Expert's Analysis of Trade Secret Damages Was Flawed Due to Failure to Consider Effects of Dot Com Crash in Damages Analysis

Case: Microstrategy Inc. v. Business Objects, No. 04-1572 (Fed Cir. 11/17/05)

The One Sentence Summary: In a patent infringement and trade secret case, an expert's damage analysis was properly excluded under the Daubert test (Daubert v. Merrell Dow Pharm. Inc., 509 U.S. 579, 589 (1993)) where the expert ignored the dot com crash and a huge drop in plaintiff's stock due to accounting errors, and failed to link the damages to specific misconduct.


What They Were Fighting About: Microstrategy sued Business Objects for infringement of a patent for delivering data to various output devices such as cell phones, PDAs or email. It also sued for trade secret misappropriation, associated with Business Object's hiring of four former Microstrategy employees.

Federal Circuit Holdings:

• The district court properly construed the claim language and granted summary judgment of non-infringement. The patent required that the data be associated with more than one type of device-specific formatted output data. Because the accused device only generated one type of output, it did not have the multiple output styles required by the patent.
• The district court correctly found no infringement by the doctrine of equivalents because plaintiff did not present a detailed analysis of this theory.
• On the business tort claims, the panel applied Fourth Circuit law in holding that the district court properly excluded expert reports and expert testimony from plaintiff's damages expert. The initial report was excluded under the Daubert test because the expert attributed all damages to Business Object's alleged torts while ignoring the burst of the dot com bubble and a major accounting error that tanked Microstrategy's stock. The report also failed to link any single instance of misconduct to a specific amount of damages, and the proffered supplemental reports were late.
• The district court properly excluded other damages evidence proffered by plaintiff that had not been disclosed in response to an interrogatory requesting all damages evidence.
• After a bench trial on the trade secrets claim, the district court properly granted an injunction against further use of two trade secrets in the possession of Business Objects. Summary judgment of no damages was appropriate where the amount was not shown with reasonable certainty and no causation was shown.
• The district court erred in finding that a non-solicitation clause in the employee contracts was unenforceable under Virginia law. The prohibition in the clause against inducing employees, customers or agents to terminate or modify their relationship with Microstrategy was not ambiguous.
• On its claim of tortious interference with contract, plaintiff failed to show causation of any damages.
• The district court properly dismissed claims under the Computer Fraud and Abuse Act, 18 U.S.C. § 1030, due to a failure to show damages with reasonable certainty and to establish causation.
• The tort claim for conspiracy to interfere with Microstrategy's business was preempted by the Virginia Trade Secrets Act.