United States District Court, D. Rhode Island
J. McConnell, Jr. Chief Judge United States District Court
business dispute is now in the pre trial motion phase-each
party seeking the Court's guidance in their ramp up to
trial. As a reminder of the facts underlying this dispute,
the Court reprints the factual recitation from Magistrate
Judge Lincoln D. Almond's Report & Recommendation:
Plaintiff claims to be the inventor of an "original,
innovative [crafting] product and idea" known as
"Liquid Mosaic," She describes the invention as
"a one of a kind arts and crafts play system...that made
it easy and fun for children to create art projects and
decorate by using a unique craft gun, with interchangeable
extrusion tips to draw different line patterns and create
textures, and prefilled removable cartridges containing a
compound that sticks to multiple surfaces...." On
November 15, 2010, Plaintiff executed Hasbro's standard
Non-disclosure Agreement and thereafter pitched the idea to
Hasbro. Her presentation included participation in a
conference call, a five-page slide deck sent by email, and
three sample craft projects (a hat, a purse and a light
switch cover) made with a prototype compound made of caulk.
Hasbro passed on the idea in December 2010 *** Plaintiff
contends that Hasbro misappropriated her "Liquid Mosaic
Submission" and used it to develop Play Doh Plus and
DohVinci, two new product lines that incorporate the elements
and features of "Liquid Mosaic." Hasbro denies such
misappropriation and disputes that the "Liquid Mosaic
Submission" qualifies as a legally protectable trade
ECF No. 219 at 1-2 (citations omitted).
the Court are seventeen pretrial motions in Ms, Pawelko's
trade secret misappropriation and breach of contract case;
Hasbro filed fourteen motions; Ms. Pawelko filed three motions.
Each of these motions raises many issues-some at the
forefront of this litigation in need of pretrial
determination and many side issues the specter of which
hovers in the abyss of potential trial issues. The Court does
its best to decide definitively those issues that are cued up
and reserves its decision on issues that may become moot
before trial or that are more suitably decided closer to or
at trial. To the extent this Order does not address all the
parties' "what if arguments, it will do so when and
if they come to fruition.
Hasbro's Motions Seeking to Strike or Exclude Damages
has filed three motions that relate to the opinions and
testimony from Ms. Pawelko's two damages experts-Suzanne
Mills-Winkler and Pauline Booth. ECF Nos. 123, 124, 125.
Because these three motions contain overlapping arguments,
the Court will address them globally.
Mills-Winkler essentially gives two categories of opinions:
the Liquid Mosaic compound Ms. Pawelko pitched to Hasbro is a
trade secret and that the royalty damages Hasbro owes Ms.
Pawelko should be based on a royalty rate of between
YA and 5%. She does not offer opinions that a public
submission is entitled to royalties; instead she testifies
that an invention qualifies as a trade secret even if it
contains a compound available in the public domain, if that
compound in a new form gives the ultimate product a
competitive advantage, Ms. Mills-Winkler also gives opinions
on industry standards of confidentiality, Hasbro's
breach, and how that breach informed the facts on
Booth opines on the royalty base, which she says consists of
the total net sales of all products in the DohVinci sub-brand
and the total net sales of all products sold with the PlayDoh
Plus compound. She defines net sales as the gross amounts
that Hasbro earned for the sale of each product less returns
and discounts. Ms, Booth's opines that Ms. Pawelko's
damages are about $255 million. Her opinion includes all
profits from at least twenty-five products sold with PlayDoh
Plus and all products sold under the DohVinci sub-brand
earned or to be earned from 2014 through 2023. Those products
contained other Hasbro-invented components such as regular
PlayDoh, cutlery, and extruders. Hasbro's expert's
opinion is that her damages are $261, 000 at most. One
explanation for this huge disparity is that Ms, Booth's
opinion does not restrict-or apportion-the damages to the
allegedly infringing component only and Hasbro's
expert's opinion does.
moves under Federal Rules of Evidence Rules 401, 403, and 702
and under Daubert v. Men-ell Dow Pharmaceuticals,
Inc., 509 U.S. 579 (1993) to exclude some of Ms.
Mills-Winkler's opinions about what reasonable royalty
damages to which Ms. Pawelko may be entitled if the jury
determines that Hasbro misappropriated her trade secret.
Hasbro's main argument is that Ms. Mills- Winkler's
opinions are not based on an acceptable methodology and are
speculative because she did not adhere to the fifteen factors
set forth in Georgia-Pacific Corp. v. U.S. Plywood
Corp., 318 F.Supp. 1116 (S.D.N.Y. 1970), modified
and aff'd sub nom. Georgia Pac. Corp. v. U.S.
Plywood-Champion Papers, Inc., 446 F.2d 295 (2d Cir.
1971), cert, denied, 404 U.S. 870
(1971) to determine the reasonable royalty rate
percentage, ECF Nos. 123, 124. Hasbro also argues that Ms.
Mills-Winkler reduced her royalty rate opinion at her
deposition from 5% to 3% without explanation. ECF No. 124.
Ms. Pawelko counters that Ms. Mills-Winkler's opinions
meet the threshold set forth in the rules and
Daubert because she relies on her extensive work
experience in the toy industry in opining on the generally
accepted and standard royalty rates. Hasbro's arguments
against Ms. Mills-Winkler, she argues, go to the credibility
of her opinions that Hasbro can test on cross-examination,
not to their admissibility.
702 states that if "scientific, technical, or other
specialized knowledge will help the trier of fact to
understand the evidence or to determine a fact in issue"
an expert "may testify in the form of an opinion or
otherwise," Fed.R.Evid. R. 702. This Court must
determine whether l) the testimony embodies specialized
knowledge and 2) that specialized knowledge is relevant so
that it will help the jury make its factual determinations.
Daubert, 509 U.S. at 592-3. As to the first inquiry,
the United States Supreme Court in Daubert noted
that "[m]any factors will bear on the inquiry" such
as whether the scientific theory can be tested, whether it
has been subject to peer review, and whether it is generally
accepted within the applicable community. Id. at
Mills-Winkler stated that the general industry standard
royalty rate in the toy industry is 5%, discounted to 3% for
co-branded products. She opined at first in her report that
PlayDoh Plus earned a 5% royalty rate, but after learning
that PlayDoh Plus was a co-branded product, changed her
opinion at her deposition to 3%. There is no dispute that the
percentages Ms. Mills-Winkler used in her opinion were the
industry standards generally accepted within the toy
industry. Hasbro's witnesses confirmed that the industry
standard for royalties was 5%. For this reason, the Court
finds that Ms. Mills-Winkler's opinions pass muster under
fact that she did not expound on every
Georgia-Pacific factor in her report does not doom
her opinion's admissibility, The court in
Georgia-Pacific set forth fifteen factors relevant
to determining a reasonable royalty because it was
"necessary to resort to a broad spectrum of other
evidentiary facts probative of a 'reasonable'
royalty" when there was no "established"
royalty. 318 F. Supp, at 1121. Because there is an
established toy industry standard royalty rate, the Court
finds that the fact that Ms. Mills-Winkler did not focus
specifically on the Georgia-Pacific factors to
render her opinions does not make those opinions
inadmissible. If Hasbro believes her opinions are on shaky
ground, "[v]igorous cross-examination, presentation of
contrary evidence, and careful instruction on the burden of
proof are the traditional and appropriate means of attacking
shaky but admissible evidence." Daubert, 509
U.S. at 59G. Hasbro's motions on this point are DENIED.
ECF Nos. 123, 124.
Industry Standards of Confidentiality
with its previous Order, the Court finds that Ms.
Mills-Winkler's opinions based on industry standards of
confidentiality are not relevant to this case in which the
parties' Non-disclosure Agreement controls. See
ECF No. 242. In its reply, Hasbro moves to strike certain
numbered paragraphs from Ms. Mills-Winkler's report that
relate to the Court's ruling and the Court therefore
GRANTS Hasbro's motion to strike as they relate to the
industry standards of confidentiality. ECF No. 123.
objects to both experts' failure to reduce their damages
opinions to account for Hasbro's contributions to the
financial success of the DohVinci and PlayDoh Plus product
lines. Without this apportionment, it argues that Ms.
Mills-Winkler's and Ms. Booth's opinions are
unreliable and should be excluded. ECF Nos. 124, 125.
Pawelko's theory of the case is that DohVinci and PlayDoh
Plus derived from her Liquid Mosaic Submission, PlayDoh Plus
was the driving reason that consumers bought the PlayDoh Plus
sets, and Hasbro decided to add on components like regular
PlayDoh, cutlery, and extruders to charge more money because
the PlayDoh Plus compound was so unique. Therefore, she
argues, the "entire market value rule" exception to
apportionment applies because her invention is what motivated
consumers to buy the products Hasbro created using the
misappropriated Liquid Mosaic Submission. "The
'entire market rule' typically allows the recovery of
damages based on the entire value of an apparatus
with several features, even though only one feature is
patented." Trustees of Columbia Univ. v, Roche
Diagnostics GmbH, 272 F.Supp.2d 90, 119 (D.
Mass. 2002) (citing Paper Converting Mach. Co. v.
Magna-Graphics Corp., 745 F.2d 11, 22 (Fed. Cir. 1984)).
"For the entire market value rule to apply, the patentee
must prove that 'the patent-related feature is the basis
for the customer demand.'" Lucent Techs.,
580 F.3d at 1336 (citation omitted).
the cases the parties cite and others, it is clear to the
Court that apportionment in trade misappropriation cases is a
potentially important tool that the parties can give the jury
if the jury ...