MSC.Software Corporation v. Altair Engineering, Incorporated et al
MEMORANDUM AND ORDER OVERRULING MSCS OBJECTIONS (Doc. 1108) AND ADOPTING REPORT AND RECOMMENDATION OF SPECIAL MASTER (Doc. 1102)AND DENYING MSCS MOTION IN LIMINE TO EXCLUDE CHRISTOPHER VELLTURO (Doc. 993). Signed by District Judge Avern Cohn. (MVer)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
Case No. 07-12807
HON. AVERN COHN
ALTAIR ENGINEERING, INC.,
MEMORANDUM AND ORDER
OVERRULING MSC’S OBJECTIONS (Doc. 1108) AND
ADOPTING REPORT AND RECOMMENDATION OF SPECIAL MASTER (Doc. 1102)
DENYING MSC’S MOTION IN LIMINE TO EXCLUDE CHRISTOPHER VELLTURO
This is a business dispute tried to a jury. The Court set aside a jury’s
$26,100,000.00 verdict in favor of MSC and granted Altair a new trial on the issue of
damages for breach of confidentiality/misappropriation of three MSC-owned technical
trade secrets (TTS).
Following the Court’s ruling, the parties engaged in damages discovery which
included the filing of expert reports. MSC filed a motion in limine to exclude the report
and testimony of Dr. Christopher A. Vellturo (Doc. 993), Altair’s damages expert. The
Court referred the matter to the Special Master for a report and recommendation (Doc.
Upon review of the parties’ papers, the Court deems this matter appropriate for
decision without oral argument. See Fed. R. Civ. P. 78(b); E.D. Mich. LR 7.1(f)(2).
1010). The Special Master recommends that the motion be denied. (Doc. 1102). MSC
objects. (Doc. 1108). For the reasons that follow, MSC’s objections will be overruled,
the Special Master’s report will be adopted and MSC’s motion to exclude Vellturo will be
The matter has been fully and robustly briefed. The relevant papers are as
MSC’s motion to exclude Vellturo
Order of reference to Special Master
Special Master’s Report and Recommendation2
In addition, the record contains Vellturo’s report (Ex. 1 to Doc. 993) and supplemental
expert report (Ex. H to Doc. 1020).
A district court must conduct a de novo review of the parts of a special master's
The Special Master circulated a draft of his report to the parties for informal
comment. MSC provided comments which resulted in the Special Master modifying his
report where deemed appropriate.
report and recommendation to which a party objects. 28 U.S.C. § 636(b)(1)(B). The
district “court may accept, reject, or modify, in whole or in part the findings or
recommendations” of a special master.” Id.
The Special Master set forth the proper legal framework for deciding the motion:
A qualified expert may testify 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 the
case.” Fed. R. Evid. 702.
The Rule requires the district court to act as a gatekeeper to “ensure that
any and all scientific testimony or evidence admitted is not only relevant, but
reliable.” Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 589
(1993). That standard applies not only to scientific testimony but to all expert
testimony. Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 147 (1999). The
reliability inquiry is a flexible one; “whether Daubert’s specific factors are, or are
not, reasonable measures of reliability in a particular case is a matter that the law
grants the trial judge broad latitude to determine.” Id. at 153. "[T]he Daubert
Court has instructed the courts that they are not to be concerned with the
reliability of the conclusions generated by valid methods, principles and
reasoning.... If the principles, methodology and reasoning are scientifically valid
then it follows that the inferences, assertions and conclusions derived therefrom
are scientifically valid as well." Greenwell v. Boatwright, 184 F.3d 492, 497 (6th
Cir. 1999) (citing U.S. v. Bonds, 12 F.3d 540, 556 (6th Cir. 1993).
“Daubert and Rule 702 are safeguards against unreliable or irrelevant
opinions, not guarantees of correctness.” I4i Ltd. P’ship v. Microsoft Corp., 598
F.3d 831, 854 (Fed. Cir. 2010) aff’d 131 S.Ct. 2238 (2011). “When the
methodology is sound . . . disputes about the degree of relevance or accuracy
may go to the testimony’s weight, but not its admissibility.” Id. at 852. “Perceived
flaws in an expert’s opinion go to weight only if they fall within the accepted
norms of the discipline and have a non-speculative basis in fact.” Multimatic, Inc.
v. Faurecia Interior Systems, USA, Inc., 358 Fed. Appx. 643, 654 (6th Cir. 2009).
When parties take different approaches, “the relative strengths and weaknesses
may be exposed at trial or attacked during cross-examination. Apple Inc. v.
Motorola, Inc., 757 F.3d 1286, 1315 (Fed. Cir. 2014). But, expert testimony that
is not grounded in “sufficient facts or data,” or not the product of “reliable
principles and methods,” as required by Rule 702, is properly excluded as “pure
conjecture.” Pluck v. BP Oil Pipeline Co., 640 F.3d 671, 679 (6th Cir. 2011).
A disclosed expert’s report must contain “a complete statement of all
opinions the witness will express and the basis and reasons for them” as well as
“the facts or data considered by the witness in forming them.” Fed. R. Civ. P.
(Doc. 1102 at p. 5-7).
As the Special Master correctly noted, the Michigan Uniform Trade Secrets Act
permits recovery of damages for misappropriation under ane unjust enrichment or a
reasonable royalty theory. M.C.L. § 445.1904. Vellturo presented both theories of
damages. His conclusions, in summary form, are as follows:
MSC has not presented a lost profit-based theory of damages.
There is no evidence of any material commercial gain to Altair attributable
to the TTS. Unjust enrichment damages are limited to $36,591, based on
Altair’s cost of designing around and removing the misappropriated code,
divided as follows: $8,258 for TTS 1; $20,076 for TTS 2; and $8,258 for
Based upon the above assessments, and other foundational opinions,
reasonable royalty damages are limited to the most that Altair would have
been willing to pay, namely, the unjust enrichment damages figure of
The Special Master explained Vellturo’s methodology in detail. See Doc. 1102 at
p. 13-15. Briefly, Vellturo noted that Altair’s MotionSolve product is not sold as a
stand-alone product but is part of the HyperWorks software bundle. Before attempting
to allocate damages to Altair’s use of the three misappropriated TTS that form only a
portion of MotionSolve, Vellturo therefore had to find a way to allocate HyperWorks’
revenue to MotionSolve. He studied available data on customer usage of MotionSolve.
He then treated that software program as if was being used by an Independent
Software Vendor (“ISV”). With that assumption, and using Altair’s formula for
compensating third party ISVs, he allocated a royalty compensation based on the
percentage usage of MotionSolve relative to the other HyperWorks programs. He also
computed the frequency with which Altair customers sought assistance from Altair
customer service personnel as a measure of their interest in MotionSolve. He further
contacted Altair application engineers (AE) to get their qualitative sense of how
frequently customers use MotionSolve as compared with other HyperWorks programs.
On the basis of these three measures, Vellturo concluded that MotionSolve accounts for
only about 0.13% of the leveled usage of HyperWorks and 0.08% of HyperWorks
revenue when accounting for the 40% service charge (Id. at ¶88). He also concluded
that usage date showed that only 9.6% of all HyperWorks reporting licenses report any
MSC’s objections, as Altair points out, essentially repeat the arguments
considered and rejected by the Special Master. MSC’s objections do not identify any
flaws in the Special Master’s reasoning or (with one exception) raise any new
arguments. Be that as it may, the Court considers each objection in turn below.
MSC first objects to the recommendation that Vellturo’s opinions based on
conversations with AEs are admissible, contending that such evidence is improper
hearsay. The Special Master thoroughly considered MSC’s hearsay arguments the first
time they were raised and correctly found that the challenged material is “the kind of
evidence reasonably relied upon by [economics] experts in measuring damages” and
not a basis for exclusion. Doc. 1102 at p. 28-29.
MSC also takes issue with the case law relied upon by the Special Master,
characterizing the reliance on Bournes, Inc. v. Ryachem Corp., 1999 WL 351131842
(C.D. Ca. Dec. 28, 1998) as “egregious.” Doc. 1108 at p. 5. MSC says Bournes and
other cases relied upon are distinguishable on the basis that “an economics expert in a
patent case could rely on interviews directly with customers as a basis for his damages
calculation” and that Vellturo spoke with Altair’s employees, not with customers. Doc.
1108 at 5. This objection falls short. The customers in Bournes, as the Special Master
explained, had personal experience and observations to relate just as Vellturo’s
interviewees provided “personal observations” based on their extensive hands-on
experience. Doc. 1102 at p. 29. Citing case law, the Special Master correctly noted
that “the AEs’ statements about their own observations of customer usage, and the
occurrence or non-occurrence of customer complaints about removal of MotionSolve
features, are the kinds of evidence that an expert in economics may properly rely upon
in forming an opinion on the value of the TTS.” Doc. 1102 at 31-32. Moreover, the
information gathered from the interviews was consistent with the other information
considered by Vellturo, including usage logs, call center data, and company records and
documents. As the Special Master noted, this consistency is strong evidence of the
reliability of all of the data.
MSC’s also objects to the conversations themselves. MSC says that none of the
persons who Vellturo spoke with will be “forthcoming at trial.” Doc. 1108 at p. 10. This
is misguided. The Court allowed depositions of any three of Vellturo’s interviewees, on
top of participant Keshav Sundaresh and Vellturo himself. MSC has already
cross-examined these individuals in depositions. MSC has listed all three of its chosen
interviewees and Sundaresh on its witness list.
In its final objection on the issue of AE interviews, MSC says that Vellturo “relied
on” an “absence of customer complaints” “to establish the truth of numerous factual
propositions.” Doc. 1108 at p. 10-12. This objection is not understood. The passages
that MSC cites in Vellturo’s report (Doc. 1108 at p. 11 (citing Doc. 1076, Ex. 2, Vellturo
Report at ¶¶ 6, 29, 30, 59)) make no reference to the “absence of customer complaints,”
and instead are discussing personal experiences of Vellturo’s interviewees, already
addressed above. The admissibility of the “absence of customer complaints” is a
separate issue, which the Special Master correctly analyzed under Fed. R. Evid. 801.
Doc. 1102 at p. 28-29 (citing Fed. R. Evid. 801 advisory committee note to subd. (c)
(1972) (“If the significance of an offered statement lies solely in the fact that it was
made, no issue is raised as to the truth of anything asserted, and the statement is not
Overall, MSC’s first objection relating to Vellturo’s use of AE interviews in forming
his opinion does not carry the day. The Special Master correctly concluded that
reliance on such evidence is permitted under the rules and does not render his opinion
excludable under Daubert.
MSC next objects to the Special Master’s recommendation that opinions based
on Altair’s customer usage data is admissible. In supporting its objection, MSC
selectively quotes from the Special Master’s report, and does not fairly represent the
Special Master’s recommendation in context. For example, MSC claims that “The
Special Master noted that Vellturo’s conclusion was based on ‘an absence of evidence
that the reporting license same is biased.’” Doc. 1108 at p. 13. MSC omits the Special
Master’s fuller observation of Vellturo’s methods:
That conclusion was based in turn on his conclusion that there was an absence
of evidence that the reporting license sample is biased, as well as evidence
affirmatively suggesting that such sample is representative with respect to
MotionSolve: (1) the percentage of total HyperWorks revenue from
reporting licenses increased over time, with no corresponding change in
overall percentage usage of MotionSolve within that group; (2) the industry
mix of reporting licenses is similar to the mix of non-reporting licenses,
suggesting that the same types of licenses are found in both groups (Id. at
Doc. 1102 at p. 17 (emphasis to show omitted portions of Special Master’s report).
MSC also takes issue with the thoroughness of the Special Master’s report,
claiming for example that “the Report and Recommendation does not address a case
cited by both parties, GE v. Joiner,” Doc. 1108 at p. 15. Not so. The Special Master did
quote this case. See Doc. 1102 at p. 18, with the same block quote MSC provides in its
objection. MSC also overlooks the Special Master’s correct observation that “MSC
does not challenge any portion of Dr. Vellturo’s Supplemental Expert Report of October
1, 2015.” Doc 1102 at 19.
In short, MSC’s objection raises the same arguments it made to the Special
Master. The Special Master discussed MSC’s challenges to Vellturo’s testimony, and
correctly concluded that MSC’s criticisms “go to the weight to be given Dr. Vellturo’s
testimony and conclusions, and are not grounds for exclusion.” Doc. 1102 at 20.
MSC also objects to the Special Master’s recommendation that Vellturo’s
opinions based on Altair’s customer inquiry logging database (the “Spectrum”
Data) is admissible. MSC says that the “Special Master … does not evaluate whether
Vellturo can reasonably conclude from the dataset that there was ‘limited customer
usage’ of MotionSolve.” Doc. 1108 at p. 16. To the contrary—the Special Master did
consider the reliability of this evidence and found that Vellturo’s analysis “was consistent
with the conclusions drawn from independent sources used by Dr. Vellturo.” Doc. 1102
at p. 21. Again, MSC’s objection goes to the weight of the evidence, not its reliability.
MSC can present its alternate explanation as to how to interpret the Spectrum data on
cross-examination. This objection lacks merit.
MSC further says that the Special Master’s erred in rejecting its argument
relating to Generally Accepted Accounting Principles (GAAP). MSC argued that
Vellturo’s opinion based on customer usage, rather than price, is not supported by
GAAP and Vellturo admitted he did not consider whether his methodology satisfied
GAAP. The Special Master found that MSC’s argument was “based on several
inaccurate, incomplete and misleading underlying representations,” Doc. 1102 at 22;
and that MSC’s representation of Altair’s experts was “misleadingly incomplete.” Doc.
1102 at 23. The Special Master went on to note, putting aside MSC’s inaccuracies, that
“GAAP does not control here because its standards do not apply to allocation of
revenue from bundled software.” Id. at p. 22. Vellturo’s customer usage method, while
not under GAAP, is, as Altair notes, based on a methodology that is accepted by more
than 40 ISV partners.” Doc. 1020 at p. 15. Vellturo’s methodology is to use the
approach that numerous arms-length third party companies have agreed to be paid for
their products. The Special Master properly concluded that Vellturo’s methodology was
reliable and admissible regardless of GAAP:
Whether Dr. Vellturo, who analyzed the damages as an economist,
should have applied a different methodology, prescribed by an
accounting standard that is not yet in effect, may be a question relevant
to his credibility and the weight to be accorded to his testimony. It does
not, in my opinion, affect the reliability and admissibility of his testimony.
(Doc. 1102 at p. 25-26).
MSC objects to the Special Master’s finding that Vellturo properly relied on
conversation with Sakthivel Subramanian in forming his opinions. MSC once again
argues that Vellturo’s conversations with Sakthivel Subramanian, a trial witness, render
his opinions unreliable. The Special Master addressed this argument, noting that MSC
has the opportunity to test the reliability of the information relied on by Vellturo. MSC
could cross-examine Subramanian about the trade secret removal process, and MSC
has the source code repository where it can verify the changes and dates that
Subramanian made his modifications. See Doc. 1102 at p. 32-34. Thus, Special
Master concluded that MSC’s criticisms are appropriate for cross-examination of
Vellturo or Subramanian, and do not undermine the admissibility of Vellturo’s opinions.
The Court agrees with the Special Master. MSC’s objection goes to the weight to be
given Vellturo’s opinion, not its reliability. This objection fails.
MSC also challenges the Special Master’s similar conclusion that Vellturo could
rely on the Horstmann report from Altair’s technical expert in shaping his opinion. MSC
consistently says that Vellturo has “embellished” Horstmann’s findings. The Special
Master noted that Altair had presented a “detailed chart” collecting evidence to rebut
MSC’s argument, and recommended that MSC’s challenge was an issue for
cross-examination at trial, not exclusion of the Report. Doc. 1102 at p. 34-35. This
objection clearly goes to credibility, not admissibility, which MSC can fully explore
through cross-examination. This objection is overruled.
MSC also takes issue with the Special Master’s comments on burden shifting
and whether Altair must apportioning MotionSolve revenue as a reason the exclude
Vellturo. MSC provides only a cursory objection “to the Special Master’s
recommendation on this issue for all the reasons previously submitted to this Court.”
Doc. 1108 at 22. The Special Master reviewed MSC’s briefing, and Dr. Vellturo’s report,
and recommended that MSC may cross-examine Vellturo on the grounds for his
methodology. As MSC, Altair, and the Special Master recognize, the burden-shifting
and apportionment issues are still open (and most critical to the Lee Daubert motion).
Thus, this not a ground for excluding Vellturo’s report.
MSC says that the Special Master erred in concluding that Vellturo accounted for
MSC’s position in the hypothetical negotiation. The Special Master noted that Vellturo
did, in fact, consider MSC’s position and also “explained why it would not have given
MSC much leverage in the hypothetical negotiation.” Doc. 1102 at p. 37-38. The
Special Master correctly concluded that MSC’s allegation would be an issue for
cross-examination, not a reason to exclude Vellturo’s testimony. This objection also
In its final objection, MSC says that Vellturo’s findings are not reliable because
Altair’s customers can allegedly access prior versions of the software that contain the
TTS. The Special Master addressed MSC’s arguments in his report. MSC does not
object to the Special Master’s recommendation that “MSC’s challenge can be readily
brought out in cross-examination at trial.” Id. at 40.
MSC, however, raises a new argument that “Altair replaced the trade secrets with
derivate mechanisms” and that “customers still utilize older versions of MotionSolve.”
Doc. 1108 at p. 23. This argument is unavailing. First, the Court has ruled that the TTS
were removed from MotionSolve and MSC presented no evidence to show that
derivations continue to exist in the code. See Doc. 1133. That should end most of the
With regard to MSC new argument that customers can still use prior versions of
MotionSolve, MSC offers scant evidence, in form of two emails. The emails MSC
attached do not support MSC’s claim that “Altair’s ‘large’ customer typically utilize older
versions of MotionSolve.” Doc. 1108 at p. 24, Ex. 2 & 3. The Ex. 2 email does not even
mention MotionSolve. Doc. 1108 Ex. 2. And with respect to Ex. 3, MSC misrepresents
the content of the email—which is discussing Altair’s separate MotionView product—to
claim that the email concerns MotionSolve, the product at issue in this case. The
original email reads:
“still using MV10.0.160 and hesitant to move to MV12.0.110 due to
quality concerns after going through a painful 7.0 to 10.0 migration.”
Doc. 1108 Ex. 3 at p. 1 (emphasis added to show reference to MotionView (MV))
Tellingly, MSC sets for the email in its brief as follows:
“still using [Version 10] and hesitant to move to [Version 12] due to
quality concerns after going through a painful 7.0 to 10.0 migration.”
Ex. 3, ALTAIR304096. Accordingly, Altair’s customers still utilize
the trade secrets in older versions of MotionSolve.
Doc. 1108 at 24 (emphasis added). MSC’ omission of the “MV” is misleading and
implies, incorrectly, that the version numbers in the email referred to MotionSolve.
Putting aside that it is improper for MSC to introduce new evidence at the objection
stage, this “evidence” does not advance MSC’s position. More importantly, MSC’s
argument at best goes to weight and not admissibility.
For the reasons stated above, MSC’s objections are OVERRULED. The Special
Master’s report and recommendation is ADOPTED as the findings and conclusions of
the Court, as supplemented above. MSC’s motion to exclude Vellturo is DENIED.
UNITED STATES DISTRICT JUDGE
Dated: February 13, 2017
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