CASE 0:19-cv-00704-PAM-BRT Doc. 577 Filed 08/18/21 Page 1 of 9
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`UNITED STATES DISTRICT COURT
`DISTRICT OF MINNESOTA
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`Civ. No. 19-704 (PAM/BRT)
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`MEMORANDUM AND ORDER
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`Plaintiff,
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`Defendants.
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`MPAY Inc.,
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`v.
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`Erie Custom Computer
`Applications, Inc., and
`Payroll World, Inc.,
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`This matter is before the Court on Defendants’ Motion to exclude two of Plaintiff’s
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`expert witnesses. For the following reasons, Defendants’ Motion is denied.
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`BACKGROUND
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`This copyright and trade-secret action involves software source code for payroll
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`systems. The Court has set forth the background of the parties’ dispute in previous Orders
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`and will not repeat that background here. (See Docket Nos. 61, 532.) After dispositive-
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`motion-practice, what remains in the case is whether the parties’ agreements allowed the
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`two remaining Defendants to sublicense Plaintiff MPAY, Inc.’s software to two entities
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`they control, StarrLee and Taslar. If the agreements did not allow that sublicensing, the
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`jury must determine whether Defendants’ activities constituted infringement of MPAY’s
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`copyrights in its software, misappropriation of MPAY’s trade secrets, and other related
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`claims. This second inquiry will include whether MPAY’s copyrights are valid in the first
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`instance.
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`UNITED STATES DISTRICT COURT
`DISTRICT OF MINNESOTA
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`Civ. No. 19-704 (PAM/BRT)
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`MEMORANDUM AND ORDER
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`Plaintiff,
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`Defendants.
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`MPAY Inc.,
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`v.
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`Erie Custom Computer
`Applications, Inc., and
`Payroll World, Inc.,
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`This matter is before the Court on Defendants’ Motion to exclude two of Plaintiff’s
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`expert witnesses. For the following reasons, Defendants’ Motion is denied.
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`BACKGROUND
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`This copyright and trade-secret action involves software source code for payroll
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`systems. The Court has set forth the background of the parties’ dispute in previous Orders
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`and will not repeat that background here. (See Docket Nos. 61, 532.) After dispositive-
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`motion-practice, what remains in the case is whether the parties’ agreements allowed the
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`two remaining Defendants to sublicense Plaintiff MPAY, Inc.’s software to two entities
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`they control, StarrLee and Taslar. If the agreements did not allow that sublicensing, the
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`jury must determine whether Defendants’ activities constituted infringement of MPAY’s
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`copyrights in its software, misappropriation of MPAY’s trade secrets, and other related
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`claims. This second inquiry will include whether MPAY’s copyrights are valid in the first
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`instance.
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`CASE 0:19-cv-00704-PAM-BRT Doc. 577 Filed 08/18/21 Page 2 of 9
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`In the instant Motion, Defendants challenge two of MPAY’s expert witnesses:
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`Frances McCloskey, who opines on the issue of damages, and Dr. Martin Walker, whose
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`opinion focuses on copyright infringement.
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` DISCUSSION
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`MPAY bears the burden, as the proponent of expert testimony, to establish the
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`admissibility of the testimony by a preponderance of the evidence. Lauzon v. Senco Prods.,
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`Inc., 270 F.3d 681, 686 (8th Cir. 2001). When faced with a motion to exclude an expert
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`witness’s opinions, the Court must evaluate the testimony to ensure that only relevant and
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`reliable testimony is admitted under Fed. R. Evid. 702. Daubert v. Merrell Dow Pharm.,
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`Inc., 509 U.S. 579, 589 (1993). But this “gatekeeper role . . . is not intended to supplant
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`the adversary system or the role of the jury: ‘[v]igorous cross-examination, presentation of
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`contrary evidence, and careful instruction on the burden of proof are the traditional and
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`appropriate means of attacking shaky but admissible evidence.’” Allison v. McGhan Med.
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`Corp., 184 F.3d 1300, 1311 (11th Cir. 1999) (quoting Daubert, 509 U.S. at 596). Indeed,
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`expert testimony should be excluded only if it “is so fundamentally unsupported that it can
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`offer no assistance to the jury.” Bonner v. ISP Techs., Inc., 259 F.3d 924, 929-30 (8th Cir.
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`2001).
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`The Eighth Circuit recently emphasized that “excluding an expert’s opinion for
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`being fundamentally unsupported is an exception to the general rule that ‘[g]aps in an
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`expert witness’s . . . knowledge’ go to weight, not admissibility.” In re: Bair Hugger Forced
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`Air Warming Devices Prods. Liab. Litig., --- F.4th ---, 2021 WL 3612753, at *5 (8th Cir.
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`Aug. 16, 2021) (quoting Robinson v. GEICO Gen. Ins., 447 F.3d 1096, 1100 (8th Cir.
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`2
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`CASE 0:19-cv-00704-PAM-BRT Doc. 577 Filed 08/18/21 Page 3 of 9
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`2006)). “The standard for judging the evidentiary reliability of expert evidence is lower
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`than the merits standard of correctness.” Id. at *4 (quotations omitted). And as the court
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`noted, “‘cases are legion that, correctly, under Daubert, call for the liberal admission of
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`expert testimony.’” Id. (quoting Johnson v. Mead Johnson & Co., 754 F.3d 557, 562 (8th
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`Cir. 2014)).
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`A.
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`Frances McCloskey
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`Defendants seek to exclude several opinions offered by Frances McCloskey, a
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`certified public accountant and financial consultant. However, as MPAY points out, the
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`Court’s summary-judgment ruling renders moot Defendants’ challenge to what Defendants
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`refer to as Ms. McCloskey’s “Opinion 2,” which calculates damages allegedly arising out
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`of Defendants’ use of MPAY’s source code. Thus, only two opinions are at issue here:
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`“Opinion 1,” asserting that Defendants are liable for lost-profit damages attributable to
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`customers leaving MPAY for Taslar; and “Opinion 2,” which calculates damages on a
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`joint-and-several disgorgement theory for Defendants’ alleged contributory and vicarious
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`infringement by virtue of the sublicenses to StarrLee and Taslar.
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`Federal copyright law provides that a copyright infringer is liable for “the copyright
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`owner’s actual damages and any additional profits of the infringer.” 17 U.S.C. § 504(a)(1).
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`The statute further provides that
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`[t]he copyright owner is entitled to recover the actual damages suffered by
`him or her as a result of the infringement, and any profits of the infringer that
`are attributable to the infringement and are not taken into account in
`computing the actual damages. In establishing the infringer’s profits, the
`copyright owner is required to present proof only of the infringer’s gross
`revenue, and the infringer is required to prove his or her deductible expenses
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`3
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`CASE 0:19-cv-00704-PAM-BRT Doc. 577 Filed 08/18/21 Page 4 of 9
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`and the elements of profit attributable to factors other than the copyrighted
`work.
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`Id. § 504(b). Thus, while the burden to establish damage causation rests with the copyright
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`owner, the burden to establish apportionment of damages between infringing and non-
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`infringing uses remains with the infringer.
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`1.
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`Lost-Profit Damages
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`There is no dispute that ten former MPAY customers are now customers of Taslar.
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`Ms. McCloskey opines that MPAY is entitled to all of Taslar’s profits from these ten
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`entities, including past lost-profit damages of nearly $5 million, and future damages
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`ranging from $1.8 million to $13.8 million, depending on the length of time to which the
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`jury believes future lost-profit damages should extend.
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`Defendants’ main opposition to Ms. McCloskey’s testimony is that she ostensibly
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`did not account for record evidence that these ten entities were dissatisfied with MPAY
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`and would have left MPAY with or without Taslar’s involvement. But it is not for the
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`expert to weigh this evidence; evidence-weighing is the province of the jury. Defendants’
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`argument in this regard provides a basis for cross-examination, not exclusion.
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`Defendants also argue that Ms. McCloskey’s opinion as to future lost-profit
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`damages should be excluded because it is speculative, arbitrary, and seeks damages
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`unavailable in copyright actions. Ms. McCloskey calculated lost-profit damages until
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`2030. Defendants argue that this is not based on any contractual provision, but Ms.
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`McCloskey did not purport to opine as to whether any particular duration of future lost
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`profits was warranted. Rather, she calculated the present value of lost profits for each year
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`4
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`CASE 0:19-cv-00704-PAM-BRT Doc. 577 Filed 08/18/21 Page 5 of 9
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`until 2030. It will be for the jury to determine the duration of future lost-profit damages,
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`if any. Defendants have not established that Ms. McCloskey’s opinions are so unreliable
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`as to provide no assistance to the jury, and their Motion to exclude her lost-profit damages
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`opinions is denied.
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`2.
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`Disgorgement Damages
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`Defendants briefly argue that Ms. McCloskey’s third opinion should be excluded.
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`This opinion calculates the amount of profit StarrLee and Taslar have reaped from the ten
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`companies that left MPAY for Taslar, and attributes those amounts to Defendants for their
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`alleged contributory and vicarious infringement. According to Defendants, MPAY must
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`seek these alleged profits from the non-party entities, not from Defendants.
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`But “[r]egardless of whether the disputed profits were earned in part by non-parties,
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`the relevant issue is whether any such profits may fairly be considered profits of the
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`infringer subject to [MPAY’s] disgorgement claim.” Fair Isaac Corp. v. Fed. Ins. Co., 447
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`F. Supp. 3d 857, 882 (D. Minn. 2020) (Wright, J.). And “the law does not preclude [a
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`copyright owner] from seeking to disgorge certain profits that, although earned by non-
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`parties, may nonetheless belong to [the infringer]. Id. at 883 (citing, inter alia, Nelson-
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`Salabes, Inc. v. Morningside Dev., LLC, 284 F.3d 505, 517 (4th Cir. 2002) (recognizing
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`that defendants may be jointly liable for profits “collectively derived from the acts of
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`copyright infringement”)).
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`While Defendants fault MPAY for not seeking to join Taslar or other entities in this
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`action, the law is clear that MPAY is not required to pursue all potential defendants in a
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`single action. More importantly, though, MPAY likely has no infringement claims directly
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`5
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`CASE 0:19-cv-00704-PAM-BRT Doc. 577 Filed 08/18/21 Page 6 of 9
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`against Taslar, and certainly has no such claims against the ten former MPAY customers.
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`These entities likely believed, correctly or not, that Taslar had legitimately sublicensed
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`MPAY’s software from Defendants. The entities’ profits are potential infringement
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`damages only through Defendants’ alleged contributory and vicarious infringing activities.
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`Whether Taslar or other entities satisfy the “practical partnership” test is thus beside
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`the point. If the jury finds that Defendants did not have the authority to make the
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`sublicenses to StarrLee and Taslar, Defendants are responsible for the entities’ alleged
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`infringement of MPAY’s copyrights. Defendants’ Motion to exclude Ms. McCloskey’s
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`opinion is denied.
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`B.
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`Dr. Martin Walker
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`Because the parties’ agreement allowed Defendants to possess MPAY’s source code
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`and to make additional software products using MPAY’s source code, MPAY has no
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`claims of direct infringement against Defendants. (June 22, 2021, Mem. & Order (Docket
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`No. 532) at 11.) Rather, MPAY’s only copyright claim against Defendants is for vicarious
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`and contributory infringement arising out of the allegedly invalid sublicenses to StarrLee
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`and Taslar. To prove this claim, MPAY must establish that the sublicenses were invalid
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`and that its copyrights in the source code are valid—that is, that there is protectable
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`expression in those copyrights.1 There seems to be no dispute that if the copyrights are
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`valid but the sublicenses are not, Defendants are liable for vicarious and contributory
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`1 As the Court found, because MPAY did not copyright its source code within five years
`of its publication, but rather waited until shortly before it filed this lawsuit to register the
`alleged copyrights, MPAY’s copyrights are not presumed valid. (June 22, 2021, Mem. &
`Order at 11 (citing 17 U.S.C. § 401(c)).)
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`CASE 0:19-cv-00704-PAM-BRT Doc. 577 Filed 08/18/21 Page 7 of 9
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`infringement.
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`Much of Defendants’ Motion, which argues that Dr. Walker’s opinions regarding
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`whether MPAY source code is present in Defendants’ software products, is therefore moot.
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`The main purpose of Dr. Walker’s “assignment” was to analyze potential infringement of
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`MPAY’s source code (Walker Rep. (Docket No. 499) at 3-4.) But “no expert testimony is
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`necessary as to whether any of Defendants’ products contained portions of MPAY’s source
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`code.” (June 22, 2021, Mem. & Order at 15.)
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`Dr. Walker’s report also addresses protectability. The protectability inquiry is two-
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`fold: are there protectable elements in MPAY’s code, and, if so, did “those protectable
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`elements comprise a substantial part of [MPAY’s] program when it is considered as a
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`whole”? Gates Rubber Co. v. Bando Chem. Indus., Ltd., 9 F.3d 823, 833 (10th Cir. 1993).
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`While much of this case has been litigated as if the answer to the second question is not in
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`dispute, it is apparent from the parties’ submissions that Defendants intend to challenge
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`this issue.
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`1.
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`Protectable Elements
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`Defendants argue that Dr. Walker’s testimony regarding protectability should be
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`excluded because his report contains no specific analysis in that regard, pointing to Dr.
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`Walker’s statement that “when I state that certain code contains protectable expression, I
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`mean that I have performed th[e required protectability] analysis.” (Walker Rep. at 6.) Dr.
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`Walker’s report asserts that he evaluated whether any particular code “was constrained by
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`the vernacular of the source code language or didn’t otherwise represent creative content”
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`and excluded any such non-protectable code from his analysis. (Id. at 17.) He does not,
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`CASE 0:19-cv-00704-PAM-BRT Doc. 577 Filed 08/18/21 Page 8 of 9
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`however, explain how he arrived at his conclusions regarding protectability.
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`But as MPAY points out, in his deposition Dr. Walker repeatedly offered to perform
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`the protectability analysis for Defendants’ attorneys with respect to specific lines of code.
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`They declined to have him so testify. That he did not set forth in his report precisely the
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`analysis he claims to have performed does not raise questions about his methodology; it is
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`undisputed that Dr. Walker references the doctrines that must be considered in conducting
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`the protectability analysis.
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`The jury will be required to determine whether any of MPAY’s source code
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`contained protectable expression. While Dr. Walker’s report may offer little assistance to
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`the factfinder in this regard, it is clear from his report and his deposition testimony that he
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`performed the analysis and can explain that to the jury.
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`2.
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`Qualitative Significance
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`Another way to frame the second question discussed above is to determine whether
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`“those protectable portions of the original work that have been copied constitute a
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`substantial part of the original work—i.e. matter that is significant in the plaintiff’s
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`program.” Gates Rubber, 9 F.3d at 839. This analysis is qualitative, not quantitative. Id.
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`Defendants complain that Dr. Walker appears to have conducted only a quantitative
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`analysis and, as such, he should be precluded from offering his opinions regarding the final
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`element of the protectability inquiry. But as this Court has recognized, the qualitative
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`analysis “poses essentially a value judgment, involving an assessment of the importance of
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`the material that was copied.” Control Data Sys., Inc. v. Infoware, Inc., 903 F. Supp. 1316,
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`1323 (D. Minn. 1995) (quotation omitted). Thus, Dr. Walker’s opinion as to qualitative
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`CASE 0:19-cv-00704-PAM-BRT Doc. 577 Filed 08/18/21 Page 9 of 9
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`significance is relevant and may assist the jury. If Defendants believe that it is inadequately
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`supported, they may cross-examine him regarding the basis for it.
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`Finally, there seems to be a dispute among the parties as to what portions of the code
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`were copyrighted in the 2019 copyright registrations. Dr. Walker’s report shows that he
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`researched this issue and determined what code is the subject of the copyrights. Should
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`Defendants raise this issue during trial, Dr. Walker may offer testimony on it.
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`CONCLUSION
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`Defendants have not established that MPAY’s expert witnesses should be precluded
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`from testifying. Accordingly, IT IS HEREBY ORDERED that Defendants’ Motion to
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`Exclude Expert Testimony (Docket No. 450) is DENIED.
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`s/ Paul A. Magnuson
`Paul A. Magnuson
`United States District Court Judge
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`Dated: Wednesday, August 18, 2021
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`9
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