SMD sells self-storage management software products (SiteLink) and sued U-Haul and several subsidiaries for defamation, unfair or deceptive trade practices, product disparagement, and violation of the Lanham Act based on alleged misrepresentations about SMD’s software on comparison charts used in brochures for a competing software program, WebSelfStorage.
Defendants moved to exclude SMD’s expert Dr. Putsis, a professor of marketing at UNC’s business school, who conducted a survey on the impact of the comparison charts and concluded that the 2008 comparison caused SMD to lose a specific amount of business. The survey gave respondents a table detailing the prices and features of 15 hypothetical software programs. Some reflected the description of SMD’s programs given in the 2008 chart, while others reflected SMD’s preferred descriptions of its programs’ pricing and features.
The court excluded the testimony because Putsis made too many assumptions, including the assumption that every customer who read the charts would have based a purchasing decision on them. The survey forced respondents to choose based solely on the table, but that wasn’t an accurate reflection of the actual market. The survey respondents were given “an apparently objective and trustworthy comparison table,” but the real comparison charts were in the back of EMove brochures and were clearly advertising, which is often viewed with skepticism. The survey didn’t allow respondents to opt out or say they wanted more information, but SMD’s other expert testified that a commercial buyer wouldn’t make a quick decision on software of this type. There was no record evidence that Putsis’s assumption that all buyers who read the chart would rely on it exclusively in making a decision. Putsis noted that if the ads didn’t work, there’d be no reason for EMove to distribute them. “There is a large unsupported leap, however, from evidence that an advertisement is effective to concluding all customers who read it exclusively relied on it in making a purchasing decision.” Thus, the conclusion of a specific percentage loss of market share was based on speculative assumptions not supported by the record and was excluded.
SMD argued that it was just using the survey to show materiality, but it was also seeking actual damages, which requires showing causation; the expert report wasn’t limited to materiality. Anyway, the same flawed assumptions undermined the survey’s reliability for materiality—the chart was neutral-looking and not presented in context. The assumption that the charts would be used to make purchase decisions begged the question of the impact of the charts.
SMD also offered Dr. Didow, an associate professor of marketing at UNC’s business school, as an expert on damages. He concluded that the charts caused/will cause $40 millino of lost profits from 2005-2024, and $250 million in profits for defendants. He also concluded that the statements at issue were false and not in compliance with substantiation standards; the last opinion was as potentially confusing, given that lack of substantiation wasn’t enough to violate the Lanham Act. But SMD argued that failure to substantiate could be evidence of willful and wanton conduct relevant to awards of attorney's fees or punitive damages, and the court agreed, but said it would carefully scrutinize the testimony under Rule 403.
As for Didow’s claims of falsity, the court found a lack of fit between Didow’s marketing expertise and the truth/falsity of the claims about SMD’s software. His specialized knowledge didn’t relate to software or the self-storage industry, and he relied on SMD’s representations about the price of the products; his other opinions on falsity were formed by spending several hours reviewing training materials, seeing product demonstrations, and using plaintiffs' product. This wasn’t enough to make him an expert in a way that would assist the trier of fact on falsity. Even if a few hours’ use would make the falsity apparent, that would just mean that falsity wasn’t an area where expert testimony would be helpful: SMD would simply have shown that no special expertise was required to determine whether its products had certain functionalities. This testimony was excluded.
Though Didow wasn’t an accountant or economist, he was qualified to opine on damages given his background in marketing; he’d used “identical tools” as those used to calculate damages in a business loss case in his own econometric studies.
Defendants argued that Didow’s testimony on damages was unreliable because it was based on unsupported assumptions that the charts were the only factor that could explain the parties’ revenues (and other assumptions). Expert opinions should be excluded when they’re based on speculative and unsupported assumptions. Courts may also consider whether an expert adequately accounted for obvious alternative explanations. Didow considered other factors that could cause reality to diverge from his projected revenues, including changes in marketing efforts, problems or successes in the products, macroeconomic factors, industry consolidation, and senior personnel change. He concluded that these factors didn’t explain the parties’ revenues while the charts were in use; this was enough given that defendants could challenge his testimony by cross-examination and presentation of contrary evidence. The other critiques also failed to show that the testimony should be excluded instead of cross-examined.
Didow also made an alternative damages calculation multiplying SMD’s supposedly lost revenues by defendants’ annual revenue per customer for 15 years (the product life cycle he used based on other management software). A successful plaintiff can recover a defendant’s profits from false advertising. But Didow’s damages calculation—multiplying SMD’s lost customers by defendants’ per-customer revenue—wasn’t a method found in the statute, and he admitted that not all of SMD’s lost customers went to defendants. So this was excluded.
Defendants further objected to Didow’s references to a sticker added to the 2008 chart clarifying a definition, which he opined showed that they knew the term was confusing and misleading. But evidence of remedial measures isn’t admissible to prove culpability. References to the sticker were excluded, as were other opinions about defendants’ state of mind/intent or motive. However, references to U-Haul v. Jartran weren’t entirely irrelevant; SMD argued that it was relevant to whether defendants acted willfully and wantonly in comparative advertising given that they knew the standards from being a party in Jartran. Thus, Didow could testify about Jartran, but not about the amount of damages awarded in that case.
SMD moved to exclude defendants’ expert Litton, a self-storage management consultant with over thirty years’ experience in the self-storage industry. He’d managed over 150 facilities and was operations manager for a large self-storage company, and was currently owner/manager of 15 self-storage properties. He opined on truthfulness, reliance on the charts, and matters relating to Didow’s damages analysis. Experience alone may qualify an expert if the expert can explain how that experience leads to the conclusion reached, why that experience is a sufficient basis for the opinion, and how that experience is reliably applied to the facts. His experience with plaintiffs’ products, including using their software in operations and audits and configuring it for his clients after purchase, was sufficient basis to opine on the truth of defendants’ claims. Likewise, his extensive experience in consulting and helping clients decide which software to purchase qualified him to opine as to what clients consider in making their purchasing decisions. Further, his challenges to the damage analysis that were based on his experience in the industry were allowable, though his opinions based on conclusions about the software industry (e.g., that the numbers in SMD’s financial statements were too low) weren’t supported by his expertise.
The court also largely rejected challenges to another expert’s opinions criticizing Didow.