Page 84 - Acertaining Economic Damages Calculation

CSIRO’s expert calculated a reasonable royalty by estimating the value added to each end-product unit
sold by the technology found in the ‘069 patent. The court identified several flaws in the expert’s meth-
odology and analysis that the court found significantly limited the utility of his testimony in determining
appropriate damages.

In particular, the court held that the CSIRO expert based his profit premium analysis on an inadequate
sample size. The expert’s report indicated that he used the "Wayback Machine" internet archive website
to research the prices of the various products used in his analysis. A sufficient sample size must be used
in order to draw reasonable conclusions concerning the prices based on a statistical sample. CSIRO’s
expert, however, compared only a single product from each category, from a single retailer, at a single
point in time. The court found this sample size was not sufficient to support the outcomes the expert
concluded in his profit premium analysis.

In comparing the initial profit premiums that the expert used as a starting point, the court found wide
differences. For example, the expert’s profit premium for accused versus unaccused Cisco products
ranged from approximately $14 to $224. The court found that in using such a wide range as a starting
point, the expert’s method was inherently unreliable in determining where the value of the patented
technology lies. The damages expert also failed to consider pricing adjustments such as mail-in rebates
and their impact on consumer behavior. Moreover, the court found that the expert’s analysis of other
factors was not supported by hard numerical data and were admittedly considered only qualitatively.
Accordingly, the court attributed little weight to the damages model proposed by CSIRO’s expert.

Having found no credible information in the testimony of Cisco’s expert to base a reasonable damages
calculation on, the court applied its own methodology to calculate damages. Although the trial court’s
damage calculation was subsequently reversed and remanded on appeal, its criticism of the plaintiff’s
expert’s statistical analysis may still be informative.

It is unclear, in this case, whether plaintiff’s expert’s damage analysis would have been accepted by the
court had he employed a proper sampling protocol. By calculating damages that relied on such an in-
formal non-scientific sample selection (that is, one product from each category), however, plaintiff’s ex-
pert was unable to demonstrate that his methodology met the reasonable certainty standard.

Niagara Mohawk Power Corp. v. Stone & Webster Eng'g Corp., 1992 WL 121726 (N.D.N.Y. May 23,
1992)

In this case, plaintiff Niagara Mohawk Power Corp. (NiMo) entered into a contract with defendant ITT
(ITT) to perform piping work on the construction of a nuclear power plant. NiMo consequently sued for
damages relating to excessive costs resulting from ITT's alleged failure to efficiently manage the piping
work and develop and monitor satisfactory quality assurance programs. Among other things, ITT chal-
lenged what it characterized as an "inherently speculative" sampling methodology used by NiMo to sup-
port its damages claim.

According to ITT, there would be no need for statistical sampling if NiMo either had kept the contempo-
raneous time records or not agreed to final acceptance of ITT's work. ITT asserted that once NiMo ap-
proved final payment, the parties had settled all past and future claims. After final acceptance, ITT had
not retained the contemporaneous time records. At trial, it was apparent that the unavailability of time
records could not be attributed to wrongdoing by any party to this litigation. The court, therefore, ruled
that it would not prevent NiMo from relying upon statistical sampling evidence simply because there
used to be contemporaneous time records that would have proven what NiMo tried to demonstrate in us-
ing statistical sampling.

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