Sargon Enterprises, Inc. v. University of Southern California
55 Cal. 4th 747
| Cal. | 2012Background
- Sargon patented a dental implant in 1991; FDA approved it for US sale.
- In 1996, Sargon contracted with USC to conduct a five-year clinical study of the implant.
- In 1999, Sargon sued USC for breach of contract; a 2003 jury awarded Sargon $433,000 and USC prevailed on cross-claims.
- At a pretrial inlimine, the trial court excluded lost profits evidence as speculative; this ruling was reviewed on appeal.
- An expert (Skorheim) testified that Sargon’s lost profits ranged from $220 million to $1.18 billion using a market-share approach comparing to the Big Six.
- The trial court excluded Skorheim’s testimony; the Court of Appeal majority affirmed the exclusion, while a dissent and later Supreme Court proceedings questioned the basis for exclusion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the trial court properly gatekeeps expert testimony | Skorheim’s market-share lost profits are admissible under Evidence Code 801/802. | Skorheim’s analysis relies on nonanalogous data and is speculative. | No; court acted within discretion to exclude. |
| Whether lost profits must be proven with historical data or comparables | Established business can rely on past profits to prove future losses. | Such profits must be reasonably certain and based on comparable data; misalignment invalidates projection. | Lost profits must be reasonably certain; Skorheim’s method was speculative and inadmissible. |
| Whether it is appropriate to rank innovativeness against industry leaders as a damages driver | Innovation and market drivers justify forecasting future market share. | There are no objective standards to rank innovativeness; methodology is circular and unreliable. | Not admissible; lacks rational basis and standards for jury use. |
| Whether the trial court abused its discretion by excluding the expert and preventing a potential lost-profits award | Exclusion prevents a potentially large, legitimate damages award. | Exclusion was warranted to prevent speculative damages unsupported by reliable data. | No abuse of discretion; exclusion upheld. |
| Whether the Court of Appeal erred in reversing based on admissibility of expert testimony | Skorheim’s testimony was improperly excluded and should have been admitted for jury consideration. | Exclusion was correct; substantial evidence supports rejection of the method. | Court of Appeal erred; Supreme Court reversed and remanded for proceedings consistent with this opinion. |
Key Cases Cited
- Grupe v. Glick, 26 Cal.2d 680 (Cal. 1945) (lost profits must be reasonably certain; past data admissible)
- Greenwich S.F., LLC v. Wong, 190 Cal.App.4th 739 (Cal. App. 4th Dist. 2010) (lost profits inherently uncertain; caution against speculation)
- Kids’ Universe v. In2Labs, 95 Cal.App.4th 870 (Cal. App. 4th Dist. 2002) (comparable enterprises and reliable data needed for lost profits)
- Parlour Enterprises, Inc. v. Kirin Group, Inc., 152 Cal.App.4th 281 (Cal. App. 4th Dist. 2007) (comparable business must be substantially similar)
- Palm Medical Group, Inc. v. State Comp. Ins. Fund, 161 Cal.App.4th 206 (Cal. App. 4th Dist. 2008) (losses based on actual profits where comparable data exists)
- GHK Associates v. Mayer Group, Inc., 224 Cal.App.3d 856 (Cal. App. 3d Dist. 1990) (allowing some flexibility in measuring damages when causation is clear)
- Lockheed Litigation Cases, 115 Cal.App.4th 558 (Cal. App. 4th Dist. 2004) (gatekeeping for expert testimony under Evidence Code 801)
- People v. Richardson, 43 Cal.4th 959 (Cal. 2008) (expert testimony must assist the trier of fact and be grounded)