Santa Brought Me A Lionel Train That May be Mike’s.

The global methods used to manufacture well-known, brand name products for the U.S. market are set out in Mike’s Train House v. Lionel LLC, (6th Cir. 12/14/2006).  American designers work with manufacturers in Asia, exchanging drawings, IP and specifications, which, in this example, produces remarkably authentic model trains that soon may encircle your Christmas tree.  Mike, of Mike’s Train House, was hired by Lionel to work, with Korean designers and makers, on models and mold for casting HO trains.  Presumably, much of what goes into making HO scale replicas of trains is accurately reduced dimensions of real train cars.  Not only did Mike create designs, but the Korean company had its own designers and used “subcontract designers.”  The testimony was that all of them “had access to all designs” and “were allowed to make and retain copies of those designs.”  As expected, these designers come and go, and apparently, so too did some design drawings.

After Mike and Lionel no longer were working together, Lionel distributed two trains, which Mike believed were based on his designs.  He “immediately traveled to Korea.”  Law enforcement authorities opened a criminal investigation, which lead to criminal and civil proceedings, and to guilty verdicts and civil liability against the Korean participants.  Then, Mike started a civil suit against Lionel in U.S. federal court.  By trial, only state law claims of trade secret misappropriation and unjust enrichment remained, and on both of those counts, a jury awarded past damages and future lost profits to Mike.  In the appeal though, the Circuit Court vacated because the expert testimony establishing the inference of misappropriation was ruled inadmissible, and because the tort liability was several, not joint and several, and because the award ‘double-counted’ when assessing damages and lost profits. 

On retrial, the plaintiff again must prove liability, but the description of the availble evidence suggests the Mike may have enough to carry the day before a second jury.  It thus was odd to read the published remark, “I feel vindicated,” from Lionel’s CEO Jerry Calabrese, as reported by the AP.  The Circuit affirmed the admission into evidence of the criminal convictions and civil judgments of the Korean court, and witness statements from those proceedings.

The two rulings of note to IP litigators were the preclusion of an opinion about similarity between the plaintiff’s design work and defendant’s products, and the holding that trade secret protection encompasses measurable specifications as well as “a mixture or secret information …and non-secret information.”

The reversal, on Daubert grounds, of the admission of the expert’s opinion was somewhat surprising.  One driving consideration may have been that the District Judge failed “to make any findings regarding the reliability” of the expert’s analytical approach.  Presumably, analysis of misappropriation is not a topic in scientific journals, and so, the offered methodology never “had been tested, subjected to peer review, [etc.]”.  This expert, a professor and Ph.D. in Mechanical Engineering, used a method similar to handwriting analysis, which enumerates similarities, then quantifies and “scores” those in the two versions.  His opinion was that between 60% and 69% of the drawings were copied.  The Circuit held the theory was “novel” and the opinion “unreliable.”  Largely, the complaints were that some indicia of similarity were not indicative of copying, and that some similarities were given greater weight, and about the use of a “regression” analysis to opine as to the correlation between his opinions and the findings of a Special Master appointed by the Korean courts.  These complaints prompted the conclusion that the expert’s “methodology does not reflect the realities of the Korean design industry.” 

The surprise in that conclusion comes from the long-held rubric that accuracy of data or analysis ‘goes to weight, not admissibility.’  As stated by Justice Brennan, when reviewing a regression analysis, “Normally, failure to include variables will affect the analysis’ probativeness, not its admissibility.”  Bazemore v. Friday, 478 U.S. 385, 400 (1986).  In the Lionel case, the opponent surely challenged Mike’s expert, fully and in front of the jury, about whether his analysis and opinion reflected the “realities of the Korean design industry.”  If some of the criteria were overly weighted, then the jurors knew about that, but still, there was substantial evidence to support their verdict for Mike.  To rule inadmissible, opinion and analysis that may have some flaws, moves toward formalisms and away from the threshold question of whether it “will assist the trier of fact.”  FRE 702.