SHERWIN-WILLIAMS COMPANY v. PPG INDUSTRIES, INC.

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

THE SHERWIN-WILLIAMS COMPANY, ) CIVIL ACTION NO. 17-1023

)

Plaintiff/Counterclaim-defendant, ) JUDGE JOY FLOWERS CONTI

)

)

)

v. )

)

PPG INDUSTRIES, INC., )

)

Defendant/Counterclaimant. )

OPINION

I. Introduction

Pending before the court are objections to the special master’s report and

recommendation (“R&R”) about supplemental damages discovery (ECF No. 965). Specifically,

the special master recommended that: (1) motion in limine (“MIL”) #14 filed by The Sherwin-

Williams Co. (“Sherwin” or “SW”) (ECF No. 893) be granted; (2) SW MIL #15 (ECF No. 896)

be denied; (3) SW’s Daubert motion (ECF No. 899) to exclude certain testimony from PPG’s

damages expert, Michael Milani (“Milani”), be granted in part and denied in part; and (4) the

Daubert motion filed by PPG Industries, Inc. (“PPG”) (ECF No. 907) to exclude certain

testimony from Sherwin’s damages expert, Dr. James Kearl (“Kearl”), be granted in part and

denied in part.

The special master heard oral argument, which the court attended. The parties had ample

notice and opportunity to be heard and confirmed in a telephone conference on September 30,

2021, that additional oral argument is not necessary. The motions and the parties’ objections to

R&R #965 (ECF Nos. 966, 968) are fully briefed and ripe for disposition. The objections will be

reviewed de novo. Fed. R. Civ. P. 53(f)(1).

II. Procedural History

As relevant to the pending disputes, fact discovery (i.e., the “original fact discovery

period”) closed prior to the second quarter of 2018 (the “Q2 2018”). Trial has been significantly

delayed by the COVID-19 pandemic and is now scheduled to commence in January 2022. On

February 18, 2021, the court permitted the parties to take additional discovery and submit

updated damages expert reports with respect to the period after Q2 2018 (the “supplemental

damages period”). The parties raised numerous disputes, which were addressed by the special

master in R&R #965.

PPG’s and Sherwin’s original damages expert reports were necessarily based on the

factual record that had been developed during the original fact discovery period and were limited

to the period prior to Q2 2018 (the “original damages period”). On March 18, 2020, the court

granted Sherwin’s motion for partial summary judgment, which prevented Milani from using an

Akzo product as a basis for his lost profits or reasonable royalty analysis (ECF No. 530). The

court held that to constitute an alternative product, it must be acceptable to customers; and

recognized that “[b]ecause the coatings at issue are used in beverage cans, they must undergo a

complicated and time-consuming qualification process.” (ECF 530 at 16). The court stated:

“Although the parties vigorously dispute their respective burdens to develop evidence regarding

alternative products, the simple fact is that neither party did so and discovery is now closed.”

(ECF No. 530 at 17). The court also observed that no practical dispute existed because Milani

did not quantify an alternative “lost profits” or “reasonable royalty” analysis based on the Akzo

product, and therefore, asking a jury to adjust a damages award based that product would be an

exercise in pure speculation. (ECF No. 530 at 17). The court concluded: “Because there is

insufficient evidence for a reasonable jury to find that the Akzo product or Exemplary Perez

Coating were in the market during the [initial] damages period, it would be improper to refer to

either product as a basis to calculate lost profits or a reasonable royalty.” (ECF No. 530 at 17).

In October 2020, PPG filed a motion to compel updated damages discovery (ECF No.

740, under seal). PPG did not seek to reopen the original damages period. On February 18,

2021, the court issued an opinion and order denying in part Sherwin MIL #12 (as to the Akzo

product after Q2 2018); and granting PPG’s motion to compel supplemental damages discovery,

limited to the period post-Q2 2018 (ECF No. 864). As relevant to the pending disputes, the court

observed in the February 18, 2021 opinion:

PPG is not seeking (and will not be permitted) to undo the court’s decision that the

Akzo product did not exist in the market prior to Q2 2018; instead, PPG asks that

the supplemental discovery reflect the actual market realities post-Q2 2018. PPG

cannot be faulted for failing to produce this evidence earlier; the market data post-

Q2 2018 did not exist.

. . .

Neither party’s expert may refer to the Akzo product as a non-infringing alternative

prior to Q2 2018. For that period of time, as this court previously determined,

Sherwin met its burden to demonstrate a two-product market, which justifies the

recovery of lost profits damages (ECF No. 530).

. . .

Damages should be based on economic reality; not a market arbitrarily frozen in

time by the original close of fact discovery in this litigation.

(ECF No. 864 at 4, 5). The parties were permitted to “engage in supplemental damages

discovery, to reflect changes in the market after the second quarter of 2018 (“Q2 2018”),

including an Akzo BPA-NI product.” (ECF No. 864 at 3). On August 20, 2021, the court denied

PPG’s motion to reconsider the scope of supplemental discovery (ECF No. 945).

III. Discussion

There are two principles that govern the scope of supplemental damages in this case,

which the court articulated in its previous decisions. First, the scope of the original damages

period is fixed – it is based on the evidentiary record developed by the parties in the original fact

and expert discovery period. The original MILs and Daubert motions were fully litigated. But

for the delays attributable to the COVID-19 pandemic, the asserted damages for that period

would have been the case presented to the jury. Neither side will be permitted a second bite at

the apple with respect to the original damages period. Second, supplemental damages should be

based on economic reality; not a market arbitrarily frozen in time by the original close of fact

discovery. Thus, the evidence and expert opinions with respect to damages for the period post-

Q2 2018 should reflect any changes to the relevant market, including but not limited to the Akzo

product. With that preface, the court turns to the pending disputes.

A. SW MIL #14

SW MIL #14 seeks to preclude PPG’s cross-examination of its witnesses about pre-Q2

2018 trialing of the Akzo product. PPG represents that Milani will not opine that the Akzo

product was a non-infringing alternative product prior to Q2-2018. PPG, however, contends that

the disputed evidence is relevant to Sherwin’s claim for price erosion damages and points to its

cross-examination of Sherwin’s witnesses about Akzo trialing during the initial damages period.

The special master recommended that SW MIL #14 be granted. The court agrees. With

respect to the original damages period, Milani did not quantify an alternative lost profits or

reasonable royalty based on the Akzo product at all (let alone quantify the impact of Akzo’s

trialing). Questions about Akzo trialing the original damages period, therefore, would invite the

jury to engage in unwarranted speculation about the original damages period.1 SW MIL #14 will

be granted.

B. SW MIL #15

SW #15 largely boils down to a semantic dispute. Sherwin seeks to preclude Milani from

referencing the “Exemplary Perez Coating” in his damages opinions. PPG responds that it will

not reference the “Exemplary Perez Coating,” but Milani will opine about the existence of the

Perez Patent and Prop 65 as factors in the hypothetical negotiation of a reasonable royalty. Both

parties cite to the court’s prior rulings. (Compare ECF No. 530 at 17 with ECF No. 636 at 11-

12).

As the special master correctly explained, the court has made a distinction between the

“Exemplary Perez Coating” and the teachings of the Perez Patent. The “Exemplary Perez

Coating” was a specific coating created by PPG’s technical expert, Dr. Robson Storey, “for the

specific purpose of demonstrating his opinion that a coating based on the Perez patent would

inherently meet the testing limitations.” (ECF No. 530 at 11). The parties agreed that the

Exemplary Perez Coating did not exist in the market during the original damages period and the

court in granting Sherwin’s summary judgment motion held that the Exemplary Perez Coating

was not a non-infringing alternative product (ECF Nos. 530, 864).

1 The court will address below a related dispute – whether PPG may introduce evidence about Akzo trialing pre-Q2

2018 to rebut Kearl’s “sticky prices” opinion about the supplemental damages period.

The court’s ruling about that specific product – which was created during the litigation

for technical purposes -- does not preclude PPG from relying on the existence of the underlying

Perez Patent itself in its damages analysis. To the contrary, the court specifically explained that

Milani’s reasonable royalty opinions “that Sherwin’s patent did not provide any economic

benefit over the disclosures of the Perez Patent, and that the value of both PPG’s and Sherwin’s

products was driven by the Prop 65 regulation” had not been challenged by Sherwin, were

supported by the record, and would be admissible. (ECF No. 636 at 11-12). Sherwin did not

provide a persuasive reason for the court to reconsider that decision.

Milani will be permitted to opine, in essence, that rather than paying Sherwin a royalty,

PPG could have chosen to develop a non-infringing product based on the Perez Patent. Sherwin

will have an opportunity to subject that opinion to vigorous cross-examination. In sum, SW MIL

#15 will be denied.

C. SW’s Daubert challenges to Milani

1. References to Akzo trials during the original damages period

Sherwin challenges the references in Milani’s supplemental report to trials of the Akzo

product during the original damages period. This issue was already addressed in SW MIL #14.

To repeat, the parties will not be permitted a second bite at the apple with respect to the original

damages period. For the reasons set forth above, this portion of the Daubert motion will be

granted.

2. The “Exemplary Perez Coating”

Sherwin challenges the references in Milani’s supplemental report to the Perez Patent as

a basis for his reasonable royalty opinions. This issue was already addressed in SW MIL #15.

For the reasons set forth above, this portion of the Daubert motion will be denied.

3. Proposed royalty range

Sherwin contends that Milani, again, failed to perform an economic analysis to support

his apportionment opinion. Sherwin argues that Milani’s opinion that the apportionment range is

0.8% to 99.2% is unhelpful to the jury. PPG represented in its briefs and at oral argument that it

is willing to offer only the low end of the range, i.e., Milani’s opinion that the patent provides

only a de minimis benefit. Sherwin refused that offer.

The court agreed with Sherwin’s challenge to the apportionment opinion in Milani’s

initial expert report, as set forth in its opinion dated August 27, 2020:

Sherwin is correct that a damages expert must provide a specific economic analysis

to support an opinion that reasonable royalties should be apportioned to reflect

nonpatented characteristics of a multi-factor product. PPG seeks to offer opinion

testimony by Milani on Georgia Pacific factor 13 that the profits attributable to the

Asserted Patents would be conservatively 50% based on the value of non-patented

features of Innovel, such as a high glass transition temperature and performance

characteristics such as scalping, flavor, resistance and application. Milani Report

at 79-80. Milani did not perform a quantitative analysis to determine that the high

glass temperature or other factors constituted 50% of the market value of the

product. See Milani Deposition at 219-21. Based on the record, it appears to be an

arbitrary figure. In Koninklijke Philips Elecs. N.V. v. Zoll Lifecor Corp., No. CV

12-1369, 2017 WL 3140798, at *4 (W.D. Pa. July 25, 2017), the court excluded a

similar “apportionment of benefits” opinion, where the damages expert was unable

to articulate any precise basis for the 50% reduction during his deposition and it

appeared to be entirely subjective. In Koninklijke, the court rejected the damages

expert’s attempt to rely on an undocumented conversation with a technical expert.

Id. at *4 n.5. See LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51, 69

(Fed. Cir. 2012) (excluding apportionment of benefits opinion where expert’s

apportionment was not based on a credible economic analysis). The same analysis

applies here. Milani’s opinion about the allocation of benefits is supported only by

an undocumented conversation with Storey and Milani did not conduct a sufficient

economic analysis about the benefits of the various features of Innovel to support a

50% allocation. PPG would be inviting the jury to speculate about the value of the

nonpatented features. See Guardant Health, Inc. v. Found. Med., Inc., No. CV 17-

1616-LPS-CJB, 2020 WL 2461551, at *19 (D. Del. May 7, 2020) (because

damages expert provided no concrete tie to the specific 50% allocation value, the

opinions lacked a sufficiently reliable methodology). The error cannot be remedied

by opining that the allocation is conservative. Id. at *18 (“merely labelling a value

‘conservative’ is no substitute for a showing that there is an evidentiary foundation

for the particular percentage selected”). Milani will not be permitted to testify that

profits should be apportioned to reflect the value of nonpatented features of Innovel,

such as a high glass transition temperature.

ECF No. 636 at 10-11. In short, Milani provided no rationale for his 50% apportionment.

The apportionment opinion in Milani’s supplemental report does not suffer from the same

flaw. As the special master explained, Milani quantifies the low end of his proposed

apportionment range based on his opinion that the patents provide a de minimis contribution to

the profits generated by Innovel. Sherwin may disagree with the substance of Milani’s opinion,

but it is essentially parallel to Kearl’s apportionment opinion that the patents (i.e., the BPA-NI

feature) generate 100% of the profits. The high end of Milani’s apportionment range is

quantified by accepting (for argument’s sake) Kearl’s 100% apportionment opinion and

challenging some of Kearl’s other assumptions (ECF No. 880, Ex. B).

Sherwin argues that Milani’s opinion should be precluded because he is not offering his

own opinion that the patents provide a de minimis contribution, but is relying on an

undocumented discussion with Dr. Storey. This argument implicates SW MIL #15 and the

court’s previous ruling that Milani may testify that Sherwin’s patents did not provide any

economic benefit to the Perez Patent and that the value of the products was driven by Prop 65

(ECF No. 636 at 11-12). To be sure, Milani is not qualified as a technical expert and it will be

incumbent upon PPG to introduce sufficient evidence to support Milani’s apportionment opinion

that the patents provide a de minimis contribution (through Dr. Storey or otherwise). Milani’s

apportionment opinion will not be precluded; instead, Sherwin will have the opportunity to

cross-examine him (and Dr. Storey) at trial. This portion of Sherwin’s Daubert motion will be

denied without prejudice – if a proper foundation for Milani’s opinion is not laid, Sherwin may

renew its motion prior to Milani’s testimony.

In sum, the court adopts the special master’s R&R #965, as supplemented herein, with

respect to SW MIL #14, SW MIL #15 and Sherwin’s renewed Daubert challenges to Milani.

D. PPG’s Daubert challenges to Kearl

1. Price erosion/“sticky price”

Kearl’s price erosion and “sticky price” opinions are related and will be combined for

analysis. In his original damages report, Kearl opined that Sherwin experienced price erosion

due to PPG’s trialing and sales of the infringing Innovel product, i.e., PPG provided potential

competition which reduced the price at which Sherwin could sell its infringed product.

The court denied PPG’s Daubert challenge to this opinion, (ECF No. 636 at 13), and that

decision is law of the case. PPG points out that during the initial fact discovery period it cross-

examined Sherwin witnesses about Akzo’s trialing activities. (ECF No. 975 at 2-3). Milani’s

original damages report, however, did not address Akzo’s activities in the context of a lost

profits or a reasonable royalty analysis. Introducing the fact testimony, without an expert

quantification opinion, would invite the jury to speculate about how that testimony impacts

damages pre-Q2 2018. (ECF No. 965 at 6-7; ECF No. 530 at 17). PPG will not be permitted to

introduce evidence about Akzo trialing to rebut Kearl’s price erosion opinion with respect to the

original damages period.

In his supplemental damages report (ECF No. 908-1), Kearl opined that Akzo’s entry into

the market would eventually have lowered the price of the Sherwin product, regardless of the

PPG product. Kearl, therefore, did not claim price erosion losses after 2018. Kearl opined,

however, that the Akzo product would not immediately affect the pricing of Sherwin’s product

because: (1) it would take time for Akzo to become qualified at different customers; and (2)

Sherwin negotiated long-term contracts with many of its customers. In other words, Kearl

opined that Sherwin’s prices were “sticky” and that price erosion due to PPG’s sales would

continue to be a component of its damages for the second half of 2018 (i.e., the first six months

of the supplemental damages period). (ECF No. 908-1 at 8-9).

PPG contends that because Kearl based his price erosion opinion on PPG’s trialing

during the original damages period, while ignoring Akzo’s similar trialing activities in his price

erosion opinion for the supplemental damages period, his methodology is unreliable. The special

master rejected PPG’s argument and recommended that this aspect of PPG’s Daubert challenge

be denied. The court agrees with the special master’s recommendation. Kearl’s methodology is

acceptable (even if PPG believes he failed to consider all the relevant evidence) and he will be

permitted to testify about the basis for his price erosion/sticky price opinions in the supplemental

damages period.

The court does not agree, however, with the entirety of the special master’s reasoning. In

R&R #965, the special master stated that “if PPG wanted to account for Akzo’s pre-market

activities in the original damages period, it should have done so in Mr. Milani’s Initial Report.”

(ECF No. 965 at 13). At the time of Milani’s initial report, PPG could not have anticipated that

there would be a supplemental damages period, much less anticipated the precise supplemental

opinions that might be offered by Kearl. PPG’s failure to quantify the effects of Akzo’s

activities during the original damages period does not preclude PPG from responding to the new

opinions offered with respect to the supplemental damages period.

The court instructed that the supplemental damages period should reflect market realities,

not the arbitrary close of discovery date. If Sherwin introduces Kearl’s “sticky price” opinion

into evidence, Sherwin will open the door for PPG to rebut that opinion with evidence that Akzo

was, in fact, engaged in trials or qualified at various customers prior to the supplemental

damages period such that price erosion damages are not recoverable post-Q2 2018. PPG cannot

introduce evidence about Akzo trials to invite the jury to speculate about the original damages

period, but PPG can introduce relevant evidence about market realities to rebut Kearl’s

supplemental damages opinions.

In sum, this aspect of PPG’s Daubert challenge to Kearl’s supplemental opinion will be

denied. Kearl will be permitted to testify about his price erosion and sticky prices opinions in the

supplemental damages period. If Kearl does so, however, PPG will be permitted to challenge

those opinions, including by presenting evidence about Akzo’s trialing and qualification

activities prior to Q2 2018. To avoid confusion by the jurors if that evidence is adduced at trial,

the parties shall meet and confer (with the special master if necessary) and propose an

appropriate limiting instruction about how the jury should consider the Akzo trialing evidence

only for the post-Q2 2018 period.

2. Long-term Contracts

PPG also contends that Kearl improperly bases his “sticky prices” opinion about long-

term contracts on an undocumented discussion with a Sherwin employee. It will be incumbent

on Sherwin to introduce evidence to support Kearl’s opinion and PPG will have the opportunity

to challenge that evidence at trial. If a proper foundation for Kearl’s opinion is not established,

PPG may renew its Daubert challenge prior to Kearl’s testimony. This aspect of PPG’s motion

will be denied without prejudice.

3. Reasonable royalty

In his initial opinion, Kearl opined on the royalty rate per gallon that Sherwin and PPG

would have reached after a hypothetical negotiation for a license in December 2013. The court

rejected PPG’s Daubert challenge to this opinion and explained that the jury could decide the

“battle of the experts” with respect to Kearl’s and Milani’s respective applications of the

Georgia-Pacific factors. (ECF No. 636 at 10). In his supplemental damages opinion, Kearl

opined that the same royalty rate was still correct and conservative. (ECF No. 908-1 at 9).

PPG argues that Kearl’s reasonable royalty opinion should be precluded as unreliable

based on his failure to consider newly-produced evidence that Sherwin was aware of Akzo’s

trialing activities and potential entry into the marketplace prior to December 2013, the date of the

hypothetical negotiation (ECF No. 908 at 8).

In contrast to the “sticky price” opinion discussed above, Kearl’s reasonable royalty

opinion is not new -- it is the same reasonable royalty opinion he expressed in his initial report.

The applicable date of the hypothetical negotiation is unchanged. PPG had the opportunity and

incentive to quantify Akzo’s trialing activities prior to the December 2013 hypothetical

negotiation to rebut Kearl’s original report, but did not do so. The court determined it would be

improper to refer to the Akzo product as a basis to calculate lost profits or a reasonable royalty

during the original damages period. (ECF No. 530 at 17). As the court has reiterated, the

supplemental damages period does not give the parties a second bite at the apple to introduce

evidence or theories that they could have presented the first time. This aspect of PPG’s Daubert

motion will be denied.

4. Red Bull

Kearl opines that during the supplemental damages period Sherwin is entitled to recover

damages for indirect infringement based on PPG’s foreign sales of Innovel to Red Bull for cans

that are imported into the United States. There are two aspects to PPG’s challenge to Kearl’s

Red Bull opinion: (1) it exceeds the scope of permissible supplemental damages; and (2) the

methodology is unreliable. The special master recommended that the Red Bull opinion be

excluded. The court disagrees.

The Red Bull opinion is within the scope. As Sherwin points out, the theory of indirect

infringement has been in the case. The parties were permitted to “engage in supplemental

damages discovery, to reflect changes in the market after the second quarter of 2018 (“Q2

2018”), including an Akzo BPA-NI product.” ECF No. 864 at 3 (emphasis added).

Supplemental damages were not limited to Akzo; the court permitted the parties to address

whatever market conditions might have changed.

PPG’s methodology challenge is stronger, but still unavailing. Clearly, Sherwin did not

obtain the best evidence, i.e., actual sales records from Red Bull or Ball. Instead, Kearl

attempted to estimate the indirect infringement by combining PPG’s estimates about its sales to

two Ball facilities in Europe with publicly available information about the number of Red Bull

cans imported into the United States. PPG does an effective job highlighting the weaknesses in

the chain of assumptions used by Kearl (ECF No. 985 at 6).

The court concludes, however, that PPG’s criticisms go to weight, rather than

admissibility. Yodlee, Inc. v. Plaid Techs. Inc., No. CV 14-1445, 2017 WL 466358, at *1 (D.

Del. Jan. 27, 2017) (alleged errors in damages expert’s estimate of lost profits “go to weight

rather than admissibility”). See Cyntec Co., Ltd. v. Chilisin Elecs. Corp., No. 18-CV-00939,

2020 WL 5366319, at *18-20 (N.D. Cal. Sept. 8, 2020) (discussing the permissible spectrum for

damages expert methodology). In Cyntec, the court permitted a damages expert who used a

similar methodology to testify about indirect sales; the expert in Cyntec took the defendant’s

customer base, summarized geographic sales breakdowns, and multiplied revenues outside the

United States by importation rates for each customer. Id. at *3. The court explained that the

expert had cited substantive data to determine the amount of indirect sales, although there were

some gaps in his analysis, and the jury could determine whether the assumptions in his

calculations were valid. Id. at *19-20. The court concludes that Kearl’s methodology sets forth

a reasonable estimate that may be presented to the jury. See Fed. R. Evid. 703 (“If experts in the

particular field would reasonably rely on those kinds of facts or data in forming an opinion on

the subject, they need not be admissible for the opinion to be admitted.”).2 PPG’s remedy is

effective cross-examination at trial.

This aspect of PPG’s Daubert motion will be denied, contrary to the special master’s

recommendation.

IV. Conclusion

In summary, the special master’s R&R #965 will be adopted in part, as supplemented

herein, and rejected in part. SW MIL #14 (ECF No. 893) will be granted. SW MIL #15 (ECF

2 The proponent of expert testimony has the burden to establish: (1) what facts or data the expert relied on; and (2)

that the basis for the opinion is reasonable, including “facts or data not admitted if of a type reasonably relied upon

by experts in the field.” 29 Charles Alan Wright & Victor Gold, Federal Practice & Procedure § 6275, at 440 (2d

ed. 2016).

No. 896) will be denied. Sherwin’s Daubert challenge to Milani’s supplemental opinion (ECF

No. 899) will be: (1) granted with respect to references to the impact of Akzo’s trialing during

the original damages period; (2) denied with respect to Milani’s references to the Perez Patent as

a basis for his reasonable royalty opinions; and (3) denied without prejudice with respect to

Milani’s proposed apportionment range. PPG’s Daubert challenge to Kearl’s supplemental

opinion (ECF No. 907) will be: (1) denied with respect to Kearl’s price erosion/sticky prices

opinions, with the proviso that those opinions would open the door for rebuttal evidence about

Akzo’s trialing activities (with an appropriate limiting instruction); (2) denied without prejudice

with respect to Kearl’s opinion about long-term contracts; (3) denied with respect to Kearl’s

reasonable royalty opinion; and (4) denied with respect to Kearl’s Red Bull opinion.

It is not necessary to rule on the portion of PPG’s motion seeking to exclude Kearl’s

convoyed sales and injunctive relief opinion because Sherwin represents that opinion will not be

presented to the jury. To the extent that Kearl’s and Milani’s opinions rely on undocumented

conversations with other persons, it will be incumbent upon the party seeking to offer that

opinion to establish a proper foundation. The opposing party may renew its Daubert challenge

to those opinions if a proper foundation is not laid.

An appropriate order will be entered.

/s/ Joy Flowers Conti

Joy Flowers Conti

Senior United States District Judge

Dated: October 27, 2021