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Invotex® Group is pleased to share insights about current trends and issues of interest to litigators and counsel, particularly those with which we have recent experience. We hope you find this information informative, and we welcome your feedback.

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In this Issue

1. Commercial
   Causation: A Driving Force to Lost Profit Damages
2. Patent
   Direct and Indirect Patent Infringement – Damages Issues and Licensing
3. Economics
   Economic Modeling and Litigation Damages - Courts’ Acceptance of Regression Analysis
4. Intellectual Property
   Invotex Managing Director Named Among “The World’s Leading IP Strategists”
5. Continuing Professional Education and Sponsorships
   Upcoming Events

Commercial

Causation: A Driving Force to Lost Profit Damages
by Bill Bavis, Joe Estabrook, and Marylee Robinson

After a trial team has proven that the plaintiff in a case was damaged by the defendant’s actions, it is often incumbent upon the financial expert witness to accurately conclude the damages to be awarded. Such lost profit damages opinions have long been under scrutiny by opposing parties and courts. Oftentimes, however, an important aspect of such a damages opinion—the link between causation and the lost profit damages opinion—is overlooked to the detriment of the testifying expert (and ultimately the plaintiff).

To avoid having the damages opinion subject to a Daubert challenge, it is important for the financial expert to coordinate with the overall case strategy, and not forego needed attention to the issue of causation. Case law in recent years suggests that although it is not the job of the financial expert to prove causation, an admissible lost profit damages opinion ought to provide a link between the cause and the resulting damage.

A calculation of lost profit damages often requires the plaintiff to satisfy three common elements:

1. Proximate cause
2. Foreseeability
3. Reasonable certainty

The first element, proximate cause, requires the plaintiff to show that the lost profit damages were caused by the conduct upon which the claim is based. This necessary link between the alleged acts of the defendants and the plaintiff is sometimes missing. In reviewing recent case law of numerous Daubert challenges of lost profit damages opinions, the following three causation issues commonly arose and are worth keeping in mind:

1. Damages should be directly traceable to/caused by defendant’s conduct. A lack of evidence in the record to show a causal connection between the defendant’s action and the damages creates a vulnerability in the expert’s opinion.
2. Damages should be sufficiently tied to the facts. Failure to appropriately rely on relevant facts to support underlying assumptions in the opinion will damage the opinion.
3. Damages should consider intervening causes. Inadmissible opinions include those where there is no evidence that the expert considered other market factors which may have cause d the losses in question.

Download a copy of the complete article, which appeared in the American Bar Association Section of Litigation's Expert Witness 2010 Annual Review. Or, for more information, contact Bill Bavis or Joe Estabrook.

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Patent

Direct and Indirect Patent Infringement – Damages Issues and Licensing
by Kris Boushie

Patent infringement matters are never black and white. In many instances, multiple parties may be liable for damages related to a single patent infringement matter. The following discusses various issues that must be addressed when multiple parties can be held accountable for patent infringement damages.

There are two types of infringement, direct and indirect. Direct patent infringement is making, using, offering to sell, or selling any patented invention, within the U.S., or importing into the U.S. any patented invention during the term of the patent. Indirect infringement has two forms: inducing infringement and contributory infringement. Inducing infringement involves instructing, directing or advising the third party as to how to carry out direct infringement. Contributory infringement involves selling or importing a component of patented machine or process that is a material part of the invention and which does not have other substantial non-infringing uses.

Significantly, to be liable for indirect infringement, there must be at least one party to directly infringe. As the result, separate parties performing only one step of the patented method, without having a single “mastermind” that is in a position of control over the other parties to join them together, could avoid being liable.

A patent holder can target multiple parties for patent infringement as well as accuse one party of both direct and indirect types of infringement. Being able to pursue direct and indirect infringement claims against the same party provides the patent holder multiple opportunities to prove liability and obtain damages.

Further, reasonable royalty damages can be different depending on whether the direct or indirect infringer is sued. For example, in a lawsuit against wireless carriers that sell handsets, plaintiffs did not seek a royalty based on handset sales. Rather, they sought a running royalty from the wireless carriers based upon service revenue that was substantially greater than the revenue from handset sales. One non-infringing alternative available to the wireless carriers was to pay the licensing fees of the unlicensed infrastructure vendors and handset manufacturers, which they ultimately did. These new vendor licenses covered the wireless carriers, and the matters settled.

Kris Boushie, President and Managing Member of Quantus Consulting LLC, is an affiliate of Invotex Group. For more information or for a complete copy of his article, which appeared in the June/July 2010 issue of Financial Valuation and Litigation Expert, please contact Kris Boushie.

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Economics

Economic Modeling and Litigation Damages – Courts’ Acceptance of Regression Analysis
by Jennifer Vanderhart

Damages analysis in litigation matters may require damages experts to employ analyses that incorporate complex statistical techniques. Regression analysis is a statistical tool that can be employed to help determine the relationship between two or more variables. Among the purposes for which it is used by economists in litigation proceedings are 1) to predict sales, costs or profits, 2) to establish the relationship between an event such as a public announcement and changes in a stock price, and 3) to establish whether a relationship exists between terminations and age.

Applications of multiple regression analysis, while often associated with economics, appear in many disciplines, including psychology, medicine and political science to name a few. As such, courts have accepted regression analysis as a reliable scientific method that complies with the Daubert standard. Courts have, however, rejected the results of a regression analysis when convinced that it was not applied properly or when the results were deemed not helpful to the trier of fact (see below). In addition, even when the analysis survives a Daubert challenge, if the expert has failed to consider relevant economic facts, his damages may be exposed as unreasonable at trial. As such, it is important that the underlying economic model used be valid and that the analysis be within the realm of the expert’s area of expertise. In the following, we discuss three cases in which the court upheld the general use of regression analysis but rejected the specific analyses.

In the matter Industrial Silicone Antitrust Litigation, 1998 U.S. Dist. LEXIS 20464 (W.D. Pa. Oct. 13, 1998), the defendants sought to preclude the expert testimony of the plaintiff’s expert on damages. However, after a multi-day hearing, the court found that “in antitrust actions multiple regression analysis was a mainstream tool that was used to determine damages. Further, the court found that the regression analysis used by plaintiffs’ expert was generally accepted. The court also found that the expert used reliable, scientifically accepted methodologies in formulating his opinions and that defendants failed to provide any credible evidence to impugn the reliability of the expert’s methods.” More specifically, the expert was deemed qualified both educationally and professionally to opine on damages. Further, the expert based his conclusions on a multiple regression analysis that was properly tested and that included independent explanatory variables as well as a dummy variable to investigate whether plaintiffs sustained damages as a result of defendants’ alleged price-fixing. The expert’s testimony was admitted. However, at trial, it was demonstrated that the plaintiff’s expert had created a model that fit actual prices within the years for which actual data was used but which proved a poor predictor of prices out of that sample data. The jury awarded no damages to the class plaintiffs.

In the matter Newport Ltd. v. Sears, Roebuck & Co., 1995 U.S. Dist. LEXIS 7652 (E.D. La., May 26, 1995), the defendants sought to exclude the testimony of the plaintiff’s expert. In this case, “the court held that the multiple regression model of the partnership’s witness, an expert in real estate, was proper. The model, which was used to calculate the absorption rate for industrial park property to determine lost profits sustained by the property, was widely accepted and had been subject to peer review.”  However, while the underlying method — multiple regression analysis — was determined to be reliable, the court expressed concerns as to the underlying assumptions of the model and ruled that the expert would not be able to testify unless he established evidence verifying the validity of those assumptions. This example illustrates, once again, that while regression analysis itself can be a useful tool, it is only as good as the economic model upon which it is based.

Finally, in the matter Iams Co. v. Nutro Prods., 2004 U.S. Dist. LEXIS 31141 (S.D. Ohio June 30, 2004), the plaintiff filed a motion to exclude the testimony of the defendant’s expert. Iams asserted that the defendant’s opinions were “beyond the scope of his expertise as an economist and that the multiple regression analysis he offers is fatally flawed.” The court granted the plaintiff’s motion to exclude the testimony based on the regression analysis done by the expert, stating that he had omitted several independent variables that may have affected the analysis and that he used a ratio for the dependent variable that was questionable as well. The court did reiterate, however, that “[m]ultiple regression analysis is a generally accepted method in the science of statistics. In this sense, as a technique it meets the Daubert standards. However, it can be seriously misapplied, providing results which are not helpful to the trier of fact.”

In summary, not only must a regression analysis be technically correct to survive a motion to exclude as well as challenges from an opposing expert, it must also be based on a solid economic model. Econometric issues such as autocorrelation, heteroskedasticity, and the proper econometric form are all important, but so are issues such as the inclusion of all relevant variables and an analysis of the effect of outliers.

For more information, contact Jennifer Vanderhart.

Recognizing that to understand the results of a regression analysis it is important to have a clear understanding of the data that underlies that regression and the methodologies used to perform the analyses, Invotex Managing Director Jennifer Vanderhart has developed a presentation, Data and Regression Analysis – With Examples Using Stata. Designed for professionals who want an introduction into the intricacies of economic modeling, her presentation explains how to begin an investigation into a data set and, how to find and interpret certain statistics such at the mean, median, mode, minimum, maximum and how to look for outliers. Further, she includes a discussion of distributions, and the normal and standard normal distributions. She explains tests for the accuracy of assumptions as well as methods for normalizing data. Dr. Vanderhart also discusses what it means to be statistically significant as well as tests to determine statistical significance. Finally, she presents a number of examples and discusses certain econometric issues that are likely to arise depending on the data being examined. For more information or to inquire about CLE classes, please contact Dr. Vanderhart.

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Intellectual Property

Invotex Managing Director Named Among “The World’s Leading IP Strategists”

Invotex Managing Director Mark J. Chandler was named among the World’s Leading IP Strategists by Intellectual Asset Management magazine (IAM) of London, UK.

Nominees for the IAM Strategy 250 must be nominated by a third party and are subject to rigorous review by the editors of Intellectual Asset Management magazine. IAM publishes both an online edition and a bi-monthly hard-copy magazine that is circulated worldwide. IAM Strategy 250 list is available online at www.iam-250.com/strategy. Intellectual Asset Management is a business unit of IP Media Group that also publishes World Trademark Review.

Mark Chandler leads the firm’s activities in IP transactions, valuation and financing. He has more than 22 years experience in the development, management and commercialization of advanced technology, the past 13 of which have been specializing on intellectual property assets. Mr. Chandler’s intellectual property experience includes overall responsibility for programs in technology licensing, patent enforcement and the development of intellectual property based partnerships. He has led teams in the development of patent litigation cases, licensing and sale of intellectual property assets and the formation of new ventures centered on advanced technology. Further, he has given presentations worldwide on building value in and extracting value from intellectual property assets. Mr. Chandler has also led consulting and service operations with engagements in intellectual property valuation, commercial assessment of new technology, licensing and commercialization, royalty auditing and the strategic development of intellectual property. Clients have included North American universities, multinational corporations and venture capital funds.

Prior to joining Invotex, Mark led corporate venturing activities for BTG plc, a UK-based technology investment and development firm. He has been involved in the creation or funding of over ten new venture-backed companies in North America and Europe, all based around IP assets. Mark received his Bachelor’s Degree in Electrical Engineering from Bucknell University and a Masters in Business Administration from the Wharton School of the University of Pennsylvania.

For more information, contact Mark Chandler.

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Upcoming Events

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Disclaimer: The opinions expressed in this newsletter are the opinions of the individual author(s) and may not reflect the opinions of the firm or any other individual associated with the firm.