Accounting Expert Witness Reliably Calculates the Quantum of Monetary Harm

The Court Assess Substantive and Procedural Advanced to Disqualify Expert Witness

This article provides an in-depth review of a recent infringement, unfair competition and cybersquatting where Plaintiff sought disgorgement of profits. The case highlights procedural and substantive arguments advanced during litigation and basis the Court used to partly disqualify the testimony of defendant’s expert witness. It also serves as a caution and learning opportunity for current and prospective financial damages expert witnesses.

Plaintiff, Mission1st Group, Inc. (“M1G”), owns the federally registered trademark MISSION1st in connection with business advisory, information, technology, telecommunications, engineering support, and risk mitigation services. Plaintiff provides these services to a variety of entities, including serving as a government contractor to various government agencies. It began using its trademark in commerce as early as January 1, 2006, and obtained a federal registration for the MISSION 1ST mark on October 18, 2011. It also operates a website where it advertises its services at www.mission1st.com.

Plaintiff alleged that Defendant, Mission First Solutions, LLC (“MFS”), established in 2016, has infringed upon its trademark, violated statutory and common law prohibitions on unfair competition, and committed cybersquatting. Specifically, Plaintiff alleged that Defendant adopted a mark confusingly like its own and subsequently used that mark to distribute, market, advertise, promote, and sell identical services as Plaintiff to U.S. military components and contractors. Defendant denied Plaintiff’s allegations of infringement, unfair competition, and cybersquatting.

During this litigation, Plaintiff retained Gregory J. Urbanchuk, a forensic, dispute, and valuation consultant, as an expert in this matter. Plaintiff tasked Urbanchuk with quantifying the monetary harm to Plaintiff that resulted from MFS’s alleged infringement. Defendant subsequently retained economist Kevin W. Christensen as an expert. Christensen’s report sets out to quantify Plaintiff’s damages and review and assess Urbanchuk’s damages calculations.

Economics Expert Witness

Kevin W. Christensen, PhD, is a director in BRG’s Washington, DC office. Christensen specializes in competition economics, antitrust, damages analysis, and public policy, which he often applies in the context of the pharmaceutical industry. He regularly works on class action litigation matters to address questions of class certification and estimation of class wide damages. He has submitted expert reports to the U.S. District Court for the District of Columbia, U.S. District Court for the Eastern District of Virginia, state courts, and regulatory agencies. Christensen has provided deposition testimony in state and federal courts. Additionally, he has written white papers submitted to the State of Florida’s Department of Transportation and drafted portions of new product applications submitted to the U.S. Food and Drug Administration.

Accounting Expert Witness

Gregory J. Urbanchuk is a principal in the Forensics, Litigation, and Valuation Group at Grassi, where he leads the firm’s Intellectual Property Services. He has over 20 years of experience providing forensic, dispute, valuation, and intellectual property consulting services in the U.S., the United Kingdom, and Europe. Previously, Urbanchuk worked for boutique, regional, and national consulting firms, including Deloitte LLP in London.

Discussion by the Court

Christensen Motion

Christensen’s report includes opinions on several matters. First, he opines, based on his analyses, that Plaintiff and Defendant “operate in different segments of the government contracting industry,” and that there exists limited overlap in their areas of competition. He also opines that, “[a]s a matter of economics”, trademarks have limited utility in the government contract industry.

Regarding Plaintiff’s expert Urbanchuk’s calculations, Christensen alleged several methodological errors, including that Urbanchuk’s analysis “disregards salient facts,” includes profits earned by Defendant that Plaintiff could not have earned (for lack of either eligibility or actual competition in certain areas) and includes potential double counting. Finally, in the section concerning Urbanchuk’s report, Christensen opines on Plaintiff’s damages. There, he states that, based on his opinions concerning the “limited evidence” of competition between Plaintiff and Defendant, and based on his opinion that “the effect of a mark in the government contracting industry … does not provide the customer with the same benefit” as in other industries, “none of the revenues and profits earned by MFS are the result of the alleged infringement.” He later clarified, in his deposition, that this statement serves to convey “the opinion that damages are zero.”

Plaintiff challenged the admissibility of Christensen’s prospective testimony on three bases. It alleges that his report was submitted in an untimely fashion; that he lacks the necessary qualifications to opine on the damages in trademark litigation where the value of trademarks in the government contract industry is at issue; and that his methodology for calculating quantum of damages is unreliable, therefore rendering his testimony insufficiently reliable under Daubert and its progeny.

Court’s Analysis

The Court considered Christensen’s proposed testimony to consist of essentially four sets of opinions: (1) his opinions concerning whether, and to what extent, Plaintiff and Defendant compete with each other; (2) his opinions concerning the value of trademarks to government contractors; (3) his opinions concerning what, if any, damages Plaintiff is entitled to receive if Defendant is found liable; and (4) his opinions concerning Urbanchuk’s methodology.

Christensen clarified some aspects of his approach, specifically as to how he proceeded from his opinions about competition and trademark value to his opinion on damages.

Christensen also emphasized the malleability of his methodology based on the facts available: “If there are new facts that come to light, then that’s going to change the methodology.”

a. Reliability of Methodology for Calculating Quantum of Damages

The Court began by considering Plaintiff’s challenge to the reliability of Christensen’s methodology as to quantum of damages. Plaintiff submits that Christensen does not employ “any methodology or mathematical calculation” in arriving at his opinion that Plaintiff is entitled to zero damages.

Having studied Christensen’s report, this Court remains utterly baffled by his opinion concerning the quantum of damages. As a threshold matter, the Court struggles to understand why Christensen’s only statement concerning Plaintiff’s potential damages comes at the very end of his report, buried in a section rebutting Plaintiff’s proposed expert’s methodology, when Defendant ostensibly retained him to serve as an expert on the quantum of damages. This statement—that “none of the revenues and profits earned by MFS are the result of the alleged infringement”—hardly serves as a model of clarity.

In relevant part, Christensen formulates the opinions that (1) there exists “limited overlap” in the industry segments served by each company and their customer base; (2) that each company lacks eligibility for some of the contracts pursued and received by the other company; and (3) that there are “substantial differences” in the size of contracts awarded to each company.

Christensen formulates the opinion that trademarks possess “limit[ed]… utility” to government contractors and do not provide contractors “with the same benefit as would be true in other industries.” However, it was found that he did not present an analysis or formulate an opinion on the quantum of damages in any of the first four sections of his report, including in his “Summary of Opinions.”

Christensen’s Opinion on Quantum of Damages is Unreliable

The closest that Christensen comes to providing an analysis for quantum of damages is in the report’s final section, “Plaintiff’s Damages Analysis.” The Court lamented that Christensen never explicitly stated the inference that zero revenues and profits resulting from infringement equals zero damages to the trademark holder. Significantly, Christensen did not elaborate further as to why his earlier opinions “[c]ollectively … mean[]” zero revenues and profits as a result of Defendant’s alleged infringement, or what methodology he used to arrive at this opinion.

Based on his report and the transcript of his testimony, the Court interprets Christensen to be saying that his methodology in assessing damages consists of the following components. First, he assesses certain economic factors concerning both the relevant parties (specifically regarding their business strategy and approach) and the relevant industry (in this case, as it concerns trademark value). Then, based on these assessments, he arrives at a damages number. Under his multiplication-based approach, the Court understands Christensen to argue that, where one or more of these factors points to an outcome of zero (such as zero competitive overlap or zero trademark value), there are necessarily zero profits resulting from infringement.

By logical extension, the Court presumed that, in a scenario where all relevant numbers are greater than zero, Christensen’s methodology would require actual arithmetic to arrive at a damages calculation.

The Court found that Christensen’s explanation of his methodology contains a glaring hole; namely, the critical step of how he arrives at the “zero” values he cites for his final “zero plus zero plus zero” (or “zero times one is zero”) calculation that comprises his quantum of damages calculation.

b. Qualification to Opine on Value of Trademarks in Government Contractor Context

The Court next considered Plaintiff’s challenge concerning Christensen’s qualification to opine on the value of Plaintiff’s trademarks.

Plaintiff argues that Christensen lacked the qualifications necessary to opine on trademark value for several reasons. Per Christensen’s curriculum vitae and his deposition testimony, Plaintiff submitted that Christensen possessed no specific education or training pertaining to trademarks, branding or government contracting, nor (save for a few minor exceptions) any professional experience involving these topics.

The Court found no reason to doubt Christensen’s expertise in economics generally, along with his self-asserted specialties of microeconomics, antitrust, and calculation of damages. Christensen’s report, curriculum vitae, and deposition testimony all suggest extensive training and experience in these areas. Yet the Court struggles to find any support for Defendant’s assertion that Christensen’s “over 20 years of experience … and knowledge of economics,” without more, enable him to assist the jury on specific questions concerning the value of Plaintiff’s trademark.

Instead, Christensen relied exclusively on the work of other authors to acquire the knowledge required of him. He acknowledged this fact in his deposition. Such an interpretation would violate both the spirit and the text of Rule 702, which expressly requires “specialized knowledge” on the part of an expert, not just his sources.

The Court found that Christensen’s experience as an expert in antitrust and damages calculations bore no such relation to the processes inherent in trademark valuation.

c. Timeliness

Under the Court’s Scheduling and Pretrial Order, the deadline for the defending party to “identify all persons it expects to call as expert witnesses in opposition to any complaint” was September 16, 2024.

The same deadline applied for service of “a copy of a written report … for each such expert witness.” Plaintiff submitted that Defendant first notified Plaintiff of its intention to call Christensen as an expert on September 26, 2024, 10 days after the Court’s deadline. Defendant provided Christensen’s report to Plaintiff that same day. Plaintiff alleged that Defendant possessed “no valid justification” for its delay and that Plaintiff suffered harm as a result, since Plaintiff could not prepare and deliver expert rebuttal notice by the Court’s September 26 deadline, and since Defendant’s delay curtailed the available time for Plaintiff to depose Christensen and prepare the instant motion.

Fed. R. Civ. Pr. 37(c)(1) provides an exception to exclusion where the failure to disclose is “substantially justified or … harmless.” Trial courts in this circuit regularly apply a five-factor test in assessing whether to apply this exception, in which they consider (1) the surprise to the party against whom the witness was to have testified; (2) the ability of the party to cure that surprise; (3) the extent to which allowing the testimony would disrupt the trial; (4) the explanation for the party’s failure to disclose the evidence; and (5) the importance of the testimony.

The Court’s analysis pursuant to these factors comes out in Defendant’s favor. Based on the Court’s review of the deposition transcript and the parties’ briefing, it appears that Plaintiff was nonetheless able to submit a thorough, well-substantiated motion to exclude. Given Defendant’s willingness to accept Plaintiff’s delayed rebuttal report without objection, the Court found that any potential prejudice from the delay has been sufficiently cured.

Urbanchuk Motion

Urbanchuk explains the economic distinctions between damages and restitution, and summarizes the relevant statutory language concerning monetary remedies in the Lanham Act. He then proceeds to calculate Defendant’s historical profits in two stages: first by subtracting interest income figures from total revenue figures, and then determining the relevant deductible costs based on Defendant’s overall expenses and subtracting these relevant costs from the adjusted revenue figures that he previously calculated.

Defendant argues for exclusion because Urbanchuk’s testimony is “based only on common knowledge and will not assist the trier of fact.” According to Defendant, Urbanchuk’s opinions, and the calculations on which he bases these opinions, consist of “no more than simple arithmetic that falls within the common knowledge and experience of a jury.”

Court’s Analysis

Upon review, the Court found that Urbanchuk’s proffered testimony lies well outside the “common knowledge” of a lay jury member. While the Court expects a lay juror to be capable of performing simple addition and subtraction, it does not expect jurors to know what figures from a company’s financial statements may be relevant to the assessment of that company’s profits and losses for the purposes of disgorgement in a trademark case, let alone what types of calculation to perform on those numbers in order to arrive at a relevant result.

Urbanchuk did not receive all the data that he claims that he needed from Defendant; the Court can only imagine the added confusion faced by lay jurors assessing such incomplete information on their own. Urbanchuk brings his extensive experience calculating the quantum of monetary harm in trademark cases to bear on the numbers provided by Defendant.

As to Defendant’s claim that Urbanchuk failed to calculate and consider Plaintiff’s losses, the Court agrees with Plaintiff that these figures are irrelevant to Plaintiff’s claims, since Plaintiff seeks disgorgement, which is based solely on Defendant’s earnings.

Since the Court held that Urbanchuk’s expertise fell outside the knowledge of lay jurors, the Court need not consider Defendant’s argument that jurors would give Urbanchuk’s opinions on matters within their common knowledge undue weight.

Held

The Court hereby granted in part and denied in part Plaintiff’s Daubert motion to exclude Defendant’s expert Kevin W. Christensen and denied Defendant’s Daubert motion to exclude Plaintiff’s expert Gregory J. Urbanchuk.

Key Takeaways:

• Kevin W. Christensen may not testify as to his opinions concerning the quantum of damages and the valuation of trademarks in the context of the government contracting industry. The Court cannot find that Christensen possesses “satisfactory knowledge, skill, experience, training nor education” on the issue of trademark valuation. The Court found that the glaring problem lies in Christensen converting values that are clearly not zero (concerning competition and trademark value) into the zeroes that underlie his ultimate calculation, without providing any clues as to how or why he performed that conversion.
• Gregory J. Urbanchuk brings his extensive experience calculating the quantum of monetary harm in trademark cases to bear on the numbers provided by Defendant. This experience allows him to arrive at a number that can help jurors assess what might be a proper damages number, should they find Defendant liable—and that Defendant may, of course, challenge by vigorously cross-examining Urbanchuk.

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Ashish Arun is the founder and CEO of Exlitem, an AI-powered search engine helping attorneys find and engage expert witnesses. He also leads Expert Witness Profiler, a due diligence firm enabling attorneys to vet both their own and opposing expert witnesses.

Mr. Arun can be contacted at (866) 955-4836 or by e-mail to sales@exlitem.com.