“Something Must Be Done About Daubert”
By Russell L. Parr, CFA, ASA, CLP, RPOP[i]
Expert witnesses in patent infringement cases often are the subject of intense scrutiny. Zealous opposing counsel may invoke innovative lines of questioning in the hope of casting a negative light on experts or their testimony.
In the sometimes comic article below patent valuation expert Russell Parr, author of eight books on IP which have been translated into five languages, writes about how the Daubert motion, like an eccentric family member, can wreak havoc on an otherwise orderly gathering. Be sure to read the first citation.
Russell’s previous contribution to IP CloseUp was “Patents: Use Them or Lose Them.” He is President of Intellectual Property Research Associates, Inc. (IPRA).
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Every family has one, a strange cousin or uncle that is just a little emotionally disturbed.[ii] Let’s call him Daubert. These miscreants can be found at family gatherings, usually sitting quietly in a corner unengaged. Most of the time they happily entertain themselves by watching a small stain of drool slowly grow on their shirts.
It’s okay. Daubert is part of the family and everyone should be in attendance. The family happily swirls around him enjoying the warmth of a holiday party. Below the surface however the entire family feels a slight sense of fear. Purveying the joyous occasion is a sense of fear felt by everyone in attendance. A question fills everyone with dread, “Is our strange little family member going to blow?” Invariably, one of the partiers, usually a lawyer in the family, approaches the drool stained Daubert and triggers an unnecessary and wasteful explosion.
Daubert immediately enters into an uncontrollable fuming rage, screaming, running, knocking over furniture, breaking glasses, and eventually accusing the family cat of incompetence. It seems that Daubert is upset that Fluffy does not kill mice by the traditional method of shredding the pest with force from its hind legs. Fluffy prefers to perform pest control services with simple actions that require only the use of its front paws and claws. This departure from tradition is an affront to Daubert and he can’t control himself from raising a fierce protest to the family elder, demanding that Fluffy be immediately and forever removed from the proceedings for unconscionable behavior and the use of cat methods contrary to accepted practice.
Eventually cooler heads prevail and the celebration returns to normal. Fluffy is exonerated and allowed to kill pests in whatever manner she likes. Unfortunately the outburst was completely unnecessary.
Providing a Deposition
I was recently giving a deposition.[iii] Questions were being raised regarding a few details about my educational background. I was happy to answer them. A slight pause in the action was followed by a question that asked if I had performed a regression analysis. My mind raced. I was wondering if there was a possibility that I should have performed an analysis correlating my course grades with my age. I guessed that such analysis might show that my grades had increased with age as I gained wisdom or, hopefully not, had deteriorated as age and alcohol consumption resulted in lost brain cells.
Maybe I should have correlated my grades with what I had eaten on the day of finals for each course, which of course would have been impossible to perform because I do not keep dietary journals extending back to my college days. Not sure about the question I asked for clarification. My question generated the response, “Don’t you know about regression analysis?” I hesitated to answer while thinking, “Of course I know about regression analysis, you dolt, I can do regression analysis in my head”[iv]. Instead I responded that I wasn’t sure how the question related to the topic of my education.
It turns out, we were done with educational questions and the pause before the regression analysis question indicated that we had begun a new line of questions. It turns out that it was a simple question, “At anytime in your analysis, did you do a regression analysis using any data”? For the matter at hand the answer was no. For the matter at hand there was no data to correlate. In fact the defendant had refused to provide information that might have been regressed but for the record it really didn’t matter because a regression analysis would not have taught anyone anything useful. Nonetheless my questioner, actually now accuser, wanted to know if I had bothered to perform a useless statistical exercise. I said that I had not. With great pleasure, my accuser then asked if I had conducted any consumer surveys, demands curves, or econometric models? My confusion cleared almost immediately, I was being set up for a Daubert motion.
For those readers that have been away from the planet for awhile I will briefly and generally described a Daubert motion. All others are asked for forgiveness as I drag you through the obvious. A Daubert motion is a specific type of motion in limine. It is raised before or during trial, to exclude the presentation of unqualified evidence to the jury. A Daubert motion is used to exclude the testimony of an expert witness not possessing the requisite level of expertise or using questionable methods to obtain data.
A Daubert motion is the outcome of 1993 Supreme Court case, Daubert v. Merrell Dow Pharms., 509 U.S. 579 (U.S. 1993). Rules 702 and 703 of the Federal Rules of Evidence govern the admission of scientific evidence in federal court. The rules allow expert witnesses greater leniency in their testimony because it is presumed that the expert will have a reliable basis in knowledge and expertise in his field. The court in Daubert required that trial judges act as a gatekeeper and determine the scientific validity of scientific evidence before admitting it. The guidelines in the decision is now been expanded to include technical and specialized knowledge testimony as well.
Basically this sounds like a good idea. Protecting the jury from hearing the ideas of a wacko certainly should improve the judicial system. Of course, all good ideas are pushed to the extreme and eventually off a cliff. As it currently stands, whenever a lawyer hears an opinion at a deposition he or she doesn’t like the focus of the deposition dramatically departs from anything of substance and seeks all manner of crap that can be thrown against the wall for use against the expert in a motion to exclude them from testifying at trial. Unfortunately, in response, all experts must now incorporate additional, and often useless, elements to their already comprehensive and well reasoned opinion. The remainder of this article will attempt to provide guidance to offset the attacks of those preferring form over substance.
Demand Curves
Somewhere along the way, in patent infringement cases, the idea emerged that demand for a particular patented feature should be demonstrated instead of solely showing demand for underlying product that incorporated a specific patented feature. As an example, if a cell phone was improved by incorporating a beard trimmer it could be important to show that sales of the cell phone were directly driven by consumer demand for the beard trimming feature. Not a bad idea, but how can this be accomplished? I suspect that also somewhere along the way a judge heard the phrase “demand curve” and wanted to see such an analysis in every case they presided over. Unfortunately, a classic demand curve in no way can provide any insight into any consumer’s desire for a specific patented feature. Let me explain.
In economics, a demand curve graphically shows the relationship between the demand for a product and the different price points at which it is offered. This usually requires years of data. When the price for a commodity is a low, sales volume is high because more consumers are able to buy a commodity at low prices. As the price of a commodity increases, sales volume drops as fewer consumers are able to afford purchasing the product. Presented below is a demand curve for cocaine based on information obtained from a Mexican drug cartel that cannot be identified.[v]
Interestingly, the demand curve is not “smooth”. Not until prices become excessively high is there a steep decline in demand. There is another meaning to “smooth”. Occasionally, adjustments to the underlying data are needed to “smooth” out aberrations such as when spikes in inflation distort the results of the overall. Such adjustments are similar to seasonal adjustments made to employment and retails economic indicators.
The graph above provides information about the overall demand for cocaine as prices change but it can tell us nothing about demand for the cocaine with the patented bubble gum pink color.
More important is to consider the reality of most patent infringement proceedings. In most cases[vi] the period during which the product accused of infringement is sold is only a few years and the price at which the product sold remained constant. Here is the associated demand curve. It can be universally used for most cases.[vii] Really useful yeah?
Consumer Surveys
Since demand curves cannot provide a connection between a patented feature and consumer’s preferences another method is required. How about asking a bunch of consumers for their opinion?[viii] Well, this is not going to work in many cases. Consider an established product generating millions of units in sales and extraordinary profits. Now add to the equation a manufacturer that invents a new patented internal component making manufacturing infinitely less expensive. Profits then become extra-extraordinary. When competitors discover the new internal component and copy it in order to remain competitive an infringement lawsuit results. Showing consumer demand for the patented internal component is not possible. Product users do not know or care about cost saving inventions. They aren’t even aware of how the product works. Nonetheless, expert reports should present customer surveys. Feel free to use the follow results to a question I asked 100 people at random[ix].
YES 87%
NO 13%
GET AWAY FROM ME ASSHOLE 100%
Regression Analysis
In statistics, regression analysis includes many techniques for modeling and analyzing several variables, when the focus is on the relationship between a dependent variable and one or more independent variables. More specifically, regression analysis helps us understand how the typical value of the dependent variable changes when any one of the independent variables is varied, while the other independent variables are held fixed. To grasp the basic concept of regression analysis, take the simplest form of such an analysis: a linear, bivariate regression, which describes an unchanging relationship between two phenomena.
Now suppose you are wondering if there is a connection between the time high school students spend doing homework and the grades they receive. These types of data can be plotted as points on a graph, where the x-axis is the average number of hours per week a student studies, and the y-axis represents exam scores out of 100. Together, the data points will typically scatter a bit on the graph. The regression analysis creates the single line that best summarizes the distribution of points. This may be interesting but it is useless for patent infringement damages calculations. Yet criticism abounds for those that do not consider a regression analysis as part of a damages analysis. To help out, here is a regression analysis that can be inserted into report.
The data graphed above shows the relationship between the income of 60 year old men and the number of conquests of 30-year-old women they experienced. Of course this analysis is irrelevant to any patent infringement case but when asked, “Did you do any regression analysis?”, you can answer affirmatively.
Footnotes
Copious footnotes are recommended, the longer the better. They should pontificate and ramble. As you may have noticed this article includes many footnotes that do nothing to improve a reader’s understanding of the material being presented. Apologies are extended for the brevity of the footnotes associated with this article. I am still adjusting to the need for polluting superfluous information into my writings. I am sure that this can be remedied by a survey of educational conferences that are offered by professional societies. I am certain that a course is offered about making long footnotes while saying nothing but still looking impressive. My search begins shortly.
Conclusion
Experts being extended the compliment and honor of testifying at trial should always present their ultimate efforts by providing the best analysis that can be accomplished with information available. Unfortunately such an analysis must now also be accompanied by additional materials of less usefulness.[x] This article does not recommend in any way the abandonment of substance but sadly recommends the addition of useless junk until our disturbed Daubert relative stops being abused by some of our overly aggressive family members.
I wish to extend my undying gratitude to judges that quickly deny superficial Daubert motions.
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