Turnkey Solutions Corporation v. Hewlett-Packard Company

Filing 251

ORDER on Defendant's Rule 702 Motions. The Court DENIES HPE's 702 Motion to Exclude Testimony by Dale Ellis (Doc. # 219 ) and HPE's 702 Motion to Exclude Testimony by Mark Pedigo (Doc. # 216 ), with the understanding that Mr. Pedigo will adjust his reasonable royalty damages calculation as discussed in Part III.D above. By Judge Christine M. Arguello on 01/26/2018. (athom, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Christine M. Arguello
Civil Action No. 15-cv-01541-CMA-MLC
TURNKEY SOLUTIONS CORPORATION,
Plaintiff,
v.
HEWLETT PACKARD ENTERPRISE COMPANY,
Defendant.

ORDER ON DEFENDANT’S RULE 702 MOTIONS
This matter is before the Court on two Rule 702 Motions filed by Defendant
Hewlitt Packard Enterprise Company’s (HPE) in which it requests the exclusion of
testimony by experts Dale Ellis and Mark Pedigo. (Doc. ## 216, 219.) Having
thoroughly reviewed the parties briefing and relevant legal authority, for the reasons set
forth below, the Court (1) denies HPE’s request to exclude Mr. Ellis’s testimony but
cautions that TurnKey must lay the proper foundation supporting his opinions at trial;
and (2) denies Defendant’s request to exclude Mr. Pedigo’s reasonable royalty damage
testimony because it appears to be the product of reliable principles and methods.

I.

BACKGROUND AND RULE 702 PRINCIPLES

Plaintiff Turnkey Solutions Corporation (Turnkey) initiated this lawsuit in July
2015, alleging that HPE used Turnkey’s confidential design methodologies to develop
competing products. TurnKey specifically contends that HPE misappropriated key
scriptless, automation features of TurnKey’s core product cFactory and incorporated
those features into HPE’s Business Process Testing (BPT), versions 12.5 and 12.5x.
(Doc. ## 1 at 1–3; 223 at 3.) TurnKey further claims that HPE misappropriated its trade
secrets for resale to SAP, a multinational technology company, in violation of TurnKey’s
and HPE’s contractual arrangement, and that HPE’s misappropriation cost TurnKey
millions of dollars in direct sales and potential royalty payments. (Doc. # 223 at 2–3.)
Stemming primarily from these allegations, TurnKey brings three claims for relief:
Misappropriation of Trade Secrets; Breach of Contract; and Fraud. (Id. at 13–15.) The
Parties are set for nine-day jury trial, to begin on February 12, 2018.
Turnkey has designated two experts to testify at trial: Dale Ellis, TurnKey’s Chief
Technology Officer; and Mark Pedigo, TurnKey’s damages expert. For the testimony of
these experts to be admissible, TurnKey must establish that the experts are qualified
“by knowledge, skill, experience, training, or education” and that their “scientific,
technical, or other specialized knowledge” (1) will help the trier of fact to understand the
evidence or to determine a fact in issue; (2) is based on sufficient facts or data; and (3)
is the product of reliable principles and methods. Fed. R. Evid. 702. Simply put, a
qualified expert’s testimony must be “reliable” and “relevant.” Daubert v. Merrell Dow
Pharm., Inc., 509 U.S. 579, 589-92 (1993). This Court must act as a gatekeeper and
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exclude testimony that does not meet these requirements. See Kumho Tire Co., Ltd. v.
Carmichael, 526 U.S. 137, 147 (1999).
II.

DALE ELLIS

Dale Ellis is TurnKey’s founder and Chief Technology Officer, disclosed as an
expert in the fields of software development and software test automation. (Doc. # 221
at 1.) Mr. Ellis intends to testify regarding:
1. The process by which companies develop software, in particular
software for automating the testing of software applications;
2. Technical overlap between HPE’s BPT and cFactory; and
3. Whether the technical overlap between BPT and cFactory and “the
circumstances of HPE’s development of BPT, including its
acquisition of confidential information of TurnKey, suggest use by
[HPE] of TurnKey’s confidential information in [HPE’s] development
of BPT version 12.50 or higher versions.”
(Doc. # 219-1 at 1–2.)
TurnKey’s expert disclosure (the Ellis Disclosure) also states that Mr. Ellis may
testify concerning the facts set forth in TurnKey’s “Supplemental Response to HPE’s
Interrogatory No. 4, which response is incorporated into this disclosure.” (Doc. # 219-1
at 3.) TurnKey’s supplemental response to Interrogatory No. 4 sets forth all of the “facts
[that] support TurnKey’s contention that [HPE] misappropriated the Trade Secrets
through acquisition by improper means.” (Doc. #149-1, p. 51.) The Ellis Disclosure

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further lists fifteen “assumptions” that Mr. Ellis relied upon in reaching his conclusions.
(Doc. # 219-1 at 3.)
HPE lodges several objections to this proposed testimony—all of which
essentially challenge the foundation supporting Mr. Ellis’s opinions, i.e. whether they are
based on actual knowledge, not “subjective belief or unsupported speculation.”
Daubert, 509 U.S. at 590 (1993). HPEs objections can be grouped into two main
categories: (1) Mr. Ellis’s proposed testimony contains improper speculative
commentary on HPE’s state of mind, and (2) Mr. Ellis plans to deliver an improper
recitation of facts supporting TurnKey’s narrative of this case.
A. STATE OF MIND TESTIMONY
HPE first contends that much of Mr. Ellis’s disclosed testimony is improper
commentary on HPE’s state of mind—particularly as it relates to HPE’s internal
development of BPT 12.5x, a development process about which Mr. Ellis has no direct
knowledge.
In so arguing, HPE relies heavily on Pritchett v. I-Flow Corp., wherein the court
excluded a plaintiff’s expert’s proposed testimony about the defendant’s state of mind
during its process of compliance with federal regulation standards. No. 09-CV-02433WJM-KLM, 2012 WL 1059948 (D. Colo. Mar. 28, 2012). The court found that the expert
was not qualified to offer such opinions because she was not employed by the
defendant or the federal regulatory agency during the applicable timeframe; had no
direct knowledge of the regulatory review and approval process; and her opinion did not
derive from any research or experience outside the subject litigation. Id. at *6–7.
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Here, however, Mr. Ellis, although not employed by HPE, is offered as an expert
on the industry standards governing software development based in part on his twentyeight years of experience in the test automation software industry (including during the
relevant time period), his formal training and education regarding software development,
and his receipt of two U.S. Patents for software test automation methods. From that
vantage point, TurnKey argues that Mr. Ellis is expected to compare HPE’s process of
developing BPT 12.5x to the industry standards and practices governing software
development, including the development of competing products and common signs of
infringement. TurnKey suggests that Mr. Ellis’s knowledge of HPE’s process is derived
from not only his review of documentary evidence in this case but also his company’s
interactions with HPE during that process—including via joint meetings and email
exchanges.
Provided that an adequate foundation is laid as to Mr. Ellis’s expertise in the area
of software development and his observations of HPE’s BPT software development
process in comparison to the ordinary practices and usages in the industry, the Court
sees no reason to exclude his opinions. However, to the extent Mr. Ellis begins to
improperly speculate about HPE’s motivations, intent, or state of mind, the Court agrees
with HPE that such speculation is not contemplated by Rule 702 and should be
excluded. In other words, Mr. Ellis cannot speculate as to HPE’s employee’s motive or
intent, but he can testify about facts and his observations from which the jury can then
infer motive or intent. See Wells v. Allergan, Inc., No. CIV-12-973-C, 2013 WL
7208221, at *2 (W.D. Okla. Feb. 4, 2013) (making the same distinction); DePaepe v.
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Gen. Motors Corp., 141 F.3d 715, 720 (7th Cir. 1998) (holding an engineer could testify
as an expert “that reducing the padding saved a particular amount of money ... [and]
that [the manufacturer’s] explanation for the decision was not sound; but he could not
testify as an expert that [the manufacturer] had a particular motive”). Mr. Ellis may also
explain to the jury the meaning, based on his experience in the industry, of “technicallyworded” communications or documents that the jury will not necessarily understand
without his assistance. See Summit Elec. Supply Co., Inc. v. Int'l Bus. Machines Corp.,
No. CIV 07-431 MCA/DJS, 2010 WL 11414471, at *7 (D.N.M. Sept. 30, 2010) (allowing
an expert to testify to the meaning of an email “as it would normally be understood by
computer industry professionals” but not regarding “what the particular recipients of the
email believed or internalized.”).
With this distinction in mind, the Court denies HPE’s request that the Court
exclude portions of Mr. Ellis’s proposed testimony in advance of trial. If, however, the
proper foundation is not laid for his opinions or Mr. Ellis departs from an analysis of the
facts and enters the realm of speculation, HPE may renew its objections.
B. RECITATION OF TURNKEY’S CASE NARRATIVE
The Court next addresses HPE’s objections to Mr. Ellis’s proposed testimony
about (1) the fifteen assumptions listed in the Ellis Disclosure and (2) the facts set forth
in TurnKey’s Supplemental Response to HPE’s Special Interrogatory No. 4. HPE is
concerned that expert testimony about these alleged facts will improperly assume the
role of TurnKey’s advocate and invade the province of the jury.

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With respect to the fifteen assumptions, the disclosure clearly states that “Mr.
Ellis will assume that the evidence will establish” them. (Doc. # 219-1 at 2). It is unclear
which witnesses will testify as to these matters, but the Court notes that Mr. Ellis is both
a fact witness and an expert witness. (Doc. # 193 at 16, 35.) The Court denies HPE’s
request for exclusion of any testimony related to the fifteen assumptions at this juncture.
If, however, the proper foundation is not laid for Mr. Ellis’s reliance on certain facts, HPE
may renew its objection under Rule 702.
With respect to HPE’s concern that TurnKey will merely “use Mr. Ellis as a
spokesperson” to narrate its case-in-chief as set forth in TurnKey’s lengthy Response to
Special Interrogatory No. 4, TurnKey states that it has no intention of having Mr. Ellis
simply regurgitate those facts, read its narrative of the case into the record, or recite
TurnKey’s Supplemental Response to HPE’s Interrogatory No. 4 under the guise of
expert opinion. (Doc. # 224 at 1–2, 12.) Accepting this concession, the Court sees no
reason to exclude Mr. Ellis’s proposed testimony. However, the Court cautions that an
expert “may not simply rehash otherwise admissible evidence about which he has no
personal knowledge,” and “must do more than simply constructing a factual narrative
based upon record evidence or address[ing] lay matters which a jury is capable of
understanding and deciding without the expert’s help.” Wells v. Allergan, Inc., No. CIV12-973-C, 2013 WL 7208221, at *2 (W.D. Okla. Feb. 4, 2013) (internal citation omitted).
To the extent Mr. Ellis appears to be inappropriately regurgitating facts at trial, rather
than using relevant facts as context for his expert opinions, HPE may renew its
objections.
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III.

MARK PEDIGO

Mark Pedigo, TurnKey’s damages expert, offers two primary opinions: TurnKey’s
lost profit damages are $3.7 million and TurnKey’s reasonable royalty damages range
between $20 million and $52 million. HPE objects to the latter opinion on royalty
damages as not being the “product of reliable principles or methods” or “based on
sufficient facts or data.” (Doc. # 218 at 1.)
The most common method for calculating reasonable royalty damages, and the
method used by Mr. Pedigo, is the hypothetical negotiation approach. This approach
“attempts to ascertain the royalty upon which the parties would have agreed had they
successfully negotiated an agreement just before infringement began.” Lucent Techs.,
Inc. v. Gateway, Inc., 580 F.3d 1301, 1324 (Fed. Cir. 2009). This approach tries to
recreate an ex ante licensing negotiation scenario and to describe the resulting
agreement. In other words, the hypothetical approach considers what might have
occurred without the infringement and how “willing parties would have executed a
license agreement specifying a certain royalty payment scheme.” Id. at 1325. Because
the analysis is hypothetical, it “necessarily involves an element of approximation and
uncertainty.” Unisplay S.A. v. Am. Elec. Sign Co., 69 F.3d 512, 517 (Fed.Cir. 1995).
The ultimate calculation is generally based on four components: a hypothetical
negotiation date, payment method, royalty base (the sales of the infringing product that
are subject to a royalty), and royalty rate (the amount owed per sale).
With respect to these four factors, Mr. Pedigo

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1. selected a date in early October 2014, just before October 7, 2014, when,
allegedly, TurnKey first exposed HPE to its confidential trade secrets (Doc. #
218-1 at 22);
2. applied a royalty payment scheme based on a “lump-sum payment” method
with respect to a hypothetical SAP resale and a “running payment” method as
applied to direct sales (Id. at 22);
3. calculated the royalty base sales to be 16,445 (Id. at 24); and
4. assessed a royalty rate ranging between $1000 and $2600 (Id. at 48).
Multiplying the royalty base by the royalty rate under the “running payment”
method, Mr. Pedigo calculated a reasonable royalty direct sale damages figure ranging
from $16,445,403 to $42,758,048. (Id. at 50.) Using the “lump-sum payment” method,
Mr. Pedigo then calculated a reasonable royalty SAP resale damages figure ranging
from $3.7 million to $9.2 million. (Id. at 50.) Adding these damage figures together, Mr.
Pedigo concluded that TurnKey’s total reasonable royalty damages range from
$20,145,403 to $51,958,048, not including prejudgment interest. (Id.)
A. THE ENTIRE MARKET VALUE
HPE objects to Mr. Pedigo’s entire opinion, primarily arguing that Mr. Pedigo
improperly applied the entire market value rule (EMVR), which applies in limited
circumstances.
In general, when a plaintiff claims damages based on the infringement of certain
components to a multi-component product, the plaintiff must attempt to separate out the

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infringing components of the product, rather than assessing damages related to the
product as a whole. As the Supreme Court long ago explained, a plaintiff
must in every case give evidence tending to separate or
apportion the defendant’s profits and the patentee’s
damages between the patented feature and the unpatented
features, and such evidence must be reliable and tangible,
and not conjectural or speculative; or he must show, by
equally reliable and satisfactory evidence, that the profits
and damages are to be calculated on the whole machine, for
the reason that the entire value of the whole machine, as a
marketable article, is properly and legally attributable to the
patented feature.
Garretson v. Clark, 111 U.S. 120, 121 (1884).
A plaintiff may, however, assess damages based on the entire market value of
the accused product as a whole, i.e. applying the EMVR, where “the patented feature
creates the basis for customer demand or substantially creates the value of the
component parts.” Versata Software, Inc. v. SAP Am., Inc., 717 F.3d 1255, 1268
(Fed.Cir. 2013). “It is not enough to merely show that the [patented feature] is viewed
as valuable, important, or even essential to the use of the [overall product].”
LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51, 68 (Fed.Cir. 2012).
Instead, “a reasonable royalty analysis requires a court to . . . carefully tie proof of
damages to the claimed invention’s footprint in the market place.” ResQNet.com, Inc. v.
Lansa, Inc., 594 F.3d 860, 869 (Fed.Cir. 2010). The EMVR therefore requires “proof
that damages on the un[infringed] components or technology is necessary to fully
compensate for infringement of the [entire] invention.” Cornell Univ. v. Hewlett–Packard
Co., 609 F.Supp.2d 279, 285 (N.D.N.Y. 2009). In the absence of such a showing,

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principles of apportionment apply. Virnetx, Inc. v. Cisco Sys., Inc., 767 F.3d 1308, 1326
(Fed. Cir. 2014).
HPE alleges that Mr. Pedigo relied on the EMVR without demonstrating that the
allegedly misappropriated features drove the demand for BPT 12.5x. In response,
TurnKey contends that (1) Mr. Pedigo did not apply the EMVR, and (2) even if he did,
Mr. Pedigo cites ample evidence to support that the infringing features of BPT 12.5x
drove its demand and compensation should be based on the market value of the entire
product.
It is unclear to this Court whether Mr. Pedigo applied EMVR to his reasonable
royalty calculation. As HPE points out, Mr. Pedigo testified, “I believe I came up with
the [royalty rate] conclusion based on the entire market value of the product.” (Doc. #
234-1 at 3.) But, Mr. Pedigo also testified that he attempted to apportion the royalty rate
based on the trade secrets at issue in this case. (Id. at 2.) In his report, Mr. Pedigo
explains that he applied the EMVR to his reasonable royalty rate calculation, assuming
that TurnKey would “establish that the trade secrets at issue substantially create[d] the
value of cFactory and . . . BPT 12.5x.” (Doc. # 218-1 at 48). In the very next
paragraph, however, Mr. Pedigo apportioned the infringing features of BPT 12.5x to
lower his royalty rate by 40% to account for “trade secret related improvements.” It
appears, therefore, that Mr. Pedigo applied both the EMVR method and an
apportionment approach. The Court cannot therefore agree with TurnKey that his
royalty rate did not implicate EMVR.

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In any event, the Court finds that Mr. Pedigo’s use of the EMVR was not
improper. Mr. Pedigo acknowledged that use of the EMVR was permitted only if the
“trade secrets at issue created the basis for customer demand or substantially created
the value of the component parts.” (Doc. # 218-1 at 48.) Mr. Pedigo’s report then
references substantial evidence to support that the alleged trade secrets drove demand
for BPT 12.5x, including:
•

HPE faced a risk of declining revenue if it did not develop a test
automation framework;

•

HPE noted in a presentation that its creation of a test automation
framework would be a strategic control point to quadruple its sales.

•

HPE’s old version of BPT (without the allegedly infringing features) had
complexity and usability issues, primarily related to its lack of an
automation framework and a scriptless gap.

•

HPE noted in a presentation that an investment in scriptless testing was
necessary because of the significant market opportunity and definite
customer need for the solution.

•

HPE projected large revenues for the resale of automation software to
SAP ranging from $58.2 million to $74.9 million.

(Doc. # 218-1 at 41). Mr. Pedigo also assumed that TurnKey would establish the
veracity of these facts at trial. Based on this, and other, information set forth in Mr.
Pedigo’s report, it is clear that he considered and analyzed whether BPT 12.5x’s
infringing automation features drove its demand. Mr. Pedigo’s use of the EMVR does
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not therefore render his opinion unreliable or faulty under Rule 702 and the Court
declines to exclude it on that basis. In so concluding, the Court takes no position on
whether the above-listed statements are accurate or believable; indeed, Mr. Pedigo’s
credibility and the weight to be given his opinion is for the jury to assess, not this Court.
B. THE ROYALTY BASE
HPE also challenges Mr. Pedigo’s reasonable royalty base determination, which
he based on (1) the quantity of HPE’s direct sales (2,954) and (2) the number of BPT
customer upgrades (13,491). HPE specifically contends that Mr. Pedigo’s inclusion of
upgrades into the royalty base is improper because the upgrades stem from sales that
pre-date the alleged misappropriation and are not adequately linked to the infringing
product to support including them in a hypothetical royalty calculation. Thus, Mr.
Pedigo’s royalty base is “not based on sufficient facts or data.” (Doc. # 218 at 10.)
TurnKey responds that the upgrades are, indeed, sufficiently linked to the
infringing product to support including them in the royalty calculation. TurnKey explains
that Mr. Pedigo relied on HPE’s records suggesting that the vast majority of HPE’s
revenue stems not from sales, but from upgrades, which HPE customers must elect and
pay to receive. See LinkCo, Inc. v. Fujitsu Ltd., 232 F. Supp. 2d 182, 190 (S.D.N.Y.
2002) (“A reasonable royalty may also be based on the infringer’s profits.”) For
example, many of HPE’s largest BPT customers, including JP Morgan, Chase Bank,
Liberty Mutual, and Spring, only have one BPT license that entitles them to product
upgrades. (Doc. # 218-1 at 22.) TurnKey also points to evidence suggesting that HPE
always intended for HPE’s customers to receive BPT 12.5x via upgrade, not direct sale,
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and that HPE always encourages its customers to install the latest and greatest HPE
products through upgrades, not through new product purchases. See LinkCo, Inc., 232
F. Supp. 2d at 188–89.
Having thoroughly considered the issue, the Court agrees with TurnKey that
upgrades were properly linked to the infringing product and relevant to Mr. Pedigo’s
hypothetical negotiation method. Their inclusion, therefore, does not render Mr.
Pedigo’s royalty base calculation unreliable or lacking in sufficient facts or data under
Rule 702, and the Court denies HPE’s request for exclusion on these grounds.
C. THE ROYALTY RATE
HPE further objects to Mr. Pedigo’s determination of the reasonable royalty
rate—a rate which he determined after thoroughly analyzing the fifteen well-known
factors derived from Georgia–Pacific Corp. v. U.S. Plywood Corp., 318 F.Supp. 1116,
1120 (S.D.N.Y. 1970). Those factors were designed to incorporate all relevant practical
and economic considerations that may have come into play in the parties’ hypothetical
royalty negotiation. Id. They include considerations of the royalties previously received
by the plaintiff for the licensing of the trade secret to others; the nature and scope of the
license of the infringing product; the commercial relationship between the parties; the
effect of selling the trade secret product in promoting sales of other products of the
defendant; the extent to which the defendant has made use of the trade secret; the
established profitability of the trade secret; and amount that plaintiff and defendant may
have reasonably agreed upon. See LinkCo, Inc., 232 F. Supp. 2d at 192 at n.7.

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HPE does not specifically object to Mr. Pedigo’s analysis with respect to any of
the fifteen Georgia-Pacific factors. Instead, HPE argues for the exclusion of Mr.
Pedigo’s royalty rate and ultimate royalty damage calculation because he failed to
account for the law of supply and demand—that is, according to HPE, he failed to
consider that HPE may have sold fewer BPT 12.5x products had they been priced
above the $1,168 actual price to account for Mr. Pedigo’s hypothetical royalty rate.
In support, HPE relies on several cases, including Crystal Semiconductor Corp.
v. TriTech Microelectronics Int’l, Inc., 246 F.3d 1336 (Fed. Cir. 2001), and Sloan Valve
Co. v. Zurn Indus., Inc., 33 F. Supp. 3d 984, 1002 (N.D. Ill. 2014). The plaintiffs in those
cases, however, sought to recover lost profits based on a theory of price erosion;
naturally, then, the specific effect of a change in price on the demand for the product
was central in each case. A reasonable royalty calculation, like the one done by Mr.
Pedigo, does not depend on a consideration of the law of supply and demand, and the
cited cases do not, therefore, bind him to that approach.
The Court recognizes that, in some reasonable royalty cases, courts have
nonetheless frowned upon an expert’s failure to account for the law of supply and
demand, particularly when the expert’s report is riddled with other issues or when the
expert concludes that royalty rate would triple or quadruple the sales price of the
infringing product. Monolithic Power Sys., Inc. v. O2 Micro Int’l Ltd., 476 F. Supp. 2d
1143, 1155 (N.D. Cal. 2007) (rejecting an expert’s opinion based on multiple unreliable
conclusions, including the expert’s hypothesis that “a royalty that would triple the
average selling price for MPS’ accused products” and then failure to calculate “the
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impact that increased prices would have had on demand.”); 02 Micro Int’l LTD. v.
Beyond Innovation Tech., No. CIVA 2:04-CV-32, 2005 WL 6440628, at *3 (E.D. Tex.
Dec. 15, 2005) (“Absent evidence at trial that the market would have accommodated
[the expert’s assumed] $4.00 selling price [as opposed to the $1.00 actual price], the
damages model may lack the sound economic and factual predicates necessary to
justify its consideration by the jury.”).
However, in this case, Mr. Pedigo has not hypothesized or concluded that BPT
12.5x’s actual sales price would have been different following the parties’ hypothetical
negotiations. Although he stated HPE “may have been able to increase its prices to
account for the royalty,” he did not conclude that HPE’s BPT 12.5x prices would have
necessarily increased or factor any such increase into his royalty rate. And this Court is
not required or even permitted to impute such a consideration or conclusion into his
analysis. Thus, under the specific circumstances presented here, Mr. Pedigo’s failure to
strictly construe the laws of supply and demand—laws that were arguably irrelevant to
his analysis—does not render his entire opinion unreliable or faulty under Rule 702,
particularly considering that he was developing calculations based on fifteen welldeveloped economic and practical considerations that naturally rely on “approximation
and uncertainty.” Unisplay S.A., 69 F.3d at 517.
Accordingly, the Court denies HPE’s request to exclude Mr. Pedigo’s reasonable
royalty damages calculation on these grounds.

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D. DOUBLE-COUNTED DAMAGES
Last, the Court addresses HPE’s contention that Mr. Pedigo’s reasonable royalty
damages calculation improperly includes HPE’s direct sale royalties and its SAP resale
royalties, resulting in a figure that improperly double counts HPE’s sales and should,
therefore, be excluded. TurnKey concedes this error in its response, attributing it to a
misunderstanding of HPE’s financial documents. TurnKey then states that Mr. Pedigo
plans to adjust his testimony at trial to account for the error. HPE nonetheless argues
that (1) the adjusted figures are also unreliable, and (2) even if they were reliable, Mr.
Pedigo should not be permitted to testify to them pursuant to Federal Rule of Civil
Procedure 32(c)(1) because the deadline for supplementing an expert report “has long
passed.” (Doc. # 234 at 9–10.)
The Court finds that Mr. Pedigo’s proposed adjusted figures appear sufficiently
reliable to overcome exclusion under Rule 702. Instead of adding the direct sale
royalties to the SAP resale royalties, TurnKey states that Mr. Pedigo will instead use the
two numbers to create a range of potential royalties. Essentially, the damages figure
will be no lower than the SAP resale royalty range ($3.7 million to $9.2 million) and no
higher than the direct sale royalty range ($16,445,403 to $42,758,048). That Mr. Pedigo
applied different forms of payment to different aspects of this royalty range does not
render his calculations per se unreliable, and HPE provides no case law to support its

17

contention that it does. 1 Moreover, because the figures are no longer being added, it is
unclear to this Court how HPE can still argue the existence of a double-counting issue.
The Court also finds that excluding Mr. Pedigo’s opinion under Rule 37(c)(1) is
not warranted in this case. Rule 37(c)(1), provides, “If a party fails to provide
information or identify a witness . . . , the party is not allowed to use that information or
witness to supply evidence on a motion, at a hearing, or at a trial, unless the failure was
substantially justified or is harmless.” Although it appears that Mr. Pedigo could have
adjusted his report as soon as he realized the error, the Court, in its broad discretion,
declines to exclude his testimony. Woodworker's Supply, Inc. v. Principal Mt. Life Ins.
Co., 170 F.3d 985, 993 (10th Cir. 1999) (the determination of whether to exclude a
witness is entrusted to the broad discretion of the court). Mr. Pedigo admitted his error
and discussed the adjusted figures in his deposition which occurred on February 28,
2017—figures which have been reiterated in TurnKey’s December 2017 Response to
the instant 702 Motion. HPE cannot, therefore, legitimately claim surprise. Moreover,
HPE has a corresponding expert who has had ample knowledge of Mr. Pedigo’s error,
has prepared a report so stating, and has been listed as HPE’s will-call expert since at
least July 2017. Moreover, the Court has a strong preference for allowing cases to be
decided on their merits, rather than limiting the presentation of testimony based on
procedural issues if there has been no ensuing prejudice.
1

HPE cites to Whitserve, LLC v. Computer Packages, Inc., 694 F.3d 10, 30 (Fed. Cir. 2012), for
the proposition that lump sum payments “should not support running royalty rates without
testimony explaining how they apply to the facts of the case.” However, that case does not
support exclusion here, where Mr. Pedigo has proffered substantial explanation for why and
how both payment methods apply to the facts of this case.
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HPE’s request to exclude Mr. Pedigo’s testimony based on his double-counting
error is therefore denied.
IV.

CONCLUSION

Accordingly, the Court DENIES HPE’s 702 Motion to Exclude Testimony by Dale
Ellis (Doc. # 219) and HPE’s 702 Motion to Exclude Testimony by Mark Pedigo (Doc.
# 216), with the understanding that Mr. Pedigo will adjust his reasonable royalty
damages calculation as discussed in Part III.D above.
DATED: January 26, 2018

BY THE COURT:

CHRISTINE M. ARGUELLO
United States District Judge

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