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Sloan Valve Co. v. Zurn Industries, Inc.

United States District Court, N.D. Illinois, Eastern Division

February 28, 2014

SLOAN VALVE COMPANY, Plaintiff,
v.
ZURN INDUSTRIES, INC., and ZURN INDUSTRIES, LLC, Defendants.

MEMORANDUM OPINION AND ORDER

AMY J. ST. EVE, District Judge.

Zurn Industries, Inc. ("Zurn") has moved to exclude portions of the testimony of Sloan Valve Company's ("Sloan") employee-experts John Aykroyd, Jim Allen, and Bill Madison regarding Sloan's alleged price erosion damages. For the reasons discussed below, the Court grants Zurn's motion.

BACKGROUND

This is a patent infringement case involving U.S. Patent No. 7, 607, 635, entitled Flush Valve Handle Assembly Proving Dual Mode Operation (the " Wilson patent"). The Wilson patent "relates to flush valves for use with plumbing fixtures such as toilets, and more specifically to improvements in the bushing of the actuating handle assembly that will provide for user-selectable, dual mode operation of the flush valve." (R. 314-1, Wilson patent, col.1, II. 6-10.) It provides a mechanism that allows a user to select one of two flush volumes based on the direction of actuation of the handle: a full flush volume to evacuate solid waste from the bowl or a reduced flush volume to remove liquid waste. ( Id., col. 1, II 11-19, col.2, II. 27-33.)

Sloan filed this lawsuit against Zurn Industries, Inc. and Zurn Industries, LLC alleging infringement. During expert discovery, Sloan disclosed Richard Bero as its expert on the issue of compensatory damages. Sloan asked Mr. Bero to "determine damages in the form of a reasonable royalty and to quantify price erosion damages." (R. 620-3, 4/5/2013 Bero Rebuttal Report, p. 3.) Mr. Bero opined that Sloan is entitled to a per-unit royalty rate of $106 per Accused Product for a total of $7.8 million. He further opined that Sloan incurred price erosion damages of approximately $2.3 million for the period beginning after the complaint was filed. ( Id. ) Mr. Bero's reasonable royalty rate calculation includes the profits Sloan would have made on (1) the sale of the patented manual dual flush valve packages and handles; (2) the sale of collateral products ( i.e., replacement diaphragm kits, urinal valves, and faucets); and (3) additional profits Sloan would have made by increasing its prices without Zurn's presence in the market, which Bero calls the "price effect." (Bero Rep. at 47-50; Bero Rebuttal Rep. at 55-57.) The table below breaks down the amount that Bero attributes to each category in reaching his $141 price.

(Bero Rebuttal Rep. at 57.)

To calculate his price erosion damages and the "price effect, " Bero relied on the testimony of several Sloan employees who believed that Sloan would have sold its MDF valves at higher prices and at the same volume if Zurn had not been in the market. (Bero Rep. at 17-20, 48; 59-62.) Those employees upon whom Bero relied include John Aykroyd, Jim Allen, and Bill Madison. Sloan has disclosed Aykroyd, Allen, and Madison as employee experts pursuant to Fed.R.Civ.P. 26(a)(2)(C). (R. 696-1, Sloan's Amended Disclosures Pursuant to Fed.R.Civ.P. 26(a)(2).)

Mr. Aykroyd has served as Sloan's Vice President of Business Development since 2007. (R. 696, Sloan Resp. at 7.) Sloan identifies a number of opinions it expects Mr. Aykroyd to present at trial. The specific opinion that Zurn challenges is: "[b]ut for Zurn's ability to offer its dual flush flushometer valves in competition with Sloan's, Sloan could have and would have charged more for its manual dual flush flushometer valves and handles without any diminishing sales." (R. 696-1 at 3.)

Mr. Allen is Sloan's President and Chief Executive Officer. (Sloan Resp. at 4.) As with Mr. Aykroyd, Sloan identifies multiple opinions and facts it anticipates Mr. Allen will present at trial. The opinion that Zurn seeks to exclude is: "[b]ut for Zurn's ability to offer its dual flush flushometer valves in competition with Sloan's, Sloan could have and would have charged at least $20 more for its manual dual flush flushometer valves and at least $10 more for its manual dual flush handles." (R. 696-1 at 7.)

Mr. Madison is Sloan's National Sales Director. (Sloan Resp. at 9.) His opinion that Zurn challenges is: "Sloan would have sold the Uppercut Dual-Flush Valve at higher prices if Zurn had not been in the market." (R. 696-1 at 9.)

LEGAL STANDARD FOR DAUBERT MOTIONS

"The admissibility of expert testimony is governed by Federal Rule of Evidence 702 and the Supreme Court's opinion in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993)." Lewis v. Citgo Petroleum Corp., 561 F.3d 698, 705 (7th Cir. 2009). Rule 702 provides, in relevant part, that "[i]f scientific, technical or other specialized knowledge will assist the trier of fact[, ]... a witness qualified as an expert by knowledge, skill, experience, training or education, may testify thereto in the form of an opinion...." Id . See also Happel v. Walmart Stores, Inc., 602 F.3d 820, 824 (7th Cir. 2010).

Under the expert-testimony framework, courts perform the gatekeeping function of determining whether the expert testimony is both relevant and reliable prior to its admission at trial. See id.; Power Integrations, Inc. v. Fairchild Semiconductor Intern., Inc., 711 F.3d 1348, 1373 (Fed. Cir. 2013); United States v. Pansier, 576 F.3d 726, 737 (7th Cir. 2009) ("To determine reliability, the court should consider the proposed expert's full range of experience and training, as well as the methodology used to arrive [at] a particular conclusion."). In doing so, courts "make the following inquiries before admitting expert testimony: first, the expert must be qualified as an expert by knowledge, skill, experience, training, or education; second, the proposed expert must assist the trier of fact in determining a relevant fact at issue in the case; third, the expert's testimony must be based on sufficient facts or data and reliable principles and methods; and fourth, the expert must have reliably applied the ...


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