Expert’s lack of market inquiry and analysis doesn’t impress crusading Judge Posner

In a Daubert decision, Judge Richard Posner (7th Circuit) continues on his judicial quest for tightening the gatekeeping role in patent cases. Although the plaintiff’s expert was “highly qualified” and competent to estimate damages in the case—which involved a patented formula for creating cookies free of trans fats—she made several critical errors in her opinions and calculations.

First, after speaking with the plaintiff’s scientific expert, she concluded there was no acceptable, non-infringing substitute for the patented formula, a factor that substantially boosted her royalty rate. Her reliance was allowable, the judge ruled, but her inquiry failed to establish whether cookies made with a substitute would actually sell. For that information, she could have talked (but didn’t) to the plaintiff’s industrial baking expert as well as its marketing and consumer experts. “I don’t understand why” she didn’t talk to these experts, Posner said, and struck her conclusion that there was no non-infringing alternative that would have cost the defendant something less than a “hefty royalty” to implement.

Even if there was no “perfect” substitute for the patented formula, any royalty for infringement “would depend on the cost, in higher production costs and loss of business to competitors, of the best imperfect substitute,” the judge observed, “and [the plaintiff’s expert] offered no evidence about either cost.” Instead, she relied on three comparable licenses to project the maximum amount of profits the defendant put at risk by failing to secure a license. However, one of the agreements involved a lump-sum payment and a licensee “wholly dissimilar” to the defendant; another concerned a complex litigation settlement that the expert failed, in any way, to analyze. Only the third license might “possibly” support a reasonable royalty, the judge held, limiting the expert’s testimony to this basis but dismissing her market share calculations as unreliable. Read the complete digest of Brandeis University v. Keebler, Nos. 1:12-cv-1508 et seq. (N.D. Ill., Jan. 18, 2013), in the April Business Valuation Update; the district court’s decision will be posted soon at BVLaw.