Experts cannot base their methods on personal experience unless it is proved to be a sufficient basis; Court excludes expert testimony on the cost of developing alleged trade secrets 

This case was between Larada Sciences (the Plaintiff) and Pediatric Hair Solutions (PHS – the Defendant) in the United States District Court for the District of Utah. Larada manufactures devices that use heated air to treat head lice and licenses the devices to head lice treatment clinics. In 2015, Larada and PHS entered into license agreements allowing PHS to use Larada devices at PHS clinics. In 2017, the parties disagreed about payments and Larada terminated the agreements, then sued PHS for trademark infringement and other claims.  

During the litigation, Larada designated two experts – Jon Beck to testify about the design, technical and engineering challenges faced by Larada in developing the devices, and Matt Germane to testify about the value of Larada’s alleged trade secrets. PHS named James Rice, an engineer, as a rebuttal expert to estimate the cost to develop Larada’s alleged trade secrets. Rice prepared a report with extensive time and cost estimates for the alleged trade secrets.  

Larada moved to exclude Rice’s testimony, arguing his methods were unreliable. At his deposition, Rice testified his estimates were based on personal experience but he did not explain how his experience led to the conclusions he derived. Rice’s deposition testimony brought to light various inconsistencies in his report especially with regard to the time estimates. He acknowledged a wild variation in estimates was likely but was not able to come up with a reliable explanation as to why. 

Mechanical Engineering Expert Witness 

Dr. James G. Rice has over 35 years of experience in mechanical engineering and computational methods. He holds a Ph.D. in Mechanical Engineering from Virginia Polytechnic Institute and State University (1978), an M.S. in Mechanical Engineering from Virginia Polytechnic Institute and State University (1973), and a B.S. in Mechanical Engineering from Old Dominion University (1972). His areas of expertise include computational methods, heat transfer, thermodynamics, fluid dynamics, combustion, solid mechanics, mechanical design, and CAE/CAD software. Rice has extensive experience as an expert witness in patent litigation involving issues in mechanical engineering. Rice currently serves as the President of MechExpert. 

Discussions by the Court 

The Court began by explaining the legal standard for evaluating expert testimony under Rule 702 of the Federal Rules of Evidence. The Court stated it must act as a “gatekeeper” to ensure expert testimony is relevant and reliable. Evaluating expert testimony typically involves two steps – assessing if the expert is qualified based on knowledge, skill, experience, training or education, and assessing if the expert’s opinion is reliable by examining the reasoning and methodology. The party offering the expert bears the burden to show the testimony is based on reliable principles reliably applied to the facts.  

The Court is not required to admit opinion evidence connected to existing data only by the ipse dixit of the expert especially if there is simply too great an analytical gap between the data and the opinion proffered. 

First, Rice examined Larada’s “proprietary program for the microprocessor algorithm.” He estimated that it would take one to two engineers with minimal experience a combined forty hours to develop a microprocessor algorithm, and he concluded that this trade secret had a value of $5,000. However, during his deposition, Rice provided an estimate that totaled 160-180 hours, a difference of at least 120 hours. 

Second, Rice assessed the “method, process, and design that Larada had developed and applied for effectively fast thermal control response in a high-discharge heated air device.” He estimated it would take two or three engineers with minimal experience 240 hours combined to develop this program, resulting in a value of $30,000. In his report, Rice estimated it would take 240 hours to develop this method, but during his deposition, he testified that it would take at most ninety hours to complete two out of the three necessary tasks, and he was noncommittal about the third task, stating it depended on its difficulty. 

Third, Rice analyzed “Larada’s specified selection and method of utilization for blower-related components as applied for the purpose of precise volumetric delivery and flow control.” He estimated that two engineers with minimal experience would need 320 hours combined to create this program, resulting in a $40,000 value. He further explained the tasks involved in assembling and testing necessary components and developing the required software program. 

Fourth, Rice concluded that it would take two engineers with minimal experience eighty hours combined “to identify a suitable blower/heater with the required output, noise, and electrical characteristics.” He assigned a value of $10,000 to this alleged trade secret, and he confirmed this estimate during his deposition. 

Fifth, Rice estimated that it would take an engineer with minimal experience twenty hours “to identify a hose with the required flexibility, diameter, and length for its intended purpose,” resulting in a $2,500 value. Rice confirmed this time estimate during his deposition. 

Finally, Rice explained that it would take a more experienced engineer 80 hours to design the multi-nozzle tip and 70 hours to test it in a trial and error process, totaling 150 hours and resulting in a value of $37,500.  

Rice replied that his personal experience informed the method he applied to estimate how long each project would take when asked about the same. 

Turning to this case, the Court addressed Larada’s argument that Rice’s method for valuing alleged trade secrets was unreliable. The Court skipped assessing Rice’s qualifications and focused only on the reliability of his methodology. The Court explained Rice testified his method was based on personal experience. An expert can rely solely on experience, but must explain how the experience leads to the conclusions and is reliably applied to the facts.  

The Court provided two primary reasons why PHS did not show Rice’s experience-based opinion was reliable. First, Rice did not explain how his experience informed his specific opinions. He did not identify comparable projects or explain why his experience provided a reliable estimate. The Court could not simply take his word for it. Second, Rice’s deposition testimony was inconsistent with his report, suggesting he did not reliably apply his experience. For one alleged trade secret, his deposition estimate was 120 hours higher than his report. For another, he gave a concrete estimate in his report but was noncommittal when deposed.  

The Court rejected PHS’ argument that inconsistencies only went to credibility and could be addressed on cross-examination. The Court must make an initial reliability determination before the jury weighs credibility. Here, the Court could not conclude Rice’s opinions were sufficiently reliable. The Court acknowledged Rice’s qualifications, but this was not enough absent an explanation of how his experience led to his conclusions. There was too great an analytical gap between the data and opinions. 

Held  

The Court found PHS did not meet its burden to show Rice’s opinions about the value of the alleged trade secrets were reliable. Thus, the opinions were excluded and Larada’s motion to exclude was granted. The Court has not arrived on an outcome for this case since the remaining issues involved in this case still await resolution. 

Key Takeaways 

This case illustrates several important points about expert witness testimony under Rule 702 of the Federal Rules of Evidence. First, the Court serves a gatekeeping function to ensure expert opinions are relevant and reliable before going to the jury. Second, when an expert relies solely on experience, they must thoroughly explain how their experience leads to their conclusions in the case. It is not enough to merely cite qualifications without connecting the dots. Third, consistency matters. Deposition testimony that conflicts with the expert report may indicate unreliable application of experience. Fourth, not all defects disqualify an expert. But here the inconsistencies were significant enough to find a lack of reliability. Fifth, the proponent of the expert bears the burden to prove admissibility. The Court does not have to take the expert’s word for it. And finally, there may be too great an analytical gap between the data and opinions offered, warranting exclusion. The takeaway is that qualification alone does not suffice – methodology matters when applying experience to reach opinions.