Page 21 - Acertaining Economic Damages Calculation

Cases Establishing That Challenges to Underlying Data Supporting Revenue and Growth
Estimates Should Be Left to Adversarial Process

Expert testimony regarding damages is often challenged on the premise that there are issues with the in-
tegrity and reliability of the underlying data used by the expert to estimate lost revenue and growth rates.
Unlike the matters discussed previously, the following cases demonstrate that the courts will dismiss
these challenges, particularly when the expert has used a reliable method to estimate lost revenues and
growth rate, and there is an analytical foundation for how the expert incorporated the underlying data in-
to the methodology used to estimate lost revenue and growth rates. In these instances, the courts have
held that the expert opinion can be properly challenged through cross-examination.

Wathne Imports, Ltd. v. PRL USA, Inc., 101 A.D.3d 83 (N.Y. App. Div. 2012)

Licensee (Wathne) alleged that the licensor (PRL) breached a license agreement by discontinuing use of
one of its trademarks without replacing it with a substantially equivalent mark, as required under the
agreement between the parties. In evaluating the asserted lost profits damages arising from Wathne’s al-
legations, Wathne’s expert used handbag sales information for Coach, Inc., a competitor, as a bench-
mark for projected revenues during the time period in question because no other companies publicly re-
ported handbag sales. The trial court precluded the plaintiff’s expert testimony to the extent it used the
competitor’s sales as a benchmark. Wathne appealed the trial court decision, and the appeals court re-
versed.

The trial court held that, as a matter of law, it was incorrect for Wathne’s expert to use Coach, Inc. as a
comparable to determine the prospective growth rate for the handbags at issue because the two brands
were too dissimilar. The court remarked that sales by a Polo licensee could not be compared to sales by
a standalone company such as Coach that sold its own product line. The court proposed its own analysis,
which said that Wathne’s expert should have compared Polo Sport handbag sales with Polo’s sales of
products bearing other trademarks over the same period.

The appeals court reversed, stating that the perceived flaws in Wathne’s expert’s analysis were relevant
to the weight that the jury should give to the expert’s report and testimony and that they did not present
sufficient ground for ruling that the analysis was inadmissible. In the view of the appeals court, the ex-
pert’s analysis should be challenged through cross-examination, with the jury deciding whether the
methodology was appropriate.

The appeals court also concluded that the expert’s use of sales of Coach handbags in his methodology
was not without foundation; therefore, his analysis should not have been dismissed as a matter of law.
Contrary to the trial court’s conclusion, the appeals court viewed the rate of growth experienced in the
fashion handbag market in the period in question as related to the plaintiff’s calculation of lost profits.
As the appeals court noted, although the expert’s effort to anticipate the expected growth rate in sales of
Polo Sport handbags may have contained an element of "improvisation," the expert did not equate Polo
Sport’s with Coach’s success or profit levels; he merely used Coach’s handbag sales as a tool to evaluate
how well that broad category of product sold during the relevant period. The validity of this approach
could be challenged at trial, but by holding that it was incorrect as a matter of law, the appeals court
found that the trial court unduly interfered with the approximation that was required due to the lack of
more exact comparables available.

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