June 4, 2015

IP HAWK
MARATHON PATENT GROUP (MARA)
Tire Pressure Trial Notes Day #4

David Hoff

David Hoff
iphawk@outlook.com
Founder
@theiphawk
http://theiphawk.blogspot.com
iphawk@outlook.com

Thoughts From the Hawk

Marathon Patent Group announced the acquisition of a new international patent portfolio on May 15, 2015. The patents are
related to tire pressure monitoring systems (TPMS). Of note the German portion of a TPMS patent was asserted in Germany,
which Bridgestone has already prevailed on the infringement portion and is able to post a bond to enforce an injunction. The
German victory does not guarantee success in the United States, but further shows that Marathon is able to source and acquire
valuable IP at various stages in its monetization campaign. The terms of the acquisition have not been fully disclosed
although I estimate any licensing revenues collected could be split 50/50.
A jury trial, Bridgestone v Schrader began on June 1, 2015. I attended day #4 and my notes are below. Please note that
patent litigation is very complicated and all of my notes are personal opinions or observations from attending the jury trial in
Delaware. I could very well be wrong in my understanding and recollection of what was said or demonstrated in court.
Day #4 Morning Session
I counted 13 people in attendance including myself. I believe the rest were either lawyers, shadow jurors, or company
representatives. More attendees filtered in and out during the morning session. There were six lawyers representing the
plaintiffs and six lawyers representing the defendants. The jury is all female with eight jurors. Two patents are being asserted
with two claims in each patent.
- 895 patent claims 12 and 92
- 476 patent claims 1 and 136
Day #4 started off with the cross examination of Bridgestones damages expert, Dr. Becker. Schrader was questioning him
on Georgia Pacific factors. He said he relied on the technical aspects provided by Bridgestones expert witness, three
comparable license agreement, how the patents work with the value of the patents power savings & multiple modes of
operation. He was then asked if he interviewed at anyone from Bridgestone, car manufacturers or the inventors. His answer
was no (I did not understand the relevance and didnt think the cross was going anywhere). The Judge then called for an off
the record conversation with the attorneys, but I was not sure why.
Key Data
Price

$4.57

TTM Revenue

$22.71mm

Enterprise Value

$87.1mm

Shares Outstanding

13.98mm

Shares Fully Diluted

19.56mm

Float

10.19mm

52 Week Range

$4.25-9.73

3 Month Avg. Volume

93,928

I am long MARA. I have not been paid to prepare or disseminate this report by Marathon or any company discussed. All information has been obtained from
public sources. All opinions are my own. Please consult a financial advisor before making any financial decisions.

June 4, 2015

IP HAWK
MARATHON PATENT GROUP (MARA)
Tire Pressure Trial Notes Day #4

David Hoff
iphawk@outlook.com
@theiphawk
http://theiphawk.blogspot.com

Becker used a hypothetical negotiation. In late 2003 Bridgestone and Schrader were not competitors when the Gen 3 product
was introduced. On 12/31/2014, Bridgestone and Schrader entered into a mutual non disclosure agreement (I am not sure what
for). Bridgestone was a customer of Schraders with Bridgestone purchasing Schrader parts for tire testing.
Dr. Becker was asked about his testimony in Virnetx and the analogy he made on Day #3 was the exact opposite analogy he
testified in the Virnetx case for Apple. The Virnetx case was discussed for roughly 5 10 minutes.
Dr. Becker relied on three comparable patent licenses:
- Schrader & Lear 11/1/2010. Schrader bought Lear and in consideration paid a 4.5% earn out payments for the
TPMS assets which included their patents. It encompassed 34 patents.
- Delphi & Lear 2.97% rate.
- BMW & Schrader fixed fee.
< 10,000 units = $1.23
10,000-100,000 = $.61
>100,000 = $.31
The cross examine wrapped up with Schrader saying a .6% royalty. The cross examination lasted an hour and 10 minutes.
Redirect started. The Bridgestone attorney started with a summary of the damages presentation from yesterday. A 2.5%
royalty, 1.1B royalty base, which equaled a royalty payment of $28.6mm. This includes only US sales of TPMS products
(Bridgestone has already proved infringement in Germany). I estimate their would be roughly another $30mm in future US
royalties through the life of the patents. With the German case and pending injunction it should provide another $20-30mm in
damages along with added leverage/urgency with an injunction put in place. The combined cases could be near $100mm in
total. The royalty period is from May 2007 to March 2015. Dr. Becker was then asked about the sensor and his understanding
of how it worked. If you remove any component out of the sensor it wouldnt work for its intended and purchased use, IE
battery or the microprocessor. The average TPMS unit was $6.32 and a car needs one on each tire.
A 3/1/2009 white paper was shown that was marked confidential. The programmable TPMS Gen3-Gen6 eventually led to the
EZ Sensor. On the document it was written to increase the extraordinary margins. Next in a Bill of Materials, there was a
column that a license fee of 2 British pounds per sensor. The defense attorneys kept trying to object during this testimony (3
times), which were all overruled. The whitepaper was then again shown and the Corporate Risk is Perceived as High was
shown again. It was then emphasized that a patent is the right to exclude others from using the patent and it does not mean that
the company has to practice the patent in their own product. Plaintiff stated they rested their case. The court then had a 15
minute break.
At 11:00am defendants wanted a JMOL (Judgment of matter of Law) for non-infringement + damages as they argued the
plaintiff did not present enough evidence to prove infringement and damages. The Judge said it would be a fools errand at this
point. JMOL was denied.
Day #4 Defense
The defense started at 11:10am and I counted 16 people now in attendance. The defense called Steven McClelland, the
managing director at Schrader. He gave his background how he worked for Schrader and the tasks he performed at Schrader.
He and his team developed the TPMS line of products at Schrader starting with the Gen1 TPMS in 1992. The product was
built to last 10 years or 100,000 miles. The team spent 1.5 years on the development of the Gen1 product. The product was
first demoed to Cadillac in their high end luxury line. Cadillac said no due to the cost, $120. Luckily Corvette called and were
interested for their new Corvette model, which had run flat tires.
I am long MARA. I have not been paid to prepare or disseminate this report by Marathon or any company discussed. All information has been obtained from
public sources. All opinions are my own. Please consult a financial advisor before making any financial decisions.

June 4, 2015

IP HAWK
MARATHON PATENT GROUP (MARA)
Tire Pressure Trial Notes Day #4

David Hoff

David Hoff
iphawk@outlook.com
Founder
@theiphawk
http://theiphawk.blogspot.com
iphawk@outlook.com

The witness was asked if he filed a patent application for the Gen1 TPMS product. He said he did and patent 5,963,128 was
shown on the screen. He said it had an ASIC, which can be programmed for different modes and he then explained how his
patent worked. They then went through how Schrader had to file and get approved with FCC for the RF wireless
transmissions. He was then asked about the clock speeds and he said it only had one speed.
The Gen2 TPMS product was then discussed. It was a smaller product and had a smaller battery. They held up both sensors
and the Gen2 was about half the size of the Gen1. It had identical functionality, didnt cost any more, and could fit in smaller
wheels. They again filed with the FCC for the wireless transmission. He testified that both the Gen1 and Gen2 could be
programmed even though they were state machines. The related questioning went on for around 10 minutes.
The Gen3 TPMS product was next discussed. It was the same size as the Gen2 TPMS product. It did not have any power
savings. Schrader wanted a software based design so they could add more features and programmable options for their
customers.
They then went to the EZ Sensor, which was introduced in 2008. They could scan and upload any car into the sensor when it
was replaced. The EZ Sensor was made for the highly profitable aftermarket. We then went back to the whitepaper. It was
explained why IP Infringement was High as they wanted the different manufacturers car codes and thought competitors had
IP that might cover the product. It didnt have anything to do with Bridgestone. The legal team checked for related IP to asses
the risk. They spent one year checking for IP.
Next a 2010 Q2 senior management presentation was shown and provided an update to the IP risk analysis.
Risks:
Lear patent resolved with the purchase of Lears TPMS program and related patents.
Pacific & TRW completed with no major risks identified for their IP.
A lunch break was held between 1pm 2pm. My note: I thought the Schrader presentation was very good and my good vibes
on the case were starting to go away. This is just my opinion.
Day #4 Afternoon Session
2PM - 18 now in attendance. A recap of his testimony was gone over. It was reiterated that the whitepaper note with high
risk of IP infringement had nothing to do with Bridgestone. He was surprised that Bridgestone filed the patent suit and they
had a 10-12 year relationship. He did not know about their patents.
Cross examination started. Mr. McClelland was asked for his current title which is VP of MIM products. Sensata acquired
Schrader in Oct 2014. He was the managing director before the purchase. He oversees three subsidiaries and there are 1,400
people underneath him and he reports directly to the CEO. He has been leading the TPMS program since 1997. The TPMS
program has grown from 34 employees to 1,400 employees under his watch.
I thought the turning point in my opinion started when Mr. McClelland was cross examined in regards to the programming of
the Gen1/Gen2 state machines and how they didnt use a microprocessor, but could still be programmed. I noted the jury was
very engaged during the following testimony and the witness started to become irritated with the questioning bordering on
hostile.
I am long MARA. I have not been paid to prepare or disseminate this report by Marathon or any company discussed. All information has been obtained from
public sources. All opinions are my own. Please consult a financial advisor before making any financial decisions.

June 4, 2015

IP HAWK
MARATHON PATENT GROUP (MARA)
Tire Pressure Trial Notes Day #4

David Hoff

David Hoff
iphawk@outlook.com
Founder
@theiphawk
http://theiphawk.blogspot.com
iphawk@outlook.com

The Bridgestone attorney then went to a deposition with a lead engineer from Schrader who was responsible for the TPMS
engineering. The engineer testified that a state machine such as in the Gen1/Gen2 sensors were NOT programmable. Even in
sleep mode the sensor components were still powered. The Schrader engineer testimony completely contradicted Mr.
McClellands testimony (I felt much better at this point).
They next went to Mr. McClellands deposition where the Gen1/Gen2 state machines were discussed. He testified during his
deposition that the state machines were very limited on their ability to be programmed and it was done with a one time fusible
link.
Three years later Schrader launched the Gen3. Gen4 in 2006, Gen5 in 2010, EZ Sensor in 2010, and Gen6 in 2014.
A supplier document was shown, which included the Gen3 ASIC architecture. It addressed two key problems improved
versatility & testability. A state machine was tough to test to make sure it worked. Roughly 60 seconds per sensor to test.
With the new software based model in Gen3 it only involved 10 seconds to test. The Gen3 and later models had a power down
mode where the sensor spends most of its time waiting to do something and conserve battery power.
A strategy document for Gen3 products was shown. It was meant to be smaller, lighter, and easier to fit. It also added a
temperature sensor for measurements. He testified that they werent to meet all of these goals in the Gen3. They did get there
in the Gen4 products. Sales exploded.
2002 sales = $25mm
2003 sales = $24mm
2004 sales = $52mm
A Schrader patent application along with the Information Disclosure Statement (IDS) was shown that was filed in 2007. The
IDS is a listing of known possible prior art the patent office should consider. On the Schrader application IDS the Bridgestone
patent in suit was listed. This shows that someone at Schrader knew of the Bridgestone patents as it was referenced in their
patent application going back to November 2007.
Break for 10 minutes
Back from break at 3:40pm. I counted 22 people now in attendance. It was asked if all of the accused products were the same
in regards to infringement and if they could be collapsed into one category. He said that Gen3-Gen6 could but not the EZ
Sensor. The Gen2 product was brought up along with Mr. McClellands 708 patent, which listed one crystal and one clock
speed.
They now went back to the Lear TPMS purchase and the 4.5% earn out to Lear. Lear did not have a prototype or commercial
sensor for sale. The Schrader's damages export report was discussed where she did not consider the Lear 495 patent purchase
and primary goal in her report.
Redirect The products do have a microprocessor defined by the court in their claim construction. There were three rapid fire
objections by Bridgestone counsel ,which were all sustained. A brief attorney/Judge conference was held and the cross
wrapped up on Mr. McClelland. I interpreted this development as very good for Bridgestone.
I am long MARA. I have not been paid to prepare or disseminate this report by Marathon or any company discussed. All information has been obtained from
public sources. All opinions are my own. Please consult a financial advisor before making any financial decisions.

June 4, 2015

IP HAWK
MARATHON PATENT GROUP (MARA)
Tire Pressure Trial Notes Day #2

David Hoff

David Hoff
iphawk@outlook.com
Founder
@theiphawk
http://theiphawk.blogspot.com
iphawk@outlook.com

Disclosure: I, David Hoff, own stock in MARA. I wrote this report myself, and it expresses my own opinions. I have no
business relationship with any company whose stock is mentioned in the article.
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