This article by
Bob Ambrogi, of
IMS Expert Services, reports on the 10th U.S. Circuit Court of Appeals' addressing the need
for a more objective means for testing whether expert testimony should be allowed during litigation.
The action was taken as the result of an IP theft case whereby a software engineer was accused
of stealing code from his former company and using it to help start a new competing company. Precedence
is given a lot of weight when courts consider testimony and in determining the rules of engagement
before the bench. I am innately dubious of simply regarding precedence as settled law because
of how often decisions are overturned on appeal. When precedence is used to sidestep the need
to make a courageous ruling, either as part of the final decision or part of the proceedings,
justice is not rightfully served. Of course there is always one side of every outcome that is
pleased regardless of whether it was justly ruled. There is too much bias, intended or unintended,
in the judge pool to allow life-changing decisions to be made based on subjective reasoning.
IMS ExpertServices periodically sends me
e-mails that highlight recent key court cases that can significantly affect the effectiveness
of expert testimony, both for the plaintiff and for the defendant. I have no official affiliation
with them other than to gratefully accept an invitation to repost articles I consider beneficial
to RF Cafe visitors.
Robert Ambrogi on April 29, 2014
Robert J. Ambrogi is a Massachusetts lawyer who represents clients at the intersection
of law, media and technology. A news media veteran, he is the only person ever to hold the
top editorial positions at the two leading national U.S. legal newspapers, the National Law
Journal and Lawyers Weekly USA. He is also internationally known for his writing
and blogging about the Internet and technology.
April 29, 2014
Trial judges are the keepers of the gate for expert testimony. They decide when to let expert
testimony go in and when to lock it out. However, when their gatekeeping is challenged on appeal,
how is the higher court to evaluate whether a trial judge took it seriously enough and properly
evaluated the expert's reliability and relevance?
In an appeal of a $2.92 million trade secret misappropriation award, the 10th U.S. Circuit
Court of Appeals recently struggled with that very question. "We have yet to identify some unifying
theory or principle for discerning the precise point at which a district court’s gate-keeping
findings prove sufficient," the three-judge panel noted.
Looking to its prior decisions interpreting Daubert, the panel extracted three "lessons" to
be applied in evaluating the sufficiency of a trial judge's gatekeeping.
Theft of Software Source Code
The case, which arose out of Utah, involved the theft of computer source code from StorageCraft,
a software company, by James Kirby, a software engineer who helped start and served as a director
of the company. Kirby shared the code with NetJapan, a rival company that then produced a competing
software product much like StorageCraft's.
After a jury awarded StorageCraft $2.92 million, Kirby appealed, challenging the outcome on
various grounds. Several of his challenges related to the "reasonable royalty" formula used to
calculate the damages.
For one, he argued that a trade-secret plaintiff should not be able to recover reasonable royalty
damages without proof that the misappropriating defendant made commercial use of the secret. Arguing
that the record contained no evidence of commercial use, he asserted that the verdict could not
stand. The 10th Circuit panel rejected this argument based on Utah law, which allows such damages
when the misappropriator uses or discloses the trade secret.
Kirby also argued that, because a reasonable royalty is meant to mimic the price the parties
would have set for an actual license, the computation must consider the purpose of the license.
Since he took the source code with no intent of using it, he contended, the amount of the award
Unfortunately for Kirby, the evidence did not support that argument, the 10th Circuit said.
"Instead, the evidence at trial showed that Mr. Kirby took StorageCraft’s trade secret and intentionally
disclosed it to NetJapan, aware that NetJapan was an able competitor, and aware that NetJapan
could well use the secret to compete with StorageCraft."
Challenge to Damages Expert
Having dismissed Kirby's other challenges, the 10th Circuit turned to his argument that the
trial judge should not have admitted the testimony of StorageCraft's damages expert. However,
before turning to Kirby's specific challenges, the panel discussed the "unifying theory or principle"
that should guide it in deciding whether the trial judge adequately exercised the gatekeeping
The panel, in an opinion written by Circuit Judge Neil M. Gorsuch, outlined three principles
that it extracted from a review of its prior precedent:
1. The trial judge cannot simply state on the record that he or she has decided to admit the
expert testimony after due consideration. "Instead, the district court must furnish enough of
a record to permit a reviewing court to say with confidence that it 'properly applied the relevant
2. The judge "must reply in some meaningful way to the Daubert concerns the objector has raised."
If the challenge is to the expert's methodology, the panel said as an example, it is not sufficient
for the judge to stress the expert's qualifications. At the same time, the judge need not address
all of the possible reliability factors. "A district court's gatekeeping function is more flexible
than that, requiring the court to focus its attention on the specific factors implicated by the
circumstances at hand."
3. Even when the gatekeeping was insufficient, reversal is not necessary if the error was harmless.
"If, for example, it is readily apparent from the record that the expert testimony was admissible,
it would be pointless to require a new trial at which the very same evidence can and will be presented
again," the panel explained. Also, the error would be harmless if other evidence was sufficiently
strong to indicate that the improper evidence had no effect on the outcome.
With these principles in mind, the panel turned to Kirby's two objections. His first was that
the expert failed to adopt his legal theory that trade secret royalty damages require proof of
commercial use, but this was a legal argument, the panel said in rejecting the argument, not an
objection to the expert or his methodology.
Kirby's second objection was to various assumptions the expert made in quantifying the costs
StorageCraft incurred in developing the computer code. Kirby offered no evidence to support these
objections, the panel said, while the record did contain evidence to support the expert's conclusions.
"The expert’s assumption, then, was grounded in record evidence, Mr. Kirby’s own testimony
belies his methodological complaint, and we can rest assured that more words from the district
court would not have altered the admissibility of the expert’s evidence."
The case is
StorageCraft Technology Corp. v. Kirby, No. 12-4182 (10th Cir., March 11, 2014).
This article was originally published in
a newsletter distributed by IMS ExpertServices™.
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Posted April 29, 2014