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EVIDENCE EXPERT TESTIMONY LAW

Evidence-Expert Testimony Law Case Summaries 

■ Maatuuk v. Guttman , No. B200675

Facts

            Respondent represented Maatuk, a mechanical engineer, in litigation which resulted in the invalidation of two patents which Maatuk had obtained for a liquid level sensor.  This legal malpractice case followed.  In this case, the jury was instructed that respondent was negligent in his representation of Maatuk.  On special verdicts, the jury found negligence and that respondent had breached his fiduciary duty.[1]  The jury also found that the breach of duty was a substantial factor in causing harm or monetary damage to Maatuk, and made the same finding about respondent's negligence.[2]  On damages, the jury was asked "What are Dr. Josef Maatuk's monetary damages?  a. Past and Future Lost Earnings?"  The jury answered "$0.00."

            The question on appeal concerns damages, more specifically, the trial court's order striking the testimony of Maatuk's damages expert, Dr. Barbara Luna.  Our summary of the facts is directed toward that issue:

            Maatuk expected to profit from his invention through a licensing agreement through which he would earn a royalty on each sale.

            He presented evidence that his sensor worked, or could be made to work, could be built from readily available components at the commercially attractive price of $2, was attractive to industry because it had no moving parts and was multi-functional, and that it had many commercial applications.  He presented evidence that, for instance, in a car, his sensor could measure fuel level, density, and vapor leakage; engine oil density and level; coolant level and quality; windshield wiper fluid level; and transmission fluid viscosity and level.  Thus, five of his sensors could be used in a car.  Car manufacturers would pay $7 for each.  A pleasure boat could use the sensors for fuel level, water level, and septic tank height, at $40 per sensor.[3] 

            This evidence was in large part through his own testimony.  For instance, the only evidence that the sensor could be manufactured for $2 was his testimony, as was the only evidence on the number of sensors which could be placed in a car or boat, etc., and the price which could be charged, though Maatuk's enablement[4] expert, Alberto Schroth, testified that the sensor could be built from readily available components and had commercial application for use in transmissions, batteries, compressors, commercial washing machines, etc., and that the sensor was attractive because it had no moving parts.

            Much of Maatuk's evidence concerned commercial interest in his technology.  The patents, which he obtained in 1998 and 1999, were invalidated in 2002.  He presented evidence that in 1996, he entered into an agreement with Kysor Medallion, under which Kysor Medallion would test the technology and fund development of the probe, a critical part of the sensor.  In 1997, he entered into an agreement with Therm-O-Disc, the other party to the patent litigation.  Therm-O-Disc would test the sensor and if the tests were successful, license and manufacture the device.  When the patent litigation was filed, in 2000, he was discussing funding for "productization," validation, and testing of the technology with the Robert Bosch Corporation.  There was also interest from Tedesco Vickers, Navistar, Visteon, and Walbro.  Maatuk's evidence was that Kysor-Medallion's and Therm-O-Disc's tests showed that the device worked within the specifications set out for the development phase, and that any problems were easily fixable.

            On damages, Maatuk testified that the patents were worth $12 million, based on the fact that Bosch was interested in funding "commercialization" of the device, and that Bosch had a 20 percent market share and would pay a three percent royalty.  The jury was instructed that he was testifying as a lay witness, not as an expert.  Maatuk also testified that after the first two patents were invalidated, the value of his remaining technology was reduced.  Everyone could go back to his earlier technology, modify it, and get a patent.

            Dr. Luna, Maatuk's expert witness on damages, was a CPA and business appraiser with experience in valuing patents.  She calculated lost royalties between 2003, the year after the patents were invalidated, and 2014, reasoning that each patent had a 20 year life dating from the 1995 patent application.  Based on assumptions on the royalty rate, number of units (that is, cars or boats, etc.) manufactured each year, the number of sensors which would be placed in each unit, the price which would be charged for each sensor, and the market penetration Maatuk's sensor would achieve, she concluded that Maatuk's lost royalties had a present value of between $17.6 million and $205.3 million.      

            Luna's assumption on the number of units manufactured was based on published statistical information.  The royalty rate, three percent, was based on a published database and on the documents in this case.  The assumptions about number of sensors which could be placed in each unit, cost to manufacture, and the price which could be charged, she learned from Maatuk, a consultant, Fred Beegle, who worked with Maatuk in the Bosch discussions, and in some instances from other depositions in this case.  The assumption about market penetration was based on conversations with Maatuk and Beegle, and was that Maatuk's sensor would have five percent of each market in 2003, building to 50 percent in certain markets and to 25 percent in other markets. 

            Respondent's evidence was that Maatuk did not suffer any damages from the loss of his patents, because he never had a product to sell.  He had an idea, but no product.

            Respondent's experts testified that the Kysor Medallion and Therm-O-Disc test results showed that the sensor did not work, and respondent emphasized the fact no one had actually licensed the technology.  Instead, each manufacturer who expressed interest quickly lost interest.  For instance, Kysor Medallion, which had agreed to pay $70,000 to "productize" the probe to a specified degree of accuracy and to pay additional sums for future phases of development, made an initial payment of $35,000, and a second payment of $18,000, and refused to pay any more.  The matter went to arbitration, which did not result in an order that Kysor Medallion make an additional payment.[5]  Therm-O-Disc, too, refused to license the technology, but instead took out its own patent, disclosing one of Maatuk's patents as prior art.

            Maatuk had entered into evidence the report of a Bosch engineer, emphasizing the portion which said that the sensor "has the potential to sense the level of other fluids such as engine oil, transmission fluid, windshield washer fluid . . . ."  The defense emphasized the conclusion that ". . . though the basic function was demonstrated, it is unclear whether a commercially viable product would meet the requirements of an automotive fuel delivery system, etc. . . ."

            Another defense expert, Dr. Gary Cochran, a physicist with experience in the automotive industry in design, and in manufacturing costs, testified that the Kysor Medallion test results showed problems which were consistent with the problems he saw in the device as described in the patents. 

            Respondent also called, for instance, Alexander Strozer, an engineer at Magneti Marelli, which manufactures parts for the boat, automotive, and motorcycle industries.  In 2004 or 2005, Strozer looked at data Maatuk supplied and tested prototypes of Maatuk's probe.  He found accuracy problems, and no visible progress since the Kysor Medallion tests.  Strozer believed that Maatuk had had enough time to work on the problems, and that given that he hadn't solved them, he would not be able to solve them in a year, which was what Magneti needed.  The technology was "too far from a product," and was more of a concept.  Strozer also testified that Maatuk did not have the kind of professional approach to testing which would allow Magneti Marelli to partner with him in developing the sensor.  A former employee of Vickers Tedesco testified that Vickers Tedesco had at one point found Maatuk's technology interesting, but did not move forward because Maatuk had no working product. 

            On cross-examination of Fred Beegle, respondent elicited the testimony that Maatuk had claimed that the sensor had one percent accuracy, but that there was no evidence to support the claim, and that as far as Beegle knew, no one had ever made Maatuk's technology work. 

            Cochran also testified, as an expert, on the cost to mass produce the device described in Maatuk's patents, which he put at $18 a device.  The technology then in use cost between $2.50 and $3 a device.  Boat manufactures paid no more than $8 for a liquid level sensor.  Coolant levels were currently measured by a micro switch on a float, which cost about 50 cents to manufacture.  Oil was measured with a dipstick, which cost about the same.  There was only one liquid level sensor in a car.  No car manufacturer in the world used five liquid level sensors.  The same was true of trucks.  He himself had patented, and licensed, a liquid level sensor.  The price point it had to meet was $3.  Cochran opined that even if Maatuk's technology could be made to work, it would have no value to the marine or automotive industries because it was cost prohibitive.

            After the close of evidence, respondent moved for nonsuit.  The court denied that motion, but after additional argument, and a motion by respondent, the court struck Luna's testimony, finding that there was no basis for her assumption concerning market penetration or her other assumptions, noting in particular the the disparity between the undisputed evidence that Maatuk had earned essentially nothing from his technology before the patents were invalidated, and Luna's assumption of five percent market share in many markets, the year after the patents were invalidated.  The court found that evidence was that "you are not going to have any share of the market.  He has got no product" and "no working application of any kind."  The court described Luna's testimony as "an entirely theoretical construct completely abstracted from any reality." 

■ HELD:

In a legal malpractice action, trial court judgment is affirmed where the court did not abuse its discretion in striking the testimony of plaintiff's damages expert as there was not a sufficient foundation for the expert's assumptions on market penetration and on her underlying assumption that plaintiff had a product to sell.
Maatuk v. Guttman -B200675-3/27/09 CA2/5
Maatuk v. Guttman -B200675-3/27/09 CA2/5-pdf

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