Failing To Preserve Challenge To Lost Profits Expert Testimony On Appeal

In considering the lost profits in a patent infringement case, Federal Circuit notes that the challenge to damage expert testimony was “improperly raised” under “the guise of sufficiency of the evidence”; instead, the issue “should have been resolved under the framework of Daubert and the Federal rules of Evidence" and the defendant had "not appealed a Daubert ruling," in Versata Software, Inc. v. SAP America, Inc., _ F.3d _ (Fed. Cir. May 1, 2013) (Nos. 2012-1029, 2012-1049)

Before an evidence issue may be considered on appeal, it must be preserved before the trial court. Consistent with this principle, FRE 103(b) provides: "Once the [trial] court rules definitively on the record — either before or at trial — a party need not renew an objection or offer of proof to preserve a claim of error for appeal." The failure to preserve an issue may result in plain error review on appeal, under FRE 103(e). The necessity of preserving an evidence claim was recently highlighted in a case from the Federal Circuit.

The case involved a patent infringement action concerning “the field of computer-based pricing of products.” The jury concluded infringement on three claims of the patent. At trial, the patent holder presented expert testimony on the issue of lost profits. On appeal, the defendant contended the expert testimony was inadmissible based on the “methodology used by” the expert.

As the circuit summarized:

[Defendant] SAP avers that [plaintiff] Versata’s “but for” model is “inconsistent with sound economic principles,” and thus “[the expert’s] opinion should have been excluded from evidence.” Similarly, SAP claims Versata’s expert did not adhere to the [four-factor] Panduit framework because he used multiple markets thereby rendering his analysis “legally defective.”
Versata Software, _ F.3d at _ (citing Panduit Corp v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152, 1156 (6th Cir. 1978)) (other citations omitted)).

The Federal Circuit concluded that these contentions were “improperly raised”:

Under the guise of sufficiency of the evidence, SAP questions the admissibility of Versata’s expert testimony and whether his damages model is properly tied to the facts of the case. Such questions should be resolved under the framework of the Federal Rules of Evidence and through a challenge under Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993). See ePlus, Inc. v. Lawson Software, Inc., 700 F.3d 509, 515, 522–23 (2012) (affirming a trial court’s decision to exclude expert testimony under Daubert because it was analytically flawed and unreliable); Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1314–16 (Fed. Cir. 2011) (noting that to carry its burden under Federal Rule of Evidence 702, the patentee must sufficiently “tie the expert testimony on damages to the facts of the case”). SAP’s briefs and statements at oral argument confirm that its arguments should have been resolved under the framework of Daubert and the Federal Rules of Evidence. In its briefs, SAP argues that the expert’s testimony should have been excluded from evidence, the jury “should have never heard any lost profits theory,” that “the district court should not have permitted Versata’s expert to present his lost profits theory,” and that his analysis is “legally defective.” At oral argument, SAP’s counsel stated that the expert’s testimony “should not have been admitted.” Oral Argument at 14:00–15:00, Versata Software v. SAP America, (Fed. Cir. 2013) (No. 2012-1029, 2012-1049), available at Whether evidence is inadmissible is a question clearly within the scope of the rules of evidence and Daubert. However, SAP has not appealed a Daubert ruling. Instead, it argues that the jury could have not had sufficient evidence to award lost profits because the expert’s testimony was fatally flawed and should not have been admitted. This is the improper context for deciding questions that, by SAP’s own admissions, boil down to the admissibility of evidence.
Versata Software, _ F.3d at _ (citing Panduit Corp v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152, 1156 (6th Cir. 1978)) (citations to appeal briefs omitted)).

On an important damage issue, the Versata Software case provides a useful reminder about the necessity of properly preserving claims of evidence error for appellate review. A challenge to the sufficiency of the evidence did not permit the defendant to contest the admission of the expert lost profits testimony on appeal.

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