Speedfit LLC v. Woodway USA, Inc.

SPEEDFIT LLC and AUREL A. ASTILEAN, Plaintiffs, v. WOODWAY USA, INC., Defendant.

13-CV-1276 (KAM)(AKT)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

March 29, 2019

MEMORANDUM & ORDER

MATSUMOTO, United States District Judge:

Plaintiffs Speedfit LLC ("Speedfit") and Aurel A. Astilean ("Astilean") (collectively, "plaintiffs") commenced the instant action against Woodway USA, Inc. ("Woodway" or "defendant"), alleging that Woodway wrongfully infringed upon United States Patent No. 8,308,619 ("the '619 patent") and United States Patent No. 8,343,016 ("the '016 patent" and together with the '619 patent, the "patents-in-suit"), both of which are owned by Speedfit and relate to a manually-powered treadmill involving a closed-loop treadmill belt designed to maintain a concave running surface. (ECF No. 150, Supplemental Complaint ("Supp. Compl.") ¶¶ 18-21.) Before the court is Woodway's Daubert motion seeking to preclude the expert testimony offered by David Wanetick, plaintiffs' damages expert. (ECF No. 216, Def. Mot.) The court shall address Woodway's concurrently filed Daubert motion challenging plaintiffs' technical expert, James Whelan, shortly. (See ECF No. 211.)

BACKGROUND

Plaintiff Speedfit, founded by plaintiff Astilean and co-inventor Dan Bostan, who is not joined in this action, is a New York-based company that develops fitness programs and equipment. (Supp. Compl. ¶¶ 8-9.) Defendant Woodway is a Wisconsin-based corporation that designs, manufactures, and sells fitness and exercise products, including manually-operated treadmills with a curved running surface. (Id. ¶ 10.)

Familiarity with the factual and procedural history of this matter is assumed, as set forth comprehensively in this court's prior orders concerning this litigation. See Speedfit LLC, et. al. v. Woodway USA, Inc., 53 F. Supp. 3d 561 (E.D.N.Y. 2014) (denying Woodway's motion to dismiss and motion to transfer); Speedfit LLC, et. al. v. Woodway USA, Inc., No. 13-CV-1276, 2015 WL 6143697 (E.D.N.Y. Oct. 19, 2015) (granting leave to file a Third Amended Complaint); Speedfit LLC, et. al. v. Woodway USA, Inc., 226 F. Supp. 3d 149 (E.D.N.Y. 2016) (granting in part and denying in part Woodway's motion to dismiss Third Amended Complaint); Speedfit LLC, et. al. v. Woodway USA, Inc., No. 13-CV-1276, 2017 WL 5633113 (E.D.N.Y. Nov. 20, 2017) (construing claim term "means for slackening"). After claim construction, the parties requested the court schedule briefing for dispositive motions and Daubert motions. (See ECF No. 195.) The court issued a scheduling order forbriefing defendant's Daubert motions, anticipating it would consider dispositive motions after resolving expert evidentiary issues. (See Scheduling Order dated June 17, 2018.)

Defendant moves against Wanetick's opinions as disclosed in his report dated July 27, 2015 (the "Report"). The Report begins with what appears to be a two-page cover letter addressed to plaintiffs' counsel broadly describing the parties' dispute but also tangential matters (e.g. a legal dispute between Astilean and a celebrity; Astilean's credit card debt). (See ECF No. 218-1, Ex. 1, Wanetick Report ("Rept.") at 1-2.) The Report identifies three relevant periods for its purposes: a period beginning with Woodway's alleged breach of a contract with Speedfit and Astilean and ending with the November 13, 2012 issuing of the '619 patent; a period beginning with the '619 patent's issue and ending December 31, 2014, the last reported day of Woodway's sales information available to Wanetick at the time he prepared the Report; and finally, a forward-looking period from January 1, 2015 through the expiration of the '016 patent, April 6, 2031.¹ (Id. at 3.) The Report sets out an opinion of damages sustained by plaintiffs from Woodway'salleged infringement of the patents-in-suit over the three time periods, the first of which also includes damages attributable to plaintiffs' state law claims. For the first period, Wanetick appears to calculate breach of contract, conversion, constructive trust, and unjust enrichment damages but did not actually articulate a theory of such damages. (See Rept. at 3, ¶ 1, n.1; id. at 6, Collective Damages Analysis; see also ECF No. 203, Def. Mot. to Strike, Ex. A at 1.) For both the first and second period, Wanetick appears to calculate patent infringement damages based upon a reasonable royalty. Wanetick's analysis appears in a chart titled Collective Damages Analysis, (Rept. at 6), which relies in part on Woodway's sales figures also disclosed in the Report, (see id. at 19, Ex. A).

Wanetick concludes that "Speedfit is owed $2.3 million through December 31, 2014" and indicates further damages will need to be calculated once Woodway discloses updated sales figures.² (Id.) He selects a royalty rate of "8% of gross sales" and opines that a 15% interest rate is appropriate. (Id.) Wanetick then calculates an implied "upfront payment" that "would have been reasonable for Woodway to pay to[Astilean]" around the time the parties began their work together. (Id. at 4.) He supports the sum of $275,000 for this upfront payment by referencing Woodway's claim that it invested $150,000 in improving Speedfit's treadmill, and calculating the yield on this investment assuming an 18% rate of return from the time of the payment, March 18, 2009, until the first patent-in-suit issued, on November 13, 2012. (Id.) Wanetick selected this rate of return from a 2015 Pepperdine Private Capital Markets Report, based on his assumption that Woodway was similar to a venture capital firm and would view Speedfit as a "later-stage" investment opportunity. (Id.)

In the Collective Damages Analysis chart, which covers the first two time periods from March 18, 2009 to November 13, 2012 and from November 13, 2012 until December 31, 2014 ("the last date for which [he] received sales data from Woodway"), Wanetick calculates the yearly royalty owed by Woodway by applying his selected royalty rate of 8% to Woodway's "Infringing Sales" for the years 2009 through 2014.³ (Id. at 6.) The Collective Damages includes breach of contract, constructive trust, and unjust enrichment damages for the first period. He then sums these yearly figures and applies a 15% interest rate, adds the implied upfront payment, also accounting for interest,and arrives at a rounded damages figure of $2.3 million. (Id.) Wanetick does not identify what portion of the damages either patent accounts for, and does not identify what he considered to be infringing sales by Woodway.

The Report's next twelve pages cover Wanetick's royalty rate calculation. He briefly describes eight licensing proposals between Speedfit and others, and then conducts a Georgia-Pacific analysis, laying out and applying the 15 factors articulated in the seminal patent damages case, Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970). (Rept. at 7-12.) The Report also includes a purported licensing agreement between Nautilus, Inc., a fitness industry comparator, and MedFit Systems, Inc. (Id. at 22-34.)

Wanetick then describes three additional methods he used to calculate a royalty rate: the University of Ghent method; the Kammerer and Lu method; and the Black-Scholes method. (Id. at 13-15.) The Report summarizes the results of these royalty rate calculations in a chart on page seven and highlights Wanetick's Georgia-Pacific factors calculation and the resulting 8% royalty rate in bold-face type. (Id. at 7.)

Appendix C to the Report lists the sources Wanetick consulted and relied on in formulating his damages opinion. (Id. at 40.) Among these sources are a general reference to "telephonic interviews" with plaintiffs' counsel, "internetsearchers (sic)," information deposited on a discovery database, a visit to a Princeton, New Jersey gym, and course materials from a Certified Patent Valuation Analyst training program which Wanetick created and administers. (Id.; see also ECF No. 210-1, Pl. Opp. at 9.) Missing from this list, according to Wanetick, is an emailed spreadsheet that included the necessary sales figures supporting some of his calculations, along with some legal documents like deposition transcripts and motion papers. (ECF No. 219-2, Ex. B, Wanetick Dep. at 47:5-20.) Wanetick admitted during his deposition that he did not believe every document he reviewed was worthy of being cited in the Report, and that, given significant time pressure to complete the Report, he "[could not] make notes of every single thing that [he] read."⁴ (Id. at 49: 16-25.)

The remainder of the Report includes exhibits and appendices that describe Woodway's profit margins, the advantages and disadvantages of motorless treadmills, Wanetick's assumptions and limiting conditions for preparing the Report, along with other information concerning Wanetick's qualifications (e.g. his Curriculum Vitae). (Id. at 19-21, 35-44.)

LEGAL STANDARD

I. Expert Testimony

A. Applicable Authority

In this patent case the court applies the law of the Federal Circuit to patent issues, and the law of its regional circuit, the Second Circuit, to non-patent and evidentiary issues. In re Cambridge Biotech Corp., 186 F.3d 1356, 1368 (Fed. Cir. 1999); see also Coconut Grove Pads, Inc. v. Mich & Mich TGR, Inc., 222 F. Supp. 3d 222, 250 n.6 (E.D.N.Y. 2016). Thus, questions pertaining to Wanetick's damages calculation regarding patent infringement are governed by Federal Circuit authority, and questions pertaining to the admissibility of expert witness testimony offered under Federal Rule of Evidence 702 ("FRE 702"), or an expert witness's required disclosures under Federal Rule of Civil Procedure 26 ("Rule 26"), are governed by Second Circuit authority.

B. Federal Rule of Civil Procedure 26

Before reaching the merits of defendant's Daubert challenge, the court will first address plaintiffs' compliance with Rule 26. Rule 26(a)(2)(B) requires parties provide a report for each retained expert witness that discloses:

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