The Economic Damage Gatekeeper

Daubert challenges to economic expert testimony
A free internet resource for attorneys with cases dealing with economic damages evidence

1.30.2005

By Line: Court upholds exclusion of economic damage testimony

Case: Storage Tech. Corp. v. Cisco Sys., Inc., No. 03-3673 (8th Cir. Jan. 26, 2005) (Loken, Gibson, & Bye, JJ.).

Reporting source: Daubert on the web (http://www.daubertontheweb.com/blog702.html)

Type of economic damage testimony: Lost profits due to trade secret appropriation, corporate raiding, and breach of contract

Overview of the relevant case facts:

Storage Tech alleged that NuSpeed, which was acquired by Cisco for $420 million, stole trade secrets and raided Storage Tech employees.

Synopsis of economic damage testimony:

Plaintiffs economic damages expert testified that the economic losses in this case were approximated by the amount ($420 million) that Cisco paid for NuSpeed.

Summary of court opinion dealing with economic damage testimony:
(click here to download full text opinion)

Storage Technology's entire evidentiary basis for a restitutionary remedy consisted of the report of its expert...that "Cisco's valuation of NuSpeed (basically, its key people and storage technology expertise) was $450 million and represents a proper valuation of the damages to Storage Technology and due to it for the trade secret appropriation, corporate raiding, and breach of contract and fiduciary responsibilities promulgated."

The district court rejected [the plaintiff's expert] opinion as "rank speculation.

Detailed comments on the economic testimony by The court:

* The first and most apparent problem with [the plaintiff's expert] testimony is that he attributed the entire value of the NuSpeed acquisition to employees and trade secrets wrongfully appropriated from Storage Technology, even though NuSpeed had other assets and employees.

* [The plaintiff's expert] opined, "The value inherent in the price Cisco paid for NuSpeed was in the key employees of NuSpeed who embodied the storage expertise technology Cisco sought." But [the plaintiff's expert] testified at his deposition that he did not know what the technology was.

* [The plaintiff's expert] later contended that the value of NuSpeed to Cisco was in the fifteen key employees named in the acquisition documents. Of these, five are listed as having come from firms other than Storage Technology. However, [the plaintiff's expert] did not know what percentage of NuSpeed's total employees were from Storage Technology at the time Cisco acquired the company. He did not know if the deal would have gone forward if the people listed had not agreed to go to Cisco.

*[The plaintiff's expert] was unwilling or unable to answer questions exploring what proportion of the acquisition price was attributable to what NuSpeed assets.

*Moreover, there is crucial evidence, which [the plaintiff's expert] does not take into account, that the reason Cisco was interested in NuSpeed was that NuSpeed had begun work on using iSCSI (a new technology) to access stored data. [the plaintiff's expert] did not take into account any value that may have resulted from the incorporation of the iSCSI standard [into Cisco's current operations]