Insight Equity AP X LP v. Transitions Optical Inc.
MEMORANDUM OPINION regarding Motions to Exclude (D.I. 40 and D.I. 46 ). Signed by Judge Richard G. Andrews on 5/9/2017. (nms)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
INSIGHT EQUITY d/b/a VISION-EASE LENS
No. 10-cv-635 (RGA)
TRANSITIONS OPTICAL, INC.,
Alessandra Glorioso, Esq., Robert W. Mallard, Esq., Dorsey & Whitney LLP,
Wilmington, Del.; Michael A. Lindsay, Esq., George G. Eck, Esq., F. Matthew
Ralph, Esq. (argued), Andrew Brantingham, Esq., Dorsey & Whitney LLP,
Minneapolis, Minn.; H. Alex Iliff, Dorsey & Whitney LLP, New York, N.Y.,
attorneys for Plaintiff.
Chad M. Shandler, Esq., Katharine C. Lester Mowery, Esq., Richard, Layton, &
Finger, P.A., Wilmington, Del.; Jonathan M. Jacobson, Esq. (argued), Chul Pak,
Esq., Jeffrey C. Bank, Esq., Daniel Weick, Esq., Wilson, Sonsini Goodrich & Rosati
Professional Corp., New York, N.Y.; Lisa A. Davis, Esq., Wilson, Sonsini Goodrich &
Rosati Professional Corp., Palo Alto, Cal., attorneys for Defendant.
May 9, 2017
Plaintiff Vision-Ease has sued its competitor, Defendant Transitions Optical,
under federal antitrust law. 1 Both Vision-Ease and Transitions Optical are in the
business of selling photochromic lenses. Photochromic lenses change from clear to
tinted and back again depending on the wearer's environment.
To prove Defendant has violated antitrust law by holding monopoly power
and engaging in anti-competitive behavior, Plaintiff has proffered the expert
testimony of Kenneth Baseman. To prove the opposite, Defendant has proffered the
testimony of Dr. Lauren Stiroh. Plaintiff also relies on Donald Nicholson to
Both parties have moved to strike portions of the other's experts' testimony.
(DJ. 46; D.I. 40). On November 3-4, 2016, I held a Daubert hearing on these
motions and took testimony from Mr. Baseman and Dr. Stiroh. (D.I. 157; D.I. 158).
"[T]he district court acts as a gatekeeper" to ensure that expert testimony is
reliable and helpful. Schneider v. Fried, 320 F.3d 396, 404 (3d Cir. 2003). "The
For a more complete recounting of the litigation, see my previous summary judgment opinion. D.I.
141; Insight Equity dlbla Vision-Ease Lens Worldwide v. Transitional Optical, Inc., 2016 WL
3610155 (D. Del. Jul. 1, 2016).
primary locus of this obligation is [Federal Rule of Evidence] 702 .... " Daubert v.
Merrell Dow Pharma., Inc., 509 U.S. 579, 589 (1993). It reads:
A witness who is qualified as an expert by knowledge, skill, experience,
training, or education may testify in the form of an opinion or otherwise if:
(a) the expert's scientific, technical, or other specialized knowledge will help
the trier of fact to understand the evidence or to determine a fact in issue;
(b) the testimony is based on sufficient facts or data;
(c) the testimony is the product of reliable principles and methods; and
(d) the expert has reliably applied the principles and methods to the facts of
Fed. R. Evid. 702.
Rule 702, as amended in 2000, codified the Supreme Court's holding in
Daubert. Calhoun v. Yamaha Motor Corp., 350 F.3d 316, 320 (3d Cir. 2003). The
Daubert Court rejected the then widely used Frye test. See Daubert, 509 U.S. at 589.
The Frye test required an expert's theory or process be "generally accepted as
reliable in the relevant scientific community." Id. at 584 (internal quotation marks
omitted). The test was seen as imposing too "rigid" a requirement. See id. at 588.
This rigidity was "at odds with the liberal thrust of the Federal Rules and their
general approach of relaxing traditional barriers to opinion testimony." Id. at 588
(internal quotation marks omitted).
Burden of Proof
Daubert replaced the Frye test with a "trilogy" of requirements: (1)
qualification, (2) reliability, and (3) fit. Schneider, 320 F.3d at 404. My
determination that proffered testimony complies with these prerequisites is
governed by Federal Rule of Evidence 104(a). Daubert, 509 U.S. at 592. As such, I
must find Daubert's trilogy of requirements is met by a preponderance of the
evidence. In re Paoli R.R. Yard PCB Litig., 35 F.3d 717, 744 (3d Cir. 1994).
On the one hand, this showing requires the party proffering expert testimony
do more than make a prima facie case of reliability. Id. at 743. On the other hand,
the "evidentiary requirement of reliability is lower than the merits standard of
correctness." Id. The proffering party does not "have to prove their case twice-they
do not have to demonstrate to the judge by a preponderance of the evidence that the
assessments of their experts are correct, they only have to demonstrate by a
preponderance of evidence that their opinions are reliable." Id. at 744.
The first prerequisite, qualification, "refers to the requirement that the
witness possess specialized expertise." Schneider, 320 F.3d at 404. While the
language of Daubert is couched in terms of scientific expertise and knowledge, the
qualification requirement as well as the fit and reliability requirements are imposed
on other technical or specialized knowledge. Calhoun, 350 F.3d at 321 (citing
Kumho Tire Co. v. Carmichael, 526 U.S. 137, 141 (1999)).
The Third Circuit has interpreted the qualification requirement "liberally"
and has "eschewed imposing overly rigorous requirements of expertise .... " Paoli, 35
F.3d at 741. Generalized qualifications are sufficient, id., but "more specific
knowledge is required to support more specific opinions," Calhoun, 350 F.3d at 322.
In this case, the experts' qualifications are not, nor could they reasonably be,
"[A]n expert's testimony is admissible so long as the process or technique the
expert used in formulating the opinion is reliable." Paoli, 35 F.3d at 7 42. Reliability
does not require certainty. Daubert, 509 U.S. at 590, but does require "validity,"
Paoli, 35 F.3d at 742.
As with all of the Daubert requirements, I have a gatekeeping role to play in
assessing the reliability of the expert testimony. "When there is a serious question
of reliability of evidence, it is appropriate for the court to exercise to some degree an
evidentiary screening function." Paoli, 35 F.3d at 743 (quoting United States v.
Downing, 753 F.2d 1224, 1240 n. 21 (3d Cir. 1985)).
That being said, the Third Circuit has warned that "the reliability
requirement must not be used as a tool by which the court excludes all questionably
reliable evidence." Id. at 744. An expert's opinion must be founded on good grounds,
not perfect ones. Id. I can conclude there are good grounds for the opinion even if I
"thinkOthere are better grounds for some alternative conclusion" or that the
expert's methodology "has some flaws such that if they had been corrected, the
scientist would have reached a different result." Id. The Third Circuit has directed
that a "judge frequently should find an expert's methodology helpful even when the
judge thinks that the expert's technique has flaws sufficient to render the
conclusions inaccurate." Id. at 744-45.
Fit is the gravamen of the Daubert challenges at issue in this case. The same
liberalness in evaluating reliability applies in evaluating fit. Id. at 745. "Once
again, [the Third Circuit] emphasize[s] that the standard is not that high." Id. Fit
speaks to "the proffered connection between the scientific research or test result to
be presented and particular disputed factual issues in the case." Id. at 743 (quoting
Downing, 753 F.2d at 1237).
Put in the terms of Rule 702, fit asks whether the proffered testimony is
sufficiently helpful. See Daubert, 509 U.S. at 591 ("Expert testimony which does not
relate to any issue in the case is not relevant and, ergo, non-helpful." (citation
omitted)). "[H]elpfulness requires more than bare logical relevance, but there is a
strong preference for admission." Paoli, 35 F .3d at 7 45.
A significant concern in evaluating fit is whether there is mismatch between
the expert's technique and the issues in the case. "Malidity for one purpose is not
Dvalidity for other,
unrelated purposes." Daubert, 509 U.S. at 591.
"Thus, even if an expert's proposed testimony constitutes scientific knowledge, his
or her testimony will be excluded ifit is not scientific knowledge for purposes of the
case." Paoli, 35 F.3d at 743.
The Supreme Court explained this mismatch concern with a hypothetical. A
party seeking to introduce expert testimony on the phases of the moon may
appropriately do so to explain "whether a certain night was dark." Daubert, 509
U.S. at 591. That same testimony is not admissible to explain "whether an
individual was unusually likely to have behaved irrationally on that night." Id.; see
also Paoli, 35 F.3d at 743 ("For example, animal studies may be methodologically
acceptable to show that chemical X increases the risk of cancer in animals, but they
may not be methodologically acceptable to show that chemical X increases the risk
of cancer in humans.").
Assuming an expert meets the requirements of qualification, reliability, and
fit, there is still "some room for Rule 403 to operate independently." Paoli, 35 F.3d
at 746. "The court may exclude relevant evidence if its probative value is
substantially outweighed by a danger of one or more of the following: unfair
prejudice, confusing the issues, misleading the jury, undue delay, wasting time, or
needlessly presenting cumulative evidence." Fed. R. Evid. 403.
On the one hand, the Supreme Court has explained, "[e]xpert evidence can be
both powerful and quite misleading because of the difficulty in evaluating it.
Because of this risk, the judge ... exercises more control over experts than over lay
witnesses" under Rule 403. Daubert, 509 U.S. at 595 (citations omitted). On the
other, the Third Circuit has warned: "[A] district court cannot exclude a scientific
technique as too confusing and overwhelming simply based on its conclusion that
scientific techniques by their very nature confuse and overwhelm the jury." Paoli,
35 F.3d at 746. Instead, in order to exclude expert evidence under Rule 403, there
"must be something about the particular
Dtechnique such as its posture of mythic
infallibility that makes is especially overwhelming." Id.
PLAINTIFF'S MOTION TO STRIKE DEFENDANT'S MARKET DEFINITION
Defendant proffers the expert testimony of Dr. Lauren Stiroh. Dr. Stiroh is
an economics expert holding three degrees in the subject-a bachelor's, master's,
and doctorate. She is a Managing Director at NERA Economic Consulting. (Stiroh
Report 2 at 5; D.I. 158 at 4-5). At NERA, she serves as chair of the Antitrust and
Competition Policy practice. While she is offering a range of opinions, Plaintiffs
challenge focuses on the quantitative analyses supporting her market definition.
(See D.I. 40). Plaintiff brings these challenges under both Rule 702 and Rule 403.
The Proffered Testimony and the Cellophane Fallacy
Defining the relevant market is an important initial inquiry in an antitrust
case. See, e.g., 2b Areeda & Hovenkamp, Antitrust Law, iii! 500, 531a, 531e (4th ed.
2014). Generally speaking, the relevant market includes the accused monopolist's
Dr. Stiroh's intial report can be found at D.I. 45-1.
products and close substitutes. E.g., Hovenkamp, Federal Antitrust Policy§ 3.3bl
(5th ed. 1994); see also 2b Areeda & Hovenkamp, supra,
iiii 536, 537a. Close
substitutes are products that constrain the ability of the accused monopolist to
control prices. 2b Areeda & Hovenkamp, supra,
Dr. Stiroh defines the market in this case to include both photochromic and
clear lenses. (Stiroh Report at ii 51). To support her market definition, Dr. Stiroh
uses two econometric tests: cross-price elasticity of demand and co-price movement.
(See Stiroh Report at iiii 48-49).
Cross-Price Elasticity of Demand
Cross-price elasticity of demand measures whether two products are
substitutes by defining the relationship between the price of one product and the
demand for another product. Hovenkamp, supra, § 3.4a; William M. Landes &
Richard A. Posner, Market Power in Antitrust Cases, 94 Harv. L. Rev. 937, 945
(1981). Specifically, "[t]he cross-price elasticity of demand measures the percent
change in the quantity of photochromic lenses purchased in response to a onepercent change in the price of non-photochromic lenses." (Stiroh Report at ii 49); see
Areeda & Hovenkamp, supra,
ii 507a. A strong relationship between the price of one
product and demand for the other shows that consumers of the two products view
them as substitutes. Id.
Dr. Stiroh performed a cross-price elasticity of demand analysis and found
that clear and photochromic lenses are substitutes. (Stiroh Report at iiii 60-72).
Co-price movement takes a different approach to defining the relevant
market. This analysis looks at whether the prices of two products move together.
Richard Posner, Antitrust Law 149 (2d ed. 2001). A positive relationship indicates
that two products are subject to the same market forces and thus are in the same
market. Id. at 149-50.
Dr. Stiroh performed a co-price movement analysis and found a statistically
significant relationship between clear and photochromic lenses. (Stiroh Report at iii!
52-59). To confirm this relationship, she controlled for inflation. (Stiroh Report at
ii 58 & n. 90). Dr. Stiroh also controlled for the fact that clear lenses are a component
of photochromic lenses. (Id.).
In conducting both analyses, Dr. Stiroh relies on historical sales information
for clear and photochromic lenses published by the Vision Council Association.
(Stiroh Report at ii 54). The data provides monthly average prices. (Id.).
The sales reflected in the Vision Council Association data are sales from lens
casters to retailers. (See D.I. 158 at 21). As the following diagram illustrates,
Defendant Transitions Optical ("TOI" in the diagram) purchases clear lenses from
lens casters, applies photochromic treatment to them, and then sells the treated
lenses back to lens casters. Lens casters then sell the treated lenses to labs and
Plaintiff, in the briefing, criticizes Dr. Stiroh's use of data reflecting sales from lens
casters to retailers as focusing on the wrong level of the market. (D.L 40 at 18-24).
Plaintiff does not challenge the methodological soundness of cross-price
elasticity and co-price movement. Instead, Plaintiff challenges the appropriateness
of those tests for this case. More specifically, Plaintiff challenges Dr. Stiroh's use of
Vision Council Association's average price data as inappropriate when, as in this
case, there is a dispute whether Defendant was charging competitive or
supracompetitive prices during the relevant time. The competitive price is the price
that would be charged in a competitive market. Plaintiffs theory, however, is that
Defendant was already a monopolist, there was not a competitive market, and
therefore Defendant could and was charging supracompetitive prices, that is, prices
above competitive prices.
The Cellophane Fallacy
Because Dr. Stiroh uses actual, or prevailing, prices in her analysis, Plaintiff
accuses her of committing the Cellophane fallacy. The Cellophane fallacy gets its
name from the Supreme Court case of United States v. E.I. du Pont de Nemours
("DuPont"), 351 U.S. 377 (1956). In that case, DuPont was accused of exercising
monopoly power in its sale of cellophane. The Court found that DuPont lacked the
requisite market power because cellophane was part of a broader market of flexible
packaging materials that included glassine, wax paper, and aluminum foil. The
Court relied on a cross-price elasticity of demand analysis performed on prevailing
prices to determine these other materials were substitutes. DuPont, 397 U.S. at
400. The Court arrived at the conclusion they were substitutes because any increase
in the price of cellophane would lead to substitution away from cellophane to other
packaging materials. Id.
Economists have criticized the Court's analysis for failing to account for the
possibility that DuPont had already exercised its monopoly power to charge a
supracompetitive price, i.e., a price above the competitive price. E.g., Hovenkamp,
supra, § 3.4b; Posner, supra, 150; Landes and Posner, 94 Harv. L. Rev. at 961; (D.I.
44-5 at 22) (NERA Report). As Posner explained, "at a high enough price, even poor
substitutes look good to the consumer." Posner, supra, 150. At the inflated
supracompetitive price, consumers will substitute to products they would not
substitute to at a competitive price. Thus, if DuPont were a monopolist and were
charging monopoly prices, then an increase in price would have led to substitution
from cellophane towards wax paper even if wax paper were not a substitute in a
Despite these academic criticisms, Dr. Stiroh's testimony is admissible. As
Dr. Stiroh explained at the hearing, the analysis she performed can be
characterized as necessary to show that clear and photochromic lenses are in the
same market, even if not sufficient to do so. If co-price movement and cross-price
elasticity of demand showed no correlation, then Dr. Stiroh would be hard pressed
to say clear and photochromic lenses were substitutes. While these analyses may
not score a touchdown, they move the ball down the field.
I do not believe Dr. Stiroh's use of prevailing price data is flawed, but even if
I did, I think the analyses would still offer some probative value. See Paoli, 35 F.3d
at 744-45. Further, they are not of a type particularly likely to confuse the jury.
Thus, Dr. Stiroh is generally permitted to testify on co-price movement and crossprice elasticity of demand.
Common Components of Clear and Photochromic Lenses
While Dr. Stiroh's co-price movement testimony is generally admissible, she
is limited to her conclusions that account for the fact that clear lenses are a
component of photochromic lenses. Photochromic lenses are made by applying a
treatment to clear lenses. Thus clear lenses and photochromic lenses largely share
the same components. Therefore, price fluctuations attributable to production costs
of clear lenses do not speak to whether clear lenses and photochromic lenses are in
the same market.
Dr. Stiroh acknowledges that the common components of clear and
photochromic lenses can improperly skew the co-price movement analysis. (Stiroh
55, 58, 58 n.90). To correct for this, she performed an analysis that
controlled for the commonality. (Id. at
if 58 n. 90). This produced a lower but still
statistically significant relationship. (Id.) She can rely on that relationship in her
Dr. Stiroh cannot rely on the co-price movement she attributes to common
components of clear and photochromic lenses. That relationship has no relevance to
the question of whether clear and photochromic lenses are in the same market.
Further, allowing her to use analysis that reflects market influences related to
common components of clear and photochromic lenses would inflate the
relationship, bolstering it and thereby unfairly prejudicing Plaintiff.
Level of the Market
Plaintiff criticizes Dr. Stiroh for analyzing cross-price elasticity of demand
and co-price movement where lens casters sell to labs and integrated retailers (the
"downstream" market) instead of where Defendant sells treated lenses to lens
casters (the "upstream" market). (D.I. 40 at 18-21). Plaintiff further criticizes Dr.
Stiroh for failing to perform "well-known calculations that would have translated
her findings about downstream elasticities to the upstream elasticities .... " (Id. at
21-24). Plaintiff asserts that "[Defendant] is alleged to have monopolized the
market" at the upstream level. (Id. at 18). Thus, according to Plaintiff, Dr. Stiroh is
required to perform calculations on substitution upstream.
I am unconvinced that Dr. Stiroh's analysis of sales to labs and integrated
retailers is not relevant to this case. At the Daubert hearing, Dr. Stiroh explained
that "when the lens casters have a collection of photochromic and clear lenses to sell
to their customers, that's where the substitution between one and the other would
take place .... " (D.I. 158 at 22). While Plaintiff asserts that Defendant is accused of
monopolizing the upstream market, their case vertically spans the entire market.
See infra at III.A. Defendant's alleged exclusionary practices in the downstream
market are integral to Plaintiffs anti-competitive conduct case. Thus, substitution
downstream is a relevant analysis.
With the exception of the stated limitations on co-price movement, Dr.
Stiroh' s testimony is admissible and Plaintiffs challenges are rejected.
DEFENDANT'S MOTION TO STRIKE PLAINTIFF'S COMPETITIVE HARM THEORY
Plaintiff proffers the testimony of experts Kenneth Baseman and Donald
Nicholson. Mr. Baseman holds a bachelor's and master's degree in economics and is
employed as a consultant in the subject. (D.I. 48-2 at 11, 122). He worked for the
Antitrust Division at the Department of Justice as an economist for eight years.
(Id.). For the past twenty-one years, he has worked for Microeconomic Consulting
and Research Associates, Inc. (Id.). He is currently employed there as a principal.
Mr. Nicholson holds a B.S. in Accounting from the University of Minnesota
and is a certified public accountant. (D.I. 48-3 at 136-38). He is a partner at Arthur
Anderson LLP, a business consulting firm. (Id.). Mr. Nicholson has worked in
finance since 1980. (Id.).
The Proffered Testimony
In broad strokes, Mr. Baseman is expected to testify that Defendant engaged
in anti-competitive conduct by foreclosing, fully or partially, much of the
photochromic lens market with exclusive agreements, retaliatory conduct, and
loyalty contracts. In antitrust analysis, market foreclosure represents the part of
the market from which an accused monopolist has excluded competition. See
Hovenkamp, supra, § 10.9a.
According to the Court's reading of Mr. Baseman's expert report, the
exclusivity agreements and loyalty contracts covered the market as follows:
Retailer w/ Lab
National Retailers ' Regional Retailers
--- i.- - - - - -__. .. -
Mr. Baseman has also constructed a damages model based on a hypothetical
world where Defendant's allegedly anti-competitive behavior did not occur. Mr.
Nicholson has taken Mr. Baseman's damages model and calculated damages.
Defendant lodges several challenges to Mr. Baseman's anti-competitive
conduct opinion and damages model. Defendant also challenges Mr. Nicholson's
damages opinion. I will discuss and resolve each in turn. 3
Foreclosure and the Equally Efficient Competitor
Defendant renews its argument that Mr. Baseman's anti-competitive conduct
opinion fails because he has not demonstrated that Defendant's conduct would
exclude an equally efficient competitor. I rejected this argument in my summary
judgment order when I rejected the price-cost test. (D.I. 141 at 12; see also D.I. 150
at 2-3). That was the appropriate forum for the argument, as indicated by
Defendant's reliance on cases reviewing merits decisions. (See D.I. 46 at 19 (citing
Eisai, Inc. v. Sanofi Aventis U.S., LLC, 821 F.3d 394 (3d Cir. 2016) (summary
Defendant makes two arguments I already resolved at summary judgment. First, Defendant argues
that Mr. Baseman's competitive harm theory is deficient because he does not prove consumer harm.
(D.I. 46 at 16-17; D.I. 174 at 24-25). I already rejected Defendant's argument that Plaintiff lacked
evidence to show competitive harm. (D.I. 141 at 13, 20, 20-24). Second, Defendant challenges
Plaintiffs tax theory. (D.I. 174 at 7 (incorporating be reference the tax theory argument at D.I. 46 at
22-23)). Again, I rejected this challenge at summary judgment. (D.I. 141 at 15-16).
judgment); Z.F. Meritor, LLC v. Eaton Corp., 696 F.3d 254 (3d Cir. 2012) Gudgment
as a matter of law); Allied Orthopedic Appliances, Inc. v. Tyco Health Care Grp. LP,
592 F.3d 991 (9th Cir. 2010) (summary judgment); Barry Wright Corp. v. Pac.
Scientific Corp., 724 F.2d 227 (1st Cir. 1983) (trial opinion)); see also D.I. 174 at 1920 (relying on same cases)).
Defendant tries to shoehorn the equally efficient competitor test into a
Daubert argument by saying no economist would testify a market was foreclosed
without performing an equally efficient competitor analysis. (See D.I. 174 at 20). It
cites no Daubert opinion supporting this position, and the Third Circuit's summary
judgment cases do not support it.
For example, Defendant claims the court in Z.F. Meritor conducted an
equally efficient competitor analysis. (See D.I. 46 at 19). In that case, however, the
court upheld a jury verdict where the accused monopolist offered "lower," but above
cost, prices. Z.F. Meritor, 696 F.3d at 266-67, 303. In assessing the sufficiency of the
evidence, the court did not consider whether the competitor plaintiff was equally
efficient. See id. at 286-89. Further, in the very part of the case Defendant cites, the
court explains the antitrust law's concern with not only exclusion of equally efficient
competitors, but also exclusion of "potentially equally efficientO rivals .... " Id. at 281
Defendant has failed to show that an antitrust plaintiff must prove it is an
equally efficient competitive in order to have its expert testify on market
foreclosure. Thus, Defendant's challenge is rejected, and Mr. Baseman can testify to
Retail Channel Gerrymandering
Mr. Baseman used the Vision Monday's Top 50 Optical Retailers list to
calculate the extent to which Defendant's exclusivity and loyalty contracts
foreclosed the retail channel. (Baseman Report 4 at if 95). Mr. Baseman excluded
Walmart and Luxxotica, 5 the number one and number two lens retailers. (Id.).
Defendant challenges both of these moves as Mr. Baseman "gerrymandering" the
retail channel to inflate his foreclosure conclusions. (D.I. 46 at 21-22; D.I. 174 at
Mr. Baseman is permitted to rely on Vision Monday's list of the top 50 optical
retailers. Plaintiff presented unrebutted testimony from Vision-Ease's Director of
Marketing that the list represents about ninety percent of the total retail channel
and is "a widely used surrogate for the retail channel." (D.I. 59 at
Defendant cites to a statement in Jefferson Parish Hosp. Dist. No. 2 v. Hyde
directing Plaintiff to the "market as a whole ... " for support. (See D.I. 46 at 21
Mr. Baseman's initial report is available at D.I. 48-2.
Luxxotica is the parent company of Lenscrafters.
(quoting 466 U.S. 2, 31 (1986))). That statement related, however, to the Supreme
Court's dictate that an antitrust plaintiff cannot argue a single exclusionary act
without considering its context in the broader market. 466 U.S. at 31. Devoid of
context, this statement appears to support Defendant's position; in context, it is
As for excising W almart and Luxxotica, conveniently the two retailers that
carried Plaintiffs product, Mr. Baseman explains the two retailers "are exceptional
not only because [Vision-Ease] gained entry at those accounts, but also because
those accounts, alone among all national retail accounts, never accepted exclusivity
with [Transitions Optical], even though [Transitions Optical] asked for it."
(Baseman Report at
ii 239 n. 430). That explanation is unavailing.
Excluding Walmart and Luxxotica is completely arbitrary, and Plaintiff has
failed to point to any rational economic theory or methodological reason for
excluding those two retailers. It is not enough that excluding W almart and
Luxxotica makes Plaintiffs case look better. Thus, Mr. Baseman is confined to
opining on foreclosure in the Top 50 optical retailers as a whole.
In 2005, Defendant terminated its thirteen-year-old contract with Plaintiff
under which Plaintiff bought photochromic lenses from Defendant. (D.I. 141 at 29).
The same year, Plaintiff launched its own photochromic lens product. On the basis
of those facts and others, Plaintiff brought a refusal to deal claim. A company is
subject to antitrust liability when it terminates a "voluntary and profitable course of
dealing, forsaking short-term profits to achieve an anti-competitive end .... " (Id. at
29 (citing Verizon Comm'ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S.
398, 408 (2004)). I granted summary judgment on Plaintiffs refusal to deal claim
because a refusal to deal claim is "narrow" and the evidence Plaintiff produced did
not fit in that narrow exception. (Id. at 28-30).
Defendant argues that this ruling requires that Mr. Baseman excise from his
analysis all reference to the termination of the contract. (D.I. 17 4 at 10). Mr.
Baseman, however, has a valid theory that includes the supply termination as anticompetitive conduct independent of the refusal to deal claim. Mr. Baseman opines
that Defendant's termination of Plaintiff and other clients that produced their own
photochromic product reinforced its exclusive contracts, describing it as a
"synergistic exclusionary effectO .... " (Baseman Report at
iii! 218-19). Thus, Mr.
Baseman is permitted to incorporate the supply termination in his opinion on anticompetitive conduct. See Z.F. Meritor, 696 F.3d at 272 ("Courts will also consider
whether there is evidence that the dominant firm engaged in coercive behavior .... ").
As it is a proper part of Plaintiffs anti-competitive conduct theory, and not
contradictory of my summary judgment ruling, the supply termination can be
presented in Mr. Baseman's anti-competitive conduct testimony and included in his
Forty Store Hypothetical
When Plaintiff introduced its photochromic product at Lenscrafters, it did a
full launch at all 800+ Lenscrafters stores. Following the launch, Plaintiffs product
suffered delamination, a serious product quality issue, which ultimately harmed the
relationship between Plaintiff and Lenscrafters's parent company, Luxxotica, and
harmed Plaintiffs reputation. In constructing a damages model, Mr. Baseman
hypothesizes that, but for Defendant's allegedly anti-competitive conduct, Plaintiff
would have started with a smaller forty store roll out, caught the product defect,
fixed it, and avoided the reputational and relationship harms.
Defendant challenges this assumption. (D.I. 46 at 26-28; D.I. 174 at 11-14).
Defendant argues there is a dearth of evidence supporting it. In essence,
Defendant's argument is a fit one. I share Defendant's skepticism towards the forty
store hypothetical, as I noted in my summary judgment opinion. (D.I. 141 at 26 fn.
5).6 Plaintiff, however, has now pointed to evidence sufficient to provide a factual
basis to support Mr. Baseman's damages model. Specifically, Mr. Baseman relied on
6 At the Daubert hearing, I ordered Mr. Baseman to prepare an alternative damages theory in
anticipation of excluding the forty store hypothetical. As I am admitting the forty store hypothetical,
it will be Plaintiffs decision whether to present the alternatives to the jury as well. Defendant has
filed another Daubert motion challenging the alternative damages report. (D.I. 194). I will address
that motion by separate opinion.
the expected testimony of Plaintiffs CEO, Doug Hepper, and its head of research
and development. Derek Harris, Lenscrafters's history of conducting targeted roll
outs, and the rate of delamination. (Baseman Supp. Report7 at
Defendant also challenges Plaintiffs reliance on the expected testimony of
Mr. Hepper. Defendant argues it is not the type of evidence an economist would rely
on. I find it an unconvincing argument that an economist, in hypothesizing on the
potential business decisions of a certain company, would not rely on the expertise
and experience of the head of said company in constructing a "but for" world. Thus,
Mr. Baseman is permitted to present his damages model incorporating the forty
store hypothetical to the jury.
While Mr. Baseman can rely on the assumption that a forty store roll out
would have occurred in explaining his damages model, he cannot opine that
Plaintiff would have, in fact, conducted the forty store roll out. Plaintiff has not
established Mr. Baseman as an expert for that purpose. The basis for his
assumption will have to be presented by fact witnesses such as Mr. Hepper and Mr.
Mr. Baseman's supplemental report is available at D.I. 182-1.
In constructing his damages model, Mr. Baseman hypothesizes that Plaintiff
would reach a twenty percent market share. (Baseman Report at iii! 303-06).
Defendant challenges this conclusion as unfounded. (D.I. 46 at 29-30; D.I. 174 at
In reaching this conclusion, Mr. Baseman looked at economic literature
describing other industries to determine the second place firm reaches at least a
twenty percent market share. (Baseman Report at iii! 303-06; D.I. 157 at 45). He
then concluded that Plaintiff would reach second place status because of Plaintiffs
actual experience, Defendant's response to Plaintiffs entry into the market, and
Plaintiffs product offerings. (Baseman Report at if 307; D.I. 157 at 44).
When it entered the market, Plaintiff"quickly became the second largest
seller of photochromic lenses" domestically. (Baseman Report at if 307). Plaintiff
was also "the only rival whose presence led [Defendant's] management to approve
exceptions to (i.e. discounts off) its prevailing standard prices." (Jd.). Mr. Baseman's
review of internal documents showed what he characterized as "a singular concern
about [Plaintiff] ... and nothing like that for anybody else." (D.I. 157 at 44).
Mr. Baseman further based his market share opinion on Plaintiffs unique
product offering. Bifocal polycarbonate lenses were about twenty percent of the
overall lens market and Plaintiff was the only firm offering a polycarbonate bifocal
lens with photochromic treatment. (D.I. 157 at 46). This supports his market share
opinion because Plaintiff was the only supplier offering photochromic treatment to a
common type of lens. Mr. Baseman testified that at least ten percent of the
projected market share could be attributed directly to Plaintiffs offering of bifocal
polycarbonate lenses alone. (Id.).
Mr. Baseman's analysis, determining a firm's likely market position based on
product offerings, past performance, and extrinsic evidence of how a competitor
perceived the market as well as extrapolating a market share model from looking at
"hundreds" of other industries (D.I. 157 at 45), is reliable and grounded in facts.
Thus, his model fits the case.
Mr. Nicholson's Damage Calculations
Defendant challenges Mr. Nicholson's damage calculations on two grounds. 8
First, Defendant argues they fall with Mr. Baseman's opinion since they rely on it. I
have upheld relevant portions of Mr. Baseman's damages model, making this
Second, Defendant challenges the factual basis of Mr. Nicholson's projection
of Plaintiffs sales from 2012 to 2015, which Mr. Nicholson used to calculate future
Defendant requested the opportunity to supplement the record on this and other arguments. (D.I.
209). That request, as it pertains to this motion, is denied. Defendant has had more than ample
opportunity to submit relevant material to the Court.
damages. Because the parties agreed to end discovery at 2011 (D.I. 166 at 22 n. 12),
Mr. Nicholson relied on a model Plaintiff "used for business planning and financing
purposes .... " (Nicholson Report9 at 121; see also D.I. 58 at iJ 54 ("The sales
projections ... were maintained by [Vision-Ease]'s Chief Financial Officer, Rich
Faber, and were the most up-to-date projections that [Vision-Ease] had developed
for its own business purposes, which included providing the projections to lenders
and potential purchasers of the company.")). The document Mr. Nicholson relied on
is highly detailed. (D.I. 101).
Defendant relies on Z.F. Meritor. In Z.F. Meritor, the Third Circuit found it
was not an abuse of discretion when the district court excluded damages projections
based on a "one-page set of profit and volume projections" without knowing how
those projections came to be. 696 F.3d at 292. The information relied on here is not
so summary. Further, Z.F. Meritor requires an expert to explain "why he relied on
such estimates and must demonstrate why he believe the estimates were reliable."
Id. Mr. Nicholson did just that when he explained that the estimates were actually
used in the course of business and incorporated actual sales data. (D.I. 48-3 at 121).
Mr. Nicholson's initial report can be found at D.I. 48-3.
Thus, Mr. Nicholson's proffered testimony is admissible.IO
Dr. Stiroh's testimony is permitted but for the exceptions noted in the
analysis. Similarly, Mr. Baseman's testimony is permitted but for the exceptions
noted in the analysis. Mr. Nicholson's testimony is permitted in full. An order
consistent with this opinion will follow.
Defendant also challenges Mr. Nicholson's damages calculations for failing to account for other
entrants to the market as well as "financial mismanagement and natural disasters ...." (D.I. 46 at
31-32; D.I. 174 at 18). To the extent this is a challenge to Mr. Baseman's but-for damages model
itself, the criticism is inapropos. Mr. Nicholson is not the expert offering the model; he is the expert
implementing it. If Defendant wanted to challenge the damages model on this ground, it should have
done so in its already comprehensive motion to exclude Mr. Baseman's testimony. To the extent this
challenge is properly aimed at Mr. Nicholson's analysis, I will address it by separate opinion. My
admission of Mr. Nicholson's testimony is contingent on addressing this further objection.
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