This copyright infringement case was brought by JBrick, LLC (“JBrick”) against Chazak Kinder, Inc., Chazak Distribution, Inc., Marav USA LLC, and Yaacov Schwartz (collectively “Defendants”) in the United States District Court for the Eastern District of New York. JBrick alleged that the Defendants infringed on their copyright for a lego model of the Second Holy Temple by creating and selling a similar product.
JBrick was established in 2014 by Yitzchok and Channie Kasowitz with the goal of creating Jewish-themed custom lego sets, one of which was an accurately scaled lego model of the Second Holy Temple. In November 2018, Kasowitz displayed JBrick’s completed Second Holy Temple model at a convention where he met Defendant Schwartz. Shortly thereafter, Defendants began selling a model that JBrick alleged was nearly identical to their copyrighted Second Holy Temple model.
In May 2021, JBrick filed a complaint against the Defendants for copyright infringement. On April 25, 2022, Plaintiff filed its second amended complaint. On August 19, 2022, the parties completed expert discovery. JBrick hired a damages expert, Michael D. Pakter, to calculate the actual damages suffered by JBrick and any profits earned by the Defendants that were attributable to the alleged infringement. The Defendants retained their own rebuttal expert on damages, Trevor McClain-Duer. Plaintiff moved to exclude certain of McClain-Duer’s opinions and testimony in response.
After discovery concluded, the Defendants filed a motion to strike the expert opinions of Pakter. Specifically, Defendants had raised several objections to Pakter’s opinions. These objections included his assertion that Plaintiff would have sold an equal number of the copyrighted set as Defendants sold of the accused product, his claim that damages should encompass the Temple Mount Product and the unsold inventory of the Temple Mount Product, his evaluation of Defendants’ profits from the allegedly infringing product, and his suggestion that “JBrick can recover both its lost profits and a disgorgement of Defendants’ profits.” During that time, Plaintiff had maintained that Pakter’s opinions were grounded in “complex but transparent calculations” designed to help the jury comprehend the financial aspects underpinning the damages asserted in the case.
Accounting Expert Witnesses
Michael D. Pakter is a certified public accountant, registered and licensed in the State of Illinois, with over 40 years of experience in accounting and forensic accounting. He holds a Bachelor of Commerce and a Bachelor of Accountancy from Witwatersrand University, in South Africa. The American Institute of Certified Public Accountants has recognized him as “Certified in Financial Forensics” and as a “Chartered Global Management Accountant.” He has earned several other certifications including as a “Certified Valuation Analyst” and “Master Analyst in Financial Forensics” from the National Association of Certified Valuators and Analysts, and as a “Certified Insolvency and Restructuring Advisor” from the Association of Insolvency and Restructuring Advisors. Michael Pakter has over 20 years of experience in determining economic damages and performing business valuations. He is currently the Managing Member of Gould & Pakter Associates, LLC (“G&P”). He was retained on account of his extensive accounting experience to opine about the Plaintiff’s damages assuming Defendants’ liability.
Trevor McClain-Duer is a certified public accountant, registered and licensed in the State of Illinois. He holds a Bachelor of Business Administration from the University of Notre Dame and a Master’s Degree in Accounting from Ohio State University. He is a Chartered Financial Analyst with over 15 years of experience in valuation and determining economic damages. He is currently the Director of Valuation at Caliber Advisors, Inc., an expert valuation and economic consulting firm.
Discussions by the Court
The Court first examined Pakter’s qualifications and found he had significant accounting and damages calculation experience to serve as an expert on economic damages. Turning to the reliability of Pakter’s opinions, the Court addressed four disputed aspects of his testimony.
First, it denied striking Pakter’s opinion that JBrick would have sold an equivalent number of temple models as Defendants, despite the price difference between the products. Pakter had suggested that, assuming the Defendants’ liability, one possible method for calculating actual damages was to consider “JBrick’s lost profits for its Holy Temple product.” This calculation involved assuming that Plaintiff would have made all or various fractions of the infringing sales that Defendants had made. However, the Defendants had raised objections to this calculation, deeming it speculative. They pointed out a significant disparity in the sale price between the two products, with Plaintiff’s Second Holy Temple Product priced at $613 compared to the Defendants’ allegedly infringing product priced at $60.
Nonetheless, it was argued that nothing indicated that Pakter’s conclusion, which suggested that Plaintiff would have sold an equal number of its Second Holy Temple Product as Defendants, was so unrealistic or contradictory as to imply bad faith on his part.
Second, Plaintiff contended that its Second Holy Temple Product and a second product known as the “Temple Mount Product” were “directly related.” Consequently, they argued that Pakter could factor in the lost sales of the Temple Mount Product when calculating Plaintiff’s damages. The Temple Mount Product was designed to complement and enhance the educational value of the Second Holy Temple Product. Court determined that while such a damages theory was not inconceivable, the Plaintiff had failed to provide credible evidence of a clear relationship between the sales of the two products absent evidence of lost customers or canceled orders for the Temple Mount Product as a direct result of the alleged infringement.
Third, Defendants argued that Pakter’s calculation of their profits was not reliable. They pointed out that his use of a “per unit cost” figure and his failure to account for the total loss of 300 products donated by Defendants to charity were issues of concern. In response, the Plaintiff had maintained that Pakter’s methodology was indeed reliable. According to the Plaintiff, the core of the dispute between the parties revolved around whether profits and costs should be calculated on a per-unit bought-and-sold basis or based on all products manufactured at one time and the decisions made by the Defendants regarding the disposition of those products. Court held that the Defendants showed no authority proving Pakter’s approach was unreliable. At most, the parties disagreed on the appropriate profit analysis, weighing on Pakter’s credibility rather than admissibility. The Court ruled the jury should resolve this battle of the experts.
Fourth, Defendants argued that Pakter had inappropriately opined that the Plaintiff should be entitled to profits from Chazak’s downstream distributors. Furthermore, the Defendants had contended that Pakter’s opinion was based on the premise that the Plaintiff could not only recover for Chazak’s alleged infringement but also claim downstream profits resulting from the same alleged infringement of a single product.
However, the Court had determined that in cases where two or more individuals were involved in or contributed to a single infringement, they were all jointly and severally liable. In such instances, within a single infringement action, only a single set of statutory damages could be considered. This was because the Copyright Act allowed for only a single recovery for a single sale, and the Court’s decision addressed the issue of multiple parties and liability in the context of copyright infringement.
Plaintiff had sought the exclusion of specific opinions and testimony from McClain-Duer. Their basis for this exclusion request rested on the assertion that McClain-Duer lacked the qualifications to provide expert opinions on three key aspects: (i) the size of the market for JBrick’s Second Holy Temple Product; (ii) “price-point comparisons” related to the Second Holy Temple Product; and (iii) JBrick’s manufacturing capabilities.
In response to this request, the Defendants had argued that McClain-Duer was functioning as a rebuttal expert. His role was primarily focused on identifying deficiencies in Pakter’s report, specifically highlighting the Plaintiff’s failure to establish, using competent evidence, the size of the market for the Second Holy Temple Product and the manufacturing capabilities of JBrick. This dispute had centered on the qualifications and role of McClain-Duer in the case.
The Court found McClain-Duer qualified as an expert on economic damages but lacking in foundation to opine on the size of the market for JBrick’s product or its manufacturing capabilities. McClain-Duer was capable of identifying deficiencies in Pakter’s report. However, he was not qualified to go further and provide an opinion based on research indicating that lego branded sets from popular movies and TV shows sold for significantly less, indicating an insufficiently large market for the Temple product. Similarly, while McClain-Duer could point out that Pakter’s calculations assumed that the Plaintiff could have produced and sold over 15 times the number of sets he actually sold during the same time period, he lacked the qualifications to opine that the Plaintiff did not have the product manufacturing capabilities or capacity to manage such a significant increase in sales. This was because McClain-Duer did not possess the necessary expertise in the field more closely aligned with this opinion, which would be industrial engineering.
Therefore, the Court struck McClain-Duer’s testimony regarding the potential market for JBrick’s temple model, comparisons to other lego prices, and JBrick’s ability to meet higher production levels. It found these opinions exceeded McClain-Duer’s economic damages expertise and amounted to advocacy without qualification.
Court excluded the portions of Duer-McClain’s report and testimony purporting to describe the size of the market for JBrick’s Second Holy Temple Product, “price-point comparisons” related to the Second Holy Temple Product, and JBrick’s manufacturing capabilities.
Held
The Court granted in part and denied in part the Defendants’ motion to strike the opinions of Michael Pakter, and granted the Plaintiff’s motion to strike certain opinions and testimony of Trevor McClain-Duer. The Court has not arrived on an outcome for this case since the remaining issues involved in this case still await resolution.
Key Takeaways
This case demonstrates the importance of scrutinizing the scope and reliability of expert witness testimony through Daubert motions. The Court served a gatekeeping role to restrict expert opinions to only what the witness was qualified to offer and exclude speculative or unsupported theories.
For Pakter, most of his damages calculations passed muster as grounded in reasonable methodology for the jury to assess. However, his assumption of losses on a non-infringed product went too far without evidence of causation. This highlights how courts will strike expansive expert opinions that lack factual support in the record.
Meanwhile, for McClain-Duer, his opinions on the size of the market for the Second Holy Temple Product and manufacturing capability of the Plaintiff required demonstration of expertise in the field more closely aligned to such opinions. This shows how rebuttal experts cannot provide opinions that go beyond the scope of their own expertise.
In summary, this case reinforces the principles that expert testimony must stay within the witness’s area of specialized knowledge and have a reliable factual basis.
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