Marketquest Group, Inc. v. Societe Bic, S.A. et al

Filing 402

ORDER denying Defendants' 218 Daubert Motion to Exclude Opinions of David Drews. The report and testimony are relevant and offered with sufficient foundation by one qualified to give it. Signed by Judge Cynthia Bashant on 4/12/2018. (jah)

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1 2 3 4 5 6 7 8 9 10 UNITED STATES DISTRICT COURT 11 SOUTHERN DISTRICT OF CALIFORNIA 12 13 MARKETQUEST GROUP, INC., Plaintiff, 14 15 16 Case No. 11-cv-618-BAS (JLB) v. [ECF No. 218] BIC CORPORATION, et al., 17 ORDER DENYING DEFENDANTS’DAUBERT MOTION TO EXCLUDE OPINIONS OF DAVID DREWS Defendants. 18 19 20 AND RELATED COUNTERCLAIMS. 21 22 On March 28, 2001, Plaintiff Marketquest Group, Inc. (“Marketquest”) filed 23 this action for trademark infringement and unfair competition against Defendants 24 BIC Corp., BIC USA, and Norwood Promotional Products (“BIC”). (ECF No. 1.) On 25 May 5, 2011, Marketquest filed the operative First Amended Complaint (“FAC”). 26 (FAC, ECF No. 14.) On May 13, 2011, BIC filed its Answer and Counterclaims. 27 (ECF No. 17.) 28 Presently before the Court is BIC’s Motion to Exclude the Opinions of David –1– 11cv618 1 Drews, an expert witness for Marketquest, arguing that Mr. Drews’ testimony is 2 based upon insufficient data and faulty methods that have not been reliably applied 3 to the facts of this case. (BIC’s Mot., ECF No. 218.) Marketquest opposes. (Opp’n, 4 ECF No. 261.) 5 The Court finds this motion suitable for determination on the papers submitted 6 and without oral argument. See Fed. R. Civ. P. 78(b); Civ. L.R. 7.1(d)(1). For the 7 following reasons, the Court DENIES BIC’s motion. 8 I. BACKGROUND 9 Plaintiff Marketquest is a California corporation that produces, advertises, and 10 sells customizable promotional products using the registered trademarks “ALL-IN- 11 ONE” and “The Write Choice.” (FAC ¶¶ 10-12.) Marketquest alleges Defendant BIC 12 began advertising and selling products using marks similar to Marketquest’s. (Id. ¶¶ 13 21-25.) Specifically, Marketquest claims BIC used the phrase “The Write Pen 14 Choice” in an online advertising campaign for writing instruments beginning in 15 October, 2010. (Id. ¶ 23.) Around the same time, Norwood Promotional Products, 16 LLC, a subsidiary of BIC USA, printed a 2011 catalogue entitled the “NORWOOD 17 All in ONE” catalogue. (Id. ¶ 24.) 18 Marketquest retained Mr. Drews as an expert witness to testify on the 19 appropriate level of damages to be awarded for the unauthorized use of Marketquest’s 20 registered trademarks. (Drews Report, ECF No. 232-1, Ex. A.) The analysis and 21 damages detailed in the report cover the “period of infringement” from January 1, 22 2011, through December 31, 2011, as well as the period of ongoing negative impact 23 to Marketquest’s business through December 31, 2013. (Id. 2.) Mr. Drews concludes 24 the damages suffered by the alleged infringing use are as follows: $19,882,603 when 25 measured by the combination of BIC’s profits and corrective advertising; $8,179,004 26 when measured by the combination of a reasonable royalty and corrective 27 advertising; and $1,852,007 when measured by the combination of lost profits and 28 corrective advertising. (Id. 5.) –2– 11cv618 1 To rebut Mr. Drews’ testimony, BIC retained Neal J. Beaton as an expert 2 witness. (Beaton Report, ECF No. 232-1, Ex. B.) Mr. Beaton’s report argues Drews’ 3 calculations are overstated, faulty, and based on unreliable data. (Id. 5.) Further, he 4 contends that Drews misapplied the facts of the case, inappropriately analyzed 5 company and industry data, and relied on unsupportable assumptions. (Id.) Mr. 6 Beaton concludes that corrective advertising damages are not applicable and opines 7 damages as follows: $10,925 when measured by BIC’s unjust enrichment; $10,000 8 when measured by reasonable royalties; and $0 when measured by Marketquest’s 9 lost profits. (Id. 5-6.) 10 II. LEGAL STANDARD 11 Federal Rule of Evidence 702 establishes several requirements for 12 admissibility of expert opinion evidence: (1) the witness must be sufficiently 13 qualified as an expert by knowledge, skill, experience, training, or education; (2) the 14 scientific, technical, or other specialized knowledge must “assist the trier of fact” 15 either “to understand the evidence” or “to determine a fact in issue”; (3) the testimony 16 must be “based on sufficient facts and data”; (4) the testimony must be “the product 17 of reliable principles and methods”; and (5) the expert must reliably apply the 18 principles and methods to the facts of the case. Fed. R. Evid. 702. 19 Under Daubert and its progeny, the trial court is tasked with assuring that 20 expert testimony “both rests on a reliable foundation and is relevant to the task at 21 hand.” Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 597 (1993). “Expert 22 opinion testimony is relevant if the knowledge underlying it has a valid connection 23 to the pertinent inquiry. And it is reliable if the knowledge underlying it has a reliable 24 basis in the knowledge and experience of the relevant discipline.” Primiano v. Cook, 25 598 F.3d 558, 565 (9th Cir. 2010) (citation and quotation marks omitted). Shaky but 26 admissible evidence is to be attacked by cross-examination, contrary evidence, and 27 careful instruction on the burden of proof, not exclusion. Daubert, 509 U.S. at 596. 28 The judge is “to screen the jury from unreliable nonsense opinions, but not exclude –3– 11cv618 1 opinions merely because they are impeachable.” Alaska Rent–A–Car, Inc. v. Avis 2 Budget Grp., Inc., 738 F.3d 960, 969 (9th Cir. 2013). In its role as gatekeeper, the 3 trial court “is not tasked with deciding whether the expert is right or wrong, just 4 whether his [or her] testimony has substance such that it would be helpful to a jury.” 5 Id. at 969-70. 6 The tests for admissibility in general, and reliability in particular, are flexible. 7 Primiano, 598 F.3d at 564. The Supreme Court has provided several factors to 8 determine reliability: (1) whether a theory or technique is testable; (2) whether it has 9 been published in peer reviewed literature; (3) the error rate of the theory or 10 technique; and (4) whether it has been generally accepted in the relevant scientific 11 community. Mukhtar v. Cal. State Univ., 299 F.3d 1053, 1064 (9th Cir. 2002) 12 (summarizing Daubert, 509 U.S. at 592-94), overruled on other grounds by Estate 13 of Barabin v. AstenJohnson, Inc., 740 F.3d 457, 460 (9th Cir. 2014). These factors 14 are meant to be “helpful, not definitive.” Kumho Tire Co. v. Carmichael, 526 U.S. 15 137, 151 (1999). The court “has discretion to decide how to test an expert’s reliability 16 as well as whether the testimony is reliable, based on the particular circumstances of 17 the particular case.” Primiano, 598 F.3d at 564 (citations and quotation marks 18 omitted). “[T]he test under Daubert is not the correctness of the expert’s conclusions 19 but the soundness of his methodology.” Daubert v. Merrell Dow Pharmaceuticals, 20 Inc., 43 F.3d 1311, 1318 (9th Cir. 1995). Once the threshold established by Rule 702 21 is met, the expert may testify and the fact finder decides how much weight to give 22 that testimony. Primiano, 598 F.3d at 565. 23 After admissibility is established to the court’s satisfaction, attacks aimed at 24 the weight of the evidence are the province of the fact finder, not the judge. Pyramid 25 Techs., Inc. v. Hartford Cas. Ins. Co., 752 F.3d 807, 814 (9th Cir. 2014). The court 26 should not make credibility determinations that are reserved for the jury. Id. 27 28 –4– 11cv618 1 III. DISCUSSION 2 A. Mr. Drews is Qualified and His Testimony is Relevant 3 As a preliminary matter, the Court recognizes that BIC does not challenge 4 either Mr. Drews’ qualifications to testify as an expert or that his testimony will assist 5 the trier of fact. The Court agrees. 6 Mr. Drews is an intellectual property consultant with over twenty-five years of 7 experience in valuing intellectual property of all types, including trademarks. (Drews 8 Report 3.) He regularly publishes articles in industry publications, frequently lectures 9 on intellectual property valuation issues, and is called upon to calculate and testify 10 on damages related to infringement of intellectual property in numerous litigation 11 and arbitration proceedings. (Id. 3.) A court would have to find that Mr. Drews is 12 “qualified as an expert by knowledge, skill, experience, training, or education” to 13 render an opinion on the appropriate level of damages to be awarded for the 14 unauthorized use of intellectual property. 15 The requirement that expert testimony “assist the trier of fact” either “to 16 understand the evidence” or “to determine a fact in issue” goes primarily to relevance. 17 Daubert, 509 U.S. at 591. “Expert opinion testimony is relevant if the knowledge 18 underlying it has a valid connection to the pertinent inquiry.” Primiano, 598 F.3d at 19 565. The pertinent inquiry here is the appropriate level of damages for trademark 20 infringement. Mr. Drews’ testimony, with a sufficient basis in experience and 21 education, speaks directly to this point. That is enough to assist the trier of fact. Mr. Drews’ Testimony is Reliable 22 B. 23 BIC moves to exclude Mr. Drews’ testimony and report based on reliability 24 grounds. (BIC’s Mot. 1:2-3.) The attacks fit into the remaining three categories listed 25 by Rule 702 as necessary for admissibility: “(1) the testimony is based upon sufficient 26 facts or data, (2) the testimony is the product of reliable principles and methods, and 27 (3) the witness has applied the principles and methods reliably to the facts of the 28 case.” Fed. R. Evid. 702. Based on the following, the Court finds that the knowledge –5– 11cv618 1 underlying Drews’ report “has a reliable basis in the knowledge and experience of 2 the relevant discipline,” rendering his report reliable. See Primiano, 598 F.3d at 565. 3 4 1. Mr. Drews’ Testimony is Based Upon Sufficient Facts and Data 5 BIC argues Mr. Drews’ testimony should be excluded because it is based on 6 insufficient facts and data. (BIC’s Mot. 4:3-20.) The Court finds the facts and data 7 underpinning Mr. Drews’ opinions are of sufficient substance to be helpful to a jury. 8 BIC’s disagreements over the factual basis of Mr. Drews’ opinions bear on the weight 9 of the opinions rather than on their admissibility. See Primiano, 698 F.3d at 565. 10 First, BIC argues Mr. Drews’ testimony should be excluded because it ignores 11 relevant factors influencing Marketquest’s financial situation in 2011. (BIC’s Mot. 12 12:8-11.) Specifically, BIC contends that Drews’ report does not consider the effect 13 of the falling price of USB drives in 2011; incorrectly assumes that Marketquest 14 experienced growth commensurate with industry growth; and does not account for 15 the negative effect of Marketquest’s poor 2011 business decisions. (Id. 11:5-21.) 16 These asserted defects, however, go to the weight, and not the admissibility, of Mr. 17 Drews’ testimony. See Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1143 18 (9th Cir. 1997) (holding asserted defects of model went to weight where it “did not 19 consider what Bonsai sales would have been as a result of lawful competitive efforts; 20 . . . it assumed that the market for non-dwarf tall fescues would hold for dwarf tall 21 fescues; and it did not account for the fact that the drought and recession in Southern 22 California may have affected different producers differently”). 23 Next, BIC makes two arguments that Mr. Drews’ testimony relies on 24 insufficient data. First, BIC contends that Mr. Drews’ report inappropriately rests its 25 opinions of future damages on “industry growth rates” data that is “self-reported” to 26 the “leading trade organizations by industry distributors.” (BIC’s Mot. 13:15-17.) 27 Such data, BIC reasons, is unverified and undermined by the fact that Marketquest’s 28 sales increased in 2012 and 2013 and that it has never mirrored industry growth as –6– 11cv618 1 Mr. Drews assumes. (Id. 13:15-14:2.) It appears that Mr. Drews’ reliance on this data 2 is acceptable in the industry, though, given that BIC’s expert uses the very same data. 3 (Lane Suppl. Decl. ¶ 90, ECF No. 258-42, Ex. S.2.) Again, BIC’s disagreements over 4 the factual basis of Mr. Drews’ opinions do not make his testimony so fundamentally 5 flawed that it would be of no assistance to the jury on the issue of future damages; 6 they bear on the weight of the opinions, not their admissibility, and would be 7 appropriately utilized via cross-examination and presentation of contrary evidence. 8 Second, BIC argues that Mr. Drews’ royalty rate analysis is not based on 9 reasonable hypothetical conditions and its ultimate valuations are overstated. (BIC’s 10 Mot. 14:6-7.) The Court is not concerned with whether or not Mr. Drews’ ultimate 11 valuation appears overblown to BIC, indeed that is to be expected. Instead, what 12 matters is whether Mr. Drews used reliable methods based on sufficient facts and 13 data. See Daubert, 509 U.S. at 594-95. BIC does not disagree that application of the 14 Georgia-Pacific factors is an accepted approach to determine reasonable royalty rates 15 in intellectual property matters. (See Beaton Report ¶ 61.) What BIC does disagree 16 with is that any conclusions can be drawn from the fact that BIC has engaged in inter- 17 company licensing agreements in the past, that a two-year hypothetical license is an 18 appropriate length of time, or that Grimes & Battersby data is a suitable substitute 19 for more specific licensing data. (BIC’s Mot. 14:20-15:10.) The Court finds that each 20 of these data points attacked by BIC have “a reliable basis in the knowledge and 21 experience of the relevant discipline.” See Primiano, 598 F.3d at 565. BIC’s 22 engagement in inter-company licensing agreements demonstrates an appreciation of 23 the benefits to be gained from using another party’s intellectual property. A two-year 24 licensing agreement is foreseeable given the alleged infringement lasted for one year 25 and confusion is alleged to have continued for two. Grimes & Battersby is a respected 26 industry publication and its use is understandable given the lack of any actual 27 agreements for comparison. That an expert’s testimony may be tentative or based on 28 hypotheticals does not mean it must be excluded. –7– 11cv618 1 In sum, BIC disagrees with many of Mr. Drews’ findings, but this does not 2 affect the reliability of his testimony. The evidentiary requirement of reliability is 3 less than the standard of correctness, and an expert’s methodology may be helpful 4 even when the judge thinks the technique has flaws sufficient to render an expert’s 5 conclusions inaccurate. Often hearing the expert’s testimony and considering its 6 flaws is an important part of assessing what conclusion is correct and a jury 7 attempting to reach an accurate outcome ought to consider the evidence. Mr. Drews’ 8 testimony is not so factually flawed that it would be of no assistance to the jury. 9 10 2. Mr. Drews’ Testimony is the Product of Reliable Principles and Methods 11 BIC moves to exclude Mr. Drews’ testimony and report on the grounds that 12 his damages analysis fails to apportion profits to the alleged infringing use, employs 13 corrective advertising as a measure of damages, and applies a 25% prospective 14 corrective advertising budget. (BIC’s Mot. 3:19-4:2.) 15 First, BIC argues that Mr. Drews’ failure to (i) apportion profit to the alleged 16 infringement, or (ii) consider the approaches used by its own expert, renders his 17 method unreliable because it does not meet the same level of care as would be 18 expected in regular professional work from a seasoned economist. That Mr. Drews 19 and Mr. Beaton used different methodologies for their respective analyses, on its 20 own, does not require the Court to conclude that Mr. Drews’ methods are unreliable. 21 See Fed. R. Evid. 702 advisory committee’s note; see also Ruiz-Troche v. Pepsi Cola, 22 161 F.3d 77, 85 (1st Cir. 1998) (“Daubert neither requires nor empowers trial courts 23 to determine which of several competing scientific theories has the best 24 provenance.”) As Marketquest correctly notes, the burden of proving the portion of 25 the profit attributable to factors other than use of the infringing mark is on the 26 defendant. See Mishawaka Rubber & Woolen Mfg. Co. v. S. S. Kresge Co., 316 U.S. 27 203, 206 (1942) (“If it can be shown that the infringement had no relation to profits 28 made by the defendant, that some purchasers bought goods bearing the infringing –8– 11cv618 1 mark because of the defendant’s recommendation or his reputation or for any reason 2 other than a response to the diffused appeal of the plaintiff’s symbol, the burden of 3 showing this is upon the poacher.”); Maier Brewing Co. v. Fleischmann Distilling 4 Corp., 390 F.2d 117, 124 (9th Cir. 1968) (quoting Mishawaka, supra). Mr. Drews 5 established all sales attributable to the alleged trademark uses based on financial 6 statements produced by BIC to reflect such data and then subtracted the costs of 7 goods sold from their infringing use. (Drews Report 13-14.) The burden then moves 8 to BIC to prove the appropriate expense deductions that will bring gross profits to 9 the actual damages level of incremental operating profits. Such a method does not 10 appear to be one of the “unreliable nonsense opinions” this Court is tasked with 11 screening. See Alaska Rent–A–Car, 738 F.3d at 969. 12 Second, BIC contends that corrective advertising is an improper measure of 13 damages because there is no foundation for why customers remain confused or how 14 corrective advertising would have any effect on customer confusion so many years 15 after BIC’s activities in 2011. (BIC’s Mot. 7:18-20.) The Ninth Circuit, however, 16 does not follow the requirement that a plaintiff must engage in corrective advertising 17 at around the time of the infringement in order to recover corrective advertising. See 18 Adray v. Adry-Mart, Inc., 76 F.3d 984, 988-89 (9th Cir. 1996). An award of the cost 19 of corrective advertising is intended to make the plaintiff whole by allowing recovery 20 of the cost of advertising undertaken to restore the value the trademark has lost due 21 to infringement. Id. at 988. Recovery of both past and future corrective advertising 22 costs is permitted. Id. at 988-89 (citing Big O Tire Dealers, Inc. v. Goodyear Tire & 23 Rubber Co., 561 F.2d 1365, 1374-76 (10th Cir. 1977)) (acknowledging “reverse 24 confusion” and approving a corrective advertising campaign reasonably equivalent 25 to the infringing advertising campaign). Marketquest is alleging a case of reverse 26 confusion in which BIC knowingly used Marketquest’s marks in a manner that 27 saturated the market with a false impression of association, dragging Marketquest’s 28 sales down alongside BIC’s “unprecedented” low numbers. (Marketquest’s Mot. –9– 11cv618 1 Summ. J. 10:9-11:25, ECF 205-1.) Under such circumstances, compensatory 2 corrective advertising damages would be conceivably appropriate to counteract 3 BIC’s infringing advertising campaigns so long as Mr. Drews’ analysis has the 4 “soundness of methodology” required by Daubert. The Court is satisfied that Mr. 5 Drews’ calculation, based on BIC’s advertising expenses devoted to infringing 6 Marketquest’s marks, meets that requirement. 7 Third, BIC argues that Marketquest should not be entitled to a corrective 8 advertising award in the amount of 25% of Defendant’s advertising budget. (BIC’s 9 Mot. 8:22.) The 25% limitation was derived from the Federal Trade Commission’s 10 rule requiring businesses engaged in misleading advertising to spend 25% of their 11 budget on corrective advertising and applied in the first case to recognize reverse 12 confusion. Big O Tire, 561 F.2d at 1375-76. The Ninth Circuit has acknowledged and 13 implicitly approved this approach: 14 15 16 17 18 We need not determine how the costs are to be calculated because the court below did not reach the issue. We note that courts have awarded a percentage of the advertising amount spent infringing on the plaintiff’s mark, Big O Tires, 561 F.2d at 1375-76, and have acknowledged the Federal Trade Commission’s rule requiring businesses who engage in misleading advertising to spend 25% of their advertising budget on corrective advertising. 19 20 21 22 23 24 25 26 27 28 Adray, 76 F.3d at 989. While the Court acknowledges that prospective costs present a danger of overcompensation, the burden of any uncertainty in the amount of damages should be borne by the wrongdoer and can be avoided by appropriate limitation in the jury instructions. Id. Based on the foregoing, the Court finds Mr. Drews’ testimony is the product of sufficiently reliable principles and methods for the purposes of Rule 702. 3. Mr. Drews Has Applied the Principles and Methods Reliably to the Facts BIC contends that Mr. Drews’ report is unreliable because he does not – 10 – 11cv618 1 adequately cite to the documents relied upon and BIC’s rebuttal expert is unable to 2 replicate the results. (BIC’s Mot. 17:15-17.) The Court disagrees. Mr. Drews’ source 3 data is clearly cited throughout his report as well as in its appendix. (Drews Report 4 60-62.) In fact, Mr. Beaton used the very same source data to rebut Mr. Drews. 5 (Beaton report ¶¶ 52-56.) 6 That BIC’s expert reached different conclusions than Marketquest’s provides 7 no basis for excluding expert opinion testimony. “[T]he test . . . is not the correctness 8 of the expert’s conclusions but the soundness of his methodology.” Daubert, 43 F.3d 9 at 1318. Indeed, Daubert expects expert testimony of sufficient relevance and 10 reliability to be tested by the adversary process—competing expert testimony and 11 active cross-examination—not excluded from factfinders’ inspection for fear they 12 will not understand its complexities or satisfactorily balance its inadequacies. Mr. 13 Drews set forth the methodology used, described the various measurements relevant 14 to his calculations, and applied the principles and methods reliably to the facts of the 15 case. Thus, the Court finds Mr. Drews’ report and testimony are reliable and 16 admissible. 17 IV. CONCLUSION 18 The Court DENIES Defendants’ Daubert Motion to Exclude Opinions of 19 David Drews. (ECF No. 218.) The report and testimony are relevant and offered with 20 sufficient foundation by one qualified to give it. 21 IT IS SO ORDERED. 22 23 DATED: April 12, 2018 24 25 26 27 28 – 11 – 11cv618

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