Free Order on Motion in Limine - District Court of Arizona - Arizona

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

Lexcel Solutions, Inc., Plaintiff, vs. M a s t e r C a r d I n t e rn a t i o n al , MasterCard International, L.L.C., Defendants.

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No. CV-03-1454-PHX-JAT ORDER

Pending before the Court is Defendants MasterCard International, Inc. and 16 MasterCard International, L.L.C.'s (collectively, "MasterCard"): (1) Motion to Exclude 17 Testimony of Johnette Hassell (Doc. #108); and (2) Motion to Strike the Declaration of 18 Johnette Hassell (Doc. #132). Plaintiff Lexcel Solutions, Inc., has filed Responses to both 19 Motions (Docs. ##114, 134), and MasterCard has filed Replies (Docs. ##117, 134). For the 20 following reasons, the Court will deny MasterCard's M otion to Exclude and grant its Motion 21 to Strike. 22 I. 23 In its Second Amended Complaint, Lexcel asserts eight claims against MasterCard 24 relating to simulation software that MasterCard licensed from Lexcel. In particular, Lexcel 25 has asserted claims for misappropriation of trade secrets and copyright infringement. 26 On November 10, 2003, the Court issued its Rule 16 Scheduling Order (Doc. #31), 27 setting forth the dates for expert disclosures, termination of discovery, and the dispositive 28 Background

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motion deadline. The Court subsequently extended certain discovery deadlines. (Doc. #61.) Specifically, it set Lexcel's expert/opinion witness disclosure deadline for May 21, 2004; extended the discovery cut-off until August 6, 2004; and required the parties to file dispositive motions by August 27, 2004. (Id.) On May 21, 2004, Lexcel disclosed Johnette Hassell's expert report. Hassell is an expert in computer forensics, has taught graduate and undergraduate courses in software design and software engineering, and is a published author on software plagiarism and computer forensics. In her Report, Hassell addresses the question: "Does MasterCard's MCPS products use trade secrets of Lexcel's GCMS/Debit Credit System?" In October 2004, MasterCard moved for summary judgment on each of Lexcel's claims, including Lexcel's copyright infringement and misappropriation of trade secret claims. Lexcel filed a Response opposing summary judgment, and submitted the Declaration of Johnette Hassell, in support. (Doc. #121, ex. 16.) Although Lexcel's Statement of Facts does not cite to Hassell's Declaration, Lexcel does reference it in its Response. MasterCard now moves to exclude Hassell's testimony and to strike Hassell's Declaration. II. Motion to Exclude Expert testimony of Johnette Hassell A. Rule 703 MasterCard first moves to exclude Hassell's testimony pursuant to Federal Rule of Evidence 703. This rule provides in pertinent part: The facts or data in the particular case upon which an expert bases an opinion or inference may be those perceived by or made known to the expert at or before the hearing. If of a type reasonably relied upon by experts in the particular field in forming opinions or inferences upon the subject, the facts or data need not be admissible in evidence in order for the opinion or inference to be admitted. Thus, "Rule 703 allows an expert to formulate an opinion based on facts or data which are

24 `reasonably relied upon by experts in the particular field in forming opinions or inferences 25 26 Cir. 2003). The Rule "requires a court to ask two questions when evaluating otherwise 27 inadmissible evidence. The first question is whether the facts are of a type reasonably relied 28 -2Filed 09/09/2005 upon the subject . . . ." Turner v. Burlington N. Santa Fe R.R. Co., 338 F.3d 1058, 1061 (9 th

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on by experts in the particular field. The second question is whether the probative value of the underlying data substantially outweighs its prejudicial effect." Id. (internal citations and quotations omitted). In Turner, for example, the Court of Appeals affirmed the trial court's exclusion of an expert's testimony that a fire was started by arson based upon a lab report finding gasoline in the soil - the only evidence of gasoline. The court noted the expert "used the report not as data upon which an expert in his field would reasonably rely on forming an opinion, but rather intended to use it as substantive evidence of his ultimate conclusions that the fire was intentionally created by pouring gasoline into the soil." Id. Because the report was otherwise inadmissible hearsay evidence in the absence of foundation testimony by the laboratory that conducted the testing, and because the court found the probative value of the report did not outweigh its prejudicial effect, the court held the trial court properly excluded the expert's testimony based upon that report. Id. Here, MasterCard seeks to preclude Hassell from testifying because she based her opinions in the report on a summary of alleged trade secrets prepared by Lexcel in anticipation of litigation. It argues that the summary is not "`of the type reasonably relied upon by experts in the particular field in forming opinions or inferences upon the subject' of whether software contains trade secrets, and whether another software program uses such trade secrets.'" Specifically, it argues that "Hassell's expert opinion is based on nothing more than the plaintiff's statement of what its trade secrets are, which was prepared for purposes of litigation." In response, Lexcel argues that MasterCard misconstrues the scope of Hassell's opinion. Particularly, Lexcel asserts that "Hassell was retained to compare and form an opinion on whether MasterCard has impinged on the trade secrets of Lexcel - not whether Lexcel has trade secrets." (Resp. at 2.) Lexcel explains that, toward this end, it provided Hassell with a list of its trade secrets, which Hassell then compared against MasterCard's software. Thus, Lexcel argues that MasterCard's argument fails because Hassell was not

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instructed to undertake and did not undertake an independent analysis of whether the trade secrets listed in the summary were trade secrets. Rule 703 specifically provides that, in formulating an opinion, an expert may rely on facts or data made known to the expert at or before the hearing. It also states that, provided the facts or data are of the type reasonably relied upon by experts in the field, the facts or data need not be admissible in order for the expert's opinion or inference to be admissible. In this case, Lexcel provided Hassell with a summary of its trade secrets, which Hassell then compared against MasterCard's replacement simulation programs to determine whether MasterCard infringed on those trade secrets. At no point in her Report does Hassell purport to verify that Lexcel's proffered trade secrets are, in fact, trade secrets. Rather, her

comparative analysis is based on the presumption that they are trade secrets. As MasterCard points out, Hassell admitted during her deposition that she is not qualified to opine as to whether information amounts to a trade secret, and that if the presumption that Lexcel's summary of trade secrets were actually trade secrets was removed, her opinion would no longer be valid. Thus, Lexcel and Hassell concede that Hassell's expert opinion is strictly limited to whether MasterCard's software contains Lexcel trade secrets, and does not address the issue of what information in Lexcel's software qualifies as a trade secret. The question is thus whether the summary Lexcel prepared and provided Hassell is of the type experts in Hassell's field would reasonably rely upon informing their opinions or inferences. In order to undertake a comparative analysis, such as the one Hassell

administered, a computer software expert would first need to have a list identifying what information from the original software is claimed to be infringed upon in the competing software. The summary that Lexcel prepared simply identifies its purported trade secrets, thereby allowing Hassell to determine whether those trade secrets appear in MasterCard's software. The Court thus finds MasterCard's argument that such a list identifying the trade secrets alleged to be infringed upon is not of the type reasonably relief upon by experts unpersuasive.

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MasterCard also contends that Hassell did not employ the proper tools in formulating her opinion. Specifically, it argues: Hassell had available to her tools of the type used by experts in her field to analyze the identification, quantification, and determination of substantial similarity by an alleged infringing computer program. [] However, she did not use those tools, and did not rely upon the type of analysis of the M asterCard software that an expert in her field would normally perform. The information she based her opinion upon was unreliable, and her reliance upon it and closing her eyes to information demonstrating that the alleged `trade secrets' were not secret was unreasonable. (Mot. at 9.) In her Report, Hassell compares certain components of Lexcel and MasterCard's software to determine whether there is any identity between the two programs. Hassell evaluated the written descriptions of certain components of the programs, including the claims of functionality, plain language representations of the system, and the system's architecture. Hassell also reviewed the software programs for similarities. MasterCard points out that Hassell testified that she did not utilize certain tools to determine the degree of similarity between the programs. However, Hassell also indicated that the tools were "in development" and used to analyze source code. Hassell's analysis is broader than merely analyzing source code. Overall, Hassell appears to have reviewed both the documentation and the actual programs in conducting her analysis. The Court finds no evidence that this comparative technique was either unreliable or untested. MasterCard's argument. Finally, MasterCard asserts that "Hassell's testimony would amount to a summary of the out-of-court statements of others, i.e., Lexcel's lawyers, as to the Lexcel `trade secrets' that MasterCard allegedly impinged upon." Again, nothing in Hassell's Report indicates that she is opining as to whether the proffered trade secrets actually qualify as trade secrets. She is merely opining as to whether MasterCard's software contains Lexcel's purported trade secrets. MasterCard's argument that Hassell's testimony merely summarizes statements of others is therefore unfounded. Accordingly, it rejects

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Next, the Court must determine whether the probative value of the underlying data substantially outweighs its prejudicial effect. As part of its misappropriation of trade secrets claim, Lexcel must identify what information constitutes a trade secret. Toward this end, it provided its summary of purported trade secrets to Hassell. MasterCard has failed to present any persuasive argument as to how this summary is unfairly prejudicial. The Court therefore finds this factor also weighs in Lexcel's favor. Consequently, the Court finds no basis to exclude Hassell's testimony under Rule 703. B. Rule 702 MasterCard next moves to strike Hassell's testimony pursuant to Rule 702. This Rule provides: If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise, if (1) the testimony is based on sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case. MasterCard argues that Hassell admitted she is not qualified to express an opinion on what is a trade secret. According to MasterCard, if she is not qualified to express an opinion on what is a Lexcel trade secret, she also cannot reasonably opine as to whether MasterCard impinged on Lexcel's trade secrets. MasterCard further argues that Hassell's lack of qualification to recognize a what amounts to a trade secret undermines the reliability of her opinion. The Court, however, disagrees. As discussed above, Hassell does not offer any opinions relating to whether Lexcel's purported trade secrets actually qualify as trade secrets. The fact that Hassell is not qualified to make that determination in no way affects her ability, based on her education, skill, and experience, to perform a comparative analysis of whether the alleged trade secrets also appear in MasterCard's software. This is precisely Hassell's field of expertise. The Court thus rejects MasterCard's argument.

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MasterCard further contends that Hassell's opinion is not based on sound science, but is based wholly on statements of Lexcel's lawyers describing Lexcel's alleged trade secrets. It again argues that Hassell did not apply the methodology described in her expert report for comparing software, and did not follow any of the usual practices in the industry to test a software program for derivation from or copying of another software program. It asserts that the unreliability of her opinion is demonstrated by the fact that the Lexcel trade secrets she concluded were impinged on by MasterCard were copied from M asterCard's Request for Proposal issued in July 2000. As to MasterCard's claim that Hassell's opinions are not based on sound science, MasterCard's argument is misplaced. While MasterCard may dispute Lexcel's

characterization of its purported trade secrets, this does not undermine the methodology Hassell employed in determining whether those trade secrets were replicated in MasterCard's software. Further, although Hassell did not utilize certain source code analyzing tools in conducting her analysis, there is nothing indicating that her method of comparing specific components and description of the two programs was not scientifically sound. In sum, the Court finds no basis to exclude Hassell's testimony pursuant to Rule 702. C. Rule 403 Next, MasterCard contends that Hassell's opinion should be excluded under Rule 403, which provides: Although relevant, evidence may be excluded if its probative value is substantially outweighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury, or by considerations of undue delay, waste of time, or needless presentation of cumulative evidence. MasterCard asserts that "it would be prejudicial and unfair to allow Hassell to testify that MasterCard `impinge[d] on the trade secrets of Lexcel,' when she based that opinion on a summary of alleged `trade secrets' of Lexcel prepared solely for purposes of litigation." The Court, however, disagrees. Hassell's Report is limited to the issue of whether Lexcel's purported trade secrets appear in MasterCard's software. MasterCard may cross-examine

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Hassell as to the scope of her opinions and the data she relied upon in reaching her conclusions. D. Rule 402 Finally, getting to what is perhaps the heart of MasterCard's evidentiary challenges, MasterCard argues that Hassell's testimony should be excluded because Lexcel's summary of trade secrets is indisputably wrong. According to MasterCard, Lexcel's purported trade secrets were copied word-for-word from MasterCard's Request for Proposal, which MasterCard claims Carl Kubitz admitted does not contain any trade secrets. Lexcel has failed to proffer any argument in response to this claim. Nevertheless, the Court finds that Hassell's opinion is relevant to Lexcel's trade secret infringement claim, and that MasterCard can question Hassell (and Kubitz) regarding Lexcel's summary of trade secrets. III. Motion to Strike the Declaration of Johnette Hassell Along with its Response, Lexcel attached the Declaration of Johnette Hassell as exhibit #16. Lexcel does not cite to Hassell's Declaration in its Statement of Facts, but cites Hassell's statements in support of its argument against summary judgment on its copyright infringement claim. In the Declaration, Hassell states that after reviewing M asterCard's programs and Lexcel's TestSystem Demo ISO, along with the parties "descriptive materials," she finds "notable portions of the systems, the subsystems, the architecture, and the functionality of what [Hassell] has reviewed are substantially similar." Specifically, she states that the "portions of the systems from MasterCard, Integri, and Lexcel have substantially similar descriptions," and "[i]n some instances, these descriptions are verbatim." She also notes that the systems from MasterCard, Integri, and Lexcel have substantially similar naming conventions, which are also verbatim in some instances. Based in part on Hassell's statements, Lexcel contends that material issue of facts exist under its copyright infringement claim, precluding summary judgment. MasterCard urges the Court to strike Hassell's Declaration because it sets forth previously undisclosed expert opinion testimony. According to MasterCard, in the expert

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report Lexcel submitted on May 21, 2003, Hassell opined solely as to whether Mastercard's new software impinges on Lexcel's trade secrets. MasterCard argues that Hassell did not opine on the issue of copyright infringement, and there was no indication that Lexcel would offer her as an expert on any copyright infringement issues. In fact, MasterCard points to Hassell's deposition testimony, where she stated she was not expressing any opinion regarding Lexel's copyright infringement claim. Thus, MasterCard argues that Hassell's Declaration amounts to new, untimely disclosed expert report on the issue of copyright infringement. MasterCard further contends that it will be prejudiced if the Court does not strike the Declaration. Particularly, MasterCard asserts that, based on Hassell's previous expert report, it did not disclose a contradictory expert on the issue of copyright infringement. Further, MasterCard argues that Hassell's Declaration does not set forth the basis and reasons for her expert opinions and does not disclose what descriptive information she relied on in reaching the opinions. Because discovery is closed, MasterCard asserts that it cannot depose her to uncover such information. In response, Lexcel argues that Hassell's Declaration is not a new expert opinion, but is completely based on information previously disclosed in Hassell's expert report. Particularly, Lexcel claims that Hassell does not offer any opinion regarding copyright infringement in her Declaration, but merely points to the similarity between Lexcel's software and MasterCard's replacement software, which was the subject addressed in her report. Thus, because the Declaration does not contain any statements regarding copyright infringement, and is grounded in Hassell's expert report, Lexcel argues that Master's request should be denied. As indicated above, Hassell's expert report was limited to addressing whether MasterCard's software infringed on any of Lexcel's trade secrets. Objectively, Hassell's statements in her Declaration do not express any opinions regarding copyright infringement, specifically. Rather, Hassell generically states that certain portions of MasterCard's software

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are substantially similar to Lexcel's. While Lexcel argues that Hassell previously made such statements in her expert report, the scope of that report was limited to Lexcel's misappropriation of trade secrets claim. Nothing in Hassell's report indicated that she was reviewing the software to determine whether MasterCard had infringed on Lexcel's copyrighted information. In fact, at no point in her Report does Hassell even identify what the copyrighted information is. Further, Lexcel has failed to explain how Hassell could be reviewing for trade secrets (information which, by definition, is not generally known), while simultaneously be reviewing for whether MasterCard's software infringed on Lexcel's copyrighted material (information which must be disclosed). The Court therefore will therefore grant MasterCard's Motion to Strike Hassell's Declaration. IV. Conclusion Accordingly, IT IS ORDERED that MasterCard's Motion to Exclude Testimony of Johnette Hassell (Doc. #108) is DENIED. IT IS FURTHER ORDERED that MasterCard's Motion to Strike the Declaration of Johnette Hassell (Doc. #132) is GRANTED. DATED this 9th day of September, 2005.

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