Compiled by Sarah R. Chang, Mike R. Miller, Ziyu Yang

Overview of Social Science in Damages

Trials have become more and more complex throughout the years.^[1] The complexity stems from a myriad of reasons including, technology, increased size of lawsuits, and through the advancing of society. In response to the increased complexity, courts have implemented Social Science to increase trials efficiency, fairness, and clarity.

Resolving damages in civil lawsuits is an area that has particularly benefited from the use of social sciences. “The primary purpose of damages is a compensatory one: to make up for the plaintiff for he or she has lost.^[2] However due to the increased complexity of trials the question of how much a plaintiff deserves has become murkier. To shed light on the subject Social Science is employed.

Specifically in the case of mass torts with hundreds of plaintiffs it can be costly and impractical to determine damages for each individual plaintiff. In response, courts have relied on experts in the field employing a branch of inferential statistics known as “sampling theory.” Sampling theory uses a sample of a larger population to obtain statistics that can then be used as representative of the larger population.

The District Court of Hawaii employed this method in a mass torts case In Re Estate of Ferdinand E. Marcos Human Rights Litigation.^[3] Marcos, the former President of the Philipppines, was the defendant in a class action law suit was found liable to 10,059 plaintiffs for torture, summary execution, and disappearance. During the case expert James Dannemiller took samples of 137 plaintiffs split into three groups either torture victims, execution victims, or disappearance victims. The court then deposed 137 plaintiffs to get a representative amount of damages for each of the categories. The court was able to use Social Science in the form of “Sampling Theory” to bring justice to these plaintiffs rather then having each individual plaintiff suffer through litigation.

Another area where Social Science is used to determine damages is the area of trademark infringement. Determining damages in trademark infringement proves to be difficult as there are intangible factors such as reputation and opportunity cost that are at issue. However the tenth circuit in Harolds Stores, Inc. v. Dillard Department Stores employed expert Dr. Daniel Howard.^[4] The facts of the case are relatively straightforward. Harold stores had purchased certain print designs and were selling them at $80. Dilliards was selling the same print designs at $30. The result of the trial was that Dillards infringed upon 19 of Harold’s copyrighted print fabrics. Dillards had also offered for sale or had ordered a total of 37,000 garments which infringed Harold’s copyrights. While the trademark infringement was proven there was still the question of damages.

Dr. Daniel Howard conducted a survey of college-aged women who had visited Harold’s store or examined a Harold’s catalog and visited Dillards during the relevant time. From this study Howard concluded that Dilliard’s infringement injured Harold’s reputation, goodwill, and future profits. The survey shows that there is a reduced future purchase intention by respondents who saw print skirts at Dillards that they thought were unique to Harold’s. Dr. Howard concludes that girls that saw the infringing garments at Dillards were 33.1% less likely to purchase garments at Harold’s. The use of Social Science in this case allows plaintiffs to recover a more accurate measure of the damages that they suffered.

A Case Study: Lontex v. Nike

Facts of the Case

Before the court is the classic David versus Goliath matchup. Lontext a small Pennsylvania company alleging trademark infringement against an industry titan in Nike. Nike exploded onto the sportswear scene after signing Michael Jordan in 1984.^[5] In just one year “Air Jordans” created over $100 million in revenue.^[6] Nike proceeded to have smash hit after smash hit. In 1987 releasing the first ad to The Beatles music. In 1989 signing baseball and football phenomenon Bo Jackson. In 1996 another prodigy was signed to the Nike roster, Tiger Woods.^[7] Nike signed Lebron James and Kobe Bryant in 2003. In 2015 Nike became the official supplier of NBA apparel. This litany of achievements highlights the fact that Nike is an industry leader by the time Lontext brings this case.

Lontex was a Pennsylvania corporation that provides professional and collegiate sports teams with athletic apparel since 1989.^[8] Lontex struck gold with the “Cool Compression” trademark, which yielded over 40,0000 “Cool Compression” goods covered by the trademarks. Lontex promoted the “Cool Compression” goods through a comprehensive marketing plan and sold them to sports teams. Lontes registered “Cool Compression” with the United States Patent and Trademark Office in April of 2008.

Nike began using the common words “cool” and “compression” to describe features and benefits of its apparel dating back to 2004.^[9] The “Nike Pro” line has used a compression fit with thermoregulation features to enhance cool temperatures. These products all feature a prominent Nike Swoosh mark. None of the products bear the phrase “Cool Compression” on the garment, garment label, or any hangtags. Nike claims they were merely using the words “cool” and “compression” as common words, therefore Nike was not infringing upon any trademark.

Lontex is seeking trademark infringement and damages in the form of disgorgement in the following suit.

The Law of Trademark Damages

Once a plaintiff has proved trademark infringement they can seek to recover (1) defendants profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action.

Disgorgement is when a plaintiff may be entitled to recover the defendant’s profits under certain circumstances subject to the principles of equity.^[10] These factors include when the defendant is unjustly enriched, if the plaintiff sustained damages, or if an accounting is necessary to deter infringement.^[11] When a court rules that disgorgement is appropriate the defendant can raise a defense that not all of the profits were related to the infringement of the trademark. A defendant does this by showing other factors that drove defendants sales. This analysis is known as apportionment.

The Expert – Paul K. Meyer

One of the experts Nike sought to introduce was Paul K. Meyer as a damages expert. Mr. Meyer is a partner at HKA, a consulting firm that specializes in witness and litigation support.^[12] Mr. Meyer has a very impressive background with over 40 years of experience consulting on financial accounting, valuation, and damages matters.^[13] Mr. Meyers has had more than 500 expert appointments, testifying in US Federal Courts, US International Trade Commission, and the High Court of England and Wales. He successfully testified in two of the largest copyright infringement cases in US history: Oracle v. Sap and Mattel v. MGA Bratz. On behalf of the plaintiff Oracle, the jury awarded $1.3 billion for infringement, which is the largest infringement damages award in history. Mr. Meyer has been recognized for his work by IAM, the Wall Street Journal,  and Lexology. He has been honored by holding several different appointments at Stanford, including Adjunct Professor and Consulting Professor.

Defendant, Nike, hired Paul K. Meyer to provide expert opinion assessing how much damages Nike owes Lontex if Nike is found to have infringed on Lontex’s “cool compression” trademark.^[14] Meyer in his expert report finds that Nike has not profited off of Lontex’s “cool compression” trademark.

Meyer’s expert opinion emphasizes that Nike’s success with its products, including those described with “cool compression,” is driven by its strong brand equity and established market assets rather than the use of the phrase “cool compression.” Meyer relies on many pieces of evidence, including Dr. Scott’s survey that she conducted also as an expert for Nike. Dr. Scott created an expert report as to consumer confusion, and found that the presence of “cool” and “compression” next to each other in product descriptions did not increase consumer interest in buying the Nike product. Meyer further supports his analysis with third-party brand rankings and long-term sales data provided by Nike, which includes over a decade of quarterly reports. These records enabled him to analyze factors influencing sales and conclude that Nike’s success stems from its established branding, innovative Dri-FIT technology and trademark, and endorsements by high-profile athletes, rather than any benefit derived from the “cool compression” term.

In addition to analyzing Nike’s sales data and marketing elements, Meyer critiques the damage analysis done by Lontex’s expert, David Drews. Drews argued that Nike’s use of “cool compression” caused 100% of their profits on those products and all those profits should be paid to Lontex. Despite that Nike would have been able to buy the trademark from Lontex for much less. Meyer dismisses this claim, asserting that Drews overestimates the impact of Nike’s use of the phrase. As “cool compression” only shows up in the description for some products and that in physical locations, consumers might not be able to even see the description. Furthermore, Meyer points to sales data and that Nike was selling the product before using the phrase and that sales did not increase after using the phrase.

Ultimately, Meyer concludes that the profits Nike earned on these products are attributable to its own branding and marketing investments. 97% of the cool compression styles used Dri-FIT technology and 92% were under the Pro line. Nike has been using Dri-FIT as a trademark since 2002 and Nike Pro came out in 2004, and Nike Pro is a market leading product since then. The Nike Swoosh has been used since 1971, making it recognizably Nike. These are all contributions from Nike that drive the sales, not the “cool compression” trademark. These products and technology have established brand loyalty, as Nike is the 16th most important brand in the world. The iconic Swoosh adds value to clothing that the phrase “cool compression” in a description does not. Nike pays millions to athletes to wear their products and promote the Nike Pro line. Meyers asserts that it is through this consistent branding effort and marketing strategies that the Nike Pro line has been successful for 20 years, not due to Nike’s use of “cool compression” for less than five of those years after the line had already been established.

Did the Trial Court Accept Mr. Meyer as a Damages Witness?

Pursuant to Federal Rules of Evidence 403, 702, 703 and Daubert v. Merrell Dow Pharmaceuticals, Inc., Lontex moved to exclude Mr. Meyer’s expert report. 509 U.S. 579 (1993). Lontex tried to exclude Mr. Meyer’s testimony for several reasons. Lontex argued that analyzing sales was outside Meyer’s area of expertise and that the opinions are: (1) not based upon sufficient facts or data; (2) not the product of reliable methods; (3) based upon Meyer’s application of principles or methods unrelated to the facts of this case; and (4) not helpful to the factfinder because they are already qualified to determine the issues without Meyer’s expert testimony.^[15]

Lontex categorizes Meyer as an expert in “valuation,” not purchasing decisions, branding, marketing, and corrective advertising.^[16] Therefore, he is not qualified to speak on this topic. They argue that Meyer is improper to correct their expert Drews, because Meyers and Drews have different backgrounds. They conclude that Meyer does not have a similar enough background to understand and critique Drews’ work.^[17]

Lontex argues that Meyer’s opinion did not use any proper economic methodology for quantitatively reducing Nike’s profits from using the trademark to zero.^[18] Meyer identifies factors but doesn’t provide any method of quantifying any individual factor as contributing to Nike’s sales. They point to other cases, like Sherwin-Williams Co. v. PPG Indus,^[19] where the court held an opinion would be excluded due to lack of quantitative data. Lontex next argues that Meyer’s apportionment of all of Nike’s profits is not the product of reliable methods, as they are based on ad-hoc guesswork.^[20] They say his methods are unreliable because he is cherry-picking information from SEC reports and third party analysts. They also categorize Meyer as simply speculating for his conclusions. Lontex moves next to arguing that Nike is seeking to introduce evidence with the prejudicial weight of an expert when they could have simply introduced the reports that Meyer partially used in reaching his conclusions.^[21]

Nike responds by saying Meyer’s technique is a common type of analysis known as profits “apportionment.”^[22] Apportionment means that at least some of the profits flow from the defendant’s own merit and not from the infringement of the plaintiff’s mark. Meaning, Meyer looked at other factors that drove defendant’s sales unrelated to the infringement. The defendant bears the burden to prove the apportionment. Therefore, Meyer’s testimony is crucial to the factfinder and has been used before in other cases. Nike also claims that Meyer’s testimony is not solely qualitative, as he opines that 100% of Nike’s profits are attributable to Nike’s own contributions, not the alleged infringement, as the law requires. Further, the law in trademark cases allows for both qualitative and quantitative indicators of value and demand. Additionally, Nike stands before their expert’s qualifications, as Meyer is an expert on economics and financials. Nike points to his decades of experience consulting on financial, accounting, economic, and damage matters in IP disputes and other trademark cases. Finally, Nike appeals to common sense. As what Meyer is saying aligns with the evidence and economic principles. There are plenty of reasons why a consumer would buy a Nike product without the words “cool” and “compression” next to each other.

The Court ruled in Nike’s favor and did accept Meyer as an expert.^[23] The Court decided Meyer had a sound basis for his opinions, as he first relied on surveys by Nike’s experts who demonstrated that the use of “cool compression” did not increase purchases of the products. Second, Meyer considered Nike’s brand, affiliation with famous athletes, advertising and marketing, and their own trademarks. As to whether Meyer only relied on qualitative analysis, the Court found that he relied on appropriate information. He relied on business records, credible expert testimony, and industry data. The Court also reiterates that the Third Circuit has not imposed a strict quantitative analysis requirement on expert witnesses.

The Court is also completely unimpressed with Lontex’s arguments regarding qualifications. The Court respects Meyer’s decades of experience. The Court also affirmed that the Third Circuit has “liberal standard[s] governing the qualifications of a proffered expert witness” and that courts should accept more general qualifications. Therefore, the Court determines to let in Meyer as a witness to explain his report without any limitations.

The Effects of Mr. Meyer’s Expert Opinion on the Court

When evaluating the possible damages caused by Nike’s possible infringement of COOL COMPRESSION, Lontex tried to maximize its damages by claiming there should be a disgorgement of Nike’s profit. While Mr. Meyer’s test convincingly pointed out the unreasonableness of Lontex’s damages. He addressed and critiqued Mr. Drew’s damages analysis and opinions, including claimed disgorgement of Nike’s alleged profits attributable to the alleged infringement, reasonable royalties, lost profits, and corrective advertising, and offers rebuttal opinions thereto.

To satisfy the requirements of the profit disgorgement, it does not follow as a matter of course upon the mere showing of an infringement. Meyer’s opinion stated that Nike was not unjustly enriched because  no profits related to Nike’s sales of the allegedly infringing products are attributed to Nike’s use of “cool compression.” Mr. Meyer also gave the opinion that the evaluation of the appropriate damages should not exceed the price that a party would pay to acquire the asserted trademark.

Meyer gave his opinions basically based on the fact that the profits of Nike’s alleged infringing products are due to several factors. As the fact may show, with other expert’s surveys,there are no factors that prove Nike’s use of the team “cool compression” would certainly benefit itself and confuse the costumes to Lontex’s “COOL COMPRESSION” trademark. And none of the factors would relate to the use of the trademark. Meyer proved his statement based on several surveys. First, Meyer analyzed the relationship between the use of “cool compression” and the increased purchase of the product. Supported by the surveys and collected data, he demonstrated there are no certain relationships. Second, Meyer considered Nike’s efforts to increase sales of the allegedly infringing products which include Nike’s brand, affiliation with famous  athletes, advertising and marketing, established distribution channels, and proprietary technology platforms and trademarks. By evaluating the two parts, Meyer tried to prove that the increase of the “cool compression” is not the result of the possible infringement. Nike, as a big brand, has its own business strategy and world-wide influence, Mr. Meyer’s opinion explains, from an economic perspective, that there are factors, other than the use of the purported infringing mark, that contributed to the commercial success of the products at issue.

In the case, Nike introduced several experts to help with the suing. There are experts who conduct a series of surveys trying to demonstrate that there is no likelihood of confusion to the consumers. And in fact, these kinds of surveys can be easily attacked by the opponents, and not supported by the court because of the complexity. It seems when deciding actual influence on people, the court is still reluctant to fully rely on expert’s surveys.  But in evaluating the damages, the expert can give much reliable analysis that may convince the judge. For under this circumstance, what the expert, like Mr. Meyer,  is doing may be more like an evaluation of the equity and giving an appropriate monetary estimation rather than speculating what a normal person would do. And this may get more support in the trial.

Later Mr. Meyer’s opinion was supported by the court in the judgment that Lontex’s claim of profit disgorgement is dismissed both by the District Court and the Appellant Court.

The Modern Era of Trademark Cases

From the article Hands Off my Brand!, brands lose more than $250 billion a year to counterfeits solely in the US. Globally, the article estimates as much as $1 trillion is lost annually.^[24] In response, more than 3,000 trademark infringement lawsuits are filed each year in US district courts, with litigation that advances to trial costing between $375,000 to $2,000,000 per case.^[25] With both sides needing damages experts, this creates a huge market for experts to testify in Trademark cases in the US. One google search reveals a multitude of businesses where their primary service is to testify on damages in these types of cases.

These experts have evolved in practice overtime. While some damages experts still conduct surveys like the expert in Harolds v. Dillards, many rely on published market data and knowledge of what drives sales in the US consumer market, like Mr. Meyers in Lontex v. Nike. Robust surveys have more import in proving there is a trademark infringement. In Lontex v. Nike, we see how the damage experts on either side did not create their own surveys or experiments, but relied on the surveys conducted by the experts that were aimed at either proving or disproving consumer confusion. Like in Lontex v. Nike, trademark cases have two phases: proving infringement and damage calculation. The surveys usually will be introduced in proving infringement by the experts who performed then, and then relied upon later by the damages experts in the second phase.

However, finding an expert whose testimony will help your side is only part of the modern day struggle, another portion is getting your expert in.^[26] In Lontex v. Nike, both sides motioned to exclude the testimony of every single expert the other side sought to introduce. It is a hard fought battle to get in your damages expert. A study from 2023 showed that in US IP litigation, similar to trademark infringement, damages experts were excluded 24% of the time nationwide. However, there was wide variability throughout the country, with the Eastern District of Texas and Southern District of New York having a much lower rate of exclusion. However, the Northern District of California, where Silicon Valley is located, had a 35% exclusion rate.^[27] Furthermore, in trademark cases, the defendant’s damages experts are more likely to be excluded than plaintiffs’, so the defendant would be left without someone to challenge the plaintiff’s damages experts. With such high rates of exclusion and the overall driver for a trademarks case being to get damages, picking your jurisdiction and expert is of utmost importance. Many experts, like Mr. Meyers, have extensive and prestigious educational backgrounds with decades of experience, which may improve the odds of getting your expert into court.

^[1] John Monahan & W. Laurens Walker, Social Science in Law: Cases and Materials (10th ed. 2021).

^[2] Id.

^[3] In Re Estate of Ferdinand E. Marcos Human Rights Litig., 910 F. Supp. 1460 (D. Haw. 1995)

^[4] Harolds Stores, Inc. v. Dillard Dep’t Stores, 82 F.3d 1533 (10th Cir. 1996)

^[5] History of Nike: Timeline and Facts, TheStreet (Aug. 21, 2019), https://www.thestreet.com/lifestyle/history-of-nike-15057083

^[6] Id.

^[7] Id.

^[8] Lontex Corp. v. Nike, Inc., No. 18-5623, 2021 WL 1718254 (E.D. Pa. Apr. 30, 2021)

^[9] Defendant Nike, Inc.’s Memorandum of Law in Opposition to Lontex’s Motion to Exclude Paul K. Meyer Opinion on Profit Apportionment and Corrective Advertising, Lontex Corp. v. Nike, Inc., No. 18-5623 (E.D. Pa. 2020)

^[10] Defendant Nike, Inc.’s Memorandum of Law in Opposition to Lontex’s Motion to Exclude Paul K. Meyer Opinion on Profit Apportionment and Corrective Advertising, Lontex Corp. v. Nike, Inc., No. 18-5623 (E.D. Pa. 2020)

^[11] Banjo Buddies, Inc. v. Renosky, 399 F.3d 168 (3d Cir. 2005)

^[12] HKA – Risk Mitigation, Dispute Resolution & Expert Advisory, HKA, https://www.hka.com/.

^[13] The rest of this paragraph comes from Paul K. Meyer, HKA, https://www.hka.com/expert-post/paul-k-meyer/.

^[14] Rest of the information in this section are from Ex. A, Meyer Report.

^[15] Plaintiff’s Mot. to Exclude Paul K. Meyer Opinions on Profit Apportionment and Corrective Advertising at 1-2.

^[16] Id. at 11.

^[17] Id. at 13.

^[18] Id. at 9.

^[19] Sherwin-Williams Co. v. PPG Indus., Inc., No. CV 17-1023, 2020 WL 5077547, at *5 (W.D. Pa. Aug. 27, 2020).

^[20] Plaintiff’s Mot. to Exclude Paul K. Meyer Opinions on Profit Apportionment and Corrective Advertising at 11.

^[21] Id. at 12.

^[22] All facts from this paragraph come from Defendant’s Response to Plaintiff’s Mot. to Exclude.

^[23] The rest of this section comes from Judge Baylson’s opinion on the Daubert motions.

^[24] Larisa Ertekin, Alina Sorescu & Mark B. Houston, Hands Off My Brand! The Financial Consequences of Protecting Brands Through Trademark Infringement Lawsuits, Am. Marketing Ass’n (Sept. 12, 2018), https://www.ama.org/2018/09/12/hands-off-my-brand-the-financial-consequences-of-protecting-brands-through-trademark-infringement-lawsuits/.

^[25] Id.

^[26] Angela Morris, Will your IP damages expert opinion be heard? World Trademark Rev. (Sept. 21, 2023), https://www.worldtrademarkreview.com/article/will-your-ip-damages-expert-opinion-be-heard.

^[27] Id.