comparison, Shapiro observed that the Mexican market had an Multipoint Multichannel Digital
System (“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.

Zenith argues that the court erred in crediting this comparison to the extent that it did,
because Shapiro’s comparison is only offered to demonstrate that his results are reasonable, a
demonstration that is not relevant to a determination of whether Shapiro’s methodology was
reliable. Zenith also argues that Shapiro’s use of a “snapshot” comparison between his
prediction of WH-TV’s market share in a single year (2002) with the Mexican results in the same
year does not test whether the trend from 1999 through 2008 that Shapiro predicts for WH-TV is
comparable to the trend in the Mexican market.

The court has reconsidered its conclusions regarding this portion of its ruling, and agrees
with Zenith. The court’s focus here “must be solely on principles and methodology, not on the
conclusions they generate.” See Chapman y. Maytag Corp., 297 F.3d 682, 687 (7" Cir. 2002). It
is clear from Shapiro’s report and testimony that his comparison of his projection of WH-TV’s
market share for 2002 with the Mexican results did not test Shapiro’s methodology. While it
may be useful to perform such a cross-check on the results after the fact, it is insufficient to

validate that the methodology used to generate the results is reliable.


after 2002 was not reliable because he only compared the Mexican results with his predictions of
WH-TV’s market share in 2002, without comparing his predictions relating to WH-TV’s growth
after 2002 with results from any other market. The court need not address WH-TV’s argument
on this point, however, because it has already determined that Shapiro’s starting point for his
prediction relating to WH-TV’s future growth — his prediction relating to DirecTV’s growth
after 2002 — was not reliable. Thus, if Shapiro’s methodology for predicting DirecTV’s growth
during that period was not reliable, his conclusions regarding the portion of that growth WH-TV
would have captured cannot be reliable either.

The court turns to Zenith’s argument that the court erred in finding that Shapiro’s
predictions relating to WH-TV’s growth through 2002 were reliable. 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 did not test this methodology against the experience of any other market.

Shapiro explained in his deposition that the Puerto Rican market was unique, and that there were
no other comparable markets. Although he did not test his methodology against the experience
of the Mexican market because that market was “not directly relevant” to the Puerto Rican
market, 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 the Mexican market. In that



The court next re-examines the methodology Shapiro used in projecting WH-TV’s market
share through 2002 to determine whether it is reliable, despite not having been tested against the
experience of another market. Shapiro stated that he arrived at his estimates 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 local distrust of satellite service as a result of an earlier failure of another satellite provider in
Puerto Rico. However, Shapiro does not explain how he weighed these factors and translated
them into the 15%, 30%, 20%, and 10% portions of DirecTV’s growth he forecasts. Indeed, in
his deposition Shapiro characterized these projected market share numbers as “a forecast based
on [his] judgment.”

As the Supreme Court has observed, “[t]rained experts commonly extrapolate from

existing data. But nothing in either Daubert or the Federal Rules of Evidence requires a district

court to admit opinion evidence that is connected to existing data only by the ipse dixit of the
expert.” General Elec. Co, v. Joiner, 522 U.S. 136, 146 (1997). Since Shapiro does not explain
how he arrived at the percentages he presents in his opinion, the court concludes that “there is
simply too great an analytical gap between the data and the opinion proferred.” See id.
Shapiro’s testimony regarding WH-TV’s lost profits from new subscribers through 2002 is also
barred.

Finally, WH-TV asks the court to clarify that it is not precluded from presenting evidence
of profits WH-TV would have earned from its existing subscribers, including projections of
subscriber growth attributable to the growth in households in WH-TV’s signal area during that

time. In his report, Shapiro states that by June 2002, WH-TV’s penetration of households within


Minute Order Form (06/97)

United States District Court, Northern District of Illinois

Name of Assigned Judge George W. Lindberg Sitting Judge if Other
or Magistrate Judge than Assigned Judge
CASE NUMBER 01 C 4366 DATE 8/6/2003
CASE Zenith Electronics Corporation vs. WH-TV Broadcasting Corporation
TITLE

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

MOTION:

DOCKET ENTRY:

(1) im} Filed motion of [ use listing in “Motion” box above.]

(2) QO Brief in support of motion due

(3) a Answer brief to motion due . Reply to answer brief due__

(4) QO Ruling/Hearing on __—setfor_ at

6) Oo Status hearing[held/continued to] [set for/re-set for] on__set for

(6) Oo Pretrial conference{held/continued to] [set for/re-set for}on set for

(?) oO Trial[set for/re-set for]on at

(8) oO [Bench/Jury trial] [Hearing] held/continued to at.

(9) O This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to}
OCFRCP4(m) ClLocal Rule 41.1 COFRCP41(a(1) OO FRCP41(a)(2)

(0) (Other docket entry] | WH-TV’s motion for reconsideration of the Court’s Order of June25, 2003,

Regarding the Testimony of Dr. Peter Shapiro (559-1) is denied. WH-TV’s motion for clarification of the Court’s
Order of June 25, 2003, regarding the Testimony of Dr. Peter Shapiro (559-2) is granted. Zenith’s motion to
reconsider and Bar the Testimony of Peter Shapiro in its entirety (604-1) is granted in part and denied in part.
Enter memorandum opinion and order.

dl) [For further detail see order attached to the original minute order.]

No notices required, advised in open court. Document

Number

oY | No notices required.

number of notices

AUG 0 7 2003

date docketed

Notices mailed by judge’s staf.

Notified counsel by telephone

Docketing to mail notices dunod Laiwisia sh
Ma vor waa
jail AO 450 form. as docketing deputy
Copy to judge/magistate judge. Aish Wd 9-99" £0
courtroom ON dn GG bus USS
SLB depuly's 1-03
initials
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contral Cletk's Office ling dpa nial



its signal area was stable at approximately 1.1%. He projects that this level will persist through
2008, resulting in a growth of subscribers at the same rate as the growth of houscholds. He notes
that WH-TV’s average monthly subscriber churn (the number of subscribers that disconnect, in
proportion to the number of subscribers being served during a given time period) was 3.8% in
1999, 3.7% in 2000, 2.6% in 2001, and 3.3% in 2002. Shapiro assumes that WH-TV’s monthly
churn rate through 2008 will remain at 3.2%, which he recognizes is an “optimistic assumption,”
given WH-TV’s weak market position. Since DirecTV entered the market in mid-1999, the
historical data on which Shapiro relies in making these forecasts cover a period during which
WH-TV was competing against DirecTV. The court finds that Shapiro’s opinions relating to
existing subscribers are reliable and may be offered at trial.

ORDERED: WH-TV’s Motion for Reconsideration of the Court’s Order of June 25,
2003, Regarding the Testimony of Dr. Peter Shapiro [559-1] is denied. WH-TV’s Motion for
Clarification of the Court’s Order of June 25, 2003, Regarding the Testimony of Dr. Peter
Shapiro [559-2] is granted. Zenith’s Motion to Reconsider and Bar the Testimony of Peter
Shapiro in its Entirety [604-1] is granted in part and denied in part.

ENTER:

George W. Mndberg
Senior U.S. District Judge

AUG 06 2003
DATED:

6



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
ZENITH ELECTRONICS CORPORATION,

Plaintiff/Counter-Defendant,
01 C 4366

Judge George W. Lindberg

~ACKEY.

AUG OT 2003

WH-TV BROADCASTING CORPORATION,

)
)
)
)
v. )
)
)
)
)

Defendant/Counter-Plaintiff.
MEMORANDUM OPINION AND ORDER

On June 25, 2003, this court granted in part and denied in part Zenith Electronics
Corporation’s (“Zenith”) motion in limine to exclude the testimony of WH-TV Broadcasting
Corporation’s (“WH-TV”) damages expert Peter Shapiro. Zenith and WH-TV both move for
reconsideration of that ruling. For the reasons stated below, WH-TV’s motion for
reconsideration is denied, and Zenith’s motion for reconsideration is granted in part and denied in
part.

Shapiro had opined that, if set-top boxes (“STBs”) 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 then
predicted the amount of future profits WH-TV would have lost, based on the number of future
subscribers he predicted WH-TV would have had. 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.

The court granted Zenith’s motion as to evidence of WH-TV’s future lost profits after

bo]


2002, and denied it as to evidence of WH-TV’s future lost profits through 2002. Specifically, the
court found that Shapiro’s opinions regarding WH-TV’s future lost profits after 2002 were not
reliable because Shapiro did not test his methodology for predicting DirecTV’s growth after
2002. The court found, however, that Shapiro’s methodology for arriving at opinions regarding
WH-TV’s growth through 2002 was reliable, because it used DirecT V’s actual data, and
compared his prediction regarding WH-TV’s market share in 2002 with the results in a market in
Mexico. WH-TV moves for reconsideration of the portion of the court’s order that excludes
Shapiro’s testimony regarding future lost profits after 2002. Zenith moves for reconsideration of
the portion of the order that allows WH-TV to present evidence of lost profits through 2002.

WH-TV first takes issue with the court’s finding that Shapiro did not test his
methodology for predicting DirecTV’s growth after 2002. In connection with that finding, the
court noted that Shapiro had not actually compiled any data from other markets to use in
comparing his projected growth rate for DirecTV. As in its original briefs, WH-TV points to
Shapiro’s testimony that he is generally aware of the growth of digital broadcast service in the
mainland United States, and that he reviewed those growth numbers. However, Shapiro also
testified that he did not use those numbers “mathematically or arithmetically to tie into [this
case],” and that he only “unspecifically” referred to them. Since Shapiro did not include such
data in his report, and WH-TV did not otherwise disclose it prior to the close of discovery, Zenith
cannot test Shapiro’s methodology. The court declines to reconsider this finding.

WH-TV and Zenith both argue that the court erred in its evaluation of Shapiro’s
comparison of his predictions regarding WH-TV’s growth with results from a market in Mexico.

WH-TV takes issue with the court’s finding that Shapiro’s opinion regarding WH-TV’s growth