Rearden LLC v. The Walt Disney Company

Background

Rearden LLC and MOVA LLC alleged contributory copyright infringement, vicarious copyright infringement, and trademark infringement against The Walt Disney Company and other Disney entities. Rearden alleged that Digital Domain 3.0 directly infringed Rearden’s copyright in the MOVA Contour Reality Capture program, which captures human facial performance to create computer-generated characters, and that Disney contracted with Digital Domain 3.0 to use the program in creating the Beast for Beauty and the Beast (2017).

Disney intended to present Robert Wunderlich as an apportionment expert. Rearden moved under Federal Rule of Evidence 702 and the standards associated with Daubert to exclude portions of his report and testimony concerning distribution overhead, production costs and overhead, interest, and taxes.

Distribution and Production Opinions

Wunderlich calculated Disney’s after-tax net income from Beauty and the Beast, excluding consumer products and music. He stated that he relied on Disney’s SAP accounting system, which contained revenue and expense records linked to invoices and other supporting documents. He also described regular audits by PricewaterhouseCoopers, audits by guilds and production-incentive authorities, and discussions with Disney representatives.

Rearden argued that Wunderlich had not independently confirmed figures for approximately $102 million in distribution overhead and $22 million in production overhead and interest. The court held that the relevant question was whether he relied on the kinds of facts or data that experts in his field reasonably use. The court concluded that he appeared to have done so and found no requirement that an expert independently verify every figure in the records on which the expert relies. The court treated challenges to the factual basis and accuracy of the opinions as matters for cross-examination rather than grounds for excluding the testimony.

Tax Opinions

Wunderlich calculated the income taxes attributable to Beauty and the Beast for each year using the applicable federal corporate tax rates. Rearden argued that deducting those taxes from gross revenue was irrelevant and contrary to law. The court noted that the parties agreed Disney could deduct only taxes it actually paid.

The court concluded that Wunderlich described the method he used to determine the taxes actually paid in connection with the film and explained why he considered that method reasonable. It rejected Rearden’s argument that Disney could not use the method because the corporation paid only one tax rate, explaining that the cited cases did not disapprove of Wunderlich’s method and that the film’s attributable taxes had a concrete effect on Disney’s net revenue from the film. The court stated that Rearden could challenge the calculation’s accuracy through cross-examination.

Wunderlich’s Prior Testimony

Rearden argued that Wunderlich’s opinions had been excluded in eight other cases, making his testimony here unreliable. The court found that Rearden had not shown that the excluded opinions were the same as the opinions offered in this case. It therefore did not consider those prior exclusions when deciding whether Wunderlich’s testimony was admissible.

Disposition

The court denied Rearden’s motion to exclude portions of Wunderlich’s expert report and testimony. Judge Jon S. Tigar entered the order on October 13, 2023.