Brighton Collectibles, Inc. v. RK Texas Leather Mfg., 2013 U.S. Dist. LEXIS 24644 (Feb. 12, 2013)

The plaintiff’s expert claimed $115 million in damages from lost sales, but the defendants argued the testimony was inadmissible under Daubert for many reasons, including his reliance on a theory that had no grounding in “the real world facts of this case.”

The plaintiff manufactured and sold higher-end women’s accessories, including expensive handbags, and alleged defendants’ knockoffs infringed its trade dress. Under the Copyright Act, it sought actual damages, including the owner’s lost profits and damage to goodwill as well as additional profits of the infringer.

Instead of using the plaintiff’s sales data—actual sales or forecasts of future sales—the plaintiff’s expert proposed to determine lost profits based solely on the number of the defendants’ sales. Under this theory, he assumed that one of the defendant’s infringing sales correlated with one lost transaction in which the plaintiff’s customer would have bought 2.06 authentic items. As all but one of the defendants were wholesale importers and distributors, he counted each transaction in the chain of distribution as a separate sale, disregarding the number of handbags consumers ultimately bought. Even though the defendants’ sales amounted to only $8 million, he determined a loss to the plaintiff of $115 million.

His report did not include an economic analysis of the fashion marketplace to support his conclusion of a 1-to-1 ratio or set forth a method with which to arrive at the appropriate scale.

In their pretrial motion, the defendants argued the testimony had no basis in facts and, therefore, was irrelevant. It was implausible that every customer who bought one of the defendants’ imitation handbags, which cost between $20 and $50, would have paid over $200 for one of the plaintiff’s handbags. The expert provided no evidence that there was direct competition between the defendant retailer, which had small Western-style stores, and the plaintiff, which owned upscale boutiques and sold to upmarket department stores.

Moreover, the expert did not use a scientific methodology that others could replicate, simply offering an ipse dixit conclusion. His assumptions were “non-committal and evasive,” making his opinion unhelpful to the jury. The expert’s math would give the plaintiff a windfall.

The plaintiff contended that a lost profits determination was “inherently imprecise”; its expert simply offered a “framework” that the jury could use when deciding on a reasonable amount.

At the outset, the court noted with emphasis that the proven method of determining lost profits was “grounded in plaintiff’s sales data,” whereas the expert’s theory focused exclusively on the number of the defendants’ sales. The latter number normally is relevant to a different measure of damages based on a defendant’s wrongful gain. The expert failed to show a rational connection between the distinct measures.

To determine the validity of the expert’s theory, equating infringing sales with lost profits on a scale of 1-to-1, the court researched case law. When the theory held up, it found, the plaintiff had “convincing evidence from a customer” that she bought the defendant’s counterfeit product in place of the plaintiff’s. In this case, however, the expert offered no data demonstrating there was a reliable correlation between the defendants’ sales and the plaintiff’s profits. “The expert has not provided a nexus from the knockoff customer to [the plaintiff’s] typical customer who would spend $240 or $400 on one handbag.”

The court rejected the suggestion that the opinion could serve as a “framework” for the jury, noting the expert was unable to point to a factual basis for his assumptions or verify that his method was accepted in the field. Given the “analytical gap between the data and the opinion,” the testimony was not helpful. The court granted the defendants’ motion.