A plaintiff’s claims in intellectual property litigation may take several forms, including assertion of claims of infringement of the IP right or loss of the plaintiff’s right to the IP through unlawful misappropriation (e.g., trade secret theft). To prevail, the plaintiff must establish three elements: the defendant’s breach of the IP right belonging to the plaintiff; the defendant’s breach damaged the plaintiff; and the measure of damages the plaintiff accrued as a direct cause of the defendant’s breach. An economic expert may be the key to establishing the third element.
When is an economic expert needed?
Expert witness testimony is necessary when a party must present evidence outside a juror’s common knowledge, which applies to nearly all (IP) cases. A technical expert explains the technology and whether it is infringed by the defendant. The plaintiff may use an economic expert to explain how economic damages occurred. The defendant’s economic expert, if any, will present an alternative view of the damages.
Most IP cases are litigated in federal court; thus, the expert’s testimony must be admissible under Federal Rules of Evidence 702 and 703. These rules require that the expert be qualified to testify about the subject matter and perform the analysis using qualified information he or she has personally reviewed. The expert must base his or her opinion on facts or data that are the type of information experts in the field would rely on to form an opinion. A party may challenge an expert’s testimony through a pre-trial motion if it fails to abide by FRE Rules 702 or 703. Challenges typically come in pre-trial motions to limit or preclude the testimony. Finally, the expert’s opinions must be relevant to the issues and help the jurors understand them.
Expert testimony regarding the plaintiff’s economic damages is relevant provided the plaintiff has standing to assert a claim for economic damages. The plaintiff’s damages must also be so complex that the average juror could not tally the numbers. Most IP claims are sufficiently complex to warrant an economic expert, because IP rights can affect what products can be marketed, can affect consumer preferences, and typically have a life of many years. Thus, calculation of the plaintiff’s damages often requires testimony on the impact of such factors on the plaintiff’s financial performance over a multi-year period and in different geographic and economic markets. For IP rights without fixed-term duration, the calculation may involve estimating damage to the right itself. It is more advantageous for a jury to hear testimony about economic issues from an expert with credibility in evaluating economic issues — not argument from the party’s lawyer.
Case law also makes an economic expert necessary in most IP cases. The next article in this series will address how case law requires proof of the specific elements of damages in patent, trademark, copyright and trade secret cases, using expert testimony.
How is an expert qualified to present testimony?
A person can become an expert through education, skill or experience. Economic experts may be trained in finance, accounting or economics and may have certifications in business financial management, financial forensics and other related fields. Economists or professors can be experts. An economic expert may have litigation experience in the market at issue.
The expert must evaluate the claim and construct a model projecting the plaintiff’s condition had the breach not occurred or had the defendant secured permission for its actions. The expert must understand the claim and the case law that establishes how models are constructed.
The expert prepares a written report pursuant to Federal Rule of Civil Procedure 26. The report allows the other party to determine the basis for the expert’s opinion and retain an expert to rebut it. The rebuttal expert provides a similar report. Each side can depose the other side’s expert(s) to uncover weaknesses in the expert’s opinion, in anticipation of cross-examination or bringing a motion against the other party’s case or to disqualify the expert. Finally, an economic expert gives testimony at trial, explaining his or her opinion and the steps taken to perform the analysis.
How can in-house counsel streamline development of the expert opinion?
To form an admissible expert opinion, the expert will need direct access to the kinds of information needed from the plaintiff to perform the analysis.
To streamline the process, in-house counsel should ensure he or she understands the business management of the products at issue, which can be challenging for a multi-product company. For a manufacturing company, this could include knowing the identities and functions of the manager, salespeople, customer service team and accounting group who work with the products.
In-house counsel should work closely with trial counsel to understand the general legal theory behind the expert’s opinion so that he or she can help identify the information available for the expert’s use in developing an opinion regarding the theory. For instance, one IP damage theory is “lost profits,” meaning that the plaintiff claims that each sale made by the defendant could have been made by the plaintiff, and therefore all of the defendant’s profits from infringing sales should be given to the plaintiff. To prove this theory of damages, the expert will need to understand the plaintiff’s manufacturing capacity, material costs, product cycle length and profit margins. An in-house counsel should be able to promptly locate the information or connect the expert directly with the right staff who can educate the expert about the plaintiff’s business practices and provide any data or documents needed for the expert to crunch the numbers.
The best source of information about the legal theories, necessary information, and timelines for expert witness needs is trial counsel. Having early conversations with trial counsel about the process can prepare in-house counsel for the road ahead and to equip the expert with the right information.