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BladeRoom Group Ltd. v. Facebook, Inc.

United States District Court, N.D. California, San Jose Division

March 30, 2018

BLADEROOM GROUP LIMITED, et al., Plaintiffs,
FACEBOOK, INC., et al., Defendants.


          EDWARD J. DAVILA United States District Judge.

         Presently before the court are motions to exclude expert testimony. Dkt. Nos. 521, 524, 527, 530.


         Federal Rule of Evidence 702 provides:

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.

         In Daubert v. Merrell Dow Pharmaceuticals, Inc., the Supreme Court explained that the application of Rule 702 requires a “flexible” inquiry concerned with “scientific validity” as well as “evidentiary relevance and reliability.” 509 U.S. at 594-95. The Ninth Circuit terms this inquiry a “reliability” and “fit” test. Murray v. S. Route Mar. SA, 870 F.3d 915, 922 (9th Cir. 2017). Expert testimony is admissible, therefore, “only if it is both relevant and reliable.” Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 141 (1999)

         When faced with a challenge to an expert under Daubert, the trial judge acts as a gatekeeper by “examining the full picture of the experts' methodology and preventing shoddy expert testimony and junk science from reaching the jury.” Murray, 870 F.3d at 923. Expert testimony is inadmissible as irrelevant without “a valid . . . connection to the pertinent inquiry.” Daubert, 509 U.S. at 592. Moreover, expert testimony is inadmissible as unreliable unless its “factual basis, data, principles, methods, or their application” have “‘a reliable basis in the knowledge and experience of [the relevant] discipline.'” Kumho Tire Co., Ltd., 526 U.S. at 149 (quoting Daubert, 509 U.S. at 592).


         A. Emerson's Experts

         BladeRoom challenges opinions from four of Emerson's experts: (1) Phil Isaak, a data center industry expert; (2) Makarand Hastak, a construction expert; (3) William Acorn, a cooling systems expert; and (4) Brian Napper, a damages expert. As to Isaak, Hastak and Acorn, BladeRoom seeks an order prohibiting them from offering opinions that Trade Secrets 1, 2, 4, 5, and 6, or Combination Trade Secrets 4, 5, 8, and 9, are “readily ascertainable.” As to Napper, BladeRoom seeks to preclude opinions apportioning and reducing the extent of unjust enrichment damages against Emerson.

         i. Isaak, Hastak, and Acorn

         Trade secrets obtain economic value, and therefore legal protection, because they are unknown to others. See Altavion, Inc. v. Konica Minolta Sys. Lab. Inc., 226 Cal.App.4th 26, 62 (2005) (citing DVD Copy Contol Ass'n v. Bunner, 116 Cal.App.4th 241, 251 (2004)). It therefore follows that “[i]nformation . . . generally known or readily ascertainable through proper means by others to whom it has potential economic value” cannot be misappropriated as a trade secret. Restatement (Third) of Unfair Competition § 39 cmt. f (1995); accord Syngenta Crop Protection, Inc. v. Helliker, 138 Cal.App.4th 1135, 1172 (2006) (“Information that is readily ascertainable by a business competitor derives no independent value from not being generally known.”). Thus, “the assertion that a matter is readily ascertainable by proper means remains available as a defense to a claim of misappropriation.” Abba Rubber Co. v. Seaquist, 235 Cal.App.3d 1, 21 n.9 (1991).

         BladeRoom's argument to exclude certain opinions of Isaak, Hastak and Acorn centers on the legal definition of the phrase “readily ascertainable.” In general, information is “readily ascertainable” if it can be acquired through some publicly-available source, such as a patent or other published materials, or from an examination of a product on public sale or display. Restatement (Third) of Unfair Competition § 39 cmt. f (1995); see also DVD Copy Control Ass'n, Inc. v. Bunner, 31 Cal.4th 864, 899 (2003) (Moreno, J. concurring). At the same time, “the accessibility of information . . . is evaluated in light of the difficulty and cost of acquiring the information by proper means.” Restatement (Third) of Unfair Competition § 43 cmt. (1995). If acquisition would be “difficult, costly, or time-consuming, the trade secret owner retains protection” against misappropriation. Restatement (Third) of Unfair Competition § 39 cmt. f (1995).

         Here, Isaak, Hastak and Acorn have each opined that several of BladeRoom's trade secrets and combination trade secrets are “readily ascertainable” because they can be discovered from publicly-available sources. To do so, however, each opinion must rely in part on the “readily ascertainable” opinions of other experts to complete the analysis. For example, Hastak states in his report that two of the three elements of BladeRoom's Trade Secret 1 are “readily ascertainable” because they can be found in the prior art. For the third element, Hastak notes it is beyond his area of expertise and is addressed by another expert, Acorn, who concludes in his own report that (XXXXX).

         BladeRoom argues this sort of arrangement is impermissible because it is inconsistent with the legal understanding of what can be “readily ascertainable.” Its position boils down to this proposition: (XXXXX) In other words, BladeRoom contends that information cannot be sufficiently available in the public domain (XXXXX).

         This argument is unpersuasive. Framed under Daubert, the opinions of Emerson's experts are not rendered unreliable or of no assistance to the jury merely because they rely on (XXXXX) See Fed.R.Evid. 703 (“An expert may base an opinion on facts or data in the case that the expert has been made aware of or personally observed.”); see also Scott v. Ross, 140 F.3d 1275, 1286 (9th Cir. 1998) (holding that an expert's “citations to his extensive studies and to his collaboration with other academics as the basis for his opinions suffice to merit admission of his testimony”). It is not unusual for an expert to rely on, (XXXXX) particularly when, as here, the foundational expert opinions can be tested through cross-examination.

         Furthermore, BladeRoom has not shown that any of Emerson's experts misapplied or misapprehended the legal definition of “readily ascertainable.” As described above, information is “reasonably ascertainable” if it can be learned through proper means by a competitor in the industry, or by “the principal person who can obtain economic benefit” from the information. DVD Copy Control Ass'n, Inc., 31 Cal.4th at 899 (Moreno, J. concurring). (XXXXX) Emerson's experts are reflective of this reality, and BladeRoom is free to challenge the weight of their opinions by showing the cost or complexity of such an endeavor would be prohibitive. But in short, the opinions are not contrary to law.

         BladeRoom's motion to exclude portions of the opinions of Isaak, Hastak, and Acorn is denied.

         ii. Napper

         The prevailing plaintiff in an action for the misappropriation of trade secrets may recover for the “actual loss caused by misappropriation, ” and may also recover “for the unjust enrichment caused by misappropriation that is not taken into account in computing damages for actual loss.” Cal. Civ. Code § 3426.3(a). “A defendant's unjust enrichment is typically measured by the defendant's profits flowing from the misappropriation, ” not from those profits a defendant would have otherwise earned. Ajaxo Inc. v. E*Trade Fin. Corp., 187 Cal.App.4th 1295, 1305 (2010) (emphasis added); see also Restatement (Third) of Unfair Competition § 45 cmt. f (1995) (“The traditional form of restitutionary relief in an action for the appropriation of a trade secret is an accounting of the defendant's profits on sales attributable to the use of the trade secret.”). Consequently, “[w]here the plaintiff's loss does not correlate directly with the misappropriator's benefit, ” the calculation of unjust enrichment damages “becomes more complex, ” and “[t]here is no standard formula to measure it.” Ajaxio Inc., 187 Cal.App.4th at 1305. “The royalty that the plaintiff and defendant would have agreed to for the use of the trade secret made by the defendant may be one measure of the approximate portion of the defendant's profits attributable to the use.” Restatement (Third) of Unfair Competition § 45 cmt. f (1995).

         As a matter of proof, “[t]he plaintiff has the burden of establishing the defendant's sales, ” whereas “the defendant has the burden of establishing any portion of the sales not attributable to the trade secret and any expenses to be deducted in determining net profits.” Id.

         In conjunction with Emerson's burden to apportion its profits, Napper calculated unjust enrichment damages in three ways, two of which are at issue here. The first method is (XXXXX).

         Napper's second method was based on (XXXXX) BladeRoom argues Napper's methods are improper because both lack factual support, and because the first is also contrary to the law of unjust enrichment. Not so. (XXXXX) the method is consistent with the law of unjust enrichment damages in a trade secret misappropriation case where no direct correlation can be made between the defendant's benefit and the plaintiff's loss. There is no standard measure to apply (Ajaxio Inc., 187 Cal.App.4th at 1305), but one recognized possibility entails determining the royalty the plaintiff and the defendant would have agreed to for use of the trade secret. Restatement (Third) of Unfair Competition § 45 cmt. f (1995). That is the method Napper employed by using (XXXXX) While BladeRoom believes Napper's relied on (XXXXX) its position does not change the fact that Napper's opinion is supported by factual information produced in this action showing (XXXXX) This situation is therefore not one where the opinion is connected to existing data “only by the ipse dixit of the expert, ” or where “there is simply too great an analytical gap between the data and the opinion proffered.” Gen. Elec. Co. v. Joiner, 522 U.S. 136, 146 (1997). The data Napper relied upon came from BladeRoom, and how Napper's opinion should be weighed in light of his reliance on that data can be explored through cross-examination. See Daubert, 509 U.S. at 596 (“Vigorous cross-examination, presentation of contrary evidence, and careful instruction on the burden of proof are the traditional and appropriate means of attacking shaky but admissible evidence.”); see also Smith v. Ford Motor Co., 636 F.2d 874 (10th Cir. 1980), cert. denied, 450 U.S. 918 (1981) (holding that Rules 703 and 705 “place the full burden of exploration of the facts and assumptions underlying the testimony of an expert witness squarely on the shoulders of opposing counsel's cross-examination”).

         BladeRoom's argument against Napper's second method is no more persuasive. Relying on Isaak's deposition testimony, BladeRoom concludes that Isaak essentially admitted to (XXXXX) But as Emerson points out, and as a review of the expert reports confirms, Issak provided the opinion (XXXXX) To the extent Isaak's deposition reveals something different than that process, BladeRoom can confront him with the inconsistency during cross-examination. But the possibility that an expert may be impeached is not a reason to exclude an opinion under Daubert. See Alaska Rent-A-Car, Inc. v. Avis Budget Grp., Inc., 738 F.3d 960, 696 (9th ...

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