Defense Questions “Simplistic” Economic Expert Witness Calculations

The plaintiffs claimed the former owner of an online platform misappropriated information in order to gain users on another platform.

    Zach Barreto

    Written by
    — Updated on September 3, 2021

    Defense Questions “Simplistic” Economic Expert Witness Calculations

    Court: United States District Court for the Southern District of Texas, Houston Division
    Jurisdiction: Federal
    Case Name: DHI Grp., Inc. v. Kent
    Citation: 2019 U.S. Dist. LEXIS 133487

    The economic expert witness, retained by the plaintiffs, calculated the cost of the misappropriated data and predicted the potential resulting revenue. The defendants argued the expert witness used an unreliable methodology, claiming his calculations were too simplistic. 

    Facts

    The case centered around the sale of an online platform for oil and gas industry professionals. The plaintiffs filed this case against multiple defendants alleging several federal and state law violations. The plaintiffs claimed the former company owner misappropriated its information to gain users for another platform. He launched this platform after selling the first one.

    The Plaintiffs’ Economic Expert Witness

    The plaintiffs’ economic expert witness received his doctorate in finance and economics. The expert witness was an associate professor at two different universities for several years. He then became the Memorial Chair in Finance at another university, teaching valuation courses at the undergraduate and graduate levels. Additionally, the expert witness’s work has been published numerous times on valuation topics.

    Economic Expert Witness’s Testimony

    The expert witness measured the cost of the misappropriated data. From this calculation, the expert opined on the actual loss incurred by the complainants. He also offered a view of the unjust enrichment the defendants earned. The economic expert witness predicted a potential revenue stream based on misappropriated data in order to provide this opinion.

    The expert witness used a market-value-per-user approach to estimate the value of misappropriated information. The expert calculated Rigzone, Oilpro, and similar companies’ market values under this strategy. Furthermore, the expert divided the market value by the number of users each company had. The resulting number for each business was a market-value-per-user. The expert used these market-per-user values to estimate the value of the misappropriated information of Rigzone members. The expert calculated Oilpro’s value with the stolen information minus Oilpro’s value without the stolen information. As such, the expert determined the cost of the unjust enrichment to the defendants.

    Arguments for Exclusion

    The defendants argued the expert incorrectly accepted the plaintiffs’ factual allegations as real. Specifically, the expert accepted claims that the defendants collected data from users of the old platform to obtain users for the new one. They also argued that both of the expert’s models of damages were inaccurate.

    The defendants argued that the court should also exclude the economic expert witness’s testimony. Their reasoning for exclusion was that the plaintiffs were not permitted to recover the actual value of the misappropriated information. Furthermore, the defendants asserted that unjust enrichment is restricted to actual profits from use or disclosure of a trade secret. The defendants also argued for the omission of the expert’s approach of market-value-per-user as he did not use reliable methodology. The defendants further argued that his estimate on the unjust enrichment of the defendant was inaccurate. According to the defendants, the basis of the expert’s estimate was on entirely speculated profit estimates. Additionally, the defendants argued his estimates relied blindly on the prediction of an investor and used incorrect data. The defendants finally contended that the expert’s market value-per-user model was simplistic to the point of being unfairly prejudicial.

    Discussion

    The court noted that the defendants could challenge the expert’s testimony during cross-examination, if it depended on false information. The court observed that the defendants’ trade secrets argument did not affect the testimony’s admissibility. Further, the court instructed that the plaintiffs were unable to seek damages pursuant to the expert’s models to the extent that these models did “not comport with the trial judge’s jury instructions on damages.” The court also noted that the defendants could address their objections to the methodology of the expert’s opinion during cross-examination. The court observed that the expert’s calculations were not simple mathematical calculations possible for any layman. Thus, they were not simplistic. The court also found the expert sufficiently qualified to offer his opinion.

    Ruling

    The defendants’ motion to exclude the testimony of the economic expert witness was denied.

    Key Takeaways for Experts

    All mathematical calculations conducted by experts may become the subject of criticism from the opposition. The calculations could be too complex for any jury to make sense of or too simple that a jury could have executed them on their own. In this case, the defendants argued the economic expert witness’s model was so simplistic that it was prejudicial. However, the court believed that the expert’s calculations were complex enough to warrant expert interpretation.

    It’s important to explain the calculations in context. Remember to discuss how these techniques specifically relate to your expert training and how your expertise qualifies you to execute these calculations. Once you convey the results of your calculations, be sure to explain those calculations in a language clear enough for the jury to understand. Focus on the implications of these calculations and how they impact your opinions on the facts. Context is key to combat challenges from the opposition.

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