[00:00:04] Speaker 03:
The next case for argument is 182091, Sensational Technologies versus Pepsi Company.

[00:00:55] Speaker 03:
I think we're ready.

[00:00:57] Speaker 03:
Mr. Gardner, please.

[00:01:02] Speaker 00:
Good morning.

[00:01:03] Speaker 00:
Good morning.

[00:01:04] Speaker 00:
Your Honor, if it please the court, I'm representing the appellant, a sensational in this case.

[00:01:10] Speaker 00:
There are two major issues which are for the court's consideration.

[00:01:14] Speaker 00:
The first is whether or not the Forest District Court properly granted summary judgment.

[00:01:20] Speaker 00:
The second is whether the Forest District Court

[00:01:23] Speaker 00:
properly struck all three of sensational expert witnesses.

[00:01:28] Speaker 00:
This case is a little unusual in that there were two summary judgment motions.

[00:01:32] Speaker 00:
The case was originally signed to Judge Karras.

[00:01:36] Speaker 00:
He held a summary judgment hearing, eliminated parts of the case, sent the rest.

[00:01:41] Speaker 01:
But that's past history.

[00:01:42] Speaker 01:
We have Judge Forrest's decision, right?

[00:01:45] Speaker 00:
Yes.

[00:01:46] Speaker 00:
But we believe that the court also should take into consideration the Karras decision.

[00:01:51] Speaker 00:
Because we have two district court judges looking at essentially the same facts.

[00:01:55] Speaker 00:
I agree the expert witnesses are different, but the facts of the case are the same.

[00:01:59] Speaker 00:
And they came to radically different decisions.

[00:02:01] Speaker 01:
Admission of expert testimony is very much a question of abuse of discretion.

[00:02:10] Speaker 01:
And she wrote pages and pages about why these witnesses weren't experts, for the most part, on what they were testifying to.

[00:02:19] Speaker 01:
And isn't that essentially beyond our review?

[00:02:24] Speaker 01:
Absolutely not.

[00:02:25] Speaker 00:
Abusive discretion is where there is a clear error of fact and law.

[00:02:29] Speaker 00:
And in this case, the district court made a number of clear errors of fact and law.

[00:02:35] Speaker 00:
If we look at our expert Dr. Sand, Dr. Sand's report and many of the writings about her in the decision were about her ability to opine on commercialization.

[00:02:47] Speaker 00:
And the district court said that,

[00:02:48] Speaker 00:
She only worked on one failed project.

[00:02:51] Speaker 00:
That was the basis upon which the district court made the first determination.

[00:02:55] Speaker 00:
And that was clear error.

[00:02:56] Speaker 00:
Her own CV, as well as the other information, showed that she clearly worked on a number of projects that were commercialized.

[00:03:04] Speaker 00:
And so the court made an error right at the beginning that is manifest.

[00:03:08] Speaker 00:
Also, we asked for reconsideration with respect to the striking of Judge Sand.

[00:03:13] Speaker 00:
And along with that request for reconsideration, we included a declaration from her.

[00:03:18] Speaker 00:
That declaration shows that she has 25 years of experience working in the field.

[00:03:24] Speaker 00:
She worked for big companies like Gerber, Pillsbury, Kraft General Foods.

[00:03:28] Speaker 00:
She has actually seven different projects she commercialized, brought to commercial position.

[00:03:35] Speaker 00:
She also wrote a book called The Packaging Value Chain, which explains how you do commercialization.

[00:03:42] Speaker 00:
And when we presented all this information to Judge Forrest,

[00:03:45] Speaker 00:
On our motion for reconsideration, we got back a one-page decision, and the judge did not address these qualifications at all.

[00:03:54] Speaker 00:
Simply didn't respond one way or another.

[00:03:56] Speaker 00:
What she did then was to move on to methodology, saying that Judge Sands had no methodology.

[00:04:02] Speaker 00:
Well, we believe that she did have a methodology.

[00:04:04] Speaker 00:
It's the methodology that's based on experience.

[00:04:07] Speaker 00:
She had this 25 years experience.

[00:04:09] Speaker 00:
She looked at the facts of the case.

[00:04:12] Speaker 00:
She compared them to her experience.

[00:04:14] Speaker 00:
And she then rendered a series of opinions throughout her report.

[00:04:18] Speaker 00:
And we believe that if you look to the advisory notes to Section 702, the advisory notes particularly say that where experience is the background, the quote, the method is the application of experience to the facts.

[00:04:34] Speaker 00:
That's precisely what Dr. Sands did.

[00:04:36] Speaker 00:
So she did have a methodology.

[00:04:38] Speaker 00:
The methodology is confirmed in the advisory opinion, I mean, advisory rules.

[00:04:43] Speaker 00:
and is also confirmed in the Scott case.

[00:04:46] Speaker 00:
So here you have the court, again, making another error in terms of how to treat this case.

[00:04:52] Speaker 00:
I can mention that also in terms of methodology.

[00:04:54] Speaker 00:
That same experience methodology was used by Dr. Kat Wallader.

[00:05:00] Speaker 00:
So she applied it both.

[00:05:01] Speaker 00:
She essentially created this kind of gauntlet for our expert witnesses.

[00:05:05] Speaker 00:
And she ran all of our witnesses through the gauntlet.

[00:05:07] Speaker 00:
And Pepsi's expert witnesses got a wave around the gauntlet

[00:05:13] Speaker 00:
Because their expert, for example, Dr. Hotchkiss, he'd only spent two years in industry.

[00:05:17] Speaker 00:
And all the rest of his time was in commercial.

[00:05:19] Speaker 00:
It was in academia.

[00:05:21] Speaker 00:
Yet he was found to be qualified to talk about commercialization.

[00:05:25] Speaker 01:
Counsel, ultimately, this case is about damages, right?

[00:05:29] Speaker 01:
And she found there was no way.

[00:05:30] Speaker 01:
There's a very small likelihood.

[00:05:34] Speaker 01:
that this product would have been commercialized.

[00:05:38] Speaker 01:
And that's a major hurdle for you.

[00:05:41] Speaker 00:
We believe if she had considered the evidence, she would not have come to that conclusion.

[00:05:45] Speaker 00:
There was an important memo, the memo from September 12.

[00:05:50] Speaker 00:
And it is in the appendix 4108 to 10.

[00:05:57] Speaker 00:
And that memo says that we had moved from phase one, and we were starting phase two.

[00:06:02] Speaker 00:
that all of the problems that we had had been solved, that this project in four months was to be prepped to launch.

[00:06:10] Speaker 00:
This was the understanding of both Coke and Pepsi.

[00:06:13] Speaker 00:
But she struck it as being hearsay on the basis that she thought it was created by a sensational employee when it wasn't.

[00:06:21] Speaker 00:
In fact, we had pointed out to the court in a statement of fact 35, our answer to Pepsi's statement of fact 35, that it had been done by a Coke employee.

[00:06:31] Speaker 00:
We even cited to a document, appendix 4230, which is an email from a Coke employee distributing the memo to other people, and also repeating some of the same things that it's in the memo, that essentially it is we're ready to go on the phase two.

[00:06:47] Speaker 00:
There are no problems.

[00:06:48] Speaker 00:
We're going to be ready to launch in January, just four months away.

[00:06:53] Speaker 01:
Well, if they were so close and it was so promising,

[00:06:57] Speaker 01:
Then why didn't they take a license under the Pepsi patent?

[00:07:01] Speaker 01:
And I noticed, if I read it correctly, Pepsi hasn't commercialized this product.

[00:07:08] Speaker 01:
That's true.

[00:07:09] Speaker 01:
They were accused of misappropriating the information, but they didn't commercialize it either.

[00:07:17] Speaker 00:
That's true.

[00:07:18] Speaker 00:
It's not actually part of this case, but it's not part of the appeal.

[00:07:23] Speaker 00:
But we believe they didn't commercialize it because they didn't know how.

[00:07:26] Speaker 00:
We had given them the information as trade secrets.

[00:07:30] Speaker 00:
They tried to do it on their own, and they failed miserably trying to do it on their own.

[00:07:33] Speaker 00:
And that's why they didn't commercialize it.

[00:07:35] Speaker 00:
And what the harm here is that even though they didn't commercialize it, they put it in patent applications so that the information became published.

[00:07:43] Speaker 00:
And it was during that same week from September 12th through to September 20th

[00:07:48] Speaker 00:
With all of this good information about both Coke and Sensational being ready to commercialize, suddenly came to an end when the Coke legal department found the Pepsi patent application.

[00:08:01] Speaker 00:
Now, I know the judge says, well, there's no way of showing whether or not that application caused it to be terminated.

[00:08:06] Speaker 00:
But that's simply not true.

[00:08:07] Speaker 00:
In that period from September 20 through to November 16 when it was finally terminated, there is a series of emails back and forth between the parties

[00:08:16] Speaker 00:
And the only thing they are discussing is the Pepsi application, the fact that they asked for indemnification, what happens if Pepsi sues them.

[00:08:26] Speaker 00:
That's the only thing they were concerned.

[00:08:27] Speaker 00:
And ultimately, the termination of the project said that the risk was too high for Coke's internal problems.

[00:08:36] Speaker 00:
If you look to also the issue of damages, the district judge said that they were all speculative.

[00:08:44] Speaker 00:
But we believe that the district court, in fact, misunderstood the law.

[00:08:47] Speaker 00:
The law in the Second Circuit is that if the plaintiff demonstrates a genuine issue of fact as to the existence of actual damages, then summary judgment is inappropriate even if the price, precise amount, or extent of damages is somewhat uncertain or speculative.

[00:09:02] Speaker 00:
And so we had a quantum of damages.

[00:09:05] Speaker 00:
Judge Farris had actually said those words.

[00:09:10] Speaker 00:
There's a quantum of damages that you've established.

[00:09:12] Speaker 00:
We also had the project, phase two of the project.

[00:09:15] Speaker 00:
What was the quantum that Judge Keras referred to?

[00:09:18] Speaker 00:
He did not specifically identify.

[00:09:20] Speaker 00:
He just looked at the overall evidence that we presented and said, you've established that you're entitled to a quantum of damage, not necessarily to the certain amount that your expert witnesses said.

[00:09:31] Speaker 00:
But I can give you some idea.

[00:09:32] Speaker 00:
Even after the case was put on legal hold, the Koch management

[00:09:41] Speaker 00:
asked us to continue into phase two, even without an agreement.

[00:09:44] Speaker 00:
And our people did that.

[00:09:46] Speaker 00:
When the hole was finally turned into a termination in September, it ended.

[00:09:51] Speaker 00:
We actually got paid for that part of the work.

[00:09:54] Speaker 00:
But we didn't get paid for completing that phase two part of the project.

[00:09:57] Speaker 00:
It is clear beyond a reasonable doubt that but for this interference, we would have gotten the rest of the money for phase two.

[00:10:03] Speaker 00:
And that's well over $100,000.

[00:10:05] Speaker 00:
So that's a quantum of damage that gets us past summary judgment and gets us to the point

[00:10:10] Speaker 00:
where we can talk about trying to establish what our total damages are.

[00:10:17] Speaker 03:
But you were asking for lost profits on the long right.

[00:10:21] Speaker 03:
I'm sorry?

[00:10:21] Speaker 03:
You were asking for lost profits in this case, right?

[00:10:25] Speaker 00:
Well, we were asking for what we lost as a result of the misappropriation.

[00:10:30] Speaker 00:
It includes the lost profit from the completing of phase two, as well as the lost profit from the commercialized product.

[00:10:37] Speaker 00:
And in terms of what we had to show for the commercialized product, on September 20, Sensational internally calculated what kind of income they would get based on the information in the memo of September 12.

[00:10:52] Speaker 00:
And they came to numbers that would support a figure of like $10 million per year eventually as a stream of income for them with this project.

[00:11:01] Speaker 00:
That's the kind of information where it's done internally as part of the business of the company

[00:11:06] Speaker 00:
that an expert can rely upon in order to determine the amount of money that they can recover.

[00:11:18] Speaker 00:
A brief comment on our damages expert.

[00:11:22] Speaker 00:
It was said that he had no methodology, but in his deposition, he identified the methodology that it used.

[00:11:28] Speaker 00:
It was said that he relied only on Dr. Sands and the client

[00:11:32] Speaker 00:
He actually took the client's information, including their tax records, and reviewed them completely before making his determination.

[00:11:38] Speaker 00:
The one issue may be the discounting.

[00:11:41] Speaker 00:
He said in his report, yes, the number that I give you needs to be discounted, but I can't tell how to discount it now.

[00:11:48] Speaker 00:
Relying on this court's decision in the energy capital case,

[00:11:52] Speaker 00:
It said that discounting is done as of the time of the judgment.

[00:11:55] Speaker 00:
And at that time, there was no judgment.

[00:11:57] Speaker 00:
So he couldn't follow the rules that this court laid down.

[00:12:00] Speaker 00:
So we believe that failure to discount, if anything, is a minor issue.

[00:12:05] Speaker 00:
It's certainly not something that we should be losing summary judgment on the basis of that.

[00:12:10] Speaker 03:
OK.

[00:12:10] Speaker 00:
Why don't we just say the rest for rebuttal.

[00:12:13] Speaker 00:
Thank you.

[00:12:27] Speaker 04:
May it please the court?

[00:12:29] Speaker 04:
To address Mr. Garner's points,

[00:12:32] Speaker 04:
as best as I can in order that they're raised, first with respect to the Daubert.

[00:12:37] Speaker 04:
Judge Larry, I believe you're correct with respect to the discretionary abuse of discretion standard that takes place in a review of the decisions that are made.

[00:12:44] Speaker 03:
But his response to that partly was that there were actual findings of fact that she made that he could pick out as being an error.

[00:12:54] Speaker 04:
Well, correct, Chief.

[00:12:57] Speaker 04:
To address the argument that he raises with respect to her background, however,

[00:13:02] Speaker 04:
Again, you just need to look to her opinion.

[00:13:04] Speaker 04:
at appendix 36 through 37, where she talks specifically about Dr. Sands past experience, her experience at Kraft, and how that did not constitute experience in all aspects of successful commercialization.

[00:13:21] Speaker 04:
She was digging into the CV.

[00:13:23] Speaker 04:
She was digging into the background of the expert to look at the qualifications.

[00:13:28] Speaker 04:
She also independently looked, in an independent step, looked to the methodology

[00:13:32] Speaker 04:
with respect to commercialization have found that that was unacceptable as well, that there was too much factual narrative, there was too much looking at things like the motives of the parties and the like, and made those determinations again by looking carefully at the facts and issuing, I believe, approximately 60 pages of opinions with respect to the Daubert issues.

[00:13:54] Speaker 04:
That's with respect to sand.

[00:13:57] Speaker 04:
Council made a point with respect to sans methodology and talking about sand in terms of basing her expertise on her experience And I think he does look to the correct place which is the advisory notes to federal rule of evidence 702 that were adopted in 2000

[00:14:15] Speaker 04:
But what Mr. Garner did not mention or talk about was how specifically there are three requirements talked about in those notes.

[00:14:23] Speaker 04:
It's been adopted by courts in the Second Circuit, such as Resolent, talking about how that expert, if they're going to rely on experience, has to tie that experience to the conclusion that is reached.

[00:14:34] Speaker 04:
has to talk about why that experience is sufficient, and then has to explain how that experience reliably applied to the facts.

[00:14:44] Speaker 04:
That was not done here.

[00:14:46] Speaker 04:
Instead, the trial court, in great detail by breaking it into seven categories of testimony that Dr. Sand had undertaken, went through each one

[00:14:57] Speaker 04:
to look at whether or not Dr. San had put forward the right type of analysis, thoroughness, and whether or not, if she was going to base it on experience, tie it out in the way that those requirements of Federal Rule of Evidence 702 are discussed in Resilient and elsewhere.

[00:15:17] Speaker 04:
With respect to Oberlein, the damages expert,

[00:15:22] Speaker 04:
which I think it was his final point, just a reminder to the court that what she did for that, what the trial court did, was found that his methodology was unacceptable because in two ways.

[00:15:33] Speaker 04:
What he did was he did not account for risk.

[00:15:36] Speaker 04:
He did not account for risk.

[00:15:38] Speaker 04:
He basically cherry picked from two different methodologies that damages experts oftentimes use with lost profits.

[00:15:45] Speaker 04:
But he didn't use those portions that are the check, the check that looked to basically account for risk.

[00:15:52] Speaker 03:
But that doesn't have, of your friend's final point, was predicated on lost profits, including not just what's happened once it commercialized, but also its work at phase two and its compensation for phase two.

[00:16:08] Speaker 03:
And it seems like the basis for striking this damages expert didn't really cover that piece of it, right?

[00:16:15] Speaker 04:
I believe that the judge addressed the development fees issue in the summary judgment motion.

[00:16:20] Speaker 04:
But let me do it here and now.

[00:16:22] Speaker 04:
The alternative so when we turn in the summary judgment did she address it if she did because I didn't I may have missed it, but I may have Let me have it my team checking that before I sit down that's fine with respect to the development fees Point just a couple of quick points to one they are characterizing those as lost profit damages

[00:16:44] Speaker 04:
And if they're going to characterize it as lost profit damages, I have two issues or two problems with what they're doing.

[00:16:51] Speaker 04:
First is they have put forward no evidence that it was agreed to in terms of a contract or the type of thing setting out the obligations going forward.

[00:17:01] Speaker 04:
But more fundamentally than that is if they're claiming it's lost profits, they've put forward no evidence showing what the cost

[00:17:08] Speaker 04:
was with respect to this development fees or what the profit, lost profit, could have been.

[00:17:15] Speaker 04:
They haven't created it.

[00:17:16] Speaker 01:
Lost profits usually involve a situation where you have sales.

[00:17:21] Speaker 04:
Correct, Your Honor.

[00:17:21] Speaker 01:
Here, there were never any sales.

[00:17:24] Speaker 01:
And so what ultimately gets down to whether there was a likelihood of commercialization.

[00:17:29] Speaker 04:
Correct.

[00:17:30] Speaker 04:
I agree with you.

[00:17:31] Speaker 04:
And this development fee notion is really on the side.

[00:17:34] Speaker 03:
Was it preserved?

[00:17:36] Speaker 03:
Was it raised?

[00:17:38] Speaker 04:
I believe it was mentioned in sensational summary judgment brief, Your Honor.

[00:17:46] Speaker 04:
But in doing so, this court has the opportunity on a de novo review.

[00:17:51] Speaker 03:
Was it raised in the context of being a portion of lost profits?

[00:17:58] Speaker 04:
Sensational maintains that they are seeking, I believe, exclusively lost profits in this case.

[00:18:04] Speaker 04:
They do not characterize the development fees as

[00:18:09] Speaker 04:
actual damages, Your Honor.

[00:18:11] Speaker 04:
It's in the portion of the brief that's talking about lost profits.

[00:18:15] Speaker 04:
Compared to the $73 million being sought of lost profits, generally, we're talking about something that, while they've marked it as confidential, I'd refer you to the briefing, and that it is in the low hundreds of thousands of dollars with respect to this development fee point.

[00:18:32] Speaker 02:
Nonetheless, if they have raised it, and if, as you suggested earlier, the judge addressed it and presumably rejected that as a basis for recovery,

[00:18:43] Speaker 02:
then it puts the case in a different light from what it might be if all we were talking about is the lost profits in the conventional sense of that term.

[00:18:53] Speaker 02:
Because they have rather different, it seems to me, arguments with respect to phase two payment versus whatever would have happened after commercialization, if commercialization ever occurred.

[00:19:07] Speaker 04:
Fair enough in terms of the distinction, but if they're going to create a distinction on the development fees for phase two, and they're going to characterize it as lost profits, in order to create a material issue of fact on that issue, they need to put forward evidence of what the profit was.

[00:19:26] Speaker 04:
A material issue of fact that there was some profit gained or some evidence with respect to what their cost was going forward.

[00:19:35] Speaker 04:
They put forward an unsigned agreement

[00:19:37] Speaker 04:
that basically lists out that they drafted that there is no evidence in the record was agreed to definitively by Coca-Cola for going forward.

[00:19:48] Speaker 04:
And they're going to use that as a lost profit, lost profit claim.

[00:19:54] Speaker 02:
The nomenclature that was used seems to me not nearly as important as the substance of what was going on.

[00:19:59] Speaker 02:
Now, if the substance of what was going on is there was not a signed agreement with respect to phase two, but there was

[00:20:06] Speaker 02:
an understanding between the parties that phase two would continue.

[00:20:11] Speaker 02:
And phase two apparently did continue.

[00:20:13] Speaker 02:
And they continued to be paid for phase two until the termination on September 22, or whatever it was.

[00:20:19] Speaker 02:
Then they have an argument that in all likelihood, they would have at least been able to complete phase two and been paid for it.

[00:20:27] Speaker 04:
I think the difficulty, again, is there's two or three difficulties.

[00:20:30] Speaker 04:
One is with respect to the documents that they base it on, whether it provides a proper basis for creating a material issue of fact on that.

[00:20:37] Speaker 04:
The second is as to whether or not, again, they've characterized that it's lost to profits, and how they're going to create a material issue of fact on it, and whether they've properly raised that issue.

[00:20:47] Speaker 04:
They have not raised that issue as an actual damages issue in their briefing.

[00:20:53] Speaker 04:
and talked about it, and they didn't below either.

[00:20:57] Speaker 04:
And so in terms of trying to make an argument and a response to it, that's why I have to think.

[00:21:02] Speaker 02:
You said they didn't raise it in their briefing.

[00:21:04] Speaker 04:
As an actual damages argument.

[00:21:07] Speaker 04:
They're raising it as seeking partially what they claim to be lost profits.

[00:21:11] Speaker 04:
I believe Mr. Garner did that today.

[00:21:12] Speaker 02:
I don't know that it's terribly helpful to be saying that they called it the wrong thing.

[00:21:18] Speaker 02:
If they made perfectly clear what they were asking for, then that seems to me that ought to be what we are attending to, not if they gave it the wrong name.

[00:21:28] Speaker 04:
Let's go with all the assumptions that they got it right or that they're getting to the right place.

[00:21:32] Speaker 04:
They still have to put forward a material issue of fact with respect to the creation of the agreement

[00:21:36] Speaker 04:
the performance that would take place, and what their profits would be.

[00:21:40] Speaker 04:
Agreed?

[00:21:40] Speaker 04:
With respect to creating a material issue, it's backed on summary judgment.

[00:21:44] Speaker 04:
And they haven't done that here.

[00:21:46] Speaker 04:
They make reference to the agreement.

[00:21:48] Speaker 04:
They don't make any claim in terms of what those damages are.

[00:21:51] Speaker 04:
They claim that they should be entitled to the full amount of the development fees that they were going to go forward to get, but that never took place.

[00:22:03] Speaker 04:
And they claim all of it and not

[00:22:05] Speaker 04:
the profit that would result from it.

[00:22:07] Speaker 01:
That sounds like a breach of contract claim.

[00:22:10] Speaker 04:
It does.

[00:22:12] Speaker 04:
And it sounds like a breach of contract claim really for actual damages.

[00:22:17] Speaker 04:
And again, what we were dealing with with respect to their arguments below were trade secret claims and in the alternative breach of contract claims that rose and fell together by all courts that we're looking at, whether you're talking about Judge Karras in his first opinion or Judge Forrest in her second opinion.

[00:22:34] Speaker 04:
In terms of the causation point, before turning to damages on summary judgment causation, there were some characterizations of the record by Mr. Garner.

[00:22:49] Speaker 04:
And I'd just like to remind the court of the analysis that the trial court did and some of the citations that she made to the record that included, again, the really uncontroverted testimony from the Coca-Cola witnesses who were subpoenaed and deposed by

[00:23:04] Speaker 04:
counsel for sensational, who had testified that at the time of termination, the likelihood of commercialization was, quote, very low, talked about how even in that later stage, where they were talking about things such as prep to launch, that it was still very far out, that that would just be the beginning stages.

[00:23:26] Speaker 04:
That's found in the red brief of page 12, joint appendix 3106.

[00:23:31] Speaker 04:
Above and beyond that, another co-witness, Mr. Aranda, who testified that the technology never worked, so I cannot assume that it was going to work.

[00:23:42] Speaker 04:
And that can be found at the joint appendix 3026 and at the red brief at pages 10 and 22.

[00:23:50] Speaker 04:
Finally, Mr. Aranda's testimony regarding business commitment and that no business unit was committed to the project.

[00:23:59] Speaker 04:
that is found at the joint appendix at 3029 and at the red brief at page 43.

[00:24:05] Speaker 04:
So again, there is a clear set of evidence with respect to the company that was responsible for and going to be seeing this through to commercialization, which was Coca-Cola, that in their opinion, there were significant issues remaining that made commercialization unlikely.

[00:24:23] Speaker 04:
That's why the Sand opinion was so important in terms of the Dauber.

[00:24:28] Speaker 04:
that what Sand had done was taken the 35% likely testimony from the Koch witness, the very unlikely testimony, and transformed that into high likelihood of commercialization.

[00:24:41] Speaker 04:
That's what Judge Forrest was looking at on the Daubert in terms of whether or not to allow her testimony on commercialization to go forward.

[00:24:49] Speaker 04:
She acted within her discretion to exclude that for lacking any kind of rigor or methodology.

[00:24:56] Speaker 04:
And that's what left this case on summary judgment in terms of creating a material issue of fact.

[00:25:02] Speaker 04:
Yes, Your Honor.

[00:25:03] Speaker 02:
My understanding is that Judge Forrest did not act on your motion for summary judgment with respect to the existence of and breach of the misappropriation of trade secrets.

[00:25:17] Speaker 02:
That was left standing by the side of the road, essentially, when she entered the summary judgment that she did.

[00:25:26] Speaker 02:
Why isn't that, if there is a submissible case on the question of whether there were trade secrets and whether they were misappropriated, why wouldn't the plaintiffs, at least in theory, be entitled to nominal damages, even if their theory for the recovery of lost profits or the phase two damages would fail?

[00:25:51] Speaker 04:
I'll get to it.

[00:25:52] Speaker 04:
I think I've got your question, which is so we've got our arguments with respect that we were successful on summary judgment with respect to causation and then independently with respect to damages.

[00:26:03] Speaker 04:
We had additional arguments at the trial court level with respect to

[00:26:06] Speaker 04:
the existence of the trade secret and the misappropriation.

[00:26:09] Speaker 02:
And they haven't been addressed yet.

[00:26:10] Speaker 04:
Haven't been addressed yet, weren't addressed by the district court.

[00:26:13] Speaker 04:
And your question is if all four elements are found to exist in terms of creating a material issue of fact to go to a jury, would they be entitled to nominal damages?

[00:26:23] Speaker 02:
Well, if the elements of existence and misappropriation were satisfied even in the absence of proof of causation and damages in the form of lost profits, wouldn't they be entitled to get to a jury for at least a nominal damages award?

[00:26:40] Speaker 02:
I wouldn't think so.

[00:26:41] Speaker 02:
The causation I take it is the causation of a loss of all these profits from the

[00:26:52] Speaker 02:
downstream consequences of misappropriation.

[00:26:55] Speaker 04:
I think I agree with you in the sense that there's still the fundamental causation problem that they are seeking recovery for an injury that they claim is a result of the misappropriation of the existence of the trade secret and they have to make that link.

[00:27:11] Speaker 04:
The point that we were making below and that we believe should be affirmed here today

[00:27:15] Speaker 04:
is that they have failed to create a material issue with respect to that causal link, that proximate cause.

[00:27:21] Speaker 04:
So that even if there is a trade secret and there is a misappropriation of that trade secret, you still have to show that it caused some form of damage, even if it gets nominal.

[00:27:35] Speaker 02:
Is damages an element of the cause of action for trade secret?

[00:27:40] Speaker 02:
I didn't think that was so in New York law.

[00:27:46] Speaker 02:
I have seen it addressed in the briefs that suggest that that's not so.

[00:27:50] Speaker 04:
I've seen it listed in elements by some New York courts and not listed in other elements by other New York courts.

[00:27:56] Speaker 04:
I've seen analysis and discussion of it as being necessary for recovery of damages, whether or not those courts are making.

[00:28:05] Speaker 02:
But if, in fact, it's true that the showing of actual damages is not an element of the

[00:28:13] Speaker 02:
cause of action for misappropriation of trade secrets, then would they not be entitled at least to have that question resolved by the court and potentially get nominal damages?

[00:28:29] Speaker 04:
Again, I don't think if they have failed to show causation.

[00:28:32] Speaker 04:
I think there would still have to be some kind of link to... I don't think that they're... I'm not aware of the case law that says that they're entitled to nominal damages without creating any kind of link between

[00:28:44] Speaker 04:
their existence and misappropriation assertion and the injury that they claim to suffer.

[00:28:51] Speaker 01:
Did the court find that there was no trade secret proved?

[00:28:56] Speaker 04:
No, Your Honor.

[00:28:57] Speaker 04:
The court simply didn't address the issue.

[00:28:59] Speaker 04:
So Your Honor is correct that the court did not address arguments raised by PepsiCo

[00:29:07] Speaker 04:
that there was no recognizable, there was no trade secret in existence, and then that there was, second, no misappropriation of that trade secret.

[00:29:18] Speaker 04:
Instead, the trial court issued its summary judgment on two independent grounds, causation and damages.

[00:29:28] Speaker 04:
Thank you, Your Honor.

[00:29:38] Speaker 00:
I would like to address some of the issues raised by my worthy colleague.

[00:29:42] Speaker 00:
The testimony about Mr. Aranda.

[00:29:44] Speaker 00:
Mr. Aranda did not actually work on the project.

[00:29:46] Speaker 00:
He was not at the meeting that was held on September 12.

[00:29:49] Speaker 00:
He talked about issues with the project not working, which occurred before September 12.

[00:29:54] Speaker 00:
The very critical nature of the September 12 memo is that it points out the fact that the issues that had been raised before as to whether or not this was a viable project had been overcome.

[00:30:06] Speaker 00:
and that we were moving on to commercialization.

[00:30:10] Speaker 00:
Also, it should be pointed out that Mr. Gibbs did say he believed that at the time of termination, the likelihood of commercialization was 35%.

[00:30:20] Speaker 00:
And it was also with respect to all the information known at the time.

[00:30:26] Speaker 00:
At that time of termination, in November of 2011, they knew about the Pepsi patent application.

[00:30:33] Speaker 00:
They discussed it.

[00:30:35] Speaker 00:
Sensational tried to convince Coke to go ahead, despite it saying, ah, the patent will never issue.

[00:30:40] Speaker 00:
And there was a back and forth.

[00:30:41] Speaker 00:
At that point, it was 35%.

[00:30:43] Speaker 00:
Before the Pepsi application introduction, it was more likely than not this was going to be commercialized.

[00:30:52] Speaker 00:
Further.

[00:30:52] Speaker 00:
What's your evidence of that?

[00:30:54] Speaker 00:
I'm glad you asked me that.

[00:30:56] Speaker 00:
There was an email, which was exchanged between Coke and Pepsi on September 14 and 16.

[00:31:03] Speaker 00:
The guy on the Coke side was a global vice president at Coke.

[00:31:07] Speaker 00:
And what the judge did, in her opinion, is took a sentence out of his email, which was, it was a pleasure meeting you.

[00:31:13] Speaker 00:
What appendix page is the email?

[00:31:15] Speaker 00:
The email is 4112.

[00:31:16] Speaker 00:
And it's a one page.

[00:31:21] Speaker 00:
The sensational part is at the bottom.

[00:31:24] Speaker 00:
Coke is at the top.

[00:31:25] Speaker 00:
The court picked one sentence at an email.

[00:31:27] Speaker 00:
It was a pleasure meeting you last week.

[00:31:29] Speaker 00:
And the court said, this simply cannot support an inference of commercial commitment.

[00:31:33] Speaker 00:
Well, of course it doesn't.

[00:31:34] Speaker 00:
But if you read the rest of the email, what you see is that both parties agreed that they together were going to make the project a great success.

[00:31:42] Speaker 00:
In the very sentence after that one, the Koch vice president said that he was looking forward to some breakthrough work.

[00:31:53] Speaker 00:
That is not the mind of a person about to cancel a project.

[00:31:56] Speaker 00:
It's a person who believes they're going ahead with the project and who expects to show this project in January in prep to launch phase.

[00:32:05] Speaker 00:
There was also an email on September the 20th.

[00:32:07] Speaker 00:
It's appendix 3214.

[00:32:09] Speaker 00:
And that's from the same Koch engineer, Gibbs, saying that he was urging the Koch legal department to approve phase two at the assistance of management.

[00:32:21] Speaker 00:
Both parties, up until this legal hold,

[00:32:24] Speaker 00:
were of a mindset that they were going to continue on, and that this was going to be a commercialized product, and only four months away.

[00:32:32] Speaker 00:
There are some other issues that we should look at.

[00:32:37] Speaker 00:
The Alpert issues.

[00:32:42] Speaker 00:
The district court improperly struck the testimony of our damages expert.

[00:32:48] Speaker 00:
Yes, he looked at the proper information

[00:32:52] Speaker 00:
He used a well-understood technology, a well-understood methodology, and arrived at reasonable figures.

[00:32:58] Speaker 00:
And he's entitled to rely on an expert report, that is the expert report of Dr. Sands, even if it's contested.

[00:33:05] Speaker 00:
He's still allowed to, under the rules, to rely on that.

[00:33:08] Speaker 00:
He's allowed to rely on the client's information that's provided, as long as he analyzes it.

[00:33:12] Speaker 00:
And he did.

[00:33:13] Speaker 00:
So we believe that that's not the correct standard.

[00:33:16] Speaker 00:
And in terms of the advisory notes,

[00:33:19] Speaker 00:
We think that in reviewing the SANS as well as the Cadwallader opinions, you will see that they did precisely what the advisory notes asked for.

[00:33:26] Speaker 00:
They set forth their criteria.

[00:33:28] Speaker 00:
They looked at the factors in the record to show what was important in their mind.

[00:33:33] Speaker 00:
And they rendered opinions based on that.

[00:33:35] Speaker 00:
That's precisely what this was supposed to happen.

[00:33:38] Speaker 00:
And so I believe also, to your point, we cited a case in our briefing

[00:33:44] Speaker 00:
that shows that we're entitled to nominal damages even without the causation.

[00:33:47] Speaker 00:
So you are precisely right on that issue.

[00:33:49] Speaker 03:
Well, besides the citation of the case, is there any other argument made in your briefs that you're entitled to nominal damages?

[00:33:55] Speaker 00:
Well, we made it in connection with the citation.

[00:33:58] Speaker 00:
We said, even if these aren't done, we're entitled to nominal damages.

[00:34:03] Speaker 00:
I'm sorry.

[00:34:04] Speaker 00:
I don't have the cite right now because I didn't anticipate that was going to be an issue.

[00:34:10] Speaker 00:
But if it might continue, why?

[00:34:12] Speaker 00:
I think that's at page 46 of your brief.

[00:34:14] Speaker 02:
OK.

[00:34:16] Speaker 02:
So 46, middle of the page.

[00:34:22] Speaker 03:
That's under your argument with regard to inventorship.

[00:34:28] Speaker 03:
So was the question about?

[00:34:33] Speaker 03:
Shouldn't be there.

[00:34:35] Speaker 03:
Do you have your brief?

[00:34:38] Speaker 02:
Yeah, that is the brief.

[00:34:40] Speaker 03:
under inventorship, which I guess could maybe be nominal damages for inventorship.

[00:34:45] Speaker 00:
I don't know.

[00:34:46] Speaker 00:
But it is under inventorship.

[00:34:46] Speaker 00:
I guess that's true, too.

[00:34:48] Speaker 03:
OK.

[00:34:51] Speaker 03:
So the argument for nominal damages was made in connection with inventorship.

[00:34:55] Speaker 00:
With respect to inventorship, that's an error.

[00:34:57] Speaker 00:
I believe it's broader than that if you read the case.

[00:34:59] Speaker 00:
But nevertheless, that's where we cited it.

[00:35:03] Speaker 00:
What you have to do is understand that the commercialization project

[00:35:10] Speaker 00:
was so important to Coke that even after the legal hold, they asked us to continue ahead and to continue to work on it because they believed in the project.

[00:35:20] Speaker 00:
And Coke is the largest bottling company in the world.

[00:35:24] Speaker 00:
They are sophisticated.

[00:35:26] Speaker 00:
They market.

[00:35:26] Speaker 00:
I can't mention the number, but it's billions of these things that we're talking about.

[00:35:32] Speaker 00:
And Mr. Harper said that we put no evidence in.

[00:35:37] Speaker 00:
You can look at appendix 4129, appendix 4181, 4208 through 09, and 4188.

[00:35:47] Speaker 00:
And what that basically shows is that there was an understanding.

[00:35:52] Speaker 00:
They just asked to do it.

[00:35:54] Speaker 00:
They're a big client.

[00:35:55] Speaker 00:
We did it.

[00:35:56] Speaker 00:
And that we sent them a bill at the end of the project, and that they paid it.

[00:36:00] Speaker 00:
It's reflected in our income tax statement, which is here.

[00:36:04] Speaker 00:
And the question is, OK, well, what's the cost differential?

[00:36:08] Speaker 00:
You have two guys doing whatever they can to get this project done.

[00:36:12] Speaker 00:
Was there some cost?

[00:36:13] Speaker 00:
I imagine there was.

[00:36:15] Speaker 00:
But it's trivial compared to well over $100,000.

[00:36:18] Speaker 00:
So we can at least assume that the quantum of damages had been proven.

[00:36:24] Speaker 00:
And our point all along was we have been damaged.

[00:36:27] Speaker 00:
Whether it's lost profits from a project, we were damaged.

[00:36:32] Speaker 00:
And in fact, our damages go even wider.

[00:36:34] Speaker 00:
They ruined an agreement that we had with Coat, where if this was successful, it was going to roll out through a bunch of products within the Coat industry.

[00:36:43] Speaker 00:
And that is a clear indication of the difference between when damages are speculative.

[00:36:50] Speaker 00:
Oh, am I over?

[00:36:51] Speaker 00:
I'm sorry.

[00:36:51] Speaker 00:
Yes, you are.

[00:36:53] Speaker 00:
Thank you very much for your attention.

[00:36:59] Speaker 03:
Oh, yeah.

[00:37:00] Speaker 03:
Thank you very much.

[00:37:01] Speaker 03:
We just had a query on Mr. Harper.

[00:37:03] Speaker 02:
Mr. Harper, you were going to look at something in Judge Forrest's opinion as to whether she had made a mention of the phase two claim for damages.

[00:37:16] Speaker 02:
Did you find anything in her opinion?

[00:37:46] Speaker 03:
Yes, I know.

[00:37:52] Speaker 04:
As to whether Judge Forrest opined on the development fee, I don't believe she did in the summary judgment opinion, Your Honor.

[00:38:00] Speaker 04:
And if she did and we find it, we'll make a supplemental submission to you.

[00:38:04] Speaker 03:
Okay.

[00:38:04] Speaker 03:
Thank you.

[00:38:05] Speaker 03:
We thank both sides.

[00:38:06] Speaker 03:
The case is submitted.