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`LexisNexis
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`9 of 32 DOCUMENTS
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`Sloan Valve Co vs. Zurn Industries, Inc et al.
`
`10 C 204
`
`UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF
`ILLINOIS
`
`2013 US. Dist. LEXIS 85897
`
`June 19, 2013, Decided
`June 19, 2013, Filed
`
`SUBSEQUENT HISTORY: Motion granted by, in part,
`Motion denied by, in part, Motion denied by, in part, As
`moot Sloan Valve Co. v. Zara Inalus, 2013’ US. Dist.
`LEXIS H3110 (ND. IIl'., Aug. 12, 2013)
`
`PRIOR HISTORY: Sloan Valve Co. v. Zuni Indus,
`Inc, 2013 US. Dist. LEXIS 49303 (ND. 111., Apr. 5,
`2013)
`
`CORE TERMS: reply, expert report, ratio, incrernental,
`collateral, weighted,
`calculation, valve, unweighted,
`scrap, supplementation, deadline,
`rebuttal,
`freight~out_,
`good cause, disclosure,
`responsive,
`freight,
`amend,
`supplemental
`report, opposing party,
`supplemental,
`approximate,
`inadvertent,
`contradict,
`discovery,
`reduction, license, elected, handles
`
`a
`[*1] For Sloan Valve Company,
`COUNSEL:
`Delaware corporation, Plaintiff: Daniel W. Werly, Jason
`Andrew Berta, Lisa Marie Noller, Foley & Lardner,
`Chicago, IL; Richard S. Florsheim, PRO I-IAC VICE,
`Foley & Lardner, Milwaukee. W]; Scott Richard Kaspar,
`Foley & Lardner LLP, Chicago, IL.
`
`For Zuni Industries, Inc., a Delaware corporation, Zurn
`Industries, LLC., a Delaware limited liability company,
`Defendants: Bryan C. Clark, PRO HAC VICE. John W
`Mcllvaine, III, Kent E. Baldauf, jr., PRO HAC VICE,
`Steven M. Johnston, PRO HAC VICE, Thomas C
`
`Wolski, PRO HAC VICE, The Webb Law Firm,
`Pittsburgh, PA; David R. Cross, Quarles & Brady,
`Milwaukee, WI;
`John E Coraour, Michael Steven
`Rhinehart, Nicole M Murray, Quarles & Brady Llp,
`Chicago, IL.
`
`For Zurn Industries, LLC., a Delaware limited liability
`company, Zum Industries, Inc, a Delaware corporation,
`Counter Claimants: Bryan C. Clark, PRO I~IAC VICE,
`Kent E. Baldauf,
`jr., PRO HAC VICE, Steven M.
`Johnston, PRO HAC VICE, Thomas C Wolski, PRO
`HAC VICE, The Webb Law Firm, Pittsburgh, PA;
`Michael Steven Rlu'nehart, Nicole M Munay. Quarles &
`Brady Llp, Chicago, IL.
`
`For Sloan Valve Company, a Delaware corporation,
`Counter Defendant: Jason Andrew Berta, Lisa Marie
`Noller,
`[*2} Foley & Lardner, Chicago, IL; Richard S.
`Florsheim, PRO HAC VICE, Foley & Lardner,
`Milwaukee, WI; Scott Richard Kaspar, Foley 8.: Lardner
`LLP, Chicago, IL.
`
`For Zum Industries, LLC., a Delaware limited liability
`company, Zurn Industries, Inc, a Delaware corporation,
`Counter Claimants: Bryan C. Clark, PRO I-IAC VICE,
`John W Mcllvairie, III, Kent E. Bzddauf. jr., PRO HAC
`VICE, Steven M. Johnston, PRO HAC VICE, Thomas C
`Wolski, PRO HAC VICE, The Webb Law Firm,
`Pittsburgh, PA; Michael Steven Rltirlehart, Nicole M
`
`SENJU EXHIBIT 2339
`Lupin v Senju,
`ll’R20lS-01097, lI‘R2015-01099,
`[P112015-01I00 S: Il"R20i5-01105
`
`

`
`2013 U8. Dist. LEXIS 85897, *2
`
`Page 2
`
`Murray, Quarles & Brady Lip, Chicago, IL.
`
`JUDGES: Amy J. St. Eve
`
`OPINION BY: Amy I. St. Eve
`
`OPINION
`
`STATEMENT
`
`inc. and Zurn Industries, LLC.
`Zum industries,
`(collectively, "Zurn") have moved the Court to strike the
`supplemental expert report of Richard F. Bero, Sloan
`Valve Company's ("Sloan") expert report. They also seek
`leave to amend the expert report of Ivan I-Iofmann, Zurn's
`own expert. The motion is granted in part and denied in
`part.
`
`BACKGROUND
`
`This case concerns U.S. Patent No. 7,607, 635,
`entitled "l-‘lush Valve Handle Assembly Providing Dual
`Mode Operation" (the ‘"635 Parent" or the "Wilson
`Patent"), and the corresponding U.S. Patent Application
`Publication No. 2006/0151729 (the "Published Wilson
`Patent Application").
`[*3] On January 13, 2010, Sloan
`comrnenced this action against Zum seeking (a) damages
`and injunctive relief for Zunfs alleged infringement of
`the '63.? Parent’; and (b) provisional damages for Zurn‘s
`alleged making, sale, and use of inventions that
`the
`Published Wilson Patent Apptication covers. On
`December
`13, 2012,
`the Court entered a.n Agreed
`Amended Scheduling Order
`that provided for
`the
`following expert discovery deadlines:
`initial
`expert
`reports due by January 28, 2013, rebuttal expert reports
`by March 4, 2013, and reply expert reports due by April
`1, 2013. l (R. 443.)
`
`l The parties first proposed a deadline for Reply
`expert reports in Lheir sixth Agreed Amended
`Scheduling Order,
`entered by the Court on
`December 13. 2012. (R. 443.)
`
`On January 28, 2013, Sloan served Zurn with the
`report of its damages expert Richard F. Bero (the "Initial
`Report"). The report consisted of approximately sixty
`pages of text and over one hundred pages of additional
`schedules. On March 8, 2013, ZLIITI served Sloan with the
`report of its expert, Dr. Erickson, a statistician and survey
`expert. The report of Zurn's damages expert,
`Ivan
`
`Hofmann, was also served on Sloan. On April 5, 2013,
`Sloan served Bero's reply [*4] damages expert report on
`Zam ("Reply Report"). Zurn contends that this Reply
`Report improperly presents new arguments that the Court
`should strike. Specifically, Zurn argues that the following
`arguments are new and should be stricken: 1) Bero's
`calculation of damages based on the "unweighted rations"
`rather than the "weighted ratios" used in the Initial
`Report; 2) Bero's addition of "an entirely new Schedule
`20.0, which is yet another, alternative collateral sales
`ratio calculation based on Sloan's previously available
`sales data": and 3) Bero's "revised and increased estimate
`of Sloan's incremental costs" based on the inctusion of
`Sloan's freight-out and scrap costs which were included
`for the first time in the Reply Report. In addition, Zurrt
`seeks leave to amend Mr. Hofnrann's expert report. The
`Court will address each argument in turn.
`
`LEGAL STANDARD
`
`Federal Rule of Civil Procedure 26(a){.?) governs
`expert discovery. Rule 26(a)(2)(B)(i) requires a party to
`disclose to the other parties a written report of a retained
`expert that includes "a complete statement of all opinions
`the witness will express and the basis and reasons for
`thenr." Fed.R.Civ.P.26{a)(2)(B)(i). An expert
`rebuttal
`[*5] report is designed to "contradict or rebut evidence"
`disclosed in the initial expert
`report. Fed.R.Civ.P.
`26(a)(2)(D)(ii). "The proper function of rebuttal evidence
`is to contradict, impeach or defuse the impact of evidence
`offered by art adverse party." Peels v. Terr-e Harare Police
`Dep‘r, 535 F.3d 62}. 630 (7th Cir. 2008). See also Butler
`it Sears Roebuck & Co., No. 06-7023, 2010 U.S. Dist.
`LEXIS 67377, 2010 WL 269760}, at * 1, (ND. Ill. July 7,
`2010). Although the Rules do not expressly provide for
`reply expert reports, the parties agreed to such reports in
`this case.
`(R. 443.) Similar to reply briefs, advocates
`cannot advance new arguments for the first time in a
`reply expert report. Experts must limit their reply reports
`to the scope of the issues raised in the rebuttal reports.
`The reply report
`is not
`the appropriate vehicle for
`presenting new opinions.
`
`Local Patent Rule 5.3 provides:
`
`Amendments or supplementation to
`expert reports after the deadlines provided
`herein are presumptively prejudicial and
`shall not be allowed absent prior leave of
`court upon a showing of good cause that
`
`

`
`2013 US. Dist. LEXIS 85897, *5
`
`Page 3
`
`the amendment or supplementation could
`not reasonably have been made earlier and
`that
`the opposing party is not unfairly
`prejudiced.
`
`[*6] The Rule provides for a presumption
`L.P.R. 5.3.
`against
`supplementation of expert
`reports after
`the
`deadlines. In order to supplement an expert report after
`the disclosure deadlines provided for in the Local Patent
`Rules, a party must obtain prior leave of court, show
`good cause that it could not have made the supplement
`earlier, and establish that
`the opposing party will not
`suffer undue prejudice from the supplementation. Federal
`Rule of Civil Procedure 26(3)
`also provides
`for
`supplementation
`of
`expert
`reports.
`"Although
`Feci.R.Cr‘v.P. 26(e)
`requires a party to supplement or
`correct disclosure upon information later acquired,
`that
`provision does not give license to sandbag one‘s opponent
`with claims and issues which should have been included
`
`in the expert witness‘ report (indeed, the lawsuit from the
`outset)“ rlilgood v. Gen. Motors Corp, No. 02 C 1077,
`2007 US. Dist. LEXIS 8123, 2007 WL 647496, at **3-4
`(SD.
`Ind. Feb.
`2, 2007)
`(citations and quotations
`omitted).
`
`ANALYSIS
`
`1. Ber-0's Reply Report
`
`A. Weighted v. Unwcightcd Ratios
`
`In his Initial Report, Bero calculated damages based
`on collateral unit sales ratios, and included both the
`weighted and unwciglllcd ratios of the total number of
`collateral units —
`toilet valves,
`[*7] urinal valves and
`faucets —
`in sites investigated by Quest Consultants.
`Although Mr. Bero included both ratios, he used the
`weighted ratios as
`the basis of his collateral sales
`damages calculation "since use of the weighted ratios
`appears to represent a more accurate approximation for
`the ratios of collateral products to manual dual-flush
`valves." (R. 507, Ex. A, Bero initial Report at 30.)
`According to Bero. "the un~wcighted ratios simply use
`the
`investigated bathrooms
`and
`ignore
`the
`size
`differences of the projects." (Id) In response to the Initial
`Report, Zum's expert criticized the use of the weighted
`ratios. Consequently,
`in his Reply Report, Bero opined
`"wltet'.her one uses weighted or unweighted averages
`makes little dilference." (R. 507-1, Ex. B, Bero Reply
`Report at 34.) Using the same unweighted numbers be
`included in his Initial Report, Bero calculated the
`
`collateral profit per value using both the weighted (as he
`had in his Initial Report) and the unweighted ratios to
`demonstrate
`that
`"whether one
`uses weighted or
`unweighted averages makes little difference.“ (Id. at 34.)
`His Reply Report still contains the calculations based on
`the weighted averages as well. Thus, rather
`[*8] than
`offering a new opinion and changing the basis for the
`calculation of the collateral unit sales, Mr. Bero included
`the calculation based on the unweighted ratios to refute
`Mr. Hofntanufs criticisms. This calculation is responsive
`to the criticism and proper for Bero’s Reply Report.
`
`B. Estimation of Incremental Costs
`
`Zum further argues that the Court should strike Mr.
`Bero's revised and increased estimate of incremental
`
`it failed to
`that
`costs. Notably, Zurn does not contest
`produce any incremental costs data for manual dual llush
`valve sales. Bero, therefore, relied on Sloan's incremental
`costs data to approximate Zum's incremental costs.
`Unlike Zorn, Sloan ordinarily does not include freight out
`and scrap costs in its incremental costs. After including
`this data in his Initial Report, Mr. l-lofmarm criticized
`Mr.Bero for not including Zunfs incremental freight out
`and scrap costs in his Initial Report. Mr. Bero thereafter
`added them in his Reply Report. in his Reply Report,
`Bero notes that he conducted "additional investigation of
`Sloan's costs" after Hofrriann criticized his Initial Report
`and
`after Zum provided
`them. Based
`on
`this
`investigation, Bero noted in his Reply Report:
`
`[*9] understand that in addition to
`I
`Sloan's incremental costs identified in the
`
`Bero Report, the only two additional Sloan
`costs that potentially could be considered
`incremental
`that Sloan does not already
`include in its incremental costs are scrap
`costs and 1”reigl1t—oul costs. These scrap
`and freight-out costs have both historically
`been approximately 1%-2% of Sloan's net
`sales. For purposes of my analysis,
`I
`include 4% additional incremental costs to
`
`account for the scrap and freight-out costs
`on the Sales of Sloan's valves, packages,
`handles,
`coliateral
`products
`and
`diapltragms."
`
`(R. 507, Ex. B, Bero Reply Report at 39-40.) Mr. Bero
`then updates his royalty quantifications to incorporate the
`incremental lreiglit-out and setup costs. (Id. at 54.)
`
`

`
`2013 U.S. Dist. LEXIS 35897, *9
`
`Page 4
`
`Zum appears to back away from its challenge to this
`aspect of Mr. Bean's Reply Report because it does not
`address this issue in its Reply brief. Given Zum‘s failure
`to produce the freight out and scrap costs data in the first
`instance, the Court witl not strike this "aspect of Bero‘s
`Reply Report. His opinion is also directly responsive to
`Mr. Hof1nann's criticism.
`
`C. Schedule 20.0
`
`Next, Zum criticizes Bero's inclusion of Schedule
`20.0 in his Reply [*l0] Report. According to Zurn, this
`Schedule is "sandbagging" because it presents a new and
`"deeply flawed approach to calculating Sloan's alleged
`damages for collateral sales." (R. 500 at 4; R. 516 at 2.)
`
`Schedule 20.0 is entitled "Rational anatysis based on
`Sloan Vaive overall." Sloan contends that this Schedule
`
`responds to Mr. Hofmann's concerns regarding the
`adequacy of the underlying Quest
`investigation upon
`which Sloan relies
`for damages data
`in that
`it
`"sununarizes
`the
`conveyed
`sales
`for
`all
`Sloan
`flushonieters sold in 2010 and 2011." (R. 509 at 4.)
`Sloan's only defense of Schedule 20.0 is one line in its
`Response that references Schedule 20.0 and notes that
`"Bero also refuted H0fII1Et1i1'1'S criticism by noting that the
`overall ratio of flushometcr sales to both urinal valves
`
`and faucets (r'.e., the convoyed products) was consistent
`with the unweiglited rations resulting from the Quest
`investigation." (Id. at 9.) Sloan does not contest
`that
`Schedule 20.0 is
`a new, alternative collateral
`sales
`calculation for sales that Sloan and Zuni would liavc
`
`conducting a hypothetical
`expected in 2006 while
`I11 addition, Sloan does not
`negotiation for a license.
`challenge Zurn's assertion that Sloan had [*ll] access to
`all of the data at issue in Schedule 20.0 before Bern
`
`cornpieted his Initial Report.
`
`Based on the submissions, Zum has established that
`Schedule 20.0 is a new opinion regarding damages and
`thus not appropriate for the Reply Report. Accordingiy.
`the Court strikes Schedule 20.0 from the Reply Report.
`
`11. Hoffman's Proposed Supplemental Report
`
`In addition, Zum seeks permission under Local Rule
`5.3 for its expert Ivan I-lofnianu to file a supplemental
`report
`I)
`to address Bero‘s arguments in his Reply
`Report; and 2) "to correct an inadvertent error in his
`
`calculations." (R. 500 at 5.) Zurn's retpiestis denied.
`
`The Court wilt not pennit Zurn to Supplement Mr.
`Hofrnanifs report to address Mr. Bcro's arguments in his
`Reply Report. The Court has struck Mr. Bero‘s Schedule
`20.0, thus Zurn's arguments regarding this document are
`moot. Because the other arguments in Bero's Reply
`Report are responsive to Mr. Hofrnann's rebuttal report as
`noted above, Zum does not have the right to supplement
`Mr. Hof1nann's report to address them.
`
`Zum also seeks to supplement Mr. I-Iofniann's report
`regarding an "inadvertent error in the way Mr. Hofinann
`had presented Zum's revenues." Zum claims that Mr.
`Hofniann [*]2] presented Zurn's revenues in his March 8
`report based on how they appeared in Bero's Initial
`Report "for comparability purposes." Bero's Initial Report
`included an approximate
`six percent
`reduction of
`revenues to reflect certain discounts included in Zum-i's
`
`cost data. Zurn claims that Mr. Bero‘s accounting for this
`reduction "was revealed only in footnotes located on
`pages 159,
`I66, and 172" of his Initial Report,
`thus
`I-lolTmann missed it when he prepared his
`report.
`Significantly, Zurn's own data would have revealed the
`numbers that Zum now wants Mr. Hoffman to include in
`
`a supplemental report, yet he elected not to include them.
`In addition, Zum learned of Mr. Hoffman's mistake at his
`deposition on April 3, 2013. yet waited approximately
`one month before raising it with the Court. Rule 26(2)
`provides for the supplementation of expert disclosures to
`correct any errors in a timely manner.
`It does not,
`however, pennit an expert to correct mistakes based on
`information that was available to the expert well
`in
`advance of the issuance of his report. Srzrlrtmrrcher v.
`Home Depot USII, Jim, No. 2:10 av 467, 2012 US. Dist.
`LEXIS 164722, 2012 IVL 5866297, at *2, (N.D. Ind. Nov.
`19, 2012). Contrary to Zurn's representation,
`[’*l3} Mr.
`Hofnianifs error is more than just a matlieinatical - he
`elected to rely on Sloan's e.\'pert's numbers and failed to
`understand them. Zum has not established good cause to
`supplement Mr. Hofrnanrfs report.
`
`CONCLUSION
`
`Zurn‘s Motion to Strike SEoan's Reply Report and for
`Leave to Amend Zurn's Expert Report is granted in pan
`and denied in part.
`
`

`
`*++****+++ print Completed ***w**ww*w
`
`Time of Request: Saturday, April 30, 2016
`
`14:15:47 EST
`
`2827:559887311
`Print Number:
`Number of Lines: 192
`Number of Pages:
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`Send To:
`
`JUSTIN
`
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`FINNEGAN
`901 NEW YORK AVE NW
`WASHINGTON, DC 20001-4413