The opinion of the court was delivered by: BECKER
(Admissibility of Expert Testimony)
This is the third and last in a series of opinions addressing evidentiary issues which were the subject of extensive pretrial evidentiary hearings in this complex antitrust litigation, the scope of which has been amply set forth elsewhere.
We address herein the admissibility under Article VII of the Federal Rules of Evidence (F.R.E.) of the critical opinions expressed in five compendious reports, totalling some 2700 pages, submitted by plaintiffs' expert witnesses.
The admissibility of all of these opinions is vigorously attacked by defendants. The reports, which set forth the opinions to which the experts are prepared to testify at trial and the bases therefor, were required by pretrial order no. 154, the comprehensive case management order that governs this litigation.
The reports at issue are: (1) "Economic Study of the Japanese Television Industry," by Dr. Horace J. DePodwin, Dr. David Schwartzman, and Marcio Teixeira of Horace J. DePodwin Associates, Inc., an economic consulting firm (the DePodwin Report); (2) "The Pervasive Use of Collusive and Company Group (Keiretsu ) Activities in Achieving the Rapid Increase of Japanese Exports of Television Receivers to the United States," by Professor Kozo Yamamura, Chairman, Japan Studies Program and Professor of Economics and East Asian Studies at the University of Washington (the Yamamura Report); (3) "Economic Analysis of Evidence Relating to Japanese Electronic Products Antitrust Litigation," by Stanley Nehmer of Economic Consulting Services, Inc. (the Nehmer Report); (4) "The Impact of Japanese Financial and Employment Practices on Japanese Production, Marketing, and Price Behavior," by Prof. Gary R. Saxonhouse, Professor of Economics, University of Michigan (the Saxonhouse Report); and (5) "Vertical Restraint by Japanese Television Manufacturers: Anticompetitive Effects," by Professor John Owen Haley, Associate Professor of Law at the University of Washington (the Haley Report).
While defendants' objections to the opinions expressed in these reports implicate a number of evidentiary issues, there are two critical overriding questions. The first relates to F.R.E. 703: we are asked to engage in a line drawing exercise to define what materials, although inadmissible in evidence, are encompassed within those "of a type reasonably relied upon by experts in the particular field." While F.R.E. 703 permits an expert to base his opinion upon materials which would otherwise be inadmissible, it is not clear that the rule cognizes an expert's reliance upon materials which have been independently excluded from evidence by the court by reason of irrelevance or inability to meet one of the hearsay exceptions, because of untrustworthiness or otherwise. Many of the materials which underlie the opinions here under consideration have in fact been ruled inadmissible in our two previous evidentiary opinions. In addition, some of the experts have based portions of their testimony upon advocatory documents such as plaintiffs' Preliminary Pretrial Memorandum, a document of plainly questionable evidentiary reliability. Defendants maintain that such materials may not form the basis for an expert opinion.
Plaintiffs respond that F.R.E. 703 plainly permits an expert's reliance upon inadmissible evidence in forming his opinion, citing caselaw which explains that one facet of an expert witness's expertise is his ability to sift reliable from unreliable information and to analyze the information before him with full understanding of the extent of its validity. In addition, plaintiffs' experts have submitted affidavits certifying that the information upon which they relied in preparing their reports was of a type generally relied upon by experts in their respective fields.
The second critical issue, which relates to F.R.E. 702, is whether, notwithstanding the provision of F.R.E. 704 permitting an expert witness to testify to an opinion embracing an ultimate issue, the "helpfulness" and "specialized knowledge" requirements of F.R.E. 702 preclude an economist from drawing an inference of the existence of a conspiracy based upon his analysis of evidence in the case coupled with his knowledge of treatises describing the practices and patterns of cartels. Defendants contend that plaintiffs' expert reports are not the business of economists, but of "conspiracyologists": that the experts have strayed beyond their respective spheres of expertise and have invaded the province of the jury by drawing factual conclusions based upon the same evidence which the jury has under consideration. This, suggest defendants, is "lay testimony in experts' clothes," and is impermissible "oath-helping." A related issue is the extent to which the court may consider whether inferences drawn by experts are logical ones, thus excluding expert opinion which the court determines to be illogical (or unreliable), or whether such questions go to the issue not of admissibility but of the weight to be accorded the opinion by the trier of fact. Plaintiffs respond that their experts, with their vast stores of knowledge of economic behavior, are uniquely suited to assist the jury in understanding the evidence before it, and that the conclusion of the existence of a conspiracy is rooted in sound economic theory, plainly within the areas of expertise of these witnesses.
Plaintiffs urge that many of these problems would be mooted in the actual trial context, with the give and take of question and answer, and that our consideration of the admissibility of the expert opinions as memorialized in written reports, which were intended not as exhibits to be independently admissible, but as descriptions of the opinions to which they would testify, is premature. We disagree. It is true that some phrasings of an expert opinion might be admissible while others might not be,
but the two overriding issues outlined above are properly before us and must be addressed at this time if we are to consider the expert opinions in conjunction with (1) our decision on the pending motions for summary judgment on plaintiffs' conspiracy claims; and (2) our preliminary determination pursuant to F.R.E. 104(a) of the existence vel non of sufficient independent evidence of conspiracy to permit plaintiffs' evidence to be admissible against alleged coconspirators under F.R.E. 801(d)(2)(E).
The propriety of our consideration of the expert opinions is clear. First, the provisions of Pretrial Order No. 154 requiring the filing of expert reports are plainly within the case management powers of the court conferred by F.R.Civ.P. 16. Indeed, in a complex case such provisions are salutary and to be encouraged. See Manual for Complex Litigation § 2.60. They are especially in order in a case such as this in which there have been monumental discovery problems and in which the court has perceived a pressing need for clarification of plaintiffs' case. Second, plaintiffs themselves wish us to consider the expert opinions, believing them to add substance to their case. Alternatively, consideration of the opinions is necessitated by the fact that plaintiffs' case, or at least a significant portion thereof, is at risk by virtue of the evidentiary rulings made in the first two opinions in this series, and plaintiffs have in effect attempted an "end run" around these rulings by offering expert opinions explicitly based upon the excluded material on the grounds that, although inadmissible, it is nonetheless of a type "reasonably relied upon" by experts in the field.
We note that, in a surprising show of unanimity, both plaintiffs and defendants approach the expert reports as single, complete units. Defendants argue that, because many of the opinions contained in the reports are, in their submission, inadmissible, the entire reports must be excluded. Plaintiffs, similarly, appear to imply that the entire reports may be considered if parts are acceptable. We disagree with this approach. Instead, we shall analyze the reports and extract from them (aided by the summaries provided by the experts) those expressions of opinion which are of significance to plaintiffs' case, making individualized rulings as to admissibility.
Before turning to a detailed analysis of each expert report, we will outline the basic legal principles to be applied.
II. The Applicable Legal Principles
1. The Rule and its Roots
Federal Rule of Evidence 703 provides:
The facts or data in the particular case upon which an expert bases an opinion or inference may be those perceived by or made known to him at or before the hearing. If of a type reasonably relied upon by experts in the particular field in forming opinions or inferences upon the subject, the facts or data need not be admissible in evidence.
The Rule represents a departure from the common law tradition of restricting the bases for expert testimony to (1) information obtained by the expert's personal knowledge; (2) the hypothetical question, which assumes facts reasonably supported by the evidence; and (3) in some jurisdictions, testimony previously elicited during the trial, with the expert instructed to assume the truth of that evidence and to base his conclusions thereon. See generally 3 Weinstein's Evidence P 703(01), at 703-4. All of these common law bases remain permissible under Rule 703, but a significant factor has been added: an expert may now testify to an opinion he has formed based on information which is not necessarily admissible into evidence, if that information is "of a type reasonably relied upon by experts in the particular field in forming opinions or inferences upon the subject."
That provision grew out of an exception to the hearsay rule which had been employed in a number of jurisdictions. The basis for that hearsay exception was explained by the Fifth Circuit in a case decided while the proposed new federal rules were pending:
Expert witness testimony is a widely-recognized exception to the rule against hearsay testimony. It has long been the rule of evidence in the federal courts that an expert witness can express an opinion as to value even though his opinion is based in part or solely upon hearsay sources.... The rationale for this exception to the rule against hearsay is that the expert, because of his professional knowledge and ability, is competent to judge for himself the reliability of the records and statements on which he bases his expert opinion. Moreover, the opinion of expert witnesses must invariably rest, at least in part, upon sources that can never be proven in court. An expert's opinion is derived not only from records and data, but from education and from a lifetime of experience. Thus, when the expert witness has consulted numerous sources, and uses that information, together with his own professional knowledge and experience, to arrive at his opinion, that opinion is regarded as evidence in its own right and not as hearsay in disguise.
United States v. Williams, 447 F.2d 1285, 1290 (5th Cir. 1971), cert. denied, 405 U.S. 954, 92 S. Ct. 1168, 31 L. Ed. 2d 231 (1972) (citations and footnote omitted). The court noted that the proposed F.R.E. 703 was in accord.
The hearsay exception which evolved into Rule 703 was originally restricted to a limited group of cases. Perhaps the most frequent application was to permit a physician to testify based in part upon information received from nurses, patients, radiologists, pathologists, and so forth. This is the only example, in fact, offered by the Advisory Committee.
See, e.g., Birdsell v. United States, 346 F.2d 775 (5th Cir.), cert. denied, 382 U.S. 963, 86 S. Ct. 449, 15 L. Ed. 2d 366 (1965); Jenkins v. United States, 113 U.S. App. D.C. 300, 307 F.2d 637 (D.C.Cir.1962); cf. F.R.E. 803(4) (the hearsay exception for statements made for purposes of medical diagnosis or treatment).
A second class of cases in which federal courts have permitted expert testimony based upon hearsay information is that involving land valuation based upon comparable sales. See, e.g., United States v. 1,516.90 Acres of Land, 405 F.2d 913 (6th Cir. 1968), cert. denied, 395 U.S. 909, 89 S. Ct. 1752, 23 L. Ed. 2d 222 (1969); United States v. 60.14 Acres of Land, 362 F.2d 660 (3d Cir. 1966). Judge Weinstein suggests that this exception was created out of necessity. 3 Weinstein's Evidence P 703(02), at 703-12. A third category, related to the second, consists of a few cases in which courts permitted experts to testify as to valuation of businesses based upon diverse background sources, including accounting data. See, e.g., Standard Oil Co. v. Moore, 251 F.2d 188 (9th Cir. 1957), cert. denied, 356 U.S. 975, 78 S. Ct. 1139, 2 L. Ed. 2d 1148 (1958). To the extent that cases permitting expert testimony based upon hearsay information fall into one of these traditional mainstream categories, Rule 703 does not represent the radical departure that some critics had warned against. See 3 Weinstein's Evidence § 703, at 703-9. Nonetheless, given the potential for open-ended receipt into evidence of testimony based upon information of questionable reliability, it is plain that some limitation on the types of information upon which an expert may rely is essential. This possible problem was recognized by the Advisory Committee, which noted:
If it be feared that enlargement of permissible data may tend to break down the rules of exclusion unduly, notice should be taken that the rule requires that the facts or data "be of a type reasonably relied upon by experts in the particular field." The language would not warrant admitting in evidence the opinion of an "accidentologist" as to the point of impact in an automobile collision based on statements of bystanders, since this requirement is not satisfied.
See the entire Advisory Committee note, quoted at note 6, supra.
Because of the context out of which the Rule arose, (i. e., as an exception to the hearsay rule, see pp. 1322-1323, supra ), the cases which anticipated it can be helpful in determining the practical application of the requirement that an expert testify only to opinions based upon information on which he has placed "reasonable reliance." In United States v. Aluminum Co. of America, 35 F. Supp. 820, 823 (S.D.N.Y.1940), Judge Caffey, in allowing expert testimony concerning the results of test drills for bauxite deposits despite a lack of personal involvement in the drilling, explained:
Opinion testimony by an acceptable expert resting wholly or partly on information, oral or documentary, recited by him as gathered from others, which is trustworthy and which is practically unobtainable by other means, is competent even though the firsthand sources from which the information came be not produced in court. With respect to the matter, in what impresses me as unambiguous authoritative judicial language, it has been said that "the requisites of an exception of the hearsay rule" are "necessity and circumstantial guaranty of trustworthiness." G. & C. Merriam Co. v. Syndicate Pub. Co., 2 Cir., 207 F. 515, 518. (L. Hand, J.) In other words, when hearsay evidence is offered it is admissible if resort to it be essential in order to discover the truth and if the surroundings persuade the court that the information adduced by the expert as a basis of his opinion is reliable.
The "necessity" element required by Judges Caffey and Hand, drawn originally from 3 Wigmore on Evidence §§ 1421-22 and 1690 (1st ed. 1913), see Alcoa, supra, at 823, was abandoned by the Ninth Circuit in Standard Oil Co. of California v. Moore, 251 F.2d 188 (9th Cir. 1957), cert. denied, 356 U.S. 975, 78 S. Ct. 1139, 2 L. Ed. 2d 1148 (1958). In that case, which permitted the testimony of an expert regarding the valuation of a business based upon a variety of background sources, the court focused on the reliability of the underlying information:
It is common practice for a prospective witness, in preparing himself to express an expert opinion, to pursue pretrial studies and investigations of one kind or another. Frequently, the information so gained is hearsay or double hearsay, in so far as the trier of the facts is concerned. This, however, does not necessarily stand in the way of receiving such expert opinion in evidence. It is for the trial court to determine, in the exercise of its discretion, whether the expert's sources of information are sufficiently reliable to warrant reception of the opinion. If the court so finds, the opinion may be expressed. If the opinion is received, the court may, in its discretion, allow the expert to reveal to the jury the information gained during such investigations and studies. Wide latitude in cross-examination should be allowed.
Id. at 222 (emphasis supplied) (footnote omitted).
Thus it is plain that the "reasonable reliance" requirement of F.R.E. 703 grew from and is cognate with the requirement that information admitted as an exception to the hearsay rule have some circumstantial degree of reliability or trustworthiness. We see the "reasonable reliance" language built into Rule 703 as essentially a shorthand translation of the hearsay rules' trustworthiness element. However, because the evidence before us is far outside the traditional mainstream categories of cases described supra, it requires a rigorous application of the general principles enunciated in the cases and by the Advisory Committee.
2. The Parties' Rule 703 Contentions
Given the text of Rule 703, the parties to this litigation agree, as they must, that the information which undergirds an expert's opinion need not be admissible into evidence, and that hearsay can be a permissible basis for opinion testimony. Their dispute centers instead upon the extent to which such information may be used and the degree of trustworthiness it must attain. As to trustworthiness, plaintiffs argue, in essence, that an expert may testify to anything related to his field of expertise, and that it is the expert who is best qualified to assess whether the materials which he has utilized are the subject of reasonable professional reliance and hence are sufficiently trustworthy to support an opinion. Defendants counter that the question of "reasonable reliance" is one for judicial determination, and that the court must recognize limits to the amount and type of inadmissible data upon which an expert may rely, making trustworthiness determinations when necessary or appropriate.
Putting their Rule 703 position in the best possible light, plaintiffs point to numerous economic treatises, studies, and articles cited by their experts presumably admissible under the 803(18) exception to the hearsay rule which in their submission suffice to render their experts' opinions based in part thereon admissible. Defendants do not quibble over those sources; they point out, however, that in addition to such legitimate bases of information, plaintiffs' experts have canvassed enormous quantities of material proffered in this litigation, much of which has been ruled inadmissible on various grounds in our two previous evidentiary opinions.
Furthermore, the experts had access to, and often cited in their reports, various advocatory documents, such as plaintiffs' preliminary pretrial memorandum (PPTM) and briefs in both this litigation and in other lawsuits.
The use of inadmissible or questionable documents was so pervasive, and so many of the experts' assumptions were based wholly on such documents, defendants argue, that their entire opinions are necessarily suspect. Thus in defendants' submission plaintiffs are attempting to import into evidence via the "back door" of their experts' testimony the very evidence already ruled inadmissible, for the underlying basis for the opinion would inevitably be revealed, if not on direct examination, at least upon cross-examination by defendants.
In sum, the primary questions which confront us under Rule 703 are: (1) the identity the expert or the court of the ultimate decisionmaker with regard to reasonable reliance on underlying information; and (2) if it is the court, the standards to be used in assessing "reasonable reliance" in a given case.
3. Identity of Decisionmaker Regarding Reasonable Reliance on Underlying Bases for Opinion Testimony
As to the first question, our study of the rule and the cases leads us to accept defendants' position. While it is true that some courts have used relatively broad language in describing an expert's ability to choose materials upon which to base his opinion, see, e.g., United States v. Sims, 514 F.2d 147 (9th Cir.), cert. denied, 423 U.S. 845, 96 S. Ct. 83, 46 L. Ed. 2d 66 (1975),
it is nonetheless plain that courts routinely make the decision whether a particular expert has reasonably based his opinions upon trustworthy underpinnings. See, e.g., Punnett v. Carter, 621 F.2d 578 (3d Cir. 1980); United States v. Genser, 582 F.2d 292 (3d Cir. 1978), cert. denied, 444 U.S. 928, 100 S. Ct. 269, 62 L. Ed. 2d 185 (1979); Pittsburgh Press Club v. United States, 579 F.2d 751 (3d Cir. 1978). Accord, S. Saltzburg & K. Redden, Federal Rules of Evidence Manual 426 (2d ed. 1977). The fact that a court may permit certain testimony, finding that a particular expert's opinion was reasonably based, does not imply that the court does not inquire into the trustworthiness of the underlying data. The Advisory Committee, see note 6, supra, plainly contemplated that the trial court, as part of its admissibility judgment, would inquire into an expert's reasonable reliance. Furthermore, because the court under F.R.E. 702 must assess a witness's qualifications in order to permit his testimony, it follows that when an expert deviates from his area of expertise by basing his opinion upon untrustworthy matters, that assessment must similarly be within the province of the court.
Our conclusion that the judge must be the ultimate arbiter of the reliability of materials upon which an expert witness bases his opinion is congruent with the principles developed previously in this litigation for the admission of public records and reports under F.R.E. 803(8)(C). See Public Records Opinion, 505 F. Supp. 1125, at 1143-1150. Moreover, any other result would open the door to the wholesale admission of otherwise inadmissible evidence before the jury, not, to be sure, as probative of the truth, but to explain the basis of the expert's opinion. Such a result could not have been contemplated by the rule.
We turn then to the standards to be employed in making the Rule 703 judgment.
4. Standards for Assessing Reasonable Reliance
The case law under F.R.E. 703 is not particularly enlightening on the subject of standards to be employed in assessing an expert's reliance. Defendants do not dispute that the cases cited by plaintiffs were correctly decided. United States v. Genser, 582 F.2d 292 (3d Cir. 1978), cert. denied, 444 U.S. 928, 100 S. Ct. 269, 62 L. Ed. 2d 185 (1979), for example, permitted an I.R.S. agent to testify in a criminal tax evasion conspiracy case based in part upon his own examination of defendants' records and in part upon an audit conducted by other agents. Similarly, the court in Bauman v. Centex Corp., 611 F.2d 1115 (5th Cir. 1980), a securities fraud action, admitted the testimony of an accountant who based his opinion on information gleaned from defendants' files and financial statements, his own background and experience as a CPA and management consultant, and "all available information in (the University of Houston) library." These cases are within the mainstream of the Rule as it was conceived by the Advisory Committee, described supra. Similarly, United States v. Williams, 447 F.2d 1285 (5th Cir. 1971), cert. denied, 405 U.S. 954, 92 S. Ct. 1168, 31 L. Ed. 2d 231 (1972) (en banc ), discussed supra at 1322, dealt with the valuation of oil and gas properties based upon various records of, inter alia, the companies' prices, operating costs, well records, and past production performance. This extension is a logical outgrowth of the traditional exception to the hearsay rule for expert opinion concerning land valuation. See United States v. 60.14 Acres of Land, 362 F.2d 660 (3d Cir. 1966); Standard Oil Co. v. Moore, 251 F.2d 188 (9th Cir. 1957), cert. denied, 356 U.S. 975, 78 S. Ct. 1139, 2 L. Ed. 2d 1148 (1958).
All of these cases present a picture of an expert testifying to an opinion formed on the basis of a number of sources, some of them hearsay, but all of them either intimately connected with his immediate sphere of expertise, such as in the co-worker audit of the Genser case, or upon unquestionably permissible documentary research materials.
In none of these cases were the courts faced with the question facing us, whether matters offered into evidence but excluded by the court may properly serve as fodder for an expert's opinion.
The Advisory Committee note to Rule 703 offers little more guidance, pointing out merely that the requirement of reasonable reliance by experts in the field would prevent undue expansion of the rule. See note 7 supra. By way of example, the Committee points out that an "accidentologist" who attempted to testify as to the point of impact of a collision would not meet the "reasonable reliance" requirement if he based his testimony on the statements of bystanders. Defendants, as we have noted, suggest that the experts in this case are "conspiracyologists" attempting to testify in a similarly impermissible manner.
Turning then to cases cited by defendants, Pittsburgh Press Club v. United States, 579 F.2d 751 (3d Cir. 1978), could conceivably be read as holding that if the foundation for expert testimony is held to be unreliable, the expert testimony itself is a fortiori excludable. Pittsburgh Press involved a survey, which was excluded because its methodology was unsound "neither objective, scientific, nor impartial." 579 F.2d at 759. With regard to the testimony of an economist/statistician and an accountant, the court continued:
The survey which we have just held to be inadmissible was the foundation for certain of the plaintiff's exhibits, and for much of Dr. Kenkel's testimony. Since this second survey should have been excluded, it follows that the evidence based on the survey should have been excluded as well. In particular, Dr. Kenkel's determinations as to amount of outside income and the percentage of gross receipts attributable to outside affairs could not have been admitted into evidence once the foundation for that testimony was excluded. For the same reason, the exhibits prepared by PPC's accountants and the testimony of accountant Di Mario, respecting the Club's net profits attributable to outside business, should not have been admitted into evidence.
This language and it is from a Third Circuit opinion is extremely supportive of defendants' position, and corroborates our thesis that 703's roots are in the hearsay notions of trustworthiness and reliability. However, we decline to read the Pittsburgh Press language so broadly as to automatically exclude from an expert's consideration all matters which have been excluded from evidence at trial. In Pittsburgh Press, the expert economist/statistician had participated in the preparation and execution of the survey found to be unreliable. His calculations and exhibits, as well as those of the accounting expert, were extrapolated virtually entirely from that unreliable survey. But while the special factual context and the lack of any specific language make us skeptical that the Third Circuit intended to create any per se rule of exclusion in Pittsburgh Press, the case does plainly demonstrate that certain materials, excludable at trial because of unreliability, are impermissible bases for an expert's opinion, despite the fact that the expert himself may have deemed them reliable.
Pittsburgh Press is the only case we have found which deals directly with an opinion based upon information actually tendered as evidence at trial. The cases cited by plaintiff and discussed supra involved identifiable bases of information, concededly hearsay for the most part, which were never independently proffered in evidence. A number of cases urged upon us by defendants deal with a different class of expert opinion altogether cases in which the expert opinion was excluded because it was based upon faulty assumptions or unfounded conclusions. See Punnett v. Carter, 621 F.2d 578 (3d Cir. 1980); Drayton v. Jiffee Chemical Corp., 591 F.2d 352 (6th Cir. 1978); Bryan v. John Bean Division, 566 F.2d 541 (5th Cir. 1978); Merit Motors, Inc. v. Chrysler Corp., 187 U.S. App. D.C. 11, 569 F.2d 666 (D.C.Cir.1977); Scheel v. Conboy, 551 F.2d 41 (4th Cir. 1977); Berguido v. Eastern Air Lines, Inc., 317 F.2d 628 (3d Cir.), cert. denied, 375 U.S. 895, 84 S. Ct. 170, 11 L. Ed. 2d 124 (1963); Tabatchnick v. G. D. Searle & Co., 67 F.R.D. 49 (D.N.J.1975). The theory of these cases appears to be that a reasonable expert would not rely on unsupported assumptions in forming his opinion, and that an opinion so based must be excluded.
These cases arose in a variety of procedural contexts some on review of trial proceedings, some on review of summary judgment proceedings, and one (Punnett v. Carter ) on review of denial of a preliminary injunction. It is frequently unclear whether the court is making a judgment as to admissibility, or whether it is deciding whether the expert testimony raises a material factual issue under F.R.Civ.P. 56 (although that would have to result from admissible evidence, see Rule 56), or whether it is making a judgment on an abuse of discretion standard. Even when the issue is plainly admissibility, it is not always clear what rule is used as the basis for the court's decision. For example, as alternative theories, some courts deem an opinion based on unsupported assumptions to be unhelpful to the jury under F.R.E. 702, discussed infra, or to be so misleading as to be excludable under F.R.E. 403, instead of being unreliably based under F.R.E. 703. In any event, all of the above-cited cases refuse to countenance expert testimony based upon what the courts determine to be unreasonable assumptions. Despite the variety of procedural contexts and variety of F.R.E. pigeonholes, they indicate that the assumptions which form the basis for the expert's opinion, as well as the conclusions drawn therefrom, are subject to rigorous examination. We turn to a brief discussion of these cases.
In Merit Motors, supra, one of the more thoroughly reasoned of the cases cited, plaintiffs had attempted to prove antitrust injury by way of an expert report detailing the "inherent" economic effects of defendants' system. Defendants attacked the expert's theories on their motion for summary judgment, arguing that the theories were "abstract speculation" and that the expert was, by his own admission, unfamiliar with the record of the case. The district court agreed, dismissing the expert's theory "since his opinion (was) unsubstantiated by any evidence in the record." 569 F.2d at 672, quoting 417 F. Supp. at 272. On appeal, the D.C. Circuit, in an opinion by J. Skelly Wright, J., affirmed, observing:
569 F.2d at 673 (footnotes omitted).
Punnett v. Carter, supra, the most recent Third Circuit discussion of the topic, arose on a motion for a preliminary injunction, and so is not strictly applicable to the present litigation. In that case, which requested relief for alleged mutagenic dangers stemming from nuclear testing in Nevada in the 1950's and 1960's, radiation dosage levels were pivotal to a showing of likelihood of success on the merits. After analyzing the expert's testimony, the district court had concluded that the assumptions upon which the expert relied were not supported by the evidence or by the methodology. The Third Circuit upheld the district court's refusal to grant the injunction because of the unconvincing nature of plaintiffs' scientific evidence. There was no reference to the rules of evidence, for admissibility was not at issue. Nonetheless, the case demonstrates a willingness in this circuit to question expert assumptions and to disregard them when appropriate.
In Berguido v. Eastern Air Lines, Inc., supra, a pre-F.R.E. wrongful death action in this circuit, experts testified to their opinions as to the behavioral character of the plane's pilot (in particular, degree of risk and intent to violate regulations), based upon assumptions presented in a hypothetical question. The assumptions had been drawn from the report of the CAB investigating team, which was in turn based upon calculations by an engineer not before the court. Because it was revealed that the engineer must have made "certain assumptions and choices relative to the physical facts found at the crash scene before he could reach the final computation state," 317 F.2d at 632, and because he was not available for cross-examination to test the basis of his computations, it was held to have been prejudicial error to have permitted the second expert to base his conclusions upon those calculations.
Bryan v. John Bean Div., supra, similarly addressed a situation in which the testifying expert relied upon reports of non-testifying experts. The expert in that products liability case had utilized the data reported by another, but had reached a contrary conclusion. The court held that cross-examining counsel's extensive impeachment use of the written conclusions of the previous expert, who did not testify, was impermissible despite F.R.E. 705, although the expert's use of the underlying data was apparently proper. While basing its decision primarily on lack of trustworthiness, the court noted in passing that the jury's attention could have been drawn to the reports by bringing those experts before the court.
Tabatchnick v. G D Searle & Co., supra, refused to permit an expert to testify when he expressed bare conclusions based in part upon "facts" contradicted by the record. Drayton v. Jiffee Chemical Corp., supra, and Scheel v. Conboy, supra, both rejected economists' damage calculations as based on unreasonable or speculative assumptions.
1. The extent to which the opinion is pervaded or dominated by reliance on materials judicially determined to be inadmissible, on grounds of either relevance or trustworthiness;
2. The extent to which the opinion is dominated or pervaded by reliance upon other untrustworthy materials;
3. The extent to which the expert's assumptions have been shown to be unsupported, speculative, or demonstrably incorrect;
4. The extent to which the materials on which the expert relied are within his immediate sphere of expertise, are of a kind customarily relied upon by experts in his field in forming opinions or inferences on that subject, and are not used only for litigation purposes;
5. The extent to which the expert acknowledges the questionable reliability of the underlying information, thus indicating that he has taken that factor into consideration in forming his opinion;
6. The extent to which reliance on certain materials, even if otherwise reasonable, may be unreasonable in the peculiar circumstances of the case.
We add that if, for example, an inadmissible document were one of a myriad of sources consulted by an expert, and if it were clear that the expert was cognizant of and took into consideration the questionability of that lone source, the opinion would likely be admissible. If, on the other hand, the expert's opinion is so dominated or pervaded by his reliance on materials which have been excluded for reasons which bear on their reliability, or is rife with similarly unreliable unsupported conclusions, having no support in the record, that opinion must also be excluded. In short, it is a balancing process. We will thus examine the sources of plaintiffs' expert opinions with these factors in mind, and will exclude those portions which prove to be pervaded with reliance upon unreliable sources.
We turn to the issues presented under F.R.E. 702 and 704.
The parties are also in sharp dispute over the proper interpretation of Rules 702 and 704. F.R.E. 702, which for the most part codifies existing common law, provides:
If 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.
The foundation of this basic rule concerning expert testimony is that testimony must be helpful to the jury. As defined by the Advisory Committee, the helpfulness inquiry is " "whether the untrained layman would be qualified to determine intelligently and to the best possible degree the particular issue without enlightenment from those having a specialized understanding of the subject involved in the dispute,' " quoting Ladd, Expert Testimony, 5 Vand.L.Rev. 414, 418 (1952). The rule thus expands slightly the practice of most jurisdictions of permitting expert testimony only when the subject matter was otherwise beyond lay comprehension. See generally S. Saltzburg & K. Redden, Federal Rules of Evidence Manual 413 (2d ed. 1977). Another expansion from the common law is the final "or otherwise" clause, which permits an expert not only to render an opinion, but, as described by the Advisory Committee, to "give a dissertation or exposition of scientific or other principles relevant to the case" as well. This would leave the trier of fact to apply the principles to the facts as they develop and obviate the need for a hypothetical question. Of course, the dissertation or exposition must still meet the "helpfulness" standard that is central to the rule.
In addition to helpfulness, F.R.E. 702 requires that an expert witness be qualified by scientific, technical, or other specialized knowledge. Without such specialized knowledge, his testimony would not be helpful to the jury. For example, if the expert's qualifications are suspect, he would be no better than the average juror at interpreting matters upon which his expertise is expected to bear. Similarly, if no specialized knowledge is needed, the jury will not be assisted by expert testimony which merely tracks the same analytical process which they as jurors are capable of carrying out.
Under the common law, no witness could testify to matters which would usurp the province of the jury by expressing an opinion on the ultimate issue in the case. Following a growing trend to permit such testimony when it is helpful, the "ultimate issue" rule was abolished for the federal courts in Rule 704:
Testimony in the form of an opinion or inference otherwise admissible is not objectionable because it embraces an ultimate issue to be decided by the trier of fact.
The framers of the rule had in mind testimony on such questions as sanity, testamentary capacity, intoxication, speed, and value. See Advisory Committee Note to Rule 704. Because of the plain language of the Rule, it cannot be disputed that testimony concerning the ultimate issue in the case is permitted only if otherwise admissible. Ultimate issue testimony which does not assist the trier of fact is not rendered magically admissible by Rule 704; rather, if such testimony is helpful, it is no longer automatically excluded under the common law. Indeed, even helpful ultimate issue testimony is not automatically admissible. As explained by the Advisory Committee:
The abolition of the ultimate issue rule does not lower the bars so as to admit all opinions. Under Rules 701 and 702, opinions must be helpful to the trier of fact, and Rule 403 provides for exclusion of evidence which wastes time. These provisions afford ample assurances against the admission of opinions which would merely tell the jury what result to reach, somewhat in the manner of the oath-helpers of an earlier day. They also stand ready to exclude opinions phrased in terms of inadequately explored legal criteria.
Defendants in this litigation do not dispute that, in an appropriate case, an expert witness may opine on an ultimate issue. They argue, however, that in this instance, plaintiffs' experts have gone beyond the types of testimony contemplated by the Rule and have entered the province of "oath-helping" by merely interpreting the evidence which will be before the factfinder, explaining, in effect, what result should be reached. Plaintiffs counter that testimony on an ultimate issue is plainly admissible and that their experts' specialized knowledge will indeed help the factfinder to interpret the evidence before it. Thus, as we see these arguments, there is no real issue under Rule 704 in this case; instead, we are asked to determine, pursuant to Rule 702, whether (a) these experts' reports do provide "scientific, technical, or other specialized knowledge";
and (b) whether that specialized knowledge will assist the jury, or whether it invades the jury's function and becomes "oath-helping."
It has been held that it is helpful to a jury for an expert to interpret jargon or methodology peculiar to particular enterprises, and for the expert to form an opinion as to a given defendant's role in the operation based upon evidence in the record. See United States v. Scavo, 593 F.2d 837 (8th Cir. 1979) (gambling); United States v. Milton, 555 F.2d 1198 (5th Cir. 1977) (gambling); United States v. Jackson, 138 U.S. App. D.C. 143, 425 F.2d 574 (D.C.Cir.1970) (pickpockets). Similarly, expert testimony was permitted in United States v. Jensen, 608 F.2d 1349 (10th Cir. 1979) (securities fraud action), to interpret certain rules of the National Association of Security Dealers, including the effect of these rules on certain computations. Because the rules were the private rules of a self-regulating association, their interpretation was held not to be a legal conclusion within the province of the court, and was helpful to the jury.
On the other hand, expert testimony was excluded in Marx & Co. v. Diners Club, Inc., 550 F.2d 505 (2d Cir.), cert. denied, 434 U.S. 861, 98 S. Ct. 188, 54 L. Ed. 2d 134 (1977). In that case, also involving securities fraud, an expert on securities law testified as to the legal construction of the contract at the heart of the action, and expressed his opinion as to the reasonableness of defendants' behavior.
In ruling that the testimony was erroneously received, the Second Circuit took the time to discuss generally the types of expert opinion appropriate in a complex case. In Marx the expert would have been competent to explain to the jury, under the "or otherwise" clause of F.R.E. 702, the customary practices followed in registering an issue of stock with the SEC. He could not testify, however, as to the legal consequences he believed could be derived from an acquisition contract, for it is for the court, not a witness, to instruct the jury as to applicable legal principles. Furthermore, the expert was qualified only as an expert in securities regulation; contract law was held to be outside his area of expertise. Perhaps most damaging, the expert had testified that defendant had no legal excuse for nonperformance of the contract, basing his conclusion on his examination of documents and correspondence which were before the court. The Second Circuit held this testimony to be superfluous, and continued:
As Professor McCormick notes, such testimony "amounts to no more than an expression of the (witness') general belief as to how the case should be decided." McCormick on Evidence, § 12, at 26-27. The admission of such testimony would give the appearance that the court was shifting to witnesses the responsibility to decide the case. McCormick on Evidence, § 12, at 27. It is for the jury to evaluate the facts in the light of the applicable rules of law, and it is therefore erroneous for a witness to state his opinion on the law of the forum.
550 F.2d at 510. Finally, the court warned against allowing jury trials in intricate cases to become "battles of paid advocates posing as experts on the respective sides concerning matters of domestic law." Id. at 511.
Similarly, the court in United States v. Pacelli, 521 F.2d 135 (2d Cir. 1975), cert. denied, 424 U.S. 911, 96 S. Ct. 1106, 47 L. Ed. 2d 314 (1976), refused to permit a psychiatrist to testify that the major prosecution witness was psychopathic and incapable of telling the truth. The testimony would not have been helpful to the jury, which already knew about the witness's bizarre behavior and status as an accomplice. These facts were held to be enough to permit the jury to assess credibility, for even the psychiatrist admitted that twelve average people would recognize that the witness's testimony must be carefully reviewed. Cf. United States v. Collins, 395 F. Supp. 629 (M.D.Pa.), aff'd mem., 523 F.2d 1051 (3d Cir. 1975), cert. denied, 423 U.S. 1060, 96 S. Ct. 797, 46 L. Ed. 2d 651 (1976) (expert testimony on reliability of eyewitnesses excluded on relevancy grounds).
In Webb v. Fuller Brush Co., 378 F.2d 500 (3d Cir. 1967), a pre-F.R.E. case, a physician was not allowed to testify to his opinion whether a jar of cream should have contained a warning, for once the facts regarding the cream's dangerous character were in evidence, the jury needed no expert guidance in reaching a further conclusion.
And, in a copyright infringement suit brought by the sons of Ethel and Julius Rosenberg over quotation of their parents' letters, expert testimony by literary authorities concerning the qualitative impact of the letters on the quoting publication, a question relevant to the fair use issue, was held to be unhelpful to the jury in its deliberations. The jury was held to be "fully competent to understand the subject matter of the work and to evaluate the qualitative importance of certain materials to the presentation of that subject," especially in this "famous and controversial" context. Meeropol v. Nizer, 417 F. Supp. 1201, 1211 (S.D.N.Y.1976), aff'd in part and rev'd in part on other grounds, 560 F.2d 1061 (2d Cir. 1977), cert. denied, 434 U.S. 1013, 98 S. Ct. 727, 54 L. Ed. 2d 756 (1978).
The cases discussed under F.R.E. 703, supra at 1328-1330, which refused to accept expert opinion based upon faulty assumptions and unfounded conclusions, are also instructive in this context.
Although the case law is limited, and adds little beyond examples to the Advisory Committee Note and the Rule itself, it makes several things plain. First, expert opinion must be approached on an expert by expert, or even opinion-by-opinion, basis, and the court must, as with the data underlying an expert opinion discussed supra, carefully examine each opinion offered by the expert to assess its helpfulness to the jury. Second, while it is not immediately obvious whether the inquiry should proceed under F.R.E. 702, 703, or 403,
it is clear that the court may indeed must carefully scrutinize the underlying assumptions, inferences drawn, and conclusions reached by the experts before reaching a decision on admissibility of the expert's opinion. Opinions which contain inferences which cannot logically be drawn are no more helpful to the jury than are opinions based upon unreliable information. Third, and of critical importance here, opinions do not assist the jury when they are cumulative of evidence already before the jury, or when the expert has sifted through that evidence reaching a conclusion which in essence attempts to tell the jury how it should decide the case. Rather, the expert must utilize specialized knowledge, not ordinarily possessed by the layman, to reach an opinion which truly aids the jury in understanding the evidence or in determining a fact in issue.
We think one of the best expressions of this principle is contained in Stern, Toward a Rationale for the Use of Expert Testimony in Obscenity Litigation, 20 Case Western L.Rev. 527, 546 (1969): "The expert should strive to instruct the court in the ways of his work, whether it be psychology, literature or whatever, and to explain the nature of the judgments made in that work" (emphasis added). We shall refer to this formulation from time to time.
If, as defendants contend, the expert opinions in this litigation stem merely from a rehash of the evidence already before the trier of fact without adding a component of expertise, i. e., without instructing the trier of fact "in the ways of his (the expert's) work," those portions will be found inadmissible because they are the unhelpful "oath-helping" of a "conspiracyologist." If, on the other hand, the experts' economic sophistication enables them to explain the evidence to the jury in a permissible manner otherwise beyond the jury's sphere of knowledge, the opinion would be admissible. We note that expert testimony may not be used merely to interpret a factually complex record. The test for admissibility of an expert's opinion turns not on complexity but on the subject matter of the opinion, i. e., on whether the expert's specialized knowledge enhances the jury's understanding.
The task of the court is to sift through the reports, parsing out those portions which will aid the jury. We reiterate that we are not considering the admissibility of these reports qua reports as documents to be admitted into or excluded from evidence. Rather, we are assessing the admissibility of the key opinions expressed in the reports, purged of their rhetoric and stylistic devices, as though they were being carefully framed at trial.
We turn first to the report prepared by DePodwin Associates, Inc.
the unusual sales increases achieved by the defendants in the United States market. It seeks to determine how the growth and development of Japanese television sales in the United States were related to the agreements and arrangements among Japanese producers, United States importers and mass merchandisers, distributors and others. In particular, the study seeks to determine whether certain restrictive trade practices engaged in by the defendants and others resulted from concerted activity, and whether they constituted an unreasonable restraint on the trade and commerce of the United States. Additionally, the study seeks to determine the economic significance and impact of pricing practices on the marketing of television receivers in the United States and in Japan by the Japanese television manufacturers and their affiliates, (and) whether the use of restrictive trade practices by them represented the exercise of concerted market power with the intention of affecting the United States industry.
DePodwin Report at I-1. Finally, the study assesses the injury to and damages incurred by plaintiff NUE.
The first thing that strikes one about the stated objectives of the DePodwin study is the concern with determining the existence of a conspiracy and of conspiratorial intent. Those are not the kinds of concerns one thinks of at first blush as being within an economist's purview. We merely note this point now, reserving fuller consideration for later, and turn to an equally disconcerting matter, the fact that the report begins with a number of assumptions which are themselves matters of dispute among the parties. For example, the report assumes the existence of agreements among the Japanese manufacturers, as well as the existence of certain restrictive trade practices.
These introductory comments serve as a warning to the reader to be wary of unsupported assumptions while proceeding through the report.
As described by DePodwin in his summary submitted in connection with the evidentiary hearings, see note 2, supra, the principal conclusion which he reached is that
by means of a broad range of anticompetitive practices, Japanese manufacturers of television receivers, particularly the defendants, succeeded in gaining a large share of the United States market. To achieve this objective, they carved out a substantial portion of that market and proceeded to saturate it with sales promoted through a variety of anticompetitive devices, all the while "respecting" each other's territory.
Japanese television manufacturers, particularly the defendants, operated as a cartel, setting prices for both the Japanese domestic market and the United States. They acted in concert, exercising market power through trade associations, industry committees, and other groups. In doing so, they intensified the competition which United States manufacturers experienced, while attenuating, if not eliminating, competition among themselves.
That the cartel operated in domestic as well as export markets is emphasized. Control over prices in the domestic market, to which entry was effectively barred, provided the protective umbrella which enabled the Japanese firms to engage in predatory pricing abroad. If competition had prevailed in the domestic market, then predatory pricing in the United States would have been more difficult.
Had free and fair competition prevailed between United States and Japanese producers, production capacity in each country would have adjusted properly to the size of the combined markets, and been allocated properly between the United States and Japanese industries. The size and profitability of each nation's industry would have been determined by free and fair competition, rather than by the Japanese cartel. Finally, Emerson/NUE would not have suffered the damages specified.
In order to determine whether these conclusions are permissible expert testimony, we must proceed step by step through the report, examining the bases for the opinions rendered according to the principles discussed under F.R.E. 703, Part IIA, supra, as well as analyzing the assumptions, inferences, and conclusions as an aid to considering whether the opinion assists the jury as required under Rule 702. We reiterate that we are not considering the admissibility of the reports as written, but of those opinions and background material contained therein that are of importance to our summary judgment and in limine determinations.
B. Outline of the Economic Analysis
Part I of the DePodwin Report outlines the economic analysis which underlies the conclusions reached. As such, it summarizes the evidence considered by the experts, sets forth some basic economic principles which inform the conclusions reached, and summarizes the ultimate conclusions. To the extent that this section summarizes either evidence or conclusions, we need not consider it separately here, but will address those opinions as they appear in detail in subsequent sections. To the extent, however, that it presents the analytical framework for the opinions to follow, it must be examined at this juncture.
Dr. DePodwin would plainly be permitted to testify concerning the methodology by which he reached his conclusions; we believe this to be undisputed by defendants. Such methodology would, of course, be relevant only to the extent that the data to which the methodology is applied is deemed reliable under Rule 703, as discussed supra.
Thus, in sum, assuming relevancy, Part I is admissible insofar as it lays out underlying methodology and background information. Because it is clear that Dr. DePodwin would not attempt to testify to his ultimate opinions in as conclusory a fashion as his summary might imply, we need not consider the form of the conclusions presented here. Rather, we see this section as a preface to the weightier analysis to follow, and will consider the opinions in their subsequent context.
C. Industry Background Materials
Part II of the DePodwin report, entitled "Background on the Television Manufacturing Industry in the United States and Japan" and Part III, "Japanese Television Industry," set forth basic background materials in a straightforward discursive manner. Part II concentrates on the history of television technology and production, with emphasis on the fact that American firms were primarily responsible for technology development, and that Japanese firms subsequently licensed that basic technology under various patent agreements. Part III is heavily statistical, discussing industry concentration, production and export data, production capacity, investment, and facilities expansion for the industry as a whole and for individual defendant companies.
Defendants do not complain about the vast bulk of information contained in these two sections, except to question its relevance. Thus we will not tarry over the potential fine points of analysis, deferring judgments as to individual items until trial. We find the information useful as background, although we are not certain that an economist is necessary or qualified to expound to the jury on technological development. However, as a prologue to or basis for the economic analysis to follow, the background, which appears drawn from legitimate sources, can give the jury a framework within which to fit other pieces of evidence.
A few individual items in Parts II and III should be mentioned as problematic. Part II includes a discussion of the mechanics of patent licensing by the Japanese, reputedly organized through the Electronic Industries Association of Japan (EIAJ), a trade association. According to the DePodwin narrative, the Japanese manufacturers jointly negotiated their patent licensing agreements with United States firms, thereby eliminating internal Japanese competition for imported technology. DePodwin Report at II-23 to II-26. This section is followed by a brief "Appendix to Part II" which explains that "(t)he radio and television industry has a notorious history of using patent licensing agreements to restrain trade." Because we consider these ideas to be of only tangential relevancy to the question of the unitary export conspiracy among the defendants charged in this litigation, or even of the alleged home market facet of the alleged conspiracy, because they are certainly insufficient to create a material issue of fact given the gravamen of plaintiffs' case, and because the defendants do not at this time seriously contest the underlying information, we will not address the Article VII issues related thereto.
Part III, while primarily statistical and unobjectionable, contains two portions which must be excised. First, in connection with a discussion of capacity expansion and exports, the report opines:
DePodwin Report at III-33.
There is plainly nothing wrong in and of itself with adding to capacity to support exports; to that extent the opinion is irrelevant if intended to support an inference of export conspiracy. The bald statement that the companies sought to avoid competition when adding to production capacity is supported solely by a statement by a single Japanese executive a statement of otherwise doubtful admissibility as to that executive's company and inadmissible as to the other defendants.
DePodwin's opinion, coming as it does out of thin air, is simply unsupported either in the report or in the record, and cannot be admitted. At best, if the executive's statement were to be deemed admissible, its interpretation would be a matter for the jury to consider along with the other pieces of the puzzle, rather than a matter for expert analysis. It is simply not reasonable for an expert to base such a sweeping conclusion on a single disputed essay; nor is it helpful to the jury, in that there has been no application of expertise.
A second problem area in Part III discusses the alleged subsidization of Far East subsidiaries (in Korea, Hong Kong, and Taiwan) of Japanese manufacturers, in an attempt to imply that the Japanese companies' participation in the United States market was predatory. DePodwin Report at III-36 to III-43. This section is entirely supported by documents produced in this litigation, and there are serious questions of admissibility under both F.R.E. 702 and 703.
Defendants do not strenuously urge an Article VII objection to this information, preferring to stress a relevancy objection. Accordingly, we shall defer consideration of this point until our decision on the conspiracy motions.
The crucial part of the DePodwin report begins with Part IV, to which we now turn.
D. The Japanese Television "Cartel" and Its Operation
Japanese manufacturers of television receivers achieved their phenomenal success in exports, particularly to the United States, through concerted collusive action. The manufacturers colluded through various associations and committees. It will be shown that they engaged in a concerted drive to attain and keep a large share of the United States market by means of agreed upon predatory prices designed to eliminate domestic manufacturers. Japanese manufacturers, particularly the defendants in the Japanese Electronic Products Antitrust Litigation, priced exports to the United States well below the price at which they sold comparable products in their home market, they agreed to allocate United States customers among themselves, they freely ...