Vital for Expert to Know Date of Stolen Trade Secrets
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De Lage Landen Operational Services, LLC v. Third Pillar Systems, 2011 WL 1771044 (E.D. Pa.)(May 9, 2011)
After the court determined in pre-trial proceedings that the defendant misappropriated 12 detailed business models belonging to the plaintiff, the defendant challenged the plaintiff’s damages expert under Daubert. Specifically, the defendant claimed the expert had used an arbitrary and incorrect date for calculating reasonable royalties.
In particular, the plaintiff’s expert chose a date in August 2005, when the parties had signed a confidentiality agreement permitting the defendant to work with the models (but prohibiting it from hard-coding the models into its own software platform). In deposition, however, the expert conceded that he had no specific information indicating when the plaintiff actually delivered its business models to the defendant or when the defendant began to hard-code them. In fact, the expert could not recall whether the delivery would have been in “2005, 2006, [or] 2007.” In sum, the plaintiff’s expert provided “no evidence” that any initial misappropriation began in or around the date of the agreement, the defendant claimed.
As detailed in its prior findings, the defendant was “clearly” liable when it provided its largest customer with software generated from the plaintiff’s business models, the court held. “However, there was no specific finding as to when this misappropriation began.” The plaintiff’s expert “merely knew” that the parties signed their agreement in 2005 and the defendant’s sales to its customer began sometime in 2007; he failed to cite any evidence to support the choice of August 2005, except to say that it was “only subsequent to” the parties’ signing their agreement.
“The analysis of Georgia-Pacific factors depends on identification of the date of the initial misappropriation,” the court held. Although the expert purportedly used the correct methodology to determine a reasonable royalty, “the absolute critical starting point, on which everything else depends, is missing,” it added, and excluded the expert’s evidence regarding reasonable royalty damages.
Choice of Reliable Growth Rate Is
Key to Calculating Business Interruption Loss
Manpower, Inc. v. Insurance Co. of Pennsylvania, 2010 WL 3730968 (E.D. Wisc.)(Sept. 20, 2010)
When its office building partially collapsed, the plaintiff shut down for 14 months until it could relocate. In a suit against its insurance company for business-interruption losses, the plaintiff’s damages expert asserted over $7.5 million in lost profits and expenses. The defendant attacked the expert’s calculations as unreliable under Daubert.
Growth rate nearly doubles under new management. The expert began by forecasting the revenues the plaintiff would have generated but for the collapse and then subtracted its actual revenues during the damage period. He then projected total, net, non-continuing expenses. So far, his calculations were “straightforward,” the court said. However, the expert used the revenue period for five months preceding the collapse to extrapolate a 7.76% growth rate, despite historical data showing that the plaintiff had grown an average of only 4.8% during the four years prior to the collapse and only 3.8% during the year before. In support, the expert explained that the company had recently been acquired by new management to boost its performance. After speaking with the managers, the expert concluded they had turned the company around and thus the higher growth rate was appropriate for the entire 14-month loss period.
“Here is where [the expert’s] analysis breaks down,” the court said. The expert “did little more” than assume that the pre-collapse growth rate would continue unabated, all due to new management. He also failed to analyze other industry or company-specific factors that could have affected the plaintiff’s revenues. Importantly, had the expert chosen a longer base period for his revenue forecasts, the court might have taken a different view. But by ignoring the plaintiff’s historical track record, he essentially treated the company like a new business, a “notoriously difficult” exercise, the court said, which requires reliable financial indicators and comparables. Lacking these, it excluded the expert’s opinions regarding lost revenues.
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