MPAY Inc. v. Erie Custom Computer Applications, Inc.

Background

This copyright and trade-secret action involves software source code for payroll systems. After earlier rulings, the remaining dispute concerned whether the parties’ agreements allowed the two remaining defendants to sublicense MPAY’s software to StarrLee and Taslar. If the sublicenses were unauthorized, the jury would consider whether defendants’ conduct constituted copyright infringement, trade-secret misappropriation, and related violations. The jury would also consider whether MPAY’s copyrights were valid.

Defendants moved to exclude testimony from two MPAY experts: Frances McCloskey, a certified public accountant and financial consultant who offered damages opinions, and Dr. Martin Walker, whose opinions addressed copyright infringement and protectability of MPAY’s source code.

Legal Standard

Under Federal Rule of Evidence 702 and the Supreme Court’s decision in Daubert v. Merrell Dow Pharmaceuticals, Inc., the court evaluates whether expert testimony is relevant and reliable. MPAY, as the party offering the testimony, had to show admissibility by a preponderance of the evidence. The court emphasized that weaknesses in an expert’s analysis generally affect the testimony’s weight, rather than its admissibility. Exclusion is appropriate only when the testimony is so fundamentally unsupported that it could not assist the jury.

Frances McCloskey’s Opinions

The court ruled that an earlier summary-judgment decision made moot defendants’ challenge to one opinion calculating damages allegedly arising from defendants’ use of MPAY’s source code. The court therefore considered McCloskey’s opinions concerning lost-profit damages and disgorgement damages.

McCloskey opined that MPAY was entitled to profits associated with ten former MPAY customers that became Taslar customers. Her calculations included nearly $5 million in past lost-profit damages and future damages ranging from $1.8 million to $13.8 million, depending on the period selected by the jury. Defendants argued that the customers were already dissatisfied with MPAY and might have left regardless of Taslar’s involvement. The court held that weighing this evidence was the jury’s role and that the argument supported cross-examination, not exclusion.

McCloskey calculated future lost profits through 2030. Defendants argued that this calculation was speculative and sought damages unavailable under copyright law. The court explained that McCloskey was calculating the present value of lost profits for each year, not deciding whether a particular period of future damages was legally justified. The jury would decide whether future lost-profit damages were warranted and for how long. The court denied the request to exclude these opinions.

McCloskey also calculated profits earned by StarrLee and Taslar from the ten companies that left MPAY for Taslar, attributing those profits to defendants under theories of contributory and vicarious copyright infringement. Defendants argued that MPAY had to pursue those profits from the nonparty entities instead. The court rejected that basis for exclusion, explaining that copyright law does not necessarily prevent a copyright owner from seeking profits earned by nonparties if those profits may fairly be treated as profits of the alleged infringer. The court also stated that MPAY was not required to join every potential defendant in one action and denied the request to exclude this opinion.

Dr. Martin Walker’s Opinions

The court noted that an earlier ruling found MPAY had no direct-infringement claims against defendants because the parties’ agreement allowed defendants to possess MPAY’s source code and make additional software products using it. MPAY’s remaining copyright theory was that defendants were contributorily and vicariously liable for allegedly invalid sublicenses to StarrLee and Taslar.

The court held that much of defendants’ challenge to Walker’s opinions about whether defendants’ products contained MPAY source code was moot because expert testimony was not necessary on that issue under the earlier ruling. The court nevertheless allowed Walker to testify about whether MPAY’s source code contained protectable expression. Although his report did not explain in detail how he reached his protectability conclusions, his report and deposition testimony showed that he had performed the required analysis and could explain it to the jury.

The court also allowed Walker to offer opinions about the qualitative significance of copied material. Defendants argued that Walker had performed only a quantitative analysis, but the court found that his opinion could assist the jury on the importance of any copied material. Defendants could challenge the support for that opinion through cross-examination. The court further stated that Walker could testify about which portions of the source code were covered by MPAY’s 2019 copyright registrations if defendants raised that issue at trial.

Disposition

The court concluded that defendants had not shown that MPAY’s experts should be barred from testifying. It therefore ordered that Defendants’ Motion to Exclude Expert Testimony, Docket No. 450, was DENIED.