August 2014 Bar Bulletin
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August 2014 Bar Bulletin

10th Circuit Posits 'Unifying Theory' for Daubert Gatekeeping

By Shweta Nawani


Trial judges are the keepers of the gate for expert testimony. They decide when to let expert testimony go in and when to lock it out. However, when their gatekeeping is challenged on appeal, how is the higher court to evaluate whether a trial judge took it seriously enough and properly evaluated the expert's reliability and relevance?

In an appeal of a $2.92-million trade secret misappropriation award, the 10th U.S. Circuit Court of Appeals recently struggled with that very question. "We have yet to identify some unifying theory or principle for discerning the precise point at which a district court's gate-keeping findings prove sufficient," the three-judge panel noted.

Looking to its prior decisions interpreting Daubert, the panel extracted three "lessons" to be applied in evaluating the sufficiency of a trial judge's gatekeeping.

Theft of Software Source Code

The case, StorageCraft Technology Corp. v. Kirby,1 which arose out of Utah, involved the theft of computer source code from StorageCraft, a software company, by James Kirby, a software engineer who helped start and served as a director of the company. Kirby shared the code with NetJapan, a rival company that then produced a competing software product much like StorageCraft's.

After a jury awarded StorageCraft $2.92 million, Kirby appealed, challenging the outcome on various grounds. Several of his challenges related to the "reasonable royalty" formula used to calculate the damages.

For one, he argued that a trade-
secret plaintiff should not be able to recover reasonable royalty damages without proof that the misappropriating defendant made commercial use of the secret. Arguing that the record contained no evidence of commercial use, he asserted that the verdict could not stand. The 10th Circuit panel rejected this argument based on Utah law, which allows such damages when the misappropriator uses or discloses the trade secret.

Kirby also argued that, because a reasonable royalty is meant to mimic the price the parties would have set for an actual license, the computation must consider the purpose of the license. Since he took the source code with no intent of using it, he contended, the amount of the award was excessive.

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