Limiting Non-Testifying Expert Evidence In The Civil Case

In misappropriation of trade secrets trial, mechanical engineering expert testimony was improperly admitted because it relied on inadmissible hearsay evidence (the expert testified as to the degree of similarity between his conclusions and another expert who had testified in a different proceeding) in violation of FRE 703 limitation on hearsay evidence, in Mike's Train House, Inc. v. Lionel, L.L.C., 472 F.3d 398 (6th Cir. December 14, 2006) (No. 05–1095)

The recent set of opinions in Williams v. Illinois may leave criminal lawyers with the impression that the leap represented by the Crawford decision on the Confrontation Clause has stalled. An interesting counter-point to the struggle over testimonial hearsay in the criminal context is how some of the principles work in the absence of the Sixth Amendment. How have courts dealt with expert testimony based on non-testifying experts in civil cases? A classic case that explains an approach to the civil cases was considered by the Sixth Circuit only a year and a half after Crawford.

In the case, a mechanical engineering expert testified on similarities of toy train design in a misappropriation of trade secrets trial. According to the circuit the expert did not have a rudimentary understanding of the applicable Korean model-train design industry and the report and methodology used to consider the issue had been created for purposes of the litigation, which only raised further questions about the reliability of his testimony.

Mike’s Train House, Inc. (MTH) and Lionel, L.L.C. (Lionel) both distributed one gauge model trains which were scale replicas of real trains. MTH sued Lionel over the misappropriation of trade secrets and unjust enrichment involving the use of design drawings used to build die-cast trains. Korea Brass (KB), a supplier of wax castings for model trains, had hired an employee to design trains for Lionel. That employee had retained design drawings while working for his prior employer Samhongsa in the design of MTH trains.

Korean authorities prosecuted and convicted the employee and others for misappropriation of trade secrets. Samhongsa then brought a civil misappropriation action in Korea against the employee and others which was ultimately settled.

In the U.S. civil trial, the trial court admitted the testimony of an expert for MTH. This expert was a professor of mechanical engineering, who concluded that about fifty-five percent of the design drawings had been misappropriated. The expert developed his own methodology and weighting scale to reach his conclusions concerning the degree of copying from the original design drawings. Significantly for the case, this expert testified about the similarity of his conclusions to the conclusions of the expert used in the Korean branch of the litigation.

The jury ruled in favor of plaintiff MTH and awarded more than $40 million in damages, including for lost profits, future lost profits, and unjust enrichment. The trial court imposed a permanent injunction, barring further use of the design drawings. In its appeal, Lionel claimed that the expert testimony was (among other problems) improper under FRE 703.

The circuit reversed and agreed that the expert testimony was inadmissible under FRE 702 and FRE 703. The circuit “conclude[d] that the district court abandoned its function by failing to make any findings regarding the reliability of” the experts testimony under FRE 702. The expert used a methodology that had never “been tested, subjected to peer review, possessed a known or potential rate of error, or enjoyed general acceptance.” Mike's Train House, 472 F.3d at 407. The expert had established his own twenty-one criteria (such as “the drawing’s title and the part number assigned to the drawing”) with an “arbitrary” weighting system for each criteria that he developed. Indeed, it was noted that the expert “lacked a rudimentary understanding of the Korean model-train design industry, and was thus unable to identify those aspects of the design drawings that might be indicative of copying.” Mike's Train House, 472 F.3d at 408.

According to the circuit, the admission of the expert opinion testimony was an error for a variety of reasons -- from having been developed for purposes of the litigation to the failure of its Daubert screening process. These errors were not particularly related to the problem of an expert's testimony about the views of the other expert. Mike's Train House, 472 F.3d at 408 (citing Daubert v. Merrell Dow Pharms., Inc., 43 F.3d 1311, 1317 (9th Cir. 1995) (noting that this is a “very significant fact to be considered”); Turpin v. Merrell Dow Pharms., Inc., 959 F.2d 1349, 1352 (6th Cir. 1992) (noting “expert witnesses are not necessarily always unbiased scientists”)).

The circuit concluded that the plaintiff's expert relied upon inadmissible hearsay in violation of FRE 703. Specifically, the by testifying about the conclusions of a Korean engineering expert who was appointed as a special master and testified in the Korean prosecution. As the circuit explained:

“Lionel does not challenge the general use of regression analysis. Rather, Lionel correctly argues that, regardless of the methodology [of the MTH expert] Stein used to compare his conclusions to those of [Korean expert] Lee, Rule 703 simply does not allow Stein to testify as to the degree of similarity between Lee’s conclusions and his own.”

The circuit concluded the error in admitting the expert testimony in violation of FRE 702 and FRE 703 was not harmless. The circuit could not conclude with fair assurance that the erroneously admitted expert testimony did not have a substantial effect on the verdict. Mike's Train House, 472 F.3d at 409-10 (citing DePew v. Anderson, 311 F.3d 742, 751 (6th Cir. 2002) (noting harmless error standard provides that if “one cannot say, with fair assurance, . . . that the judgment was not substantially swayed by the error, it is impossible to conclude that substantial rights were not affected.”) (quoting Kotteakos v. United States, 328 U.S. 750, 765 (1946))). As the circuit noted, the MTH expert “was the only expert to testify about the degree of copying between the drawing pairs. Without his testimony, the jury would not have learned of [Korean expert] Lee’s conclusions, nor would they have heard testimony from any other expert witness regarding the degree of copying.” Mike's Train House, 472 F.3d at 409-10. The circuit therefore remanded the case for a new trial.


Federal Rules of Evidence