Page 52 - Acertaining Economic Damages Calculation

fecting the methodology presented by Polaroid’s expert, including its accuracy. Some of the criticisms
enunciated by the court include the following:

• "The method by definition, depends on subjective assessments by parties or experts, and this
leaves it open to considerable bias. The expert’s conclusion can be no better than the hundreds of
individual decisions his team made when classifying costs."

• Everyone on the team and at Polaroid assisting with the analysis knew the analysis was for litiga-
tion — with the court implying bias by those involved.

• Polaroid’s expert lacked documentation and identification of the Polariod personnel consulted
with, preventing the court from "judg[ing] the objectivity of [the expert’s] analysis."

• When confronted with inconsistencies on cross-examination Polaroid’s expert was unable to "ar-
ticulate the reasons for his team’s conclusions."

• Polaroid’s expert "misapplied the payroll and overhead percentages from the account analysis to
the standard costs used in computing the bottom line estimates." fn 67

In contrast, the court found Kodak’s expert’s use of regression techniques to estimate payroll and over-
head costs to be "more objective and accurate." fn 68 In particular, the court appeared to look favorably
on Kodak’s use of the historical data over the entire period used in the regression analysis, pointing to
testimony by Polaroid’s own expert that Polaroid’s "manufacturing processes did not change significant-
ly during the period 1976–1985." fn 69

Although the court provided far less discussion of Kodak’s expert’s use of regression to analyze the ap-
propriate payroll and overhead cost levels to include in the lost profits analysis, the court’s discussion of
the shortcomings of Polaroid’s expert’s account analysis methodology is enlightening. In weighing the
merits of the two experts’ methodologies, the court chose a regression analysis that used historical re-
sults to estimate the appropriate costs over an account analysis that used a sample year. In addition, the
court was clearly troubled by errors in Polaroid’s analysis, unexplained inconsistencies, and a lack of
documentation and relevant testimony regarding the cost estimate methodology used. The court could
not reconcile these shortcomings when presented with an alternative method for estimating costs by us-
ing a regression analysis of which the court appeared to have few criticisms.

Using Margin Information

When performing a lost profits analysis, the practitioner may encounter situations when financial infor-
mation enabling an analysis of avoided costs may not be available. In such instances, margin infor-
mation may be available and provide the practitioner with a means to perform the necessary "complete
calculation of lost profits" as described in Kellmann v. Workstation Integrations, Inc., discussed earlier
in this chapter. Use of margin information applied to lost revenue to determine lost profits was refer-

fn 67 Id. at 62–63.

fn 68 Id. at 63.

fn 69 Id.

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