United States District Court, D. Massachusetts
ICONICS, INC. Plaintiff,
SIMONE MASSARO, CHRISTOPHER VOLPE, VENTO INDUSTRIES, INC., BAXENERGY GmbH And BAXENERGY ITALIA S.r.L., Defendants.
MEMORANDUM AND ORDER
DOUGLAS P. WOODLOCK UNITED STATES DISTRICT JUDGE.
me are motions to disqualify experts, which I now take up and
resolve as prelude to resolving defendants' motion for
summary judgment which I will address in a separate
Simone Massaro, BaxEnergy GmbH, Christopher Volpe, BaxEnergy
Italia, and Vento Industries have moved [Dkt. No. 541] to
disqualify Jimmy Pappas and to strike his expert report.
Plaintiff Iconics in turn has moved to exclude the testimony
of Arthur Zatarain [Dkt. No. 538] in its entirety and the
report of Bradford Kullberg [Dkt. No. 546] in part.
considering these motions, I perform a gatekeeping role
through which I determine whether the expert testimony
offered by these witnesses is sufficiently reliable to be
introduced into evidence. United States v. Mooney,
315 F.3d 54, 62 (1st Cir. 2002). Under Federal Rule of
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 the case.
consider a variety of factors when deciding whether to admit
an expert's testimony, including:
(1) whether the theory or technique can be and has been
tested; (2) whether the technique has been subject to peer
review and publication; (3) the technique's known or
potential rate of error; and (4) the level of the theory or
technique's acceptance within the relevant discipline.
Mooney, 315 F.3d at 62 (citing Daubert v.
Merrell Dow Pharmaceuticals, Inc., 509 U.S.
579, 593-94 (1993)). Once it is established that an
expert's testimony “rests upon good grounds based
on what is known, ” however, I should allow the
evidence to be presented to the jury and “be tested by
the adversarial process.” Milward v. Acuity
Specialty Products Group, Inc., 639 F.3d 11, 15 (1st
Cir. 2011) (internal quotation and citation omitted).
Pappas is a forensic accountant serving as Iconics'
damage expert. His opinion assumes liability has been
established and then estimates the amount of damages due in
four categories: the intellectual property claims (taken
together), breach of contract damages, Digital Millennium
Copyright Act Damages (“DMCA”) statutory damages,
and attorneys' fees and costs in the related state and
bankruptcy court proceedings.
threshold matter, defendants seek to exclude Pappas as an
expert for being unqualified to opine on the subject matter.
Pappas is a managing director in the forensic services
practice of PricewaterhouseCoopers. He is a certified public
accountant and certified fraud examiner with experience in
valuing damages related to fraud, breach of contract, and
misappropriation of assets. As defendants point out, however,
Pappas does not have experience providing valuations of
intellectual property in the context of litigation.
Pappas's theory of valuation, such a gap in his
experience does not render his opinions unreliable. Although
Pappas has not negotiated licenses or sales of intellectual
property, his opinion is not based on those approaches. His
approach focuses on forensic accounting, valuations of
companies and investor contributions more broadly, and the
calculation of profits. These are subjects where he has the
specialized skill sufficient to serve as an expert witness.
Intellectual Property Claims
provides two estimates of the damages owed for the
intellectual property claims based on two different
primary method he advances is a novel one he calls the
“unwitting investment” method. Using this
method, Pappas opines that because Iconics owns the
intellectual property Massaro allegedly brought to BaxEnergy
in return for a 49 percent stake in the company, Iconics
should be viewed as an investor, albeit unwittingly, in
BaxEnergy. Pappas estimates the value of that investment at
approximately $8 million. Defendants argue that this
“unwitting investment” method does not reflect
the current law and therefore would not reliably assist the
jury in calculating the appropriate measure of damages. They
do not contest Pappas's calculations; they contest only
his underlying approaches.
Massachusetts trade secrets law and federal copyright law
authorize damages based on theories of disgorgement and
unjust enrichment. Bruce v. Weekly World News, Inc.,
310 F.3d 25, 28 (1st Cir. 2002) (“A plaintiff who
establishes copyright infringement is entitled to recover (1)
actual damages, which consist of all income and profits lost
as a consequence of the infringement; and (2) any
nonduplicative profits earned by the defendant as a
consequence of the copyright infringement, see 17 U.S.C.
§ 504(b)”); Jet Spray Cooler, Inc. v.
Crampton, 385 N.E.2d 1349, 1356 (Mass. 1979)
(“The measure of damages in cases involving business
torts such as the misappropriation of trade secrets entitles
a plaintiff to recover full compensation for his lost profits
and requires a defendant to surrender the profits which he
realized from his tortious conduct.”).
order to establish defendants' unjust profits, plaintiffs
must “‘do more initially than toss up an
undifferentiated gross revenue number; the revenue stream
must bear a legally significant relationship to the
infringement.'” Real View, LLC. v.
20-20 Techs., Inc., 811 F.Supp.2d 553, 560-61 (D.
Mass. 2011) (quoting Polar Bear Prods., Inc. v.
Timex Corp., 384 F.3d 700, 711 (9th Cir. 2004)).
But, “[o]nce the plaintiffs demonstrate that the
defendants have made profits from sales of products
incorporating the misappropriated trade secrets, the burden
shifts to the defendants to demonstrate the portion of their
profits which is not attributable to the trade
secrets.” See Jet Spray Cooler, 385 N.E.2d at
“unwitting investment” theory of damages cannot
be accepted as a reliable methodology here for calculating
damages in this instance. The approach strays from the
traditional lost profits theory of damages under trade
secrets and copyright unjust enrichment law towards a
property-based conception of liability in which
misappropriation of intellectual property provides the victim
with the equivalent of an equity share in the
misappropriator's enterprise. Neither Pappas nor
plaintiff's counsel have identified any case that uses
such an approach. Rather, plaintiff simply invokes the
Supreme Judicial Court's reminder that while
“traditional lost profits analysis as a measure of
damages may not be an adequate model” in all trade
secret cases “other theories of damages may . . . be
ripe for testing in our courts.” Lightlab Imaging,
Inc. v. Axsun Techs., Inc., 13 N.E.3d 604, 614 (Mass.
Lightlab, the court sought to protect companies, in
particular start-up companies, that fall victim to trade
secret misappropriation before they have yet to show a
profit. Id. The court recognized that strict
application of the lost profits measure for damages could bar
these companies from recovery and therefore the court
indicated that a company facing that dilemma should be
allowed to present alternative theories of damages.
Id. (“Such businesses often operate for years
without profit. This fact should not render them
‘damage proof.'”). Unlike the hypothetical
companies addressed in Lightlab, it appears Iconics
could have relied on a traditional method to capture the
damages at issue fully, and indeed has offered a profit
disgorgement analysis for at least some of its claims. I
therefore see no basis to employ a novel and untested theory
of liability under these circumstances and will strike
Pappas's testimony regarding the unwitting investment
seek to exclude Pappas's testimony concerning contract
damages on two grounds. First, they argue that his testimony
addresses claims not properly remaining in the case. Second,
they argue that his calculations include damages that were
not foreseeable, in derogation of contract law. These
objections are not the proper focus of a Daubert
inquiry. They are legal arguments against the plaintiff's
theory of the case and the predicate factual proof to support
an expert opinion. I have not foreclosed contractual claims
and it is premature to address the availability of expert
testimony regarding resultant damages until the underlying
evidence regarding that matter is adduced. I will not strike
Pappas's testimony on these grounds.
defendants' objection to Pappas's DMCA damages
testimony falls outside the scope of a Daubert
challenge. Defendants have legal disagreements with plaintiff
over what constitutes an individual DMCA violation. This is
an important legal question which remains unsettled in this
circuit and in this case. Plaintiff asserts that there were
282 violations; defendants counter that the number of
violations, if any, should be in the single digits. In
creating his expert report, however, Pappas permissibly
accepted plaintiff's legal interpretation and calculated
damages for 282 violations. To be sure, all Pappas did to
calculate DMCA damages was multiply the number of violations
by the statutory range for damages. Even if his testimony
here serves a limited need, it is reliable and will not be
excluded if the factual predicates for DMCA violations are