Ask Chemicals, LP v. Computer Packages, Inc.
593 F. App'x 506 (2014)
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Rule of Law:
Under Ohio law, to recover damages for lost profits from a breach of contract, a plaintiff must prove the amount of those profits with reasonable certainty using calculations based on concrete facts, not on speculation, inapposite market comparisons, or expert testimony that merely adopts the plaintiff's unverified projections.
Facts:
- In 1997, Ashland, a chemical company, applied for a Japanese patent ('168 patent) to protect its method for producing a specific type of riser sleeve.
- The patent was issued in 2002. Ashland hired Computer Packaging, Inc. (CPI) to pay the annual fees required to maintain its patents in Japan.
- In 2003, a factory fire ended an initial attempt by Ashland's successor, ASK Chemicals (ASK), to penetrate the Japanese market.
- On November 30, 2010, Ashland assigned the '168 patent to ASK, and CPI continued its role in maintaining the patent.
- In January 2010, CPI failed to make the ninth necessary maintenance payment for the '168 patent.
- Six months later, after a statutory grace period, the patent lapsed irretrievably.
- At the time the patent lapsed, ASK had no sales of the related technology in Japan, though it had begun efforts to re-enter the market in 2008.
- If properly maintained, the patent would have expired on March 21, 2017.
Procedural Posture:
- ASK Chemicals filed a complaint against Computer Packaging, Inc. in the U.S. District Court for the Southern District of Ohio, alleging breach of contract.
- CPI admitted in its answer that it had breached the contract by failing to make the required patent maintenance payment.
- Following discovery, CPI filed a motion to exclude the report of ASK's expert witness and a separate motion for summary judgment.
- The district court granted the motion to exclude the expert report, finding it unreliable.
- The district court subsequently granted CPI's motion for summary judgment, ruling that ASK had failed to present sufficient evidence to prove the amount of its lost profits with reasonable certainty.
- ASK, as the appellant, appealed the district court's grants of both motions to the U.S. Court of Appeals for the Sixth Circuit.
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Issue:
Does a plaintiff demonstrate lost profits with the reasonable certainty required under Ohio law when their evidence consists of projections based on sales in different geographic markets and an expert report that uncritically adopts those projections without independent, fact-based data on the target market?
Opinions:
Majority - Boggs, Circuit Judge
No. A plaintiff fails to demonstrate lost profits with reasonable certainty when its evidence is speculative and lacks a foundation in the facts of the target market. The district court properly excluded the expert report of Brian Russell because it was unreliable under Federal Rule of Evidence 702 and Daubert. Russell's opinion suffered from 'too great an analytical gap' as it was based on flawed and incomplete data, such as a decade-old marketing plan and a global market analysis that lacked specific data for Japan. He merely adopted ASK's own estimates without independent verification. Without the expert report, ASK's remaining evidence, which relied on an inapposite comparison to its sales in Europe and North America, was insufficient to prove the amount of lost profits to a reasonable certainty as required by Ohio law.
Concurring - Clay, Circuit Judge
No. Although the majority reaches the correct result, its reasoning is flawed because Ohio law does not subject new businesses to a 'stricter inquiry' and permits proof of lost profits through comparisons to other markets. The expert report was properly excluded solely because it unquestioningly accepted and 'dressed up' ASK's own unsupported estimates in the authority of an expert analysis. Summary judgment was appropriate for a single, narrow reason: ASK failed to provide a minimum quantum of reliable data about the Japanese market itself. Its primary evidence was an undated spreadsheet containing acknowledged 'guesses' about its competitors' market shares, which is an insufficient factual basis for a factfinder to calculate damages with reasonable certainty.
Analysis:
This decision reinforces the high evidentiary standard for proving lost-profits damages, particularly when a business is entering a new market. It clarifies that under the Daubert standard, an expert's financial projections are inadmissible if they merely 'parrot' a client's own speculative figures without independent analysis and verification. The concurrence tempers this by affirming the validity of using comparable markets as evidence, but underscores that such comparisons must be anchored to some quantum of reliable, non-speculative data about the target market. This case serves as a crucial guide for litigants, emphasizing that proving lost profits requires a rigorous, fact-based calculation specific to the market in question, not just broad extrapolations from other successes.
