in that period are reliabie. However, Shapiro did not test his methodology for predicting
DirecTV’s growth after 2002, and the court is not persuaded by his explanation for his failure to
do so. Although the market in Puerto Rico may well have differed from other markets, Shapiro
could have specifically laid out the data relating to the growth of satellite services in other
markets (which he acknowledged were readily available), and explained why differences in those
markets would compel different results in Puerto Rico. Instead, Shapiro merely states that data
from other markets generally “informed” his opinion, and cites to his experience in the industry.
Shapiro has not supported his projection of DirecTV’s growth beyond 2002 with a reliable
analysis. See Clark v. Takata Corp., 192 F.3d 750, 759 n.5 (7" Cir. 1999) (even “[a] supremely
qualified expert cannot waltz into the courtroom and render opinions unless those opinions are
based upon some recognized scientific method and are reliable and relevant under the test set
forth by the Supreme Court in Daubert.”).

Zenith also challenges the reliability of Shapiro’s projection of the percentage of
DirecTV’s projected growth WH-TV would have captured had it not been delayed in launching
its digital television service. Shapiro projected that WH-TV would have initially captured 15%
of DirecTV’s growth during a “transition phase,” when DirecTV offered only one local station
and WH-TV was just beginning to convert its analog subscribers. He projected that WH-TV
then would have captured 30% of DirecTV’s growth during a period when WH-TV was actively
marketing its service to new subscribers and DirecTV still offered only one local station.
Shapiro projected that WH-TV then would have captured 20%, and eventually 10%, of
DirecTV’s growth, as DirecTV increased its local programming.

Shapiro states that he estimated the extent of WH-TV’s market penetration as compared


[447-1] is granted in part and denied in part. The motion is granted as to evidence of WH-TV’s

future lost profits after 2002, and denied as to evidence of WH-TV’s future lost profits through

2002.
ENTER:
George W. Undberg ”
Senior U.S. District Judge
JUN 25 2003
DATED:



decision by stating that such a study would not have been useful because there are no comparable
markets. However, there apparently are markets in which an MMDS provider competed against
a satellite provider, even if those markets differed significantly from the Puerto Rican market at
issue here. Shapiro could have tested his predictions relating to WH-TV from 2002 through
2008 by comparing WH-TV’s situation to the manner in which competition between MMDS and
satellite providers evolved in other markets, and noting how the differences would affect his
conclusions regarding the Puerto Rican market.

The court is unable to determine the methodology that serves as the basis for Shapiro’s
opinion as to what WH-TV’s growth would have been after 2002. Therefore, the court concludes
that Shapiro’s opinions regarding the percentage of DirecTV’s growth WH-TV would have
captured after 2002 are not reliable. Shapiro’s testimony relating to WH-TV’s future lost profits
after 2002 is excluded.

i. New Business Rule

The court next tums to the question of whether evidence of future lost profits through
2002 also should be excluded under the new business rule. Under Illinois law, a new business
(or an existing business with a new product) cannot recover lost profits. Kinesoft Dev. Corp. v.
Softbank Holdings Inc., 139 F. Supp. 2d 869, 908 (N.D. Ill. 2001). The reason for this rule is
that a new business cannot show what its profits are with any degree of certainty. See SK Hand

Tool Corp. v. Dresser Indus., Inc., 672 N.E.2d 341, 348 (II. App. Ct. 1996).

According to Zenith, WH-TV’s digital television service was a new product. Zenith
observes that WH-TV’s digital service required an understanding of different technology than

analog service, and used equipment supplied by new vendors. In addition, WH-TV’s digital



to DirecTV’s, by balancing factors such as the number of local stations offered, antenna size,
local versus non-local orientation of programming, customer payment procedures, channel
capacity, pricing, advertising resources, and focal distrust of satellite service as a result of an
earlier failure of another satellite provider in Puerto Rico. In his deposition, Shapiro again noted
that the Puerto Rico market was unique, and stated that it would not have been relevant to
examine other markets in which the Multipoint Multichannel Digital System (“MMDS”) type of
service WH-TV offered was competing against satellite service, Shapiro characterized his
projected market share numbers as “a forecast based on [his] judgment.”

Shapiro did compare his conclusions as to the portion of DirecTV’s growth he predicted
WH-TV would have captured in 2002, against actual data from a market in Mexico. In that
comparison, Shapiro observed that the Mexican market had an MMDS operator with “less
compelling service” than WH-TV (the Mexican operator offered analog service), and had more
intense competition from both wired cable and satellite providers. The Mexican MMDS operator
achieved an 8.6% share of households receiving multi-channel services. Shapiro had forecast
that WH-TV would have achieved only 4.3% of Puerto Rico’s multi-channel services subscribers
in 2002. Based on his comparison with the results from the Mexican market, Shapiro reasoned
that his predictions regarding WH-TV were reasonable and conservative.

Shapiro’s comparison between the results of the Mexican market and his prediction
regarding how much of the Puerto Rican market WH-TV would have captured in 2002 shows
that Shapiro’s methodology was reliable in his predictions through 2002. However, as with his
forecast of DirecTV’s growth after 2002, Shapiro does not compare his predictions relating to

WH-TV’s growth after 2002 with results from any other market. Shapiro again justifies this


top boxes for 30,000 subscribers. Zenith also argues that it could not be expected to have
foreseen that DirecTV would capture the market and cause WH-TV to permanently lose its
competitive position.

WH-TV has presented evidence that when WH-TV requested a proposal from Zenith in
August 1998, WH-TV requested a quote for 43,000 set-top boxes, with 15,000 needed the first
year and 7,000 per year for the four following years. In September 1998, Zenith responded with
a price quote for 60,000 set-top boxes.

The court concludes that WH-TV has presented sufficient evidence to raise a question of
fact as to whether Zenith could reasonably have foreseen that the defects in its set-top boxes

could cause WH-TV to lose sales to future subscribers. See Mid-America Tablewares, Inc. v.

Mogi Trading Co., Ltd., 100 F.3d 1353, 1362 (7" Cir. 1996) (interpreting Wisconsin law)
(stating that determination as to whether parties contemplated future profits was issue of fact, and
there was no basis to conclude that evidence as to the foreseeability of plaintiff's lost future

profits should be excluded as a matter of law); see also Outboard Marine Corp. v. Babcock

Industries, Inc., No. 91 C 7247, 1995 WL 296963, at *2 (N.D. Ill. May 12, 1995) (noting that

foreseeability is a question that is generally left for the jury to resolve, and that foreseeability
should be decided as a matter of law only where the facts demonstrate that the plaintiff could
never be entitled to recovery). In addition, especially given that the agreement between Zenith
and WH-TV specified delivery times for the set-top boxes, a jury could find that Zenith should
have reasonably foreseen that WH-TV would lose its competitive position if functioning set-top
boxes were not delivered on time.

ORDERED: Zenith’s Motion in Limine with Respect to the Testimony of Peter Shapiro



Minute Order Form (06/97)

United States District Court, Northern District of Illinois

Name of Assigned Jud i Sitting Judge if Oth
ot Magistrate Judge George W. Lindberg than Assigned Judge
CASE NUMBER 01 C 4366 DATE 6/25/2003
CASE Zenith Electronics Corp. vs. WH-TV Broadcasting Corp.
TITLE

[In the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintifY, and (b) state briefly the nature
of the motion being presented.)

(1)

MOTION:

DOCKET ENTRY:

qd) a Filed motion of [ use listing in “Motion” box above.]

(2) 1) Brief in support of motion due

Q) oO Answer brief to motion due. . Reply to answer brief due__

(4) Oo Ruling/Hearing on___set for at

(5) im Status hearing[held/continued to] {set for/re-set for] on set for at.

(6) a Pretrial conference[held/continued to] [set for/re-set for] on set for at.

am a Trial{set for/re-set for] on at

(8) Q (Bench/Tury trial] [Hearing] held/continued to at

(9) Q This case is dismissed [with/without] prejudice and without costs(by/agreement/pursuant to]
OOFRCP4(m) OLocal Rule 41.1 CIFRCP41(a)(1) [ FRCP41(a)(2).

qo) «ff [Other docket entry] | Enter Memorandum Opinion and Order: Zenith’s motion in limine with

respect to the Testimony of Peter Shapiro (447-1) is granted in part and denied in part. The motion is
granted as to evidence of WH-TV’s future lost profits after 2002, and denied as to evidence of WH-TV’s
future lost profits through 2002.

{For further detail see order attached to the original minute order.]

No notices required:

Mail AO 450 form.

‘No notices required, advised in open court.

Notices mailed by judge's staff.
Notified counsel by telephone.

Docketing to mail notices.

Copy to judge/magistrate judge.

GL

Document
Number
siymber of notices fu

'

S10 ‘sq agfiering depuy initials

3 snsnoos

{nog Lory
ea]

z 6

courtroom Slee yy 7 date msed stice
depuis ” d 92 NN ey _
initials OtREEES

central Clerk's Office mailing deputy initials



service required substantially more capital than its analog service had required. The digital
technology was limited to subscribers with a clear line of sight between WH-TV’s head-end and
the subscribers’ antenna, affecting the size of the available market and the marketing strategy to
be used. Finally, Zenith argues that WH-TV’s goal of enrolling many more new subscribers than
it had ever had compels the conclusion that WH-TV’s digital service was a new business.
WH-TV notes that it had been providing analog television service in the same market in
which it intended to offer digital service. According to WH-TV, digital service was merely a
superior form of television service, with additional channels and better picture quality, that WH-
TV believed would be attractive to new customers in its market. Thus, digital television service
was not a new product, but merely an upgrade of the service WH-TV was already providing.
The court agrees with WH-TV. WH-TV began as a television service provider, and
continued to provide television service when it implemented its plan to convert to digital service.
While there may have been differences between the analog service WH-TV had previously
offered and the digital service it subsequently offered, “‘different’ is not necessarily ‘new.’” See
Alper v. Altheimer & Gray, No. 97 C 1200, 2002 WL 31133287, at *41 (N.D. Ill. Sept. 26,
2002). The court concludes that WH-TV’s digital television service was not a new business.
MII. Reasonable Foreseeability
Finally, Zenith urges the court to bar Shapiro’s testimony on the basis that Shapiro’s
damages calculation includes damages that Zenith could not have reasonably foreseen. Zenith
argues that since WH-TV did not purchase more set-top boxes than it required to convert its
existing analog subscribers to digital service (a number that never exceeded 7,400), Zenith could

not be expected to foresee that defects in those set-top boxes could cause it to lose profits on set-


DirecTV’s performance island-wide in Puerto Rico between 1999 and mid-2002, Shapiro offers
an opinion as to DirecT V’s projected growth through 2008. According to Zenith, Shapiro has
not objectively supported his method of extrapolating DirecTV’s growth into the future, based
merely on three years of data.

Shapiro testified that he used actual data of the growth rate of DirecTV’s penetration into
the Puerto Rican market through July 2002, which revealed that DirecT V’s penetration had
grown at a very high rate. Shapiro then forecast that DirecTV’s growth rate from July 2002
through 2008 would level off, from 36% in 2002 to 3% in 2008. Shapiro testified that his
general awareness of the growth pattern of satellite services such as DirecTV’s, along with his
experience in the industry, informed his projection of DirecTV’s growth rate in Puerto Rico from
2002 through 2008. Shapiro did not actually compile data from other markets and compare them
to his projected growth rate for DirecTV in Puerto Rico, although he maintains a database of
such information.' WH-TV explains that such a comparison study would not have been useful
because Puerto Rico is a unique market.

WH-TV argues that Zenith’s objection to Shapiro’s reliance on data relating to DirecTV’s
actual market penetration from 1999 to 2002, and failure to use data from other markets, goes to
the weight to be given to Shapiro’s opinion, and not its admissibility. The court disagrees, at
least as to Shapiro’s projection of DirecTV’s growth beyond 2002. Since Shapiro used actual

data of DirecTV’s growth through 2002, any assumptions he made regarding DirecTV’s growth

' WH-TV now has submitted just such a comparison, as an exhibit to its response to
Zenith’s motion in limine. The comparison was first provided to Zenith in April 2003. Expert
discovery between WH-TV and Zenith closed long before April 2003, and therefore the court
disregards this exhibit.


[i]f 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 upon
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.

Under Daubert, the court is required to perform a gatekeeping function by examining the expert’s

methodology. See Daubert, 509 U.S. at 592-93. Daubert identifies nonexhaustive factors that

the court may consider in determining whether an expert’s testimony is reliable: (1) whether the
theory can be and has been tested; (2) whether the theory has been subjected to peer review and

publication; (3) the known or potential rate of error; and (4) the general acceptance of the theory

in the scientific community.” Daubert, 509 U.S. at 593-94. The Daubert test has been applied to
expert lost profits evidence, such is at issue in this case. See Target Mkt. Publ’g, Inc. v. ADVO,
Inc., 136 F.3d 1139, 1142-44 (7" Cir. 1998). As the proponent of Shapiro’s testimony, WH-TV
bears the burden of establishing its admissibility by a preponderance of the evidence. See
Abdishi v. Philip Morris, No. 98 C 1310, 1999 WL 756054, at *2 (N.D. Ill. Sept. 7, 1999).
Zenith argues that Shapiro’s opinion that WH-TV would have had 26,000 to 31,000
subscribers by the end of 2008 absent Zenith’s breach, is based on improper, speculative
assumptions. Shapiro arrived at this opinion by first projecting the growth of WH-TV’s
competitor, DirecTV, in Puerto Rico through 2008, then predicting the percentage of that
projected growth WH-TV would have captured had it been able to launch its digital service as
planned. Zenith takes issue with the reliability of Shapiro’s methodology in both these steps.
Zenith first challenges Shapiro’s calculation of the projected growth of DirecTV in WH-

TV’s service area for the years 2002 through 2008. Based on a review of data regarding



IN THE UNITED STATES DISTRICT COURT Og
FOR THE NORTHERN DISTRICT OF ILLINOIS (Wy)
EASTERN DIVISION by Mir

ZENITH ELECTRONICS CORPORATION,

Plaintiff/Counter-Defendant,
01 C 4366

Judge George W. Lindberg
WH-TV BROADCASTING CORPORATION,

)
)
)
)
v. )
)
)
)
Defendant/Counter-Plaintiff. )
MEMORANDUM OPINION AND ORDER

Zenith Electronics Corporation (“Zenith”) has moved in limine to exclude the testimony
of Peter Shapiro, the damages expert of WH-TV Broadcasting Corporation (“WH-TV”). Shapiro
has opined that, if set-top boxes supplied by Zenith to WH-TV had not been defective, and had
WH-TV been able to launch its digital television service as planned, WH-TV’s subscriber base
would have increased to 26,000 to 31,000 by 2008. Shapiro has predicted the amount of future
profits WH-TV would have lost, based on the number of future subscribers he predicts WH-TV

would have had. Zenith urges the court to bar Shapiro’s testimony on three grounds: (1) that his

opinion is inadmissible under Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579 (1993); (2)

that the new business rule bars the lost profits damages about which Shapiro opines; and (3) that
Shapiro’s calculation of damages includes damages that were not reasonably foreseeable. The
court addresses each in turn.

I. Reliability Under Daubert

Zenith first urges the court to exclude Shapiro’s testimony on the ground that his opinion

is unreliable, and therefore inadmissible under Daubert. Federal Rule of Evidence 702 provides

5S

that: