We love a good expert riddle, and when we came across this recent Daubert opinion in a fraudulent transfer IOLTA case, we knew this one was for you. Break out your Daubert cap, and see how you do.
Let’s assume you’re handling a rather pricey patent royalties dispute. The parties were a little friendlier when the relationship began and there wasn’t a solid contract in place. The plan was to produce a music device that incorporates the inventor’s voice recognition software for voice-activation. Simply say the name of the artist and song you want to hear and it immediately starts playing. Wouldn’t that be great while running?
The bulk of the running community thought so, and demand for SmartPlay skyrocketed. Now the inventor and manufacturer dispute what type of royalty agreement was really in place. Your client, SmartPlay Manufacturing, tells you they agreed to use an income approach and pay a percentage of the price for each unit sold. But the inventor claims the parties agreed to a comparable market approach to determine royalties. The inventor demands damages upward of $1.5M. It’s time to find an expert.
The Expert Hunt
You initiate the expert hunt, and ultimately get paired up with an expert boasting thirty-five years of experience negotiating, managing, and enforcing patent royalty contracts, specifically in the music device arena. He opines the parties had a price per unit agreement and you proffer him up as your expert. The other side, however, feels they have found a chink in Mr. Expert’s armor. Sure, he has plenty of experience in the field but what he does not have is any experience with comparable market approach royalty agreements. You can feel your blood pressure rising as you’re reading the inventor’s Daubert motion to exclude Mr. Expert’s opinions outlining, very clearly, this glaring lack of expertise.
Does the inventor have a solid Daubert argument here? Table that thought and see how you did as we watch the U.S. District Court for the Southern District of Texas come down on virtually the same issue.
Can You Find the Flaw?
The matter before the Texas court was an adversarial proceeding over the nature of certain funds the debtor paid to his attorney. The Trustee was claiming the payments were fraudulent transfers because the debtor, by paying them to his attorney, relinquished control over the money. In response, the debtor brought in a legal ethics expert to talk about the relationship between the debtor and his attorney, the attorney’s treatment of the funds in this matter, and how that defined the nature of the payment. In the expert’s opinion, the funds transferred to the attorney were a “security retainer,” over which the debtor retained an interest, basing this opinion, in part, on the attorney’s deposit of the funds in his IOLTA account. Having served on many state bar disciplinary and legal ethics committees, the expert was highly-qualified. There was no dispute there. Rather, the Trustee’s Daubert motion was based on the fact that the expert had no expertise in the area of fraudulent transfers. The defense expert had no experience with the specific type of funds the plaintiff was striving to claim were at issue. Where is the flaw in this argument?
The expert was not brought in to state an opinion that the payments were not fraudulent transfers. He does not have to disprove the plaintiff’s case. He only has to prove the defendant’s. Meaning, if he is qualified and offers a reliable opinion that the transfer in this case was a security retainer, then he can offer that opinion. Lack of experience with the opposing side’s version of the facts does not disqualify an expert who has the requisite qualifications and methodologies to testify as to his side’s position on the facts.
So, how is the inventor’s Daubert motion to strike SmartPlay’s expert sitting with you now? Does it matter that Mr. Expert doesn’t have any experience with comparable market approach royalty agreements? Not if he can reliably opine the parties had a price-per-unit agreement. We’ll call this the “it’s not you, it’s me” expert tip. In other words, it’s not your position, on which my expert needs to be an expert, it’s mine. Finding the right expert with the right expertise is definitely something in which we are experts.