Appeals Court Report

[More to restore]

I am a complete laymen in this, but it does not sound like a strong case for MTH, some wacky Korean statement (and this bloke does not even want to testify), e-mails (are e-mails legal proof in the US?, not here), accusations that documents and drawings have been destroyed (how to prove that somebody has destroyed something?, do they have the ash as prove?).
Strange....

[Poppa_Zit]

Thanks, Bob. Great reporting. And thanks, Neil (not Besougloff or Young or Down).

[nblum]

From Bob Bartizek:
"Bob

Posted June 07, 2006 04:04 PM
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Mike’s Train House v. Lionel LLC
Eastern District of Michigan at Detroit J. O’Meara

In this diversity misappropriation of trade secrets action tried to a jury, defendant appeals the judgment for plaintiff and the denial of its post-judgment motions. (20 Minutes for Plaintiff, 20 Minutes for Defendant)
***************************************

This was the announcement on the court docket that greeted me outside Courtroom 403 in Cincinnati this morning. I took the day off to attend the oral arguments phase of this appeal. Mike Wolf was in attendance, along with 4 or 5 attorneys (they left after the proceeding to caucus in a room outside the courtroom, so I couldn’t get an exact count). Jerry Calabrese was also in attendance with what looked like 10 attorneys.

I am not a lawyer, and the procedure today was for the benefit of the appeals judges, not to help the audience understand what was going on. I took lots of notes, but I’m sure I have some of the terminology wrong and incorrect spelling of some names. This is likely to be the only report you’ll see, so the readers will have to live with it. Perhaps Erol will read this post and correct some of my terminology mistakes.

The appeals panel consisted of 3 judges: Mr. Cole, Ms. Daughtrey and Mr. Graham. Prior to the MTH v. Lionel case, we were treated to a sentencing appeal in a child pornography case from Tennessee and a DUI/threatening a federal officer case from Kentucky. When the MTH v. Lionel case was called, there were 28 people in the courtroom (other than court staff), and as far as I could tell there were only 3 model railroad spectators (including yours truly).

Lionel went first, represented by Mr. Hacker and Mr. Dellenger. Mr. Hacker requested and was granted 5 minutes of rebuttal time to follow the MTH arguments. Mr. Hacker argued that the case was very complex, with many issues concerning exactly what happened, when and by whom. However, the evidence presented by MTH at trial was very narrow. He argued that the decision to hold defendants liable, jointly and separately (one of those legal terms) for $25 million in current and future profits was incorrect. He argued that the court should have allocated those damages among the three defendants (Lionel, Korea Brass and who?). In order to allocate, he argued that all of the information on all of the trains involved along with exactly what happened when would need to come in.

Mr. Hacker stated that the entire model train industry is based on copying. Manufacturers copy real trains for the model trains and they copy from each other all the time. The key is to separate trade secrets from general knowledge or from specific knowledge that is common within the industry.

Judge Daughtrey pointed out that the court ahs testimony on record from Koreans that they did copy computer files. Mr. Hacker said that the key is whether trade secrets were copied, or simply design files. He went on to state that MTH’s own witness said that 80% of a model train can be determined by looking at the competitor’s product.

Mr. Hacker then quickly summarized his position prior to yielding the balance of his time to Mr. Dellenger. He said that Lionel had issues with:
The fact that MTH claimed that manufacturing tolerances were trade secrets,
That the court failed to allocate damages among the defendants,
That the damages improperly consisted of both lost profits to MTH
and unwarranted profits to Lionel for a period of 7 years,
That the damage award made no attempt to account for future market
conditions during those 7 years.
He listed a couple of other points, but too quickly for me to capture them.

Mr. Dellenger began by saying that a professor Lee from Korea was the most important “witness” at the trial, since he had examined 95% of the trains at issue (he is a professor of Mechanical Engineering). His findings were presented at trial by a Dr. Stein (from the University of Michigan College of Engineering), but professor Lee was not present at the trial. Dr. Stein relied on Lee’s report to arrive at a total of 16 trains that were copied.

Lionel objected to the testimony about Lee’s report as hearsay and also to their perception that Dr. Stein was attempting to qualify professor Lee as an expert. He cited a prior case from the 1890’s that he claimed was directly on point.

Judge Daughtrey said that while there was testimony from Dr. Stein about the Lee report, the trial judge did not let the report itself into evidence.

Mr Dellenger was out of time and closed by saying that there was no proof of American trade secrets misappropriation.

MTH was represented by Mr. Swift. He opened by stating that the evidence showed that Korea Brass and Lionel not only stole MTH trade secrets, but they were trying to put MTH out of business (e-mail evidence was said to show this). He said that Dr. Stein used professor Lee’s report under Rule 703, allowing an expert to refer to another expert’s report to help form his opinion.

Mr. Swift referred to a model of the C&O Allegheny (that was displayed on the MTH attorney’s table, and no, I didn’t get to walk out of court with it), saying that a model like that has 300-400 parts that must all fit together properly. There are 200-300 engineering drawings, each with close tolerances.

Judge Daughtrey acknowledged that she might be the only one in the room that didn’t have Lionel trains as a child. She then asked why MTH did not bring professor Lee to court.

Mr. Swift answered that professor Lee had refused to testify for either party. He went on to allege that 3500 drawings were destroyed by Korea Brass and Lionel so they could not be used in the case. As a result, Dr. Stein was only able to compare 162 pairs of Lionel and MTH drawings, while Dr. Lee had 3200 pairs available.

Judge Cole pointed out that Lionel had stated in their brief to the court that Dr. Lee was not a model train expert. Mr. Swift stated that professor Lee teaches design drawing, and he compared design drawings. He reiterated that Lionel destroyed massive amounts of documents, including design drawings and production schedules which would have shown that Lionel had no time to develop designs on their own.

Judge Graham referred to documents in front of him and reported that Rule 703 says that information used by an expert must be “the type of information commonly used by experts in the field and generally relied upon to form opinions.” He questioned whether a report from a Korean professor is something that “is commonly used by experts in the field generally.”

Judge Daughtrey said that if Dr. Lee’s report is excluded, then all that is left is a finding that 55% of the 162 drawing pairs examined by Dr. Stein were copied.

Mr. Swift agreed that Judge Daughtrey was correct, but e-mails show that Lionel had MTH production schedules and planned to bring out trains to preempt MTH. He said that the jury was allowed to consider that Lionel and Korea Brass destroyed massive amounts of documents during their deliberations.

Regarding joint and separate damages, Mr. Swift said that 46 states have courts that have heard trade secret cases, and to date non of them have ever applied allocated damages in these cases. “I think this court would be on dangerous ground to apply comparative fault in this case, when it has never been done before.”

Mr. Swift’s time expired, and Judge Daughtrey stated that a question might be who did the stealing, who knew, who profited and how much?

Mr. Dellenger gave a brief rebuttal in which he said, regarding document destruction, that the Michigan judge said that he had not heard evidence that Lionel intentionally destroyed documents, nor information on how many documents were involved. He said that the MTH attorneys had CD’s that they acknowledged they had received from Dr. Lee, so they had them (it sounded to me like he was referring to the 3200 drawings, but he did not come out and say that). His parting words were, “This is not a copyright case, it is a trade secrets case.”

That’s it. That’s what I heard. Let the spin-doctoring begin! Roll Eyes

Bob Bartizek"