An accounting expert witness advises on a case involving a designer who alleges that a Delaware company failed to pay him more than $1 million in royalties. A private inventor and industrial designer alleges that a company incorporating his electrical designs breached their royalty contract after seven years of paying 5 percent on each item sold. The accessory company that used the designed products contends it no longer uses the plaintiff’s designs and sued the designer for repayment for some or all of previously paid royalties. The designer then filed a counterclaim for past and future lost royalties.
Question(s) For Expert Witness
- 1. What are the total unpaid royalty damages?
- 2. What do they include?
Expert Witness Response
Assuming that the products in question do in fact “use” the counterclaimant’s designs and will continue to do so, I conclude he has suffered $1.26 million in damages from the accessory company’s breaches.
The damages include:
• A royalty shortfall covering seven years of plaintiffs unilaterally reducing the unit sales of royalty-bearing products by about 10% before computing the defendant’s royalties
• Failure to pay royalties on a specific group of part numbers that the plaintiffs contend were “redesigned” and therefore do not use the defendant’s designs, but which appear to be identical in form and function to those on which the plaintiffs did previously pay royalties
• Failure to pay royalties on certain other part numbers appearing in the plaintiffs’ current catalogs which the plaintiffs also contend were “redesigned” and therefore do not use defendant’s designs, but which also appear to be identical in form and function to those on which the defendant did pay royalties, and which are advertised by the plaintiffs as covered by patents in which the defendant is a named inventor
• Prejudgment interest of 5 percent per annum, compounded annually
• Future damages, based on a reasonable forward projection of the defendant’s earned royalties based on the plaintiffs’ annual sales of parts identified as within the scope of permissible damages based on the court’s ruling for a representative four-year period, discounted to present value using a conservative 3.25 percent discount rate, up to the expiration date of the defendant’s principal patents on the plaintiffs’ largest-selling products
The expert is a certified public accountant.