S LOSSES FROM PRICE EROSION CAUSED BY MENTOR GRAPHICS' INFRINGEMENT
Expected Actual No. of Domestic Domestic Price Period Price Price Gates Share Erosion Loss ------ -------- ------ ------- -------- --------------- Q3 `96 $0.85 REDACTED REDACTED REDACTED $4,415,800 Q4 `96 0.85 REDACTED REDACTED REDACTED 1,781,300 Q1 `97 0.85 REDACTED REDACTED REDACTED 2,968,200 Q2 `97 0.85 REDACTED REDACTED REDACTED 641,600 Q3 `97 0.83 REDACTED REDACTED REDACTED 930,100 Q4 `97 0.83 REDACTED REDACTED REDACTED 2,294,200 Q1 `98 0.83 REDACTED REDACTED REDACTED 510,700 Q2 `98 0.83 REDACTED REDACTED REDACTED 5,756,500 ----------- TOTAL: $19,298,400
Exhibit 12, Page 18 of 19 TABLE 19 QUICKTURN'S LOSSES FROM FUTURE PRICE EROSION CAUSED BY MENTOR GRAPHICS' INFRINGEMENT FIVE YEARS -- DISCOUNT RATE 20% LAST FULL ACTUAL YEAR, Q3 `97-Q2 `98: $9,451,500
Discount Factor NPV --------------- --- Q3 `98 - Q2 `99 $9,149,100 .9129 $8,352,200 Q3 `99 - Q2 `00 8,856,300 .7607 6,737,000 Q3 `00 - Q2 `01 8,572,900 .6339 5,434,400 Q3 `01 - Q2 `02 8,298,600 .5283 4,384,200 Q3 `02 - Q2 `03 8,033,000 .4402 3,536,100 ------------ TOTAL: $28,443,900
Exhibit 12, Page 19 of 19 EXHIBIT 13 [Line Graph titled "Quickturn's Average Price Per Gate in Years Ending in the Second Quarter, 1995-1998"; REDACTED] Exhibit 13, Page 1 of 1 UNITED STATES DISTRICT COURT DISTRICT OF OREGON MENTOR GRAPHICS CORPORATION Civil No. C96-00342-RE an Oregon corporation, CONSOLIDATED CASES Plaintiff, v. QUICKTURN DESIGN SYSTEMS, INC. a Delaware corporation, Defendant. META SYSTEMS, a French corporation, Plaintiff, v. QUICKTURN DESIGN SYSTEMS, INC. a Delaware corporation, Defendant. Expert Report of James Mack Folsom I. Qualifications and Experience 1. My name is James Mack Folsom. I am an economist with almost four decades of experience in analyzing the impact of actions by one firm or a group of firms on the income of other firms. I received my Bachelor of Business Administration Degree with a major in marketing from the University of Georgia in 1953 and did post graduate work at Vanderbilt Exhibit 14 University where I completed all the requirements for a Ph.D. except for the dissertation. I taught economics and marketing at Duke University from 1959 until 1964. 2. From 1964 through 1978, I held various positions in the Bureau of Economics at the Federal Trade Commission. Among the positions held were staff economist in the Division of Economic Evidence, assistant to the Director of the Bureau of Economics, Chief of the Division of Economic Evidence, Assistant Director, Deputy Director and Acting Director of the Bureau of Economics. 3. Since 1978 I have been employed at Glassman-Oliver Economic Consultants, Inc. where I am currently a senior vice president. During my employment at Glassman-Oliver, I have testified either in deposition or at trial in more than 30 matters where damages were an issue. In addition, I have worked on a number of matters involving measurement of damages where I did not testify. 4. Attached is my resume (Tab A) which includes my educational background, all testimony in the last four years and all publications in the last 10 years. Charges for my time are $300 per hour. II. Background and Material Studied 5. I was retained by Lyon & Lyon, Quickturn's law firm, to perform an economic analysis, for presentation to the International Trade Commission (ITC), of the damage to Quickturn as a result of Mentor Graphics/Meta Systems' (hereinafter "Mentor") infringement of Quickturn's patents, including the calculation of an appropriate bond for Mentor to post to ensure that Quickturn would be made whole if an ITC exclusion order based on a patent violation was granted and to calculate, to the extent possible, the damages to Quickturn as a result of the patent infringement. I have provided both written and oral testimony before the International Trade Exhibit 14 Commission in related action at the Temporary Exclusion Order (TEO) Hearing and the Permanent Exclusion Order (PEO) Hearing. 6. As preparation for my analysis in the TEO phase, I reviewed and analyzed publicly available documents on emulation, the depositions of Dragani, Garity, Tarlecki, and Hoteling (Account Managers for Quickturn); Ostby, Cibulski, Moore, Huang, Antle and Lobo (Officers of Quickturn); Kenney, Zafar, Tung and Rhines (Officers of Mentor); and Reblewski (Volume 3 only - President of Meta) and the exhibits to those depositions. I attended the depositions of Mentor's expert, Hoffman, discussed the business with Ostby, Moore and Cibulski, reviewed Quickturn's financial data, attended a sales conference at Quickturn and reviewed sales, financial, marketing and business plans of both Mentor and Quickturn; and attended the TEO Hearings to listen to the oral testimony of both Mentor and Quickturn witnesses who addressed business and economic matters as opposed to technical issues. Subsequent to my testimony, I reviewed the total record developed at the TEO Hearing to help locate record support for Quickturn's proposed findings of fact. 7. In the PEO phase of the ITC Investigation, I studied Administrative Law Judge Paul J. Luckern's Findings of Fact in his TEO Decision finding a likelihood of patent infringement and granting a TEO, the Commission's Investigative Staff's Pre-Trial Memorandum (4/4/97) and the Commission Opinion on Remedy, the Public Interest, And Bonding, which approved the TEO, and reviewed and analyzed the depositions (including exhibits thereto) of Wally Rhines, Brian Dalio, Callan Carpenter, R. Douglas Norby and Gabriele Pulini; the witness statements of Ostby and Jordan of Quickturn; Meta's Third Quarter 1996 YTD P&L Statement (MG017788 - MG017832); the Meta Business Unit Plan, 1997 (MG018490 - MG018508); information available over Mentor's internet address; publicly Exhibit 14 available data on Quickturn's 1996 sales and margins and data obtained via telephone from Ray Ostby; discussed Quickturn's business with Ostby and Jordan; and attended the PEO Hearings to hear the live testimony of the business witnesses. 8. In further preparation for analyzing the damages to Quickturn from Mentor's alleged patent infringement, I reviewed Quickturn's proposed findings of fact for the PEO Hearing, requested data from Mr. Ostby and Mr. Jordan on the impact of Mentor's presence on the prices which Quickturn was able to obtain as compared to the prices which Quickturn would have obtained absent Mentor and on the size of the sales situations where Quickturn lost in competition with Mentor. (Examples of items reviewed are attached as Tab B.) III. Types of Damages to Quickturn 9. The analysis which follows is based on the assumption that the Mentor's emulation system infringes patents owned by Quickturn. This infringement results in harm and damages to Quickturn in, at least, the following ways: a. Quickturn has lost United States sales to Mentor. (See Tab C.) As a result of these lost sales, Quickturn has lost the profit on both the equipment and service which would have accompanied the sale of equipment. The immediate loss suffered by Quickturn is the difference between the revenue which Quickturn would have received from the sale and the variable costs which Quickturn would have incurred in making the sale. b. As a result of the competition from Mentor, Quickturn has been forced to reduce its price to prevent additional loss of sales in the united States. The loss suffered by Quickturn is the difference between the price it would have received without the competition from Mentor and the price it did receive in the situations where it faced competition from Mentor. Exhibit 14 c. In instances where Quickturn loses a sale to Mentor, it also loses the sale of the service which accompanies the sale of emulation equipment. The service sale always covers at least one year and frequently is extended for an additional year or for several years. d. When Quickturn loses a sale to Mentor, the probability that Quickturn will be able to make a sale to that same customer in the future is greatly reduced. Approximately three-fourths of Quickturn's sales are repeat purchases by past customers. Mentor is targeting Quickturn's largest customers which are also Quickturn's repeat customers. This means that the customer who has used Mentor equipment is substantially less likely to favor Quickturn over other competitors than in the situation where the customer has been using Quickturn equipment. In the worst case scenario, the customer who is particularly pleased with the performance of the Mentor emulation system might transfer it overseas if he could not obtain another Mentor emulator in the United States. Thus, this loss of future sales can be substantial. e. A loss of a sale by Quickturn in the United States may also lead to a loss of sales outside the United States. Mentor specifically recognized that making a sale in United States might lead to additional sales outside the United States, e.g., Texas Instruments. (E.g., Pulini Deposition Exhibit 28 indicates that the TI benchmark in the Dallas territory is being followed by several TI locations outside the U.S., which are looking at "this benchmark as a milestone in their decision making process.) f. Sales officials from Quickturn have been uniform in stating that the presence of Mentor as a competitor has caused potential emulation purchasers to delay their decisions to purchase, thus delaying the receipt of revenue. The delay in the receipt of revenue is important because it may impact on Quickturn's ability to fund research and development for future products or product improvements and because it may impact on the value of Quickturn's Exhibit 14 stock. Quickturn's expenditure for research and development amounts to about 18 percent of sales and exceed its profits. Since stock incentives are an important part of the compensation of the top Quickturn managers, a reduction in the value of Quickturn's stock increases the probability that Quickturn will lose some of its important managers. Quickturn's stock, and its corresponding price, is also a resource that can be used by Quickturn management in building a relatively small company like Quickturn through acquisition(s). Anything which depresses the price of Quickturn's stock makes acquisitions more expensive. g. The presence of Mentor as a competitor has raised the cost of attempting to sell emulators by making benchmark tests a part of the sales process. h. Mentor's presence in the marketplace for emulators has led to reduced prices to the customers where Mentor competed with Quickturn. That price erosion may extend beyond the immediate equipment sold. Quickturn, even in the instances where it wins the competition, may find it difficult to return to pre-Mentor pricing levels even if Mentor is no longer in the market. IV. Measurement of Damages 10. The damages which are measured herein are limited to those direct damages that are that result from sales of equipment and service which have been lost to Mentor. This restriction means that damages are estimated only for items a and part of c, above. Additionally, a measurement of damages associated with items b and the remainder of c will be furnished. Because of the difficulties of predicting what will happen in the future as well as the effect of certain harms, damages presently cannot be estimated for items d - h. 11. Damages on Lost Sales. The first item of information required in estimating the damages from lost sales is the dollar volume of those lost sales of both equipment and service. Exhibit 14 Estimates of the size of the sales contracts for both equipment and one year of service were obtained from Quickturn's management and reflect their judgment of what sales revenues would have been, absent Mentor. Tab C shows that the estimated sales which Quickturn lost to Mentor equaled $5,450,000. The next step is to ascertain what Quickturn's profits above its variable costs would have been on those lost sales. The analysis begins with the calculation of Quickturn's margin over cost of revenue. For 1996, the margin over cost of revenue (cost of goods) was 69 percent as shown in the publicly available financial statement of Quickturn. Cost of revenue, however, includes items which are fixed, i.e., not a function of the number of units sold. For example, the 1996 plan shows: (QM 56911)
Sales $104,000,000 Cost of Goods Sold 32,240,000 Obsolescence 1,365,361 R&D Allocation 1,470,000 Customer Support Allocation 1,992,000
The last three items are fixed costs and account for 15 percent of the cost of goods sold and 4.6 percent of sales. Other fixed or largely fixed items include depreciation of the manufacturing facility, property taxes, repair and maintenance, rent and utilities. Quickturn begins by assigning all of these costs to manufacturing and then reallocates them to the other company operations (sales, R&D, etc.) These costs are estimated to represent approximately one percent of sales. Thus, the margin after variable cost of goods sold is approximately 74.5 percent. 12. To arrive at the margin after all variable costs are considered requires that variable selling costs be subtracted from the margin left after the variable cost of goods sold is subtracted from sales. The variable sales cost is commissions on sales which were planned to be Exhibit 14 REDACTED percent of sales in 1996. (QM 56915) Subtracting these costs from the margin over variable manufacturing costs results in a margin of 70 percent which is the percentage lost that Quickturn suffers from each sale of equipment and service that Mentor won from them. The dollar loss is 70 percent of the sales loss of $5,450,000 shown in Tab C, or $3,815,000. 13. Damages From Price Erosion. Quickturn's loss because it had to accept a lower price in United States situations where it faced competition from Mentor than the prices it received in situations where Mentor was not a competitor is estimated by examining the discounts which Quickturn had to offer to complete the sale where Mentor was a competitor as compared to the discounts where Mentor was not a competitor. In the TEO hearings, the evidence presented showed that the average discount where Mentor was a competitor was 50 percent off list as compared to an average of 25 percent off list where Mentor was not a competitor but other sellers were. (Administrative Law Judge Luckern's Finding of Fact No. 336) Judge Luckern also found that in situations where Quickturn faced competition from Mentor/Meta the average discount from list was 40 percent as compared to 10 to 20 percent average where Mentor/Meta was not a competitor - and concluded that the average difference was about 25 percent. (Commission Opinion, page 18) Both approaches demonstrate that Quickturn's offered price where Mentor is a competitor is less than its offered price where Mentor is not a competitor. To determine whether this continues to be the appropriate measure of price erosion caused by the presence of Mentor in the accounts requires an analysis of information available only from Mentor on Mentor's pricing activity which has not yet been furnished. Without this, it is not possible to determine whether the additional discounts offered by Quickturn are the result of the presence of Mentor or are the result of the presence of some other competitor. When information on Mentor's pricing activity is received, the analysis Exhibit 14 of price erosion caused by Mentor's presence will be completed and an estimate of Quickturn's losses from price erosion will be calculated. 14. Quickturn's short run loss profits on lost sales and service are, as indicated above, $3,815,000. In addition, Quickturn suffered a loss of income which it would have received from the lost profits if it had received them at the proper time. This simply recognizes that money received earlier is more valuable than money received later, because investment income can be earned with the money received earlier. Quickturn's income from its investments, which averaged $32,811,000 in 1996, was $1,785,000 or 5.4 percent. This is comparable to the rate on one year T bills which was 5.25 percent on February 29, 1996. A conservative time period of 18 months has been assumed (although the sale to Bull (AZ) was made more than 18 months ago) and has been divided by two to allow for the fact that the income flow was over time. With a 5.2 percent interest and a nine month period, Quickturn's lost interest income amounts to $149,000. The total short run loss to Quickturn from lost sales is $3,815,000 + $149,000 = $3,964,000. V. Reasonable Royalty 15. I have examined the question as to what would be a reasonable royalty for Mentor to pay Quickturn if Mentor is allowed to continue to sell emulators which, without a license, would violate Quickturn's patents. The analysis is based upon the guidelines provided by the court in the Georgia Pacific v. United States Plywood case (318 F. Supp. 1116). A brief discussion of the 15 factors mentioned by the court follows: a. The royalty received by the patentee for the licensing of the patent in question. Quickturn has not licensed any party to use the patents in question. Quickturn has not licensed any party to use the patents in question. Exhibit 14 b. The rates paid by the licensee for the use of other patents comparable to the patents in question. No information was available to demonstrate that the licensee had any comparable patents. c. The nature and scope of the license. It is assumed that Mentor would not have been limited geographically since they were attempting to sell emulation systems all over the world and that Quickturn would not have considered licensing any other firm to use the patents in question. d. The licensor's established policy and marketing program to maintain his patent monopoly. The available evidence does not demonstrate any willingness on the part of Quickturn to license its patents to any party. e. The commercial relationship between the licensor and licensee. Quickturn and mentor are direct competitors throughout the world in the sale of emulation equipment and service. f. The effect of selling the patented item in promoting sales of other products of the licensee and the existing value of the invention to the licensor as a generator of sales of his nonpatented items. Both Quickturn and Mentor will make a service sale in connection with each emulator sold. The service sale will be equal to 10 to 15 percent of the value of the emulator. In addition, Mentor views its emulation product as allowing it to offer a complete service to designers of application specific integrated circuits and its documents indicate an expectation of additional sales because of its emulation line. Over ninety percent (90%) of Quickturn's revenues are a direct result of the sale of emulation systems and service which contain the patented technology. That patented technology is the key to Quickturn's business operations. Exhibit 14 g. The duration of the patent and the term of the license. There are approximately 8 years left in the patent life and it is assumed that mentor would want a license for the remaining life of the patents. h. The established profitability of the product made under the patent; its commercial success; and its current popularity. The product has become profitable for Quickturn in recent years, specifically since about 1994. Quickturn's before tax profit on marginal sales in 1996 was 41 percent if Quickturn had held research and development expense constant at its 1995 level. This profit would have been even higher except for the presence of Mentor as a competitor. Emulation has recently become a growing commercial success and it is probable that designers of large ASIC's and other computer chips will continue to use or begin, to use emulation in future design efforts. i. The utility and advantages of the patent property over old modes or devices, if any, that had been used for working out similar results. Large ASIC's were designed before there was emulation by having the chip manufactured and then testing. However, the fact that designers of these large ASIC's are now willing to pay hundreds of thousands or even millions of dollars for access to emulation indicates that the product is considered highly desirable. In certain designs (e.g., gate size in excess of 100,000 gates) hardware emulation appears to be the most beneficial method of development. j. The nature of the patented invention; the character of the commercial embodiment of it as owned and produced by the licensor; and the benefits to those who have used the invention. The patents provide the basis to allow field programmable gate arrays to communicate with one another in order to emulate (copy) an ASIC. This is embodied in a piece of equipment called an emulator. In 1995, Quickturn's two largest customers in the U.S. Exhibit 14 purchased in excess of REDACTED million dollars ($REDACTED million) each of emulation equipment and the accompanying service - indicating that customers place a high value on the equipment. k. The extent to which the infringer has made use of the invention; and any evidence probative of the value of that use. Mentor has been using the invention in its emulators which it has sold or offered for sale in the United States. Mentor's documents show that its intent is to become the largest seller of emulation equipment, displacing Quickturn from the position which it now occupies. Mentor's documents also show Mentor's integration (i.e., bundling) of emulation with other products so as to increase sales of its software products. l. The portion of the profit or of the selling price that may be customary in the particular business or in comparable businesses to allow for the use of the invention or analogous inventions. No analogous inventions are known. m. The portion of the realizable profit that should be credited to the invention as distinguished from non-patented elements, etc. Without the invention, Mentor would have no product to sell and thus would also not be able to sell the service associated with its emulator. It is my opinion that 100 percent of the realizable profit should be credited to the inventions of the Quickturn patents. n. The opinion testimony of qualified experts. The expert preparing this report did not have any testimony from other experts. o. What a willing buyer and a willing seller would have agreed upon. Given that Quickturn's fortunes depend solely on its ability to sell emulators, that Mentor had additional contacts with customers because it sold an array of products and services far beyond emulators, that Mentor claimed that its emulator was better, than that of Quickturn - particularly Exhibit 14 with respect to speed, and that Mentor had financial resources far in excess of Quickturn, it is unlikely that Quickturn would have been a willing licensor of the patents in questions. More likely, Quickturn would have felt that it would lose any competitive battle with Mentor over the longer run, given Mentor's superior monetary and sales resources. 16. When one considers all the factors, it seems obvious that Quickturn would at least want the marginal profit which it would make from selling emulation equipment and service. The increase in sales can be obtained by subtracting 1995 sales from 1996 sales ($104,370,000 - $81,800,000 = $22,570, 000). The increase in profit can be obtained by subtracting net income before taxes in 1995 from net income in 1996 ($18,054,000 - $12,471,000 = $5,583,000). In addition to this lost profit, Quickturn would also lose $3,684,000 of research and development - the increase in research and development expenditure from 1995 to 1996. Thus, the total lost to Quickturn would have been $9,267,000 on sales of $22,570,000. The marginal profit rate with the additional competition from Mentor was 41 percent of sales in 1996 ($9,267,000 an a percent of $22,570,000). In addition, Quickturn's profits would have been higher on its actual sales except for the price erosion caused by Mentor's presence as a competitor. Once discovery is complete and an estimate of Quickturn's losses from price erosion can be made, it will be possible to calculate the marginal profit rate Quickturn would have made, absent price erosion. Since this will be higher than 41 percent, it seems certain that Quickturn would not be a willing licensor for less than the 41 percent of Mentor's sales of emulation equipment and service in the United States. In fact, it is reasonably certain that Quickturn would not agree to license the patent unless it was paid a royalty equal to the profit which it would have made on marginal sales if Mentor had not been a competitor since Quickturn had the capacity to fill the market needs. Exhibit 14 17. In fact, the 41% royalty takes into account only the profit which Quickturn loses on its marginal sales. It does not consider the price erosion which occurs because of the presence of Mentor as a competitor and which reduces Quickturn's profit on the sales which it does make. This is particularly important because the price erosion is likely to expand as Mentor grows. 18. One should note that I have eliminated the additional expenditure for R&D by Quickturn in calculating the marginal profit for 1996. This is appropriate in determining a reasonable royalty because Quickturn hopes to gain in the future from the current expenditure on R&D. An alternative approach would have been to calculate the profit counting R&D as a cost and then to add the R&D expenditure which Quickturn lost because of Mentor being a licensee to the profit lost. The results should be the same and are what one would expect Quickturn to demand if it agreed to license its patents. 19. I also note that during the TEO phase of the ITC Investigation, the Commission set a bond of 43% of the entered value of the Meta emulation system. The 43% was calculated based upon the price erosion when Mentor/Meta was present in an account (25%), plus 18%, which represents Quickturn's lost R&D investment from the lost marginal sales. This supports my determination of a 41% reasonable royalty. However, this has not been an effective deterrent and Quickturn has filed a motion to increase the bond to 106 percent. This motion has been supported by the ITC staff, who have sought to increase the bond to 180 percent. 20. As noted above, damage discovery is not yet complete in this matter in that Mentor has not provided complete disclosure of its recent sales and pricing activity and its importation and domestic manufacturing activity. This has prevented an estimate being made of Quickturn's damages from price erosion. In addition, Quickturn may make additional sales where price erosion is factor because Mentor is a competitor between the date of this report and Exhibit 14 the trial. Mentor may also make additional sales during that same time period. Thus, the above calculations on lost sales and price erosion are subject to upward revision, based upon newly discovered information from Mentor. Finally, an estimate will be made of the damages to Quickturn from price erosion once discovery is complete. /s/ James Mack Folsom ---------------------- James Mack Folsom Exhibit 14 QUOTATIONS & SALES ORDERS PRINTED FROM DATABASE IN WILSONVILLE
Date of Quoted Customer Quote Quote # Amount Sale? - -------- ----- ------- ------ ----- Integrated Device Technology (Santa Clara) 2/12/96 57231 $1,560,886 N UB Networks (Andover, MA) 3/4/96 57695 $580,268 Y-65183 7/18/96 60109 $8,900 Y-67291 8/19/96 60749 $17,900 Y-67290 (as Newbridge Networks) 6/19/97 4302 $66,537 N Newbridge Networks (Kanata, Ontario) 6/19/97 4300 $97,686 N Radix 4/26/96 58745 $1,032,874 N 5/13/96 59051 $885,939 Y-65528 5/14/96 59062 $250,042 N 5/28/96 59316 $0 N 7/25/97 5302 $7,627,200 N 7/25/97 5305 $247,328 N Motorola (Austin) 4/30/96 58806 $499,415 N (Austin) 12/26/96 63652 $158,466 Y-68909 (lease) (Austin) 3/18/97 65075 $590,000 N (Austin) 4/22/96 65662 $100,000 N (Austin) 7/18/97 5166 $30,000 N (Boynton Beach, FL) 7/23/96 60244 $392,696 N (Boynton Beach, FL) 7/23/96 603267 $570,760 N (Boynton Beach, FL) 7/23/96 60244 $293,696 N (Plantation, FL) 1/30/97 64094 $1,880,330 N (Plantation, FL) 3/10/97 64846 $230,000 N (Plantation, FL) 3/10/97 64847 $237,865 N (Plantation, FL) 3/24/97 65192 $237,865 N (Plantation, FL) 4/28/97 65682 $280,000 N Chipcom Corp. (Southborough, MA) 7/12/96 59210 $1,401,953 N Digital Equipment Corp. (Hudson, MA) 6/20/96 59225 $1,246,632 N (Littleton, MA) 6/19/96 59685 $765,113 N (Littleton, MA) 6/19/96 59692 $317,351 N AT&T (Holmdel, NJ) 6/6/96 59447 $378,200 N Lucent Technologies (Piscataway, NJ) 8/23/96 60908 $265,415 N (Naperville, IL) 11/27/96 63054 $609,711 N Hughes Aircraft Co. (Los Angeles, CA) 9/19/96 61428 $4,631,125 N 9/20/96 61450 $3,093,750 N National Semiconductor (Santa Clara) 11/1/96 62344 $498,648 Y-69314 ($590,952.72) Cardiac Pacemakers (St. Paul, MN) 2/18/97 64439 $129,010 N Hughes Missile Systems (Tucson, AZ) 4/9/97 65508 ?? N Ericsson (RTP,NC) 4/24/97 65667 $374,870 N 4/24/97 65668 $210,000 N Advanced Micro Devices (Austin, TX) 5/19/97 65788 $598,500 N 5/19/97 3275 $506,818 N Adaptec (Milpitas, CA) 5/5/97 2942 $870 N(error) 7/2/97 4864 $462,896 N Newbridge Networks (Kanata, Ontario) 6/19/97 4300 $97,686 N Myotronx (Torrance, CA) 6/25/97 4540 $213,000 N 6/25/97 4542 $182,198 N 6/25/97 4565 $271,225 N
Exhibit 15, Page 1 of 2
New Customer (unknown) 6/26/97 4608 $635,525 N New Customer (unknown) 7/2/97 4863 $817,290 N
Exhibit 15, Page 2 of 2 As you may know, Quickturn Design Systems has made three announcements on January 27, 1997. The Accelerated Verification business unit's position on these announcements follows. SpeedSim Merger Recently, Quickturn announced a merger with SpeedSim, a cycle-based simulator provider. This merger is a clear indicator that Quickturn is feeling pressure to offer a more comprehensive verification environment. In fact, a quote from the release states "Quickturn is changing from being an emulation company to being a design verification company." The SpeedSim acquisition is a very limited step in the right direction of providing a more comprehensive verification solution. Quickturn has clearly fallen behind in the technology required to build a comprehensive system verification solution. The company is playing catch up, but an acquired cycle-based simulator coupled with limited emulation technology is not a complete verification environment! Although SpeedSim has solid technology for rapid verification, it is really limited to large scale synchronous circuits normally found in large microprocessor design houses. This technology has not been successfully deployed in the traditional system, board or ASIC design flows normally found in telecom and datacom applications. CoBALT-OEM arrangement with IBM In yet another attempt to fill their technology gaps, Quickturn signed an exclusive OEM agreement with IBM to offer an alternative to the company's existing commercial FPGA-based systems. Quickturn is providing only software in this arrangement while all the hardware will be supplied by IBM. Since IBM's main business is still heavily related to the high-end computer market, it seems very questionable that IBM would want to sell verification products to their chief competitors. How long will it last? How responsive will IBM be to problems? CoBALT (Concurrent Broadcast Array Logic Technology) is limited to synchronous designs that lend themselves to a cycle-based verification methodology and thus will only appeal to high-performance CPU customers. It is based on a custom chip designed by IBM in their 0.25 micron semiconductor process and is part of the compiled-code logic emulation family with time multiplexed logic and interconnect. Large synchronous designs are not very common, a fact that has historically stood in the way of the broader adoption of the CoBALT technology. This puts Quickturn into the position of having two incompatible solutions with significant weaknesses. System Realizer is versatile but has slow design iteration times, and CoBALT offers higher performance but places significant constraints on design methodology. Mentor's SimExpress actually offers customers the best of both technologies. SimExpress has compile times and debug capabilities that are found in the CoBALT product, while allowing the design flexibility and ICE capability of Quickturn's System Realizer family of products. SimExpress is based on a custom emulation chip and architecture, and with links to Seamless and QuickHDL, we already offer our customers unsurpassed early hardware and software debug, in-circuit verification for final integration and validation, as well as intellectual property support. Exhibit 16, Page 1 of 2 Q/Bridge Software Tool Q/Bridge is an interface for co-simulation. Q/Bridge is designed to enable third-party vendors of electronic design automation tools to easily create co-simulation interfaces between their products and Quickturn's Quest emulation software environment. While we welcome creation of public interfaces that facilitate improved overall verification solutions for the end user, some skepticism about co-simulation performance is in order. Traditional hardware emulators are very inefficient with co-simulation applications because the start/stop operation consumes huge amounts of time relative to that of emulation. SimExpress has been specifically optimized for co-simulation. Special high-speed interface circuitry gets around traditional data transfer and synchronization penalties, thus enabling fast co-simulation performance. Clearly SimExpress offers the only complete solution for our customers, helping them bridge the productivity gap between silicon availability and system verification. We offer a custom emulation architecture, which is the backbone of a comprehensive accelerated verification methodology. SimExpress is the only solution that offers: hardware and software co-verification RTL (VHDL and Verilog-XL) acceleration intellectual property support for emulation in-circuit verification for final system integration and validation. Truly-ACCELERATED VERIFICATION WITHOUT COMPROMISE! As always, your comments are welcome. Happy Selling! Gabriele Pulini, Meta Systems Director of Marketing Ext. 5232; John Ott, Accelerated Verification SBU Director of Marketing-Ext. 1706. Exhibit 16, Page 2 of 2 EXHIBIT 17 [Customer Quotation for Digital Equipment Corporation; Exhibit 17, Page 1 of 2] [Customer Quotation for Digital Equipment Corporation; Exhibit 17, Page 2 of 2] Exhibit 17, Page 1 of 1 EXHIBIT 18 [Order, UB Networks; Exhibit 18, Page 1 of 2] [Order, UB Networks; Exhibit 18, Page 2 of 2] Exhibit 18, Page 1 of 1 PROOF OF SERVICE I am employed in the County of Los Angeles, State of California. I am over the age of 18 and not a party to the within action. My business address is 633 West Fifth Street, Suite 4700, Los Angeles, California 90071-2066. On October 05, 1998, I served the foregoing document described as INTERIM SUPPLEMENTAL EXPERT REPORT OF JAMES MACK FOLSOM on each interested party, as follows: Sanjay Bhandari, Esq. Craig Allison, Esq. LATHAM & WATKINS BROBECK, PHLEGER & HARRISON LLP 75 Willow Road 2200 Geng Road Menlo Park, CA 94025 Palo Alto, CA 94303 (BY HAND DELIVERY - FEDERAL EXPRESS) I caused each such envelope to be delivered by hand to the offices of the above addressee(s). Sanjay Bhandari, Esq. LATHAM & WATKINS 75 Willow Road Menlo Park, CA 94025 (BY FACSIMILE) I served a true copy of the foregoing document on each interested party as set forth above via facsimile ((650) 463-2600). Executed on October 05, 1998, at Los Angeles, California. I declare under penalty of perjury that the foregoing is true and correct. Elaine Chacon Acuna /s/ Elaine Chacon Acuna - ------------------------------------- -------------------------- (Name) EX-11.(A)(47) 3 REPORT OF BLAINE EXHIBIT A BLAINE F. NYE 535 Middlefield Road, Suite 100 Menlo Park, California 94025 (415) 322-4568 PROFESSIONAL BACKGROUND Stanford Consulting Group, Inc., President Economic consultant specializing in finance, economics, valuation, insurance, and econometrics. Project experience includes: Numerous analysis of economic damages suffered by parties to business litigation involving intellectual property rights, including patents, copyrights, and trademarks. Damage analyses have included consideration of lost profits, price erosion and reasonable royalty, and in all combinations. Numerous company valuations, including valuations of assets and liabilities, to determine fair market values and pricing. Analyses have been used in arms-length pricing and in litigation, generally involving disputes over the value of equity. Economic analysis and testimony relative to asset values, including loans and their probable collection and real estate, and alleged fraudulent misrepresentations of a large failed savings and loan association. Economic analysis and testimony in very large class-action suit relative to financial condition, asset values, investment portfolio, and alleged fraudulent misrepresentations made by consultants and accountants of large failed savings and loan association. Numerous analyses of economic damages suffered by parties to business litigation involving issues relative to product liability, antitrust, fraud, wrongful contract termination, theft of trade secrets, unfair competition, and business valuation. Economic analysis of damages suffered by large timber trust as the result of alleged trust mismanagement by large Mid-Western trust management firm. Multiple valuation analyses at request of FSLIC for acquisition/divestiture purposes in dealing with troubled savings and loan associations in the Midwest. Merger and acquisition analysis relative to takeover by large foreign interests of foreign company which owns major U.S. property and casualty insurer. Acquisition plan entailed spin off of insurer to French insurance interests. Performed relevant analyses and prepared testimony before the insurance departments of nine states requiring hearing and approval of proposed change in ownership. Numerous large securities litigation cases. Worked on development and application of economic technology to successfully resolve issues including timing of information releases, materiality of information, class period, class certification, trading behavior, and extent of damages. Profitability and dealership location analyses for U.S. division of a large foreign automaker. Developed econometric model permitting prediction of total profits within geographic area based on population demographics, market penetration, dealership services, dealership separation and competition. Performed feasibility studies for small group health and auto physical damage insurance futures proposed for trading by the Chicago Board of Trade. Performed analysis of the impact of insurance futures on demand, pricing and market structure in relevant insurance markets. Analysis of economic damages suffered by U.S. manufacturer as a result of alleged false advertisement on the part of its major competitor. Relevant damages included profits on lost sales, damage to profit margin, and damage to overall market. Product introduction strategy for large U.S. telecommunications firm. Performed market analysis, product development, cost analysis, and pricing for new line of telecommunications service products. Performed expense and profitability analyses of servicing carriers for a large state insurance joint underwriting association. Analyses served as basis for testimony in litigation involving issues relative to alleged excess profits earned by the servicing carriers. Performed profitability, appropriate underwriting margin, and cost of capital analyses and testimony for major property and casualty insurance companies in various states, at the request of companies, state departments of insurance, and a national insurance rating organization for use in state regulatory hearings into these matters. Feasibility of employee plant buyout from major U.S. corporation for union in conjunction with State of California. Analyzed production, product market, and operating costs, and developed profitable plan of operations. Analysis of the economic damages suffered by a large general agency as a result of the alleged unfair competitive practices of three major U.S. life insurers. Numerous analyses of economic damages to various involved parties in wrongful death litigation, personal injury litigation, wrongful termination litigation. Study of level of competition inherent in the California automobile insurance market on behalf of consortium of major U.S. automobile insurers. Study also included analysis of 2 effects of various alternative changes to existing regulatory regime that had been proposed by special interest groups. Study of taxation of the life insurance industry in California relative to other California industries and life industries in other states. Performed analyses of life industry market structure, nominal vs. effective tax rates, and tax incidence and shifting. Performed similar study for the California property/casualty insurance industry. Several cases involving the evaluation of economic damages suffered by owners of large building complexes due to the presence of allegedly friable asbestos. The analyses included estimation of the present costs of removing or otherwise treating asbestos under alternative scenarios and evaluating claims for economic damages. Diversification strategy for large Western telecommunications firm. Identification and valuation of appropriate acquisition candidates, including analysis of merger premiums that could be paid based on anticipated synergy. 3 ARTICLES "The Distribution of Claims for Professional Malpractice--Some Statistical and Public Policy Aspects," with E. C. Venezian and A. E. Hofflander. Journal of Risk and Insurance 56:4 (December, 1989), pp. 686-701. "Medical Malpractice: Problems in the Insurance and Legal Systems," with A. E. Hofflander. The Journal of Insurance Issues and Practices 12:2 (June, 1989), pp. 1-21. "Experience Rating in Medical Professional Liability Insurance: Authors' Reply," with A. E. Hofflander. Journal of Risk and Insurance 56:2 (June, 1989), pp. 333-335. "Experience Rating in Medical Professional Liability Insurance," with A. E. Hofflander. Journal of Risk and Insurance 55:1 (March, 1988), pp. 150-157. "An Analysis of Premium Tax Revenue and Rate in California: the Case of Structured Settlement Annuities," with A. E. Hofflander. Journal of Risk and Insurance 54:4 (December, 1987), pp. 760-766. "Economics of Oligopoly: Medical Malpractice Insurance as a Classic Illustration," with A. E. Hofflander. Journal of Risk and Insurance 54:3 (September, 1987), pp. 502-519. "Demand and Pricing for Health Care and Guaranteed Insurability." University of Microfilms International (January, 15, 1985). "Self-insurance, Captives, and Income Taxation," with A. E. Hofflander. Journal of Risk and Insurance 51:4 (December, 1984), pp. 702-709. "Economic Analysis of Discriminatory Premium Taxation," with A. Hofflander and C. Zollinger. Journal of Insurance Regulation 3:1 (September, 1984), pp. 3-29. MONOGRAPHS A Reevaluation of the California Workers' Compensation Rating Law, with A. E. Hofflander and P. H. Sullivan. Association of California Insurance Companies, Sacramento, 129 pp. (1992). Small Group Health Insurance Futures, with A. E. Hofflander and J. D. Nettesheim. Feasibility study for the Chicago Board of Trade, Chicago, 75 pp. (1991). Auto Physical Damage Insurance Futures, with A. E. Hofflander and J. D. Nettesheim. Feasibility study for the Chicago Board of Trade, Chicago, 92 pp. (1991). California Taxation of the Property/Casualty Insurance Industry, with A. E. Hofflander and L. B. Charlesworth. American Insurance Association, Association of California Insurance Companies, and Personal Insurance Federation of California, Washington, D.C., 23 pp. (1991). 4 The Taxation of the California Life Insurance Industry, with A. E. Hofflander and L. B. Charlesworth. Association of California Life Insurance Companies, Sacramento, 85 pp. (1989). An Economic Analysis of the California Insurance Initiatives, with A. E. Hofflander and L. B. Charlesworth. National Association of Independent Insurers and Association of California Insurance Companies, Sacramento, 122 pp. (1988). Level of Competition in the California Private Passenger Automobile Insurance Market, with R. H. Litzenberger. Association of California Insurance Companies, Sacramento, 126 pp. (1986). An Evaluation of the California Workers' Compensation Rating Law, with A. E. Hofflander and P. H. Sullivan. Association of California Insurance Companies, Sacramento, 147 pp. (1986). Medical Malpractice Insurance in Pennsylvania, with A. E. Hofflander. Select Committee on Malpractice (joint committee of the Pennsylvania Bar Association, Pennsylvania Medical Society, and Pennsylvania Hospital Association) 140 pp. (1985). 5 EXHIBIT B Testimony of Blaine F. Nye, Ph.D. - --------------------------------- April 29, 1997 Flint v. Citicorp/Citibank Testimony 1/13/93 d'Elia v. d'Elia Deposition 2/1/93 Testimony 2/24/93 Pacific Mutual Life Insurance Co., et al. v. State Board of Equalization Testimony 2/16/93 Burton, et al. v. Bristol-Myers, et al. Deposition 3/2/93 Testimony 8/30/93 United Telecommunications Inc. Securities Litgiation; case no. 90-2551-0 Deposition 3/11/93 Trizec Properties v. W.R.Grace & Co., et al. Deposition 6/2/93 Ansteph, Inc. v. Penguin's Place, Inc., et al; case no. 61 03 41 Deposition 7/12/93 Freeman & Associates, Inc. v. Ferguson, et al. Deposition 10/18/93 Deposition 9/2/93 Smejkal v. Mitsubishi Aircraft International, Inc. et al. Testimony 11/3/93 Marlin v. Murdoch Testimony 11/4/93 Fortino Flores v. Post Street Associates, et al. Deposition 12/3/93 Arami Rigatuso v. Delta Airlines, Inc.; case no. C92-3644-HMP ARB Deposition 12/10/93 BOC Healthcare v. Nellcor Inc. Deposition 1/5/94 County of San Diego v. W.R. Grace & Co. - Conn, et al.; case no. 208 188 Deposition 1/14/94 California Federal Bank, F.S.B. v. W.R. Grace & Co. - Conn; case no. C 728 819 Deposition 3/2/94 Commonwealth of Massachusettes v. Owens Corning Fiberglass Corproation, et al.; case no. 90 -3791 Deposition 3/18/94 Randy Bertisch v. City of Los Angeles Deposition 3/23/94 Testimony 3/27/94 Julie Lockhart v. The Regents of the University of Califrnia Deposition 4/18/94 Masood Haque, Anne E. Hauque v. University of California, San Francisco, Moffitt Hospital, et al. Testimony 4/26/94 James Garewal v. Industrial Ladder Company, et al. Testimony 6/9/94 Hilo, et al. v. Exxon, et al.; case no. CV-92-4408 RMT (SHX) Deposition 7/20/94 Testimony 4/1/96 Fujisaka v. Livermore, et al. Deposition 8/10/94 Century Park v. California Zonolite Co., Inc., et al. Deposition 8/29/94 Catherine Weston Stocker v. Pacific Gas & Electric, et al. Deposition 9/14/94 Industrial Indemnity Company, et al., v. Apple Computer, Inc., et al. Deposition 10/20/94 Deposition 1/31/95 Huckin v. Connor; case no. 88-036106 Deposition 11/1/94 Cox v. El Paso Natural Gas Deposition 11/7/94 Storage Technology Corporation Securities Litigation Deposition 11/11/94 Charles Reilly v. American Medical International, Inc. Testimony 1/25/95 Coello v. Lyman Dean Construction Company, et al. Deposition 2/14/95 Anderson v. PG&E; case no. BCV00300 Testimony 2/22/95 Richard Ahrendt v. Abex Corporation Deposition 2/27/95 Faith Pescatore v. Pan American World Airways, Pan American World Services, and Alert Management Systems Deposition 3/3/95 Testimony 4/13/95 Paul Acree, et al. v. General Motors Acceptance Corporation; case no. 531927 Deposition 3/24/95 Deposition 3/31/95 Deposition 5/5/95 Deposition 6/5/95 Testimony 6/13/95 Testimony 6/27/95 Testimony 6/28/95 Deposition 10/16/95 Testimony 10/24/95 Testimony 10/26/95 Deposition 11/15/95 Testimony 12/4/95 Testimony 12/5/95 Testimony 12/11/95 One Wilshire Arcade Imperial, Ltd. v. W.R. Grace & Company, et al. Testimony 4/7/95 Reed v. Orteza Deposition 4/14/95 Karen Magliocco v. PG&E Deposition 5/8/95 Keith Pinn v. Par Development Deposition 5/10/95 Raymond Humecke v. Abex Corporation Deosition 5/19/95 Kyle Richmond v. Abex Corporation Deposition 5/19/95 Coello v. Greer Neuwald Builders Deposition 9/28/95 Collins v. United States; case no. C94 2191 WHO Deposition 9/7/95 Synopsis, Inc. v. Paul E. Hubbard, Greg Ordy and Seed Solutions Deposition 9/11/95 California State Automobile Association Inter-Insurance Bueau v. Policy Management Systems Corporation; case no. C93-4232-CW ENE Deposition 9/12/95 Deposition 9/13/95 Deposition 3/13/96 Transamerica Insurance Corporation of California, et al., v. W.R. Grace & Co. - Conn.; case no. C94-4083 VRW Deposition 11/9/95 Melvyn Gantman v. Fidelity Management Trust Company; case no. C94-3692-SBA Deposition 2/12/96 Deposition 2/13/96 Golden Eagle Insurance Company Proposition 103 Hearing; case no. RB-94-0010-00 Testimony 3/15/96 Ramachandran, et al. v. Thai Airways, et al.; case no. C-94-2644 SC and C-95-0082 SC Deposition 5/14/96 Testimony 6/17/96 John King & Lurine King, et al., National Benevolent Association of the Christian Church, et al.; case no. H-181238-7 Deposition 7/9/96 Brooks vs. Allied Signal, Inc., et al.; case no. 2:94-CV-24 Deposition 2/19/97 Hamre vs. Fibreboard, et al.; case no. BC 126 838 Deposition 4/11/97 Belur vs. United States; case no. C-95-4521 CAL Deposition 4/24/97 EXHIBIT C CONTAINS BUSINESS PROPRIETARY INFORMATION UNITED STATES INTERNATIONAL TRADE COMMISSION Washington, D.C. In the Matter of CERTAIN HARDWARE LOGIC EMULATION SYSTEMS AND COMPONENTS THEREOF Inv. No. 337-TA-383 COMMISSION OPINION ON REMEDY, THE PUBLIC INTEREST, AND BONDING We have determined to adopt the presiding administrative law judge's (ALJ) initial determination (ID) concluding that there is reason to believe that there is a violation of section 337 in the importation, sale for importation, or sale in the United States after importation of the accused hardware logic emulation systems.1 Specifically, we adopt the ALJ's finding that it is likely that the patents in issue are valid and infringed by respondents' imported hardware logic emulation systems. We also adopt the ALJ's finding that complainant, Quickturn Design Systems Incorporated, a relatively small, single product company competing in the rapidly evolving hardware logic emulation market, is threatened with irreparable harm in the event temporary relief is not granted. - ------------------------- 1 These systems consist of reconfigurable logic devices, linked by reconfigurable interconnect devices, that can be programmed to replicate the operation of an integrated circuit ("IC") design to determine its performance characteristics under conditions that closely approximate the actual intended use. In other words, an emulation system configured with a particular circuit design can be connected to an external system (or "target" system) for which the circuit is designed, permitting the circuit to be tested under actual operating conditions (a process known as going "in-circuit"). The emulator's ability to verify the operation of a circuit design before actual fabrication of a prototype device results in substantial savings of development time and costs. Having determined that temporary relief is warranted, we also determine that a temporary limited exclusion order and a cease and desist order are the appropriate forms of temporary relief. We have further determined that the statutory public interest factors do not preclude the issuance of such relief and that respondents' bond during the period of the limited temporary exclusion order shall be in the amount of forty-three (43) percent of the entered value of infringing imported hardware logic emulators and components thereof. Finally, we have determined that the complainant's bond-shall be in the amount of $200,000. This opinion explains the basis for determinations. I. PROCEDURAL BACKGROUND On March 4, 1996, Quickturn Design Systems Incorporated ("Quickturn" or "complainant") filed a complaint under section 337 of the Tariff Act of 1930 (19 U.S.C. ss. 1337) alleging unfair acts in the importation, the sale for importation, and the sale within the United States after importation of certain hardware logic emulation systems and components thereof by two proposed respondents: Mentor Graphics Corporation ("Mentor") of Wilsonville, Oregon and Meta Systems ("Meta") of Saclay, France (collectively "respondents"). Complainant also simultaneously filed a motion for temporary relief. In the motion for temporary relief complainant alleged infringement of claims 1, 2, 3, and 15 of U.S. Letters Patent 5,448,496 (the "`496 patent") and claim 8 of U.S. Letters Patent 5,036,473 (the "`473 patent") both owned by Quickturn. On March 8, 1996, the Commission voted to institute an investigation of the complaint and to accept provisionally the motion for temporary relief, and published a notice of investigation in the Federal Register.2 The temporary - ------------------------ 2 61 Fed. Reg. 9486 (March 8, 1996). relief phase of this investigation was designated "more complicated" by the presiding ALJ on April 14, 1996 (Order No. 14). The ALJ held an evidentiary hearing on temporary relief from April 23, 1996, through May 4, 1996. Complainant, respondents, and the Commission investigative attorney (IA) participated in the hearing. Thereafter, oral argument was held before the ALJ on June 5, 1996. The Commission received submissions on the issues of remedy, the public interest, and bonding from all parties on June 23, 1996, in accordance with Commission rule 210.67(b). On July 8, 1996, the ALJ issued his ID (Order No. 34) granting Quickturn's motion for temporary relief On July 18, 1996, respondents and the IA filed written comments on the temporary relief ID, as provided for in rule 210.66(c). Complainant and the IA filed replies to respondents' comments, and respondents filed a reply to the LA's comments on July 22, 1996, as provided for in rule 210.66(e). On August 5, 1996 the Commission determined to adopt the presiding ALJ's ID. II. REMEDY If there is reason to believe that a violation of section 337 has occurred (and the public interest factors discussed below do not prohibit a remedy), the Commission has broad discretion in selecting the form, scope, and extent of the remedy.3 Under subsections 337(e) and (f), the - --------------------- 3 Hyundai Electronics Industries Col, Ltd. v. United States International Trade Commission, 899 F.2d 1204 (Fed. Cir. 1990) (affirming Commission remedy determination in Certain Erasable Programmable Read-Only Memories, Components Thereof, Products Containing Such Memories, and Processesor Making Such Memories, Inv. No. 337-TA-276, USITC Pub. 2196 (May 1989)); Viscofan, S.A. v. United States International Trade Commission, 787 F.2d 544, 548 (Fed. Cir. 1986) (affirming Commission remedy determination in Certain Processes for the Manufacture Skinless Sausage Casings and Resulting Products, Inv. Nos. 337-TA- 148 and 169, USITC Pub. 1624 (December 1984)). However, as the Commission stated in Certain Devices for Connecting Computers Via Telephone Lines, although the Commission's remedial authority is quite broad, it has applied this authority "in measured fashion and has issued only such relief as is adequate to redress the harm caused by the prohibited imports." Inv. No. 337-TA-360, Commission Opinion (Dec. 12, 1994) at 9. Commission may issue a temporary exclusion order, a cease and desist order, or both, depending on the circumstances of each investigation.4 The Commission may issue either a temporary general exclusion order, which covers goods irrespective of source, or a temporary limited exclusion order, which covers goods from only certain foreign sources.5 - ----------------------------- 4 Section 337(e)(1), 19 U.S.C.ss.1337(e)(1), provides in relevant part: If, during the course of an investigation under this section, the Commission determines that there is reason to believe that then is a violation of this section, it may direct that the articles concerned, imported by any person with respect to whom there is reason to believe that such person is violating this section, be excluded from, entry into the United States. . . . Section 337(f)(1) provides: In addition to, or in lieu of, taking action under subsection (d)... of this section, the Commission may issue and cause to be served on any person believed to be violating this section . . . an order directing such person to cease and desist from engaging in the unfair methods or acts involved [unless precluded by consideration of enumerated public interest factors.] 5 19 U. S. C. ss. 1337(d)(2)(effective January 1, 1995); see also 19 C.F.R ss.210.50(c) (incorporating the statutory standard into the Commission's Rules of Practice and Procedure). Under this provision, the Commission can issue a general exclusion order only where it is "necessary to prevent circumvention of an exclusion order limited to products of named persons; or there is a pattern of violation of this section and it is difficult to identify the source of infringing products." This limitation on the Commission's authority to issue general exclusion orders appears in the section of the statute pertaining to permanent exclusion orders, section 337(d), rather than in the section that grants the Commission authority to issue temporary relief, section 337(e). Nevertheless, notwithstanding the placement of this provision in the statute, we believe that it was intended to apply equally to permanent and temporary general exclusion orders. The legislative history of the Uruguay Round Agreements Act (URAA) amendments to section 337 indicates that the new statutory limitations "do not differ significantly" from the Commission's traditional framework for analyzing the appropriateness of a general exclusion order, which was applied in the same manner to both temporary and permanent relief. See S. Rep. No. 412, 103rd Cong., 2d Sess. 120 (1994); H.R. Rep. No. 826, 103rd Cong., 2d Sess., pt. 1, at 141 (1994). The Commission traditionally has issued cease and desist orders when commercially significant inventories of infringing goods are present in the United States.6 Commission rule 210.67(a) authorizes, but does not require, the ALJ to address the appropriate remedy and the public interest.7 In this investigation, the ALJ concurred with the IA's positions regarding the appropriate remedy, which are discussed below. Complainant Quickturn argued that issuance of an exclusion order is appropriate to prevent infringing imports and is the customary remedy where temporary relief is granted. Quickturn seeks such an order only with respect to respondents in this matter (i.e., a limited exclusion order), acknowledging that there is no basis for issuance of a general exclusion order at this stage of the investigation. With respect to a cease and desist order, complainant argued that - ------------------- 6 See, e.g., Pressure Transmitters, Inv. No. 337-TA-304, USITC Pub. 2392 (June 1991); Certain Strip Lights, Inv. No. 337-TA-287 (October 3, 1989) (Unpublished opinion); Certain Nonwoven Gas Filter Elements, Inv. No. 337-TA-275, USITC Pub. 2129 (September 1988); Certain Compound Action Metal Cutting Snips, Inv. No. 337-TA-197, USITC Pub. 1831 (March 1986); Certain High Intensity Retroreflective Sheeting, Inv. No. 337-TA-268, USITC Pub. 2121 (September 1988); Certain Erasable Programmable Read Only Memories, Inv. No. 337-TA-276, USITC Pub. 2196 (May 1989)(while the existence of significant inventories was not conclusively proven, it could be reasonably assumed from the record that such inventories were present); Certain Crystalline Cefadroxil Monohydrate, Inv. No. 337-TA-293 (March 1990). The Commission's purpose in issuing cease and desist orders in patent-based cases has been to afford complete relief to complainants where infringing goods are already present in the United States, and thus cannot be reached by issuance of an exclusion order. See, e.g., Certain Compound Action Metal Cutting Snips, Inv. No. 337-TA-197, Commission Opinion at 5-7. Unlike an exclusion order, which is enforced by the U.S. Customs Service, a cease and desist order is an in personam order typically directed to a party in the United States and is enforced by the Commission, not Customs. The Commission has in personam over respondent Mentor, a company doing business at 8005 S.W. Boeckman Road, Wilsonville, Oregon, 97070, based on proper service of the complaint and notice of investigation and Mentor's full participation in this investigation. it has provided ample evidence that respondents am engaged in significant sales and solicitation activities in the United States and that any further solicitation and marketing activities by Mentor would constitute continued infringement of the patents in issue. Complainant also submitted a copy of a publication in which respondents indicated that, in the event temporary relief issues, they may "establish[] U.S.-based assembly" for the accused device. Respondents argued that, if a temporary exclusion order issues, the order should exempt replacement parts and "components required to upgrade existing systems", as well as service and maintenance of existing systems in the United States. In support of this position, they state that if their U.S. customers (such as Bull Information Systems) are unable to obtain replacement parts or components needed to upgrade their systems, they would incur major delays in ongoing projects and damage to their business.8 For the same reasons, they state that any exclusion order should ensure that respondents may continue to service and maintain existing systems in the U.S. Respondents also argued that there is no basis for a temporary cease and desist order because there is no evidence that Mentor has any domestic inventory. In particular, respondents submitted a statement from a Mentor employee stating that Mentor's "standard procedure is that upon receipt of a customer order, a Meta machine is built in France in response to the customer's specifications and then shipped to United States." In addition, respondents argued that, to the extent that they are permitted to import under bond during the temporary relief period, a cease - ----------------------------- 7 Any findings made by the ALJ may be superseded by Commission findings. 19 C.F.R.ss.210.67(a). 8 Comments on remedy submitted to the Commission by intervenor Bull HN Information Systems emphasized that Bull has an on-going need for replacement parts, including logic boards, for its Meta emulator that is in operation in Phoenix, Arizona. and desist order preventing general sales and marketing activities would be outside the Commission's statutory jurisdiction. In the IA's view, the appropriate relief is a limited exclusion order directed to respondents' emulation system, and components thereof, that the Commission has reason to believe infringe the asserted claims of the patents at issue. The IA noted that there are substantial capital investments associated with Meta emulators installed in the United States as of the date of entry of temporary relief, as well as employment and on-going research and development projects, principally by Meta's customer Bull, that are dependent upon the operation of those emulators. On that basis, the IA recommended that the temporary exclusion order include an exception for importation of emulator components that respondents certify are required for repair of emulators already installed in the United States. The IA also believes that a cease and desist order prohibiting sales (except under bond) of Meta emulators present in the United States as of the date of entry of the order is appropriate. According to the IA, as of the date of the temporary relief proceedings, respondents had a domestic supply of at least three operational Meta emulation systems. The IA further stated that the commercial significance of the accused Meta emulators that in present in the United States is substantial (based on the substantial capital cost of these devices) and that therefore the sale of these emulators is likely to irreparably harm Quickturn. Accordingly, the IA recommended that a cease and desist order prohibiting the sale or other transfer (except under bond) of Meta emulators held by the respondents within the United States at the date of issuance is appropriate in this investigation. The IA submitted, however, that any such cease and desist order should be narrowly tailored to prohibit only sales and similar transfers except under bond, rather than the broad array of commercial activities Quickturn seeks to prohibit. Specifically, the IA recommended that any case and dam order should not prohibit respondents' marketing, sales, and support activities that are directed to goods imported or sold under bond. Finally, for the reasons discussed above in connection with the irreparable harm analysis, the IA does not believe that the public interest would be harmed by issuance of the proposed exclusion and cease and desist orders. We agree with the ALJ's and the IA's recommendation and accordingly have issued a temporary limited exclusion order covering the accused hardware logic emulators, in assembled or unassembled form, that we have found likely to infringe claim 8 of the `473 patent and/or claims 1, 2, 3, or 15 of the `496 patent. We also agree that the temporary limited exclusion order should not extend to components, such as logic boards, certified to be imported to replace and repair inoperative components on one of the five Meta units present in the United States (three held by Mentor and two by its customers).9 Such an exception would prevent disruption to the business operations of Mentor's customers during the pendency of this investigation, and grant them time to prepare for the possibility of a permanent exclusion order, which probably would not include such an exception. We agree as well with the ALJ and the IA regarding the appropriateness of issuing a temporary cease and desist order. Thus, we have determined to issue a cease and desist order prohibiting domestic respondent Mentor from importing, selling, distributing, offering for sale, or otherwise transferring in the united Sates (except under bond) hardware logic emulators - ------------------------- 9 The temporary limited exclusion order makes it clear that it extends to the importation of subassemblies, other than those required as a one-for-one replacement of their counterparts in existing systems. covered by the patent claims at issue.10 We believe that the presence of even one of the Meta units (at an estimated value of more than $500,000) in the United states would constitute "commercially significant inventory," which the Commission traditionally has found warrants the issuance of a cease and desist order. While respondents have represented that these units are not "inventory" in that their as "standard procedure is that upon receipt of a customer order, a Meta machine is built in France in response to the customer's specifications and then shipped to the United States," they do not state that the units in the United States could not or will not be converted for sale to a customer. In addition, they have actively opposed the issuance of a cease and desist order. In these circumstances, and because the Commission's purpose in issuing cease and desist orders has been to afford complete relief to complainants where infringing goods are already present in the United States, we believe it appropriate in this case to issue such an order.11 We also agree with the IA that such an order should not extend to respondents' marketing and promotional activities in the United States. Unlike a permanent exclusion order, a temporary "exclusion order" actually must permit importations under bond. Accordingly, because respondents are statutorily entitled to import bond goods that are subject to a temporary exclusion order, the incidental right to market those devices should not be prohibited by the - ------------------------- 10 As noted below, however, under the cease and desist order Mentor is permitted to conduct activities directly related to the sale of accused devices imported under bond during the period in which temporary relief would be effective. Mentor also is permitted to furnish services to its customers that are directly related to the accused devices it imported and sold in the United States prior to the effective date of the cease and desist order, including the installation of replacement logic boards. 11 Moreover, we note that if, as respondents have represented, the Meta units held by Mentor in the U.S. are not suitable for domestic sale, respondents will not be harmed by the issuance of a cease and desist order. temporary cease and desist order. For the same reasons that we believe the temporary exclusion order should not extend to replacement components, such as logic board assemblies, we also believe that any cease and desist order issued should not cover respondents' activities in connection with servicing its customers' imported Meta emulators, including the installation of such replacement components. III. THE PUBLIC INTEREST Before granting relief, the Commission must consider the effect that such relief would have on "the public health and welfare, competitive conditions in the United States economy, the production of like or directly competitive articles in the United States, and United States consumers."12 The legislative history of this provision indicates that the Commission should decline to issue relief when the adverse effect on the public interest would be greater than the interest in protecting the patent holder.13 The ALJ found that: (1) Quickturn is capable of supplying the hardware logic emulation requirements of domestic users; (2) there is no significant likelihood that temporary relief would substantially impact the industries that purchase hardware logic emulation systems (i.e., the U.S. semiconductor industry); (3) it is in the public interest to issue temporary relief to protect a domestic industry's valid and exclusive rights in its intellectual property, and (4) the statute - ----------------------- 12 19 U.S.C. ss.ss. 1337(d) and (f). See also Rosemount v. United States Int'l Trade Comm'n, 15 U.S.P.Q.2d at 1572, 910 F.2d 819 (Fed. Cir. 1990)("Rosemount"). In Rosemount, the Federal Circuit, in affirming the Pressure Transmitters decision, stated: We also agree with the Commission's rejection of the view that the public interest inevitably lies on the side of the patent owner because of the public interest in protecting patent rights ... other public interest factors are delineated in the above-quoted section 1337(e)(1) and must be taken into account. Rosemount, 910 F.2d at 822, 15 U.S.P.Q.2d at 1572. provides, that in the event of the grant of temporary relief, respondents will be permitted to import the devices under bond and therefore the domestic industry, if it wants to, will have access to the Meta emulators. Based on then findings, the ALJ concluded that the public interest favors the granting of temporary relief. Complainant and the IA both submit that entry of temporary relief in the form of a limited exclusion order directed to infringing hardware logic emulators and a cease and desist order directed to Mentor would not raise any public interest concerns under 19 U.S.C. ss.ss. 1337(e) or (f). They note that there is no evidence that the U.S. demand for such products could not be supplied by complainant. They also argued that the U.S. semiconductor industry would not be harmed by the issuance of such temporary relief, principally because only a small portion of that industry uses hardware logic emulation. Respondents argue that the public interest would be furthered by ensuring that the technically superior Meta device will continue to be available to the U.S. semiconductor industry during the period of temporary relief. In particular, they argue that the Meta emulator's shorter "compile times" allow much greater flexibility and functionability in the design process and provide a significant technological advantage over Quickturn's emulators. Therefore, according to respondents, even if Quickturn could satisfy the current U.S. demand for traditional emulation products, granting temporary relief would "force the U.S. chip industry to use Quickturn's outdated off-the-shelf chip technology, while Meta's innovative custom-chip technology is freely available to our foreign competitors in Europe and Asia." - ------------------------- 13 See S. Rep. 1298, 93rd Cong., 2d Sess. 197 (1974). Based on the evidence of record, we agree that the issuance of a limited exclusion order and a cease and desist order to Mentor would not have an adverse effect on the public interest. First, as the ALJ noted, the public interest favors the protection of U.S. intellectual property rights.14 Second, only a relatively small percentage of the 60 billion dollar U.S. semiconductor industry uses hardware emulation, due to the high cost of emulators. The evidence indicates that complainant can supply this demand for hardware logic emulators in the U.S. market. Even more to the point, respondents have indicated that they expect to supply about eight units to the U.S. market in 1996.15 We do not believe that the U.S. semiconductor industry would be significantly adversely affected if either Quickturn supplied these eight emulators or these purchases were delayed pending the outcome of the permanent relief phase of this investigation. Indeed, these purchases need not be delayed to the extent that respondents' products could enter the United States upon the posting of a bond even under a grant of temporary relief. Finally, hardware logic emulators are not the type of product that has in the past raised public interest concerns (such as, for example, drugs or medical devices) and we are not aware of - ------------------------ 14 See Rosemount, 15 U.S.P.Q.2d at 1572 (Fed. Cir. 1990)(patent protection is a dominant factor in determining the public's interest in granting relief). In this regard, we also note that the Commission has declined to grant relief on public interest grounds in only three cases in 20 years. In Certain Automatic Crankpin Grinders, Inv. No. 337-TA-60, U.S.P.Q. 71 (ITC 1979), the Commission denied relief because of an overriding national policy interest in maintaining and increasing the supply of fuel efficient automobiles, coupled with the domestic industry's inability to supply domestic demand. In Certain Inclined Field Acceleration Tubes, Inv. No. 337-TA-67, USITC Pub. 1119 (1980), the Commission denied relief because there was an overriding public interest in continuing basic atomic research using the imported acceleration tubes, which were of a higher quality than the domestic product. Finally, in Certain Fluidized Supporting Apparatus, Inv. No. 337-TA- 182/188, USITC Pub. No. 1667 (1984), the Commission denied relief because the domestic producer could not supply demand for hospital beds for burn patients within a commercially reasonable time, and no therapeutically comparable substitute for care of burn patients was available. any other public interest concern that would militate against entry of the remedial orders we have determined to issue. Accordingly, we conclude that the statutory public interim factors do not preclude issuance of relief in this investigation. IV. COMPLAINANT'S BOND 16 17 Section 337(e)(2) gives the Commission the authority to require a complainant to post a bond as a prerequisite to the granting of temporary relief.18 Commission rule 210.52(c) provides as follows: In determining whether to require a bond as a prerequisite to the issuance of temporary relief, die Commission will be guided by Rule 65 of the Federal Rules of Civil Procedure. 19 The ALJ found, based on the record developed in the temporary relief phase of the investigation, that complainant has made a showing of a strong likelihood of success on all of the issues affecting the merits of the case. In particular, complainant's strong showing with respect to validity and infringement of the claims in issue, the fact that Mentor and Meta had a - -------------------------- 15 Thus, while these eight units could have a substantial effect on Quickturn, they are far less significant to the approximately $60 billion U.S. semiconductor industry. 16 Commissioner Newquist does not join the following discussion regarding complainant's bond. He would not require complainant to post a bond. 17 Commissioner Crawford does not join the Commission's opinion respecting complainant's bond. Instead, she would have accepted the ALJ's recommendation on this issue. 18 Section 337(e)(2) provides that, when a complainant has been granted temporary relief, "[t]he Commission may require the complainant to post a bond as a prerequisite to issuance of a [temporary relief] order under this subsection." 19 19 C.F.R.ss.210.52(c). Rule 65(c) of the Federal Rules of Civil Procedure states in pertinent part that: No restraining order or preliminary injunction shall issue except upon the giving of security by the applicant, in such sum as the court deems proper, for the payment of such costs and damages as may be incurred or suffered by any party who is found to have been wrongfully enjoined or restrained. reasonable opportunity to consider the claims in issue prior to importing the accused goods into the United States, and Mentor's resolve to enter the U.S. hardware logic emulator market, persuaded the ALJ that no bond should be required of Quickturn, and he so recommended. Complainant argued that its strong likelihood of success on the merits and its financial condition justify waiver of a bond. Alternatively, complainant argued that if the Commission should determine that a bond is required, it should be no greater than $250,000 because (a) the potential harm, if any, to respondents is minimal, (b) the speculative nature of respondents' potential damage, if any, weighs against a large bond, and (c) any temporary relief will be required for only a relatively limited time period, viz., until March 13, 1997. Respondents reiterated their position that complainant has not made a strong showing of likelihood of success. They also argued that Quickturn, with over $80 million in sales and $40 million in cash reserves, is not indigent and that Mentor and Meta will be significantly harmed if temporary relief issues. Hence, they argued that a "substantial" complainant's bond is appropriate. The IA argued that the purpose of requiring a complainant to post a temporary relief bond is to deter frivolous motions on temporary relief and the use of such motions to harass respondents. In this case, however, he notes that the evidence of validity and infringement is strong. Accordingly, the IA argued for a relatively small complainant's bond in an amount equal to the projected net profits that Mentor and Meta could be expected to enjoy from the sales of emulators that they expect to make in the United States during the remaining period of the investigation, which he estimated to be roughly $200,000. We note that, in adopting the ALJ's ID on temporary relief, we have found that complainant has made a strong showing of likelihood of success on the merits of this investigation. We also adopted the ALJ's finding that complainant has demonstrated that it is threatened with irreparable harm in the event temporary relief does not issue. Nevertheless, there exists the possibility that our construction of the claims of the patents in issue and/or our infringement determination in this investigation may ultimately change.20 Since the purpose of the bond requirement is to protect the enjoined party from costs and damages resulting from a wrongful injunction while fixing the movant's liability for such an order,21 we believe a relatively small bond should be required of complainant. In this regard, we agree with the IA and have set complainant's bond at $200,000, a level equal to the projected act profits that Mentor and Meta could be expected to enjoy for the sales of emulators that they expect to make during the remaining period of the investigation. V. RESPONDENTS' BOND 22 As noted above, pursuant to section 337(e)(1), articles subject to a temporary exclusion order are entitled to entry into the United States under a bond paid by respondents in an amount determined by the Commission.23 Specifically, section 337(e)(1) also provides that during the pendency of the investigation, the excluded articles "shall be entitled to entry under bond - -------------------------- 20 New England Braiding Co. Inc. v. A.W. Chesterton Co., 23 U.S.P.Q.2d 1622, 1626 (Fed. Cir. 1992). See ID at 75, note 40. 21 See Continuum Co. Inc v. Incepts. Inc., 873 F.2d 801, 803 (5th Cir. 1989). 22 Commissioner Crawford does not join the Commission's opinion respecting respondents' bond. Instead, she would have accepted the ALJ's recommendation on this issue. 23 19 U.S.C. ss.1337(e)(1). prescribed by the Secretary [of the Treasury] in an amount determined by the Commission to be sufficient to protect the complainant from any injury."24 The ALJ found that there is an indication that respondents will be active in the U.S. emulation market during the period for which temporary relief would be in effect. He also found that when there was no competing product, Quickturn would provide a discount from its list price of approximately 10 to 20 percent on average, but that the discount rose to 40 percent when Quickturn competed with the Meta device. He therefore concluded that, based on the difference between these two discount levels, respondents should be subject to a bond of 25 percent of the entered value of each Meta emulator imported during the temporary relief period. Complainant argued that respondents bond should be set at a minimum of 100 percent of the sales price of any emulation products imported or sold, or services provided, by respondents during the pendency of the temporary relief. According to complainant,the Commission should use complainant's gross profit as the appropriate measure to offset any injury during the temporary relief period. Gross profit is appropriate, they argue, because it takes account of the fact that, if Quickturn does not make a sale, it does not incur the variable costs of production, but does incur fixed costs like overhead, sales and administrative expenses. In addition, to account for this lost sales revenue, Quickturn argues that some amount should be added to the bond to account for price erosion and the other aspects of the irreparable harm to Quickturn that would result from respondents' sales of infringing devices. - ------------------------------ 24 Id. This bonding standard for temporary relief investigations is new and became part of section 337 through the URAA amendments to the statute. Previously, the Commission set a respondent's bond by taking into account, among other things, the amount that would offset any competitive advantage to the respondent resulting from the respondent's alleged unfair The IA argued that complainant has not provided sufficient justification for the proposed 100 percent bond. Instead, the IA noted that, although the evidence does not lend itself to a ready quantification of the amount of bond that would compensate complainant for the harm to it, there is at least evidence as to an amount that would tend to counteract any price erosion caused by respondents. Accordingly, the IA proposed that the bond should be set in an amount equal to the difference between the discounts Quickturn typically offers in the absence of emulation competition (10 percent) and the discounts Quickturn offers when faced with competition from Mentor and Meta (40 percent). Thus, the IA argued that respondents should be subjected to a bond of 30 percent of the entered value of each Meta emulator imported during the temporary relief period. We disagree with the ALJ's recommendation that 25 percent is an appropriate bond rate for respondents. The ALJ based this recommendation essentially on the extent of price erosion that respondents caused Quickturn to endure in the U.S. market.25 The method used by the ALJ (and supported by the IA) - setting the bond amount based on evidence of price suppression - is the approach traditionally taken by the Commission in setting bond for the Presidential review period in permanent section 337 investigations. We do not believe, however, that, in the context of the temporary relief phase of this investigation, this approach satisfies the new statutory requirement that the amount of the bond be "sufficient to protect the complainant from any - ------------------------------ method of competition or unfair acts in the importation or sale of the articles in question. See 19 C.F.R. ss.210.50(a)(3). 25 This figure is supported by evidence presented at trial. In the one case of head-to-head competition in the U.S. between Quickturn and Mentor, Mentor's final quote was $633,000, compared to Quickturn's final quote of $490,000. Quickturn's initial quote on this sale was its list price of $650,000. Consequently, for this sale Quickturn, discounted about 25 percent off its list price. injury."26 As the ALJ found, Quickturn's potential harm from the sale of respondents' accused devices goes well beyond this price erosion. We believe that this new statutory requirement directs that respondents' bond should more closely approximate this potential harm to Quickturn. Although such an analysis is, by its very nature, difficulty to quantify, it is reasonable to conclude that the potential harm to Quickturn is greater than the extent of the price erosion alone. As complainant points out, it loses all the revenues it would have garnered from each sale, not just the amount represented by the price erosion. The principal harm to Quickturn from that lost revenue is the long-term impact on Quickturn's research and development efforts. As noted above, Quickturn is a relatively small, single product company competing in the rapidly evolving hardware logic emulation market. As such, even a single lost sale to an accused device could have a significant and long-term negative impact on Quickturn's ability to compete. In these circumstances, while any bond amount cannot capture precisely the full extent of any such long-term impact on Quickturn from sales of the accused devices, there is evidence that Quickturn allocates approximately 18 percentage of gross revenues to research and development. Accordingly, we have set respondents' bond at 43 percent of the entered value of the Meta devices, reflecting 25 percent for the price erosion that the sale of an infringing Meta device causes and an additional 18 percent to compensate Quickturn for the impact of such sales on its research and development budget. - --------------------------------- 26 See, e.g., Certain Nonwoven Gas Filter Elements, 11 ITRD 1391, 1399 (1988). EXHIBIT D CONTAINS CONFIDENTIAL BUSINESS INFORMATION UNITED STATES INTERNATIONAL TRADE COMMISSION Washington, D.C. In the Matter of CERTAIN HARDWARE LOGIC EMULATION SYSTEMS AND Investigation No. 337-TA-383 COMPONENTS THEREOF Final Initial and Recommended Determinations Pursuant to the Notice of Investigation (61 Fed. Reg. 9486) (March 8, 1996), this is the administrative law judge's final initial determination, under Commission rule 210.42. The administrative law judge, after a review of the record developed, finds that a violation of section 337 of the Tariff Act of 1930, as amended (19 U.S.C.Section 1337) by respondents Mentor Graphics Corporation, Inc. (Mentor) and Meta Systems (Meta) has occurred. This is also the administrative law judge's recommended determination on remedy and bonding, pursuant to Commission rule 210.42(a)(1)(ii). The administrative law judge recommends that the Commission issue a limited exclusion order and a cease and desist order directed to respondents Mentor and Meta, and further recommends a bond of 180% during Presidential review. law judge finds that complainant has established the technical prong of the domestic industry requirement. VII. Bonding Recommendation During the period of Presidential review of a Commission determination on permanent relief, respondents are entitled to import the articles subject to the exclusion order or cease and desist order under a bond "sufficient to protect the complainant from any injury." 19 U.S.C.Section 1337(j)(3); 19 C.F.R.Section 210.50. Complainant argued that the bond during Presidential review should be set a minimum of 106% of the entered value of any emulation products imported or involved in action prohibited by the PCDO by respondents, and to "more adequately" protect complainant from harm, should be set at 353% of entered value (CBr at 138-139). Respondents argued that the facts warrant a bond no greater than 10% (RRBr. at 24). The staff argued that the bond should be 43% of the sales price of the imported product, which would be equivalent to a bond of about 180% of the entered value to account for the disparity between entered value and sales price (SRBr. at 18). The Commission has previously determined in this investigation that price erosion alone is not sufficient to protect Complainant from harm under the circumstances of this case. See Comm'n Op. on Remedy, The Public Interest, And Bonding at 19-21 (August 12, 1996). The administrative law judge therefore finds that respondents' proposed bond of 10% would be inadequate to "protect the complainant from any injury" as required by section 337(j)(3) and Commission rule 210.50. The staff argued that the Commission's methodology for calculating the temporary relief bond, which was also geared to protecting Complainant from harm, is legally and factually sound, except that it did not take into account the difference between entered value and actual prices. The TEO bond imposed by the Commission reflected 25 percent for price erosion caused by the sale of infringing Meta emulation systems and 18 percent for the impact of infringing sales on revenues available for Quickturn to invest in research and development. See Comm'm Op. on Remedy and Bonding at 21. The administrative law judge finds that this method of calculating the appropriate bond for the Presidential review period is appropriate. He 2 further finds that it is also necessary to factor in the difference between entered value and sales prices, because the entered value of the accused Meta systems and components thereof is much less than the actual sales price. See SX-21. For example, the entered value of the National Semiconductor emulation system imported under the TEO bond was $169,734.00, compared to a sales price from Mentor to National Semiconductor of $498,648.00, resulting in entered value being 34% of sales price. (FF 516). The sales price of the Design M Card (part no. 061203) in the National Semiconductor system was $17,908.00, while the equivalent entered value was reported as $3,873.00, resulting in entered value being 22% of the sales price. (FF 518). The sales price of the Logic Card HW (part no. 061202) in the National Semiconductor system was $9,945.00, while the equivalent entered value was reported as $2,365.00, resulting in entered value being 24% of the sales price. (FF 520). Thus, the evidence of record shows that respondents are reporting entered values of Meta systems and components thereof imported under the TEO at less than the sales price of the imported products (FF 516-520). Moreover, respondents have publicly represented that the 43% bond now in place has no effect on their ability to make products available in the U.S. market (FF 522). In addition, the record shows that complainant has sustained actual harm during the pendency of this investigation due to lost sales to respondents, in spite of the current 43% TEO bond (FF 523-527). Based on the present record, the administrative law judge recommends that a bond in the amount of 180% of entered value should be imposed during Presidential review. VIII. Remedy Recommendation Complainant argued that the administrative law judge should recommend a permanent exclusion order (PEO) and a permanent cease and desist order (PCDO), as set forth in the attachments to complainant's post hearing brief (CBr at Exhibit 1 and Exhibit 2).38 Complainant argued that the language of any PEO and PCDO should broadly provide for exclusion of infringing systems; and that they should not be limited to only those upon which the finding of violation was made, but should include existing and future infringing systems upon which no specific finding has been made, including redesigned systems (CBr at 109). The staff - ------------------------------- 38 Complainant has not requested a general exclusion order (CBr at 112). 3 argued that a permanent limited exclusion order should be entered against respondents that would cover respondents' emulation systems that infringe the patents in issue and components thereof; and that a cease and desist order should be entered against respondents directed to Mentor's importation and sales activities involving the imported goods (SBr at 102). Respondents argued that while they would not challenge an exclusion order limited to "Meta logic boards, Meta-128 chips or Meta MDC chips," the remedies recommended by complainant and the staff are beyond the Commission's statutory authority (RRBr. at 1). Intervenor Bull argued that any grant of permanent relief sought by complainant PEOTr. 1144). Benchmark Electronics has been given engineering documents that have come from France with regard to the SimExpress system. (Dalio PEOTr. 1155-56). Benchmark has been provided by Mentor, by paper copies and electronic means, mechanical drawings, PCB design information, component lists, description of the plastic skin that goes on the outside of the box, and paint chips for the column, to assist it in U.S. manufacturing. (Dalio Depo. (3/4/97), CX-480 at 60-62). Some of the information that was provided to Benchmark Electronics from France includes printed circuit board design information in electronic file format, FTP'd from the engineering computer systems in France and now stored on disks in various locations, depending on who needs it, for Benchmark to produce printed circuit board layouts. (Dalio PEOTr. 1158). Engineering information that has been imported into the United States to enable U.S. operations on the Meta 1 include specifications, drawings, geometrical data for board layouts, and net lists. (Carpenter Depo. (2/4/97), CX-479, at 32). Receipt of technical materials from France has facilitated the production of the SimExpress emulation system in the United States. (Dalio PEOTr. 1144). 516. The price of the two-rack SimExpress system, manufactured in France and sold to National Semiconductor was approximately $500,000.00. (Carpenter PEO Tr. 996-997; Folsom PEO Tr. 1555-56). The sales price of Mentor Graphics to National Semiconductor for the 2 base (rack) emulation system sold to National Semiconductor in 1997 was US $498,648.00. (SX21, Invoice No. 273383 dated February 25, 1997, with Shipment ID Number 1134155). The U.S. Customs entered value of the 2 base (rack) system sold by Mentor to National Semiconductor in 1997 was 975,763.80 French francs, which at the applied exchange rate of one 4 French franc equal to US $0.174307, equaled a total entered value (TEV) of US $169,734.00. (SX21, Entry No. 1205902-6, and Meta Systems Invoice dated February 17, 1997, between Meta Systems and Mentor Graphics, with customer designation 200860 and Purchase Order Number 67584 NATIONAL SEMIC). 517. A component of the SimExpress (Meta) emulation system - the I/O Card HW with part number 061205 - was sold on August 7, 1996 to UB Networks by Mentor for US $11,095.00 per unit, and on August 2, 1996, the same type of part with part number 061205 was sold by Mentor Graphics (Netherlands) B.V. to Mentor Graphics with a declared entered customs value of US $3,979.94 per unit. (SX21, Document bearing Shipment I.D. Number 1130121, and Entry No. 1500344-3 and Mentor Graphics(Netherlands ) B.V. invoice dated August 2, 1996, bearing customer order number DS59210). 518. A component of the SimExpress (Meta) emulation system - Design Memory Card with part number 061203 - was sold on October 30, 1996 to UB Networks by Mentor for US $17,900.00 per unit. On August 2, 1996, the same type of part with part number 061203 was sold by Mentor Graphics (Netherlands) B.V. to Mentor Graphics with a declared entered customs value of US $6,415.61 per unit; and on February 17, 1997, was sold by Meta Systems to Mentor Graphics as part of the National Semiconductor system for 22,221.00 French francs, with an equivalent declared entry value of US $3,873.28 at an exchange rate of one French franc equals US $0.174307. (SX21, Document bearing Shipment I.D. Number 1131972, and Entry No. 150344-3 and Mentor Graphics (Netherlands) B.V. invoice dated August 2, 1996, bearing customer order number DS59210; and Document bearing Shipment I.D. Number 1134155, and Entry No. 1205902-6 and Meta System Invoice dated February 17, 1997, with Purchase Order Number 67584 NATIONAL SEMIC). 519. A component of the SimExpress (Meta) emulation system - the I/O POD Unit with part number 061206 - was sold on August 7, 1996 to UB Networks by Mentor for US $608.00 per unit, and on August 2, 1996, the same type of part with part number 061206 was sold by Mentor Graphics (Netherlands) B.V. to Mentor Graphics with a declared entered customs value of US $218.46 per unit. (SX21, Document bearing Shipment I.D. Number 1130121, and 5 Entry No. 1500344-3 and Mentor Graphics (Netherlands) B.V. invoice dated August 2, 1996, bearing customer order number DS59210). 520. A component of the SimExpress (Meta) emulation system - the Logic Card HW with part number 061202 - was sold on February 25, 1997, as part of an emulation system, to National Semiconductor by Mentor Graphic for US $9,945.00, and the same part was sold on February 17, 1997, by Meta systems to Mentor Graphics for 13,566.13 French francs, with an equivalent declared value as part of the system of $2,365.00 at an exchange rate of one French franc equals US $0.174307. (SX 21, Document bearing Shipment I.D Number 1134155, and Entry No. 1205902-6 and Meta System Invoice dated February 17, 1997, with Purchase Order Number 67584 NATIONAL SEMIC). 521. The U.S. list prices of Mentor in September 1996 for: A SimExpress POD unit (part no. 061206) was $870.00; a Design Memory Card 64M (part no. 061203) was $25,550.00; and an I/O card (part no. 061205) was $15,850.00). 522. Mentor Graphics Corporation, in a press release dated August 7, 1996 asserted "This week, the ITC affirmed that Mentor Graphics will have to post a 43 percent bond with U.S. Customs for each SimExpress unit imported into the country . . . . The bond will not have any impact on product availability in the United States and will not impact current product pricing globally." (CX-443). 523. Quickturn product sales expectations fell short of their goals in the first quarter of 1997 primarily because customers at the end of the quarter had prolonged their decisions to buy emulation based on the evaluations of the Mentor/Meta product line. (Jordan, Tr. 684). The customers that delayed their purchase decisions due to Mentor/Meta included VLSI Logic in Santa Clara and in Phoenix, Motorola in Phoenix and Austin, Texas, Lucent Technologies in Chicago and New Jersey, and Texas Instruments in Dallas and Houston. (Jordan, Tr. 684-87). Quickturn's anticipated revenue for Q-1 1997 from VLSI, Motorola, Lucent Technology and Texas Instruments was in excess of $4 million. (Jordan, Tr. 687). 524. Quickturn reported a loss per share of between 10 and 13 cents per share on April 1, 1997. (CX-533). On April 1, 1997, Quickturn's stock opened at 18 and a half and 6 the price dropped 50 percent to 8 7/8 or 8 3/4. (Jordan, Tr. 707). 525. Quickturn forecasted that VLSI's initial sale would be over one million dollars, and that VLSI would produce several million dollars in revenue for the provider of emulation systems. (Jordan, Tr. 688, 707). 526. Quickturn believes that Motorola, Lucent Technologies and Texas Instruments could easily spend 4 to 5 million dollars a year in emulation technology. (Jordan, Tr. 708). 527. If Quickturn loses the Motorola and Texas Instruments emulation revenues, it could severely impact the company's ability to continue R & D funding and servicing of existing customers. (Jordan, Tr. 708). 528. Mentor Graphics has indemnified U.S. purchasers or potential purchasers of Meta (SimExpress) emulation systems. (Folsom PEO Tr. 1530; CX-436). Thus, Mentor's standard policy with all of its customers is to indemnify them for patent infringement risks; it did this with National Semiconductor. (Carpenter Depo. (2/4/97), CX-479, at 34, 92-93). CX-413 is a Mentor Graphics indemnification to UB Networks for patent infringement which explicitly states that ". . . Mentor Graphics assumes the risk of patent infringement." 529. Mentor has agreed to indemnify Bull H.N. for its use of a SimExpress system, including any direct, indirect or consequential damages resulting from this ITC investigation. (Carpenter PEO Tr. 1033-1034; Giordano Depo. (8/20/96), CX-481 at 73). 530. There are Meta machines that are in inventory in the United States that are available for sale to customers. (Reblewski, PEO Tr. 2883-84). Mr. Reblewski estimating that maybe 15 imported Meta machines are currently in inventory in the United States. (Reblewski, PEO Tr. 2894-2896). 531. Butts earliest conceptions relating to the reprogrammable interconnect architecture disclosed in the specification maturing as the `496 and `473 patents occurred between August and October 1987, and were recorded in a paper that he wrote for Mentor entitled Reconfigurable Hardware for Logic Simulation: Description of Concept dated October 5, 1987. (Butts, CX-210, Attachment N at QM54323, QM54337). 7 532. Butts' October 5, 1987 paper described a network of reconfigurable logic chips interconnected by their I/O pins. Butts stated under other in his affidavit to the Patent Office that he "specifically had in mind using the reprogrammable electrical conductors in at least some of the reconfigurable logic array chips to provide programmable routing resources for interconnecting other reconfigurable logic array chips." (Butts, CX-210, Attachment N at QM54324 QM54337). 8 EXHIBIT E CONTAINS CONFIDENTIAL BUSINESS INFORMATION SUBJECT TO PROTECTIVE ORDER UNITED STATES INTERNATIONAL TRADE COMMISSION Washington, D.C. In the Matter of HARDWARE LOGIC EMULATION SYSTEMS AND COMPONENTS Investigation No. 337-TA-383 THEREOF (Sanctions Proceeding and Bond Forfeiture/Return Proceeding) JOINT MOTION OF COMPLAINANT AND RESPONDENTS FOR DETERMINATIONS CONCERNING (1) THE PRECISE DOLLAR AMOUNT OF SANCTIONS TO BE AWARDED PURSUANT TO THOSE PORTIONS OF ORDER NO. 96 ADOPTED BY THE COMMISSION, AND (2) THE PRECISE DOLLAR AMOUNT OF RESPONDENTS' TEMPORARY RELIEF BOND WHICH IS TO BE FORFEITED TO COMPLAINANT COMPLAINANT RESPONDENTS - ------------ ----------- Quickturn Design Systems, Inc. Mentor Graphics Corp. 55 W. Trimble Road 8005 S.W. Boeckman Road San Jose, California 94043 Wilsonville, Oregon 97070 (415) 967-3300 Meta Systems 4 Rue Rene Razel 91400 Saclay, France INTERVENOR Bull HN Information Systems, Inc. 300 Concord Road Billerica, Massachusetts Complainant Quickturn Design Systems, Inc. and Respondents Mentor Graphics Corporation and Meta Systems hereby jointly move the Administrative Law Judge for issuance of initial determinations concerning the precise dollar amounts of two matters which the Commission has referred to the Administrative Law Judge. Complainant and Respondents base this motion on the Stipulation Agreement Regarding Liquidated Damages, executed by the parties and made effective as of July 9, 1998, which is attached hereto as Exhibit A. On March 6, 1998, the Commission issued its order regarding Order No. 96 in which the Commission remanded this Investigation to the Administrative Law Judge for appropriate proceedings and for the issuance of an initial determination on the precise dollar amount of sanctions to be awarded pursuant to those portions of Order No. 96 adopted by the Commission, and to specifically identify those counsel liable for payment of the sanctions to be awarded. On April 28, 1998, the Commission referred to the Administrative Law Judge Complainant's motion, filed on February 26, 1998, for forfeiture of Respondents' bond posted during the temporary relief and presidential review periods of this Investigation, and Respondents' motion, filed on March 13, 1998, for return of those bonds. With respect to the above-mentioned matters, both Complainant and Respondents wish to conserve resources by stipulating to the precise dollar amounts which the ALJ has been ordered to determine. Accordingly, Complainant and Respondents have executed a Stipulation Agreement Regarding Liquidated Damages, made effective July 9, 1998, in which they stipulate that (1) the precise dollar amount of sanctions to be awarded pursuant to those portions of Order No. 96 adopted by the Commission shall for all purposes be found equal to $425,000.00 and (2) Quickturn's entitlement to forfeiture of Respondents' temporary relief bonds shall for all purposes be found equal to $425,000.00.1 See Exhibit A. In view of the stipulated agreement between Quickturn and Mentor regarding the two matters which have been referred to the Administrative Law Judge, Complainant and - ---------------------------- 1 Respondents have represented through counsel that no imports or other actions subject to bonding under the Commission's permanent relief orders have occurred, and thus no forfeiture amount is provided for any permanent relief bonds. 2 Respondents respectfully request the Administrative Law Judge to issue initial determinations that (1) the precise dollar amount of sanctions to be awarded pursuant to those portions of Order No. 96 adopted by the Commission shall for all purposes be found equal to $425,000.000, and (2) Complainant's entitlement to forfeiture of Respondents' temporary relief bonds shall for all purposes be found equal to $425,000.00 Respectfully submitted. F. David Foster Sturgis M. Sobin ABLONDI, FOSTER, SOBIN & DAVIDOW, P.C. 1150 Eighteenth Street, N.W., Ninth Floor Washington, D.C. 20036 (202) 296-3355 Dated July 10, 1998 By: /s/ David Foster --------------------------- --------------------- F. David Foster Attorneys for Complainant QUICKTURN DESIGN SYSTEMS, INC. Gary M. Hnath VENABLE, BAETJER, HOWARD & CIVILETTI, LLP 1201 New York Avenue, N.W., Suite 1000 Washington, D.C. 20005-3917 (202) 962-4800 Dated July 10, 1998 By: /s/ Gary Hnath ---------------------------- ------------------- Gary M. Hnath Attorneys for Respondent MENTOR GRAPHICS CORPORATION and META SYSTEMS 3 EXHIBIT A CONFIDENTIAL BUSINESS INFORMATION SUBJECT TO PROTECTIVE ORDER STIPULATION AGREEMENT REGARDING LIQUIDATED DAMAGES Whereas Complainant Quickturn Design Systems, Inc. ("Quickturn") on the one hand and Respondents Mentor Graphics Corporation and Meta Systems, Inc. (collectively "Mentor") on the other hand wish to conserve resources by stipulating certain monetary matters at issue in the International Trade Commission proceedings entitled Certain Hardware Logics Emulation Systems And Components Thereof, Inv. No. 337-TA-383. 1. Quickturn and Mentor hereby stipulate that the precise dollar amount of sanctions to be awarded pursuant to those portions of Order No. 96 adopted by the Commission shall for all purposes be found equal to $425,000.00. 2. Quickturn and Mentor hereby stipulate that Quickturn's entitlement to forfeiture of Respondents' temporary relief bonds shall for all purposes be found equal to $425,000.00. 3. In order to implement the foregoing stipulations, Quickturn and its officers, directors, employees, agents, parents, subsidiaries, affiliates, predecessors, successors, assigns and its former and present counsel in this investigation, and Mentor and its officers, directors, employees, agents, parents, subsidiaries, affiliates, predecessors, successors, assigns and its former and present counsel in this investigation, hereby agree: a. Within 3 days of execution of this Stipulation Agreement, Quickturn and Mentor will submit to the Administrative Law Judge a joint motion for recommended determinations that (i) the precise dollar amount of the sanctions to be awarded pursuant to those portions of Order No. 96 adopted by the Commission is $425,000.00, and that (ii) Quickturn is entitled to forfeiture of Respondents' temporary relief bond in the amount of $425,000.00. b. Within 10 days of entry of a final Commission determination adopting the stipulated value of the monetary sanctions and the stipulated value of the bond forfeiture, Mentor will pay Quickturn the sum of the stipulated dollar values. c. Within 10 days of payment of the stipulated dollar values, Quickturn and Mentor will file with the Commission a joint motion for termination of the monetary sanctions and bond forfeiture proceedings, Quickturn's consent to the release of Respondents' temporary relief bonds, and a public version of the Stipulation Agreement. Mentor will withdraw or seek dismissal of its appeal of the Commission's order to modify the amount of Respondents' temporary relief bond, Federal Circuit Docket Nos. 98-1088 and 98-1158. d. Payment of any award of compensatory (as opposed to enhanced) damages to Quickturn by Mentor in the pending District Court actions with Mentor shall be reduced by the amount of the stipulated forfeiture value of Respondents' temporary relief bond that is paid to Quickturn in the present Investigation, but only up to the actual amount of compensatory damages awarded to Quickturn. e. Subject to the appeal of the allowability of sanctions (as opposed to the amount), Mentor will abandon that portion of any pending appeals, and will not further appeal, any Commission determination specifying the amount of monetary sanctions and the forfeiture of Respondents' temporary relief bonds. f. Quickturn will not argue that this Stipulation and/or Mentor's election not to appeal any Commission determination regarding the amount of monetary sanctions or forfeiture of Respondents' temporary relief bond is relevant to any issue, or has any preclusive effect, in its District Court actions with Mentor. g. If Mentor elects to appeal the Commission's determination to award monetary sanctions against Mentor for discovery abuse, and as a result of such appeal the Commission's determination to award monetary sanctions is reversed or vacated, Quickturn will refund to Mentor within 10 days of such order becoming final and nonappealable the entire $425,000.00 paid by Mentor as the stipulated monetary sanction. h. Quickturn and Mentor shall treat the terms of this Stipulation Agreement as Confidential Business Information, subject to the protective order entered in the International Trade Commission investigation, until Mentor pays the stipulated sums to Quickturn. If Quickturn and Mentor are unable to agree upon the preparation of a public version of the Stipulation Agreement, that issue shall be resolved by motions for declassification to the Administrative Law Judge. 2 i. This Stipulation Agreement and all actions thereon shall be governed by the laws of California. j. This Stipulation Agreement is effective as of July 9, 1998. - --------------------------------- /s/ Dean Freed Raymond K. Ostby, Vice President ---------------------------------- and Chief Financial Officer Dean Freed, Vice President and Quickturn Design Systems, Inc. General Counsel July __, 1998 Mentor Graphics Corporation July 8, 1998 /s/ Bernd Braune ---------------------------------- Bernd U. Braune, Director Meta Systems, Inc. July __, 1998 3 EXHIBIT F CONFIDENTIAL BUSINESS INFORMATION SUBJECT TO PROTECTIVE ORDER UNITED STATES INTERNATIONAL TRADE COMMISSION Washington, D.C. Before Administrative Law Judge Paul J. Luckern In the Matter of CERTAIN HARDWARE LOGIC EMULATION SYSTEMS AND Inv. No. 337-TA-383 COMPONENTS THEREOF (Ancillary Proceedings) COMMISSION INVESTIGATIVE STAFF'S RESPONSE TO JOINT MOTION FOR DETERMINATIONS OF (1) THE PRECISE DOLLAR AMOUNT OF SANCTIONS TO BE AWARDED PURSUANT TO THOSE PORTIONS OF ORDER No. 96 ADOPTED BY THE COMMISSION, AND (2) THE AMOUNT OF RESPONDENTS' TEMPORARY RELIEF BOND WHICH IS TO BE FORFEITED TO COMPLAINANT On July 10, 1998, Complainant Quickturn Design Systems, Inc. and Respondents Mentor Graphics Corp. and Meta Systems filed a joint motion for a determination of the dollar value of the sanctions awarded Quickturn by the Commission, and the dollar value of Respondents' temporary relief bond that should be forfeited to Complainant. Motion Docket No. 383-145 ("Joint Motion"). The Joint Motion is based upon an attached Stipulation Agreement Regarding Liquidated Damages between Quickturn, Mentor, and Meta that is intended to conclude the Commission proceedings in this investigation.1 The movants have stipulated that the amount the Respondents will pay Complainant for the sanctions is $425,000 and the amount of bond that Respondents will forfeiture to Complainant will also be $425,000. Because the Joint Motion and Stipulation Agreement will achieve the principal objectives of the - ----------------------- 1 The Stipulation Agreement at Sec. 3(e) provides that no appeal will be lodged against a Commission determination adopting the stipulated sanctions and bond forfeiture dollar values. However, the Stipulation Agreement does not prohibit an appeal of the underlying award of monetary sanctions. Id. sanctions and bond forfeiture proceedings, and will conserve litigant and Commission resources, the Staff supports entry of a recommended determination adopting the stipulated sanction and bond forfeiture dollar values. I. STATUS OF THE INVESTIGATION AND ANCILLARY PROCEEDINGS The underlying investigation was instituted on March 8, 1996, based upon a complainant and motion for temporary relief filed on January 26, 1996 by Quickturn. 61 Fed. Reg. 9486. The products at issue are hardware logic emulation systems that are used in the semiconductor manufacturing industry to design and test the electronic circuits of semiconductor devices. On July 8, 1996, the Administrative Law Judge issued an initial determination granting the motion for temporary relief. Order No. 34. On August 5, 1996, the Commission determined not to modify or vacate the ID, issued a temporary limited exclusion order against respondents and a temporary cease and desist order against Mentor, and determined that Respondents' temporary relief bond should be 43 percent of the entered value of imported hardware logic emulation systems and components thereof.2 On July 31, 1997, the Judge issued a final ID finding Respondents in violation of Section 337 by infringement of all five of Quickturn's asserted patents. On October 2, 1997, the Commission determined not to review the Judge final ID. On December 3, 1997, the Commission issued a permanent limited exclusion order against Respondents' imported hardware logic emulation systems, and a cease and desist order directed to Respondent Mentor. On July 31, 1997, the Judge also issued Order No. 96 finding that Respondents had engaged in discovery abuses and abuse of process justifying the imposition of adverse inferences of fact and monetary sanctions. On March 6, 1998, the Commission denied - ----------------------------- 2 On September 24, 1997, the Commission granted Complainant's motion to modify Respondents' temporary relief bond by retaining the 43 percent bond when the entered value of the imported articles was appraised at transaction value, but increased the bond to 180 percent of the entered value when the articles are appraised at other than transaction value. Certain Hardware Logic Emulation Systems. Modification of Temporary Relief Exclusion Order, U.S.I.T.C. Pub. No. 3074 (Nov. 1997). 2 Respondents' appeals of Order No. 96, except as to two identified motions, and remanded to the Judge the issue of the precise dollar value of sanctions to be awarded Complainant. On April 28, 1998, the Commission also referred to the Administrative Law Judge Complainant's February 21, 1998 motion for forfeiture of Respondents' bonds, and Respondents' March 13, 1998 cross motion for return of their bonds. II. DOLLAR VALUE OF AWARDED SANCTIONS Upon adopting certain portions of Order No. 96 awarding to Complainant unspecified monetary sanctions for Respondents' discovery abuses, the Commission remanded the sanctions proceedings to the Administrative Law Judge and directed that he issue an initial determination within six months in accordance with the following instructions: 6. The initial determination, which is to be consistent with order No. 96, shall rule on the precise dollar amount of sanctions to be awarded pursuant to those portions of Order No. 96 adopted by the Commission and shall specifically identify those counsel liable for payment of the sanctions to be awarded. Notice of Commission Decision Regarding Appeals of ALJ Order No. 96, Order at 2 (March 6, 1998). Thus, the initial determination should determine the dollar value of the awarded monetary sanctions, as well as who is liable for the payment of those sanctions. A primary objective of monetary sanctions for abuse of Commission discovery process is to deter future abuses. Thus, in this investigation, an important goal in setting the amount of sanctions is that the dollar value of the sanctions should off-set any advantage Respondents may have gained from the sanctioned discovery abuses. Another goal is to compensate Complainant for the costs it incurred in overcoming those abuses. The stipulated sanctions amount of $425,000 is a substantial sum that Complainant apparently believes is sufficient, in combination with the non-monetary sanctions, to off-set any financial or tactical advantages that Respondents might have gained from their discovery abuses, and that is sufficient to compensate Complainant for its costs and fees incurred as a result of the sanctionable conduct.3 In addition, the fact that the dollar value of the sanctions was resolved by - ------------------------------ 3 The Staff notes that the stipulated monetary sanction of $425,000 is reasonably close to the $482,502 of costs and fees sought by Complainant. Memorandum In Support of Complainant's Detailed Declarations Concerning the Precise Amount of Monetary Sanctions 3 agreement between Complainant and Respondents indicates that the amount is appropriate, taking into consideration the parties' substantial incentive to avoid the expense of further proceedings. The Commission also indicated that the Judge's initial determination should decide which, if any, attorneys should be liable for the payment of the sanctions to be awarded. Under the parties' stipulation, however, none of Respondent counsel are held liable for the payment of sanctions, inasmuch as Respondents Mentor Graphics and Meta Systems have assumed liability for payment of the stipulated sanctions value of $425,000. Stipulation Agreement at P. 3(b).4 Because the public interest favors expeditious proceedings and the conservation of resources that might otherwise be consumed in protracted sanctions proceedings,5 and because the objectives of the Commission's monetary sanctions awards appear to be served by the stipulated dollar values, the Staff supports the Joint Motion with respect to the monetary sanctions issues. III. DOLLAR VALUE OF RESPONDENTS' BOND FORFEITURE The Judge has been directed to issue, within nine months, an initial determination concerning Complainant's motion for forfeiture of Respondents' bonds and Respondents' cross - ----------------------------- To be Awarded Against Respondents and Certain Ones of Their Counsel at Attachment 1 (April 2, 1998). 4 Respondent's assumption of the liability for payment of the sanctions award will also save the Commission considerable resources in investigating and resolving the difficult issues of identifying specific individuals would be held liable for payment if the matter was contested and the foreseeable time and expense of actually assuring payment. Accordingly, it appears that the Commission's interest in assuring payment of its sanctions award will be met by a determination that Mentor Graphics and Meta Systems have assumed that liability. Respondents' trial counsel, Brobeck Phleger & Harrison, LLP and all counsel from that firm who submitted a notice of appearance in the investigation were also made parties to the remanded sanctions proceedings. Remand Order at P. 9(d). While the Brobeck attorneys are not parties to the Joint Motion or to the Stipulated Agreement regarding Liquidated Damages, it does not appear they any further determinations with respect to those attorneys are necessary to disposition of this matter because the Commission will have no need to seek payment of the stipulated sanctions amount from those attorneys. 5 Because Respondents payment of the stipulated sanctions to Complainant is a condition precedent to their submission of a joint motion to terminate the sanctions proceedings, the Commission is assured that no further proceedings will be necessary to compel actual payment of the awarded sanctions. 4 motion for return of their bonds.6 The initial determination should decide whether Respondents' bonds should be forfeited, in whole or part, to Complaint or returned to Respondent. The Joint Motion seeks a determination that Complainant is entitled to forfeiture of Respondents' bond in the amount of $425,000, and that all bonds posted in excess of that amount should be returned to Respondent. Joint Motion at 2; Stipulation Agreement at P. 3(c). The statutory purpose of requiring such bonds is to protect Complainant from any injury due to importations and sales of infringing goods during the pendency of the investigation. 19 U.S.C. ss.1337(e)(1). Complainant's agreement to the stipulated bond forfeiture amount is a compelling basis to concluding that Complainant is adequately protected from injury by Respondent's transactions. The stipulated forfeiture value will avoid a potentially costly and prolonged proceeding to determine the actual extent of injury Complainant has sustained from Respondents' importations and sales under bond, and will also obviate proceedings regarding the proper valuations of those importations and sales. Moreover, the Stipulation Agreement provides that Respondents shall directly pay the bond forfeiture amount to Complainant as a condition precedent to termination of the investigation and to Complainant's consent to return of all bonds posted by Respondents, thereby avoiding any need to actually conduct a bond forfeiture. Accordingly, the Staff supports a determination that Complainant is entitled to forfeiture of Respondents' bond in the amount of $425,000 (to be paid directly by Respondents to Complainant) and that Respondents are entitled to return of any bonds posted in excessive of the amount (or, assuming Respondents' direct payment of $425,000 to Complainant, return to Respondent of the entirety of its bonds). - ------------------------------- 6 Notice of Referral to Administrative Law Judge of Complainant's Motion for Forfeiture of Respondents Bonds and Respondents' Motion For Return Of Their Bonds, attached Order (April 28, 1998). The Joint Motion indicates that only Respondents' temporary relief bonds are at issue inasmuch as no importation or other actions subject to bond have taken place since the entry of the permanent relief orders. Joint Motion at 2-3 and n.1. 5 Page May Contain Confidential Information For the reasons stated above, the Staff supports the Joint Motion for an initial determination adopting the stipulated dollar value of the sanctions award and the stipulated value of the bond forfeiture. Respectfully submitted, /s/Lynn Levine ------------------------------------------- Lynn I. Levine, Director T. Spence Chubb, Supervisory Attorney Thomas L. Jarvis, Investigative Attorney Christine E. Lehman, Investigative Attorney Office of Unfair Import Investigations U.S. International Trade Commission (202) 205-2568 July 20, 1998 6 Page May Contain Confidential Information Certain Hardware Logic Emulation Systems And Components Thereof. Inv. No. 337-TA-383 Certificate of Service I hereby certify that copies of the foregoing Commission Investigative Staff's COMMISSION INVESTIGATIVE STAFF'S RESPONSE TO COMPLAINANT AND RESPONDENTS' JOINT MOTION FOR DETERMINATIONS OF (1) THE PRECISE DOLLAR AMOUNT OF SANCTIONS TO BE AWARDED PURSUANT TO THOSE PORTIONS OF ORDER No. 96 ADOPTED BY THE COMMISSION, AND (2) THE AMOUNT OF RESPONDENTS' TEMPORARY RELIEF BOND WHICH IS TO BE FORFEITED TO COMPLAINANT were served by hand upon Judge Paul J. Luckern on July 20, 1998 and upon the parties as indicated. Counsel for Complainant Quickturn Design Systems, Inc. By Federal Express By Hand - ------------------ ------- James C. Brooks, Esq. F. David Foster, Esq. Lyon & Lyon Ablondi, Foster, Sobin & Davidow, P.C. 633 West Fifth Street, Suite 4700 1150 Eighteenth Street, NW, Ninth Floor Los Angeles, CA 90071 Washington, D.C. 20036 (213) 489-1600 (202 296-3355 By Federal Express James W. Geriak, Esq. Lyon & Lyon 3200 Park Center Drive, Suite 1200 Costa Mesa, CA 92626 Counsel for Respondents Mentor Graphics, Corp. and Meta Systems By Hand By Federal Express - ------- ------------------ Gary M. Hnath, Esq. James L. Miller, Esq. John M. Gurley, Esq. Craig Y. Allison, Esq. Venable, Baetjer, Howard & Civiletti, LLP Brobeck, Phleger & Harrison 1201 New York Avenue, NW, Suite 1000 Two Embarcadero Place Washington, D.C. 20005 2200 Geng Road (202) 962-4800 Palo Alto, CA 94303 (650) 424-0160 By Federal Express Robert DeBeradine, Esq. Brobeck, Phleger & Harrison 301 Congress Ave., Suite 1200 Austin, TX 78701 (512) 479-2972 Counsel for Respondents Bull HN Information Systems, Inc. By Hand Thomas Graham, Esq. Mark C. Del Bianco, Esq. Skadden, Arps, Slagte, Meagher & Flom 1401 New York Avenue, N.W. Washington, D.C. 20005 /s/Thomas Jarvis Thomas L. Jarvis Office of Unfair Import Investigations 500 E. Street, S.W. Suite 401 Washington, D.C. 20436 (202) 205-2568 2 EXHIBIT G CONFIDENTIAL BUSINESS INFORMATION UNITED STATES INTERNATIONAL TRADE COMMISSION Washington, D.C. In the Matter of CERTAIN HARDWARE LOGIC EMULATION SYSTEMS AND Investigation No. 337-TA-383 COMPONENTS THEREOF (Sanctions Proceeding and Bond Forfeiture/Return Proceedings) Order No. 106: Initial Determination Terminating Sanctions Proceeding and Bond Forfeiture/Return Proceeding On July 10, 1998 complainant Quickturn Design System, Inc. (Quickturn) and respondents Mentor Graphics Corporation and Meta Systems(Mentor) (movants) jointly moved for issuance of an initial determination concerning the precise dollar amounts related to each of the sanctions proceeding and of the bond forfeiture/return proceeding based on a "Stipulation Agreement Regarding Liquidated Damages" (Stipulation) executed by the movants and made effective as of July 9, 1998 (Exhibit A. to Motion) (Motion Docket No. 383-145). Movants represented that on March 6, 1998, the Commission issued its order regarding Order No. 96 in which the Commission remanded this investigation to the administrative law judge for appropriate proceedings and for the issuance of an initial determination on the precise dollar amount of sanctions to be awarded pursuant to those portions of Order No. 96 adopted by the Commission, and to identify specifically those counsel liable for payment of the sanctions to be awarded; and that on April 28,1998, the Commission referred to the administrative law judge complainant's Motion No. 383-141, filed on February 26, 1998, for forfeiture of respondents' bond posted during the temporary relief and presidential review periods of this investigation, and respondents' Motion No. 383-142 filed on March 13, 1998, for return of those bonds. Movants argued that they wish to conserve resources by stipulating to the precise dollar amounts which the administrative law judge has been ordered to determine and accordingly have executed the Stipulation, in which they stipulate that (1) the precise dollar amount of sanctions to be awarded pursuant to those portions of Order No. 96 adopted by the Commission shall for all purposes be found equal to $425,000.00, and (2) Quickturn's entitlement to forfeiture of the temporary relief bonds shall for all purposes be found equal to $425,000.00.1 Hence movants requested the initial determination issue to that effect. The staff, in a response dated July 20, 1998, argued that because the public interest favors expeditious proceedings and the conservation of resources that might otherwise be consumed in protracted sanctions proceedings,2 and because Motion No. 383-145 including its Stipulation, will achieve the principal objectives of the sanctions and bond forfeiture proceedings, and will conserve litigant and Commission resources, it supports entry of a "recommended determination" adopting the stipulated sanction and bond forfeiture dollar values.3 The staff represented that the underlying investigation was instituted on March 8, 1996, based upon a complaint and motion for temporary relief filed on January 26, 1996 by Quickturn (61 Fed. Reg. 9486); that the products at issue were hardware logic emulation systems that are used in the semiconductor manufacturing industry to design and test the electronic circuits of semiconductor devices; that on July 8, 1996, the administrative law judge issued an initial determination (Order No. 34) granting the motion for temporary relief; and that on August 5, 1996, the Commission determined not to modify or vacate Order No. 34, issued a temporary limited exclusion order against respondents Mentor Graphics Corporation and Meta Systems and a temporary cease and desist order against Mentor Graphics Corporation and determined that a - -------------------------------- 1 Mentor Graphics Corporation and Meta Systems, in Motion No. 383-145, represented through counsel that no imports or other actions subject to bonding under the Commission's permanent relief orders have occurred, and thus no forfeiture amount is provided for any permanent relief bonds. (Motion No. 383-145 at 2-3 and n.1). 2 The staff noted that because the payment by the Mentor Graphics Corporation and Meta Systems of the stipulated sanctions to complainant is a condition precedent to their submission of any joint motion to terminate the sanctions proceedings, the Commission is assured that no further proceedings will be necessary to compel actual payment of the awarded sanctions. 3 The staff noted that the Stipulation at Sec. 3(e) provides that no appeal will be lodged against a Commission determination adopting the stipulated sanctions and bond forfeiture dollar values although the Stipulation does not prohibit an appeal of the underlying award of monetary sanctions. 2 temporary relief bond should be 43 percent of the entered value of imported hardware logic emulation systems and components thereof.4 The staff has also represented that on July 31, 1997, the administrative law judge issued a final initial determination finding Mentor Graphics Corporation and Meta Systems in violation of Section 337 by infringement of all five of Quickturn's asserted patents; that on October 2, 1997, the Commission determined not to review said final initial determination; that on December 3, 1997, the Commission issued a permanent limited exclusion order against imported hardware logic emulation systems, and a cease and desist order directed to respondent Mentor Graphics Corporation; that on July 31, 1997, the administrative law judge also issued Order No. 96 finding that Mentor Graphics Corporation and Meta Systems had engaged in discovery abuses and abuse of process justifying the imposition of adverse inferences of fact and monetary sanctions; that on March 6, 1998, the Commission denied appeals of Order No. 96, except as to two identified motions, and remanded to the administrative law judge the issue of the precise dollar value of sanctions to be awarded to complainant; and that on April 28, 1998, the Commission also referred to the administrative law judge complainant's February 21, 1998 motion for forfeiture of bonds, and a March 13, 1998 cross motion for return of bonds. It is argued by the staff that a primary objective of monetary sanctions for abuse of Commission discovery process is to deter future abuses and thus, in this investigation, an important goal in setting the amount of sanctions is that the dollar value of the sanctions should off-set any advantage Mentor Graphics Corporation and Meta Systems may have gained from the sanctioned discovery abuses; and that another goal is to compensate complainant for the costs it incurred in overcoming those abuses; that the fact that the dollar value of the sanctions was resolved by agreement between complainant and Mentor Graphics Corporation and Meta System indicates that the amount is appropriate, taking into consideration the parties' substantial - ---------------------------- 4 The staff noted that on September 24, 1997, the Commission granted complainant's motion to modify the temporary relief bond by retaining the 43 percent bond when the entered value of the imported articles was appraised at transaction value, but increased the bond to 180 percent of the entered value when the articles are appraised at other than transaction value. Certain Hardware Logic Emulation Systems, Modification of Temporary Relief Exclusion Order, U.S.I.T.C. Pub. No. 3074 (Nov. 1997). 3 incentive to avoid the expense of further proceedings; that while the Commission also indicated that the administrative law judge's initial determination should decide which, if any, attorneys should be liable for the payment of the sanctions to be awarded under the parties' stipulation, none of counsel for Mentor Graphics Corporation and Meta Systems are held liable for the payment of sanctions, inasmuch as respondents Mentor Graphics Corporation and Meta Systems have assumed liability for payment of the stipulated sanctions value of $425,000.00 (Stipulated of P. 3(b)).5 The staff, under the heading "Dollar Value of Respondents' Bond Forfeiture," argued that the administrative law judge has been directed to issue, within nine months, an initial determination concerning complainant's motion for forfeiture of bonds and the cross motion for return of their bonds;6 that the initial determination should decide whether the bonds should be forfeited, in whole or part, to complainant or returned to provider; that Motion No. 383-145 seeks a determination that complainant is entitled to forfeiture of the bond in the amount of $425,000 of Mentor Graphics Corporation and Meta Systems. (Joint Motion at 2; Stipulation at P. 3(c)); that the statutory purpose of requiring such bonds is to protect complainant from any injury due to importations and sales of infringing goods during the pendency of the investigation (19 U.S.C. Section 1337(e)(1)); and the stipulated forfeiture value will avoid a potentially costly and prolonged proceeding to determine the actual extent of injury complainant has sustained from importations and sales under bond, and will also obviate proceedings regarding the proper valuations of those - ------------------------------- 5 The staff noted that the assumption of the liability for payment of the sanctions award will save the Commission considerable resources in investigating and resolving the difficult issues of identifying specific individuals that would be held liable for payment if the matter was contested, and avoid the time and expense in actually assuring payment. Accordingly, the staff argued that it appears that the Commission's interest in assuring payment of its sanctions award will be met by a determination that Mentor Graphics Corporation and Meta Systems have assumed that liability. The staff further noted that while trial counsel for respondents Mentor Graphic Corporation and Meta Systems, viz., Brobeck Phleger & Harrison, LLP and all counsel from that firm who submitted a notice of appearance in the investigation, were also made parties to the remanded sanctions proceedings it does not appear they any further determinations with respect to those attorneys are necessary for disposition of this matter because the Commission will have no need to seek payment of the stipulated sanctions amount from those attorneys. 6 Joint Motion No. 383-145 indicates that only the temporary relief bonds are at issue inasmuch as no importation or other actions subject to bond have taken place since the entry of the permanent relief orders. See n. 1 supra. 4 importations and sales; and that the Stipulation provides that Mentor Graphics Corporation and Meta Systems shall directly pay the bond forfeiture amount to complainant as a condition precedent to termination of the investigation. Accordingly, the staff supported a determination that complainant is entitled to forfeiture of the bond in the amount of $425,000 (to be paid directly by respondents Mentor Graphics Corporation and Meta Systems to complainant). In a response dated July 20, 1998 respondents Brobeck, Phleger & Harrison, Robert Deberardine, and William L. Anthony (Brobeck) represented that Brobeck was unaware of and played no role in the negotiations that led up to Motion No. 383-145 and indeed Brobeck was (apparently inadvertently) left off the service list and was not timely served with a copy of Motion No. 383-145; that Motion No. 383-145, including the Stipulation, is entirely silent as to Brobeck; that because Brobeck has not engaged in any improper or sanctionable conduct, Brobeck does not agree that any sanctions are proper or appropriate but nevertheless understands that Mentor Graphics Corporation and Quickturn believe that ending the current sanctions and bonding proceedings would conserve the resources of the parties, the staff, and the Commission, and for that reason, Brobeck has agreed to end the current proceedings by setting an amount of the sanctions (subject to appeal regarding whether any sanctions should have been imposed at all) and the bond; that Brobeck understands that Motion No. 383-145, including the Stipulation is not to be construed as an admission by any of the respondents (Mentor Graphics Corporation, Meta Systems, Brobeck, Phleger & Harrison, Robert DeBerardine, or William L. Anthony) that any of the respondents engaged in improper or sanctionable conduct; that with respect to the portions of Motion No. 383-145, including Stipulation, dealing with sanctions, it is Brobeck's understanding from reading said motion that Brobeck is not liable for any sanctions now or in the future; and that it is Brobeck's understanding from reading Motion No. 383-145, including the Stipulation that Mentor Graphics Corporation alone is responsible for the payment of any sanctions that may be ultimately affirmed upon appellate review. Brobeck argued that, with respect to the portions of the Motion No. 383-145, including its Stipulation, dealing with bond issues, Brobeck is not a party to the bond proceeding and therefore has no opposition to those portions. 5 Complainant Quickturn and respondents Mentor Graphics Corporation and Meta Systems, as stated in their joint Motion No. 383-145, wish to conserve resources by stipulating to certain precise dollar amounts which the administrative law judge has been ordered by the Commission to determine. Brobeck, on the understanding that Mentor Graphics Corporation and Quickturn believes that ending the current sanctions and bonding proceedings would conserve the resources of the parties, the staff and the Commission, has agreed to the end of the current proceedings. Referring to the dollar value of awarded sanctions the administrative law judge finds that the stipulated sanctions amount of $425,000 is a substantial and appropriate sum.7 It is apparent from the stipulation that complainant believes the amount of $425,000 is sufficient, in combination with the non-monetary sanctions, to account for those discovery abuses found in Order No. 96 and adopted by the Commission in its Order which issued on March 8, 1998.8 With respect to the dollar value of respondents' bond forfeiture, complainant's agreement to the stipulated bond forfeiture amount of $425,000 shows that complainant believes that amount is sufficient to protect it from any injury by any transactions of respondents Mentor Graphics Corporation and Meta Systems. On that basis the administrative law judge finds that complainant is entitled to forfeiture of the bond in the amount of $425,000 to be paid directly by respondents' Mentor Graphics Corporation and Meta Systems. The administrative law judge further finds that termination of the two proceedings in issue based on the Stipulation would pose no threat to the public interest. Rather the public interest is favored by the private resolution of disputes because of the resultant conservation of time and resources. See Certain Telephone Digital Added Main Line Systems, Components Thereof and Products Containing Same, Inv. No. 337-TA-400, Order No. 23 (an initial - ------------------------------ 7 The staff noted that the stipulated monetary sanctions of $425,000 is reasonably close to the $482,502 of costs and fees sought by complainant, citing Memorandum In Support of Complainant's Detailed Declarations Concerning the Precise Amount of Monetary Sanctions to be Awarded Against Respondents and Certain Ones of Their Counsel at Attachment 1 (April 2, 1998). 8 The staff, in a response dated March 28, 1998 in the sanctions proceeding, waived any claims for monetary sanctions. 6 determination terminating the investigation) and Commission's notice not to review dated March 5, 1998. Motion No. 383-145 is granted. Movants have requested that any action on Motion 383-145 taken by the administrative law judge should be by initial determination. The staff however has requested that any action on Motion No. 383-145 should be by recommended determination. The Commission's order which issued March 6, 1998, in the sanctions proceeding ordered the issuance of an "initial determination" which shall be treated in the same manner as an initial determination issued pursuant to Commission rule 210.42(a)(1)(i).9 Moreover the Commission's order, which issued April 29, 1998 in the bond forfeiture/return proceeding ordered the issuance of an initial determination which pursuant to rule 210.50(d) shall have a 45-day effective date and shall be subject to review under the provisions of rules 210.42 through 210.45.10 Commission rules 210.42(d) and 210.42(h)(2) also provide that the administrative law judge shall grant any motion for termination pursuant to Commission rule 210.21, by issuing an initial determination with a 30 day effective date. Accordingly in view of the Commission's orders dated March 6, 1998 and April 29, 1998 requiring issuance of initial determinations and Commission's rule 210.42(d) as well as the substance of Motion No. 383-145, and the responses to Motion No. 383-145 the administrative law judge is granting Motion No. 383-145 via an initial determination but with a 30-day effective date. This initial determination is hereby CERTIFIED to the Commission, together with supporting documentation. Pursuant to Commission rules 210.42(c) and 210.42(h)(3), this initial determination shall become the determination of the Commission within thirty (30) days after the date of service hereof unless the Commission, within 30 days after the date of such service, shall have ordered review of the initial determination or certain issues therein or by order has changed the effective date of the initial determination. - ---------------------------------- 9 Commission rule 210.42(a)(1)(i) relates to issues concerning violation of section 337. 10 Commission rule 210.42(c) specifically recites that the administrative law judge shall grant a motion, for forfeiture or return of respondents' bonds pursuant to Commission rule 210.50(d), by issuing an initial determination. 7 This order will be made public unless a confidential bracketed version is received no later than the close of business on July 31, 1998. /s/ Paul Luckern ---------------------------------------------- Paul J. Luckern Administrative Law Judge Issued: July 21, 1998 8 EXHIBIT H [Exhibit consists of Customer Quotations, Purchase Orders, Department of Treasury Customs Bond Forms, Invoices, Sales Orders, Packing Lists and other documentation showing equipment imported under bond] EXHIBIT I LETTERHEAD LAW OFFICES OF LYON & LYON August 12, 1998 CONFIDENTIAL SUBJECT TO PROTECTIVE ORDER Sanjay Bhandari, Esq. VIA FACSIMILE LATHAM & WATKINS NO. (650) 463-2600 75 Willow Road Menlo Park, CA 94025 Re: Mentor Graphics v. Quickturn Dear Mr. Bhandari: This letter is in response to your letter dated July 2, 1998,1 as well as other communications we have had since then. We share your sentiment that updating damages discovery in this case should be done quickly, efficiently and cooperatively. In this regard, we welcome the recent production of Mentor documents vis-a-vis a narrow group of diverted sales, as well as price quotes to certain potential customers. Before responding directly to the interrogatories set forth in your July 2, 1998 letter, we believe it would make sense to delineate the scope of relevant discovery vis-a-vis Quickturn's damages contentions. A. Scope of Relevant Discovery is Not Limited To The U.S. Market In your July 2, 1998, and as is apparent by the price quote data provided by your most recent productions, you seem to exempt wholesale Mentor/Meta's outside of the U.S. activities from the scope of relevant discovery. The case law does not support your position. - ----------------------------- 1 The lack of alacrity on our part to respond to your July 2, 1998 letter was driven by external factors, and by no means is indicative of the importance Quickturn attaches to the requested discovery from Mentor/Meta. As you know, we have spoken by telephone and discussed many interim matters prior to this letter. Sanjay Bhandari, Esq. CONFIDENTIAL August 12, 1998 SUBJECT TO PROTECTIVE ORDER Page 2 First, with respect to lost or diverted foreign sales, under the broad holdings of King Instruments Corp. v. Perego, 65 F.3d 941 (Fed. Cir. 1995), and Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538 (Fed. Cir. 1995), Quickturn is entitled to be compensated for all injuries foreseeably caused by any infringing conduct of Mentor/Meta. Thus, for example, to the extent Mentor/Meta's domestic U.S. infringing acts (e.g., offers to sell, sales, advertisings, etc.) are causally connected to any injuries suffered by Quickturn outside the U.S., such injuries are compensable. A foriori, and for example, information about Mentor/Meta's foreign sales that are causally related to infringing acts within the U.S., are manifestly relevant. In addition, a Mentor/Meta price quote (or offer to sell) made from the U.S. to a potential customer outside of the U.S. clearly would be an act of infringement. Therefore, as such, information about price quotes, demos, benchmarks, etc. are necessary to quantify the full damage impact of Mentor/Meta's acts. Surely, you do not contend that the market is limited to the United States. In short, under the well-established case law, the locus of injury is not determinative, rather, it is the existence of a causal connection between the infringing acts of Mentor/Meta and Quickturn's injuries that is the focus. Plainly, Quickturn needs updated discovery in this area. If you disagree, please forward to us the legal authorities and contentions in support of your position, and we will consider them. B. Specific Areas Where More Information Is Needed By Quickturn We have reviewed the documents that you recently produced. We are pleased that progress has been made in this regard, but we believe there is additional information that Quickturn needs before it can provide you with a full and complete damage analysis and number. Specifically, we believe at least the following additional items should be addressed. On page 2 of your letter, several companies are identified where SimExpress was demonstrated, benchmarked, or price-quoted and where such activity was not recorded in Mentor's Wilsonville database:
Cabletron (NH) LexMark (FL) Fujitsu (Dallas) Kodak (Rochester, MA) Motorola (Phoenix) Alcatel (Dallas) Nat'l Security Agency (MD) Brooktree (Austin, TX) Chip & Technology (Santa Clara) Cisco (Raleigh & Santa Clara) TI Semiconductor (Dallas) LSI Logic (Milpitas) Honeywell (FL) Cyrix (Dallas) Transmeta (Santa Clara)
Sanjay Bhandari, Esq. CONFIDENTIAL August 12, 1998 SUBJECT TO PROTECTIVE ORDER Page 3 We request that all documents reflecting or relating to price quotes, benchmarks, or demos as to each of these customers or potential customers be produced with the same level of detail as we received for e.g., UB Networks and 3Com in your August 7 production. In addition, there are a number of customers where Quickturn believes that Mentor was a competitor but no mention of a bid is made in your letter. Among those customers are: Cabletron Nashusa; C-Cube EX; Cisco; DOD; HP-JCBO; Hyundai; Lockheed M.D.; Mitsubishi; Nexland; No. Nine; SAI; T.I.; TelLabs; and Transmeta. We would also need to know if Wilsonville is the only database (within or without) the U.S. that contains price quote, demo, benchmark, etc., information relating to offers to sell originating from the U.S. Moreover, as we discussed earlier, Quickturn would need information2 regarding price quotes, demos, benchmarks, etc., from the U.S. to any U.S. or non-U.S. customer. We also note that while during the ITC proceedings, Mentor recently produced an exhibit that listed all components and/or systems that were imported and listed the relevant account(s) to which those items related, we have not been informed specifically what systems those were, or how Mentor used them (i.e., were they used to conduct benchmark tests, were they supplied to customers that were used as reference accounts, etc.). Without knowing the extent of Mentor's activities, Quickturn cannot adequately assess the impact of Mentor's activities in a particular account or the resulting pricing reduction in price in general attributable to Mentor's activities. Therefore, in view of the above, Quickturn is able to provide you with its present damages analysis to the extent Mentor/Meta have provided Quickturn with information about Mentor/Meta's activities that are the subject of Quickturn's discovery requests. We understand that this information is being exchanged for the purpose of attempting to reach a stipulated damage figure in the Oregon District Court action, and that the information or statements herein, are not binding or limited in any way on either party. Moreover, the information or statements herein are not admissible in any judicial proceedings. Subject to the above caveat and agreement, we respond informally to your interrogatories as follows: C. Quickturn's Specific Interrogatory Responses 1. Interrogatory No. 1 - -------------------------------- 2 With respect to some potential customers, the documents that Mentor has produced contain price quotes with respect to the service component. We ask that Mentor provide all information relating to price quotes, with respect to both the product and service components. Sanjay Bhandari, Esq. CONFIDENTIAL August 12, 1998 SUBJECT TO PROTECTIVE ORDER Page 4 Subject to further discovery from Mentor, and based on the investigations Quickturn has conducted thus far, Quickturn's price erosion component of its damages is presently estimated to be $1,055,377. The calculation details are presented in the matrix below.
Customer List Price Discount - --------------------------------------- -------------------------------------- -------------------------------------- CPI $REDACTED $REDACTED C-Cube $REDACTED $REDACTED TI $REDACTED $REDACTED AMD $REDACTED $REDACTED Number Nine $REDACTED $REDACTED DEC $REDACTED $REDACTED SAI $REDACTED $REDACTED DOD #2 $REDACTED $REDACTED TI $REDACTED $REDACTED ATT $REDACTED $REDACTED Cabletron $REDACTED $REDACTED Motorola $REDACTED $REDACTED 10,511,188 3,683,174 (Mentor present) 25% Discount (Mentor absent) 2,627,797 Price Erosion 1,055,377 (net price erosion)
Pending production of the requested records from Mentor, Quickturn has preliminary assumed the discount level (when Mentor was not a factor) to be 25% which is what the ALJ found to the ITC proceedings. Quickturn reserves the right to revise its price erosion estimate based on additional discovery. The estimate provided herein is provided solely for the purposes of discussion regarding the damages stipulation. 2. Interrogatory No. 2 With regard to interrogatory number 2, as shown in Folsom's report, based on the information that we have thus far, the answer is as follows: (a) Bull (AZ); UB Networks; Motorola (TX), National Semiconductor; Radix. (b) Quickturn would have sold the System Realizer and the associated service to each of these customers. (c) REDACTED. Sanjay Bhandari, Esq. CONFIDENTIAL August 12, 1998 SUBJECT TO PROTECTIVE ORDER Page 5 (d) REDACTED. (e) Mack Folsom; Ray Ostby; Jeffrey Jordan. 3. Interrogatory No. 3 In response to interrogatory number 3, again, this information can be found in Folsom's expert report. In addition to lost sales of product/services and price erosion with respect to U.S. and non-U.S. customer, Quickturn alleges that the infringement by Mentor harmed Quickturn in a number of other ways: - Reduction in prices dues to competition from Mentor (generalized price erosion).3 - Lost sales from repeat purchasers. - Delays in purchases from sales where Mentor was involved. - Reduced profits due to increased sales costs and other expenses. Quickturn's investigation and discovery of facts relating to these items of damages is continuous. Quickturn will, in due course and after its investigation and discovery is completed, provide a damage estimate regarding these items. 4. Interrogatory No. 4 Based on the foregoing, and subject to provision of additional information and discovery from Mentor and further investigation by Quickturn, Quickturn presently estimates its total damages to be approximately $5,220,000 reflecting only the lost profits and price erosion it suffered because of Mentor's infringement. - -------------------------------------- 3 When the infringer's pricing practices force the patentee to generally reduce its price structure, the patentee is entitled to recover those in computing its lost profits. See, e.g., Minnesota Min. & Mfg. Co. v. Johnson & Johnson, 976 F.2d. 1559, 1578-79 (Fed. Cir. 1992) (price erosion claim -- noting vigorous price competition caused "downward trends of prices"); Kalman v. Berlyn Corp., 914 F.2d 1473, 1485 (Fed. Cir. 1990) (affirming price erosion granted on the basis of patentee's claim that "If [infringer] were not in the market, I could have . . . charged a higher price and possibly more than [infringer], but I certainly couldn't do it with [infringer] in the market.") Plainly, to properly assess Quickturn's price erosion, Mr. Folsom would need updated information on Mentor/Meta's pricing practices in general, not just with respect to the specific diverted sales. Sanjay Bhandari, Esq. CONFIDENTIAL August 12, 1998 SUBJECT TO PROTECTIVE ORDER Page 6 As we emphasized above, the damage figure provided herein is provided solely for the purposes of discussion regarding a possible stipulation regarding damages. It reflects the present state of discovery and investigation of facts by Quickturn and is not intended as a waiver of Quickturn's right to revise its damage estimate as appropriate. We are appreciative of your efforts in facilitating information discovery. Nonetheless, to the extent Mentor is aware of documents that fall within the ambit of discovery delineated herein and that have not been produced thus far, we ask that you identify them so that Quickturn can properly assess their importance and any claim of burdensomeness on Mentor's part. What we seek is complete discovery. Very truly yours, /s/Lawrence R. LaPorte Lawrence R. LaPorte LRL:AFA:cc cc: Craig Allison, Esq. P.S. With respect to the export documents mentioned in your voicemail message of August 6, 1998, please produce them to us for the reasons stated earlier in this letter. With respect to the importation history aspect of your August 6, 1998 voicemail message, is it your representation that Gary Hnath's report to the ITC references all the relevant documents? If not, please supplement. [Letterhead of Latham & Watkins] EXHIBIT J August 13, 1998 Via Fax Lawrence R. LaPorte, Esq. Lyon & Lyon 633 W. Fifth Street, Suite 4700 Los Angeles, CA 90071-2066 Re: Mentor v. Quickturn Dear Larry: Thank you for your letter of August 12. We are reviewing the information you provided, and will try to get you a counterproposal, and the additional information you requested (none of which we view as relevant), soon. Per our conversation this morning, we have several questions about how elements of Quickturn's damages were calculated. For example, the prices estimated for alleged lost sales are explained neither by your letter nor Folsom's report, and are greatly above, some more than double, Mentor's actual sale price. Further, until Quickturn provides specifics on the damages claimed in the response to Interrogatory 3, we will value them at zero.1 Obviously, the longer Quickturn delays specifying those claims, the greater the prejudice to Mentor's ability to take discovery on them. - -------------------------- 1 We have already provided the information footnote 3 of your letter offered as a reason justifying Quickturn's failure to specify such damages. Please review the March 21, 1996 deposition of James P. Kenney and documents provided recently as well as in the past. LATHAM & WATKINS August 13, 1998 Page 2 Please confirm that I have your consent to share the customer sites identified in response to Interrogatory No. 1, the customer sites you wanted me to follow up on (Cabletron Nashua, C-Cube EX, etc.; listed on page 3 of your letter), and Quickturn's initial demand of $5,220,000, with my client, so that we may prepare a response. Very truly yours, /s/Sanjay Bhandari Sanjay Bhandari of LATHAM & WATKINS cc: Craig Allison, Esq. SF_DOCS\145553.1 EXHIBIT K LETTERHEAD LAW OFFICES OF LYON & LYON August 17, 1998 Sanjay Bhandari, Esq. VIA FACSIMILE Latham & Watkins (415) 463-2600 75 Willow Road Menlo Park, California 94025-3656 Re: Mentor v. Quickturn Sharing Customer Site Information with Mentor Dear Sanjay: Thank you for your letter of August 13, 1998. In response to its final paragraph, we consent to your sharing Quickturn's initial demand of $5,220,000 with Mentor. With regard to sharing the customer sites identified in response to Interrogatory No. 1 and the customer sites we requested that you follow up on, we think that the best way to proceed is to seek a modification of the protective order by written consent. Under such a modification, you would identify one person at Mentor to whom you would disclose that information, and that person would agree in writing -- i.e., as a signatory to the protective order -- not to disclose that information to any other person or entity. Further, such a modification to the protective order would include an agreement that Mentor, or anyone affiliated with Mentor, not contact any of the customers that Quickturn identified in response to Interrogatory No. 1. Please advise us whether Mentor agrees with this proposal. If so, please forward a draft stipulated modification to the protective order for execution by all concerned. With respect to your voicemail message to Larry LaPorte on August 6, 1998, and our followup questions regarding that message in our letter of August 12, 1998, please advise us when we should expect a response. Specifically, you had noted in your message the existence of certain export documents showing SimExpress boxes being sent out of the country. We would like you to produce these documents to us. Further, with respect to Gary Hnath's reports to the FTC, is it your representation that these reports constitute the entire importation history of the SimExpress product? If not, please supplement as soon as possible. Sanjay Bhandari, Esq. August 17, 1998 Page 2 In the meantime, we are diligently continuing our best efforts in gathering facts pertaining to other heretofore unquantified aspects of Quickturn's damages. We will apprise you of these facts as soon as practicable. Sincerely, /s/Armand F. Ayazi Armand F. Ayazi EXHIBIT L [Letterhead of Latham & Watkins] September 3, 1998 CONFIDENTIAL SETTLEMENT OFFER Via Fax Lawrence R. LaPorte, Esq. Lyon & Lyon 633 W. Fifth Street, Suite 4700 Los Angeles, CA 90071-2066 Re: Mentor v. Quickturn Dear Larry: We have reviewed Quickturn's initial demand with Mentor, and are authorized to proceed in making a counter offer and discussing a possible compromise. We believe the main variables in our discussion should be as follows: 1. Whether individual sales should be accorded diverted sale or reasonable royalty treatment. As you know, we have confirmed with the purchasing decision-makers at Bull, Motorola, UB Networks and Radix that a Quickturn emulation system would not have been purchased even had Mentor not been a competitor. We have also confirmed with the purchasing decision-maker at National Semiconductor that Synopsis had at least as good a chance as Quickturn to have made the sale ultimately made by Mentor. Thus, our offer treats all Mentor sales as leading to a reasonable royalty rather than lost profits. LATHAM & WATKINS September 3, 1998 Page 2 2. What percentage recovery should be applied. Blaine Nye disagrees sharply with Mack Folsom's estimates for the appropriate percentage recovery for diverted sales and reasonable royalties. Our offer uses Nye's estimates. 3. What sale price should be used. Actual sales prices control for determination of reasonable royalties.1 Mentor's offer disallows the discounting claim as to Cabletron. As you know from our previous letters, Mr. Jordan testified that no discounting awarded to Cabletron was attributable to competition by Mentor and/or Meta. Other discounting claims are permitted for the time being, pending investigation. Finally, Mentor's offer values all unspecified claims of damages, including price erosion, lost or delayed sales, and increased sales costs or other expenses, at zero.2 Given the evidence before it, for settlement purposes Mentor values Quickturn's damages at $745,065, and offers this amount as a compromise base amount of damages, excluding such issues as willfulness and attorneys fees, per the draft stipulation we sent you some weeks ago (understanding, of course, that the $425,000 stipulated by Mentor in relation to the bond-forfeiture proceedings in the ITC is subsumed within this sum). The attached spreadsheets detail our analysis of Quickturn's damages. Obviously, we do not expect you to agree with every aspect of our analysis, just as no doubt you did not expect us to agree with every aspect of your analysis. Given the time and expense that would be entailed in discovery and proof of damages, however, it seems to us that we should attempt to bridge the gap between your figures and ours. Please contact me at your convenience to discuss this matter further. Very truly yours, /s/Sanjay Bhandari ------------------- Sanjay Bhandari of LATHAM & WATKINS cc: Craig Allison, Esq. - ---------------------------------- 1 Even if some sales could be treated as diverted sales, Folsom's estimates are often unreasonably high. I understand from our previous discussions that you are inquiring into the basis for these estimates. 2 Although we are willing to entertain some discussion of such claims, Quickturn's delay in specifying those claims has already prejudiced Mentor's ability to defend itself: we must warn you that further extended delay by Quickturn will leave Mentor with no choice but to request that such claims and evidence be excluded from the trial of this matter. A. QUICKTURN'S INITIAL DEMAND
Diverted Sales Customer Claim % Recovery Damages -------- ----- ---------- ------- UB Networks $1,200,000 70.00% $840,000 Nat'l Semiconductor $550,000 70.00% $385,000 Bull HN $1,500,000 70.00% $1,050,000 Radix Technologies $2,100,000 70.00% $1,470,000 Motorola $600,000 70.00% $420,000 -------- TOTAL DIVERTED SALES $4,165,000 Price Erosion Customer List Price Actual Discount -------- ---------- --------------- Cardiac Pacemakers $280,000 $45,000 C-Cube $585,000 $265,000 TI $1,123,750 $472,875 AMD $2,191,180 $841,180 Number Nine $978,600 $188,600 DEC $610,900 $111,403 SAI $257,500 $38,625 DOD #2 $597,300 $41,810 TI $1,121,250 $371,250 AT&T $243,000 $30,000 Cabletron $1,829,708 $1,041,811 Motorola $693,000 $235,620 -------- -------- $10,511,188 $3,683,174 Average Discount with Mentor Absent (25%) $2,627,797 TOTAL PRICE EROSION (Actual - Average) $1,055,377 Other Category of Injury Amount Specified ------------------ ---------------- Generalized Price Erosion $0 Lost Sales From Repeat Customers $0 Delays in Purchases When Mentor Involved $0 Increased Sales Costs & Other Expenses $0 -- TOTAL OTHER INJURY $0 ---------------------------------------------- ------------------------------------------------ TOTAL DAMAGES $5,220,377 ---------------------------------------------- ------------------------------------------------
B. MENTOR'S OFFER
Reasonable Royalties Customer Actual Sale Price % Recovery Damages -------- ----------------- ---------- ------- UB Networks $580,268 7.80% $45,261 Nat'l Semiconductor $548,448 7.80% $42,779 Bull HN $909,091 7.80% $70,909 Radix Technologies $885,939 7.80% $69,103 Motorola $590,000 7.80% $46,020 ------- TOTAL REASONABLE ROYALTIES $274,072 Price Erosion Customer List Price Actual Discount Comment Cardiac Pacemakers $280,000 $45,000 Allowed pending investigation C-Cube $585,000 $265,000 Allowed pending investigation TI $1,123,750 $472,875 Allowed pending investigation AMD $2,191,180 $841,180 Allowed pending investigation Number Nine $978,600 $188,600 Allowed pending investigation DEC $610,900 $111,403 Allowed pending investigation SAI $257,500 $38,625 Allowed pending investigation DOD #2 $597,300 $41,810 Allowed pending investigation TI $1,121,250 $371,250 Allowed pending investigation AT&T $243,000 $30,000 Allowed pending investigation Cabletron (Disallowed) (Disallowed) See Dep. of J. Jordan, at 56. Motorola $693,000 $235,620 Allowed pending investigation -------- -------- $8,681,480 $2,641,363 Average Discount with Mentor Absent (25%) $2,170,370 TOTAL PRICE EROSION (Actual - Average) $470,993 Other Category of Injury Amount Specified ------------------ ---------------- Generalized Price Erosion $0 Lost Sales From Repeat Customers $0 Delays in Purchases When Mentor Involved $0 Increased Sales Costs & Other Expenses $0 -- TOTAL OTHER INJURY $0 ---------------------------------------------- ------------------------------------------------ TOTAL DAMAGES $745,065 ---------------------------------------------- ------------------------------------------------
[Letterhead of Latham & Watkins] EXHIBIT M September 12, 1998 CONFIDENTIAL SETTLEMENT OFFER Via Fax Lawrence R. LaPorte, Esq. Lyon & Lyon 633 W. Fifth Street, Suite 4700 Los Angeles, CA 90071-2066 Re: Mentor v. Quickturn Dear Larry: While we appreciate the spirit of compromise reflected in your proposal of a stipulated damages figure of roughly $3.5 million (based on Mentor's total sales revenue), we believe that our discussion should center on the manner in which damages actually would be calculated at trial, and the evidence we both have so far. The declarations we have produced, including the one related to UB Networks which accompanies this letter, establish that Quickturn can claim only reasonable royalties as to four of Mentor's five sales. From our discussions with knowledgeable witnesses, the same appears to be true at the fifth sale (National Semiconductor). It seems to us that it would not be productive or wise for Quickturn to proceed through discovery and trial on the hope of impeaching customers who have committed under oath to a contrary position. Further, we wonder whether Quickturn really wants to send attorneys around the country for the purpose of trying to embarrass its potential customers by showing their sworn statements to be uninformed or false. LATHAM & WATKINS September 12, 1998 Page 2 Rather than pursuing this low-yield, high-cost course of litigation, shouldn't we at least seriously attempt to stipulate on a damages figure? Reasonable royalties are clearly the name of the game -- the only question is the number. Your expert says 41%; ours says 7.8%. Let's just split the difference at 24.4%, and be done with it. In the same spirit of compromise, for present purposes we have allowed eleven of Quickturn's twelve claims of discounting. By our calculations (detailed in the attached spreadsheet), Quickturn's damages total $1,328,347 under these compromise conditions, to which we are willing to stipulate. Please respond in writing to this proposal as soon as possible. Very truly yours, /s/ Sanjay Bhandari Sanjay Bhandari of LATHAM & WATKINS Attachments cc: Craig Allison, Esq. LATHAM & WATKINS David A. York Steven M. Bauer Sanjay Bhandari 75 Willow Road Menlo Park, California 94025-3656 Telephone: (650) 328-4600 Facsimile: (650) 463-2600 BALL JANIK LLP James T. McDermott (Oregon Bar No. 93359) One Main Place 101 Southwest Main Street, Suite 1100 Portland, OR 97204 Telephone: (503) 228-2525 Facsimile: (503) 295-1058 Attorneys for Plaintiffs-Counterdefendants MENTOR GRAPHICS CORPORATION and META SYSTEMS, INC. UNITED STATES DISTRICT COURT DISTRICT OF OREGON MENTOR GRAPHICS CORPORATION, CASE NO. C-96-00342-RE Plaintiff, CONSOLIDATED CASES v. DECLARATION OF DAN SCHUMACHER IN SUPPORT OF PLAINTIFFS QUICKTURN DESIGN SYSTEMS, MENTOR GRAPHICS AND META SYSTEMS' MOTION FOR PARTIAL SUMMARY JUDGMENT ON DAMAGES Defendant. - ----------------------------------- AND RELATED ACTIONS. I, Dan Schumacher, do hereby declare as follows: 1. I make the following declaration of my own personal knowledge. If called as a witness, I could and would testify competently and truthfully to the following facts under oath. 2. During the time periods discussed herein, I served as the Design Automation Manager at Ungerman-Bass Networks, Inc. ("UB Networks"), located in Andover, Massachusetts. 3. I was the main purchasing decision maker at UB Networks as to verification technology. It was primarily my decision to purchase an emulation system from Mentor Graphics Corporation in April 1996. 4. Had purchasing a Mentor system not been an option for UB Networks, I would most likely have subcontracted our verification work out to a third party. I definitely would not have purchased an emulation system from Quickturn Design Systems, Inc. 5. In my judgment at the time, purchasing a Quickturn emulation system would have involved hidden costs and risks that UB Networks was too small to support. In my judgment, UB Networks would have had to purchase several additional workstations and budget substantial personnel time to support Quickturn's emulation system. Also, it is my view that the Quickturn emulation systems offered us at that time had technical flaws resulting in substantial problems to the user, such as hold-time violations. I hereby declare under penalty of perjury that the foregoing is true and correct. Executed this 10th day of September, 1998 in Chelmsford, Massachusetts. /s/ Dan Schumacher -------------------------- DAN SCHUMACHER 4 CONFIDENTIAL SETTLEMENT OFFER
Reasonable Customer Actual Sale Price % Recovery * Damages -------- ----------------- ------------ ----------- Royalties UB Networks $580,268.00 24.40% $141,585.39 Nat'l Semiconductor $548,448.00 24.40% $133,821.31 Bull HN $909,090.90 24.40% $221,818.18 Radix Technologies $885,939.00 24.40% $216,169.12 Motorola $590,000.00 24.40% $143,960.00 ----------- TOTAL REASONABLE ROYALTIES $857,354.00 * Median b/w 7.8% and 41% Price Customer List Price Actual Discount Comment Erosion Cardiac Pacemakers $REDACTED $REDACTED Allowed pending investigation C-Cube $REDACTED $REDACTED Allowed pending investigation TI $REDACTED $REDACTED Allowed pending investigation AMD $REDACTED $REDACTED Allowed pending investigation Number Nine $REDACTED $REDACTED Allowed pending investigation DEC $REDACTED $REDACTED Allowed pending investigation SAI $REDACTED $REDACTED Allowed pending investigation DOD #2 $REDACTED $REDACTED Allowed pending investigation TI $REDACTED $REDACTED Allowed pending investigation AT&T $REDACTED $REDACTED Allowed pending investigation Cabletron $REDACTED $REDACTED See Dep. of J. Jordan, at 56. Motorola $REDACTED $REDACTED Allowed pending investigation --------- --------- $8,681,480 $2,641,363 Average Discount with Mentor Absent (25%) $2,170,370 TOTAL PRICE EROSION (Actual - Average) $470,993 Other Category of Injury Amount Specified ------------------ ---------------- Generalized Price Erosion $0 Lost Sales From Repeat Customer $0 Delays in Purchasers When Mentor Involved $0 Increased Sales Costs & Other Expenses $0 -- TOTAL OTHER INJURY $0 ---------------------------------------------- ---- ---------------------- ----------------- ---------------- TOTAL DAMAGES $1,328,347 ---------------------------------------------- ---- ---------------------- ----------------- ----------------
EXHIBIT N Latham & Watkins Fax Cover Sheet Date: August 10, 1998 To: Lawrence R. Laporte (213) 955-0440 (213) 489-1600 Lyon & Lyon LLP From: Sanjay Bhandari Re: DRAFT Stipulated Agreement Regarding Damages Number of pages, including cover: 5 Message: [none] UNITED STATES DISTRICT COURT DISTRICT OF OREGON MENTOR GRAPHICS CORPORATION, CASE NO. C-96-00342-RE Plaintiff, CONSOLIDATED CASES v. STIPULATED AGREEMENT REGARDING DAMAGES QUICKTURN DESIGN SYSTEMS, Defendant. AND RELATED ACTIONS. DRAFT This Stipulated Agreement Regarding Damages ("Agreement") is made by and between Mentor Graphics Corporation and Meta Systems, Inc. (collectively "Mentor"), on the one hand, and Quickturn Design Systems, Inc. ("Quickturn"), on the other hand. Mentor and Quickturn are collectively referred to herein as "the Parties." This Agreement shall be effective upon execution by the Parties or their authorized representatives. The Parties wish to conserve resources by stipulating certain monetary matters at issue in the consolidated cases pending before Senior Judge Redden of the United States District Court of Oregon, Case No. 94-0342 (RE). THEREFORE, in consideration for the mutual promises contained herein, the Parties hereby agree and stipulate as follows for all purposes in the above-entitled action, including any appeal(s): I. STIPULATED BASE AMOUNT OF DAMAGES If Quickturn prevails on the issue of liability on one or all of the Quickturn patents in suit, its damages under 35 U.S.C. Section 284 in the above-entitled action shall be deemed for all purposes to be _______________ (_____________ Dollars) (the "Stipulated Base Amount"). The Stipulated Base Amount shall be Quickturn's total monetary recovery in this action regardless of legal theory and regardless of the number of patents and theories upon which it may prevail, except for enhancement of damages and reasonable attorneys fees and costs which are addressed in the following sections. II. ENHANCEMENT OF DAMAGES The Stipulated Base Amount shall be used as the amount to be increased by the Court under 35 U.S.C. Section 284 if the Court determines that such enhancement of damages is appropriate in this case. The parties make no agreement as to whether enhancement is appropriate in this case. III. PROOF OF DAMAGES No proof shall be presented on damages issues under 35 U.S.C. Sections 284-286 except as follows: (a) the appropriateness of enhancement of damages under 35 U.S.C. Section 284; (b) the level of enhancement that would be appropriate; (c) the appropriateness of awarding reasonable attorney fees under 35 U.S.C. Section 285; and (d) the amount of attorney fees that would be 2 reasonable. These issues shall be tried to the Court. IV. NO ADMISSION OF LIABILITY The execution of this Agreement shall not constitute or be construed as an admission of any liability whatsoever by Mentor. V. AUTHORITY The persons signing this Agreement represent that they have the authority to execute this Agreement on behalf of the Parties. VI. COMPLETE AGREEMENT This Agreement represents the complete and exclusive statement of the Agreement between the Parties, and with respect to the subject matters covered hereby, supersedes all prior and contemporaneous promises and agreements of any kind, as well as all negotiations and discussions between the Parties hereto and/or their respective legal counsel. No other agreements, covenants, representations, or warranties, express or implied, oral or written, have been made by any of the Parties hereto concerning the subject matter hereof. This is an integrated agreement. VII. AMENDMENTS Any amendment to this Agreement must be in writing and signed by duly authorized representatives of each of the Parties hereto and must expressly state that it is the intention of each of the Parties hereto to amend the Agreement. [Rest of page intentionally left blank.] 3 VIII. COUNTERPARTS This Agreement may be executed in one or more counterparts, each of which when so executed and delivered will be deemed an original but all of which will constitute one and the same Agreement. IN WITNESS WHEREOF, the Parties hereto have executed this Stipulated Agreement Regarding Damages on the dates indicated below. Dated: August ___, 1998 LATHAM & WATKINS By ---------------------------------- David A. York Attorneys for Plaintiffs- Counterdefendants MENTOR GRAPHICS CORPORATION and META SYSTEMS, INC. Dated: August ___, 1998 LYON & LYON LLP By ---------------------------------- James C. Brooks Attorneys for Plaintiffs- Counterdefendants QUICKTURN DESIGN SYSTEMS, INC. DRAFT 4 LYON & LYON LLP EXHIBIT O A Limited Liability Partnership Including Professional Corporations JAMES W. GERIAK JAMES C. BROOKS HOPE E. MELVILLE THEODORE S. MACEIKO 633 West Fifth Street, Suite 4700 Los Angeles, California 90071-2066 (213) 489-1600 MARGER, JOHNSON, McCOLLOM & STOLOWITZ, P.C. 1030 S.W. Morrison Street Portland, Oregon 97205 (503) 222-3613 Attorneys for Defendant QUICKTURN DESIGN SYSTEMS, INC. UNITED STATES DISTRICT COURT DISTRICT OF OREGON MENTOR GRAPHICS CORPORATION, Civil No. C96-00342-RE an Oregon corporation CONSOLIDATED CASES Plaintiff, v. QUICKTURN'S OPPOSITION TO PLAINTIFF'S MOTION TO BIFURCATE THE TRIAL AND DISCOVERY AS TO THE ISSUES OF LIABILITY AND DAMAGES QUICKTURN DESIGN SYSTEMS, INC., a Delaware corporation, Defendant. META SYSTEMS, a French corporation, Plaintiff, v. QUICKTURN DESIGN SYSTEMS, INC., a Delaware corporation, Defendant.
I. INTRODUCTION...................................................................................................2 II. BACKGROUND....................................................................................................2 III. APPLICABLE LAW REGARDING MOTIONS FOR BIFURCATION UNDER RULE 42(B), FED. R. CIV. P............................3 IV. DEFENDANT HAS FAILED TO MEET ITS BURDEN TO SHOW THAT BIFURCATION IS WARRANTED HERE............................5 A. SOME DAMAGES ISSUES REMAIN IN THE ITC PROCEEDINGS, AND DAMAGES DISCOVERY WILL PROCEED ON THOSE ISSUES..........5 B. THE DAMAGES ISSUES HERE ARE NOT COMPLEX........................................................................5 C. THERE IS EVIDENTIARY OVERLAP BETWEEN LIABILITY AND DAMAGES ISSUES..............................................6 D. BIFURCATION WOULD UNDULY DELAY RESOLUTION OF THIS LITIGATION...................................................7 E. THE CURRENT DISCOVERY SCHEDULE DOES NOT PROVIDE FOR DUPLICATIVE DAMAGES DISCOVERY..............................7 F. BIFURCATION AND STAY OF DAMAGES DISCOVERY WOULD PROMOTE DISCOVERY DISPUTES BETWEEN THE PARTIES.................8 V. CONCLUSION.....................................................................................................9
I. INTRODUCTION Mentor has failed to show, as it has the burden to do under Rule 42(b) that any real expedition or economy would result from the bifurcation order it seeks. Neither has Mentor shown that grant of its motion for bifurcation of discovery and trial of liability and damages issues in this case would actually further convenience or avoid prejudice. The damages issues in this case are not complex. In addition, the damages issues involve evidence which overlaps liability issues regarding the commercial success of the patented product, and involve evidence for which discovery regarding remedy and bonding is currently being taken in the ITC proceedings. Accordingly, bifurcation of damages issues in this case would require duplication of the presentation of evidence at trial, unduly and unnecessarily prolong final disposition of all of the issues of this case to defendant Quickturn's prejudice, and would promote discovery disputes as to whether requested evidence is currently discoverable as relevant to liability issues. Since no meaningful efficiencies have been shown or would result from bifurcation, Mentor's motion must be denied. II. BACKGROUND The major premise of plaintiff Mentor Graphics Corporation's (Mentor's) Motion to Bifurcate the Trial and Discovery As To The Issues of Liability And Damages, -- namely, that the present Scheduling Order of the Court is "unwieldy and duplicative", is an incorrect premise and misses the mark entirely for the following reasons. First, the damages discovery sought is directed to Mentor's relatively small number of actual sales and offers for sale. This amount of discovery is not "unwieldy". Second, the current discovery schedule is not duplicative. The only damages fact discovery needed after the October 1996 discovery cut-off date will be supplemental fact discovery of Mentor's sales activity between the discovery cut-off date and the date of trial -- approximately a ten-month period. Thus, plaintiff's "duplicative" argument is erroneous. Third, damages issues in this case, where there are a finite and relatively small number of sales and offers to sell of a single category of infringing product, are not complex. Fourth, and of equal importance, the ITC rules presently allow discovery regarding Mentor's sales and marketing activities for the issues of remedy, bonding and the public interest during the Presidential review period after final decision by the ITC. Discovery on these issues has already been served on Mentor or Meta. Fifth, the Mentor witnesses whose dispositions will be taken on the ITC issues of remedy, bonding and the public interest, will be the same witnesses who will provide damage related discovery in the District Court action. Thus, there is an overlap of discovery between damages discovery in this action and the remedy, bonding and public interest issues in the ITC. Accordingly, because virtually the same discovery is presently being taken in the ITC, and because the discovery is relatively straightforward and relates to a finite number of sales and offers to sell by Mentor, there are no real efficiencies to be gained by bifurcating the damages issues in this case. III. APPLICABLE LAW REGARDING MOTIONS FOR BIFURCATION UNDER RULE 42(B), Fed. R. Civ. P. Rule 42(b), Fed. R. Civ. P., provides that a Court may order separate trials of issues "in furtherance of convenience or to avoid prejudice, or when separate trials will be conducive to expedition and economy". Notwithstanding the Court's discretion, separation of issues for trial is not to be routinely ordered. See Advisory Committee Note to the 1966 Amendment to Rule 42(b). ("...[S]eparation of issues for trial is not to be routinely ordered...") See also Keyes Fibre Co. v. Packaging Corporation of America, 763 F. Supp. 374, (N.D. Ill. 1991). Bifurcation is the exception, and not the rule. Kennecott Corp. v. Kyocera Int'l, Inc., 7 U.S.P.Q.2d 1911, 1912 (S.D. Cal. 1988).1 In patent actions, as in any other action, an order for separate trials should not be made routinely, but must be the result of an informal exercise of discretion on a case-by-case basis, and separate trials should be ordered only when separation will really result in judicial economy and not create unnecessary delay, additional expense, or some other form of prejudice. - ---------------------------- 1 For the Court's convenience, copies of all cited decisions which are reported in the United States Patent Quarterly (U.S.P.Q.) are provided attached to the accompanying Declaration of H. Melville. See Willemijn Houdstermaatschaapij BV v. Apollo Computer, Inc., 707 F. Supp. 1429, 1433 (D. Del. 1989); Spectra-Physics Lasers, Inc. v. Uniphase Corp., 144 F.R.D. 99, 101 (N.D. Cal. 1992); THK America Inc. v. Nippon Seiko KK, 141 F.R.D. 463, 464 (N.D. Ill. 1991). Motions for bifurcation of patent infringement liability and damages issues are denied where there is overlapping evidence relating to both issues. E.g., Willemijn, 707 F. Supp. at 1434; Joy Technologies, Inc. v. Flakt, Inc., 772 F. Supp. 842, 848 (D. Del. 1991); Output Technology Corp. v. Dataproducts Corp., 22 U.S.P.Q.2d 1072, 1073 (W.D. Wash. 1991). Such overlapping evidence means that no substantial economies or convenience would really result from bifurcation of issues. See Brad Ragan, Inc. v. Shrader's, Inc., 89 F.R.D. 548, 550 (S.D. Ohio 1981); THK, 141 F.R.D. at 465; Keyes, 763 F. Supp. at 375. That is the case here where there is almost a complete overlap of discovery regarding the damages issues in this case and discovery presently ongoing in the ITC investigation on the issues of remedy, bonding and the public interest during the Presidential review period. Motions for bifurcation of patent infringement liability and damages issues are also denied where the damage issues, standing alone, have not been shown to be particularly complex. See, e.g., Keyes, 763 F. Supp. at 376; Brad Ragan, 89 F.R.D. at 550; Output, 22 U.S.P.Q.2d at 1073. See also IPPV Enterprises v. Cable/Home Communications Corp., 26 U.S.P.Q.2d 1714, 1717 (S.D. Cal. 1993) ("although it appears the liability stage may be complex, it's not clear that the damage phase will be.") Damages discovery in the present case relates primarily to a finite number of sales and offers to sell by Mentor. Finally, proposals for separate trial of patent liability and damages issues are also denied where the proposal unduly lengthens the litigation to the non-moving party's financial prejudice, including where an extensive discovery period between trial on liability and damages would result. See, e.g., THK, 141 F.R.D. at 465; IPPV, 26 U.S.P.Q.2d at 1717; Willemijn, 707 F. Supp. at 1435 ("prejudice under these circumstances may simply amount to unfair delay in the final disposition of the matter.") In the present case, bifurcation would unduly lengthen the litigation to Quickturn's detriment. The moving party bears the burden of proving that bifurcation is justified given the facts of the case. Spectra-Physics, 144 F.R.D. at 101; ; Output, 22 U.S.P.Q.2d at 1073. That burden is not met by general arguments not tailored to the specifics of the case. THK, 141 F.R.D. at 464; IPPV, 26 U.S.P.Q.2d at 1717. The present motion fails entirely to provide any specifics on the alleged judicial efficiencies that will result from the requested bifurcation. IV. DEFENDANT HAS FAILED TO MEET ITS BURDEN TO SHOW THAT BIFURCATION IS WARRANTED HERE A. Some Damages Issues Remain In The ITC Proceedings, And Damages Discovery Will Proceed On Those Issues Mentor bases its motion, in substantial part, on its incorrect assertion that discovery of Mentor's sales and marketing efforts are not at issue in the ITC investigation. Mentor would lead the Court to believe, again incorrectly, that no such discovery is needed for resolution of the issues in the ITC investigation. In fact, discovery in the ITC investigation which is relevant to the issues of remedy and bonding for the permanent phase is authorized under Commission Rule 210.27(b), has been noticed by Quickturn in the ITC, and is proceeding. In determining the matters of remedy and bonding in the permanent relief phase pursuant to Commission Rule 210.42(a)(1)(ii), the ITC and the ALJ are authorized to consider the facts and circumstances regarding each actual sale of an infringing emulation system in the United States, and Quickturn is proceeding to obtain such discovery in the ITC investigation. Therefore the convenience and economy which Mentor asserts can be obtained by bifurcation and stay of damages issues in this case will not occur since, among other reasons, sales and marketing discovery will be proceeding anyway in the ITC investigation. B. The Damages Issues Here Are Not Complex While the technology underlying the patents at issue here may be sophisticated and raise complex patent infringement and validity issues, that does not mean that the damages issues are also complex. Quickturn expects its damages case to be relatively straightforward. Currently, there have only been two or three sales made by Mentor of the products accused of infringement. Quickturn does not expect there will be a large number of additional sales prior to trial of this case, in part due to the temporary exclusion order the temporary cease and desist order recently issued by the International Trade Commission. There is a single category of products accused of infringement, so that damages calculations will merely require application of a single royalty or lost profits figure to the number of sales made by Mentor. Accordingly, trial of the damages issues will not be complex or time-consuming. See, Keyes, 763 F. Supp. at 376 (calculations of damages will be relatively straightforward given the limited sales of the product at issue). Furthermore, some discovery has already been taken in the ITC on Mentor's sales and marketing activities prior to the TEO hearing in April, 1996. As discussed above, additional discovery has been noticed in the ITC, and the parties are well under way with regard to completing such discovery. Thus, relative to the liability phase of this action, the damages phase should be simple and short. Damages proofs will consume a limited portion of the time allotted for trial. The damages record will be relatively straightforward, particularly since Quickturn, during the liability phase of the trial, intends to educate the jury about Quickturn's role in pioneering the emulation industry and the relationship between emulation and other forms of automated electronic design activities. Where, as here, the damages case will not be complex, bifurcation is not warranted. See, e.g., Output, 22 U.S.P.Q.2d at 1073; IPPV, 26 U.S.P.Q.2d at 1717; Brad Ragan, 89 F.R.D. at 550. C. There Is Evidentiary Overlap Between Liability and Damages Issues Commercial success is a factor in determining whether the inventions claimed in Quickturn's patents-in-suit are non-obvious over the prior art. See Willemijn, 707 F. Supp. at 1434. This is particularly true for the Sample patents at issue, which are not subject to assignor estoppel and are therefore open to Mentor's validity attacks. Evidence of Quickturn emulation product sales needed to establish commercial success, including evidence of unit and dollar sales volume and profits, will be equally relevant to determining Quickturn's damages under both lost profits and reasonable royalty theories. See IPPV, 26 U.S.P.Q.2d at 1716-1717. Such overlap of evidence regarding commercial success between the liability (patent validity) and damages issues does not favor bifurcation. See, e.g., Output, 22 U.S.P.Q.2d at 1073; Joy, 772 F. Supp. at 848. D. Bifurcation Would Unduly Delay Resolution Of This Litigation Logic dictates that holding two trials in this action, first a liability trial and then damages trial after taking damages discovery, will inevitably delay resolution of the instant case. Such delay can unduly prejudice the non-moving party, see Willemijn, 707 F. Supp. at 1435, unless the moving party demonstrates how such prejudice would be avoided. Spectra-Physics, 144 F.R.D. at 101. Mentor's proposal for conducting damages discovery and trial after a liability trial "unduly lengthens the litigation because it permits what may well be an extensive discovery period between the trial on liability and the trial on damages. It also prejudices [the patentee] financially." THK, 141 F.R.D. at 465. Mentor has not demonstrated how such prejudice to Quickturn will be avoided.2 Mentor's efficiency argument is that if the Court were to bifurcation the trial and Mentor prevailed on the infringement issue, there would be no trial on damages. This tenuous possible efficiency, however, is outweighed by the alternative possibility: if Mentor "were to lose on liability, the two trials would end up taking considerably more time than would have been required to reach the same outcome with a single trial." Willemijn, 707 F. Supp. at 1435. This is particularly so since trial of damages could not occur until after damages discovery, potentially requiring the selection of a second jury. In such instances, bifurcation is denied. Id. E. The Current Discovery Schedule Does Not Provide For Duplicative Damages Discovery Mentor makes the bewildering argument that the current discovery schedule for the case somehow results in taking discovery twice and is somehow "unwieldy". Such is plainly not the case. - ----------------------------- 2 There is substantial economic disparity between the parties here, since Mentor is over four times larger than Quickturn. The current discovery schedule calls for taking damages fact discovery, at the same time as liability fact discovery, prior to the fact discovery cut-off date of October 31, 1996. That fact discovery, on all issues, would of course be supplemented prior to trial pursuant to the provisions of FRCP Rule 26(e), as in any litigation. Expert reports on damages for this case, and depositions of those experts, are scheduled for shortly before trial. No repetition or duplicative damages discovery results from this schedule, and instead the current schedule provides for orderly completion of discovery of the damages issues without the undue delay which would result from stay of damages discovery until after trial of liability issues. F. Bifurcation and Stay of Damages Discovery Would Promote Discovery Disputes Between the Parties If damages issues were bifurcated as sought by Mentor, damages-type information relevant to the liability portion of the trial would nevertheless still be discoverable, as noted in one of the cases Mentor relies on, Giro Sport Design, Inc. v. Pro-Tec, Inc., 10 U.S.P.Q.2d 1863, 1865 (N.D. Cal. 1989). Therefore if the motion to bifurcate damages issues and discovery were granted, it would inevitably result in disputes regarding the relevancy and discoverability of evidence relating to damages during discovery of the liability phase. See Willemijn, 707 F. Supp. at 1435. Such needless disputes, and any attendant judicial intervention required to resolve the disputes, can be avoided by merely proceeding according to the current discovery schedule and completing damages and liability fact discovery at the same time.3 - --------------------------------- 3 Quickturn takes no position at this time as to whether it may be appropriate, at trial, to have the jury first hear and decide the liability issues, and then have the same jury proceed immediately to hear and decide the damages issues, nor has this possibility been raised. See IPPV, 26 U.S.P.Q.2d at 1717. Should the Court desire such a bifurcated trial, judicial economy nonetheless dictates that discovery not be bifurcated for all the reasons enumerated above. V. CONCLUSION For the foregoing reasons, plaintiff's motion to bifurcate this action, requesting an Order to permitting discovery and trial on the issues of damages to go forward only following trial of the patent infringement liability issues, must be denied. Respectfully submitted, MARGER, JOHNSON, McCOLLOM & STOLOWITZ, P.C. Dated: August 30, 1996 By: /s/Alan T. McCollom ------------------------------------ Alan T. McCollom 1030 S.W. Morrison Street Portland, Oregon 97205 (503) 222-3613 Attorneys for Defendant QUICKTURN DESIGN SYSTEMS, INC. LYON & LYON LLP James W. Geriak James C. Brooks Hope E. Melville Theodore S. Maceiko 633 West Fifth Street, Suite 4700 Los Angeles, CA 90071-2066 (213) 489-1600 Attorneys for Defendant QUICKTURN DESIGN SYSTEMS, INC. CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the foregoing QUICKTURN'S OPPOSITION TO PLAINTIFF'S MOTION TO BIFURCATE THE TRIAL AND DISCOVERY AS TO THE ISSUES OF LIABILITY AND DAMAGES is being served this 30th day of August, 1996 upon the following attorneys for Mentor Graphics Corporation and Meta Systems by hand delivery to: James T. McDermott BALL, JANIK & NOVACK 101 S.W. Main Street Portland, Oregon 97204 and by deposit in the United States Postal Service, postage prepaid, to: William L. Anthony, Jr. Robert DeBerardine Craig Y. Allison BROBECK, PHLEGER & HARRISON Two Embarcadero Place 2200 Geng Road Palo Alto, California 94303 /s/ ---------------------------------------------- LATHAM & WATKINS EXHIBIT P David A. York Steven M. Bauer Sanjay Bhandari 75 Willow Road Menlo Park, California 94025-3656 Telephone: (650) 328-4600 Facsimile: (650) 463-2600 BALL JANIK LLP James T. McDermott (Oregon Bar No. 93359) One Main Place 101 Southwest Main Street, Suite 1100 Portland, OR 97204 Telephone: (503) 228-2525 Facsimile: (503) 295-1058 Attorneys for Plaintiffs-Counterdefendants MENTOR GRAPHICS CORPORATION and META SYSTEMS, INC. UNITED STATES DISTRICT COURT DISTRICT OF OREGON MENTOR GRAPHICS CORPORATION, CASE NO. C-96-00342-RE Plaintiff, CONSOLIDATED CASES v. DECLARATION OF [DECLARANT] IN SUPPORT OF PLAINTIFFS MENTOR QUICKTURN DESIGN SYSTEMS, GRAPHICS AND META SYSTEMS' MOTION FOR PARTIAL SUMMARY JUDGMENT ON DAMAGES Defendant. AND RELATED ACTIONS. I, Chuong H. Nguyen, do hereby declare as follows: 1. I make the following declaration of my own personal knowledge. If called as a witness, I could and would testify competently and truthfully to the following facts under oath. 2. I am currently the Member of Technical Staff at Motorola Semiconductor Product Sector, Communication Transmission & Access Systems Division, in Austin, Texas, and served in a similar capacity during the time periods discussed herein. 3. In late 1996, Motorola leased an emulation system with option to purchase from Mentor Graphics Corporation. Quickturn Design Systems generally competed with Mentor Graphics on the emulation business. 4. I was a decision-maker at Motorola as to which vendor -- Mentor or Quickturn -- would be selected on this particular contract. 5. The primary reason Quickturn was not selected was because I did not feel that their product would satisfy our project's needs. Therefore, if Mentor's SimExpress was not an option for Motorola, I would not have purchased any emulation system. I declare under penalty of perjury that the foregoing is true and correct. Executed this 9th day of July, 1998 in Austin, Texas. /s/Chuong H. Nguyen ------------------------------- [DECLARANT] 2 BALL JANIK LLP EXHIBIT Q James T. McDermott (Oregon Bar No. 93359) One Main Place 101 Southwest Main Street, Suite 1100 Portland, OR 97204 Telephone: (503) 228-2525 Facsimile: (503) 295-1058 LATHAM & WATKINS David A. York Steven M. Bauer Sanjay Bhandari 75 Willow Road Menlo Park, California 94025-3656 Telephone: (650) 328-4600 Facsimile: (650) 463-2600 Attorneys for Plaintiffs-Counterdefendants MENTOR GRAPHICS CORPORATION and META SYSTEMS, INC. UNITED STATES DISTRICT COURT DISTRICT OF OREGON MENTOR GRAPHICS CORPORATION, CASE NO. C-96-00342-RE Plaintiff, CONSOLIDATED CASES v. DECLARATION OF RUSSELL W. GUENTHNER IN SUPPORT OF QUICKTURN DESIGN SYSTEMS, PLAINTIFFS MENTOR GRAPHICS AND META SYSTEMS' MOTION FOR PARTIAL SUMMARY JUDGMENT ON DAMAGES Defendant. AND RELATED ACTIONS. I, Russell W. Guenthner, do hereby declare as follows: 1. I make the following declaration of my own personal knowledge. If called as a witness, I could and would testify competently and truthfully to the following facts under oath. 2. I am currently an Engineering Fellow, Staff Engineer Two, at Bull HN Information Systems, Inc., in Phoenix, Arizona, and served in a similar capacity during the time periods discussed herein. 3. I was a participant in the internal decision-making process at Bull HN and Bull S.A. (France) as to what product would be used in connection with emulation and simulation amenable aspects of an internal design project we called the "Jupiter" project. 4. Bull is a very sophisticated customer for simulation and emulation products with large internal capabilities in development of design tools, both software and hardware. 5. Bull's decision for purchase was made by a technical team, based on a technical evaluation of three vendors: Quickturn, Meta, and ZyCad. The recommendation of the team was to buy Meta's emulation system. 6. Our team closely examined Quickturn's system. Within the team, I was assigned the role of Quickturn's evaluator and advocate, and in that role argued for purchase of Quickturn's system. My main argument for choice of Quickturn was the relative sizes of Meta and Quickturn companies, with risk of Meta being that they were a new and smaller company than Quickturn. My recommendation that the team consider the Quickturn system was based upon promised functionalities that were not then in existence. 7. Ultimately, as a team, we decided that Quickturn's emulation system did not satisfy our project needs and would not likely be enhanced to meet our project needs within our timeframe. The deficiencies were mainly in terms of 1) compile time and 2) the cycle time that was achievable on the Quickturn system. We had absolute requirements on a lower limit for cycle time based on the lowest speed that the rest of our system would run. 8. Our team based our conclusion that Quickturn's system could not satisfy our project needs based mostly upon 1) our own internal evaluation of the system, and 2) 2 considerations from presentations by Quickturn personnel. 9. Quickturn's emulation system was rejected by our Bull even after Quickturn offered to reduce its price to approximately one-half the price of the Meta system. 10. If importation of Meta's system had not been an option, our team would not have recommended purchase of the Quickturn system. Rather, we would have chosen one of several other options. Two of those options were: 1) to keep the emulation aspects of our project in Bull's French facility (Les Clayes, France), or 2) to continue our design process using the ZyCad machines that we already had in place in both Phoenix, Arizona and France. We had also discussed seriously with ZyCad the possibility of expanding our already existing emulation/ simulation facilities in Phoenix but that option was not pursued because the Meta solution was more performant. The most likely of these scenarios would have been to keep the emulation work in France which was feasible because the project for which the Meta emulation system was being expanded was a joint engineering effort between engineers in France and engineers in Phoenix (about 2/3 France and 1/3 Phoenix). I declare under penalty of perjury that the foregoing is true and correct. Executed June 19, 1998 in Phoenix, Arizona. /s/Russell W. Guenthner ------------------------------ RUSSELL W. GUENTHNER 3 LATHAM & WATKINS EXHIBIT R David A. York Steven M. Bauer Sanjay Bhandari 75 Willow Road Menlo Park, California 94025-3656 Telephone: (650) 328-4600 Facsimile: (650) 463-2600 BALL JANIK LLP James T. McDermott (Oregon Bar No. 93359) One Main Place 101 Southwest Main Street, Suite 1100 Portland, OR 97204 Telephone: (503) 228-2525 Facsimile: (503) 295-1058 Attorneys for Plaintiffs-Counterdefendants MENTOR GRAPHICS CORPORATION and META SYSTEMS, INC. UNITED STATES DISTRICT COURT DISTRICT OF OREGON MENTOR GRAPHICS CORPORATION, CASE NO. C-96-00342-RE Plaintiff, CONSOLIDATED CASES v. DECLARATION OF TIM PARKER IN SUPPORT OF PLAINTIFFS MENTOR QUICKTURN DESIGN SYSTEMS, GRAPHICS AND META SYSTEMS' MOTION FOR PARTIAL SUMMARY JUDGMENT ON DAMAGES Defendant. AND RELATED ACTIONS. I, Tim Parker, do hereby declare as follows: 1. I make the following declaration of my own personal knowledge. If called as a witness, I could and would testify competently and truthfully to the following facts under oath. 2. I am a Sr ASIC Engineer at Radix Technologies, located in Mountain View, California, and served as the ASIC technical project manager at Radix during the time periods discussed herein. 3. From approximately six months 1995 to mid-1996, Radix was comparing various design verification options for a planned project involving a ASIC DSP coprocessor and DSP software development. Emulation was selected to accelerate DSP software development schedules only. Workstation simulation was sufficient for ASIC verification. We required an almost turnkey implementation. Additionally, due to our staffing shortages, product support was heavily weighted in our decision process. We considered a number of vendors for the aspects of our design process amenable to emulation. These vendors included IKOS, Quickturn Design Systems, and Mentor Graphics Corporation. 4. I lead the technical committee that was given the responsibility at Radix of deciding which vendor - IKOS, Quickturn, or Mentor would be selected. Overall, Quickturn placed third in our rankings, behind both Mentor and IKOS. 5. Quickturn's third place ranking resulted primarily from the following factors. First, I had worked with Quickturn emulation products before at Kaiser Electronics, and found the product to be unreliable, also, Quickturn product support was poor at best. Second, Quickturn's team was unwilling and apparently unable to demonstrate that the product could successfully map our design. That is, they did not perform our benchmark mapping of a completed portion of our design into their emulation system. Hence, they did not run our benchmark verification vectors against the mapped design. Mentor was the only company that successfully mapped and verified our design benchmark. Third, they did not meet the final dead lines for quote and proposal. 6. Our technical committee unanimously selected Mentor as the lead contender around the middle of 1996. IKOS was the second contender in my mind and the minds of other committee members. During the final negotiations in mid-1996 for purchase of the machine, only Mentor and IKOS were discussed. 7. Some months after we acquired the Mentor emulation system, Radix ended up having to transfer it to a third party for reasons confidential to Radix. Radix has not used other emulation based design verification tools since then, nor do we foresee a need in the near future. 2 I hereby declare under penalty of perjury that the foregoing is true and correct. Executed June 24, 1998 in Mountain View, California. /s/Tim Parker ------------------------------- TIM PARKER 3 LATHAM & WATKINS EXHIBIT S David A. York Steven M. Bauer Sanjay Bhandari 75 Willow Road Menlo Park, California 94025-3656 Telephone: (650) 328-4600 Facsimile: (650) 463-2600 BALL JANIK LLP James T. McDermott (Oregon Bar No. 93359) One Main Place 101 Southwest Main Street, Suite 1100 Portland, OR 97204 Telephone: (503) 228-2525 Facsimile: (503) 295-1058 Attorneys for Plaintiffs-Counterdefendants MENTOR GRAPHICS CORPORATION and META SYSTEMS, INC. UNITED STATES DISTRICT COURT DISTRICT OF OREGON MENTOR GRAPHICS CORPORATION, CASE NO. C-96-00342-RE Plaintiff, CONSOLIDATED CASES v. DECLARATION OF DAN SCHUMACHER IN SUPPORT OF PLAINTIFFS QUICKTURN DESIGN SYSTEMS, MENTOR GRAPHICS AND META SYSTEMS' MOTION FOR PARTIAL SUMMARY JUDGMENT ON DAMAGES Defendant. AND RELATED ACTIONS. I, Dan Schumacher, do hereby declare as follows: 1. I make the following declaration of my own personal knowledge. If called as a witness, I could and would testify competently and truthfully to the following facts under oath. 2. During the time periods discussed herein, I served as the Design Automation Manager at Ungerman-Bass Networks, Inc. ("UB Networks"), located in Andover, Massachusetts. 3. I was the main purchasing decision maker at UB Networks as to verification technology. It was primarily my decision to purchase an emulation system from Mentor Graphics Corporation in April 1996. 4. Had purchasing a Mentor system not been an option for UB Networks, I would most likely have subcontracted our verification work out to a third party. I definitely would not have purchased an emulation system from Quickturn Design Systems, Inc. 5. In my judgment at the time, purchasing a Quickturn emulation system would have involved hidden costs and risks that UB Networks was too small to support. In my judgment, UB Networks would have had to purchase several additional workstations and budget substantial personnel time to support Quickturn's emulation system. Also, it is my view that the Quickturn emulation systems offered us at that time had technical flaws resulting in substantial problems to the user, such as hold-time violations. I hereby declare under penalty of perjury that the foregoing is true and correct. Executed this 10th day of September, 1998 in Chelmsford, Massachusetts. /s/Dan Schumacher ---------------------------------- DAN SCHUMACHER 2 EXHIBIT T Variable/Fixed Cost Analysis SUMMARY OUTPUT
- ---------------------------------------- Regression Statistics - ---------------------------------------- Multiple R 0.95 R Square 0.91 Adjusted R Square 0.89 Standard Error 4513.89 Observations 8 - ----------------------------------------
ANOVA
- -------------------- --------------- ------------------- --------------------- ------------------ ------------------- df SS MS F Signifance F - -------------------- --------------- ------------------- --------------------- ------------------ ------------------- Regression 1 1198685521 1.199E+09 58.83052973 0.00025683 Residual 6 122251374.6 20375229 Total 7 1320936896 - -------------------- --------------- ------------------- --------------------- ------------------ -------------------
- ----------------- ---------------- --------------------- ----------- --------------- --------------- ---------------- Coefficients Standard Error t Stat P-value Lower 95% Upper 95% - ----------------- ---------------- --------------------- ----------- --------------- --------------- ---------------- Intercept -4479.28 2538.50 -1.76 0.13 -10690.76 1732.20 Revenue 0.34 0.04 7.67 0.00 0.23 0.45 - ----------------- ---------------- --------------------- ----------- --------------- --------------- ----------------
Dependent Variable = Operating Income, Excluding R&D Time Period is 1989-1996 PROOF OF SERVICE I am employed in the County of San Mateo, State of California. I am over the age of 18 and not a party to the within cause. My business address is Latham & Watkins, 75 Willow Road, Menlo Park, California 94025-3656. I served the below listed document(s) described as: SUPPLEMENTAL REPORT OF BLAINE F. NYE, Ph.D On 10/23/98 on the following parties to this cause by Overnight Mail delivery of a copy of the above document(s) as follows: I placed a sealed envelope or package containing the document(s) in a facility regularly maintained by the Federal Express for receipt of Overnight Mail, with Overnight Mail delivery fees paid, addressed as follows: James C. Brooks, Esq. Jonathan T. Losk, Esq. Lawrence R. LaPorte, Esq. LYON & LYON L.L.P. 633 West Fifth Street, Suite 4700 Los Angeles, CA 90071-2066 The Federal Express package was deposited as described above at 75 Willow Road, Menlo Park, California 94025-3656. I declare that I am employed in the office of a member of the Bar of or permitted to practice before this Court at whose direction the service was made. Executed on 10/23/98, at Menlo Park, California. /s/Clifton-Michael Garbett --------------------------------- Clifton-Michael Garbett -----END PRIVACY-ENHANCED MESSAGE-----