Assessing The "Fit" Of Expert Damages Testimony

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In infringement action regarding cell phone power circuit patent, trial court erred in admitting patentee's damage expert testimony under FRE 703, as the bases for the opinion and testimony were unreliable; the expert failed to identify the data source upon which his calculation were based and, without explanation, used an unsound methodology employing two unwarranted assumptions; the circuit concluded "an expert opinion derived from unreliable data and built on speculation" should not be admitted, in Power Integrations, Inc. v. Fairchild Semiconductor Intern., Inc. _ F.3d _ (Fed. Cir. March 26, 2013) (Nos. 2011–1218, 2011–1238)

Recently, while clarifying the "axiom[]" that "U.S. Patent law does not operate extraterritorially to prohibit infringement abroad," the Federal Circuit also examined the foundation for expert damage testimony for a patent infringement. Initially, the plaintiff's theory of recovery included damages from infringement occurring outside the United States. When this theory did not prove tenable, the plaintiff's expert failed to adjust his testimony to the changed theory of recovery. Apparently, the witness opined on the level of damages, deriving the estimate from international sales data. This left the connection between the international sales and the domestic sales as "speculative," and insufficiently grounded in the data that was relevant to measuring domestic damage from the infringement. The circuit found that the trial court erred in admitting this expert evidence. The case underscores the applicatino of FRE 703 concerning the bases supporting the expert's opinion.

In the infringement action, the qualifications of the patentee's expert witness wer not challenged by the infringing party. However, the defendant challenged the expert testimony as unreliable. In particular, the expert witness was unable to describe to the court the nature of the underlying data he used for his damage estimate. In attempting to measure the compensatory-type damages the patentee suffered, the expert failed to distinguish damages attributable to domestic infringement from those attributable to worldwide infringement.

The circuit's discussion of the fatal nature of the expert's data and techniques focused on three issues. First, the circuit noted deficiencies in how the expert made his estimate of damages. The only damages the plaintiff was eligible for were a result of domestic infringement. Yet the expert's

estimate [was] based on a document describing worldwide shipments of mobile phones during the third quarters of 2004 and 2005. Although the document relates generally to worldwide sales of mobile phones from all vendors, it contains more detailed information for some vendors, including Samsung. Specifically, [plaintiff damage expert witness] Dr. Troxel relied on a table in the document that indicates that during the third quarter of 2005, Samsung shipped 26.8 million phones worldwide, up from 22.7 million phones during the third quarter in 2004. Dr. Troxel used the worldwide sales data for Samsung's mobile phones to estimate sales of the accused power circuits, which Samsung incorporated into its mobile phone chargers.
Power Integrations, Inc., __ F.3d at __.

The trouble with this was that FRE 703 could not be satisfied, as the expert deflected attempts to identify the source of his data:

Initially, the source of the documents on which [plaintiff's expert witness] Dr. Troxel relied for his estimate of Samsung's worldwide sales is unclear. When asked whether the provider of the documents “found [them] off the internet,” Dr. Troxel responded, “I can only assume so.” Power Integrations' only response to the questionable source of Dr. Troxel's sales documents is that Dr. Troxel “was a qualified expert, and he found the [documents] and other materials he considered, while researching the case.” We disagree with Power Integrations that the source and reliability of data relied upon by an expert is otherwise immaterial. Our rules of evidence require that an expert's testimony be “the product of reliable principles and methods” applied to “sufficient facts or data.” Thus, while an expert's data need not be admissible, the data cannot be derived from a manifestly unreliable source.
Power Integrations, Inc., __ F.3d at __ (citing Montgomery County v. Microvote Corp., 320 F.3d 440, 448 (3d Cir. 2003) (expert's data source was unreliable because “some of the things that were shown to [the expert] he didn't seem to know where they were from or what the source of them were”); Emigh v. Consol. Rail Corp., 710 F.Supp. 608, 612 (W.D.Pa. 1989) (“[W]hen the underlying source is so unreliable as to render it more prejudicial than probative, ... Rule 703 cannot be used as a backdoor to get the evidence before the jury.”)).

As if the inability to account for the reliability of the data was not enough, the circuit also found that the methodology of the expert in using this data was seriously deficient. It suffered from two unwarranted and therefore unreasonable speculative "leaps" between fact and conclusion:

Here, Dr. Troxel made two speculative leaps. First, the document on which Dr. Troxel relied for his worldwide damages estimate indicated worldwide shipments of Samsung's mobile phones. As Dr. Troxel testified, however, the infringing power circuits were found in mobile phone chargers, not in mobile phones. Dr. Troxel's sales document does not mention chargers or otherwise indicate sales of chargers. His analysis assumed that each of Samsung's phones shipped with a charger. While Power Integrations is quick to point out that Dr. Troxel's assumption was not unreasonable, the document relied upon by Dr. Troxel does not specify the nature of the shipments, nor does it provide any reliable link which might indicate that the shipped phones included chargers. Without more, we cannot safely assume that all of these shipments must have included a charger.

Dr. Troxel's second speculative step was when he assumed from his document not only that each of Samsung's shipments included a charger, but that each of these chargers incorporated an infringing power circuit. Dr. Troxel's sales document lists no model numbers or other indicia from which he could reasonably infer that chargers assumed to be included incorporated Fairchild's infringing power circuits. Power Integrations' Vice President of Worldwide Sales testified at trial that several other companies sold competing power circuits to Samsung. Further, Power Integrations retained more than 50% of Samsung's business. Thus, the data indicate that at least some of Samsung's chargers could have incorporated the competing power circuits or Power Integrations' own circuits, which do not infringe. Dr. Troxel had no way to distinguish between infringing and noninfringing chargers, and his assumption that all chargers incorporated an infringing power circuit was speculation.
Power Integrations, Inc., __ F.3d at __ (emphasis added).

The Power Integrations case demonstrates the type of care a court or counsel may need to employ in assessing the "fit" of the proffered testimony by the expert. "Fit" is an important signal of the testimony's reliability as required by Daubert as well as by FRE 702 and 703.

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