Using Comparables to Determine Market Growth Rate

Wathne Imports, Ltd. v. PRL USA, Inc., et al., 953 N.Y.S.2d 7, 101 A.D.3d 83 (2012)
Appellate Division of the Supreme Court of New York, First Department: Opinion Delivered Oct. 18, 2012
Wathne Imports, Ltd. (“Wathne”), a privately held business that manufactures and sells handbags and other products, alleged that PRL USA, Inc., the Polo/Ralph Lauren Company L.P. and Polo Ralph Lauren Corporation (collectively, “Polo”) breached an exclusive license agreement under which Polo granted Wathne an exclusive license to manufacture and sell handbags in the U.S. and Canada bearing the “Polo” marks.

The trial court granted Polo’s in limine motion precluding Wathne’s use of its expert at trial and excluding any testimony and evidence by Wathne’s expert regarding lost profits. The basis of the trial court’s decision was that, as a matter of law, it was incorrect for the expert to use Coach, Inc. as a comparable in determining the prospective growth rate for sales of Polo Sport handbags because the two brands were too dissimilar. The trial court reasoned that “sales by a Polo licensee could not be compared with sales by a ‘standalone’ company such as Coach that sold its own product line.” The trial court proposed an appropriate mechanism to calculate lost profits, stating that comparing sales of Polo Sport handbags with sales of Polo’s products bearing other trademarks over the same period was the appropriate method, even though Polo’s expert admitted there was no publicly available data on handbag sales during the relevant period and he was otherwise unable to offer an alternative approach to establishing industry growth rate during the period in question.

In reversing the trial court’s preclusion of Wathne’s expert, the Appellate Division held that the perceived flaws in Wathne’s expert’s analysis were relevant only to the weight a jury should give to the expert’s report and testimony and they do not present sufficient grounds for barring the expert’s analysis. Rather, as stated by the Appellate Division, “[Wathne’s expert’s] analysis and conclusions should be challenged through cross-examination; the jury must decide whether or not his methodology was appropriate.” In finding the growth rate in the fashion handbag market during the period in question relevant to a calculation of Wathne’s lost profits, the Appellate Division determined that Wathne’s expert did not equate Polo Sport’s success with that of Coach’s, but rather, he used Coach’s handbag sales as a tool to evaluate how well handbags sold during the relevant period. Without approving the validity of that approach, the Appellate Division found that “by holding that [Wathne’s expert’s approach] was incorrect as a matter of law, the trial court unduly interfered with the approximation that was required due to the lack of more exact comparables.”

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