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EXHIBIT

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C

UNITED STA TES D ISTRIC T COU RT

SOUTHERN DISTRICT OF FLORIDA

Case No.: 17-cv-80432-M 1DDLEBROOK S

A DT LLC, and ADT U S H OLDING S, lN C.,

Plaintiffs,

V IV INT, IN C.,

Defendant.

ORDER GM NTING IN PART DEFENDANT'S M OTION TO EXCLUDE

THIS CAUSE comes before the Court upon Defendant Vivint, Inc.'s (Cçvivinf') Motion to

Exclude Expert Report and Testimony of Russell W . M angum 111, filed October 10, 2017. (DE 125).

Plaintiffs ADT LLC, and ADT US Holdings, lnc. (collectively iiADT'') filed a response on October

l 7, 2017 (DE 141), to which Vivint rtplied on October 23, 2017 (DE 147). For reasons stated below,

Vivint's M otion is granted in part and denied in part.

LEG A L STA NDAR D

ds-fhe admission of expert evidence is governed by Federal Rule of Evidencc 702, as

explained by Daubert and its progeny,'' Rink v. Cheminova, Inc., 400 F.3d 1286, 1291 (1 1th Cir.

2005). iiunder Rule 702 and Daubert, district courts must act as igatekeepers' which admit expert

testimony only it is both reliable and relevant.'' 1d. (citing Daubert v. Merrell Dow

Pharmaceuticals, fnc., 509 U.S. 579, 589 (1993)).'sDistrict courts are charged with this gatekeeping

function ito ensure that speculative, unreliable expert testimony does not reach the jury' under the

mantle of reliability that accompanies the appellation iexpert testimony.''' 1d. (quoting Mccorvey v.

Baxter Healthcare Corp., 298 F.3d 1253, 1256 (1 1th Cir. 2002)). Although isgulnder Rule 702, a

district court acts as a gatekeeper to keep out irrelevant or unreliable expert testimony . . . , gtlhis

gatekeeping role, (1 is not intended to supplant the adversary system or the role of the jury: vigorous

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cross-exam ination, presentation of contrary evidence, and careful instruction on thc burden of proof

are the traditional and appropriate means of attacking shaky but admissible evidence.'' United States

v. Alabama Power Co., 730 F.3d 1278, 1282 (1 1th Cir. 2013) (citations omitted).

($To fulfill their obligation under Daubert, district courts m ust engage in a rigorous inquiry to

determine whether: $(1) the expert is qualiied to testify competently regarding the matters he intends

to address; (2) the methodology by which the expert reaches his conclusions is sufficiently reliable as

determined by the sort of inquiry mandated in Daubertk and (3) the testimony assists the trier of fact,

through the application of scientiGc, technical, or specialized exptrtise, to understand tht evidenct or

to determine a fact in issue.''' Rink, 400 F.3d at 129 1-92 (quoting C//y of Tuscaloosa v. Harcros

Chems., fac., l 58 F.3d 548, 562 (1 1th Cir.1998)). d'The party offering the expert has the burden of

satisfying each of these three elements by a preponderance of the evidence.'' 1d. at 1292 (citing

Allison v. McGhan Med. Corp. , l 84 F.3d 1300, l 306 (1 1th Cir. 1999)).

$$In ascertaining reliability under the second Daubert prong, we have identiGed several

factors which can be considered: (1) whether the expert's methodology can be tested; (2) whether the

expert's scientific technique has been subjected to peer review and publication; (3) whether the

mdhod has a known ratt of error; (4) whtthtr the ttchnique is generally accepted by the scientific

community.'' Rink, 400 F.3d at 1292 (citing Quiet Tech. DC-8, lnc. v. Hurel-Dubois UK L td., 326

F.3d 1333, 1341 (1 1th Cir. 2003)). id-l-his list of factors, however, Sdolesl not exhaust the universe of

considerations that may bear on . . . reliability.''' Id.(citing Quiet Tech., 326 F.3d at 1341 ; Kumho

Tire Co. v. Carmichael, 526 U.S. 137, 150 (1999); Daubert, 509 U.S. at 594). itDistrict courts ihave

substantial discretion in deciding how to test an expert's reliability . . . .''' 1d. (quoting United States

v. sfajors, 196 F.3d 1206, 12 1 5 (1 1th Cir. l 999)).

Even if proposed expert testim ony is adm issible under Rule 702, that evidence m ay be

excluded if it is irrelevant or if iûits probative value is substantially outweighed by a danger of . . .

unfair prejudice, confusing the issues, (or) misleading the jury.'' Fed. R. Evid. 403. Because Edexpert

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testimony may be assigned talismanic significance in the eyes of 1ay jurors,'' a district court '%must

take care to weigh the value of such evidence against its potential to mislead or confuse.'' United

States v. Frazier, 387 F.3d l 224, 1263 (1 1th Cir. 2004)

ll. D iscussion

In its Sixth Amended Rule 26(a)(1) lnitial Disclosures,ADT states that it $$will present

evidence at trial that Vivint's agents' claim s of affiliation with ADT amount in effect to a forced

license of the right to claim an affiliation with ADT, and that ADT is entitled to a forced royalty

payment for their claims of aftiliation with ADT.'' (DE 125-4 at 12). ADT'S counsel engaged

Russel Mangum ll1 (itMangum'') to Edanalyze and opine on the appropriateness and quantification of

royalty damages relating to ADT'S claims.'' (125-2 at 3). Vivint seeks to exclude M angum's report

and testimony. (DE 125).

In his report, M angum concludes that ADT'S damages can be modeled in the form of a

royalty and that the appropriate royalty amount is $:22 percent of revenues earned from home

monitoring, security and automation products/services for accounts generated during the timeframe

contemplated in the Complaint (ï.e., 2013-2016).'' (DE 125-2 at 6). Vivint argues that Mangum's

report should be excluded because his methodology is tlawed and his conclusion is itwildly

inappropriate.'' (DE l 25 at l 2). Specifically, Vivint argues that: (1) Mangum considers irrelevant

information and fails to consider relevant information; and (2) Mangum applies the 22% royalty rate

to all Vivint revenues, not just revenues derived from customers who switched from ADT to Vivint

based on V ivint's alleged m isrepresentations.

Vivint argues that M angum considers irrelevant information in reaching his conclusion.

Specifically, V ivint argues that M angum should not consider AD T'S agreem ents with third-party

dealers in which ADT licenses the right to use the A DT tradem ark as those agreem ents do not call

for royalty payments. (DE 125 at 5).Mangum opines that these agreements are relevant because:

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(T)he dealer revenue sharing agreement ADT has in place for hundreds of dealers is

an established market transaction model that indicates what contract revenue sharing

portion ADT is w illing to accept and what revenue sharing portion dealers are w illing

to pay for the dealers to be able to use ADT'S intangible assets and sell security and

m onitoring contracts w ith an affiliation with AD T.

(DE 125-2 at 14-15).Mangum states that this revenue sharing model is a (dmarket measure'' that is

useful to determine the tconomic value of ADT'S intangible assets. Lld. at 14). Vivint argucs that

the d'AD-fldealer agreement does not set forth any royalty rate'' and therefore is an inappropriate

reference point in determining the proper royalty amount. (DE 125 at 7). Whether or not the ADTdealer model is a proper reference point is a question for the jury and does not affect the evidence's

adm issibility. See AD T dr AD T US H oldings, Inc. v. Alarm Protection L L C, Case No. 9:15-CV80073, 2017 W L 221254 1 (S.D. Fla. 20l 7) (rejecting defendant's argument that plaintiffs Sdcannot

seek royalty damages as a matter of law because they do not label their income stream as da royalty'''

where evidence suggests that plaintiffs' agreem ent w ith dealers am ounts to Sdthe econom ic functional

equivalent of a royalty'').

Vivint then argues that M angum fails to consider relevant information. Specifically, Vivint

argues that M angum Ssignores an actual royalty rate established for the use of the AD T brand- that

set forth in the Trademark Licensing Agreement between ADT US Holdings, lnc., and ADT, LLC.''

(DE 125 at 5). ADT responds that the Siintra-company rate'' that ADT, LLC pays ADT US Holdings,

Inc. (dcl-loldings'') isbears no relationship to what ADT charges third-parties to use the trademarks in

the market.'' (DE 141 at 6).ADT notes that the royalty payment is part of a larger intra-company

agreem ent whereby A DT, LLC pays H oldings a 1 .65% royalty paym ent to use the ADT brand. In

addition to the royalty payment, ADT, LLC also has spent between $140 million and $160 million on

advertising and marketing in each of the past three years to enhance the value of the brand. (DE 141

at 7). Whether M angum should have considered this royalty rate is an issue more appropriately

explored on cross exam ination and does not affect the adm issibility of his testim ony and report. See

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Jones v. Otis Elevator Co., 861 F.2d 655, 663 (1 1th Cir. 1988) (iûgwjeakness in the undeminnings of

the expert's opinion go to its weight rather than its adm issibility.'') (citations omitted).

Finally, Vivint argues that M angum 's report and testimony should be excluded because his

ddopinion regarding the revcnue to which (the) purported 22% royalty should be applied (i.e., the

royalty base) is wildly inappropriate.'' (DE 125 at 12).Mangum's report concludes that SSEADT'SJ

damages in the form of a royalty amount to approximately 22 percent of revenues earned from home

monitoring, security and automation products/services for accounts generated during the timeframe

contemplated in the Complaint (f.e., 20l 3-20 16).'5 (DE 125-2 at 6). Vivint argues that it is

inappropriate to apply a royalty to çievery account generated by Vivint during the pertinent time

period, whether or not the result of any confusion by the custom er as to an affiliation betw een AD T

and Vivint.'' (DE l25 at 12). This Court has previously instructed ADT that it (smust iseparate out

the claimed damages that were actually attributable f/' Vivint's conduct.'' (DE 70 at 4) (citing

Optimum Techs., lnc. v.Henkel Consumer Adhesives, Inc., 496 F.3d 1231, 1252 (1 1th Cir. 2007)

(afirming judgment as a matter of law in favor of defendant where plaintifcs expert failed to

idseparate out the claimed damages that were actually attributable to'' defendant's trademark

violations such that there was insufficient evidence that defendant's misconduct proximately caused

plaintiff's injuryl). Under M angum's sweeping damages calculation, Vivint would have to pay a

22% royalty on revenues earned from monitoring customers who were never affiliated with ADT.

ADT cannot possibly claim that such revenues retlect damages actually attributable to Vivint's

m isconduct.

ADT does not dispute that M angum opines that V ivint should be required to pay a royalty on

revenues not actually attributable to V ivint's m isconduct. Instead, AD T responds only that it

ddlimited the base to which the 22 percent royalty would apply'' to an amount that dtreflectgsj that

proportion of U.S. households with ADT alarm systems.'' (DE 141 at 17). Regardless of the amount

of dam ages A DT ultim ately decides to pursue, M angum 's report and testim ony is excluded to the

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extent M angum opines that the 22% royalty should be applied to all of Vivint's iirevenues earned

from home monitoring, security and automation produds/services for accounts gentrated during the

timeframe contemplated in the Complaint (i.e., 2013-2016)'' as ADT has failed to identify evidence

suggesting that this sweeping damages calculation retlects damages actually attributable to Vivint's

alleged m isconduct. Accordingly, it is hereby

ORDERED AND ADJUDGED that Defendant's M otion (DE 125) is GRANTED IN

PA RT and DEN IED IN PA RT. M angum m ay testify as to an appropriate royalty rate applicable to

ADT'S claim for a forced royalty but may not testify that the royalty rate should be applied to

Vivint's revenues that are not actually attributable to Vivint's alleged mi duct.

DONE AND ORDERED in Chambers at West Pal each, lorida, this UY day of

/

N ovem ber, 2017.

A LD M . M IDD LEBROOK S

U NITED STATES D ISTRICT JUD GE

Copies to: Counsel of Record

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