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Makor Issues & Rights, Ltd. v. Tellabs

June 23, 2010


The opinion of the court was delivered by: Amy J. St. Eve U.S. District Court Judge


AMY J. ST. EVE, District Court Judge

Before the Court is Defendants' motion to exclude the expert testimony of Dr. Arthur Brody. Specifically, Defendants have moved to strike Dr. Brody's testimony regarding what conclusions Tellabs should have drawn from publicly available information regarding its sales forecasts and guidance because 1) he is not qualified to render such opinions; 2) he did not follow an appropriate methodology in reaching his opinions; and 3) he did not follow or apply his methodology in any reliable or scientific manner. As discussed in detail below, Defendants' motion is granted in significant part.


I. Background of Dr. Brody

Dr. Brody has a Ph.D. in physics from Stony Brook University in 1978. From 1981 to 1985, Dr. Brody worked at AT&T Bell Laboratories as a Technical Manager where he was "lead engineer in R&D area where he was responsible for network Operations, Administration, Maintenance and Provisioning products and procedures for leased line service assurance." (R. 304-2, Curriculum Vitae ("CV"), at 11.) From 1985 to 1988, Dr. Brody worked at Technicom Systems, Inc. as Vice President of Marketing and Sales. (Id.) Technicom was a subsidiary of TIE/communications and provided network monitoring, cable pressurization and loop test products. From 1988 to 1990, he was the Director, New Products at ADK Pressure Equipment Corp., where he directed development and release of four new products resulting in several large contracts and entrance into new markets. (Id.) Starting in 1990 through the present, Dr. Brody was the Principal Consultant at A.T. Brody & Associates, Inc. ("A.T. Brody"), a "high tech consulting firm specializing in telecommunications, networking and multimedia issues, business and engineering management, and market analysis." (Id.) Dr. Brody is the sole owner and employee of A.T. Brody. (R. 310-2, Deposition of Dr. Brody ("Dep.") at 6-7.) Approximately 80%-90% of Dr. Brody's income over the past year has come from testifying and consulting in intellectual property cases.

In addition, Dr. Brody is a member of the Institute for Electrical and Electronics Engineers ("IEEE"), the IEEE Communications Society, the Product Development & Management Association, the American Physical Society, the American Association for the Advancement of Science, and the Sigma Chi Scientific Research Society. (R. 304-2, CV.)

Dr. Brody is not an expert in economics, did not train in economics, and has not taken any courses in company forecasting. (Dep. at 345.) While he has served as an expert witness in other cases, in each of these cases he was an expert in intellectual property issues. He has never served as an expert in the area of forecasting, and no court has qualified him as such. In addition, Dr. Brody has never rendered an opinion on the subject matter of company forecasting. (Dep. at 128-29.) Dr. Brody also conceded that he has never been involved in giving guidance for a public company. (Dep. at 279.).

From approximately 2002 to 2005, Dr. Brody, along with another individual, taught classes at Sequent Learning Networks, a private training and consulting firm. Dr. Brody taught an introductory course to product management at Sequent Learning that lasted approximately three days. (Transcript of Hearing on Motion to Exclude Expert Testimony of Dr. Brody ("Tr."). at 16-20) He taught this course three or four times during the 2002 to 2005 time period. (Tr. at 52.) During this introductory course, he taught product forecasting for approximately two or three hours. (Tr. at 155.) Dr. Brody prepared the materials for this course based on his background. (Tr. at 156.)

II. Dr. Brody's Opinions In this Case

Plaintiffs have disclosed Dr. Arthur Brody as their expert witness to opine on the reasonableness of Tellabs' financial forecasts given the publicly available information during the time Tellabs issued its forecasts. Plaintiffs contacted Dr. Brody on approximately May 18, 2009 to issue his report by June 30, 2009. Dr. Brody issued his report on June 30, 2009. As he testified, he had approximately six weeks to familiarize himself with the case, research his opinions, and issue his report. He also issued a supplement report on September 11, 2009*fn1.

As Dr. Brody notes in his report:

I have been asked to provide in this report a description of the overall telecommunications market conditions that Tellabs, its customers and its competitors were subject to for the relevant time frame and I have also been asked to identify information publicly available to Tellabs during the relevant time frame, and to opine on what conclusions Tellabs should have drawn from this information with respect to its sales forecasts and guidance to the investing public.

(R. 304-1 at 1.) In his report, Dr. Brody summarized his conclusions as follows: Summary of Conclusions: As early as the third quarter of calendar year 2000, telecommunications market analysts were warning investors that CAPEX spending by TSPs and companies could not continue. The return on investment did not justify the continued expenditures. Moreover, the telecommunications regulatory environment of the late 1990s in the United States had increased competition in many market segments resulting in pricing pressures that would moderate revenue growth. In the second half of calendar year 2000 and continuing into 2001, many of Tellabs' TSP customers warned of slower revenue growth, shrinking earnings and reduced CAPEX spending. Tellabs' competitors, competing for the same customers with similar products, also issued downward guidance, many revising revenue and earnings estimates downward during this period, or missing ...

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