Silverthorne Seismic, LLC v. Sterling Seismic Services, Ltd.
4:20-cv-02543
S.D. Tex.Oct 25, 2023Background
- Plaintiff Silverthorne Seismic, LLC owns licensed seismic data from the South Scoop survey; Defendant Sterling Seismic Services, Ltd. processed data for Casillas, an oil & gas operator, and is alleged to have disclosed unlicensed Silverthorne data to Casillas.
- Judge Gray Miller previously granted partial summary judgment for Sterling on breach-of-contract claims; remaining claims are under the Defend Trade Secrets Act (DTSA) seeking reasonable-royalty damages.
- Plaintiff disclosed its president, Bart Wilson, as a lay witness to testify on a $489,450 reasonable royalty (15.06 sq. miles × $32,500 per sq. mile), based on his licensing experience in the region.
- Sterling moved to exclude Wilson’s testimony, arguing the proper reasonable-royalty inquiry is case-specific (what Sterling would have paid), that Wilson lacks specialized or personal knowledge regarding processors, and that discovery failures warrant exclusion.
- The court held that the correct measure of a reasonable royalty is case-specific: what the parties would have agreed to for licensing the defendant to use the trade secret (University Computing standard), and denied Sterling’s motion to exclude Wilson, permitting lay opinion under FRE 701 with limits (Wilson may not opine about what a seismic processor like Sterling would pay).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Proper standard for reasonable royalty | Reasonable royalty should reflect what any willing buyer/intended user (typically operating exploration companies) would pay | Should be case-specific: what Silverthorne and Sterling would have agreed for Sterling to use the secret | Held: case-specific standard applies — value is what the parties would have agreed to for defendant’s intended use (University Computing Co.) |
| Admissibility under FRE 701 (specialized knowledge) | Wilson may testify from his 28+ years licensing seismic data and particularized knowledge of the market | His opinion relies on technical/specialized industry knowledge and thus requires expert qualification under Rule 702 | Held: Wilson may give lay opinion based on personal, particularized knowledge; but he cannot opine about licensing to a seismic processor because he lacks experience with processors |
| Relevance / personal knowledge / property-owner rule | Wilson’s past licensing deals and regional market knowledge show fair market value relevant to damages | His opinion is irrelevant because Sterling (a processor) does not license data and Wilson lacks personal knowledge of what Sterling would pay; ownership and valuation issues undermine admission | Held: Wilson’s testimony is admissible as relevant evidence of market/licensing rates; ownership issues are for trial and do not bar admission; credibility and scope can be challenged on cross-examination |
| Discovery sanction (failure to disclose opinions) | Plaintiff contends responses were timely and Sterling did not timely raise deficiencies | Sterling argues Plaintiff’s interrogatory answer was inadequate and seeks exclusion under FRCP 37 | Held: Exclusion as a sanction would be disproportionate; court denies wholesale exclusion and may consider lesser sanctions later |
Key Cases Cited
- University Computing Co. v. Lykes-Youngstown Corp., 504 F.2d 518 (5th Cir. 1974) (announces case-specific willing-buyer/willing-seller licensing test and non-exhaustive factors for reasonable royalties)
- Carbo Ceramics, Inc. v. Keefe, [citation="166 F. App'x 714"] (5th Cir. 2006) (reasonable royalty appropriate where secret not destroyed and no defendant profits)
- Storagecraft Tech. Corp. v. Kirby, 744 F.3d 1183 (10th Cir. 2014) (reasonable royalty estimates fee defendant would have paid after negotiation)
- AirFacts, Inc. v. Amezaga, 30 F.4th 359 (4th Cir. 2022) (applies University Computing factors to determine fair licensing price for defendant’s intended use)
- Vermont Microsystems, Inc. v. Autodesk, Inc., 88 F.3d 142 (2d Cir. 1996) (uses suppositious meeting of parties to calculate fair licensing price at time of misappropriation)
- Mississippi Chem. Corp. v. Dresser-Rand Co., 287 F.3d 359 (5th Cir. 2002) (business officer may give lost-profit testimony under FRE 701 if based on direct knowledge of accounts)
- Versai Mgmt. Corp. v. Clarendon Am. Ins. Co., 597 F.3d 729 (5th Cir. 2010) (company president may offer broader testimony about business matters than an ordinary lay witness)
- LaCombe v. A-T-O, Inc., 679 F.2d 431 (5th Cir. 1982) (property owner qualified by ownership alone to testify to value)
- Metro Hosp. Partners, Ltd. v. Lexington Ins. Co., 84 F. Supp. 3d 553 (S.D. Tex. 2015) (limits on lay testimony: owners may testify to what their position taught them but not to matters outside their experience)