VICTOR MARRERO, District Judge.
Plaintiff R.F.M.A.S., Inc. ("RFMAS") objects to a Report and Recommendation issued by Magistrate Judge Michael H. Dolinger, granting in part and denying in
RFMAS brought this action against defendants Mimi So, Mimi So International, Inc., Richemont SA, Compagnie Financiére Richemont SA, Richemont North America, Richemont Holdings I, and Richemont International, Ltd. (collectively, "Defendants"), alleging, among other things, that Defendants infringed RFMAS's copyright in nine pieces of its "Stella" jewelry line and infringed the trade dress of the "look" of the Stella collection.
On August 30, 2010, Magistrate Judge Dolinger, to whom this matter had been referred for supervision of pretrial proceedings, issued a Report and Recommendation (the "Report"), a copy of which is attached and incorporated herein, recommending that Defendants' Motion to Exclude Plaintiffs Experts dated December 1, 2009 (the "Motion") be granted in part and denied in part.
Specifically, the Report recommended that RFMAS's experts Don Smith ("Smith") and Steve Hansen ("Hansen") be precluded from testifying at trial as to whether Defendants' actions damaged RFMAS and, if so, to what extent. However, the Report deemed potentially admissible a limited portion of Hansen's testimony regarding whether the jewelry featured in Mimi So's 2006 "Gate B9" catalogue "would only be sold precisely as is depicted." (See Report at 95-96.) Consequently, the Report recommended that the entirety of Smith's expert reports and the relevant portions of Hansen's expert reports be stricken.
Further, the Report recommended that RFMAS's experts Joyce Jonas ("Jonas") and Edward Lewand ("Lewand") be permitted to offer testimony regarding the similarities and differences between RFMAS's and Defendants' jewelry. However, the Report recommended that these individuals be precluded from offering expert opinions as to the "probable effect in the market" of RFMAS's Stella line, the distinctiveness of RFMAS's line, whether or not the Stella line operates as a source identifier and constitutes a protectable trade dress, whether customers are likely to be confused about the source of Defendants' jewelry, and whether Defendants' jewelry was copied from RFMAS's. The Report recommended that the portions of Jonas's and Lewand's reports corresponding to these latter issues be stricken.
On September 27, 2010, RFMAS filed timely objections to the Report (the "Objections") challenging certain of the Report's findings.
Pre-trial discovery issues in civil litigation are generally considered non-dispositive
The Court has reviewed the full factual record in this litigation pertaining to the issues raised by RFMAS's objections, including the pleadings and the parties' respective papers submitted in connection with the underlying motion to exclude RFMAS's experts, as well as the Report and applicable legal authorities. On the basis of this review, the Court concludes that the findings, reasoning, and legal support for the recommendations made in the Report are neither clearly erroneous nor contrary to law. The Report carefully details the backgrounds, assumptions, methodologies and findings of each of RFMAS's experts and evaluates them in light of the standards for admissibility of expert testimony set out by Rule 702 of the Federal Rules of Evidence, Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993), and Kumho Tire Co. v. Carmichael, 526 U.S. 137, 119 S.Ct. 1167, 143 L.Ed.2d 238 (1999). The Court finds that the Report's recitation accurately reflects the factual record and that its legal analyses and determinations are sound.
Rule 702 of the Federal Rules of Evidence provides that a qualified expert's testimony is admissible only "if (1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case." Fed.R.Evid. 702. In assessing the reliability of expert testimony, the trial court must decide not only whether an expert's methodology is reliable for some purposes, but whether it is a reliable way "to draw a conclusion regarding the particular matter to which the expert testimony was directly relevant." Kumho Tire Co., 526 U.S. at 154, 119 S.Ct. 1167. Expert testimony that is merely "subjective belief or unsupported speculation" should be excluded.
In its Objections, RFMAS first contends that, contrary to the findings of the Report, the data relied upon and methods employed by its damages experts Smith and Hansen were both sufficient and sound. Specifically, RFMAS argues that Smith and Hansen (1) investigated sufficiently the reasons for the decline in RFMAS's business with Neiman Marcus; (2) considered alternative causes for the decline in RFMAS's Neiman Marcus business other than Defendants' alleged infringement; (3) were not required to apportion damages between the causes of action and the parties;
As to RFMAS's objections regarding the methods employed by Smith and Hansen, the Court concurs with the Report's findings and conclusions substantially for the reasons discussed therein. First, the Court disagrees with RFMAS's apparent argument that Smith and Hansen did not fail to investigate the reason for the decline in RFMAS's Neiman Marcus business because the deposition testimony of Neiman Marcus representative Lisa Kazor ("Kazor") rendered the cause self-evident. (See Objections at 5-7.) Kazor's testimony quoted by RFMAS in its Objections discusses both upward and downward trending of RFMAS's sales to Neiman Marcus over time, does not explain the reasons for that trending, and makes no mention whatsoever of Defendants or their products. RFMAS's attempts to "fill in the blanks" of this testimony with unsupported factual assertions is unavailing. Further, RFMAS's curious assertion that "there was simply no basis for a second deposition of Neiman Marcus conducted by experts, as posited in the Report," (Objections at 7) (emphasis in original) misses the point; the Report concluded that RFMAS's counsel could have questioned Kazor directly at her deposition as to the reasons for the decline but apparently chose not to do so, and further noted that, in any event, Smith did not even read Kazor's testimony. (See Report at 59-60 and n.44.)
Next, RFMAS's claim that, contrary to the conclusion of the Report, Smith and Hansen sufficiently considered alternative causes for the decline in RFMAS's Neiman Marcus sales is based solely on a reference
RFMAS's argument that Smith's and Hansen's methodologies are generally accepted practices similarly misses the mark. Even were the Court persuaded—which it is not—that the models chosen by RFMAS's experts to forecast lost profits and lost enterprise value were reasonable in general, RFMAS would still fail to meet its burden. RFMAS must show not only that its experts' methodologies are reliable for some purposes, it must also show that those methodologies are reliable ways "to draw a conclusion regarding the particular matter to which the expert testimony was directly relevant." Kumho Tire Co., 526 U.S. at 154, 119 S.Ct. 1167. Here, as the Report concludes, RFMAS's experts "have utterly failed to justify their chosen methodologies in light of the facts of this case."
Additionally, RFMAS's arguments with respect to its experts' qualifications are either immaterial or irrelevant. First, even if RFMAS were correct that Smith possesses the requisite qualifications to project revenues, that would not change the fact that, as noted above and in the Report, Smith failed to demonstrate that he employed a reliable method in doing so. RFMAS's arguments regarding its other experts fare no better. RFMAS insists that Hansen is qualified to project revenues, yet the Report never found Hansen unqualified in that regard. Finally, RFMAS's arguments regarding Lewand and Jonas fail to recognize a pivotal and utterly unfounded assumption: even if, as RFMAS claims, Jonas's "historical" knowledge of jewelry includes knowledge of the contemporary market, and even if Lewand is an experienced appraiser of contemporary jewelry pieces, that would still not warrant permitting either Jonas or Lewand to testify to ultimate facts in dispute, and thus invade the province of the jury, for instance concerning the distinctiveness or uniqueness of RFMAS's Stella jewelry line, whether customers are likely to be confused about the source of Defendants' jewelry, or whether Defendants' jewelry was actually copied from RFMAS's.
Accordingly, for substantially the reasons set forth in the Report, the Court adopts the Report's factual and legal analyses and determinations, as well as its substantive recommendations in their entirety as the Court's own ruling on Defendants' Motion.
For the reasons discussed above, it is hereby
MICHAEL H. DOLINGER, United States Magistrate Judge:
TO THE HONORABLE VICTOR MARERO, U.S.D.J.:
Plaintiff R.F.M.A.S., Inc. ("RFMAS" or "plaintiff") is a designer of jewelry sold under the trademark "Faraone Mennella". (Am. Compl. ¶ 13). It commenced this action against Ms. Mimi So and Mimi So International, Inc. (collectively, "the Mimi So defendants" or "Mimi So") and Richemont SA, Compagnie Financiere Richemont SA, Richemont North America, Inc., Richemont Holdings I, Inc., and Richemont International, Ltd. (collectively, "the Richemont defendants") on November 13, 2006. Plaintiff alleges that several pieces in Mimi So's 2006 "Gate B9" collection of jewelry infringed plaintiffs copyright and trade dress on the design of pieces in its "Stella" collection. (See Decision & Am. Order, May 13, 2009, at 4, available at R.F.M.A.S., Inc. v. Mimi So, 619 F.Supp.2d 39, 47 (S.D.N.Y.2009); Compl. ¶¶ 37-40).
Defendants have moved to exclude the testimony of plaintiffs four putative expert witnesses: Don Smith and Steven Hansen, plaintiffs damages experts, and Joyce Jonas and Edward Lewand, plaintiffs liability experts. Defendants argue that their testimony is inadmissible in whole or in part under Federal Rules of Evidence 403, 702, and 703 and the Supreme Court's decisions in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993), and Kumho Tire Co. v. Carmichael, 526 U.S. 137, 119 S.Ct. 1167, 143 L.Ed.2d 238 (1999). They seek an order striking the Rule 26(a)(2)(B) reports of these witnesses and precluding plaintiff from calling them as expert witnesses at trial.
For the reasons below, we recommend that defendants' motion be granted in part and denied in part. As we explain below, we recommend that the court exclude the expert testimony of Don Smith in its entirety, and exclude the expert testimony of Steve Hansen, Joyce Jonas, and Edward Lewand in part because as to many of the matters on which these witnesses offer testimony, they are either not qualified as experts or have not demonstrated that their conclusions rest on sufficiently reliable methods and facts.
Expert witness testimony is appropriate only if "scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue". Fed.R.Evid. 702. In those circumstances, a person who possesses relevant specialized knowledge by virtue of his "skill, experience, training, or education" may testify as an expert witness. Id. "To determine whether a witness qualifies as an expert, courts compare the area in which the witness has superior knowledge, education, experience, or skill with the subject matter of the proffered
Rule 702 of the Federal Rules of Evidence provides that a qualified expert's testimony is admissible only "if (1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case." Fed.R.Evid. 702. This rule "incorporates the principles enunciated in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993)[,] in which the Supreme Court held that trial courts have a gatekeeping function to ensure that any and all scientific testimony or evidence admitted is not only relevant but reliable." Discover Fin. Servs. v. Visa U.S.A., Inc., 582 F.Supp.2d 501, 503 (S.D.N.Y.2008) (internal quotations omitted). Subsequent to the Daubert decision, the Supreme Court made clear that the trial court must perform the gatekeeping function outlined in Daubert to determine the admissibility of all expert opinions, not only testimony as to scientific matters. Kumho Tire Co., 526 U.S. at 147, 119 S.Ct. 1167.
Under Daubert and Kumho Tire Co., the trial court must determine that the proposed testimony of a qualified expert witness "is not only relevant, but reliable." Daubert, 509 U.S. at 589, 113 S.Ct. 2786; Kumho Tire Co., 526 U.S. at 137, 119 S.Ct. 1167. This inquiry must focus "not on the substance of the expert's conclusions, but on whether those conclusions were generated by a reliable methodology." Trouble v. Wet Seal, Inc., 179 F.Supp.2d 291, 301 (S.D.N.Y.2001). To the extent that a party questions the weight of the evidence upon which the other party's expert relied or the conclusions generated from the expert's assessment of that evidence, it may present those challenges through cross-examination of the expert. Park West Radiology v. CareCore Nat'l LLC, 675 F.Supp.2d 314, 326 (S.D.N.Y.2009) (citing Discover Fin. Servs., 582 F.Supp.2d at 507). Minor flaws in an expert's analysis likewise can be probed through cross-examination and generally go to the weight to be accorded to the expert's testimony rather than admissibility.
In assessing the reliability of the expert testimony, the court must undertake a two-step analysis. First, the court must determine, at least on a preliminary basis, "whether the reasoning or methodology underlying the testimony is scientifically valid". Daubert, 509 U.S. at 592-93, 113 S.Ct. 2786. The Daubert Court suggested that for scientific methods, the trial judge should assess whether the method or theory "can be and has been tested." Daubert, 509 U.S. at 593, 113 S.Ct. 2786. This includes a consideration of whether the methodology has been subjected to peer review and publication, the degree to which it has been accepted in the relevant profession or discipline, and the known or
Second, the court must further decide whether that reasoning or methodology is appropriately applied to the case at hand, and whether the expert is applying it in a manner that ensures a reliable linkage between the facts that he is examining and the conclusions that he is announcing. Daubert, 509 U.S. at 592, 113 S.Ct. 2786; Kumho Tire Co., 526 U.S. at 158, 119 S.Ct. 1167. In short, the trial court must decide not only whether the methodology is reliable for some purposes, but also whether it is a reliable way "to draw a conclusion regarding the particular matter to which the expert testimony was directly relevant." Kumho Tire Co., 526 U.S. at 154, 119 S.Ct. 1167. Expert testimony that is merely "subjective belief or unsupported speculation" should be excluded. Daubert, 509 U.S. at 590, 113 S.Ct. 2786; see also Major League Baseball Props., Inc. v. Salvino, Inc., 542 F.3d 290, 311 (2d Cir.2008) (quoting Boucher, 73 F.3d at 21). As the Supreme Court has noted in this context:
Gen. Elec. Co. v. Joiner, 522 U.S. 136, 146, 118 S.Ct. 512, 139 L.Ed.2d 508 (1997).
The party proffering the expert has the burden to demonstrate by a preponderance of the evidence that its expert witness satisfies these criteria. See, e.g., Zaremba v. GMC, 360 F.3d 355, 358 (2d Cir.2004); Aventis Envt'l Science USA LP v. Scotts Co., 383 F.Supp.2d 488, 513 (S.D.N.Y. 2005).
The Federal Rules require a party that has designated an expert witness for trial to provide the other side with a report prepared and signed by that witness. Fed.R.Civ.P. 26(a)(2)(B). The report must contain, among other things, "a complete statement of all opinions the witness will express and the basis and reasons for them; the data or other information considered by the witness in forming them; any exhibits that will be used to summarize or support them", and "the witnesses' qualifications". Fed.R.Civ.P. 26(a)(2)(B)(i)-(iv).
As this language suggests, the report setting forth the expert's opinions and their factual basis must be "detailed and complete". See 1993 Advisory Committee Notes to Fed.R.Civ.P. 26(a)(2)(B), at 160. A party may depose the other side's expert only after the expert provides the required report. Fed.R.Civ.P. 26(b)(4)(A). The drafters of this rule anticipated that the provision of a report would significantly shorten the duration and narrow the scope of depositions of expert witnesses and perhaps in some cases obviate the need for the deposition altogether. Lava Trading, Inc. v. Hartford Fire Ins. Co., 2005 WL 4684238, at *7 (S.D.N.Y. Apr. 11, 2005) (citing 1993 Advisory Committee Notes to Fed.R.Civ.P. 26(a)(2)(B), at 161; Salgado v. Gen. Motors Corp., 150 F.3d 735, 741 n. 6 (7th Cir.1998)). A party that has made a disclosure under Rule 26(a) must supplement or correct its disclosure "in a timely manner if the party learns that in some
Any expert testimony that is not properly supported and disclosed in a report is presumptively inadmissable unless the noncompliance with Rule 26 was "substantially justified" or "harmless". Fed. R.Civ.P. 37(c)(1).
Defendants argue that plaintiff's putative damages experts, Mr. Smith and Mr. Hansen, are not qualified to opine on causation in this case, and that their testimony on both causation and the measure of damages rests on an insufficient factual record and is the product of an unreliable analytical framework. (Defs.' Mem. Law Supp. Mot. to Exclude Pl.'s Experts, Dec. 1, 2009 ["Defs.' Mem."], at 4-16; Defs.' Reply Mem. Supp. Mot. to Exclude Pl.'s Experts, Dec. 28, 2009 ["Defs.' Reply Mem."] at 2-9). Although defendants focus primarily on Mr. Smith and Mr. Hansen, they also argue that plaintiffs liability experts, Mr. Lewand and Ms. Jonas, are not qualified to opine on many of the matters on which they offer testimony, that they reached their conclusions by way of unreliable methodologies, and that, in any event, no expert testimony on liability is necessary in this case. (Defs.' Mem. at 1, 18-19; Defs.' Reply Mem. at 9-10).
In support of their motion, defendants offer the testimony of two of their own expert witnesses, who in part respond to the testimony of plaintiffs experts. Michelle Riley is a licensed CPA and has been qualified as a damages expert in many federal cases. (See Michele M. Riley Report, Oct. 15, 2009, Ex. 10 to Richard Lehv, Esq. Decl., Dec. 1, 2009 ["Riley Report"] at 1 ¶ 1; Ex. 1 to id. (curriculum vitae)). Ms. Riley testified that Mr. Smith's and Mr. Hansen's analyses of plaintiffs damages are speculative because they failed to investigate the facts relevant to determining causation and quantifying the alleged harm and did not support their conclusions with sufficient analysis. (See Riley Report at 2-3 ¶ 7). Carolyn Kelly has extensive experience in the fine jewelry industry, including experience in product development, experience working at both retailers and wholesalers, and nine years of service as Divisional Manager of Fine Jewelry for Saks Fifth Avenue. (Carolyn M. Kelly Report, Oct. 14, 2009, Ex. 14 to Richard Lehv, Esq. Decl., Dec. 1, 2009 ["Kelly Report"] at 1). She compared some of plaintiffs and defendants' pieces of jewelry and opined on their similarities and differences from aesthetic and commercial perspectives. (Id.). Ms. Kelly concluded that neither the Stella collection nor the Gate B9 collection was unique, that the two lines cater to different consumer markets, and that defendants' Gate B9 collection likely could not have affected plaintiffs business. (Id. at 2-4).
Plaintiff responds that defendants have not identified any inaccuracies in the factual record relied upon by its experts, and that its experts' testimony is not rendered inadmissible simply because other experts disagree with their conclusions. Plaintiff further argues that the alleged flaws in its experts' analysis, including the damages
We consider these arguments below.
Plaintiff retained two experts, Don Smith and Steve Hansen, to offer testimony in support of plaintiff's case on damages.
It appears that Mr. Smith and Mr. Hansen collaborated on their analysis. Smith consulted Hansen before issuing his own opinions, and Smith's and Hansen's reports cite each other.
Don E. Smith is the president and primary consultant at a marketing consulting firm that he founded in 1989. (Smith Report at 1, 21). His work as a marketing consultant includes experience "defining market sizes, growth rates, [. . . and] competitive strengths and weaknesses", and creating strategies to increase market share, sales, and profits. (Id. at 21). He states that he has "25 years of experience
In his initial report, Smith identified in broad terms the legal wrongs that he assumed defendants committed: "I am assuming the defendants infringed the plaintiffs copyrights and trade dress, misappropriated confidential information/trade secrets and breached their contract." (Smith Report at 2). He elaborated somewhat on some of these assumptions later in his report. He specified that "[f]rom October 2004 to September of 2006, RFMAS had meetings with personnel from Mimi So and Richemont. Under the protection of a signed confidentiality agreement, the plaintiffs shared their records, plans, strategies, pricing, which designs are the best sellers, specific methods of dealing with customers and other confidential/trade secret information." (Id. at 6 ¶ 3 (citing Am. Compl. at 6)).
His report also seemed to assume that Mimi So was directly responsible for the style of a particular Neiman Marcus ad for Mimi So jewelry, although he did not make
Smith's explanation of Richemont's role in causing plaintiff to lose business with Neiman Marcus consisted of the observations that "[i]n early 2004, Richemont acquired a minority equity share of Mimi So", that Ms. So publicly commented on the partnership and her desire to grow her company internationally, that an executive from Richemont participated in conversations with plaintiff, and that "Hansen believes that Richemont personnel had a significant influence in Neiman Marcus' dramatically reduced purchases." (Id. at 7 ¶¶ 7-8). At his deposition, he confirmed that he had not formed any opinion of his own as to whether Richemont had played a role in causing the decline in plaintiffs sales to Neiman Marcus.
Mr. Smith's findings as to causation and damages rested almost exclusively on the documents that plaintiff provided, although he testified at his deposition that he also ran searches on Google and Lexis Nexis for unspecified key words, and asked plaintiffs counsel and plaintiffs other damages expert, Steve Hansen, to verify his findings.
It appears that plaintiff provided Mr. Smith with some raw data (including some RFMAS invoices and Mimi So sales records) as well as reports summarizing RFMAS's annual sales and the content of various RFMAS invoices as well as defendants' revenues. (See id. at 24). Plaintiff also provided Mr. Smith with information from the Wall Street Journal and Federal Reserve on the current and historic prime rate, a February 2004 article in Professional Jeweler entitled "Richemont Partners with Mimi So", the complaint in this action, and the expert reports of Steve Hansen, Joyce Jonas, and Ed Lewand. (See id.).
Mr. Smith's initial report did not identify the provenance of the summary documents on which he based his conclusions. At his deposition, he explained that the
Mr. Smith concluded in his initial report that defendants' various unlawful acts caused a decrease in RFMAS's sales and profits and the value of RFMAS's brand.
Mr. Smith opined that the loss of Neiman Marcus as a customer and the concomitant declines thereafter in plaintiffs sales, profits, and brand value were due to defendants' unlawful activities.
His report contains a graphical timeline illustrating events between December 2002 and August 2009 that also appears in Mr. Hansen's report; it is unclear who created it. (Compare Hansen Report at 8 (Graph 2) with Smith Report at 5 (Graph 2)). On this graph, the creator plotted plaintiff's total sales to Neiman Marcus for the prior 12 months and plaintiff's total sales to Saks for the prior 12 months. (Id.). Both lines reflected a general increase in plaintiff's total annual sales to each of these retailers through September 2006, and thereafter, a general decline in plaintiff's total annual sales to Neiman Marcus and a general increase in plaintiff's total annual sales to Saks Fifth Avenue. (See id.). The graph also indicates the timing of the events that Smith and Hansen assumed had occurred: defendants' accessing plaintiff's proprietary information and the release of the Neiman Marcus "knockoff' ad for Mimi So jewelry in November 2006. (Id.). The graph highlights Mimi So's first sales to Neiman Marcus in May 2006 and a "rapid[ ] increase" in Mimi So's sales from January 2007 through December 2007. (Id.).
Smith also relied on the fact that, at the same time, plaintiff's sales to Saks (to which Mimi So did not sell infringing jewelry) continued to increase. (Id. at 7; see also id. at 5 (Graph 2)). His report stated that "95% of the products sold by Saks were also sold by Neiman Marcus. This supports the basis for my comparison of the sales of Saks and Neiman Marcus." (Smith Report at 19). He reiterated at his deposition and in his supplemental report that he thought that plaintiff's sales to Saks should generally be similar to its sales to Neiman Marcus because "95% of the alleged[ly infringed] products sold by Saks were also sold by Neiman Marcus", which, Smith opined, "clearly shows that Neiman Marcus and Saks sold similar products." (Smith Suppl. Report at 1; see also Smith Dep. at 166-67 ("Q: Is it your belief [that Saks and Neiman Marcus] sell a similar mix of products? A: Yes! Go back to Table 9. The overlap is 95 percent on infringed product. 95 percent overlap. [. . .] That's pretty similar.")).
However, the table that Smith offered to support this assertion does not demonstrate what Smith claims it does. In this table, listed in one column labeled "item" are 61 different combinations of letters and numbers that we infer refer to individual pieces of protected RFMAS jewelry that plaintiff alleges were infringed by defendants. (See Smith Report at 19 (Table 9)). In the next two columns, labeled "Neiman Marcus" and "Saks", Smith lists dollar amounts that we infer are Neiman Marcus' and Saks' revenues from sales of each particular piece of RFMAS jewelry through August 2009. (See id. & n. 51). The table seems to reflect that revenues from sales of all allegedly infringed RFMAS jewelry at Neiman Marcus total $1,733,046, while revenues from sales of all allegedly infringed RFMAS jewelry at Saks total $884,014. (See id.). Below these revenue totals are two lines, which read "$ also sold by NM: $836,044" and "% also sold by NM: 95%". (Id.). It appears that "$ also sold by NM" refers to the total revenues from sales at Saks of the specific pieces of allegedly infringed
In his initial report, Mr. Smith added in passing, "I have considered alternative theories of causation including the economy, the potential shift of consumer preferences and Neiman Marcus dropping the plaintiffs for other reasons. However, I did not find any documents or evidence that could explain why Neiman Marcus's sales of RFMAS fell so rapidly." (Id. at 7).
He explained the reasons for his conclusions that defendants' unlawful activities damaged the value of plaintiff's brand as follows:
(Smith Report at 8-9 & nn. 26-30).
Mr. Smith determined that plaintiff lost $5,223,000 in profits from loss of sales of all RFMAS products to Neiman Marcus that is attributable to defendants' assumed misconduct. Of that total, $3,230,000 represented the lost profits from lost sales to Neiman Marcus of the infringed products alone. (Id. at 10). He also opined that defendants generated $1,402,000 in sales of infringing products, $1,156,000 of which was from sales to retailers other than Neiman Marcus. (Id. at 10, 15, 16). Finally, he determined that it was not possible to quantify the damage that defendants caused to the value of plaintiffs "brand and intellectual property". (Id.).
Mr. Smith based his calculation of plaintiffs lost profits on five points of data: plaintiffs actual sales to Neiman Marcus of all RFMAS products in 2002, 2003, 2004, 2005, and 2006.
(Id. at 17 & n. 46). At his deposition, Mr. Smith defended his choice of growth curve as being "very common", and a "classic" means of projecting future sales of new products, citing the "extraordinarily high" success rate for "mom and pop restaurant[s]". (Smith Dep. at 221-22). However, he acknowledged that he had no idea what the success rate was for new products in the jewelry industry, specifically, and that he had not researched this fact. (Id. at 222-224). He also conceded that he undoubtedly would have relied on such data if it had been provided to him. (Id. at 224).
Mr. Smith then extended this linear trend line out through 2013 to determine what plaintiffs total sales of all RFMAS products to Neiman Marcus would have been for 2006 through 2013 "but for" defendants' unlawful activity. (See id. at 12-13). Mr. Smith asserted that it was conservative to project lost sales for only five years, and explained that he took this conservative approach because the principals of RFMAS had indicated to him in telephone conversations that "there is no basis to expect Neiman Marcus to begin selling significant quantities of RFMAS products." (Id. at 13; see also id. at 13 n. 36). For the years 2006 through 2009, Mr. Smith subtracted plaintiffs actual sales to Neiman Marcus from the projected "but-for" sales to Neiman Marcus to determine plaintiffs lost sales. (Id. at 13). For the
To calculate lost profits for 2006 through 2013, Mr. Smith multiplied lost sales for those years by 0.36. (Id. at 13). He asserted that a 36% "incremental profit rate" was "conservative" (id.), citing a telephone conversation with Steve Hansen, plaintiffs other damages expert. (Id. at 13 & n. 37).
He then determined the present value of those lost profits by applying a "present value multiplier" based on a 5% annual decrease in the value of money. (Id. at 13).
Although Smith opined that the present value of lost profits from sales to Neiman Marcus of all RFMAS products was an appropriate measure of damages in this case, he separately calculated the present value of plaintiffs lost profits from sales to Neiman Marcus of only the infringed goods. (Id. at 17). He began again with five points of data, but this time, he used plaintiffs actual sales of infringed products only (rather than all RFMAS products) to Neiman Marcus in 2002, 2003, 2004, 2005, and 2006. He then applied the same methodology and rates, arriving at a present value of $3,230,000 in lost profits from lost sales to Neiman Marcus of infringed products. (Id. at 17-18).
Smith also calculated defendants' sales from infringing goods, on the theory that plaintiff would be entitled to defendants' profits from infringing goods and that it is incumbent upon defendants to demonstrate the related sales expenses that should be deducted from revenues to determine profits. (Id. at 15 & nn. 40, 42 (citing conversations with K. Feldman, plaintiffs attorney)). He added together figures from a document entitled "Gate B9 revenue calculation spreadsheet", which plaintiffs counsel provided to him, and concluded that, based on those figures, defendants' total sales of infringing products through September 4, 2009 were $1,402,297, of which $1,156,000 were sales to retailers other than Neiman Marcus. (Id. at 15-16 & nn. 41, 43, 44).
Steven L. Hansen is a licensed CPA. (Hansen Report at 2). Since 1987, he has served as the CFO of many jewelry companies. (Id.). He asserted in his report that he has "[e]xperience in evaluating and quantifying the impact of incremental and/or lost financial and business opportunities with financial forecasting and modeling techniques." (Id.).
Hansen's initial report states that he "was asked to assume infringement, misappropriation of trade secrets and breach of contract occurred". (Hansen Report at 4). He later specified that these actions "includ[ed], but [were] not limited to, the introduction of a competing knocked off product, and the use of confidential business and trade secrets to undermine the Plaintiffs supplier relationship with Neiman Marcus". (Id. at 9).
The scattered references in Hansen's report to defendants' misuse of plaintiffs confidential information and trade secrets provide additional insight into the nature of his assumptions. He stated that, from October 2004 through September 2006, plaintiff shared "detailed confidential information with defendants". (Id. at 8 (Graph 2)). He described this information as "proprietary information about [plaintiffs] products and customers" that was "sufficient to enable the defendants to knock off RFMAS' best selling jewelry products and go after its best customer", and he stated that defendants "[had] access to and us[ed] the confidential and proprietary information of what particular pieces in the line are popular, what characteristics of the design are important to copy, and all of the other customer program specific information". (Id. at 8). He later summarized:
(Id. at 9).
At Hansen's deposition, when asked what confidential information defendants had misappropriated in order to copy plaintiffs products, he first replied that "[o]nce they understood how the—how the products were constructed, they could construct [. . . ] identical products to compete". (Steven L. Hansen Dep., Oct. 2, 2009, Ex. 6 to Richard Lehv, Esq. Decl., Dec. 1, 2009/Ex. 2 to Kenneth Feldman, Esq. Decl., Dec. 18, 2009 ["Hansen Dep."] at 61).
He also explained at his deposition that he assumed that the breach of contract had arisen out of "[t]he Richemont RFMAS nondisclosure agreement, confidentiality agreement." (Id.). He had assumed that all defendants had breached the contract, although he admitted that he was unsure whether Ms. So or Mimi So, International were parties to the contract that he was assuming had been breached. (Id. at 65). He conceded that he had made no assumptions about whom defendants had allegedly disclosed the confidential information to, and that he had not asked plaintiff about this. (Id. at 65-66).
Mr. Hansen reached his conclusions after reviewing documents provided to him by plaintiff; he did no independent investigation. (Hansen Dep. at 108-09). The documents he reviewed included those provided to both him and Mr. Smith as well as substantial testimony from witnesses in this case
Mr. Hansen's initial report concluded that "[t]he defendants destroyed the relationship and future business opportunities with the Neiman Marcus retail chain and greatly diminished the enterprise value of RFMAS," and thus, that "the Defendants['] actions are a necessary, immediate, and direct, cause of RFMAS' damages", including lost profits and a diminution in the value of RFMAS's copyrights. (Hansen Report at 6). He purported to base this conclusion on (1) his knowledge of what makes a jewelry business successful,
With respect to the first consideration, he explained that "wholesale buyers at retail
As for the second and third considerations, Mr. Hansen examined a Neiman Marcus ad for plaintiffs jewelry and a Neiman Marcus ad produced a year later promoting Mimi So's jewelry, and opined in his initial report that they were "essentially the same ad, with the same jewelry, posed the same way." (Id. at 14). However, at his deposition, he was shown higher-quality reproductions of the ad, which allowed him to see details he had missed before. (Hansen Dep. at 154). He conceded that, upon closer inspection, the ads actually appeared dissimilar. (Id. at 155). He asserted that his initial opinion that the ads were similar was consistent with the "testimony that people have been confused by the Defendants' jewelry and its marketing into believing it is associated with RFMAS". (Hansen Report at 14).
Finally, Hansen set forth the same graphical time line of purportedly significant events between December 2002 and August 2009 that appears in Mr. Smith's report. (Compare Hansen Report at 8 (Graph 2) with Smith Report at 5 (Graph 2)). He observed that after plaintiff shared information with defendants and after Neiman Marcus began to advertise Mimi So's allegedly infringing jewelry, plaintiffs sales to Neiman Marcus tapered off, even though plaintiffs sales to Saks continued to rise. (Id. at 10). He noted that Saks was similar to Neiman Marcus but that Mimi So had not sold the allegedly infringing jewelry to Saks,
Mr. Hansen also mentioned a few alternative explanations for the decline in plaintiffs sales to Neiman Marcus, and rejected them all, with varying degrees of consideration and explanation. First, he stated that, based on his knowledge of revenue trends in the jewelry industry, the drop-off in sales to Neiman Marcus could not be attributed to normal revenue fluctuations.
He also observed in his report that, "[i]n the jewelry trade, the immense relationship leverage enjoyed by a luxury brand vendor like Richemont with a retailer like Neiman Marcus is difficult if not impossible to compete with." (Id. at 9). However, he did not explain why this competitive advantage over RFMAS could not have caused the decline in plaintiffs sales to Neiman Marcus. Instead, he concluded that "it is clear that without violating the confidentiality provisions of its discussion [sic] and using knowledge and trade secrets obtained directly from RFMAS, and without copying the jewelry products of RFMAS, defendants would not have been able to compete successfully for this share of Neiman Marcus business." (Id. at 9).
In his supplemental report, he added that the decline in plaintiffs sales at Neiman Marcus and the contemporaneous increase in sales at Saks could not have been the result of customers shifting from Neiman Marcus to Saks because such a phenomenon would be "fantastic" and, based on his experience in the industry, unprecedented. (Hansen Suppl. Report at 3).
Mr. Hansen endorsed Mr. Smith's methodology for calculating RFMAS's lost profits as "reasonable". (Id. at 16, 17). He based this conclusion on his review of Smith's report and the sales information that Smith relied on, as well as additional information about RFMAS's customers and financials compiled by RFMAS and RFMAS's federal income-tax returns. (Id. at 16-17). Hansen explained that, based on his "experience and knowledge of a developing jewelry company," a 36% incremental profit rate was "reasonable and conservative". (Id. at 17).
(Id. at 17; see also id. at 18). Hansen added that, in addition to causing plaintiff to lose future sales to Neiman Marcus, the defendants' infringing activities had diminished the value of plaintiff's brand and copyrights and the overall value of the company. (Id. at 18). He estimated the impairment to RFMAS's "enterprise value" at $26 million. (Id.). The explanation in his initial report of this calculation consisted of the following statement:
(Id.). He explained at his deposition that this calculation was premised on the theory that a company's value is approximately six times its discounted cash flows. (Hansen Dep. at 155-56; Hansen Suppl. Report at 2). However, he explained in his supplemental report that after estimating plaintiff's projected earnings absent defendants' illegal conduct (which he estimated to be $5.2 million), he multiplied that figure by five, rather than six, to arrive at an enterprise value of approximately $26 million. (Id.). He attached to his supplemental report a detailed spreadsheet titled "Projected Profit and Loss Statement with Loss Revenues", which he said he had prepared and relied on in his initial report but had forgotten to attach. (Hansen Suppl. Report at 1, 5).
We note at the outset that even if the testimony of plaintiff's putative damages experts were admissible, it would be of limited utility. Mr. Smith and Mr. Hansen were not asked to (and did not) distinguish between the liability of the Mimi So defendants and the Richemont defendants or separate the harms flowing from each assumed legal violation (copyright infringement, trade dress infringement, misappropriation of trade secrets, and breach of contract). They concluded only that "defendants' actions", collectively, caused the deterioration of plaintiff's relationship with Neiman Marcus.
At any rate, we conclude that the reports of Mr. Smith and Mr. Hansen should be stricken and that they should be precluded from testifying as experts on damages. As we explain below, they are not qualified to opine as experts on the subject matter of much of their testimony, and the remainder of their testimony relies on insufficient data and is the result of unreliable methodologies.
Mr. Smith's and Mr. Hansen's testimony on causation ultimately boils down to opinions as to why Neiman Marcus reduced its purchases of plaintiff's jewelry. Determining what motivated a particular person or entity is generally not an appropriate subject matter for expert testimony. See, e.g., Brazier v. Hasbro, Inc., 2004 WL 515536, *7 (S.D.N.Y. Mar. 16, 2004) (toy design engineer's expert testimony on child's motivations for putting a toy into the child's mouth inadmissible because toy engineer not qualified to opine on this subject matter and even if he were, his testimony would lack a factual basis); Bazile v. City of New York, 215 F.Supp.2d 354, 365 (S.D.N.Y.2002) (excluding law enforcement expert's testimony that NYPD was motivated by discriminatory animus because expert was not qualified to opine on NYPD's motivation and because his opinion was speculative and did not fit the facts of the case).
Moreover, even if the causation of plaintiff's damages in this case were an appropriate subject for expert testimony, Smith and Hansen are not qualified for the task. (Accord, Defs.' Reply Mem. at 3-4). Neither expert's skill, experience, training, or education gives him specialized knowledge about why Neiman Marcus decided to reduce its sales from RFMAS. Smith has no expertise in luxury jewelry purchasing, much less experience with Neiman Marcus' decision-making process in particular. (See, e.g., Smith Report at 2, 21-23; Smith Dep. at 101 ("[My] skill set
Indeed, Mr. Smith's testimony is so riddled with logical errors that a jury might be better equipped to understand the evidence without exposure to his testimony. His findings as to causation are tautological in that he identified the loss of Neiman Marcus's business as both a cause and a result of the diminution in plaintiff's brand value.
Defendants urge that the testimony of plaintiffs putative experts is inherently unreliable because plaintiff's counsel provided almost all of the data on which they based their opinions. Defendants have not identified what, if any, information provided to the experts was inaccurate or what relevant information was withheld from the two experts. Unless the information or assumptions that plaintiff's experts relied on were "so unrealistic and contradictory as to suggest bad faith," inaccuracies in the underlying assumptions or facts do not generally render an expert's testimony inadmissible. Zerega Ave. Realty Corp., 571 F.3d at 214 (quoting Boucher, 73 F.3d at 21). If plaintiff provided its experts with a piece of false information or withheld relevant data, defendants can cross-examine the experts on this matter, calling into question the weight that the jury should accord their testimony. For this system to work, however, plaintiffs experts must lay bare the information and assumptions on which they relied. Here, Smith and Hansen have not explained their assumptions with the level of specificity necessary to allow defendants' counsel and the jury to test their conclusions. For this reason as well, their testimony on causation should be excluded.
Plaintiff asked Smith and Hansen to assume that defendants were liable on all causes of action against them, and to determine whether the acts underlying defendants' alleged legal violations caused plaintiff's decline in sales to Neiman Marcus. However, neither expert has identified
Smith and Hansen clearly knew that the alleged conduct by defendants included copying some aspect of plaintiffs Stella line, but they did not offer a clear articulation of which pieces in the Stella line they assumed were protected by plaintiffs copyright and which designs of individual pieces or elements of trade dress were allegedly infringed. In fact, as we noted above in discussing their assumptions, they offer multiple versions of this assumed fact.
Smith's and Hansen's understanding of what the other alleged legal violations consisted of is even thinner. For example, Hansen and Smith concluded that defendants' alleged misappropriation of trade secrets was one cause of the decline in plaintiffs sales to Neiman Marcus. However, they failed to specify in their reports what trade secrets were stolen, or how defendants allegedly used those stolen trade secrets. (Michele M. Riley Report, Oct. 15, 2009, Ex. 10 to Richard Lehv, Esq. Decl., Dec. 1, 2009 ["Riley Report"] at 20-21 ¶¶ 50-52, 55). Although Smith and Hansen identified information that is generally treated as confidential to which they assumed defendants had access, neither of them offered any insight into how they were assuming defendants had used such information in order to damage plaintiff. Without explaining how defendants' assumed misappropriation of trade secrets and breach of contract contributed to plaintiffs damages, a jury cannot test their conclusions that these acts were a but-for cause of plaintiffs damages.
Moreover, their depositions and supplemental reports suggest that Smith and Hansen did not merely fail to spell out in their reports the factual basis for their conclusions; rather, it appears that they proceeded through their investigations into causation without articulating even for themselves what, precisely, defendants' assumed conduct consisted of. An expert's testimony that plaintiffs damages were caused by a series of acts by defendants is necessarily an exercise in speculation when the acts that purportedly caused the damages are only hypothesized to have occurred. When the expert cannot even identify what defendants' damaging conduct consisted of, his testimony on causation is not merely suppositional—it is inherently unreliable.
Even if Smith's and Hansen's testimony rested on a sufficient (and sufficiently transparent) factual basis, it would nonetheless be inadmissible because their analysis of what caused the decline in plaintiffs sales to Neiman Marcus is simply inadequate to support the conclusion that defendants' misfeasance was the cause. Both experts relied heavily on two considerations: first, that plaintiffs sales to Saks continued to increase while plaintiff's sales to Neiman Marcus decreased, and second, that there was no evidence of other possible causes for the decline in plaintiffs sales to Neiman Marcus. Neither of these proffered justifications holds up to scrutiny.
Smith committed several logical errors in reasoning that, absent defendants' interference, plaintiff could have expected to sell to Neiman Marcus roughly the same volume of sales of allegedly infringed items as it sold to Saks. His claim that "95% of the [allegedly infringed Stella} products sold by Saks were also sold by Neiman Marcus" is neither true (see supra, at 259-60) nor, in any event, helpful. It is unclear why Smith believed that he could determine whether plaintiffs Stella line was similarly situated at Saks and Neiman Marcus by analyzing only Saks' revenues. The fact that Saks made most of its revenues
In their initial reports, both experts also assert in a conclusory fashion that they ruled out other possible causes of the decrease in plaintiff's sales to Neiman Marcus, such as the economy, declining customer interest, an impairment in the quality of either plaintiff's products or its delivery service to Neiman Marcus, or new business strategies by Neiman Marcus.
More importantly, Smith's and Hansen's conclusory assertions that they ruled out some alternative causes of plaintiff's decline in sales to Neiman Marcus is belied by the record. Neither expert's initial report discusses any investigation into why Neiman Marcus reduced its purchases. Their depositions reveal that this is because they did none. Astoundingly, neither expert made any effort to ask representatives of Neiman Marcus why the store stopped doing business with plaintiff before issuing his conclusion on what caused the disintegration of this relationship.
In short, Smith's and Hansen's conclusion that there is no evidence of any alternative causes of the decline in sales to Neiman Marcus is simply a reflection of the fact that plaintiff did not provide them with any evidence pointing to alternative causes. Under these circumstances, Smith and Hansen cannot rely on the "absence of evidence" to rule out any alternative explanations. We note that Mr. Smith and Mr. Hansen need not necessarily have considered every alternative theory of causation advanced by defendants in order for their testimony to be admissible; if they had failed to consider one or even several of the obvious other possible causes, this might not be fatal to their testimony. But they did not simply fail to consider every plausible alternative cause—rather, the record lacks any evidence that Mr. Smith or Mr. Hansen actually investigated any other possible causes.
It is plain that one cannot determine whether something caused an observed effect without controlling for other equally plausible causes of that effect. As one court has observed, "[i]t is well settled that a causation opinion based solely on a temporal relationship is not derived from the scientific method and is therefore insufficient to satisfy the requirements of Fed.R.Evid. 702." Awad v. Merck & Co., 99 F.Supp.2d 301, 304 (S.D.N.Y.1999) (internal quotations omitted). Since Smith's and Hansen's claims that they ruled out other possible causes are demonstrably false and their testimony that defendants' actions caused plaintiff's damages is based on little more than speculation, their analysis lacks the "intellectual rigor that characterizes the practice of an expert in the relevant field." Kumho, 526 U.S. at 152,
Plaintiff has adduced no evidence that Mr. Smith is qualified to make financial projections. The qualifications listed in his report demonstrate that he is an expert in marketing. His listed experience suggests that he is practiced at manipulating a product's marketing or a company's sales strategy to increase revenues, but there is no basis on which to infer that he is knowledgeable about or experienced at making revenue projections. Simply put, understanding how to increase sales is different from understanding exactly how sales will increase, and plaintiff has given us no basis for believing that Smith understands the latter. He is not qualified to offer a calculation of plaintiffs lost sales, profits, or the diminution in plaintiffs brand value, intellectual property value, or enterprise value.
Defendants argue that Smith's and Hansen's testimony is based on an extremely limited set of facts, and that neither expert's analysis connected the particular circumstances of this case to their chosen methodologies. Defendants further argue that many of Smith's and Hansen's choices—including their selection of a growth curve, their decision to project lost sales through 2013, their decision to use a flat 5% annual discount rate to calculate the present value of money, and their method for calculating enterprise value— are poor choices, either because they are not generally accepted accounting methods or because those methods are not appropriately applied to the facts of this case.
Regardless of whether or not Smith's and Hansen's accounting methodologies might conceivably be justified in some circumstances, we agree that both experts have utterly failed to justify their chosen methodologies in light of the facts of this case. The minimal data that Smith and Hansen relied upon and plaintiffs clear failure to demonstrate that its damages experts' testimony rests on sufficiently reliable factual and methodological bases provide ample reason to exclude their testimony on damages.
As we noted earlier, Smith's entire calculation of damages is based on five points of data from the record: plaintiffs actual sales to Neiman Marcus in 2002 through 2006. Nowhere else in his quantification of plaintiffs damages does he draw on and apply any fact from the record. It is plainly not the case that no additional data would have been relevant to a determination of plaintiffs lost profits. Nonetheless, Smith and Hansen failed to do the investigation necessary to equip themselves with the information necessary to quantify plaintiffs damages.
Smith and Hansen fail to offer a satisfactory explanation rooted in the facts of this case for the many choices that they made in quantifying plaintiffs damages from defendants' actions. For example, Smith selected an "incremental profit rate" to determine plaintiffs lost profits from its lost sales, but failed to consider any of plaintiffs actual costs or its historical profit margin. In addition, the experts' determination of plaintiffs "enterprise value"— the piece of the damages calculation that
To the extent that either expert attempts to justify his choices at all, the proffered justification in almost every instance is a comment that the choice is "conservative"
For example, Smith justifies his choice of a linear, rather than an exponential, curve to project plaintiff's future sales based on historical sales data by noting that it is "conservative," which he explains as follows:
This linear trend line is conservative for the following reasons:
(Smith Report at 12-13 (emphasis in original)). This explanation is plainly inadequate to satisfy Daubert standards. In this explanation, Smith claims that the use of an exponential model is generally accepted for forecasting sales of "new products" generally, without identifying what type of new products it is generally used for (until his deposition, when he explained that it is commonly used to predict the success of a "mom and pop restaurant"), and without explaining why one should expect sales of plaintiff's jewelry to trend similarly. More significantly, after setting forth the beginnings of a justification for use of an exponential model, Smith then rejected that approach in favor of a linear model that yields lower forecasts of future sales. It is troubling that the only fact in this case that Smith seemed to draw on to justify his decision to project future sales by applying an exponential curve based on five pieces of data is that the Stella line is arguably "new" and that this approach is often used to predict future earnings of new restaurants. See Joiner, 522 U.S. at 146, 118 S.Ct. 512. But it is vastly more problematic that his sole justification for the use of a linear model is that it yields an estimate of future sales that is "less than" the forecast yielded by the exponential method.
If Smith and Hansen had adequately supported their claims that various aspects of their analysis were "reasonable" or "common", this might demonstrate that they were using a methodology that was generally accepted as valid. However, in order for an expert's opinion to be admissible, the expert must have arrived at it by
(Riley Report at 14 ¶ 34). Put another way, if an expert arrives at an estimate of damages by arbitrary means not connected to the facts of the particular case at hand, then the estimate is inadmissible, notwithstanding that it may be a perfectly appropriate means of estimating damages in some cases with different facts or that the estimate is lower than the estimate that would result from a carefully reasoned calculation.
Indeed, we note that the fact that many of the methods Smith employed are "conservative" may actually underscore the fact that they are not appropriate to the facts of this case, although this observation is not necessary to our conclusion that Smith's and Hansen's testimony ought to be excluded. Hansen endorsed Smith's estimate as "conservative" and "reasonable"
In sum, plaintiff has not demonstrated by a preponderance of the evidence that Smith's or Hansen's quantification of plaintiff's damages is the product of an accounting methodology that is appropriate in light of the particular facts of this case. Their calculations of damages are accordingly inadmissible. Plainly, neither Smith's nor Hansen's report satisfies their obligation to explain the factual basis for their damages calculations, and their depositions and supplemental reports give us no reason to believe that either expert's testimony would be any more transparent at trial. Accordingly, for this reason, the portions of Smith's and Hansen's reports quantifying damages should be stricken and they should be precluded from testifying on this subject at trial.
Joyce Jonas is a self-described "expert in jewelry and jewelry history". (Joyce Jonas Report, Sep. 15, 2009, Ex. 3 to Richard Lehv, Esq. Decl., Dec. 1, 2009 ["Jonas
Plaintiff hired her to "evaluate the plaintiffs Stella jewelry for its probable effect in the market, especially its trade dress' ability as a source identifier"; to identify the "relevant similarities and differences" in the design of plaintiff's and Mimi So's jewelry; to evaluate whether customers are likely to be confused about the source of defendants' jewelry; and to evaluate whether defendants' jewelry could have been copied from plaintiff's jewelry. (Id. at 2 ¶ 9).
Ms. Jonas based her opinions primarily on materials provided to her by plaintiff: photographs of the parties' jewelry, as well as actual samples of some of the parties' jewelry; the complaint and answer; the parties' websites; and marketing materials, including the Neiman Marcus ads for plaintiff's and Mimi So's jewelry. (Id. at 2-3 ¶¶ 10-11, 13-14). She also relied on plaintiff's representations that "plaintiffs sales at Neiman Marcus declined after defendants launched the allegedly infringing jewelry at [Neiman Marcus] in 2006, from a peak of over a million dollars to very little now; plaintiffs sales at [Saks] Fifth Avenue, where the allegedly infringing jewelry is not sold, continued to rise and skyrocketed this year." (Id. at 2 ¶ 12). Ms. Jonas stated that she performed additional independent investigation, although she was vague in her initial report about the nature of these efforts.
Ms. Jonas opined in her expert report that "the purchasing public sees plaintiff's distinctive combinations of twisted and different-sized links in the Stella jewelry as a trade dress." (Id. at 4 ¶ 19).
Ms. Jonas also expressed the opinion that plaintiffs Stella jewelry line was distinctive. She stated that "chains of circular links have long been used in jewelry design but to my knowledge never quite like this." (Id. at 4 ¶ 20). She described the links in plaintiffs allegedly infringed large-link necklace as having a "natural twist" (id. at 3 ¶ 18) and combining to "form a loose chain pattern that is unique to each piece but still recognizable with the same distinctive look. The pieces are unique in their use of these and other elements." (Id. at 3-4 ¶ 18). She observed:
(Id. at 4 ¶ 23). She added that:
(Id. at 4 ¶ 21).
She added that "word of the Faraone Mennella Stella Collection design spread rapidly starting about 2004." (Id. at 5 ¶ 26). She stated that this fact was evident from the publication of an unspecified Time Magazine article that came out "a few years" after 2004, in which plaintiff's design was named "one of the top designs of the year", and from the fact that plaintiff's sales, she was told, "accelerated from its inception up until the alleged infringement." (Id.).
Ms. Jonas testified that the parties' jewelry designs were similar, employing both the same elements—"different sized ovals or circular links with or without a twist"— and the same "design as a whole", meaning the same overall "shape and configuration". (Id. at 5 ¶¶ 30, 34). She noted two relevant differences between the parties' jewelry. First, while plaintiffs links were smooth and twisted, defendants created the same "feeling of movement" conveyed by the actual twists in plaintiff's design through the use of faceted links. (Id. at 6 ¶ 31). At her deposition, she explained that, by "faceted", she meant that each of defendants' links had "little cuts in the metal that give it another dimension". (Jonas Dep. at 59). Second, defendants' pieces had diamonds. (Jonas Report at 6 ¶ 32). At her deposition, she identified a few other relevant differences in the parties' large-link necklaces: the color of the gold used, the finish (plaintiff's links were matte, defendants' were shinier), and the method of manufacturing the links (plaintiff's links were hollow tubes, while defendants' were solid and made by cast). (Jonas Dep. at 62-63, 67). She also observed at her deposition that plaintiff's allegedly infringed earrings used a teardrop-shaped link, while defendants' did not, and that there was "a very strong difference" in the
She also testified that there was "no doubt in [her] mind" that consumers would likely be confused about the source of defendants' jewelry. (Id. at 7 ¶ 36). She opined that laymen would not notice defendants' "added flourishes" because the average person tends to view pieces as a whole, and to notice only the "overall effect of the core designs"; they do not have the concepts or terminology necessary to observe fine details. (Id. at 6 ¶ 33).
Jonas found that the "number and scope of the similarities between the parties' pieces in this context are [too] great to be happenstance, or merely following a trend." (Id. at 7 ¶ 34). She determined that defendants must have copied plaintiff's design, based on two considerations. First, plaintiff designed the Stella line before Mimi So designed the Gate B9 collection. (Id. at 7 ¶ 35). Second, the placement of the diamonds on defendants' works was, in her professional opinion, "too awkward" to be a legitimate design choice; rather, she opined that the "out-ofplace" diamonds on defendants' pieces reflected defendants' desire to cover up the fact that they had copied plaintiff's design. (Id. at 6 ¶ 32).
Edward Lewand is an experienced jewelry appraiser. (See Edward Lewand Report, Sep. 15, 2009, Ex. 4 to Richard Lehv, Esq. Decl., Dec. 1, 2009 ["Lewand Report"] at 8-10 ("About the Appraiser"); id. at 12-13 (curriculum vitae)).
Plaintiff hired him to offer his testimony on the same issues as Ms. Jonas. (See id. at 1-2). He based his report on the materials provided to him by plaintiff, which were the same as the materials provided to Ms. Jonas. (Compare Lewand Report at 14 (appendix listing materials reviewed) with Ex. B to Jonas Report (same)). Like Ms. Jonas, Mr. Lewand was able to view some physical pieces of jewelry from both plaintiff and defendants, but he stated in his report that he did not believe the pieces produced by defendants to be the same pieces depicted in the available photographs of defendants' jewelry. (Jonas
Mr. Lewand testified that plaintiff's Stella line took elements of different existing designs and combined them into a series of unique designs. (Id. at 3). He opined that plaintiff's large-link necklace, with links of different sizes and shapes "placed in a complex arrangement"
Lewand stated that he had read plaintiff's trade-dress description, as described in plaintiff's supplemental interrogatory response number 5, and that it "accurately defines the distinctive combination of elements of the Stella line." (Id.).
Mr. Lewand opined that plaintiff's Stella jewelry line and Mimi So's Gate B9 collection were similar in that the pieces in both jewelry lines share "a parallel layout and overall design" (id. at 4), and convey an "illusion of movement". (Id. at 3). He noted several differences: the use of different colors of gold, different textures, different ordering of the links, and Mimi So's faceting of the links, use of tearshaped links, and addition of small diamond and gem accents. (Id. at 4-5). However, he concluded that these did not change the fact that the "the overall appearance" of the Mimi So line is "identical" to that of plaintiffs jewelry line. (Id. at 4).
Mr. Lewand concluded that defendants had indeed infringed plaintiff's copyright. This conclusion was apparently based on his perception that the parties' pieces were very similar, and his opinion that the few differences between the Stella and Gate B9 lines were merely the result of defendants attempting to mask the fact that they had copied plaintiff's jewelry. (See Lewand Report at 5-6). He explained, "The evidence of copying is overwhelming when I compare all nine corresponding pieces. I have never seen two collections of pieces like this in my career that mirror each other so closely in overall design choices yet are purported to be independent." (Id. at 7).
The question with respect to trade dress that plaintiff presented for Ms. Jonas's and Mr. Lewand's consideration is ambiguously worded and unclear, and appears to encompass several questions of law, fact, and opinion.
To the extent that Jonas and Lewand purport to offer opinions as to what constitutes protectable trade dress or attempt to apply that legal standard to the facts of this case, their testimony usurps the role of the fact-finder and is clearly inadmissible. E.g., Highland Capital Management, L.P. v. Schneider, 379 F.Supp.2d 461, 468 (S.D.N.Y.2005) (citing United States v. Lumpkin, 192 F.3d 280, 289 (2d Cir.1999); United States v. Bilzerian, 926 F.2d 1285, 1294 (2d Cir.1991)).
If, on the other hand, their testimony as to trade dress boils down to the opinion that plaintiffs Stella line is identifiable to consumers and "distinctive", it is nonetheless inadmissible because plaintiff has failed to demonstrate that Ms. Jonas and Mr. Lewand are qualified to offer expert testimony on these matters. Neither putative expert's listed qualifications demonstrate that either of them has any specialized knowledge, training, or experience in understanding how the public perceives jewelry, or even products, generally. In addition, neither expert appears to have any specialized knowledge of contemporary jewelry design. Although both are qualified to opine on the value and quality of precious stones, and Ms. Jonas is an expert in the design of estate jewelry, they both lack the comprehensive design background necessary to opine that plaintiffs jewelry line is "distinctive" or "unique" in the history of jewelry.
First, although Jonas and Lewand purport to assess the distinctiveness of plaintiffs entire Stella line,
Second, both putative experts failed to explain the basis for their conclusion that plaintiffs jewelry is unique and thus protectable. Neither one discusses the level of sales at all, and their discussions of marketing amount to little more than the observation that plaintiff did advertise its jewelry. Additionally, neither pinpoints with any degree of precision what, in their opinions, makes plaintiffs chain of circular links "distinctive" among gold link jewelry. Lewand came closest to supporting his conclusion that plaintiffs jewelry was distinctive with his claim that prior designers had previously made chain necklaces with "a set and visually simple repeating pattern", but he failed to explain what this means and why plaintiffs pieces do not also fit this description, and he did not cite any such prior designs to help the jury understand, much less evaluate, this conclusion. Apart from this identified difference, his conclusion that plaintiffs line is "especially" distinctive is as conclusory as Ms. Jonas's.
Finally, even if Jonas and Lewand improved their articulation of the basis for their opinions, they do not rest on a sufficiently reliable basis, given that neither expert engaged in any kind of methodical search for prior art. (See Defs.' Mem. Law at 18-19). It appears that Mr. Lewand did no investigation into the existence of gold link necklaces predating plaintiff's. (See id.). And although Ms. Jonas claimed at her deposition to have searched the internet and unspecified books, catalogs, and magazines for prior gold link necklaces (Jonas Dep. at 12), she did not disclose the extent and details of her search or specify its results. She would have us take her word as to the sufficiency of her investigation, which we are not permitted to do under Daubert and the Federal Rules of Evidence.
On the whole, both Jonas' and Lewand's testimony that plaintiff's jewelry is distinctive requires us to accept their conclusions on faith by virtue of their expertise. However, the Federal Rules of Evidence require more from expert witnesses. And, in any event, as we observed above, their expertise does not qualify them for this particular task.
Defendants argue that jurors are capable of recognizing and understanding the differences and similarities between plaintiffs and defendants' jewelry without the help of an expert, and thus, that Ms. Jonas' and Mr. Lewand's testimony on this
In copyright infringement cases, liability experts may opine as to similarities that are probative of copying if their testimony will aid the trier of fact in understanding the evidence. See Castle Rock Entm't v. Carol Publ'g Group, 150 F.3d 132, 137 (2d Cir.1998). Although expert testimony as to similarity is not appropriate in every case, jewelry design is a sufficiently technical area that not every juror will be well-equipped to identify the similarities between two designs on his or her own; accordingly, a trained eye could assist the trier of fact in understanding the evidence.
In addition, although Jonas and Lewand may not have the design background necessary to comment on how plaintiffs jewelry fits into the landscape of contemporary jewelry as a whole (as we explained above), we believe that their years of experience working with jewelry may give them an ability to observe subtle and significant differences and similarities among pieces of jewelry that is superior to that of the average juror. They are thus likely to be able to offer testimony on this matter that would be helpful to the jury. Because defendants have not challenged these experts' method of comparing jewelry or the basis for the comparison, their testimony on this topic may be admissible. See Fed. R.Evid. 702.
Ms. Jonas' and Mr. Lewand's opinions that defendants' jewelry was likely the result of copying plaintiffs designs should be excluded because they are not qualified to opine on this matter and because their conclusions do not rest on sufficiently reliable analysis.
Both putative experts reach the conclusion that defendants must have copied plaintiffs jewelry, and rely for this opinion on the perceived similarities between the two lines and the distinctiveness of plaintiffs line. However, as we explained above, neither expert is qualified to opine on the contemporary jewelry design landscape as a whole.
In addition, plaintiff has failed to demonstrate that their testimony as to the likelihood of infringement is the result of applying sufficiently reliable methods to a reliable set of facts. As we explained above, neither expert's testimony that plaintiffs line is distinctive is supported by sufficient analysis. Moreover, as defendants point out, neither putative expert distinguishes between similarities that relate to plaintiffs "distinctive" design elements and similarities that relate to unprotectable ideas and commonplace jewelry forms. (Defs.' Mem. Law at 18).
Jonas' and Lewand's explanation for concluding that defendants infringed plaintiffs intellectual property boils down to the observations that plaintiffs and defendants' jewelry lines are similar in many ways and that plaintiffs preceded defendants'. As for the various differences that both experts identified between plaintiffs and defendants' lines, they attempt to explain these away by asserting in a wholly conclusory fashion that these differences are merely the result of defendants trying to cover up their infringement. This is entirely speculative, and is plainly an inadequate
In sum, Jonas and Lewand again offer little to support their testimony as to copying other than their say-so. Their testimony on the likelihood of infringement is accordingly inadmissible.
For the reasons above, we recommend that defendants' motion to exclude plaintiff's experts be GRANTED in part. We recommend that both Don Smith and Steve Hansen be precluded from testifying at trial as to whether defendants' actions damaged plaintiff and if so, to what extent. In the absence of any specific objection to Steve Hansen's testimony on the narrow issue of whether the jewelry featured in Mimi So's 2006 Gate B9 catalog "would only be sold precisely as it is depicted" (Hansen Report at 6; see supra at 255 n. 4), we recommend that this limited portion of his testimony be deemed potentially admissible. The entirety of Smith's expert reports and the relevant portions of Hansen's expert reports should accordingly be stricken.
We further recommend that Joyce Jonas and Edward Lewand be permitted to offer their observations about the similarities and differences between plaintiffs and defendants' jewelry. However, we recommend that they be precluded from offering expert opinions as to the "probable effect in the market" of plaintiff's Stella line, the distinctiveness of plaintiff's line, whether or not the Stella line operates as a source identifier and constitutes a protectable trade dress, whether customers are likely to be confused about the source of defendants' jewelry, and whether defendants' jewelry was copied from plaintiff's, and that the corresponding portions of their expert reports be stricken.
We note that to the extent that defendants' motion is denied in part, defendants would nonetheless retain the right to renew their objections at trial if in the course of examination they believe that specific expert testimony offered is unreliable or unsubstantiated. See Park West Radiology, 675 F.Supp.2d at 328.
Pursuant to 28 U.S.C. § 636(b)(1)(C) and Rule 72(b)(2) of the Federal Rules of Civil Procedure, the parties shall have fourteen (14) days from this date to file written objections to the Report and Recommendation portion of this opinion. See also Fed.R.Civ.P. 6(a), (d). Such objections shall be filed with the Clerk of the Court and served on all adversaries, with extra copies to be delivered to the chambers of the Honorable Victor Marrero, Room 660, and to the chambers of the undersigned, Room 1670, U.S. Courthouse, 500 Pearl Street, New York, New York 10007. Failure to file the timely objections may constitute a waiver of those objections both in the District Court and on later appeal to the United States Court of Appeals. See Thomas v. Arn, 474 U.S. 140, 150-55, 106 S.Ct. 466, 88 L.Ed.2d 435 (1985), reh'g denied, 474 U.S. 1111, 106 S.Ct. 899, 88 L.Ed.2d 933 (1986); DeLeon v. Strack, 234 F.3d 84, 86 (2d Cir.2000) (citing Small v. Sec'y of Health and Human Serv., 892 F.2d 15, 16 (2d Cir.1989)).
