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MOTION to Exclude Testimony of Finance Scholars Group, Inc. (Dr.… — Brooks v. Thomson Reuters Corporation (Dkt. 187)

No. 3:21-cv-01418-EMC · Doc. 187 · Docket on CourtListener

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Case 3:21-cv-01418-EMC Document 187 Filed 03/28/23 Page 1 of 16

1 Susan D. Fahringer, Bar No. 21567 Gabriella Gallego, Bar No. 324226
SFahringer@perkinscoie.com GGallego@perkinscoie.com
2 Nicola C. Menaldo, pro hac vice PERKINS COIE LLP
NMenaldo@perkinscoie.com 3150 Porter Drive
3
Erin K. Earl, pro hac vice Palo Alto, CA 94304-1212
4 EEarl@perkinscoie.com Telephone: 650.838.4300
Anna M. Thompson, pro hac vice Facsimile: 650.838.4350
5 AnnaThompson@perkinscoie.com
PERKINS COIE LLP Hayden M. Schottlaender, pro hac vice
6 1201 Third Avenue, Suite 4900 HSchottlaender@perkinscoie.com
Seattle, WA 98101-3099 PERKINS COIE LLP
7
Telephone: 206.359.8000 500 N. Akard Street, Suite 3300
8 Facsimile: 206.359.9000 Dallas, TX 75201-3347
Telephone: 214.965.7700
9 Attorneys for Defendant Facsimile: 214.965.7799
Thomson Reuters Corporation
10

11 UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
12 SAN FRANCISCO DIVISION

13 CAT BROOKS and RASHEED Case No. 3:21-cv-01418-EMC
SHABAZZ, individually and on behalf of
14 all others similarly situated, DEFENDANT THOMSON REUTERS’
MOTION TO EXCLUDE TESTIMONY
15 Plaintiffs, OF FINANCE SCHOLARS GROUP, INC.
16 (DR. TERRY LLOYD)
v.
17
THOMSON REUTERS CORPORATION, REDACTED - PUBLICLY FILED
18 FILED VERSION OF DOC. 157-2
Defendant. PURSUANT TO COURT ORDER,
19 DATED MARCH 21, 2023 (DOC. 179)
20
Date: April 20, 2023
21 Time: 1:30 p.m.
Place: Courtroom 5, 17th Floor
22 Judge: Hon. Edward M. Chen

28 DEFENDANT THOMSON REUTERS’ MOTION TO
Case No. 3:21-cv-01418-EMC EXCLUDE TESTIMONY OF FINANCE SCHOLARS
GROUP, INC. (DR. TERRY LLOYD)
Case 3:21-cv-01418-EMC Document 187 Filed 03/28/23 Page 2 of 16

1 TO THE COURT, ALL PARTIES, AND THEIR ATTORNEYS OF RECORD:

2 PLEASE TAKE NOTICE that on April 20, 2023, at 1:30 p.m., or as soon thereafter as this

3 Motion may be heard in this Court, Defendant Thomson Reuters Corporation (“TR”), by and

4 through its counsel of record, will and hereby does move the Court for an order excluding the

5 testimony of Finance Scholars Group, Inc. (Dr. Terry Lloyd), including the report filed as Doc.

6 127-12 (“Lloyd Rep.”). This Motion is based on this Notice, the following Memorandum of

7 Points and Authorities, the pleadings and papers on file in this action, any arguments and

8 evidence to be presented at hearing, and any other matters that may properly come before the

9 Court.

1 TABLE OF CONTENTS

2 Page

3 I. STATEMENT OF ISSUE .................................................................................................... 1
4
II. INTRODUCTION ............................................................................................................... 1
5
III. FACTUAL BACKGROUND .............................................................................................. 2
6
A. Revenue and Costs of CLEAR................................................................................. 2
7
B. Dr. Lloyd’s Analysis ................................................................................................ 2
8
1. Revenue Allocation .................................................................................... 2
9
2. Cost Allocation ........................................................................................... 4
10

11 IV. LEGAL STANDARD .......................................................................................................... 5

12 V. DR. LLOYD’S OPINION IS INADMISSIBLE BECAUSE HE CALCULATED GROSS
PROFIT INSTEAD OF NET AND BECAUSE HE FAILED TO EXCLUDE CLEAR
13 REVENUES HAVING NOTHING TO DO WITH PLAINTIFFS’ THEORIES OF
LIABILITY. ......................................................................................................................... 6
14
A. Dr. Lloyd’s opinion is inadmissible because he did not calculate net profit. .......... 6
15
B. Dr. Lloyd’s opinion is inadmissible because he did not exclude the profit TR
16
earned from unchallenged aspects of CLEAR. ........................................................ 8
17
VI. DR. LLOYD USED UNRELIABLE METHODS TO FORM HIS OPINION. .................. 9
18
A. Dr. Lloyd’s ad hoc method of calculating gross profit is not valid. ........................ 9
19
B. Dr. Lloyd’s method of apportioning TR’s total revenue from CLEAR to California
20 is not reliable. ......................................................................................................... 10
21 VII. CONCLUSION .................................................................................................................. 12
22

28 i DEFENDANT THOMSON REUTERS’ MOTION TO
Case No. 3:21-cv-01418-EMC EXCLUDE TESTIMONY OF FINANCE SCHOLARS
GROUP, INC. (DR. TERRY LLOYD)
Case 3:21-cv-01418-EMC Document 187 Filed 03/28/23 Page 4 of 16

1 TABLE OF AUTHORITIES

2 Page(s)

3 Cases

4 Am. Master Lease LLC v. Idanta Partners, Ltd.,
225 Cal. App. 4th 1451 (2014) ............................................................................................. 6, 8
5
Carrey v. Boyes Hot Springs Resort, Inc.,
6
245 Cal. App. 2d 618 (1966)..................................................................................................... 6
7
Coates v. Lake View Oil & Ref. Co.,
8 20 Cal. App. 2d 113 (1937)................................................................................................... 6, 7

9 Daubert v. Merrell Dow Pharms., Inc.,
509 U.S. 579 (1993) .......................................................................................................... 5, 6, 8
10
Daubert v. Merrell Dow Pharms., Inc. (Daubert II),
11 43 F.3d 1311 (9th Cir. 1995)............................................................................................. 5, 6, 9
12
Liu v. SEC,
13 140 S. Ct. 1936 (2020) .............................................................................................................. 6

14 Senne v. Kan. City Royals Baseball Corp.,
591 F. Supp. 3d 453 (N.D. Cal. 2022) ...................................................................................... 5
15
Uzyel v. Kadisha,
16 188 Cal. App. 4th 866 (2010) ................................................................................................... 8
17
Other Authorities
18
Federal Rule of Evidence 402 ......................................................................................................... 5
19
Federal Rule of Evidence 702 ......................................................................................................... 1
20
Gross Profit, Black’s Law Dictionary (11th ed. 2019) ................................................................... 7
21
Net Profit, Black’s Law Dictionary (11th ed. 2019) ....................................................................... 6
22
Restatement (Third) of Restitution and Unjust Enrichment § 51(4) (Am. L. Inst.
23 2011) ......................................................................................................................................... 6
24

28 ii DEFENDANT THOMSON REUTERS’ MOTION TO
Case No. 3:21-cv-01418-EMC EXCLUDE TESTIMONY OF FINANCE SCHOLARS
GROUP, INC. (DR. TERRY LLOYD)
Case 3:21-cv-01418-EMC Document 187 Filed 03/28/23 Page 5 of 16

1 I. Statement of Issue

2 Whether the testimony and report of Finance Scholars Group, Inc. (Dr. Terry Lloyd)
3 should be excluded under Federal Rule of Evidence 702.
4 II. Introduction
5 Plaintiffs claim that Thomson Reuters (“TR”) is unjustly enriched by the use of CLEAR,
6 and they seek disgorgement of the profits resulting from TR’s allegedly unjust conduct. Plaintiffs
7 offer the report of Finance Scholars Group, Inc., authored by Dr. Terry Lloyd (the “Lloyd
8 Report”) as a proposed methodology to calculate the amount that TR should disgorge. But the
9 Lloyd report is neither relevant nor reliable, and it should be excluded.
10 The Lloyd Report is not relevant because it does not measure the appropriate amount of
11 disgorgement, which is limited to (1) net profits, that are (2) attributable to the alleged
12 misconduct. First, Lloyd estimated not net profit, but gross profit, without regard to the costs that
13 TR incurred in connection with CLEAR. Second, Lloyd himself admits that he did not distinguish
14 between “just” and “unjust” aspects of CLEAR; he was asked to assume that all profit was
15 “unjust.” The Lloyd Report therefore bears no relation to the pertinent inquiry and should be
16 stricken on that basis.
17 The Lloyd Report is not reliable because its reasoning is not scientifically valid. Even if
18 gross profit were relevant, Lloyd does not calculate that using a methodology that is accepted in
19 his field. Rather, Dr. Lloyd devised a new, ad hoc method for this case only. He based his
20 calculation on inconsistent measures of revenues and costs, and the proxies he used to estimate
21 the relevant revenues were plucked from thin air. Dr. Lloyd then compounded these errors by
22 relying on incomplete data and making an arithmetic error applying one of those proxies.
23 The Lloyd Report presents a number that bears no relation to Plaintiffs’ claim and
24 presents that number as though it measures something relevant. It does not. The approach used by
25 Dr. Lloyd would result in a punitive sanction for TR and a windfall for plaintiffs. The Lloyd
26 Report is inadmissible and should be excluded.
27

28 1 DEFENDANT THOMSON REUTERS’ MOTION TO
Case No. 3:21-cv-01418-EMC EXCLUDE TESTIMONY OF FINANCE SCHOLARS
GROUP, INC. (DR. TERRY LLOYD)
Case 3:21-cv-01418-EMC Document 187 Filed 03/28/23 Page 6 of 16

1 III. Factual Background

2 A. Revenue and Costs of CLEAR
3 TR earns revenue from its CLEAR customers in two ways: from flat-rate subscriptions
4 that allow customers to conduct an unlimited or a fixed number of searches, and from per-search
5 charges. See Doc. 127-13 at 2. TR refers to the revenue from the flat-rate subscriptions as
6 “recurring” revenue and the revenue from the per-search charges as “transactional” revenue. Id.
7 Over the period Dr. Lloyd analyzed, recurring revenue made up more than of TR’s revenue
8 from CLEAR, while transactional revenue accounted for just under See id. at 3.
9 Like every business, TR incurs costs to generate revenue. Among the costs TR incurs are
10 the cost of paying employees who support the functioning of the CLEAR platform, the
11 compliance team who ensures that only legitimate entities with permitted use cases access
12 CLEAR,1 sales costs, and royalties for the third-party information available through CLEAR. See
13 Lloyd Rep. at 16.
14 B. Dr. Lloyd’s Analysis
15 1. Revenue Allocation
16
Dr. Lloyd first attempted to attribute TR’s revenue to the presence of information about
17
putative class members within CLEAR.2 He proceeded in three steps. First, he estimated how
18
much of TR’s revenue from CLEAR over the past several years was attributable to the United
19
States. See Lloyd Rep. at 11-12. Second, he estimated what portion of that revenue was
20
attributable to California. Id. at 12-13. Third, he attempted to determine what portion of the
21
California revenue resulted from the availability of information about natural persons in CLEAR,
22
as opposed to information about businesses. Id. at 13-14. In the end, Dr. Lloyd’s revenue
23
apportionment proceeded as follows:
24

26
1
See, e.g., Doc. 152-8.
27 2
As TR noted in its opposition to Plaintiffs’ motion for class certification, precisely what
information qualifies under Plaintiffs’ class definition is not clear. See Doc. 150-4 at 15-16.
28 2 DEFENDANT THOMSON REUTERS’ MOTION TO
Case No. 3:21-cv-01418-EMC EXCLUDE TESTIMONY OF FINANCE SCHOLARS
GROUP, INC. (DR. TERRY LLOYD)
Case 3:21-cv-01418-EMC Document 187 Filed 03/28/23 Page 7 of 16
Case 3:21-cv-01418-EMC Document 187 Filed 03/28/23 Page 8 of 16

1 members in CLEAR. See id. at 12-14. He did not make any effort to determine what portion of

2 that revenue was attributable to other factors, like TR’s processing and organization of the

3 information, CLEAR’s search function and user interface, TR’s brand recognition and reputation

4 within the market, the availability of customer support services like research support and a library

5 of quality training materials,3 its proprietary Risk Inform scores, or any other factors that

6 differentiate CLEAR from competitors that offer similar products containing much of the same

7 information. See Declaration of Hayden Schottlaender, Ex. 1, Deposition of Terry Lloyd (“Lloyd

8 Dep.”) at 168:8-173:12, 179:7-180:7; Doc. 125-20 (Declaration of Andre Mura in Support of

9 Plaintiffs’ Motion for Class Certification, Ex. 37) (touting CLEAR’s transparency of data sources

10 over competitors, its customizable dashboard, and its “cutting edge public records technology”);

11 Doc. 152-3 (Declaration of Kevin Appold in Support of Thomson Reuters’ Opposition to

12 Plaintiffs’ Motion for Class Certification, Ex. B-3) (quoting CLEAR customer assertion that “the

13 interface [of CLEAR] is more user friendly” than competitors).

14 2. Cost Allocation

15 As with revenue, TR produced–and Dr. Lloyd reviewed–data showing TR’s costs of
16 offering CLEAR. See Lloyd Rep. at 16 & App’x A at 9 (acknowledging that he reviewed
17 “Product Profitability – Consolidation for CLEAR by year Feb 2022”). But when estimating what
18 portions of CLEAR’s costs are attributable to California, Dr. Lloyd employed an entirely different
19 method than he did for revenue. Instead of allocating 14% of CLEAR’s costs to California (as he
20 did for CLEAR’s revenue), Dr. Lloyd attempted to estimate the “incremental cost” or “marginal
21 cost” to TR of offering information pertaining to putative class members through CLEAR. Id. at
22 14-17. Dr. Lloyd described this measure as “the added cost to [TR to] bundle and deliver . . .
23 information to a new . . . customer” after TR has “acquire[d] data and package[d] it for sale” and
24 as “costs that . . . vary for each additional data point included within CLEAR.” Id. at 15-16. The
25 only costs that met Dr. Lloyd’s criteria are the transactional royalties TR pays to license some of
26

27 3
See, e.g., CLEAR training and support,
https://legal.thomsonreuters.com/en/support/clear/training-materials#training-resources (last
28 4 DEFENDANT THOMSON REUTERS’ MOTION TO
Case No. 3:21-cv-01418-EMC EXCLUDE TESTIMONY OF FINANCE SCHOLARS
GROUP, INC. (DR. TERRY LLOYD)
Case 3:21-cv-01418-EMC Document 187 Filed 03/28/23 Page 9 of 16

1 the information in CLEAR. Id. at 17. Dr. Lloyd determined that these transactional royalties are

2 fees that TR pays to certain data providers “based on the usage of the data being licensed,” as

3 opposed to the flat-rate royalties it pays for all of the other information in CLEAR. Id. at 16.

4 Aside from transactional royalties, Dr. Lloyd did not subtract any other cost from his

5 revenue calculation, meaning he did not deduct a single penny for flat-rate royalty costs TR paid

6 to license information in CLEAR, employee salaries, sales costs, or any other costs. See id. In the

7 end, Dr. Lloyd therefore concluded that plaintiffs are entitled to of his calculated revenue

8 figure. Id. at 17-18.

9 IV. Legal Standard

10 Before admitting expert testimony, the Court must conclude that the testimony is both
11 relevant and reliable. Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 589 (1993).
12 Expert testimony is relevant if it is helpful to the factfinder “to understand or determine a
13 fact in issue.” Id. at 592. To determine whether expert testimony is relevant, the court must first
14 analyze the governing substantive law, Daubert v. Merrell Dow Pharms., Inc. (Daubert II), 43
15 F.3d 1311, 1320 (9th Cir. 1995), and then must determine whether the expert’s opinion bears “a
16 valid scientific connection to the pertinent inquiry,” Daubert, 509 U.S. at 591-92. Daubert’s
17 relevancy requirement “is more stringent than the relevancy requirement of Rule 402 of the
18 Federal Rules of Evidence.” Senne v. Kan. City Royals Baseball Corp., 591 F. Supp. 3d 453, 479
19 (N.D. Cal. 2022). Because expert testimony “can be both powerful and quite misleading” federal
20 courts “must . . . exclude [it] unless they are convinced that it speaks clearly and directly to an
21 issue in dispute in the case, and that it will not mislead the [factfinder].” Daubert II, 43 F.3d at
22 1321 n.17 (citation omitted).
23 In addition to being relevant, an expert’s testimony also must be reliable. Daubert, 509
24 U.S. at 589. To determine reliability, the court must conduct “a preliminary assessment of
25 whether the reasoning or methodology underlying the testimony is scientifically valid.” Id. at
26 592-93. An expert witness’s credentials and claims that his methods are reliable do not suffice.
27
visited Feb. 6, 2023).
28 5 DEFENDANT THOMSON REUTERS’ MOTION TO
Case No. 3:21-cv-01418-EMC EXCLUDE TESTIMONY OF FINANCE SCHOLARS
GROUP, INC. (DR. TERRY LLOYD)
Case 3:21-cv-01418-EMC Document 187 Filed 03/28/23 Page 10 of 16

1 Daubert II, 43 F.3d at 1315-16. Instead, experts must “point to some objective source . . . to show

2 that they have followed [a valid] method, as it is practiced by (at least) a recognized minority of

3 [experts] in their field.” Id. at 1319. Plaintiffs bear the burden of establishing both prerequisites

4 by a preponderance of the evidence. Daubert, 509 U.S. at 592 n.10.

5 V. Dr. Lloyd’s opinion is inadmissible because he calculated gross profit instead of net
and because he failed to exclude CLEAR revenues having nothing to do with
6 Plaintiffs’ theories of liability.
7 Disgorgement is an equitable remedy, the object of which “is to eliminate profit from
8 wrongdoing while avoiding, so far as possible, the imposition of a penalty.” Restatement (Third)
9 of Restitution and Unjust Enrichment § 51(4) (Am. L. Inst. 2011); see also Liu v. SEC, 140 S. Ct.
10 1936, 1944 (2020) (recognizing that because equity courts lack authority to impose punitive
11 remedies, they have always “circumscribe[d] the [disgorgement] award in multiple ways to avoid
12 transforming it into a penalty outside their equitable powers”). To avoid the imposition of a
13 penalty, disgorgement has always been limited to (1) a defendant’s net profit, (2) attributable to
14 the alleged wrong. Dr. Lloyd’s calculation in this case respects neither limit and should therefore
15 be excluded.
16 A. Dr. Lloyd’s opinion is inadmissible because he did not calculate net profit.
17
Net profit is the appropriate measure of disgorgement in California. Am. Master Lease
18
LLC v. Idanta Partners, Ltd., 225 Cal. App. 4th 1451, 1491 (2014) (citing Restatement § 51(4)),
19
as modified (May 27, 2014). Net profit is “[t]otal sales revenue less the cost of the goods sold and
20
all additional expenses.” Net Profit, Black’s Law Dictionary (11th ed. 2019) (emphasis added);
21
see also Carrey v. Boyes Hot Springs Resort, Inc., 245 Cal. App. 2d 618, 622 (1966) (“It is the
22
general rule that, in calculating the net profit of a business all of the costs of producing the gross
23
income should be deducted.”) (emphasis added); Coates v. Lake View Oil & Ref. Co., 20 Cal.
24
App. 2d 113, 119 (1937) (“Net profits are the gains made from sales ‘after deducting the value of
25
the labor, materials, rents, and all expenses, together with the interest of the capital employed.’”)
26
(emphasis added) (citation omitted).
27

28 6 DEFENDANT THOMSON REUTERS’ MOTION TO
Case No. 3:21-cv-01418-EMC EXCLUDE TESTIMONY OF FINANCE SCHOLARS
GROUP, INC. (DR. TERRY LLOYD)
Case 3:21-cv-01418-EMC Document 187 Filed 03/28/23 Page 11 of 16

1 As Dr. Lloyd admits, “gross profit and net profit are different things.” Lloyd Dep. at

2 56:12-13. Net profit requires the deduction of all expenses incurred in producing the revenue,

3 while gross profit requires only the cost of goods sold to be deducted. See Gross Profit, Black’s

4 Law Dictionary (11th ed. 2019) (defining gross profit as “total sales revenue less the cost of the

5 goods sold, no adjustment being made for additional expenses and taxes”); see also Coates, 20

6 Cal. App. 2d at 119 (“Gross profits are really not profits at all” because they do not “deduct[] the

7 expenses of resale and other costs of doing business.”); Doc. 151-17 (“Kidder Rep.”) at 24-25.

8 But Dr. Lloyd calculated gross profit, not net profit. Lloyd Dep. at 57:21-58:2 (“Q: And in

9 this case, did you calculate gross profits for CLEAR or net profits for CLEAR? A: We calculated

10 the gross profits as I describe.”); Lloyd Rep. at 7-8. Because he calculated gross profit, the only

11 cost Dr. Lloyd deducted from Thomson Reuters’ revenue from CLEAR was (a small fraction of)

12 the costs of goods sold, i.e., a small fraction of the royalties Thomson Reuters paid to license the

13 information available in CLEAR. Lloyd Rep. at 17. Dr. Lloyd did not deduct any other costs that

14 were necessary to produce the revenue, like money TR spent on “compensation,” “marketing,”

15 “sales,” “editorial,” or any number of other cost figures that were available to Dr. Lloyd. See id.

16 at 16.

17 Dr. Lloyd ignored all of these costs because he concluded that although the Restatement

18 (and decades of precedent) uses the term “net profit,” it actually meant gross profit. Lloyd Dep. at

19 62:4-6 (“[W]hat the Restatement defines as net profit, I interpret or understand to be gross margin

20 or gross profit . . . .”); see also Lloyd Rep. at 7-8 (“[T]he measure of profitability called ‘net

21 profit’ by the Restatement and other authorities is what an accountant or financial analyst would

22 more likely call ‘gross margin,’ ‘gross profit,’ or ‘incremental profit.’”). He reached this

23 conclusion based on the Restatement itself, and two opinions from the California Court of

24 Appeal. See Lloyd Dep. at 58:1-10, 59:19-61:11; Lloyd Rep. at 3 n.4. But Dr. Lloyd is not

25 qualified to offer legal conclusions, and none of those referenced authorities holds that gross

26 profit is the proper measure of disgorgement, or that when calculating net profit one may deduct

27 only some of the costs of goods sold while ignoring all of the other costs necessary to operate the

28 7 DEFENDANT THOMSON REUTERS’ MOTION TO
Case No. 3:21-cv-01418-EMC EXCLUDE TESTIMONY OF FINANCE SCHOLARS
GROUP, INC. (DR. TERRY LLOYD)
Case 3:21-cv-01418-EMC Document 187 Filed 03/28/23 Page 12 of 16

1 business. The Restatement provides that the proper measure of disgorgement is “net profit” and

2 that a defendant “may be allowed a credit for money expended . . . in carrying on the business

3 that is the source of the profit that is subject to disgorgement.” Restatement § 51(5)(c). The two

4 California Court of Appeal opinions Lloyd cites hold the same: that “net profit” is the appropriate

5 measure of disgorgement. See Am. Master Lease, 225 Cal. App. 4th at 1487-88, 1491; Uzyel v.

6 Kadisha, 188 Cal. App. 4th 866, 894 (2010). Indeed, American Master Lease goes further and

7 reaffirms the bedrock rule that “in calculating the net profit of a business all of the costs of

8 producing the gross income should be deducted.” 225 Cal. App. 4th at 1492 (emphasis added)

9 (quoting Carrey, 245 Cal. App. 2d at 622).

10 In sum, net profit is the proper measure of disgorgement in California, and Dr. Lloyd’s

11 failure to estimate it means that his opinion does not bear “a valid scientific connection to the

12 pertinent inquiry” and is thus inadmissible. Daubert, 509 U.S. at 592.

13 B. Dr. Lloyd’s opinion is inadmissible because he did not exclude the profit TR
earned from unchallenged aspects of CLEAR.
14
Since the proper measure of disgorgement is the “net profit attributable to the underlying
15
wrong,” Am. Master Lease, 225 Cal. App. 4th at 1491 (emphasis added), “[t]he party seeking
16
disgorgement ‘has the burden of producing evidence permitting at least a reasonable
17
approximation of the amount of the wrongful gain,’” Uzyel, 188 Cal. App. 4th at 894 (quoting
18
Restatement § 51(5)(d)). See also Restatement § 51, cmt. f (explaining that one must determine
19
what portion of the defendant’s net profit “is properly attributable to the underlying wrong” and
20
what portion is “the product of legitimate contributions by the defendant that should not, in
21
justice, be awarded to the claimant”).
22
In this case, Plaintiffs challenge only the collection and availability for sale of information
23
about putative class members. They do not challenge other features of CLEAR, like the design of
24
the search function, the user interface, the organization of the data, or TR’s proprietary Risk
25
Inform scores. Therefore, the appropriate measure of disgorgement is only the portion of TR’s
26
profit that is attributable to the presence of information about putative class members in CLEAR.
27

28 8 DEFENDANT THOMSON REUTERS’ MOTION TO
Case No. 3:21-cv-01418-EMC EXCLUDE TESTIMONY OF FINANCE SCHOLARS
GROUP, INC. (DR. TERRY LLOYD)
Case 3:21-cv-01418-EMC Document 187 Filed 03/28/23 Page 13 of 16

1 Dr. Lloyd acknowledges that some of TR’s profits from CLEAR were derived from other

2 components of the product not the subject of this litigation. See Lloyd Dep. at 168:8-173:12. Yet

3 he admits that he made no effort to identify and exclude that profit from his disgorgement

4 estimate: “I was not asked nor did I independently undertake to disaggregate the components or

5 the attributes or drivers of revenue.” Id. at 171:8-10; see also id. at 180:5-7 (“I did not attempt to

6 break out revenue or revenue drivers by those components. I was not asked to do that, and it’s not

7 relevant to my calculation.”). Dr. Lloyd’s failure to isolate the profit attributable to the alleged

8 wrong is another independent reason to exclude his opinion.

9 VI. Dr. Lloyd used unreliable methods to form his opinion.

10 In addition to being unconnected to the pertinent inquiry, Dr. Lloyd used unreliable

11 methods to generate his opinion. To demonstrate that his methods are reliable, Dr. Lloyd was

12 required to “point to some objective source . . . to show that [he has] followed [a valid] method,

13 as it is practiced by (at least) a recognized minority of [experts] in [his] field.” Daubert II, 43 F.3d

14 at 1319. Dr. Lloyd has not satisfied that requirement for two reasons. First, he did not use a

15 reliable method of calculating gross profit and instead used an ad hoc method he invented for

16 purposes of this case only. Second, Dr. Lloyd has not demonstrated that the figure he used to

17 apportion TR’s revenue to California–a simple mean of two arbitrary national statistics

18 (California’s share of national arrests in 2018 and its share of national GDP in 2021)–has

19 anything to do with TR’s revenue from CLEAR.

20 A. Dr. Lloyd’s ad hoc method of calculating gross profit is not valid.

21 Even if calculating gross (rather than net) profit were appropriate here, Dr. Lloyd did not
22 even do that correctly. Instead, he devised a nonsensical and ad hoc method of calculating gross
23 profit that dramatically overstates the gross profit attributable to CLEAR. No legal authority Dr.
24 Lloyd cites approves of his new method, and none of the secondary sources he cites endorse it.
25 Therefore, Dr. Lloyd did not meet his burden to identify objective and independent evidence
26 demonstrating that his method of calculating gross profit is reliable. Daubert II, 43 F.3d at 1319.
27

28 9 DEFENDANT THOMSON REUTERS’ MOTION TO
Case No. 3:21-cv-01418-EMC EXCLUDE TESTIMONY OF FINANCE SCHOLARS
GROUP, INC. (DR. TERRY LLOYD)
Case 3:21-cv-01418-EMC Document 187 Filed 03/28/23 Page 14 of 16

1 To estimate gross profit attributable to CLEAR, Dr. Lloyd began by calculating an

2 allocated CLEAR revenue figure (i.e., identified total CLEAR revenues he believed relevant to

3 this case). And then he subtracted from that figure incremental cost, which he defined as “costs

4 that . . . vary for each additional data point included within CLEAR.” Lloyd Rep. at 16; see also

5 Lloyd Dep. at 226:14-17 (“I didn’t calculate marginal revenues. I calculated total revenues

6 derived by CLEAR using data on California persons, and then calculated the marginal or

7 incremental cost related to producing that revenue.”). That “hybrid” of taking allocated revenue

8 figures and subtracting incremental cost is not a valid or reliable measure of gross (or net) profit.

9 See Kidder Rep. at 26-28. In the simplest terms, if Dr. Lloyd “believes that it is appropriate to

10 allocate all of CLEAR’s revenue on the basis of the relative size of California,” (here, 14%), “he

11 should also allocate all of CLEAR’s expenses on the basis of the relative size of California”

12 (again, 14%). Id. ¶ 78. Alternatively, he could identify an appropriate increment (i.e., one

13 additional search of the information at issue in this case) and then calculate the revenues derived

14 from that increment,4 and subtract the costs associated with generating that increment. Instead, his

15 newly-invented hybrid approach “significantly overstates Thomson Reuters’ gross profits.” Id. ¶
16 81. That hybrid approach is the only way that Dr. Lloyd could come to the absurd conclusion that
17 TR realizes a profit margin from operating CLEAR. See id., at Part 6.3.1 (describing these
18 flaws in greater detail).
19 B. Dr. Lloyd’s method of apportioning TR’s total revenue from CLEAR to
California is not reliable.
20
In addition to his other methodological errors, Dr. Lloyd’s method for apportioning TR’s
21
revenue from CLEAR to California was not reliable. The approach he took is poorly explained.
22
At times, he suggests that he attempted to determine the share of the information in CLEAR that
23
is about California residents, and at other times he suggests that he attempted to determine the
24
proportion of searches that turned up information about California residents. Compare Lloyd
25

26
4
One reason Dr. Lloyd may have deviated from known or accepted accounting methods here is
27 because “the incremental revenue associated with one more search is zero for most customers
because they are on subscription plans.” Kidder Rep. at 27.
28 10 DEFENDANT THOMSON REUTERS’ MOTION TO
Case No. 3:21-cv-01418-EMC EXCLUDE TESTIMONY OF FINANCE SCHOLARS
GROUP, INC. (DR. TERRY LLOYD)
Case 3:21-cv-01418-EMC Document 187 Filed 03/28/23 Page 15 of 16

1 Dep. at 124:18-21 (“We’re attempting to estimate the . . . share of California data that goes into

2 the total U.S. dataset aggregated by Thomson Reuters in the CLEAR product.”) with Lloyd Rep.

3 at 12 (noting that TR does not “maintain historical data identifying which CLEAR queries have

4 obtained information about Californians as compared to non-Californians”). As proxies for those

5 loose parameters, Dr. Lloyd chose to average California’s share of U.S. GDP from 2021 (14.6%)

6 and California’s share of U.S. arrests from 2018 (13.4%). Lloyd Rep. at 12-13. But Dr. Lloyd has

7 not demonstrated that a simple, non-weighted average of California’s share of GDP in one year

8 and its arrest rate in another is a reliable proxy for limiting CLEAR’s revenues to Plaintiffs’

9 theory of unjust enrichment here. See Kidder Rep. at 31-34.

10 Dr. Lloyd did not analyze whether California’s share of national arrests or share of GDP

11 are correlated with the share of information about Californians in CLEAR or searches of

12 Californians in CLEAR. See Lloyd Rep. at 12-13; Lloyd Dep. at 124:5-125:22. Nor does he

13 explain why one would even expect them to be related. And he does not cite any evidence

14 suggesting that either the share of Californians’ information in CLEAR or the share of searches

15 targeting Californians over the past several years is any larger than California’s share of the

16 population. Making matters worse, even if the proxies Dr. Lloyd chose were relevant to this case,

17 the data he used to calculate his arrest proxy is wholly unreliable for this application. Dr. Lloyd’s

18 sole source for the arrest rate did not account for arrests by the New York City Police Department

19 or the District of Columbia’s Metropolitan Police Department, or from the State of Iowa, and it

20 appears to be missing data from large swaths of Illinois. See Schottlaender Decl., Exs. 2-3 (Lloyd

21 Dep. Ex. F5-F6). California’s share of national arrests is therefore unreliably inflated in Dr.

22 Lloyd’s only source data.

23 Further, even if that underlying data were reliable, Dr. Lloyd committed an arithmetic

24 error in calculating that California’s share of national arrests was 13.4%. That data shows that

25 California’s share of nationwide arrests was actually 12.8%. See Schottlaender Decl., Ex. 3

26 (Lloyd Dep. Ex. F5); Kidder Rep. at 33.

28 11 DEFENDANT THOMSON REUTERS’ MOTION TO
Case No. 3:21-cv-01418-EMC EXCLUDE TESTIMONY OF FINANCE SCHOLARS
GROUP, INC. (DR. TERRY LLOYD)
Case 3:21-cv-01418-EMC Document 187 Filed 03/28/23 Page 16 of 16

1 VII. Conclusion

2 For the foregoing reasons, the Court should exclude the testimony of Dr. Lloyd.
3

4
Dated: February 6, 2023 PERKINS COIE LLP
5

6
By: /s/ Hayden M. Schottlaender
7 Hayden M. Schottlaender
HSchottlaender@perkinscoie.com
8

9 Attorneys for Defendant Thomson Reuters
Corporation
10

28 12 DEFENDANT THOMSON REUTERS’ MOTION TO
Case No. 3:21-cv-01418-EMC EXCLUDE TESTIMONY OF FINANCE SCHOLARS
GROUP, INC. (DR. TERRY LLOYD)

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