{"id":37925,"date":"2016-03-31T19:26:12","date_gmt":"2016-04-01T00:26:12","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-legal\/uncategorized\/trade-secrets-experts-two-circuits-two-outcomes.html"},"modified":"2016-05-19T15:10:47","modified_gmt":"2016-05-19T20:10:47","slug":"trade-secrets-experts-two-circuits-two-outcomes","status":"publish","type":"corporate","link":"https:\/\/corporate.findlaw.com\/litigation-disputes\/trade-secrets-experts-two-circuits-two-outcomes.html","title":{"rendered":"Trade Secrets Experts: Two Circuits, Two Outcomes"},"content":{"rendered":"
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Two recent rulings from federal circuit courts reviewing expert testimony in trade secrets cases reached very different results, with one circuit upholding admission of the testimony and the other finding that the testimony was sufficiently harmful to require a new trial.<\/p>\n

Taken together, the two cases shed light on the allowable boundaries for expert testimony in trade secrets litigation.<\/p>\n

The most recent ruling, Synergetics v. Hurst<\/a><\/i>, decided February 5th by the 8th U.S. Circuit Court of Appeals, upheld an expert\u2019s testimony on economic damages, despite the appellant\u2019s contention that it was based on incorrect assumptions about the relevant market.<\/p>\n

The earlier case, Mike\u2019s Train House v. Lionel<\/a><\/i>, decided December 14th by the 6th U.S. Circuit Court, found that the trial court \u201cabandoned its gate-keeping function\u201d when it admitted expert testimony concerning the similarity of design drawings.<\/p>\n

The Synergetics Decision<\/b><\/p>\n

In Synergetics<\/i>, a company that sells ophthalmic equipment used in eye surgery sued two former employees for trade secret misappropriation. A jury found in favor of the company and awarded compensatory and punitive damages. On appeal, the two employees contended that the trial court should have excluded the testimony of Synergetics\u2019 expert witness.<\/p>\n

The appellants argued that the expert\u2019s methodology was unreliable because he based his opinion on just two suppliers of the device, Synergetics and the company started by the former employees, even though other suppliers posed significant competition in the market.<\/p>\n

Affirming the trial court, the 8th Circuit rejected this argument for the reason that it spoke to the credibility of the testimony, not its admissibility. The expert had explained the methodology he used to calculate the damages, the court noted, and appellants had the opportunity to challenge his methodology through cross-examination and their own experts.<\/p>\n

\u201cWhile other methods for calculating damages may be available, so long as the methods employed are scientifically valid, Appellants\u2019 mere disagreement with the assumptions and methodology used does not warrant exclusion of expert testimony,\u201d the circuit court said.<\/p>\n

The Mike’s Train House Decision<\/b><\/p>\n

An expert\u2019s methodology was also at issue in Mike\u2019s Train House<\/i>, but here the 6th Circuit found that admission of the expert\u2019s testimony was an error that may improperly have swayed the outcome of the trial. Given that the jury had awarded the plaintiff, Mike\u2019s Train House (MTH) damages exceeding $40 million, the 6th Circuit\u2019s remand for a new trial was a significant victory for Lionel.<\/p>\n

The case alleged misappropriation of trade secrets<\/a> in the design and manufacture of model trains. The expert, a professor of mechanical engineering, testified that model-train designs used by Lionel were copied from MTH.<\/p>\n

To reach this conclusion, he compared designs from each company, evaluating them based on 21 criteria he had selected. Using these criteria, he calculated a score from zero to one to show the degree of association between designs.<\/p>\n

The expert also reviewed the report of an expert who testified in a South Korean case involving the same designs and who also found significant copying. The MTH expert testified at trial that he had independently corroborated the South Korean expert\u2019s conclusions using a regression analysis.<\/p>\n

On appeal, the 6th Circuit chastised the trial court for admitting this testimony. In finding that the trial court abandoned its gate-keeping function, the 6th Circuit noted that it failed to make any findings regarding the reliability of the expert\u2019s testimony or of the technique he used to reach his conclusion.<\/p>\n

Noting that the expert created his criteria specifically for this case, the 6th Circuit said, \u201cThere is no evidence that his methodology had ever been tested, subjected to peer review, possessed a known or potential rate of error, or enjoyed general acceptance.\u201d<\/p>\n

The trial court further erred when it permitted the expert to testify to the conclusions of the South Korean expert, the circuit court decided. This testimony \u2013 based as it was on the report and conclusions of another expert that were not in evidence \u2013 was hearsay and should not have been admitted, the court said.<\/p>\n

\u201cOther circuits have squarely rejected any argument that Rule 703 extends so far as to allow an expert to testify about the conclusions of other experts,\u201d the court said.<\/p>\n

Noting that not all improper expert testimony<\/a> requires a new trial, the 6th Circuit went on to consider the testimony\u2019s impact on the trial\u2019s outcome. It concluded that the testimony had a substantial effect on the verdict. He was the only expert to testify about the degree of copying between the drawing pairs, the court noted, and without his testimony, the jury would not have learned of the South Korean expert\u2019s conclusions.<\/p>\n

\u201cBecause MTH relied on [this] testimony as its source of expertise and analysis regarding the degree of copying, it is impossible to conclude with any certainty that [it] did not sway the jury\u2019s verdict.\u201d<\/p>\n

The two cases are:<\/p>\n