Joe Epps 2014-06-03 03:04:25
Cause and Effect The premise of any economic damages determination is that the measured damages are a result of the cause at issue in the case. This is an element of damages that should be tested whether the expert is retained by the plaintiff or the defendant. It is also true when measuring damages from a contract dispute, an insurance claim or an infringement of a trademark. The following case discusses one manner in which cause and effect was analyzed in a trademark infringement case. The plaintiff was a large producer of a food product with an Italian name. The defendant changed the name of their business, which sold similar food products, to an Italian sounding name for marketing purposes. The plaintiff sued on the basis that the name selected by the defendant was infringing on the plaintiff ’s trademark. The plaintiff sued for disgorgement of the defendant’s profits over a 4-year period during which the allegedly infringing name was used by the defendant. The amount of damages claimed was in excess of $50 million. A forensic accountant was retained by the defense to analyze the damages set forth by the plaintiff. One of the issues analyzed by the expert was the issue of cause and effect. This analysis was conducted on two tracks. The first track explored the potential that use of the allegedly infringing mark could have resulted in any confusion in the minds of customers. The second analysis addresses the potential that use of the mark may have generated sales for the defendant. The defense attorney requested from the plaintiff sales under the brand by customer and customer location for three years prior to the defendant’s adoption of the new name and for the four years that the new name was used by the defendant prior to trial. The purpose of this request originally was to determine the geographic and customer scope of the use of the plaintiff ’s mark. When the documents were analyzed, it was found that the products sold under the plaintiff ’s mark were sold only to military commissaries. The plaintiff sold the exact same products under a different brand in all other markets. The defendant did not sell their products to any military commissaries. Therefore, this data indicated that there could have been no confusion in the minds of customers or potential customers of the plaintiff. The defense expert analyzed the sales of the defendant before and after the name change. To perform this analysis, the defense expert obtained sales for three years prior to the adoption of the allegedly infringing mark. This test indicated that prior to the adoption of the mark, sales had been trending upward. The expert also noted that following the adoption of the new mark, the sales trend increased. On the surface, this had the appearance of demonstrating that the adoption of the mark had a beneficial impact on sales of the defendant. The analysis of sales by customer demonstrated that over 90 percent of sales were to a handful of customers. Analysis of the historical sales trends indicated that the entire increase in sales after adoption of the new mark was in this handful of customers. The analysis was then expanded to include consideration of sales by customer location. Through this analysis, it was determined that the increase in sales for these customers was previously, and continued to be, due to an increase in the number of locations serviced. It was actually found that sales by location for this customer group were relatively static. The conclusion was that the new mark had no impact on the levels of sales or of incremental profits. Note: The expert was prepared to testify that adoption of the mark by the defendant did not drive sales and, in fact, had no demonstrable impact whatsoever on sales or incremental profits. The case settled during trial at an amount very favorable to the defendant. Joe Epps is a CPA and CFE with over 30 years of experience in forensic accounting. His litigation support experience includes contract disputes, anti-trust, economic damages, fraud investigations, business valuation and intellectual property litigation. Joe is currently president of Epps Forensic Consulting and teaches a graduate course on forensic accounting at Arizona State University. For more information, please call (480) 595-0943 or visit www.eppsforensics.com.
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