Mowder v. Permanent General Assurance Corporation of Ohio et al
Filing
87
Opinion and Order signed by Judge James S. Gwin on 4/15/14 denying in part defendants' 73 Motion to stop the expert testimony of the Estate's two experts. The Court overrules Defendants' objections to the testimony of Dr. Barone. The Court will schedule a hearing by separate order at which Robert Turner will testify and the parties will present argument concerning the admissibility of his expert testimony.(S,HR)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
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RON SATIJA, Trustee of the Bankruptcy :
Estate of David Mowder and Heather
:
Lynette Mowder,
:
:
Plaintiff,
:
:
v.
:
:
PERMANENT GENERAL ASSURANCE :
CORPORATION OF OHIO et al.,
:
:
Defendants.
:
:
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CASE NO. 1:13-CV-00082
OPINION & ORDER
[Resolving Doc. 73]
JAMES S. GWIN, UNITED STATES DISTRICT JUDGE:
In this copyright action, Plaintiff Ron Satija, the trustee of David Mowder’s bankruptcy
estate, says that David Mowder created a cartoon character known as the “the General,” that the
Estate owns the copyright to the General, and that Defendants1/ have used the character in their
advertisements without license.2/ The Estate seeks damages for Defendants’ alleged infringement,
the destruction of all infringing material, and an injunction to prevent Defendants’ further use of the
General.3/
Permanent General now moves under Federal Rule of Evidence 702 to stop the expert
1/
The complete list of Defendants is Permanent General Companies, Inc., Permanent General Assurance
Corporation of Ohio, Permanent General Assurance Corporation, PGA Service Corporation, PGC Holdings Corp.,
General Automobile Insurance Services of Ohio, Inc., General Automobile Insurance Services, Inc., General Automobile
Insurance Services of Texas, Inc., General Automobile Insurance Services of Louisiana, Inc., and General Automobile
Insurance Services of Georgia, Inc. The Court will refer to them collectively as Defendants or Permanent General.
2/
Doc. 1.
3/
Id.
Case No. 1:13-CV-00082
Gwin, J.
testimony of the Estate’s two experts.4/ Plaintiff Satija opposes that motion.5/ For the reasons that
follow, the Court DENIES IN PART Defendants’ motion and will set a hearing to consider the
admissibility of the testimony of Robert Turner.
I. Factual and Procedural Background
David Mowder says that in 1998 and while living in Northeast Ohio, he created the cartoon
character called the General and that from 1998, Defendants have used the character in their
advertisements without his permission or authorization.6/
Defendants generally say they contracted with an advertising agency, Saifman Richards, and
that advertising agency’s employee actually created the character.7/ Rather than creating the
character, Defendants say its advertising agency hired Mowder as an illustrator of someone else’s
idea and say Mowder assigned any right he had in the design to Saifman Richards.8/
The Court scheduled the case for trial on April 28, 2014.9/ The Court ordered the Estate to
exchange its expert reports by February 28, 2014,10/ and ordered Defendants to file any objections
by March 31, 2014.11/
The Estate disclosed reports from two experts.12/ Robert Turner authored the first report. The
report gives opinions on the gross revenue purportedly attributable to the use of the character in
4/
Doc. 73.
5/
Doc. 76.
6/
Doc. 1 at 3 ¶ 5, 8 ¶ 25, 9 ¶¶ 30-35.
7/
Doc. 22 at 12-13 ¶¶ 21-28 (Counterclaim).
8/
Id.
9/
Doc. 44 at 4.
10/
Doc. 52.
Doc. 65.
11/
12/
Doc. 63.
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Gwin, J.
Defendants’ advertisements.13/ Michael Barone, Ph.D. authored the second report. It deals with the
influence of the General character on consumer decisions.14/ Defendants have timely filed an
objection to both reports.15/
Defendants say that both reports are irrelevant and unreliable.16/ In regards to Dr. Barone’s
report, Defendants say that he failed to rely on proper methodologies to reach his opinion.17/
Turner’s opinion, Defendants say, will not assist the jury in this case.18/
For its response, the Estate says Defendants misunderstands the proper law to be applied, that
Dr. Barone’s methodologies have previously satisfied legal requirements, and the Defendants
objections to Turner’s report goes to the weight of evidence, not its admissibility.19/
II. Legal Standard
Rule 702 of the Federal Rules of Evidence controls the admission of expert testimony. Under
Rule 702, testimony based on specialized knowledge is admissible if it “will help the trier of fact to
understand the evidence or to determine a fact in issue.”20/ The expert’s testimony must also be
“based on sufficient facts or data,” be “the product of reliable principles and methods,”and be the
product of reliable application of those principles and methods to the facts of the case.21/ “[T]he law
grants a district court the same broad latitude when [the district court] decides how to determine
13/
Id. See generally Turner Rep.
14/
Doc. 63. See generally Barone Rep.
15/
Doc. 73.
16/
Doc. 73-1.
17/
Id. at 5.
18/
Id. at 12.
19/
Doc. 76 at 3.
20/
Fed. R. Evid. 702(a).
21/
Id. 702(b)-(d).
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Gwin, J.
reliability as it enjoys in respect to its ultimate reliability determination.”22/ But to qualify as an
expert witness, the expert must be qualified “by knowledge, skill, experience, training, or
education.”23/
As commentators have noted, Rule 702 liberalized the admissibility of expert testimony from
the earlier Frye standard.24/ Under this liberal approach, expert testimony is presumptively
admissible.25/
Further, experts need not confine their testimony to matters upon which they have personal
knowledge.26/ Experts may base their opinions on facts and data “experts in the particular field
would reasonably rely on . . . in forming an opinion on the subject.”27/
For the instant motions, the Court restricts itself to determining whether the experts’
purported testimony is admissible. To conduct this inquiry, the Court considers the parties’
objections.
III. Dr. Michael Barone
Dr. Michael Barone holds a masters in business administration from George Washington
University and a Ph.D. in marketing with a psychology cognate from the University of South
Carolina.28/ He is currently a Professor of Marketing and a University Scholar at the University of
Louisville.29/ He has offered expert opinions on marketing, branding, and consumer psychology in
22/
Kumho Tire Co. v. Carmichael, 526 U.S. 137, 142 (1999).
23/
Fed. R. Evid. 702.
24/
See, e.g., Weinstein’s Federal Evidence § 702.02[1].
25/
Id.
26/
Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 592 (1993).
27/
Fed. R. Evid. 703.
Barone Rep. at 1 ¶ 3.
28/
29/
Id.
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Gwin, J.
twelve other cases.30/
In this case, Dr. Barone purports to give an expert report about the influence of the General
as used in marketing materials on consumer decisions to purchase Defendants’ products, automobile
insurance.31/ He concludes that
the use of The General Caricature by Permanent General in its advertising has a
significant positive influence on consumer decisions to purchase Permanent
General’s insurance offerings. As a result of this influence, Permanent General’s
advertisements featuring the General Caricature are reasonably related to Permanent
General’s gross revenues and profits.32/
Defendants challenge Dr. Barone’s report because they say “Prof. Barone’s assumption of
a significant positive influence rests solely on the presence of the General cartoon character in a
majority of Permanent General’s television ads and the increase in permanent General’s advertising
budget.”33/ They also say that Dr. Barone “simply did not test his hypothesis with the type of
methodology he knows would have” proven his hypothesis.34/
Permanent General’s challenges to Dr. Barone’s expert report lose.
As background, in his report Dr. Barone discusses Permanent General’s “direct response
strategy” of encouraging customers to “respond ‘directly and immediately’” via the Internet or
telephone.35/ He notes Defendants’ statements that the General is used in “the vast majority” of
Defendants’ ads and allows Defendants “to deliver ‘a consistent effective message’ to consumers.”36/
30/
Id.
31/
Id. at 1 ¶ 1.
32/
Id. at 2 ¶ 5; see also id. at 20 ¶ 42.
33/
Doc. 73-1 at 5.
34/
Id. at 6.
Barone Rep. at 3-4 ¶ 7.
35/
36/
Id. at 4 ¶ 8.
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Gwin, J.
He also notes that Defendants have said its advertising enables it to achieve “‘rapid growth.’”37/
Dr. Barone then analyzes the character itself. He identifies the “exaggerated features” of the
character and portraying the character engaged in activities “that are incongruous with stereotypical
views of five-star generals” as “novel images.”38/ Literature in the field of marketing says that “novel
advertising is highly attention-getting, and greater attention increase an advertisement’s impact on
consumer decision making.”39/
He also says that memorable characters can “break through ‘marketplace clutter’”40/ and make
the “brands seem more ‘human’ to consumers.’”41/ As a human and likeable character, Dr. Barone
says that “target consumers are particularly likely to follow the ‘call to action’ recommended by” the
character.42/
Dr. Barone also concludes that the character and Defendants’ use of the character likely
improves consumers’ memory of the information contained in the advertisements and Permanent
General’s brand.43/ And Dr. Barone reasons that Defendants use the General on the website as well
as in advertisements “ensures continuity across these contact points, increasing the likelihood that
prospective customers follow through on the ‘call to action.’”44/
Dr. Barone also concludes that Permanent General’s integrated use of related brand elements
37/
Id. at 6 ¶ 12.
38/
Id. at 7 ¶ 15.
39/
Id. (citations omitted).
40/
Id. at 11 ¶ 22.
41/
Id. at 11 ¶ 23.
42/
Id. at 12 ¶ 24.
Id. at 8 ¶ 17, 10 ¶ 21.
43/
44/
Id. at 12 ¶ 25.
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increase Defendants return on investment.45/
Finally, Dr. Barone concludes that increased advertising by Permanent General “can augment
the influence of key advertising elements such as The General Caricature on consumer response.”46/
Dr. Barone’s conclusion that the General character has a significant positive impact on
Permanent General’s advertising, therefore, is not solely based on Permanent General’s use of the
character and increased advertising investment. Rather, Dr. Barone seems to rely upon psychological
marketing literature to reach this conclusion.
Although Dr. Barone mentions that Permanent General would not spend so much on
advertising if the General were not effective, he uses this common-sense observation as an
independent check of his expert hypothesis.47/ An expert is permitted to check his opinion by
ensuring it adequately explains other facts in the case.
Defendants’ claim that Dr. Barone did not test his conclusion with empirical studies goes to
the weight of his conclusion rather than its admissibility. The commentary to Rule 702 merely
suggests that the Court consider whether the analytical “technique or theory” has been tested.48/
Here, as Defendants acknowledge, Dr. Barone’s theories on psychological marketing have been
empirically tested.49/
Defendants challenge to Dr. Barone’s opinion does not seem to criticize his opinion that the
character has a positive impact on consumers’ opinions of Permanent General. Rather, Defendants
45/
Id. at 14-15 ¶¶ 29-30.
46/
Id. at 16 ¶ 33.
47/
See id. at 17 ¶ 36.
48/
Fed. R. Evid. 702 advisory committee’s note (2000) (citing Daubert v. Merrell Dow Pharms., Inc., 509 U.S.
579 (1993)).
49/
See Doc. 73-1 at 7.
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seem to be more concerned with valuing the specific impact that the General character has on its
advertising, as opposed to other features of the commercial.50/ This states a valid concern. The Court
addresses the argument below. But it does not mean that the Court should bar Dr. Barone’s expert
opinion that the character has a positive effect on consumers’ opinions of Permanent General and,
therefore, “advertisements featuring The General Caricature are reasonably related to Permanent
General’s gross revenues and profits.”51/
For these reasons, the Court overrules Defendants’ objections to the expert testimony of Dr.
Barone.
IV. Robert Turner
Robert Turner is a certified public accountant, holds an accreditation in business valuation,
and is certified in financial forensics and valuation analysis.52/ He is a principal in Apple Growth
Partners, a business advisory firm that specializes in business valuation and forensic accounting.53/
In this case, Turner purports to give an expert opinion about “Permanent General’s gross
revenue attributable to its alleged copyright infringement” or valuing Defendants’ use of the General
character.54/ He concludes that the gross revenue attributable to the copyright infringement is
between 51% and 90% of Defendants’ direct retail premiums earned and monetized revenue,
between over $450 million and over $800 million.55/
50/
See id. at 7-8 (“Prof. Barone further described the method by which he could have tested the Permanent
General advertising to determine whether and how the various components of the ad (e.g., the jingle, the 1-800 number,
the cartoon character) affected consumers positively or negatively or not at all.”).
51/
Barone Rep. at 20 ¶ 42 (emphasis added).
52/
Turner Rep. at App’x A.
53/
Id.
54/
Id. at 1.
55/
Id. at 2, 9-11. The exact numbers are $456,383,000 and $805,383,000.
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Case No. 1:13-CV-00082
Gwin, J.
Defendants say that because Turner “provides a range covering approximately $350 million
. . . attributable to Defendants’ allegedly infringing activity, Plaintiff has failed to establish the actual
amount of gross revenues reasonably related to the infringing activity.”56/ The Court construes this
cursory argument as a general attack on the valuation of the revenue reasonably related to
Defendants’ use of the General.57/
Turner gives the opinion that between 51% and 90% of Permanent General’s revenues result
from Permanent General’s use of the General character.58/ Apparently, he comes to this by observing
that advertising leads to revenues and the General character appears a majority of the advertising,
including television advertising.
Turner, however, seems to have missed an important step in the chain of logic. Although the
General character may affect consumer’s decisions to purchase, and although advertising may
correlate with revenue, Turner cites no evidence or expert opinion to suggest that all of the
correlation between revenue and advertising is due to the General as opposed to the other elements
of the commercials, such as the jingle or even the insurance service itself.59/
Plaintiff appears to recognize this jump in logic and responds that he does not need to
56/
Doc. 73-1 at 12. Defendants also say that Section F of Turner’s report is irrelevant. Id. Section F of the
report discusses the valuation of Defendants’ intangible assets. Turner Rep. at 10. The value of the General character,
an intangible asset, is potentially relevant to Plaintiff’s actual damages under 17 U.S.C. § 504(b). And Turner is an
expert in valuation and qualified to give an opinion about the value of an asset. Therefore, the Court overrules this
objection.
57/
Cf. Doc. 73-1 at 7-8 (“Prof. Barone further described the method by which he could have tested the Permanent
General advertising to determine whether and how the various components of the ad (e.g., the jingle, the 1-800 number,
the cartoon character) affected consumers positively or negatively or not at all.”).
58/
Turner Rep. at 11.
59/
Turner cannot rely on the report of Dr. Barone for this because Dr. Barone did not give an opinion about the
effects of other features of the advertisements.
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consider the effects of other elements of the commercial.60/ Relying on Balsley v. LFP, Inc., 691
F.3d 747 (6th Cir. 2012), Plaintiff Satija says that he just needs to show a “reasonable
relationship—relevance, in other words—to the infringing activity” and that he does not need to
show a “‘causal connection.’”61/
The 1976 Copyright Act62/ gives a copyright owner a right to recover “the actual damages
suffered by him or her as a result of the infringement, and any profits of the infringer that are
attributable to the infringement and are not taken into account in computing the actual damages.”63/
To establish profits, the copyright owner is required to “present proof only of the infringer's gross
revenue, and the infringer is required to prove his or her deductible expenses and the elements of
profit attributable to factors other than the copyrighted work.”64/
In Balsley, a news reporter who held copyrights to pictures sued the owners of Hustler
magazine for publishing those pictures without her consent.65/ The Sixth Circuit held that she
satisfied the prima facie case to recover Hustler’s profits reasonably related to the unauthorized use
of her pictures when she established the gross revenue earned from the issue in which the pictures
appeared.66/ At that time, the burden shifted to the defendant to show how much of its profit was
attributable to the pictures themselves as opposed to the other features of the magazine.67/
For revenue to be reasonably related to an infringement, there must be a conceivable
60/
Doc. 76 at 2.
61/
Id. (quoting Balsley, 691 F.3d at 769 & n.6) (emphasis in original).
62/
17 U.S.C. § 101 et seq.
63/
17 U.S.C. § 504(b).
64/
Id.
65/
691 F.3d at 754-57.
66/
Id. at 770.
67/
Id.
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Gwin, J.
connection between the infringement and the revenues.68/ And the revenue means the gross revenue
reasonably related to the infringement, not unrelated revenues.69/ Finally, a damages cannot rest on
mere speculation as to “a causal link between the infringement and the claimed revenues.”70/
Plaintiff says that he sufficiently shows a “reasonable relationship” between the use of the
General character and Permanent General’s gross revenue because the General appears in “every
single one” of Defendants’ advertisements; because Dr. Barone concludes that the General has a
positive impact on consumer decisions; and because Turner concludes that Defendants’ revenue is
strongly correlated with its TV advertisements.71/
There are two problems with this argument.
First, Turner’s report does not say the he will give an opinion about the revenue reasonably
related to the use of the General. Rather, Turner’s report says that he is giving an opinion about “the
amount of Permanent General’s gross revenue attributable to Permanent General’s alleged copyright
infringement of ‘The General’ caricature.”72/
As the Sixth Circuit noted in Balsley, when a party attempts to show the revenue or profit
attributable to infringement, it must establish a non-speculative causal connection between the
revenue and the infringement.73/ Turner does not attempt to do so in his report, nor can he as an
expert in financial valuation.
Second, Plaintiff’s argument may not establish that the revenues are reasonably related to
68/
Bouchat v. Balt. Ravens Football Club, Inc., 346 F.3d 514, 522 (4th Cir. 2003).
69/
Davis v. The Gap, Inc., 246 F.3d 152, 160 (2d Cir. 2001).
70/
Bouchat v. Balt. Ravens Football Club, Inc., 346 F.3d 514, 523 (4th Cir. 2003).
71/
See Doc. 76 at 3.
72/
Turner Rep. at 11 (emphasis added).
73/
691 F.3d at 769 n.7.
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Gwin, J.
infringement. Balsley differs from this case significantly. In Balsley, the magazine sold pictures and
articles. While it owned some of this content, the publisher did not own the Balsley pictures.
Therefore, the publisher’s revenues from that issue came directly from the sale of the copyrighted
images.
In this case, Defendant sells insurance and used the General character to advertise its
insurance sales. Customers buy the insurance, not the character. Therefore, the relationship between
the alleged infringement and the revenue Turner cites is not as direct.
Nevertheless, Turner’s testimony may still be admissible as an opinion about the revenue
reasonably related to the use of the General under Balsley. But the Court requires additional
information from Turner and argument from the parties before the Court can conclude that Turner
has used a reliable valuation method and has reliably applied that method to the facts of this case.
The Court will schedule a hearing at which Turner will testify about the basis for his opinion
on the value of the revenues attributable to or reasonably related to the use of the General character.
The Court will also hear argument on whether Turner should testify and on what issues Turner
should be allowed to testify.
V. Conclusion
For the foregoing reasons, the Court DENIES IN PART Defendants’ motion.74/ The Court
overrules Defendants’ objections to the testimony of Dr. Barone. The Court will schedule a hearing
by separate order at which Robert Turner will testify and the parties will present argument
concerning the admissibility of his expert testimony.
74/
Doc. 73.
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Gwin, J.
IT IS SO ORDERED
s/
James S. Gwin
JAMES S. GWIN
UNITED STATES DISTRICT JUDGE
Dated: April 15, 2014
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