Sumotext Corp. -v- Zoove, Inc.

Background

This antitrust case was approaching trial. Sumotext filed two Daubert motions, which are requests to prevent expert testimony from reaching the jury because it does not meet the reliability and relevance requirements of Federal Rule of Evidence 702. The motions concerned opinions from Dr. Debra Aron, the defendants’ antitrust rebuttal expert, and Greg J. Regan, the defendants’ damages rebuttal expert.

Sumotext did not challenge either expert’s qualifications. The court found that Dr. Aron was qualified in her field and that Regan was qualified based on his accounting licenses and experience analyzing economic damages. Sumotext instead argued that particular opinions lacked foundation or relied on unreliable methods.

Dr. Aron’s Market Opinions

Sumotext’s antitrust expert, Dr. Ryan Sullivan, identified two relevant markets: leasing StarStar numbers in the United States and servicing StarStar numbers in the United States. Dr. Aron criticized Sullivan for failing to consider other direct-marketing channels, including toll-free numbers, vanity phone numbers, mobile short codes, text messages, Quick Response codes, and search-engine optimization.

Sumotext argued that Aron was improperly offering her own market definitions without conducting an independent market analysis. The defendants responded that Aron was properly criticizing Sullivan’s method as a rebuttal expert and did not need to define a market herself.

The court agreed with the defendants. It found that Aron was challenging Sullivan’s methodology rather than independently determining the relevant markets or deciding which products were adequate substitutes. The court also treated statements that might appear to describe a broader market as part of Aron’s criticism of Sullivan’s analysis. The court denied Sumotext’s motion to exclude Aron’s opinions about Sullivan’s market definitions.

Dr. Aron’s “Single Monopoly Profit” Opinion

Aron also opined that, if Sullivan’s market definitions were accepted, Sullivan’s conclusion about excluding Sumotext as a reseller was internally inconsistent under the “single monopoly profit” economic principle. That principle, as described in the opinion, generally concerns whether an upstream monopolist has an economic incentive to exclude efficient downstream resellers.

Sumotext argued that Aron could not use this theory without defining the relevant markets or performing her own market analysis. The court rejected that argument because Aron was using the theory conditionally to identify an alleged inconsistency in Sullivan’s report; she did not need to prove that Sullivan’s market definitions were correct.

Sumotext also argued that the theory had been discredited. The court found that Sumotext had not shown that economists had uniformly rejected it. Because qualified experts disagreed about the theory’s application, the court characterized the dispute as a “battle of the experts” that should be addressed through opposing evidence and cross-examination. The court denied Sumotext’s motion to exclude Aron’s opinions about the principle.

Regan’s Damages Model

Sumotext’s damages expert, Dr. Alan G. Goedde, calculated the present value of Sumotext’s alleged lost profits at $9,223,500. Regan criticized Goedde’s methods and offered an alternative calculation of $1,105,200 in alleged lost profits, if any.

Sumotext challenged Regan’s use of a 75% lease-cancellation rate. Regan had calculated an 82% cancellation rate for Sumotext’s leases and a 67% rate for StarStar Mobile’s leases, but used the lower 75% rate in his damages model. He explained that he considered the other company’s cancellation rate, the possible resolution of the Verizon VoLTE issue, and the possibility that Sumotext would improve at avoiding cancellations over time.

The court found that Regan adequately explained the adjustment and that his use of professional judgment satisfied Rule 702. It therefore denied Sumotext’s motion to exclude Regan’s damages model and lost-profits calculation on the ground that the 75% rate was unsupported.

Regan’s Lease-Cancellation Opinions

Sumotext separately challenged Regan’s underlying 82% cancellation rate. It argued that the rate improperly included leases canceled on March 31, 2016, the effective date of the defendants’ termination of Sumotext, and that Regan used inconsistent time periods in his calculations.

The court found that Regan had articulated a reasonable method grounded in evidence. Regan explained that the March 31 cancellations expanded the data set and that many of those leases had low call volume and likely would have been canceled anyway. He also cross-checked the rate against other lease data and usage patterns.

The court concluded that Sumotext’s arguments went to the accuracy and weight of Regan’s testimony, rather than its admissibility. Those arguments could be presented at trial through competing expert testimony and cross-examination. The court denied Sumotext’s motion to exclude Regan’s opinions about lease cancellations.

Disposition

The court denied Sumotext’s Daubert motions regarding Dr. Aron and Regan. The order did not decide the underlying antitrust claims or the amount of damages. It ruled only that the challenged expert opinions met the threshold for admission under Rule 702. The jury would decide how much weight to give the testimony.