Medimpact Healthcare Systems, Inc. v. IQVIA Holdings Inc.

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 MEDIMPACT HEALTHCARE Case No.: 19cv1865-GPC(DEB) SYSTEMS, INC., a California 12 corporation, MEDIMPACT ORDER 13 INTERNATIONAL LLC, a California limited liability company, MEDIMPACT (1) DENYING DEFENDANTS’ 14 INTERNATIONAL HONG KONG LTD., MOTION TO EXCLUDE THE 15 a Hong Kong company, EXPERT OPINIONS OF HEATHER BATES; 16 Plaintiffs, 17 v. (2) DENYING DEFENDANTS’ MOTION TO EXCLUDE THE 18 IQVIA HOLDINGS INC., a Delaware OPINIONS OF PLAINTIFFS’ NON- corporation, IQVIA INC., a Connecticut 19 RETAINED EXPERT VASUDEVA corporation, IQVIA AG, a Swiss BOBBA; AND 20 company, OMAR GHOSHEH, individually, and AMIT SADANA, 21 (3) DENYING DEFENDANTS’ individually, MOTION TO EXCLUDE THE 22 Defendants. EXPERT OPINIONS OF JAMES 23 MALACKOWSKI 24 [REDACTED - ORIGINAL] 25 [FILED UNDER SEAL] 26 [Dkt. Nos. 440, 443, 446.] 27 28 1 Before the Court is Defendants’ motions to exclude the opinions of Plaintiffs’ 2 technical expert Heather Bates, Plaintiffs’ non-retained expert on damages, Vasudeva 3 Bobba, and Plaintiffs’ damages expert James Malackowski. (Dkt. Nos. 440, 443, 446.) 4 Plaintiffs filed their oppositions on April 15, 2022. (Dkt. Nos. 475, 478, 481.) 5 Defendants filed their replies on May 18, 2022. (Dkt. Nos. 521, 524, 527.) Based on the 6 reasoning below, the Court DENIES Defendants’ motion to exclude the opinions of 7 Plaintiffs’ technical expert Heather Bates, conditionally DENIES Defendants’ motion to 8 exclude the expert opinions of Vasudeva Bobba, and conditionally DENIES Defendants’ 9 motion to exclude the expert opinions of James Malackowski. 10 Discussion 11 A. Daubert Legal Standard 12 The trial judge must act as the gatekeeper for expert testimony by carefully 13 applying Federal Rule of Evidence (“Rule”) 702 to ensure specialized and technical 14 evidence is “not only relevant, but reliable.” Daubert v. Merrell Dow Pharms. Inc., 509 15 U.S. 579, 589 & n.7 (1993); accord Kumho Tire Co. Ltd. v. Carmichael, 526 U.S. 137, 16 147 (1999) (Daubert imposed a special “gatekeeping obligation” on trial judges). 17 Under Rule 702, a witness, “qualified as an expert by knowledge, skill, experience, 18 training, or education, may testify” . . . if “(a) the expert’s scientific, technical, or other 19 specialized knowledge will help the trier of fact to understand the evidence or to 20 determine a fact in issue; (b) the testimony is based on sufficient facts or data; (c) the 21 testimony is the product of reliable principles and methods; and (d) the expert has reliably 22 applied the principles and methods to the facts of the case.” Fed. R. Evid. 702. The 23 proponent of the evidence bears the burden of proving the expert’s testimony satisfies 24 Rule 702. Lust By & Through Lust v. Merrell Dow Pharm., Inc., 89 F.3d 594, 598 (9th 25 Cir. 1996). 26 In applying Rule 702, the Ninth Circuit “contemplates a broad conception of expert 27 qualifications.” Hangarter v. Provident Life & Accident Ins. Co., 373 F.3d 998, 1015 (9th 28 1 Cir. 2004) (emphasis in original) (quoting Thomas v. Newton Int’l Enters., 42 F.3d 1266, 2 1269 (9th Cir. 1994)). “Shaky but admissible evidence is to be attacked by cross 3 examination, contrary evidence, and attention to the burden of proof, not exclusion.” 4 Primiano v. Cook, 598 F.3d 558, 564 (9th Cir. 2010) (citing Daubert, 509 U.S.at 596). 5 The district court must act as a gatekeeper to exclude “junk science.” Messick v. 6 Novartis Pharms. Corp., 747 F.3d 1193, 1199 (9th Cir. 2014); Ellis v. Costco Wholesale 7 Corp., 657 F.3d 970, 982 (9th Cir. 2011) (“Under Daubert, the trial court must act as a 8 “gatekeeper” to exclude junk science that does not meet Federal Rule of Evidence 702’s 9 reliability standards by making a preliminary determination that the expert’s testimony is 10 reliable.”). 11 Under Daubert, scientific evidence must be both reliable and relevant. Daubert, 509 12 U.S. at 590-91. Scientific evidence is reliable “if the principles and methodology used by 13 an expert are grounded in the methods of science.” Clausen v. M/V New Carissa, 339 F.3d 14 1049, 1056 (9th Cir. 2003). However, expert testimony may also rest on personal 15 knowledge or experience. Kumho Tire Co., Ltd., 526 U.S. at 150. In such a case, reliability 16 depends on the knowledge, experience, education, and training of the expert. Id.; see 17 Hangarter, 373 F.3d at 1018 (district court did not abuse its discretion concluding the 18 expert’s testimony reliable based on his knowledge and experience). 19 The focus of the district court’s analysis “must be solely on principles and 20 methodology, not on the conclusions that they generate.” Daubert, 509 U.S. at 595. “[T]he 21 test under Daubert is not the correctness of the expert’s conclusions but the soundness of 22 his methodology.” Daubert v. Merrell Dow Pharms., Inc., 43 F.3d 1311, 1318 (9th Cir. 23 1995) (“Daubert II”). Second, the proposed expert testimony must be “relevant to the task 24 at hand,” meaning that it “logically advances a material aspect of the proposing party’s 25 case.” Daubert, 509 U.S. at 597. Simply put, the question under Daubert is “whether or 26 not the reasoning is scientific and will assist the jury. If it satisfies these two requirements, 27 then it is a matter for the finder of fact to decide what weight to accord the expert’s 28 testimony.” Kennedy v. Collagen Corp., 161 F.3d 1226, 1231 (9th Cir. 1998). “Disputes 1 as to the strength of [an expert’s] credentials, faults in his use of [a particular] methodology, 2 or lack of textual authority for his opinion, go to the weight, not the admissibility, of his 3 testimony.’” Id. (quoting McCullock v. H.B. Fuller Co., 61 F.3d 1038, 1044 (2d Cir. 4 1995)). 5 B. Motion to Exclude Plaintiffs’ Technical Expert Heather Bates 6 Defendants first move to exclude certain opinions of Heather Bates arguing that 7 she is not qualified to testify on technical topics regarding software, computer 8 programming or source code. (Dkt. No. 443-1 at 6-8.1) Plaintiffs respond that Ms. Bates 9 is highly qualified to opine on PBMs to the extent they are implemented by computer 10 software. (Dkt. No. 475 at 9-13.) In reply, Defendants do not dispute that Ms. Bates has 11 PBM industry experience but argues she lacks technical source code expertise. (Dkt. No. 12 524 at 5.) 13 Rule 702 requires that an expert possess “knowledge, skill, experience, training, or 14 education” sufficient to “assist” the trier of fact, which is “satisfied where expert 15 testimony advances the trier of fact’s understanding to any degree.” Abarca v. Franklin 16 Cnty. Water Dist., 761 F. Supp. 2d 1007, 1029-30 (E.D. Cal. 2011) (citations omitted). 17 In applying Rule 702, the Ninth Circuit “contemplates a broad conception of expert 18 qualifications.” Hangarter, 373 F.3d at 1015 (emphasis in original) (quoting Thomas v. 19 Newton Int’l Enters., 42 F.3d 1266, 1269 (9th Cir. 1994)). Therefore, “[t]he threshold for 20 qualification is low for purposes of admissibility; minimal foundation of knowledge, 21 skill, and experience suffices.” PixArt Imaging, Inc. v. Avago Tech. Gen. IP (Singapore) 22 Pte. Ltd., No. C 10–00544 JW, 2011 WL 5417090, at *4 (N.D. Cal. Oct. 27, 2011) (citing 23 Hangarter, 373 F.3d at 1015-16) (25 years working in the insurance industry in general 24 provided “minimal foundation of knowledge, skill, and experience” to qualify as expert 25 in practices and norms of insurance companies in the context of a bad faith claim). “A 26 27 28 1 witness can qualify as an expert through practical experience in a particular field, not just 2 through academic training.” Rogers v. Raymark Indus., Inc., 922 F.2d 1426, 1429 (9th 3 Cir. 1991). 4 “Rule 702 is broadly phrased and intended to embrace more than a narrow 5 definition of qualified expert,” Thomas, 42 F.3d at 1269, and “[g]aps in an expert 6 witness’s qualifications or knowledge generally go to the weight of the witness’s 7 testimony, not its admissibility,” Abarca, 761 F. Supp. 2d at 1028 (quoting Robinson v. 8 GEICO General Ins. Co., 447 F.3d 1096, 1100 (8th Cir. 2006) (internal quotation marks 9 omitted)). An expert’s lack of specialization affects the weight of his or her testimony 10 and not its admissibility. In re Silicone Gel Breast Implants Prods. Liab. Litig., 318 F. 11 Supp. 2d 879, 889 (C.D. Cal. 2004) (citing Holbrook v. Lykes Bros. S.S. Co., 80 F.3d 12 777, 782 (3d Cir. 1996)); see also Hangarter, 373 F.3d at 1015-16 (finding the district 13 court did not abuse its discretion in permitting expert witness with general qualifications 14 in insurance field to testify specifically about bad faith claims); United States v. Garcia, 7 15 F.3d 885, 889 (9th Cir. 1993) (“lack of particularized expertise goes to the weight 16 accorded her testimony, not to the admissibility of her opinion as an expert.”). 17 Heather Bates was retained to inspect and evaluate certain products, services and 18 platforms offered by Dimensions/IQVIA and determine “(1) whether those products 19 compete with those offered by MedImpact and (2) whether the products reflect 20 functionality or development that is derived from or based on MedImpact trade secrets.” 21 (Dkt. No. 487, Swedlow Decl., Ex. 1, Bates’ Expert Report ¶ 7.) 22 Ms. Bates has a B.A. in economics. (Id., Bates’ Expert Report, App’x 2.) She is a 23 managing director at Berkeley Research Group, LLC and provides consulting and 24 analytical services to healthcare and life sciences clients. (Id.) She has been retained by 25 pharmaceutical, biotechnology and medical device manufacturers, pharmacy, DME, 26 physician and outpatient service providers, PBMs and other payors to address compliance 27 issues, litigation, disputes, investigations, and business challenges. (Id.) She has over 20 28 years of experience in the healthcare, life sciences and PBM industries. (Id.) While she 1 testified that she is not a source code expert, (Dkt. No. 487, Ex. 2, Bates Depo. at 22:6-8 2 (UNDER SEAL)), she has relevant experience and considers herself an expert in 3 “pharmaceutical supply chain and PBM systems and the software that supports those 4 systems” and has experience and training in healthcare computer software and systems. 5 (Id. at 21:1-19.) 6 Ms. Bates’ over twenty years of experience in the PBM industry and software that 7 supports the PBM platform provide a sufficient foundation of knowledge, skill, and 8 experience to qualify as an expert in PBM and software development. See Hangarter, 9 373 F.3d at 1015-16. Any challenges to Ms. Bates’ qualification based on her lack of 10 specialization can be made at trial. See In re Silicone Gel Breast Implants Prods. Liab. 11 Litig., 318 F. Supp. 2d at 889. Accordingly, Defendants’ argument challenging her 12 qualifications is without merit.2 13 Next, Defendants argue that Plaintiffs cannot assert misappropriation of 14 MedImpact’s PBM platform because it can only be misappropriated through source 15 codes. (Dkt. No. 443-1 at 9-10.) In contrast, according to Plaintiffs, source codes were 16 not needed to create AIMS because Dimensions was provided with MedImpact’s 17 MedAccess product which provided Dimensions with the building block elements of the 18 claims adjudication platform where it could view all the values within each field and was 19 provided with “unique details, functions, and logic” of the POS adjudication process. 20 (Dkt. No. 475 at 17.) Defendants’ argument concerning source codes is not only 21 irrelevant to the issues to be tried but also barred by issue preclusion. The Court already 22 ruled that Defendants are barred from re-litigating the Arbitrator’s ruling that “1) 23 MedImpact’s trade secrets used to build AIMS are protectible; and 2) AIMS uses 24 25 2 In response, Plaintiffs additionally explain that Ms. Bates does not provide an opinion on computer 26 programming or conduct any source code analysis, (Dkt. No. 475 at 12), and this case is not about access to MedImpact’s source codes. (Dkt. No. 487, Swedlow Decl., Ex. 1 Bates Expert Report ¶ 107 27 (UNDER SEAL).) Instead, Ms. Bates opines that Dimensions was given access to the MedAccess tool and modules in MedAccess with insight into the logic of MedImpact’s pharmacy claim adjudication 28 1 Plaintiffs’ misappropriated trade secrets.” (Dkt. No. 432 at 25). The Arbitrator identified 2 five categories of MedImpact’s trade secrets that were protectible and misappropriated. 3 (Dkt. No. 506-2, Swedlow Decl., Ex. 2, Partial Final Award on Liability ¶ 151 (UNDER 4 SEAL).) Because the five categories of trade secrets identified by the Arbitrator are the 5 same ones that Plaintiffs assert in this case, these trade secrets are not subject to 6 challenge. 7 Instead, in prosecuting this case relying on issue preclusion, MedImpact will be 8 required to convince the trier of fact that these five categories of trade secrets identified 9 by the Arbitrator were maintained in Defendants’ post-arbitration PBM platforms, or in 10 other words, MedImpact will be required to convince the trier of fact that the AIMS 11 platform and post-Arbitration PBM platforms are essentially the same with, at most 12 colorable differences. Cf. Hallco Mfg. Co., Inc. v. Foster, 256 F.3d 1290, 1298 (Fed. Cir. 13 2001) (remanding patent case for the district court to determine whether the device in the 14 prior action was “essentially the same or only colorably different” than the device in the 15 present case for the application of claim preclusion); Tivo v. EchoStar Corp., 646 F.3d 16 869, 882 (Fed. Cir. 2011) (party seeking to enforce injunction must prove newly accused 17 product is not more than colorably different from product found to infringe and actually 18 infringes). 19 Relatedly, Defendants raise a valid argument concerning the use of the 27-page 20 interrogatory response clarifying or detailing the five categories of trade secrets identified 21 by the Arbitrator. (Dkt. No. 443-1 at 9-10.) While the 27-page interrogatory response 22 may further describe the trade secrets in Plaintiffs’ view, Plaintiffs will be confined at 23 trial to evidence based on the findings and sources of information relied upon by the 24 Arbitrator in identifying the trade secrets that were misappropriated in the AIMS 25 platform. As seen in his findings as to the misappropriated trade secrets, the Arbitrator 26 relied on Ms. Bates’ report and testimony presented at the arbitration. Thus, Ms. Bates 27 may provide testimony that corresponds to these findings and information. The Court 28 DENIES the motion to exclude Ms. Bates’ opinions. 1 C. Motion to Exclude Plaintiffs’ Non-Retained Expert Vasudeva Bobba 2 Defendants move to exclude Vasudeva Bobba’s expert opinions because his analysis 3 is not reliable, he relies on improper assumptions, and his statements do not fit the 4 allegations in this case. (Dkt No. 446-1.) Plaintiffs disagree contending that his avoided 5 costs methodology is relevant and reliable and the underlying assumptions he applies are 6 not a basis to exclude but are grounds for cross-examination. (Dkt. No. 478.) 7 Alternatively, even if he is excluded as an expert witness, Mr. Bobba can still testify as a 8 fact witness. (Id.) 9 Vasudeva Bobba (“Mr. Bobba”) is designated as an unretained expert. He was the 10 Vice President of Application Development at Medlmpact Heathcare Systems, Inc. and has 11 twenty-five years of engineering experience which include over 16 years with Medlmpact 12 in various software engineering, IT, and leadership roles. (Dkt No. 489, Swedlow Decl., 13 Ex. 2, Bobba Witness Statement ¶¶ 1, 2 (UNDER SEAL).) He was “ 14 15 16 17 .” (Id. ¶ 3.) He was the “ 18 .” 19 (Id.) 20 Mr. Bobba states, “[ 21 22 23 24 25 .” 26 (Id. ¶ 4.) 27 Looking at the 2012-2017 time frame, Mr. Bobba assessed the manpower it would 28 take to build a PBM platform from scratch. He concluded it would have taken 1 approximately 81 employees five years to build a PBM and determined it would have cost 2 approximately $ in research and development costs. (Id. ¶ 6.) He explained the 3 roles and duties of each person on the team and provides a chart specifying the job title, 4 salary, the number of years needed as well as benefits/payroll taxes and a separate line item 5 for general and administrative (“G&A”) costs to arrive at a Total Estimated Costs of $ 6 (Id. at 45.) Mr. Bobba’s Witness Statement is dated January 12, 2019 and is the 7 same witness statement MIL and MI-HK offered in the arbitration. 8 The Defend Trade Secrets Act (“DTSA”) provides that a court may grant injunctive 9 relief, an award of monetary damages, or both. See 18 U.S.C. § 1836(b)(3). It authorizes 10 three separate measures of damages: (1) “damages for actual loss caused by the 11 misappropriation of the trade secret”; (2) “damages for any unjust enrichment caused by 12 the misappropriation of the trade secret that is not addressed in computing damages for 13 actual loss;” or (3) “in lieu of damages measured by any other methods, the damages caused 14 by the misappropriation measured by imposition of liability for a reasonable royalty for the 15 misappropriator's unauthorized disclosure or use of the trade secret.” 18 U.S.C. § 16 1836(b)(3)(B). An award of actual losses and unjust enrichment are permissible as long as 17 there is no double counting. See 18 U.S.C. § 1836(b)(3)(B). CUTSA also authorizes three 18 separate measure of damages (1) “[a] complainant may recover damages for the actual loss 19 caused by misappropriation”; (2) “[a] complainant also may recover for the unjust 20 enrichment caused by misappropriation that is not taken into account in computing 21 damages for actual loss”; (3) [i]f neither damages nor unjust enrichment caused by 22 misappropriation are provable, the court may order payment of a reasonable royalty for no 23 longer than the period of time the use could have been prohibited.” Cal. Civ. Code § 24 3426.3(a) & (b). CUTSA also provides that “[i]f willful and malicious misappropriation 25 exists, the court may award exemplary damages in an amount not exceeding twice any 26 award made under subdivision (a) or (b).” Id. § 3426.3(c). CUTSA differs from the DTSA 27 on reasonable royalty as a court may order a reasonable royalty only where “neither actual 28 1 damages to the holder of the trade secret nor unjust enrichment to the user is provable.” 2 Ajaxo Inc. v. E*Trade Fin. Corp., 187 Cal. App. 4th 1295, 1308-09 (2010). 3 Relevant to the Daubert motion, Plaintiffs seek unjust enrichment in the form of 4 “avoided costs” as to what it would have taken Defendants to develop a PBM from scratch 5 in the UAE. “Unjust enrichment damages derive from a policy of preventing wrongdoers 6 from keeping ill-gotten gains, and therefore do not require a corresponding loss to the 7 plaintiff.” Syntel Sterling Best Shores Mauritius Ltd v. TriZetto Grp., 15 Civ. 211 (LGS), 8 2021 WL 1553926, at *6 (S.D.N.Y. Apr. 20, 2021). The Ninth Circuit has not yet ruled 9 on whether avoided costs are available as damages for unjust enrichment under the DTSA3 10 but other jurisdictions have recognized that avoided costs of developing a trade secret are 11 recoverable for unjust enrichment under the DTSA and state law counterparts. Id. at *6 12 (citing cases); see also Restatement (Third) of Unfair Competition § 45 cmt. f (1995) (“If 13 the benefit derived by the defendant consists primarily of cost savings, such as when the 14 trade secret is a more efficient method of production, the 'standard of comparison' measure 15 that determines relief based on the savings achieved through the use of the trade secret may 16 be the most appropriate measure of relief.’”); see also GlobeRanger Corp. v. Software AG 17 United States of Am., Inc., 836 F.3d 477, 499 (5th Cir. 2016) (“The costs a plaintiff spent 18 in development . . . can be a proxy for the costs that the defendant saved.”). 19 First, Defendants argue that Mr. Bobba’s analysis is not reliable because his 20 statement was created for the purposes of the Arbitration, and he did not provide any 21 objective information about his inputs that could be used to independently verify or assess 22 his opinions. (Dkt. No. 446-1 at 9.) Plaintiffs respond that Defendants do not challenge 23 24 25 26 3 Plaintiffs’ reliance on Bourns, Inc. v. Raychem Corp., 331 F.3d 704, 709 (9th Cir. 2003) to support the proposition that courts routinely approve unjust enrichment damages based on “avoided costs” 27 methodology is not supportive because it addressed the amount defendant saved in development costs as it relates to CUTSA, not the DTSA. In fact, the DTSA was not enacted until May 11, 2016. Defend 28 1 Mr. Bobba’s qualifications and do not provide legal authority that an expert’s opinion must 2 always be independently verified. (Dk. No. 478 at 13.) 3 Reliability of expert testimony can rest on an expert’s personal knowledge or 4 experience. Kumho Tire Co., Ltd., 526 U.S. at 150 (“Engineering testimony rests upon 5 scientific foundations, the reliability of which will be at issue in some cases. . . . In other 6 cases, the relevant reliability concerns may focus upon personal knowledge or 7 experience.”); Hangarter, 373 F.3d at 1018 (an expert's experience, training and education 8 can provide a sufficient foundation for reliability); United States v. Hankey, 203 F.3d 1160, 9 1169 (9th Cir. 2000) (“The Daubert factors (peer review, publication, potential error rate, 10 etc.”) simply are not applicable to this kind of testimony, whose reliability depends heavily 11 on the knowledge and experience of the expert, rather than the methodology or theory 12 behind it.”). Further “[a] witness can qualify as an expert through practical experience in 13 a particular field, not just through academic training.” Rogers, 922 F.2d at 1429. 14 Here, Mr. Bobba’s expert opinions are based on his over 16 years of experience at 15 MedImpact in software engineering and IT positions as well as being the “ 16 . (Dkt. 17 No. 489, Swedlow Decl., Ex. 2, Bobba Witness Statement ¶ 3 (UNDER SEAL).) Based 18 on his personal work experience employed at MedImpact, Mr. Bobba is qualified to opine 19 on how to build a PBM, what resources are needed and the costs involved and his 20 experience provides a basis for reliability of his opinions. 21 Defendants also argue that Mr. Bobba relies on faulty assumptions about the relevant 22 time period, salary information and the burden rate. (Dkt. No. 446-1 at 9-11.) Plaintiffs 23 respond these challenges may be raised on cross-examination and are not a basis to exclude 24 his opinions. (Dkt. No. 478 at 14-17.) Defendants do not dispute that avoided costs is a 25 measure of damages under the DTSA and do not challenge Mr. Bobba’s method of 26 calculating the costs to develop a PBM from scratch. Instead, they argue Mr. Bobba relied 27 on improper assumptions on many of the inputs, including the relevant time period, the 28 salary information and the burden rate. However, improper assumptions are not bases to 1 exclude expert testimony as they concern the weight of the testimony, not admissibility 2 and may be challenged on cross-examination. See Shimozono v. May Dept. Stores Co., No. 3 00-04261 WJR, 2002 WL 3437390, at *8 (C.D. Cal. Nov. 20, 2002) (citation omitted) 4 (arguments that an expert relied on unfounded assumptions in forming his opinion go to 5 the weight, not the admissibility, of expert testimony). 6 Finally, Defendants argue that Mr. Bobba’s statement does not fit the allegations of 7 this case because his estimated costs to develop a PBM platform does not include costs for 8 elements and capabilities that Dimensions, itself, developed and does not apportion costs 9 associated with the POS Engine and MedAccess that Plaintiffs claims were 10 misappropriated in this case. (Dkt. No. 446-1 at 11-14.) Plaintiffs contend that this 11 apportionment contention was decided by the Court’s issue preclusion ruling that their 12 trade secrets were misappropriated to the full extent captured by Mr. Bobba’s technical 13 opinion suggesting that the Court found that the entirety of the PBM platform was 14 misappropriated. (Dkt. No. 478 at 9.) 15 The Court questions whether Mr. Bobba’s analysis on the cost to develop a PBM 16 platform from scratch “fits” the theory of liability in this case which is limited to the five 17 categories of trade secrets identified by the arbitrator. See Daubert, 509 U.S. at 591 (“fit” 18 addressed whether the proposed expert testimony is “relevant to the task at hand,” or 19 “whether expert testimony proffered in the case is sufficiently tied to the facts of the case”). 20 Plaintiffs skirt the issue by hiding behind the Court’s order on issue preclusion. Yet, the 21 Court’s ruling did not find that the entirety of the PBM platform was misappropriated and 22 did not address whether Mr. Bobba’s statements of the estimated costs to develop a PBM 23 Platform from scratch fit the allegations of trade secret misappropriation in this case. 24 As articulated above, the Court held that issue preclusion bars Defendants from re- 25 litigating the Arbitrator’s ruling that “1) MedImpact’s trade secrets used to build AIMS are 26 protectible; and 2) AIMS uses Plaintiffs’ misappropriated trade secrets.” (Dkt. No. 432 at 27 25). The Arbitrator identified five categories of MedImpact’s trade secret that were 28 protectible and misappropriated. (Dkt. No. 506-2, Swedlow Decl., Ex. 2, Partial Final 1 Award on Liability ¶ 151 (UNDER SEAL).) It is only these five categories of trade secrets 2 that are subject to issue preclusion and these five categories of trade secrets are the only 3 ones at issue in this case. Here, Plaintiffs have not articulated or shown that the identified 4 secrets involving the five categories correspond to a complete PBM platform. The 5 Arbitrator did not find that the entire PBM platform was a trade secret or that the 6 misappropriated trade secrets made up the entire PBM. Without that connection, the 7 avoided costs damages opinions would not fit the trade secrets at issue. 8 Based on the record to date, Mr. Bobba’s cost analysis on building a PBM platform 9 from scratch fails to account for the trade secrets that were found to have been 10 misappropriated by the Arbitrator. By submitting only his witness statement of January 11 12, 2019, Mr. Bobba clearly did not attempt to account for the arbitrator’s findings given 12 that his opinions are the same ones that were offered prior to the arbitrator’s decision. (See 13 Dkt. No. 489, Swedlow Decl. Ex. 2 at 35 (UNDER SEAL).) At his deposition, Mr. Bobba 14 confirmed that since his witness statement of January 2019, he has not gone back to re- 15 evaluate or reconsider his opinions. (Dkt. No. 489, Swedlow Decl., Ex. 5, Bobba Depo. at 16 112:6-11 (UNDER SEAL).) 17 However, because there is an issue on Plaintiffs’ theory as to whether the five 18 categories of identified trade secrets constitute the entirety of the PBM platform, and if so 19 whether an avoided costs theory of unjust enrichment can include the cost to build an entire 20 PBM platform from scratch without taking into account the specific trade secrets 21 misappropriated, the Court conditionally DENIES Defendants’ motion to exclude the 22 opinions of Mr. Bobba relating to the avoided costs associated with building a PBM 23 platform from scratch subject to further briefing at the motions in limine stage. 24 D. Motion to Exclude Plaintiffs’ Damages Expert James Malackowski 25 Defendants move to exclude the expert opinions of James Malackowski (“Mr. 26 Malackowski”) on trade secret identification for the trade secret misappropriation claim, 27 and the three damages theories based on 1) Plaintiffs’ alleged development costs as a proxy 28 for IQVIA’s avoided costs, 2) IQVIA’s avoided costs to rebuild a PBM from scratch, and 1 3) a reasonable royalty rate. (Dkt. No. 440-1 at 7-17.) They also argue that Mr. 2 Malackowski’s breach of fiduciary damages opinions should be excluded concerning 3 disgorgement of revenues relating to the Relevant Platforms and Claims Data. (Id. at 17- 4 21.) Finally, Defendants argue that the damages on the RICO claims which are predicated 5 on unjust enrichment for trade secret misappropriation and disgorgement for breach of 6 fiduciary duty should also be excluded. (Id. at 29.) 7 Plaintiffs respond that the Court’s recent summary judgment ruling moots 8 Defendants’ argument on the disconnect between proof of the misappropriated trade secrets 9 and his damages opinion because the Court concluded that identification and proof of 10 misappropriation have been established. (Dkt. No. 481 at 11.) In addition, they assert that 11 Defendants conflate liability with damages. (Id.) Second, Plaintiffs argue that the breach 12 of fiduciary duty opinions should not be excluded because Cayman law provides for 13 equitable compensation. (Id. at 28.) Finally, on RICO, Plaintiffs argue they are seeking 14 treble damages under RICO for Defendants’ wrongful conduct predicated on establishing 15 liability against defendants on misappropriation of trade secret and breach of fiduciary 16 duties. (Id. at 29.) 17 As an initial matter, because the Court granted Defendants’ summary judgment 18 motion on the RICO cause of action, the Court DENIES Defendants’ motion to exclude 19 Mr. Malackowski’s opinions on RICO damages as MOOT. 20 Mr. Malackowski was retained to analyze and determine the measure and amount of 21 monetary recovery from Plaintiffs’ claims against Defendants for trade secret 22 misappropriation under the DTSA and CUTSA, breach of fiduciary duty, conspiracy and 23 RICO. (Dkt. No. 485-17, Swedlow Decl., Ex. 17 at 6 (UNDER SEAL).) On 24 misappropriation of trade secrets, he measured IQVIA’s unjust enrichment based upon 25 26 as a proxy for IQVIA’s unjust enrichment. (Id. § 3.1 (UNDER SEAL).) 27 Relying on Mr. Bobba’s analysis, Mr. Malackowski opined that 28 . (Id. (UNDER SEAL).) He 1 concluded that 2 (Id. (UNDER SEAL).) Therefore, IQVIA’s range of unjust enrichment 3 would be between $ . (Id. (UNDER SEAL).) 4 On reasonable royalty, Mr. Malackowski considered a hypothetical negotiation 5 between MedImpact and IQVIA, where MedImpact would license the Asserted Trade 6 Secrets4 to IQVIA. The R&D costs to develop the trade secrets of $ and relying 7 on the 50/50 sharing agreed upon for joint venture profits under the joint venture 8 agreement, Mr. Malackowski opined that the parties would have agreed to a lump sum 9 reasonable royalty of $ (Id. (UNDER SEAL).) Because MedImpact was 10 awarded in damages on certain contracts in the Arbitration, Mr. Malackowski 11 deducted the damages award from the lump sum reasonable royalty for a reasonable royalty 12 award of $ (Id. (UNDER SEAL).) Mr. Malackowski also assessed monetary 13 recovery for breach of fiduciary duty based on disgorgement of profits. (Id. § 3.2 (UNDER 14 SEAL).) 15 1. Mr. Malackowski’s Trade Secret Opinions 16 Defendants argue that Mr. Malackowski’s opinion relying on Plaintiffs’ 17 identification of trade secrets in their 27 pages in interrogatory responses is not co- 18 extensive with the broad trade secret identification of Heather Bates. (Dkt. No. 440-1 at 7- 19 13.) Plaintiffs contend the Court’s ruling on issue preclusion disposes of these arguments. 20 (Dkt. No. 481 at 11-12.) 21 The Court’s ruling on issue preclusion has not disposed of Defendants’ arguments 22 regarding the calculation of damages. As discussed above concerning the opinions of 23 Heather Bates, MedImpact will be required to convince the trier of fact that the AIMS 24 platform and post-Arbitration PBM platforms are essentially the same with at most 25 colorable differences. See Foster, 947 F.2d at 479-80. 26 27 28 1 Here, Mr. Malackowski has formulated opinions relating to damages that are 2 premised upon “trade secrets, as outlined in Plaintiff’s Objections and Amended Further 3 Response to Defendant IQVIA Inc.’s Interrogatories No. 1”. (Dkt. No. 485-17, Swedlow 4 Decl., Ex. 17, Malackowski Expert Report §§ 7.1 et seq. (UNDER SEAL)). Neither Ms. 5 Bates nor Mr. Malackowski will be permitted to base their opinions upon the interrogatory 6 responses. As stated above, the Amended Further Response does not define the trade 7 secrets here, it is the Arbitrator’s findings and supporting information. Any opinions 8 regarding damages must be predicated upon the Arbitrator’s findings. 9 Next, Defendants challenge Mr. Malackowski’s reliance on 10 assessed by Kelley Vaughan, a MedImpact employee, and 11 by Mr. Bobba, also a MedImpact employee, because he did not 12 apportion out for developing a 13 competing PBM with the trade secrets at issue in this case. (Dkt. No. 440-1 at 23-24.) 14 Instead, he adopted wholesale Ms. Vaughan’s and Mr. Bobba’s calculations and 15 assessments. Defendants additionally argue that Mr. Malackowski improperly opined on 16 damages on the entire categories of trade secrets, such as the entirety of the POS engine 17 and MedAccess where the evidence shows the contrary. (Id. at 24.) 18 As discussed above, because Mr. Malackowski adopted Mr. Bobba’s 19 without any adjustments to account for the five 20 identified categories of trade secrets at issue in this case, the Court questions the “fit” 21 between his avoided costs damages opinions and the trade secrets at issue in this case. 22 (Dkt. No. 485-17, Swedlow Decl., Ex. 17, Malackowski Expert Report § 12.1 (relying 23 solely on Bobba’s witness statement and discussions with Mr. Bobba) (UNDER SEAL).) 24 Similarly, Mr. Malackowski adopted Ms. Vaughan’s calculations without adjusting 25 her calculations to account for the trade secrets at issue in this case and adopted her 26 calculation of to be . (Dkt. 27 No. 485-17, Swedlow Decl., Ex. 17, Malackowski Expert Report § 12.2; id., Figure 35 28 (UNDER SEAL).) Ms. Vaughan testified that she had never seen Plaintiffs’ trade secret 1 identification . (Dkt. 2 No. 485-18, Swedlow Decl., Ex. 18, Vaughan Depo. at 57:3-16 (UNDER SEAL).) 3 4 5 6 . (Id. at 28:21-30:3 (UNDER SEAL).) In fact, 7 8 . (Id. at 30:4-7 (UNDER SEAL).) 9 At this time, as with the opinions of Mr. Bobba, because Plaintiffs’ theory as to 10 whether the five categories of identified trade secrets constitute the entirety of the PBM 11 platform, and if so whether an avoided costs theory of unjust enrichment can include the 12 cost to build an entire PBM platform from scratch without taking into account the specific 13 trade secret misappropriated, the Court conditionally DENIES Defendants’ motion to 14 exclude Mr. Malackowski’s damages opinions on trade secret misappropriation based on 15 subject to further briefing at the 16 motions in limine stage. 17 Finally, on the alternative reasonable royalty rate, Defendants submit that “[h]alf of 18 a fatally flawed number is obviously no more reliable than the original.” (Dkt. No. 440-1 19 at 17. Defendants argue that the royalty Mr. Malackowski calculated is not reasonable 20 because it exceeds the total revenue that he claims that IQVIA allegedly gained from the 21 misappropriation by over 60%. (Id. at 27.) Plaintiffs disagree. (Dkt. No. 481 at 25.) 22 The DTSA allows for the reasonable royalty as an alternative form of relief. See 18 23 U.S.C. § 1836(b)(3)(B)(iii) (“in lieu of damages measured by any other methods, the 24 damages caused by the misappropriation measured by imposition of liability for a 25 reasonable royalty for the misappropriator's unauthorized disclosure or use of the trade 26 secret.”). CUTSA only allows a reasonable royalty rate if damages and unjust enrichment 27 caused by misappropriation are not provable. See Cal. Civ. Code § 3426.3(a) & (b). 28 Because caselaw addressing calculation of reasonable royalty under the DTSA is limited, 1 courts have adopted the reasonable royalty rates in intellectual property cases. See 2 Motorola Sols,, Inc. v. Hytera Commc’ns Corp. Ltd., Case No. 1:17-cv-01973, 2021 WL 3 6690279, at *2 (N.D. Ill. Dec. 14, 2021) (citing Bianco v. Globus Med., Inc., 53 F. Supp. 4 3d 929, 932 (E.D. Tex. 2014) (adopting patent law analysis for reasonable royalty on state 5 law trade secret misappropriation claim); RKI, Inc. v. Grimes, 200 F. Supp. 2d 916, 926- 6 27 (N.D. Ill. 2002) (same)). While there are several methods to calculate reasonable 7 royalty, at issue in this case, and the most common, is the hypothetical negotiations or the 8 “willing licensor-willing licensee” method. Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 9 1301, 1324 (Fed. Cir. 2009). This method “attempts to ascertain the royalty upon which 10 the parties would have agreed had they successfully negotiated an agreement just before 11 infringement began.” Id. Because this method involves “an element of approximation and 12 uncertainty,” id. at 1325, “a trier of fact must have some factual basis for a determination 13 of reasonable of a reasonable royalty.” Unisplay S.A. v. American Elec. Sign Co., Inc., 69 14 F.3d 512, 517 (Fed. Cir. 1995). 15 One Fifth Circuit case identified salient factors to assess a reasonable royalty in a 16 trade secret misappropriation case: 17 18 In calculating what a fair licensing price would have been had the parties agreed, the trier of fact should consider such factors as the resulting and 19 foreseeable changes in the parties' competitive posture; that prices past 20 purchasers or licensees may have paid; the total value of the secret to the plaintiff, including the plaintiff's development costs and the importance of the 21 secret to the plaintiff's business; the nature and extent of the use the defendant 22 intended for the secret; and finally whatever other unique factors in the particular case which might have affected the parties' agreement, such as the 23 ready availability of alternative processes. 24 Univ. Computing Co. v. Lykes-Youngstown Corp., 504 F.2d 518, 539 (5th Cir. 1974) (citing 25 Hughes Tool Co. v. G.W. Murphy Indus., Inc., 491 F.2d 923, 931 (5th Cir. 1973). 26 Mr. Malackowski conducted a detailed analysis of an alternative reasonable royalty 27 measure of damages analyzing the factors articulated in Univ. Computing Co. (Dkt. No. 28 485-17, Swedlow Decl., Ex. 17, Malackowski Expert Report §§ 13, 14 (UNDER SEAL).) 1 After considering these factors, he concluded that the parties would have agreed to a 2 reasonable lump-sum royalty of relying on Ms. Vaughan’s calculation of 3 $ million to be the cost of . (Id. § 14.5.) He concluded 4 that because a hypothetical negotiation would have considered splitting the benefits of the 5 trade secrets by 50/50 due to the JV where the parties agreed to split the profits equally, 6 Mr. Malackowski concluded that 7 8 Because Plaintiffs’ theory as to whether the five categories of identified trade secrets 9 constitute the entirety of the PBM platform, and if so, whether an avoided costs theory of 10 unjust enrichment can include the cost to build an entire PBM platform from scratch 11 without taking into account the specific trade secrets misappropriated remain, the Court 12 conditionally DENIES Defendants’ motion to exclude Mr. Malackowski’s damages 13 opinions on reasonable royalties subject to further briefing at the motions in limine stage. 14 2. Mr. Malackowski’s Breach of Fiduciary Opinions 15 Defendants argue that because the breach of fiduciary duty claim is only against the 16 individual Defendants, IQVIA Defendants’ revenues, as damages, in connection with the 17 breach of fiduciary duty cannot apply. (Dkt. No. 440-1 at 27 (citing Liu v. Sec. & Exchange 18 Comm’n, 140 S. Ct. 1936, 1949 (2020).) Plaintiffs do not address this argument; however, 19 in opposition to Defendants’ omnibus motion for summary judgment, Plaintiffs argue that 20 under Liu, disgorgement can apply “for partners engaged in concerted wrongdoing.” (Dkt. 21 No. 472 at 36.) 22 In Liu, an SEC agency action, the Supreme Court expressed concern of the SEC’s 23 request to “impose disgorgement liability on a wrongdoer for benefits that accrue to his 24 affiliates, sometimes through joint-and-several liability, in a manner sometimes seemingly 25 at odds with the common-law rule requiring individual liability for wrongful profits” as “it 26 runs against the rule to not impose joint liability in favor of holding defendants ‘liable to 27 account for such profits only as have accrued to themselves . . . and not for those which 28 have accrued to another, and in which they have no participation.’” Liu, 140 S. Ct. at 1949. 1 However, the Court recognized that common law “permit[ed] liability for partners engaged 2 in concerted wrongdoing.” Id. Therefore, liability for partners depends on the facts of the 3 case, and the court must consider “whether the facts are such that [defendants] can, 4 consistent with equitable principles, be found liable for profits as partners in wrongdoing 5 or whether individual liability is required.” Id. 6 Here, Liu does not automatically bar damages against Dr. Ghosheh based on IQVIA 7 Defendants’ revenues. In this case, Plaintiffs allege that Dr. Ghosheh was engaged in 8 wrongdoing with IQVIA Defendants by selling a competing product CDS in breach of his 9 fiduciary duty. Thus, Defendants’ argument relying on Liu is not supportive of their 10 motion to exclude. 11 Next, Defendants maintain that the disgorgement of profits damages fail because 12 Defendants did not receive any revenue for the “Relevant Platforms5” which include CDS, 13 as to the BUPA Arabia, Injazat, EHSI, Sehati and Infoline contracts, incurred losses on the 14 Vodafone and Infoline contracts, and Plaintiffs were already compensated on the Cerner, 15 Nahdi, Oman, Al-Dawaa and Innova contracts in the Arbitration. (Dkt. No. 440-1 at 28.) 16 In response, Plaintiffs rely on Cayman law arguing that it provides for equitable 17 compensation for loss caused to the principal by the breach of fiduciary duty which 18 Plaintiffs’ claim is what “drove Malackowski’s opinion.” (Dkt. No. at 481 at 28.) They 19 argue that Mr. Malackowski’s opinion is not based on Defendants’ profits but what 20 amounts “Plaintiffs would have expected to benefit had it secured the relevant contracts, 21 which includes the (very real) possibility that MedImpact may have performed those 22 contracts better than IQVIA, which would have yielded increased benefits.” (Id.) 23 Therefore, Plaintiffs maintain that Defendants’ argument that no profits were generated on 24 these contracts is irrelevant. (Id. n. 16.) In reply, Defendants argue that Mr. Malackowski’s 25 report addresses disgorgement of Defendants’ profits under California law, and now, 26 27 5 Mr. Malackowski defined “Relevant Platforms” to include “AIMS, CDS, and ICM.” (Dkt. No. 485- 28 | Plaintiffs are seeking their lost profits and improperly relying on Cayman law recognizing they cannot recover under a disgorgement of profits theory. (Dkt. No. 527 at 13.) Because 3 Mr. Malackowski’s report fails to explain the shift from Defendants’ alleged gains to 4 Plaintiffs’ alleged losses, his opinions on fiduciary duty damages should be excluded. (/d.) 5 In the order on Defendants’ omnibus summary judgment motion, the Court 6 concluded that under California’s conflict of law principles, the internal affairs doctrine applies to the breach of fiduciary duty claim. But California courts have recognized a 8 limited exception to the application of the internal affairs doctrine. See Lidow v. Superior ? Ct., 206 Cal. App. 4th 351 359 (2012) (limited exception “where, with respect to the 10 particular, issue, some other state has a more significant relationship . . . to the parties and the transaction’). Because no argument or legal analyses had been conducted by the parties 12 to determine which law applies, the Court, in the summary judgment order, denied the 13 motion for summary judgment on the breach of fiduciary duty claim. At this juncture, 14 because it has not yet been determined whether Cayman or California law applies, the 15 || Court DENIES the motion to exclude Mr. Malackowski’s expert opinions on breach of 16 fiduciary duty damages. M7 Conclusion 18 Based on the above, the Court DENIES Defendants’ motion to exclude the expert 19 opinions of Heather Bates. In addition, the Court conditionally DENIES the motion to 20 |l exclude the opinions of non-retained expert Vasudeva Bobba and conditionally DENIES 21 |!Defendants’ motion to exclude the expert opinions of James Malackowski subject to 22 |! further briefing at the motions in limine stage. 23 IT IS SO ORDERED. 24 25 Dated: October 7, 2022 26 Hon. athe Cae 7 United States District Judge 28