Intangible Economic Damages: Leveraging Methods of Proof, Valuation Techniques and Use of Experts
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WEDNESDAY, MARCH 4, 2015
Presenting a live 90-minute webinar with interactive Q&A
Jared C. Jordan, Managing Director, Hill Schwartz Spilker Keller, Austin, Tex.
Cindy B. Carradine, Managing Director, Hill Schwartz Spilker Keller, Dallas
Zachary G. Newman, Partner, Hahn & Hessen, New York
Todd Gale, Senior Counsel, Dykema Gossett, Chicago
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5
Intangible Economic Damages:
Speaker:
Jared C. Jordan (Hill Schwartz Spilker Keller)
Leveraging Methods of Proof, Valuation Techniques
and Use of Experts
I. Types of Intangible Economic Assets / Damages
6
What is an Intangible Asset?
Characteristics of Intangible Assets
• Non-physical in nature
• Give owners certain (or potential) rights
and privileges
• Potential to provide owners with economic
benefits
• Identified with specificity
• Can be described in addition to being
subject to legal protection
7
Types of Intangible Assets
8
Importance of Intangible Assets
9
Importance of Intangible Assets (cont.)
10
Types of Intellectual Property
11
Famous (or Infamous) IP Disputes…
• S. Victor Whitmill v. Warner Bros. Entertainment Inc.
• Mattel Inc. v. MGA Entertainment Inc.
• Lucasfilm Ltd. v. High Frontier and Lucasfilm v. Committee for a Strong, Peaceful America
• A&M Records, Inc. v. Napster Inc.
12
Significant $$$ at Stake
13
Patent Overview
In order to qualify for patent protection, inventions and
discoveries should represent a “new and useful process,
machine, manufacture, or composition of matter, or any new
and useful improvement thereof.”
Types of Patents
• Utility
• Design
• Plant
14
Patent Overview (cont.)
The essence of patent rights resides in the ability of the owner
to exclude others from making, using, selling, offering to sell,
or importing the patented invention into the United States.
Patents as Property • Patent rights can be sold or licensed pursuant
to a written agreement
• Licenses can be exclusive or nonexclusive
15
The Purpose of Patent Law
16
Patent Damages
35 U.S.C §284:
“[u]pon finding for the claimant the court shall award the
claimant damages adequate to compensate for the
infringement, but in no event less than a reasonable
royalty for the use made of the invention by the infringer,
together with interest and costs as fixed by the court.”
17
Copyright Overview Types Notice of copyright
1. Literary works. (1) the symbol ©, or the
words Copyright or Copr, 2. Musical works, including any accompanying words.
3. Dramatic works, including any accompanying music.
4. Pantomimes and choreographic works. (2) the year of first
publication, 5. Pictorial, graphic, and sculptural works.
6. Motion pictures and other audio/visual works.
7. Software programs and applications. (3) the name of the owner.
8. Sound recordings.
9. Architectural works.
18
Copyright Overview (cont.)
Exclusive rights of copyright owners:
1. To reproduce the work in copies or phonorecords
2. To prepare derivative works based upon the work
3. To distribute copies or phonorecords to the public
4. To perform the work publicly
5. To display the work publicly
6. To perform the copyrighted work publicly by means of a
digital audio transmission
19
Copyright Damages
17 U.S.C §504(a):
“an infringer of copyright is liable for either:
(1) the copyright owner’s actual damages and any additional
profits of the infringer, as provided by subsection (b); or
(2) statutory damages, as provided by subsection (c).”
20
Trademark Overview
Trademark law governs the use of a word, phrase, symbol,
product shape, logo, or device by a manufacturer or
merchant, even a color or smell.
• Trademarks
• Service Marks
• Certification Marks
• Collective Marks
21
Trademark Overview (cont.)
•Trademarks are protected under federal and state law. • Federal statute is Lanham Act
Designations: • TM (for trademarks)
• SM (for services marks)
• ® (for registered marks)
22
Trademark Damages
• Section 1117 of the Lanham Act states that a plaintiff
shall be able to recover: (1) defendant’s profits,
(2) any damages sustained by the plaintiff, and
(3) the costs of the action/litigation
The test for infringement will ordinarily turn on the
likelihood of confusion.
23
Trade Secret Overview
Trade Secrets Include:
• Formulas
• Patterns
• Physical Devices
• Ideas
• Processes
• or…
• Compilations of
Information that: (1) provides the owner of the
information with a competitive
advantage in the marketplace, and
(2) is treated in a way that can
reasonably be expected to prevent
the public or competitors from
learning about it, absent improper
acquisition or theft.
24
Trade Secret Damages
In most states, the essential elements of a claim alleging
trade secret misappropriation are the following:
1. A trade secret
2. Acquisition of the trade secret in confidence
3. The unauthorized use of the trade secret
25
Intangible Economic Damages:
Speaker:
Cindy B. Carradine, CPA/CFF
(Hill Schwartz Spilker Keller)
Leveraging Methods of Proof, Valuation Techniques
and Use of Experts
II. Methods for Valuing Economic Damages Related
to Intangible Assets
26
Economic Damages Related to
Intangible Assets
Actual Damages
Unjust Enrichment Damages
27
Lost Profits May be available for:
Patent
Copyright
Trademark
Trade Secret
Lost profits are the profits that the intellectual property
owner would have made from the sale of the units, “but
for” the infringement
28
Lost Profits in Patent Infringement
Starting point is the test established in Panduit Corp. v.
Stahlin Bros. Fibre Works, 575 F.2d 1152, 1156, 197
USPQ 726 (6th Cir. 1978)
If meet the 4-prongs of Panduit then model how the
market would have behaved if the defendant had never
released the infringing product on the market
29
1st Panduit Factor:
Demand for the Infringing Product
Level and growth of sales of the patented product:
Patent Holder
Infringer
Variations between the sales of the patented product and
any predecessor product.
Infringer’s business plans and product literature.
Infringer’s sales before and after infringement.
How long has infringer been infringing the patent?
30
2nd Panduit Factor:
Acceptable Nonfringing Substitutes
Requires proof that acceptable noninfringing substitute
products were not available to satisfy demand during the
period of infringement.
Alternatives in the market place:
Of equal quality?
Have the distinct features and benefits of the product with the
patented feature?
Numerous acceptable alternatives?
Market share approach.
31
3rd Panduit Factor:
Manufacturing and Marketing Capability
Lost units compared to patent holder’s historic sales.
Patent holder’s sales and distribution network.
Patent holder’s ability to makes sales through any
alternate channels of distribution used by the infringer.
Ability to increase production capacity if necessary Financial
Technical
Required certification or approval from government
agencies.
Cost and availability of raw materials.
32
4th Panduit Factor:
Quantifying Profit
Defendant’s sales
Plaintiff’s sales if defendant’s sales eroded the market price
33
Lost Profits in Copyright, Trademark,
Trade Secret
Profits the intellectual property owner failed to earn
as a result of the infringement
Typically applies only if the IP owner and the
infringer were actual or potential competitors
34
Calculating Lost Profits
• Revenues • Damages Period
• Sale Price
• Price Erosion
• Elasticity
• Convoyed/Collateral Sales
• Incremental Costs • Fixed Costs
• Variable Costs
• Semi-Variable Costs
• Cost of Goods Sold
35
Reasonable Royalty … an alternative to Lost Profits
Amount someone wanting to use the patented invention
would have agreed to pay the intellectual property owner
AND
Intellectual property owner would have accepted in order to
license the invention.
36
Georgia-Pacific Hypothetical
Negotiation Georgia-Pacific Corp. v. United States Plywood Corp., 318 F.
Supp. 1116 (S.D.N.Y. 1970),mod. and aff’d, 446 F.2d 295 (2d
Cir.), cert.denied, 404 U.S. 870 (1971)
Hypothetical negotiation for licensing of the patent
Presumes the hypothetical negotiation occurred
Presumes plaintiff licensed the invention willingly
37
Georgia-Pacific Factors
1. Royalties received by the patent owner for the licensing
of the patent-in-suit (established royalty).
2. Rates paid by licensee for use of comparable patents.
3. Nature and scope of the license (exclusive, nonexclusive,
restricted or nonrestricted).
4. Licensor’s established policy and marketing program to
maintain its patent monopoly.
5. Commercial relationship between licensor and licensee.
38
Georgia-Pacific Factors, continued
6. Effect of selling the patented specialty in promoting sales
of other products of the licensee.
7. Duration of the patent and term of the license.
8. Established profitability of the product made under the
patent, commercial success, current popularity.
9. Utility and advantages of the patent property over old
modes or devices.
10. Nature of the patented invention.
39
Georgia-Pacific Factors, continued
11. Extent to which the infringer has made us of the
invention.
12. Portion of the profit or selling price that may be
customary in the particular business or comparable
businesses.
13. Portion of the realizable profit that should be credited to
the invention as distinguished from nonpatented elements
such as manufacturing process, business risks, or features
or improvements added by the infringer.
40
Georgia-Pacific Factors, continued
14. Opinion testimony of qualified experts.
15. Amount that a licensor and a licensee would have agreed
upon at the time of the infringement if both had been
reasonably and voluntarily trying to reach an agreement.
41
Unjust Enrichment Damages
May be available for infringement of: Copyright
Trademark
Trade Secret
Design Patent
Unjust enrichment claim seeks to deprive the defendant of
the gain or benefit it obtained from the infringement
Disgorges ill-gotten gains
42
Unjust Enrichment: Revenues
Copyright: Profits of the infringer attributable to the infringement
Plaintiff’s burden to prove revenues
Infringer’s burden to prove cost deductions
Lanham Act: Infringer’s profits from use of the mark
Plaintiff’s burden to prove infringer’s sales
Infringer’s burden to prove cost deductions
43
Unjust Enrichment: Cost Deductions
Copyright Costs directly attributable to the production, distribution,
performance, or display of the infringing work
Partial recognition of costs related to infringement, excluding
certain overhead costs
Full recognition of costs related to infringement, including
overhead and fixed costs
Lanham Act Differential cost rule (incremental approach)
Direct assistance rule
Fully allocated cost rule
44
Unjust Enrichment: Apportionment
Only the portion of profits from infringing sales that can be
ascribed to the intellectual property in question are recoverable
Defendant’s burden
45
Double Dipping Not Allowed
ZACHARY G. NEWMAN HAHN & HESSEN LLP [email protected]
PROVING, OR DEFENDING AGAINST, INTANGIBLE ECONOMIC DAMAGES
47
Intangible
48
WHERE TO START? IDENTIFICATION AND ARTICULATION
Discovery
Reasonable Due Diligence
Independent Verification
Expert Analysis
Comparable Legal Claims
Reasonableness
Reachable
49
WHEN CAN / SHOULD YOU BE ABLE TO ANSWER THESE QUESTIONS?
What intangible asset is claimed to have been damaged?
What intangible economic loss is being claimed?
What legal claim will permit recovery (breach, infringement, tort …)
What parties committed the breach or wrong?
How do you prove and/or defend the economic damage claims?
50
GENERAL PRINCIPLES
Starting Point
Know Your Jurisdiction
Start with Decisional Authority
Rely on Pattern Jury Instructions and use as a guidepost
Do not approach damage analysis and calculations as a “to do later” task
51
SAMPLE JURY INSTRUCTIONS BUSINESS TORTS – THEFT OF TRADE SECRETS
Plaintiff has the burden of establishing the amount of actual damages, if any, that were suffered. Damages must be determined with reasonable certainty from the evidence presented. Mathematical precision need not be shown, but you are not to guess or speculate as to damages. You may only award an amount that would fairly compensate plaintiff for damages proximately caused by defendant’s use of trade secrets. You may consider, in awarding such actual damages, the costs defendant would have incurred in acquiring the same information or trade secrets through its own experimentation or through other lawful means, or you may consider the actual view of what has been appropriated or the reasonable royalty as of the time of the misappropriation.
52
Plaintiff has the burden of establishing the amount of actual damages, if any, that were suffered. Damages must be determined with reasonable certainty from the evidence presented. Mathematical precision need not be shown, but you are not to guess or speculate as to damages. You may only award an amount that would fairly compensate plaintiff for damages proximately caused by defendant’s use of trade secrets. You may consider, in awarding such actual damages, the costs defendant would have incurred in acquiring the same information or trade secrets through its own experimentation or through other lawful means, or you may consider the actual view of what has been appropriated or the reasonable royalty as of the time of the misappropriation.
53
OUR ANALYSIS FOR TODAY: LOST PROFITS GOODWILL AND REPUTATION TRADE SECRET DAMAGE
54
So much guidance …
55
LOST PROFITS: ALL COURTS UNIFORMLY AWARD?
Defendants argue that plaintiff's claim for lost profits fails because (1) it is based on speculation and conjecture; (2) it lacks a causal link to the alleged misconduct or breach; (3) it is precluded by a contractual limitation of liability clause; and (4) it is not tied to the confidential information that defendants allegedly misused.
Lost profits may be calculated based on past profits but a plaintiff cannot recover for the mere potential of profitability.
POWERWEB ENERGY V. HUBBELL LIGHTING
56
LOST PROFITS CONTINUED
A claim for the right to recover is speculative where the calculation of such damages depends upon a contingency that might not happen.
Evidence concerning lost profits based on past and similar sales can provide a modicum of reliability, although lost future profits cannot be calculated with mathematical certainty.
The evidence must afford a sufficient basis for estimating the lost profits with reasonable certainty.
57
WHAT LOST PROFITS CANNOT BE …
Claim for damages was speculative as predicated on an unresolved contingency, the approval of a medicaid application Meadowbrook Center, Inc. v. Buchman, 149 Conn. App. 177, 90
A.3d 219, 2014 WL 1282569, *7 (April 8, 2014)
Lost profits damages could not be based on unfinalized contract as to costs, timetable, and specifications.
Bridgeport Harbour Place I, LLC v. Ganim, 131 Conn. App. 99, 123, 30 A.3d 703 (2011)
58
WHAT LOST PROFITS CANNOT BE …
Claim for damages was speculative as predicated on an unresolved contingency, the approval of a medicaid application Meadowbrook Center, Inc. v. Buchman, 149 Conn. App. 177, 90
A.3d 219, 2014 WL 1282569, *7 (April 8, 2014)
Lost profits damages could not be based on unfinalized contract as to costs, timetable, and specifications.
Bridgeport Harbour Place I, LLC v. Ganim, 131 Conn. App. 99, 123, 30 A.3d 703 (2011)
59
PROOF OF PAST PROFITS AND EXPENSES: NECESSARY OR NOT
Missouri Courts have held that proof of past profits and expenses is necessary to recover damages for lost profits where lost profits are being sought from the interruption of an established business and the underlying cause of action is based upon a tort or tortious interference claim. interruption of established business and tort claim for
interference with a contractual relationship interruption of established business and claim for
tortious interference with business contracts and relationships
proof of past profits and expenses necessary to recover lost profits where plaintiff-business sued a former officer for breach of a non-compete agreement and plaintiff sought profits lost as a result of the former officer working for a competing business
60
In contrast, Missouri Courts have held it is not necessary for a plaintiff-business to prove past profits and expenses where the plaintiff seeks to recover damages for lost profits flowing directly from a breach of or interference with a specific contract or transaction.
“[The] claims for lost profits involved known commodities with demonstrable market prices," and proof of past profits and expenses was not required because plaintiffs clearly established the fact of damages and plaintiffs could estimate the amount of damages with reasonable certainty. Midwest Coal, 378 S.W.3d at 371, 372 (describing the
holdings in BMK, 226 S.W.3d at 195-96, Harvey, 37 S.W.3d at 818, and Hanes, 714 S.W.2d at 669-70).
61
PROVING LOST PROFIT DAMAGES
Admission of expert evidence requires the trial court to apply the same standards for relevance and admissibility that apply to other types of evidence.
62
HOW DO YOU PROVE THIS THROUGH FACTUAL AND EXPERT TESTIMONY?
Rely on information provided by the litigants
Profit and loss statements
Database of customers
Counsel: So is your understanding then that the information you have, the data you collected is reflective of the actual databases used by the haulers?
Ficken: Oh, that's correct. It's a live system. We took a mirror image of the database of those customers which reflect the most current information from them. So that is the source document we relied on. It's the actual live data.
63
WEAK SPOTS
Expenses
In calculating lost profits damages, lost revenue is estimated, and overhead expenses tied to the production of that income are deducted from the estimated lost revenue
Veracity of information (using profit and loss statements versus tax returns)
Challenging Assumptions
Competitor information
Extent of discovery challenge
64
USE CASES AS ROADMAP
Rejected challenge to expert's methodology for calculating lost profits where expert explained his methodology and the rationale upon which it was based, finding that methodology was not inadmissible, but rather, was for the finder of fact to accept or reject
Finding trial court did not err in admitting expert opinion where defendants did not introduce other records or evidence which might have convinced the trial court that expert's opinion was wrong Green v. Beagle-Chilcutt Painting Co., Inc., 726
S.W.2d 344, 354-55 (Mo. App. W.D. 1987)
65
ESTABLISHING REASONABLE CERTAINTY
If the evidence in a case involving lost profits demonstrates that a party had a substantial pecuniary loss, but it is apparent that the loss is of a character which defies exact proof, a lesser degree of certainty as to the amount of the loss is required, leaving a greater degree of discretion to the finder of fact as to the amount of damages to be awarded.
66
TRADE SECRET DAMAGES
To establish a claim for misappropriation of trade secrets, a plaintiff must show: (1) the existence of a trade secret; (2) misappropriation, wrongful use, or wrongful disclosure of a trade secret by the defendant; and (3) damages.
67
BASICS
A trade secrets plaintiff does not have to show that the defendant used the information in competition with the plaintiff in order to recover damages from the defendant.
Plaintiffs typically can recover – under particular states’ trade secrets acts – damages using a reasonable royalty theory even if the defendant is not using the plaintiff's trade secrets in direct competition with the plaintiff.
68
BASICS (CONTINUED)
A reasonable royalty focuses on the actual value of a trade secret to the misappropriator and asks what the royalty would have been if both parties were reasonably trying to reach an agreement on legally licensing the trade secret.
Cases suggest that the fact-finder should ask what royalty rate and terms would the plaintiff and defendant arrive at in an arms-length negotiation to license the plaintiff's trade secrets.
A reasonable royalty may be computed in various ways, including a lump-sum royalty based on expected sales or a running royalty based on a percentage of actual sales.
69
ASK CHEMS., LP V. COMPUTER PACKAGES, INC., 2014 U.S. APP. LEXIS 23444 (6TH CIR. OHIO DEC. 10, 2014)
On the facts of this case, and particularly in light of the unreliability of the evidence underlying Plaintiff's estimates, the district court was within its discretion to determine that the lack of independent verification or analysis of the revenue projections rendered Russell's opinion unreliable. Where an expert merely offers his client's opinion as his own, that opinion may be excluded. See, e.g., CIT Grp./Bus. Credit, Inc. v. Graco Fishing & Rental Tools, Inc., 815 F. Supp. 2d 673, 677 (S.D.N.Y. 2011) (rejecting expert testimony based on "the conclusory statements of [the party's management] and not on his independent evaluation of the facts"); King-Indiana Forge, Inc. v. Millennium Forge, Inc., No. 1:07-cv-00341-SEB-SML, 2009 U.S. Dist. LEXIS 96131, 2009 WL 3187685, at *2 (S.D. Ind. Sept. 29, 2009) ("When an expert's proffered opinion merely parrots information provided to him by a party, that opinion is generally excluded.").
70
ADDITIONAL CONSIDERATIONS
Breach of Contract Contractual waivers of lost profits 8.10. NO CONSEQUENTIAL DAMAGES. EXCEPT FOR DAMAGES
SUBJECT TO INDEMNIFICATION UNDER SECTION 4.2, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR INDIRECT DAMAGES OF ANY KIND INCURRED BY THE OTHER PARTY, INCLUDING WITHOUT LIMITATION ECONOMIC DAMAGES OR INJURY TO PROPERTY AND LOST PROFITS, REGARDLESS OF WHETHER SUCH PARTY SHALL BE ADVISED, SHALL HAVE OTHER REASON TO KNOW, OR IN FACT SHALL KNOW OF THE POSSIBILITY OF THE FOREGOING.
Direct v. Consequential (Gardensensor v. Stanley Black & Decker)
Economic Loss Rule Throwing stones at “glass houses”
71
GEORGIA PACIFIC FACTORS: DETERMINING REASONABLE ROYALTY FOR A PATENT LICENSE
A comprehensive list of evidentiary facts relevant, in general, to the determination of the amount of a reasonable royalty for a patent license may be drawn from leading cases
72
LET’S DISCUSS THE FACTORS
Royalties received by patentee for licensing of
the patent in suit, proving or tending to prove an
established royalty
Rates paid by licensee for the use of other patents
comparable to the patent in suit
Nature and scope of the licenses (exclusivity; territory restrictions)
Duration of the patent and the term of the
license
Established profitability of the product made under
the patent, its commercial success, and current
popularity
Extent to which infringer infringer has made the
use of the invention and any evidence probative of
the value of that use
Opinion testimony of qualified experts
Portion of the realizable profit that should be
credited to the invention as distinguished from
non-patented elements
What would a prudent license look like if agreed
upon
73
LESSONS FROM PATENT CASES
Upon a showing of infringement, a patentee is entitled to damages adequate to compensate the infringement but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.
To ensure damages figures are not conjectural or speculative, a starting point should be tied to case-specific factors grounded in reliable data, such as the parties' relative bargaining power, the relationship between the patented invention and the accused product, other licenses involving the same patent, and analogous licenses in the industry for patents covering component parts
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Use of Expert Witnesses© Strafford CLE Webinar - Intangible Economic Damages
Todd Gale
March 4, 2015 This is not legal advice, and its contents may not be relied upon for that purpose. If you require legal advice, please contact the author.
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Factors That Can Impact An Expert’s Effectiveness
• Demonstrable technical competence
• Industry-specific knowledge/experience/expertise
• Presentability/gravitas/presence on direct examination
– Careful
– Thoughtful
– Helpful
– Truthful
• Fluency/dexterity/ability to withstand cross examination
– Patient, firm, but not belligerent
– Same witness that we saw on direct examination
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Rules For Counsel To Know Cold
1. Federal Rule of Civil Procedure 26(a)(2) and (b)(4): Content of
expert report/disclosure and discoverability of opinions
– Who prepares report/disclosure
– What must be included
– When must it be disclosed
– What supporting materials must be produced
2. Federal Rule of Evidence 702: Admissibility of expert testimony
– Court as gatekeeper
– Augmented by Daubert, Kumho Tire and progeny
3. Federal Rule of Evidence 703: Permissible bases of expert
opinions
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Federal Rule of Civil Procedure 26(a)(2)(B) and (C):
Who prepares report/disclosure
• If the expert is “retained or specially employed to provide expert
testimony in the case or one whose duties as the party’s
employee regularly involve giving expert testimony”
– Expert must prepare and sign a report.
– But counsel can participate, and changes to the rule in 2010
give considerable clarity regarding the role of counsel and
work product protection.
• For non-retained experts (e.g., a party’s employee qualified to
opine), counsel prepares a disclosure
– Subject matter of the testimony
– “[A] summary of facts and opinions to which the witness is
expected to testify.”
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Work Product Protection - Fed.R.Civ.Pro. 26(b)(4)(B)
and (C)
Work product protection is now afforded to:
• Drafts of the expert report/disclosure
• Communications between retaining attorney and retained expert,
except communications regarding:
– Compensation for expert’s study or testimony;
– Facts or data provided by attorney which expert considered in
forming opinions; or
– Assumptions provided by attorney upon which the expert
relied in forming opinions.
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Federal Rule of Civil Procedure 26(a)(2): What must
retained expert’s report include
• “[A] complete statement of all opinions the witness will express
and the basis and reasons for them”
• “[T]he facts or data considered by the witness in forming them”
(emphasis added)
• Any summary/demonstrative exhibits (if prepared)
• Qualifications
– Publications for last ten years
– Trial or deposition testimony for last four years
• Compensation to be paid “for the study and the testimony in the
case.”
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“Considered By” vs. “Relied Upon”
• Pre-1993 amendment standard was “relied upon”
• “‘Considered,’ which simply means ‘to take into account,’
clearly invokes a broader spectrum of thought than the
phrase ‘relied upon,’ which requires dependence on the
information.” Weil v. Long Island Sav. Bank FSB, 206
F.R.D. 38, 42-43 (E.D.N.Y. 2001)
– Documents “considered by” expert should not be
destroyed
– Note of Caution: Documents “considered by” an
expert can include privileged documents. Considered
= discovered. Do not blow your privilege!
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Federal Rule of Civil Procedure 26(a)(2): When
must report/disclosure be served
• Usually covered in Case Management Order
• If not:
– 90 days before trial
– If strictly rebuttal, 30 days after report being rebutted
• “The parties must supplement these disclosures when required
under Rule 26(e).”
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Federal Rules of Evidence 702 and 703:
Admissibility and Bases of Expert Testimony
• “If scientific, technical, or other specialized knowledge will assist
the trier of fact to understand the evidence or to determine a fact
in issue”
• “[A] witness qualified as an expert by knowledge, skill,
experience, training, or education, may testify thereto in the
form of opinion or otherwise,” if:
– Testimony based on sufficient facts or data;
– Testimony is product of reliable principles and methods; and
– Witness has applied the principles and methods reliably to
the facts
• “If experts in the particular field would reasonably rely on those
kinds of facts or data in forming an opinion on the subject, they
need not be admissible for the opinion to be admitted.”
– Otherwise inadmissible facts come in “only if their probative
value in helping the jury evaluate the opinion substantially
outweighs their prejudicial effect.”
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Daubert v. Merrell Dow Pharm., 509 U.S. 579 (1993)
• Expert testimony must be both relevant and reliable to be
admitted
• The trial judge must determine “whether the reasoning or
methodology underlying the testimony is scientifically valid
and whether that reasoning or methodology can properly
be applied to the facts at issue.”
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Daubert v. Merrell Dow Pharm., 509 U.S. 579 (1993)
• Daubert provided a list of non-exclusive factors to
consider, including:
– whether the scientific theory or technique can be (and
has been) tested;
– the theory or technique has been subjected to peer
review and publication;
– whether there is a known or potential error rate; and
– whether the theory or technique is generally accepted
within the relevant scientific community.
Exceptional service. Dykema delivers. 85
Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137
(1999)
• Extends the Daubert standard to all expert testimony, not
just that which can be characterized as “scientific.”
• Also, Kumho Tire held that judges in cases involving non-
scientific testimony enjoy broad discretion in determining
how to assess an expert’s reliability and are not limited to
the Daubert factors in assessing the reliability of the
proffered expert testimony.
Exceptional service. Dykema delivers. 86
Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137
(1999)
• The four-part Daubert test “may or may not be pertinent in
assessing reliability depending on the nature of the issue,
the expert’s particular expertise, and the subject of his
testimony.”
• Trial courts should be granted “considerable leeway in
deciding in a particular case how to go about determining
whether particular expert testimony is reliable.”
Exceptional service. Dykema delivers. 87
Case Examples
• Carnegie Mellon Univ. v. Marvell Tech. Group Ltd., 986 F. Supp. 2d
574 (W.D. Pa. 2013)
• ZF Meritor, LLC v. Eaton Corp., 696 F. 3d 254 (3d Cir. 2012)
• Manpower, Inc. v. Ins. Co. of Pa., 732 F.3d 796 (7th Cir. 2013)
• BCS Servs. V. BG Invs., Inc., 728 F.3d 633 (7th Cir. 2013)
• StorageCraft Tech. Corp. v. Kirby, 744 F.3d 1183 (10th Cir. 2014)
• Republic of Ecuador v. Hinchee, 741 F.3d 1185 (11th Cir. 2013)
Exceptional service. Dykema delivers. 88
Carnegie Mellon Univ. v. Marvell Tech. Group Ltd.,
986 F. Supp. 2d 574 (W.D. Pa. 2013)
• In patent infringement action, damages expert allowed
pursuant to FRE 703 to rely on opinions of other experts re
industry standard and infringement – opposing party’s
challenges go to weight, not admissibility.
• “The defendants may not like the jury verdict, but it was the
result of a fair trial, fairly fought.” (quoting Micro Chemical,
Inc. v. Lextron, Inc., 317 F.3d 1387, 1394 (Fed. Cir. 2003).
Exceptional service. Dykema delivers. 89
ZF Meritor, LLC v. Eaton Corp., 696 F. 3d 254 (3d
Cir. 2012)
• Plaintiffs' expert economist submitted a report on both
antitrust liability and damages. The District Court ruled that
the expert would be allowed to testify regarding liability, but
excluded his testimony on the issue of damages on the
basis that his damages opinion failed the reliability
requirements of Daubert and the Federal Rules of Evidence.
• “Under Rule 702, the district court acts as a ‘gatekeeper’ to
ensure that ‘the expert's opinion [is] based on the methods
and procedures of science rather than on subjective belief
or unsupported speculation….’ We find no error in the
District Court's acceptance of [the expert’s] methodologies
as reliable under Rule 702.”
Exceptional service. Dykema delivers. 90
Manpower, Inc. v. Ins. Co. of Pa., 732 F.3d 796 (7th
Cir. 2013)
• Insurance coverage suit; accounting expert testimony on
business interruption claim excluded by district court
• Daubert’s reliability determination “is primarily a question
of the validity of the methodology employed by the expert,
not the quality of the data used in applying the
methodology or the conclusions produced. . .. The district
court usurps the role of the jury, and therefore abuses its
discretion, if it unduly scrutinizes the quality of the expert’s
data and conclusions rather than the reliability of the
methodology the expert employed.”
• Exclusion of expert vacated; summary judgment for
defendant reversed.
Exceptional service. Dykema delivers. 91
BCS Servs. V. BG Invs., Inc., 728 F.3d 633 (7th Cir.
2013)
• Defendants appealed from damage award to plaintiffs in
RICO action for rigging property tax lien auctions.
• Specifically, plaintiff’s expert estimated the number of times
that defendants bid on the same property in opposition to
plaintiffs.
• “The defendants argue that the district judge should have
subjected [plaintiff’s expert’s] adjustment to a Daubert
examination to determine whether the expert should have
been permitted to offer his revised estimate at the trial. But
that would have been a waste of time, because it is clear
that the adjustment that the expert made on the basis of
the video was reasonable.”
• But it was defendants’ misconduct that prevented a more
precise estimate, “and in such cases damages can be
estimated by methods that would be impermissibly
speculative in other contexts.”
Exceptional service. Dykema delivers. 92
StorageCraft Tech. Corp. v. Kirby, 744
F.3d 1183 (10th Cir. 2014)
• Director of software company leaves, steals source code,
and gives it to a competing company. He appeals
damages award because he did not profit and no evidence
showed the competitor used the code.
• Reasonable royalty is an enumerated measure of
damages in the Uniform Trade Secrets Act for “disclosure
or use” of another’s trade secret.
• Daubert and progeny require the district court to furnish a
record that the law has been applied, and to meaningfully
address any objections to the reliability of an expert’s
methodology. Here, the expert’s assumptions were not
only reasonable but entirely supported by the defendant’s
own testimony.
• Moral to the story – appellate courts tend to reject
arguments that are too cute by half.
Exceptional service. Dykema delivers. 93
Republic of Ecuador v. Hinchee, 741
F.3d 1185 (11th Cir. 2013)
• Plaintiff subpoenaed documents from defendant’s testifying
expert, including the expert’s personal notes and
communications with other experts and non-attorney
representatives of the defendant. Defendant and the
expert asserted work product protection for the documents.
• “The district court ordered Chevron and [expert] to produce
the 39 non-privileged documents, explaining that the ‘work-
product doctrine [does] not protect a testifying expert's own
notes or communications with another testifying expert.’”
• “…Chevron and [expert] attempt to shield the theories and
mental impressions of [expert] and his fellow testifying
experts. Rule 26 provides no basis for this, neither before
nor after the 2010 Amendments.”
Exceptional service. Dykema delivers. 94
Thank you!
