Cornerstone Research Second Round Interview

Calculation of Damages for Cancelled Uranium Licences.When the government of Mongolia revoked the licences in 2009 that allowed Khan Resources Inc. to conduct uranium mining operations in that country, Khan sought international arbitration to obtain compensation on the basis of the Energy Charter Treaty and Mongolia's Foreign Investment Law. The tribunal was constituted under the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL).

A hearing on the merits of the claim and on the damages sustained by Khan was held in November 2013 at the ICC Hearing Centre in Paris. Crowell & Moring acted as counsel for Khan in the arbitration. The respondent maintained that if the tribunal determined that damages were due to the claimant, those damages should be limited to the amount that the claimants had invested in the mining project and not to its economic value. Dr Alberro testified that the value of the project included not just the claimant's investments but future earnings as well. He demonstrated that once the reserves and costs associated with development and production of the mine are known, the market price of uranium can be used to estimate future earnings with reasonable certainty. The tribunal agreed that in the case of a mine with proven reserves, it did not matter that the mine had not actually come into full production and was not a "going concern." Furthermore, Dr Alberro argued that by using the Weighted Average Cost of Capital in addition to an adjustment parameter that the respondent called "the chance of success," the respondent double counted risk. On the matter of prejudgement interest, the tribunal sided with the claimants' request of interest on a compounded basis rather than on a simple basis, as the respondent had argued. The tribunal awarded approximately $100 million in damages to Khan, more than five times the amount the respondent argued had been invested in the project.

Medical device patents. The plaintiff and its affiliated entities sued a leading healthcare company for infringement of certain of its patents related to a medical device. Counsel for the defendants retained Dr. Michael Keeley, a senior vice president of Cornerstone Research, to assess potential damages and to respond to the plaintiffs' damages expert's calculations of lost profits and reasonable royalty damages.

As part of his work, Dr. Keeley examined non-infringing alternatives, the value of the accused product's features that were supposedly related to the patents-in-suit, and the comparability of various license agreements. He also addressed the applicability of convoyed sales, the limitations on the plaintiffs' claims of lost profits damages due to the relationships among the plaintiffs' corporate entities, and reasonable royalties based on a detailed Georgia-Pacific analysis.

Newage Garden Grove LLC et al. v. SMA Portfolio Owner LLC et al. This case involved a suit for breach of contract.. The plaintiffs owned a hotel in Southern California and, in anticipation of a loan coming due, requested an extension from the lender. The defendants, mistrusting the reliability of the financial data the plaintiffs submitted with their bid for an extension, denied the request and ultimately declared the loan in default. The plaintiffs claimed reimbursement for default assessments and the higher costs of the new loan they obtained from another lender.

Basing his judgment in large part on Ms. Irwin's testimony, the referee in this case found that the defendants' doubts about the plaintiffs' reported financial results were well founded: "Later investigations, especially Ms. Irwin's expert analysis, resoundingly confirmed defendants' initial suspicions." In his decision, the referee rejected all of the plaintiffs' objections and awarded no damages.

Aéropostale Inc. et al. In litigation arising from the bankruptcy of the apparel retailer Aéropostale, Cornerstone Research was retained by counsel for Sycamore Partners, pre-petition term lender and former equity investor in Aéropostale. Cornerstone Research worked with two testifying experts who addressed certain aspects of claims by Aéropostale against Sycamore and its affiliate, MGF Sourcing, a global sourcing company. The debtor, Aéropostale, filed a motion for equitable subordination of the claims of Sycamore Partners and MGF Sourcing. Aéropostale also moved to disqualify Sycamore Partners from submitting a bid in a sale of Aéropostale's assets. In addition, the clothing retailer sought to recharacterize a portion of Sycamore's pre-petition term loan to Aéropostale as equity. Aéropostale alleged that Sycamore Partners engaged in inequitable conduct by pushing the retailer into bankruptcy in order to buy the company's assets at a discount and by selling the company's stock while in possession of Aéropostale's material, nonpublic information.

Cornerstone Research worked with Alan Bell, a former Ernst & Young LLP audit partner. Mr. Bell testified that, as of the end of fiscal year 2015, Aéropostale faced significant financial risk and that an audit opinion on Aéropostale's financial statements would have expressed substantial doubt about the company's ability to continue as a going concern for the next fiscal year. A going-concern opinion from Aéropostale's auditor would have triggered an event of default in its debt agreements resulting in bankruptcy regardless of any alleged inequitable conduct by Sycamore Partners. The judge stated in his opinion that "the Court finds credible the testimony of the Term Lenders' expert, Mr. Bell, who opined that as of February 24, 2016, Aéropostale's 2015 audit would have indicated substantial doubt that the company could continue as a going concern for the period from January 31, 2016, to January 28, 2017." Cornerstone Research also supported Professor Adam Pritchard of the University of Michigan Law School to address a claim that Sycamore improperly traded Aéropostale's stock while in possession of material, nonpublic information. Professor Pritchard demonstrated that Aéropostale's stock price did not react to the news about the stock sale by Sycamore. He further demonstrated that Aéropostale's stock price remained at or above the level at which Sycamore sold the shares for more than two months after the sale, even after Aéropostale publicly released adverse information. Professor Pritchard testified that it was substantially unlikely that a reasonable shareholder would consider the information that Sycamore possessed to be important in deciding whether to buy or sell Aéropostale stock. In reaching its decision, the court credited the testimony of Professor Pritchard regarding Aéropostale's stock price trajectory. The court denied Aéropostale's motion on all counts, and Sycamore and its affiliate were the prevailing parties in the litigation.

Southeastern Milk Antitrust Litigation. The joint defense team retained Cornerstone Research to work with three economic experts—Kenneth Elzinga, Joseph Kalt, and Catherine Morrison Paul—to address allegations that the largest Southeastern milk processors allocated the market and fixed prices for fluid milk from 2002 to 2009. The members of the purported class purchased processed milk directly from the defendants. The case history includes a decision by the Sixth Circuit prior to the denial of class certification by the U.S. District Court for the Eastern District of Tennessee.

Common Impact Class certification hinged on whether the plaintiffs offered a methodology that proved classwide impact. The plaintiffs' expert testified that a regression model could estimate how much prices were "elevated" for each class member. Our analysis showed that the model could not meet this objective. Prices to customers in the same zip code often moved in substantially different directions, contradicting the assumption of common movement embedded in the plaintiffs' model. Cornerstone Research's analysis demonstrated that the plaintiffs' model assumed common impact for all class members rather than testing for it. Damages Model We also showed that the plaintiffs' model could not reliably measure the alleged damages caused by the conduct at issue because it yielded "false positives." Specifically, the plaintiffs' damages model resulted in a positive damages estimate for the lead named plaintiff's purchases, even though the lead plaintiff purchased pursuant to a price formula contract that was established before the alleged conspiracy began. Cornerstone Research's analysis demonstrated that the plaintiffs' model also found positive damages estimates in areas outside the Southeast where there was no allegation of conspiracy.

Lightweight Thermal Paper Investigation. Counsel for Koehler SE retained Cornerstone Research and Professor Orley Ashenfelter of Princeton University to review the potential effects of the removal of an antidumping order. Koehler, a German firm, is the world's largest producer of lightweight thermal paper (LWTP), which is commonly used for receipts. In 2008, the ITC imposed an antidumping order on imports of LWTP from Germany on the grounds that they posed a threat to the domestic producers. These orders are reviewed after a period of five years in what is called a sunset review.

Cornerstone Research and Professor Ashenfelter analyzed whether the imposition of the antidumping order had impacted prices of LWTP in the United States, whether Koehler had incentives to reduce its prices and shift sales to the United States in the absence of the order, and whether the revocation of the order would adversely impact the domestic producers of LWTP. The ITC found the economic analysis compelling and decided that LWTP imports from Germany no longer posed a threat to the domestic industry. Using confidential data from Koehler and domestic producers, Cornerstone Research and Professor Ashenfelter showed that the imposition of the antidumping order did not impact prices of LWTP sold in the United States. In addition, the economic analysis demonstrated that the productivity of the primary domestic producer had improved significantly since 2008, and that German producers had no incentive to increase their U.S. market share if the ITC were to lift the order. The ITC found the economic analysis compelling and decided that LWTP imports from Germany no longer posed a threat to the domestic industry. In a unanimous ruling, the Commission revoked the antidumping order. Kivanç Kirgiz and Emre Uyar, both of Cornerstone Research, also appeared on behalf of Koehler during the ITC hearing.

Fine Jewelry Advertising Campaign. In a case between two fine jewelry retailers, the plaintiff alleged that the defendant made false representations about one of its products in an extensive print, television, and digital marketing campaign based on "independent laboratory testing." The plaintiff also alleged that the unscientific testing method yielded inaccurate and unreliable results, making the advertisements false and misleading to consumers.

Cornerstone Research and a marketing professor to analyze the short-term impact on the plaintiff's and defendant's profits and sales. In addition, he reviewed the campaign's claims to determine if they were based on rigorous scientific method and supported by product data. Professor Hanssens also analyzed the impact of the advertising campaign under different expansion scenarios. He found that the defendant's sales did increase as a direct result of the advertising campaign. His analysis of the campaign showed that the claims lacked a reasonable level of scientific rigor and validity and were false. The case settled.

Product Hopping Pharmaceutical manufacturers have been accused of engaging in product hopping by introducing modified versions of branded drugs nearing patent expiry while simultaneously withdrawing the older drugs to hinder generic substitution. We assisted counsel in evaluating potential damages in a case where a branded pharmaceutical company was accused of harming competition by introducing new versions of a drug with longer remaining patent protection and withdrawing older versions of the drug.

Cornerstone Research estimated damages to three plaintiff groups—generic competitors, direct purchasers, and indirect purchasers. These plaintiffs accused the branded company of several anticompetitive acts involving its life-cycle management strategies. We analyzed various scenarios in order to estimate the damages corresponding to conduct that might ultimately be found to be anticompetitive.

Reverse payments settlement analysis. In FTC v. Actavis, the Supreme Court established that settlement of pharmaceutical patent litigation involving so-called "reverse payments" must be evaluated under the rule of reason and that "large, unexplained" payments may indicate anticompetitive conduct. In the antitrust disputes that our clients face now, the circuit courts are interpreting the standard set in the Actavis decision when examining "reverse payment" settlements.

Cornerstone Research staff and experts actively provide thought leadership evaluating anti- and pro-competitive rationales behind such settlements. Our experts and staff help pharmaceutical companies to address evolving antitrust issues in the context of the Actavis decision. These matters require a careful evaluation of the "but for" world, including: Whether a settlement would have been possible without the alleged reverse payment Whether generic competition was actually delayed What the brand company's actions would have been, in particular, vis-à-vis brand-authorized generics These matters also require evaluation of the "reverse payment" to determine: The value of any consideration provided in exchange for the payment and whether it can be considered large Whether there are explanations for the payment other than delay—for example, risk aversion or litigation costs (including business disruption costs) Finally, these matters continue to require traditional analyses, such as class certification, market definition, and damages.

Assessment of Actuarial Services for a University's Health Insurance Plan. A university system claimed that an actuarial consultant gave allegedly negligent advice that caused its student health plan to accumulate a significant funding deficit over three years. Defense counsel retained Cornerstone Research and experts to provide analysis and testimony on actuarial issues related to healthcare plans.

Cornerstone Research worked with Mr. Jeffrey Petertil, an independent healthcare actuary; and Mr. Cecil Bykerk, a former president of the Society of Actuaries. Mr. Petertil reviewed the actuarial work performed by the consultant for the university. He opined that the consultant acted within the scope of its role and responsibilities. He also found that its analysis of expected medical costs and its advice on student health insurance premiums were reasonable. Mr. Bykerk provided background on the actuarial profession, in particular, its inherently judgment-based nature. He explained how the consultant's conduct should be assessed in light of the guidance set forth by professional actuarial organizations, and concluded that its work was consistent with what one would expect of a reasonable and careful actuary under the circumstances. In addition, we supported healthcare experts Professor M. Kate Bundorf of the Stanford School of Medicine, and Professor Daniel P. Kessler of the Stanford Graduate School of Business, also a Cornerstone Research senior advisor. Professor Bundorf explained the fundamental economic features of health insurance plans and the possible causes of a funding shortfall. Professor Kessler assessed the potential damages incurred by the university as a result of the consultant's recommendation to self-insure and alleged actuarial errors. He showed that the alleged errors had a limited impact on the premium shortfall and that the damages model presented by the university's actuarial expert greatly overstated any damages resulting from the alleged negligence. In addition to supporting the defendant's experts in their analyses, Cornerstone Research staff reviewed the actuarial expert analyses submitted by the university and identified significant errors. We also assisted counsel leading up to trial, including preparing for the cross-examination of the plaintiff's actuarial experts. The case settled shortly after trial began.

Multiple Cases of Alleged Safety Defects in Automobiles Counsel for an automobile manufacturer retained Cornerstone Research and several experts to address plaintiffs' claims in two national class actions. plaintiffs alleged that many of the vehicles contained a safety defect and that the company misrepresented the safety and reliability of the vehicles in its marketing. The plaintiffs also claimed that consumers would have paid less if they had known about the alleged defect at the time of purchase, and that the subsequent disclosure diminished the vehicles' value. In both cases, the plaintiffs sought to certify a class of all owners of affected vehicles.

Cornerstone Research worked with Professor Edward Lazear of Stanford University to determine if a common method could be used to measure the economic impact and damages for all putative class members. Through an analysis of detailed automobile transaction data, Professor Lazear showed that there was wide variation in prices and trends over time, which undermined a common methodology to determine impact and damages across the proposed class. Cornerstone Research worked with Professor John Lynch of the University of Colorado at Boulder and Professor Kevin Lane Keller of Dartmouth College to analyze whether the alleged misrepresentation affected the purchasing behavior of all putative class members. Based on an analysis of the company's marketing communications and vehicle purchaser information, Professors Lynch and Keller demonstrated that purchasing behavior differed significantly across consumers. In addition, many consumers did not rely on the manufacturer's communications in their purchase decisions. Professors Lynch and Keller opined that, because of these differences, the impact was not uniform across putative class members. Cornerstone Research worked with Professor Kimberly Neuendorf of Cleveland State University to analyze the volume and content of news coverage related to the alleged defect. Professor Neuendorf concluded that it was a major news story, and that consumers' understanding of the defect varied substantially because the media reported the story in a wide range of contexts. The court did not certify the class in one case, and the other settled before the court ruled on class certification.

United States of America ex rel. Susan Ruscher et al. v. Omnicare Inc. et al. Counsel for Omnicare Inc. retained Cornerstone Research and two experts to respond to claims that Omnicare violated the Anti-Kickback Statute and False Claims Act in sourcing business from skilled nursing facilities (SNFs). The relator alleged that Omnicare intentionally failed to collect Medicare Part A debt from the SNFs for which it provided long-term-care pharmacy services in order to maintain or extend its Medicare Part D business with those facilities.

Cornerstone Research worked with an expert on the billings and collections practices of pharmacy services providers in conducting an extensive review of the document record. Based on that review, the expert concluded that Omnicare was actively engaged in collections throughout the period of alleged kickbacks and that Omnicare's practices were both reasonable and consistent with industry practices. He also explained why the dissemination of confidential company and customer information taken by the relator would likely cause significant harm to Omnicare. Similarly, an expert on skilled nursing facility management concluded that the document record did not reveal business conduct outside of what is normal in the SNF and pharmacy services provider industries with regard to billing and payment practices. In granting summary judgment for Omnicare, a U.S. District Court judge for the Southern District of Texas concluded that the document record, "read in context, [does] not raise a question of material fact as to Omnicare's intent with respect to its relationship with the SNFs," and also observed that the "collection practices of Omnicare...would not seem exceptional, much less fraudulent." The court also denied the relator's motion for summary judgment on Omnicare's counterclaims for breach of fiduciary duty and misappropriation of trade secrets, among others. The court cited the billing expert's opinions related to the potential for harm to Omnicare if its internal documents were made public.

Analysis of Consulting Services to Self-Insured Student Health Plan. A university system claimed that an actuarial consultant gave allegedly negligent advice that caused a student health plan to accumulate a significant funding deficit over three years. Defense counsel retained Cornerstone Research and four experts to provide analysis and testimony on healthcare and actuarial issues.

Cornerstone Research worked with healthcare experts Professor M. Kate Bundorf of the Stanford School of Medicine, and Professor Daniel P. Kessler of the Stanford Graduate School of Business, also a Cornerstone Research senior advisor. In addition, we supported Mr. Jeffrey Petertil, an independent healthcare actuary; and Mr. Cecil Bykerk, a former president of the Society of Actuaries. Professor Bundorf explained the fundamental economic features of health insurance plans and the possible causes of a funding shortfall. She also reviewed the actuarial consultant's advice to the university system to self-insure its student health plan. She determined that the move to self-funding was a reasonable decision for the university, but that there were substantial deficiencies in the university's implementation of the plan that likely contributed to its poor financial performance. Professor Bundorf determined that self-funding was reasonable for the university. Professor Kessler showed that the university's damages model greatly overstated any damages from the alleged negligence. Professor Kessler assessed the potential damages incurred by the university as a result of the consultant's recommendation to self-insure and alleged actuarial errors. He showed that the alleged errors had a limited impact on the premium shortfall and that the damages model presented by the university's actuarial expert greatly overstated any damages resulting from the alleged negligence. Mr. Petertil reviewed the actuarial work performed by the consultant for the university. He opined that the consultant acted within the scope of its role and responsibilities. He also found that its analysis of expected medical costs and its advice on student health insurance premiums were reasonable. Mr. Bykerk provided background on the actuarial profession, in particular, its inherently judgment-based nature. He explained how the consultant's conduct should be assessed in light of the guidance set forth by professional actuarial organizations, and concluded that its work was consistent with what one would expect of a reasonable and careful actuary under the circumstances. In addition to supporting the defendant's experts in their analyses, Cornerstone Research staff reviewed the expert analyses submitted by the university and identified significant errors. We also assisted counsel leading up to trial, including preparing for the cross-examination of the plaintiff's experts. The case settled shortly after trial began.

In re Actiq Sales and Marketing Practices Litigation. Counsel for Cephalon Inc., a subsidiary of Teva Pharmaceutical Industries Ltd., retained Cornerstone Research to analyze class certification and damages issues relating to the alleged off-label marketing of Actiq, a painkiller approved for the management of breakthrough cancer pain. A purported class of third-party payers (TPPs) claimed that Cephalon unjustly enriched itself by marketing Actiq for non-approved indications in order to increase prescription sales, and that they were damaged by Cephalon's actions.

Cornerstone Research worked with three experts to address class certification and damages issues: Professor W. David Bradford of the University of Georgia; Professor Pradeep K. Chintagunta of the University of Chicago Booth School of Business; and Ms. Christine M. Hammer, CPA, senior advisor at Cornerstone Research. The court denied certification of the proposed class. A key question in this case was whether issues common to all class members predominated over issues affecting individual TPPs. TPPs each made their own coverage decisions and set their own reimbursement policies for Actiq. Professor Bradford explained that TPPs had a number of methods by which they could and did influence and monitor the prescriptions for which they reimbursed in order to manage their costs for Actiq. He concluded that individualized inquiry would be required to establish that class members were harmed by Cephalon's alleged actions. Professor Chintagunta showed that physician prescribing behavior is influenced by a number of different factors and that there is diversity in how physicians respond to pharmaceutical marketing; consequently, because each TPP reimbursed for prescriptions prescribed by different physicians, individualized inquiry would be required to demonstrate the impact of the alleged off-label marketing. Ms. Hammer analyzed the plaintiffs' proposed damages model to estimate the alleged unjust enrichment. Judge Petrese B. Tucker of the U.S. District Court for the Eastern District of Pennsylvania found that individual issues in this case predominated over common ones, and that individualized inquiry would be required to determine whether a particular prescription was unjust. The court denied certification of the proposed class.

European Commission Closes Credit Default Swap Enquiry Involving Major Banks. Retained by Cravath, Swaine & Moore and by Skadden, Arps, Slate, Meagher & Flom Defense counsel for two major investment banks separately retained Cornerstone Research in an EC regulatory investigation into allegations of anticompetitive behaviour in the trading of credit default swaps (CDS). The EC filed a statement of objections against a group of major international financial institutions. The statement alleged that the banks had colluded to prevent the launch of CDS exchange trading between 2006 and 2009, and that this resulted in an increase in the bid-ask spreads paid by market participants.

Cornerstone Research worked with two experts: Allan Kleidon, a senior vice president of Cornerstone Research; and Professor Matthew Richardson of New York University, both of whom presented in front of the EC in a week-long hearing in May 2014. Dr. Kleidon analysed the functioning of the CDS market, and provided an assessment of the economic feasibility of exchange trading in this market during the relevant time period. Professor Richardson described the economic theory which drives trading to occur in over-the-counter markets under certain economic conditions and on exchanges in others. He then analysed both the characteristics of credit default swaps and the market conditions during the time at issue to conclude that the likelihood of successfully migrating CDS to exchange trading was not supported by either economic theory or evidence. The EC stated that, "Today's closure decision regarding the 13 investment banks is based on a thorough analysis of all information received from the parties in their replies and during the oral hearing of May 2014, as well as on documents obtained through additional fact finding."

Allergan Takeover Bid. When Valeant and Pershing Square Capital Management, a hedge fund, made a public announcement of an intended acquisition of Allergan in April 2014, a protracted takeover battle ensued. Pershing Square had acquired a 9.7 percent block of Allergan shares in stock and option transactions prior to the formal announcement of the tender offer for Allergan by Valeant. Allergan filed a lawsuit against Valeant and Pershing Square alleging that both firms violated Rule 14e-3 of the Securities Exchange Act of 1934 when Pershing Square acquired shares of Allergan while in possession of material nonpublic information relating to Valeant's tender offer.

Counsel for Allergan retained Cornerstone Research and two experts, Professor Stephen Choi of New York University School of Law, and a proxy process expert. Professor Choi testified on the purpose and economic rationale underlying the provisions of the Williams Act. He provided additional testimony on the meaning of "offering person" under Rule 14e-3 in the context of Pershing Square's involvement in the takeover bid. Professor Choi also opined on the meaning of "substantial steps" under Rule 14e-3 as applied to the actions of Valeant and Pershing Square. The proxy expert offered empirical evidence that tender offers are typically used in conjunction with proxy battles in the context of hostile acquisitions. The court found that Allergan raised serious questions as to whether the defendants' conduct between February and April 2014 violated Rule 14e-3 and ordered the defendants to make corrective disclosures in their proxy solicitation statement. Allergan was eventually acquired by Actavis plc.

Home Improvement Product Manufacturer Advertising. In a nationwide class action against a leading manufacturer of a home improvement product, the plaintiffs alleged that the product did not perform as promised, deteriorated more quickly than advertised, and required removal or replacement with an alternative product.

Counsel for the manufacturer retained Dr. Samid Hussain, a vice president of Cornerstone Research, to estimate the potential damages faced by the manufacturer. Dr. Hussain analyzed product sales and complaints, as well as refunds and replacements to consumers who had complained. Using this data, he estimated the complaint rate and the rate at which the manufacturer had provided refunds or replacements products. Dr. Hussain also estimated potential damages for several scenarios under which the putative class members could claim damages. These scenarios allowed the manufacturer to gauge the range of possible total damages and use them in settlement negotiations.

Advertising Targeting a Medical Services Provider. A law firm ran advertisements that targeted a large medical provider's quality of care and alleged overtreatment of pediatric patients. The provider filed a lawsuit claiming defamation, business disparagement, false advertisement, and injury to business reputation.

Counsel for the provider retained Cornerstone Research and Professor Gordon Klein of the University of California, Los Angeles, to analyze the economic impact of the challenged advertising. In his report, Professor Klein opined that the ad campaigns had a significant economic impact, leading to substantial lost profits. The case settled.

Power Ratings of a Household Appliance Manufacturer's Product. Plaintiffs alleged that the manufacturer misrepresented its product's power ratings. Plaintiffs sought damages for the full purchase price or for the amount consumers allegedly overpaid.

Defense counsel retained Cornerstone Research and Professor Lorin Hitt of the University of Pennsylvania, to evaluate the economic effect of the defendant's alleged misrepresentation and whether common impact could be assessed across all proposed class members. Professor Hitt opined that, contrary to the plaintiffs' proposed damages theories, most class members were likely not harmed. He noted that the manufacturer's power ratings had been standard for decades and comparable across manufacturers, allowing consumers to make reasonable inferences across competing products and against their own expectations. Moreover, consumers could consult other information sources about the product's performance, many of which correlate highly with the power ratings. Professor Hitt also presented evidence on the low rate of product returns, high customer satisfaction ratings, and substantial rate of repeat product purchases, demonstrating that the number of consumers who could have been potentially harmed, if any, was very small. He further opined that the alleged misrepresentation's impact could not be assessed without individual inquiry. Consumers consider a variety of product features and information sources when making their purchase decisions. Therefore, a common method could not be used to determine whether and to what extent a class member was harmed. The case settled.

Energy Labeling of a Household Appliance. In a nationwide class action against a leading household appliance manufacturer, the plaintiffs alleged that one of the defendant's models was labeled with an ENERGY STAR logo even though it did not meet the required standards. The plaintiffs claimed that they had higher energy costs than advertised and paid a price premium for the logo.

Defense counsel retained Cornerstone Research and Professor Lorin Hitt of the University of Pennsylvania, to evaluate whether the economic effect of the ENERGY STAR logo could be assessed through a common method across all class members. Specifically, he responded to the plaintiffs' damages analyses and their survey on consumers' willingness to pay for the logo. In rebutting the damages analyses, Professor Hitt showed that the plaintiffs' experts failed to account for individual differences in the meaning and understanding of the ENERGY STAR logo, such as preferences for a more energy efficient product or appliance usage. Therefore, individual inquiry would be necessary to assess damages, if any, of the alleged mislabeling. Professor Hitt also pointed out several flaws in the design and execution of the opposing side's survey that rendered inflated and unreliable results. The case settled.

Alleged Theft of Trade Secrets for a Drug in Development. Two pharmaceutical manufacturers were collaborating on a novel drug in the early stages of development. The plaintiff alleged that the defendant stole the plaintiff's trade secrets, annulled the collaboration, and clandestinely developed a competing drug. The plaintiff also claimed that knowledge of trade secrets gave the defendant a head start in developing its own drug.

Defense counsel retained Professor Sean Nicholson of Cornell University and Cornerstone Research to analyze the loss in value of the plaintiff's drug due to the defendant's head start and to evaluate the damages estimated by the plaintiff's expert. Professor Nicholson analyzed the various drivers of value for the plaintiff's drug, such as projected sales, marketing expenditures, research and development expenses, cost of capital, and timing of launch of competing drugs. Professor Nicholson drew on his expertise in drug valuation to analyze the various drivers of value. Professor Nicholson also calculated the alleged loss in value of the plaintiff's drug for different levels of head start obtained by the defendant (e.g., one year, two years). His analysis demonstrated that the damages estimate of the plaintiff's expert was inflated because of inappropriate assumptions about the drivers of drug value.

United States v. EnergySolutions Inc. et al. The DOJ retained Dr. Greg Eastman of Cornerstone Research in a matter involving a proposed $367 million merger of EnergySolutions Inc. and Waste Control Specialists LLC (WCS). The agency sought to enjoin the deal, arguing that the merger would harm competition in the market for commercial disposal of low-level radioactive waste in 36 states. The defendants claimed that the proposed merger would result in greater operational efficiencies, and also asserted that WCS was a "failing firm" whose assets would exit the market absent the merger.

Dr. Eastman testified that the defendants had not provided sufficient information to reliably quantify the claimed efficiencies. He also testified that WCS was not facing imminent failure and that its key assets were not at risk of leaving the market absent the proposed merger. He opined that WCS's parent, Valhi Inc., had not undertaken good faith efforts to elicit reasonable alternative offers for WCS's assets, as required by the DOJ/FTC's Horizontal Merger Guidelines. He further opined that Valhi's efforts focused on maximizing the company's value, rather than on eliciting alternative offers above WCS's liquidation value. "In closing argument, defendants represented that they were 'not standing on an efficiencies defense.' Therefore, the court will not address the substantial evidence presented by the government to show that defendants could not establish an efficiencies rebuttal." "Defendants have not shown that WCS's parent, Valhi, made a good faith effort as part of its 2015 sale process to elicit reasonable alternative offers. Valhi engaged with one other potential bidder . . . and left it in the dark about the sale process before abruptly ending discussions without obtaining a bid." "Finally, under the horizontal merger guidelines, a reasonable alternative offer is '[a]ny offer to purchase the assets of the failing firm for a price above the liquidation value of those assets.' Valhi was clearly focused on obtaining what it perceived to be WCS's fair value, not an offer above the liquidation value, which is likely to be less."

Sprint Corp.'s $3.6 Billion Buyout of Clearwire Corp: After a closely watched trial involving alleged breach of fiduciary duty and stock appraisal, a Delaware Court of Chancery judge found in favor of defendant Sprint Corp. in its $3.6 billion buyout of Clearwire Corp., initiated in 2013. In a 97-page opinion, Vice Chancellor J. Travis Laster affirmed that Sprint Corp. had presented sufficient evidence at trial to negate claims from the hedge fund company, Aurelius Capital Management, that Sprint Corp. improperly pushed its buyout at a low price.

Dr. Wallsten conducted hedonic regression analysis to show that Clearwire's 2.5 GHz spectrum holdings were worth only $0.24 per MHz-pop, compared to $0.78 per MHz-pop, as calculated by the plaintiffs' expert. The analysis used data from several Federal Communications Commission spectrum auctions and controlled for a variety of important characteristics. In his testimony, Dr. Wallsten identified several flaws in the plaintiffs' evaluation methods.

Analysis of Physician Group's Market Share and Alleged Market Power. Counsel for a physician group retained Dr. Michael Keeley, a senior vice president of Cornerstone Research, to address allegations that it had illegally obtained and exercised market power for inpatient services at local area hospitals.

Dr. Keeley demonstrated that because hospitals choose which physician group will serve their patients, the relevant product and geographic market must be assessed from the perspective of hospitals. He then showed that physician groups can provide both inpatient and outpatient services, and therefore the relevant product market also comprised physician groups providing outpatient services. His analysis of patient discharge data indicated that the physician group at issue had a share within this broader market that was not plausibly large enough for it to exercise market power. In addition, Dr. Keeley showed physician groups competed nationally to provide services to hospitals and thus the relevant geographic market was the entire United States. Dr. Keeley established that the physician group's market share flowed from its offering a superior product and was not anticompetetive. Further, Dr. Keeley's analysis of claims data demonstrated that the physician group did not overcharge for its services because its prices in this market were equivalent to those it charged in regions where it was not alleged to have market power. Dr. Keeley also established that a large portion of the growth of the physician group's market share came from hospitals actively seeking its services, rather than from acquisition. Thus, to the extent the physician group had established market power, it flowed from its offering a superior product and was not anticompetitive. The case settled before trial.

United Food and Commercial Workers Union Local 880 Pension Fund et al. v. Chesapeake Energy Corporation et al.Defense counsel for Chesapeake Energy Corporation retained Allan Kleidon, a senior vice president of Cornerstone Research, to address materiality and loss causation in this securities class action that began in the U.S. District Court for the Western District of Oklahoma and was appealed to the Tenth Circuit. The lead plaintiff alleged that the defendants omitted certain material facts in their public offering of Chesapeake common stock. In particular, the plaintiff claimed that the defendants failed to disclose that Lehman Brothers was a counterparty in some of Chesapeake's hedging contracts; that many of Chesapeake's hedging contracts contained "knockout" provisions that eliminated a counterparty's exposure under certain conditions; and that Chesapeake's CEO lacked sufficient financial resources to cover loans against company stock that he held in margin accounts.

Dr. Kleidon concluded that the allegedly omitted facts were not material at the time of the offering because their disclosure would not have significantly changed the total mix of information. In his declaration, Dr. Kleidon noted that a fact is material only if there is a substantial likelihood that a reasonable investor would view the disclosure of the omitted fact as significantly altering the total mix of information; and that materiality must be determined as of the date of the alleged omission—not in hindsight. Dr. Kleidon then established that between the stock offering in July 2008 and the alleged corrective disclosure in October 2008, the financial crisis caused a dramatic and highly unpredictable change in market conditions. Against this backdrop, Dr. Kleidon addressed the lead plaintiff's assertions. He showed that as of the offering date, Lehman's bankruptcy was not considered likely. Dr. Kleidon also demonstrated that the knockout provisions had been disclosed in prior SEC filings incorporated in the offering documents, and that the stock price reaction showed that the market did not view that information as economically significant. Finally, Dr. Kleidon showed that a forced sale of the CEO's margined shares was highly improbable as of the offering date. Dr. Kleidon concluded that the allegedly omitted facts were not material at the time of the offering because their disclosure would not have significantly changed the total mix of information. In its opinion, the district court agreed with Dr. Kleidon's analysis that defendants had adequately disclosed the risks associated with their hedging strategy, and that no further disclosure was required because "a registration statement need not disclose every possible permutation of the risk, nor 'predict the precise manner in which the risks will manifest themselves.'" The court's opinion was also consistent with Dr. Kleidon's declaration with respect to the unpredictable nature of Lehman's bankruptcy and the CEO's having to sell his margined shares at a loss. According to the court, "the virtually unprecedented economic melt-down that occurred in the months following the Offering could not have been foreseen." The district court granted summary judgment based on lack of materiality. The Tenth Circuit Court of Appeals affirmed the district court's decision, finding that the defendants' alleged omissions were neither material nor misleading.

BARCLAYS SECURITIES LITIGATION: Plaintiffs alleged that, in the offering documents, Barclays failed to disclose its exposure to various risky credit market assets and misrepresented its ability to manage the accompanying credit risk. ‎The shares lost 80 percent of their value during the year following the offering and plaintiffs claimed that all of those price declines were recoverable as damages caused by the alleged misrepresentations.

Dr. Kleidon conducted an event study to determine whether any declines in the price of the ADS were attributable to the misrepresentations alleged by the plaintiffs. His analysis supported a finding of negative loss causation—that is, no correction of any of the alleged misrepresentations was associated with a stock price decline, and that all statistically significant stock price declines occurred on days when no corrective information was released. Professor Stulz examined the economics of preference shares and assessed aspects of Barclays' risk management policies and procedures. His analysis showed that these were consistent with industry standards and best practices. Ms. O'Malley evaluated alleged material misstatements and omissions in Barclays' financial statements regarding asset impairments and related losses. Her analysis demonstrated that Barclays' disclosures complied with relevant accounting standards and SEC regulations. Mr. Dolan concluded that Barclays' valuations of its credit market assets were reasonable based on what was known at the time they were conducted. Professor Lawrence examined issues related to due diligence and Professor Coates opined on SEC disclosure issues.

Alleged Misrepresentations in RMBS Offering Documents. In a case stemming from the housing and credit crises, the plaintiffs accused a major bank and other defendants of using misleading offering documents. The case was one of the earliest of the residential mortgage-backed securities (RMBS) matters and went through multiple phases: class certification, motion to dismiss, summary judgment, expert reports and depositions, and expert Daubert motions. Counsel for the bank retained Dr. Allan Kleidon, a senior vice president at Cornerstone Research, to opine on issues related to class certification, damages, and loss causation. Cornerstone Research also worked with Mr. Charles Grice of CRI Compliance on due diligence practices, and with Professor Arnold Barnett of the MIT Sloan School of Management on statistical sampling issues. The plaintiffs alleged that the offering documents related to the issuance of more than $1 billion of RMBS that the bank underwrote between 2006 and 2007 contained material misstatements and omitted material information concerning applicable home loan underwriting standards. The allegations included violations of Sections 11, 12, and 15 of the Securities Act.

Dr. Kleidon demonstrated that the overall performance of the loan pools in question was not statistically different from predictions, based on loans that were found to comply with underwriting guidelines by a third party during the original due diligence process. He also cited the poor overall market conditions during the relevant period and the consequent implications for the performance of the mortgages. Dr. Kleidon concluded that losses in the value of the underlying mortgage pools and subsequent certificate holder losses were not caused by the alleged misrepresentations and omissions. Mr. Grice analyzed the due diligence processes and determined that all relevant practices employed by the bank met or exceeded typical industry practice at the time, both in terms of the number of loans reviewed and the level of scrutiny applied in these reviews. Professor Barnett identified multiple methodological errors in the plaintiffs' sampling protocol and statistical conclusions. The case settled in 2016.

Market Efficiency Not Demonstrated.The plaintiff alleged that misrepresentations by the defendants inflated stock prices during the putative class period, and investors suffered losses when the truth purportedly was revealed and the stock price fell. The plaintiff's expert filed a report that claimed that the stock at issue traded in an efficient market based on the fact that the stock was listed on NASDAQ and on his analysis of the Cammer factors.

Dr. Kleidon noted that while certain market characteristics (such as trading on NASDAQ) might indicate conditions that could give rise to market efficiency, these characteristics alone are not sufficient to establish market efficiency. He also demonstrated that the analysis of the plaintiff's expert suffered from serious conceptual flaws and presumed market efficiency rather than testing for market efficiency. Dr. Kleidon also concluded that the plaintiff's own allegations that the stock price did not fully and rapidly respond to the information at issue were inconsistent with the concept of market efficiency. The court rejected the plaintiff's claim that a presumption of market efficiency can be based solely on trading on a particular market, including NASDAQ. The judge further concluded that the plaintiff did not meet its burden of showing that the market for the stock was efficient because, "Plaintiff has not demonstrated sufficient evidence of the fifth Cammer factor" [the cause-and-effect relationship between unexpected corporate events or financial releases and an immediate response in the stock price]. The court agreed that the analysis performed by the plaintiff's expert presumed market efficiency, and noted the failure of the plaintiff's expert to explain how the alleged delayed price reaction could be consistent with an efficient market. In addition, the court observed that defendants had no obligation to conduct their own event study, because it is the plaintiff's burden to establish market efficiency in order to invoke the fraud-on-the-market presumption. The court concluded that "Plaintiff has not met its burden to generate a presumption that the market...is efficient."

In re Optical Disk Drive Antitrust Litigation. The plaintiffs claimed that the defendants engaged in bid rigging of certain direct purchasers' prices of ODDs and that this alleged conduct was part of a larger industrywide conspiracy, causing prices for all direct purchasers to increase. Indirect purchaser plaintiffs claimed that the elevated ODD component costs were passed through to consumers in the form of higher prices for notebook and desktop computers, Xboxes, and external ODDs.

In the indirect purchaser action, Cornerstone Research was jointly retained by counsel for the defendants. Our expert submitted a report in support of the defendants' opposition to class certification. The analysis demonstrated that the claims made by the plaintiffs and the plaintiffs' economic expert were fundamentally flawed and that the plaintiffs' expert's proposed methodology could not show that all or nearly all proposed class members were impacted by the alleged conspiracy. Judge Seeborg agreed with the opinions expressed in our expert's report and found that the plaintiffs failed to present "a viable methodology for establishing classwide antitrust injury and damages." Central to this matter at the class certification phase was whether the plaintiffs would be able to establish, using common proof, that all putative class members were similarly damaged by the defendants' alleged anticompetitive behavior. For indirect purchaser plaintiffs, this required establishing that any damages to direct purchaser plaintiffs were passed through distribution chains to indirect purchaser plaintiffs. Our expert based her opinions on a thorough analysis of market facts, including data produced by third parties in distribution chains between the defendants and indirect purchasers. She concluded that the plaintiffs' expert failed to offer a methodology that could establish that an overcharge on an ODD would be passed through to indirect purchasers using common evidence. In her report, our expert cited the various types, prices, pricing strategies, and costs of devices that contain ODDs, as well as the fact that an overcharge on an ODD would represent a small portion of the costs of the products purchased by indirect purchasers. She found that the indirect purchaser plaintiffs could not provide common evidence that the alleged overcharges on ODDs were passed from direct purchasers to the proposed indirect purchasers. On October 3, 2014, Judge Seeborg denied class certification for both groups of plaintiffs, stating that the plaintiffs' experts failed to pass the court's "rigorous analysis" test now required under the evolving class certification standard. With respect to the proposed class of indirect purchasers and the issue of pass-through, Judge Seeborg cited evidence that ODDs account for a relatively small portion of the costs of the products into which they are incorporated. He also pointed to evidence regarding certain sellers' pricing strategies in his conclusion that plaintiffs had not presented a persuasive explanation for their claims. He stated: As in GPU, it would appear "that the only way to fully assess pass-through in this action would be to conduct a wholesaler-by-wholesaler and reseller-by-reseller investigation, which would essentially result in 'thousands of mini-trials, rendering this case unmanageable and unsuitable for class action treatment.'" The law firms for the defense were O'Melveny & Myers; Eimer Stahl; Latham & Watkins; Boies, Schiller & Flexner; DLA Piper; Winston & Strawn; Ropes & Gray; Dickstein Shapiro; Vinson & Elkins; and Baker Botts.

Certain Passenger Vehicle Tires and Lights Truck Tires from China. Cornerstone Research was retained by counsel of a major importer in connection with the U.S. International Trade Commission's (ITC's) investigation of certain passenger vehicle tires and light truck tires from China. Dr. Kivanç Kirgiz, vice president, and Dr. Emre Uyar, principal, of Cornerstone Research analyzed the competition between domestically produced tires and those imported from China. The experts addressed whether antidumping and countervailing duties on subject imports are likely to lead to an increase in domestic production.

Drs. Kirgiz and Uyar found that there was a high degree of product differentiation. They concluded that a reduction in imports of tires from China would be unlikely to lead to an increase in the volume of domestically produced tires. Instead, imports from other countries, which are closer substitutes for Chinese tires, would increase to fill the gap. Drs. Kirgiz and Uyar showed that imposing duties did not result in a statistically significant increase in U.S. domestic tire production. Drs. Kirgiz and Uyar provided empirical evidence using the "natural experiment" of safeguard duties placed on tires imported from China in 2009 under Section 421 of the Trade Act of 1974. Their regression analysis showed that Section 421 duties resulted in a statistically significant decline in imports from China and a statistically significant increase in tire imports from other countries. At the same time, there was no statistically significant increase in domestic production.

In re BP p.l.c. Securities Litigation - June 2016 Ruling. The case arose from plaintiffs' allegations that BP misled investors about its safety procedures and ability to respond to and contain an oil spill following the Deepwater Horizon explosion in April 2010. This allegedly resulted in declines of BP's ADS price corresponding to a $91 billion market capitalization loss (associated with share price declines of approximately $26 on corrective event days). The plaintiffs also alleged that BP and its executives misled investors about the amount of oil flowing from the well after the explosion.

Following merits discovery, Judge Ellison analyzed issues related to the economic evidence required to establish loss causation and the appropriate calculation of damages, including under a materialization-of-the-risk theory. Granting numerous elements of the defendants' motion for summary judgment, the judge excluded the majority of alleged corrective event days based on the plaintiffs' failure to provide evidence of loss causation; he also found that plaintiffs failed to present a satisfactory calculation of damages for those days. On a number of these findings, the judge's reasoning followed the expert analysis of Professor Christopher James of the University of Florida, whose work Cornerstone Research supported in this matter. On a number of his findings, the judge's reasoning followed the expert analysis of Professor Christopher James. The cumulative price decline on the remaining corrective event days totaled approximately $7 of the $22 of declines originally alleged by the plaintiffs for the sub-class remaining in the case after class certification. In addition, BP's former CEO was granted summary judgment for the entire claim against him. Judge Ellison denied the plaintiffs' motion for summary judgment in its entirety. Applying Comcast in a Securities Matter Inquiry on the merits of this case proceeded in the wake of two previous rulings on class certification. In the first ruling, Judge Ellison declined to certify the class, citing the U.S. Supreme Court decision in Comcast v. Behrend. After giving plaintiffs a "second bite at the apple," the judge ruled again on class certification, declining to certify the much larger of the two proposed sub-classes and expressing concern whether the findings and methodologies of the plaintiffs' experts would be sufficient at the merits phase of the case. In both of these rulings, the judge cited the expert findings of Professor René Stulz of the Ohio State University, whose work we supported in this matter. Both sides appealed the second ruling. The Fifth Circuit Court of Appeals strongly affirmed Judge Ellison's class certification ruling, agreeing that a Comcast inquiry into damages is appropriate at the class certification stage in securities litigation. Settlement Shortly after the summary judgment ruling became public, the parties announced a tentative settlement of all claims in this matter.

Valuation of Municipal Bonds. For an internal investigation on behalf of a large mutual fund complex, Cornerstone Research assessed the fund management company's historical fair-value pricing of illiquid municipal bonds. Based on our analysis of bond characteristics and contemporaneous market data, the fund management company recalculated the fair value of the bonds.

Following this revaluation, Cornerstone Research recalculated the net asset values of several mutual funds over a multiyear period. We then determined how these adjustments affected the value of the shares owned by mutual fund investors. Cornerstone Research's report formed the basis for restitutionary payments to shareholders.

Alleged Exclusionary Contracting for Outpatient Services. Counsel for an outpatient surgery center retained Cornerstone Research and Professor Emeritus Richard Arnould to assess whether exclusivity agreements between a hospital system and health plans restrained competition and raised prices. rofessor Emeritus Richard Arnould of the University of Illinois at Urbana-Champaign examined the relevant geographic markets for inpatient and outpatient services to assess whether the hospital system restrained competition and foreclosed a substantial share of the market.

He reviewed price data for similar services paid by the same plans in other regions. He also estimated the rates that the stand-alone surgical center would likely have negotiated with the plans at issue and found them to be lower than the rates charged by the defendant hospital system. He concluded that the hospital system was able to foreclose a substantial share of the market for outpatient surgical services. Finally, Professor Arnould estimated the damages that the surgical center incurred due to reduced patient referrals, given its out-of-network status.

Beverage Product Advertising. Counsel for a large consumer packaged goods manufacturer, retained Cornerstone Research and two marketing professors in a false advertising matter involving dairy products. The plaintiff filed a motion for a preliminary injunction to block another manufacturer's advertising that compared their two competing products.

In support of the motion, Professor Dominique Hanssens of the University of California, Los Angeles, prepared a declaration that documented the advertising's potentially large negative impact. Professor Ronald Wilcox of the University of Virginia conducted two consumer surveys demonstrating that the advertising created the perception that the plaintiff's product was unsafe, and had a negative impact on consumer purchase intent. The court granted our client's motion for a preliminary injunction.

Petro-Diamond Inc. v. Verdeo Inc. et al. Counsel for Petro-Diamond retained Carlyn Irwin, a principal of Cornerstone Research, in a case involving allegations of fraudulent transfer and alter ego. Ms. Irwin provided testimony on the issues of fraud, and on forensic accounting.

In support of the theory of fraud, her analysis showed that the defendants used two materially different sets of books for no discernible legitimate purpose. In addition, Ms. Irwin's testimony demonstrated that the defendants' transfers of assets were undocumented and that they received no reasonably equivalent value in return. She also established that the defendants' purported loan with an overseas corporation was not authenticated. In finding decisively for our clients, the judge cited Ms. Irwin's testimony: "Principal testimony in support of these [the plaintiff's] theories came from Carlyn Irwin, an experienced forensic accountant....Irwin's analysis was sensible and believable."

Move Inc. et al. v. Zillow Inc. et al. Cornerstone Research worked with an M&A transactions expert and a survey expert in a case that involved alleged misappropriation of trade secrets and counterclaims of defamation.Move claimed that Zillow acquired competitor Trulia based on confidential information that Trulia and Move were engaged in merger discussions. Move alleged that one of its executives—closely involved in the Trulia-Move discussions—transitioned to Zillow, bringing confidential information and trade secrets regarding the proposed merger. Shortly thereafter, Zillow decided preemptively to acquire Trulia.

In the trade secrets portion of the case, Cornerstone Research worked with Jonathan F. Foster, managing director of a private equity investing and management services firm, who served as an expert on M&A transactions. Mr. Foster and Cornerstone Research staff assessed Zillow's stated rationale for acquiring Trulia. By analyzing the three players' market shares, financial performance, and valuations, among other factors, Mr. Foster demonstrated that the Zillow-Trulia deal and the price Zillow paid for Trulia were atypical from an M&A perspective. He concluded that Zillow's acquisition of Trulia was consistent with evidence of acting on inside information. Amid the trade secrets litigation, a former Zillow vice president sent Move's counsel an anonymous letter detailing a variety of allegations about Zillow's employees and business practices. When the letter became public, Zillow filed defamation counterclaims against Move. In order to assess the effect of the letter on Zillow's reputation among consumers and real estate professionals, Zillow's expert conducted an online survey. Cornerstone Research worked with Professor David W. Stewart of Loyola Marymount University to critique the survey, pointing out basic design failures and numerous implementation inconsistencies. When Zillow's expert conducted two additional surveys in response to these findings, Professor Stewart identified numerous critical weaknesses in both new surveys. The case settled on the day that trial was scheduled to begin, with Zillow agreeing to pay $130 million.

SEC Allegations of Insider Trading. Retained by Scheper Kim & Harris Defense counsel retained Professor Emeritus William Beaver of Stanford University and Cornerstone Research on behalf of a former CEO of a publicly traded water treatment company. After a company announcement that it would restate its financial results for the previous two years, the SEC filed a lawsuit alleging that the former CEO had taken part in an accounting fraud scheme to artificially inflate the share price, while at the same time engaging in insider trading.

Notably, this was one of the first cases in which a judge accepted the use of two specific accounting models, including the "BBHL" model (named after Professor Beaver and his coauthors, Mary Barth, John Hand, and Wayne Landsman). Using this model, Professor Beaver assessed the portion of the CEO's company stock sales to determine what the defendant's profits would have been if the company had revealed its financial condition initially, without any restatement. Professor Beaver also based his analysis on "earnings response models. In a complete victory for our client, the judge ruled in his favor on all counts.

Breach of Contract for a Branded Drug.An investment firm that owned the intellectual property rights to a branded drug brought suit against its partner, a pharmaceutical company. The investor plaintiff alleged that the defendant failed to uphold its obligations to manufacture and promote the drug. The plaintiff claimed that the defendant's failure led to supply interruptions and periods where the drug was not promoted to physicians, which irreversibly damaged the drug's long-term value.

Plaintiff counsel retained Cornerstone Research and an affilliated expert to assess the role that consistent supply and promotion play in generating drug sales and to estimate damages by valuing the drug before and after the alleged breach of contract. Cornerstone Research and the expert analyzed the health economics literature and data on promotion and sales for drugs in the relevant therapeutic category. The expert concluded that the cessation of promotional activities and the temporary interruption in supply substantially impacted the drug's contemporaneous and future sales. Working with Cornerstone Research, the expert also calculated the economic impact of the defendant's alleged misconduct, building a discounted cash flow model to estimate what the drug's value would have been with consistent supply and promotion. He then compared this amount to the value the plaintiff actually received to arrive at an estimate of damages.

Class Certification Opposed on Behalf of Healthcare Provider. A large provider of healthcare services retained Professor Laurence Baker of Stanford University and Cornerstone Research to respond to a motion to certify a class of patients. The plaintiffs alleged that a large healthcare provider reordered physician diagnosis codes when submitting claims for insurance payment, resulting in patient cost sharing for services that should have been provided at no cost to patients.

Professor Baker submitted a declaration for the defendant, showing that it was not possible to ascertain which patients were in the proposed class based on the definitions provided by the plaintiffs. He also demonstrated that, given the heterogeneity in insurers, plans, and the circumstances of putative class members, one could not determine using a common method whether a given class member was affected at all by the challenged conduct, let alone suffered damages. Professor Baker demonstrated that many putative class members would not have been harmed by the challenged conduct. Professor Baker showed that any determination of impact or damages would require an individualized analysis, patient by patient and service by service, of what the patient's responsibility would have been under an alternative ordering of codes. Such an analysis could only be done by each specific insurer, since only that insurer would know whether the order of codes may have mattered for a particular patient, and what the impact of an alternative ordering would have been, if any. Finally, Professor Baker showed that many putative class members would not have been harmed by the challenged conduct.

Anderson News LLC et al. v. American Media Inc. et al. For this antitrust case related to magazine distribution, counsel for a publisher defendant, Time Inc. and its subsidiary, retained Cornerstone Research and Kenneth Elzinga, professor at the University of Virginia and Cornerstone Research senior advisor. The primary plaintiff was a major U.S. magazine wholesaler, Anderson News LLC. In 2009, Anderson News announced to magazine publishers that it was adding a surcharge per copy it distributed, and would also require the publishers to bear Anderson News's cost of carrying inventory. When magazine publishers switched to wholesalers who were not charging those fees and had lower prices, Anderson News claimed that collusion among publishers and their national distributors forced it to exit the market.

Professor Elzinga provided an expert report and deposition testimony showing that it was in the unilateral self-interest of Time to switch wholesalers in the face of the price increase by Anderson News. He also demonstrated that the company went out of business because it charged above-market prices, and that consumers did not suffer anticompetitive harm from its exit. In support of this testimony, Cornerstone Research and Professor Elzinga analyzed terabytes of delivery and sales data for more than 120,000 individual retail outlets and thousands of magazine titles. The court granted the defendants' motion for summary judgment. Echoing Professor Elzinga's findings, the court concluded, "It is clear [Anderson News's] own ill-conceived and badly executed plan led to its downfall. The antitrust laws do not compel any entity to accept a price increase, or assume the burden of a significant cost. This is especially so where there were other wholesalers available who offered lower prices and less expensive terms for handling inventory."

Dragon hired Goldman Sachs to serve as financial advisor in connection with the potential sale to L&H. Dragon subsequently agreed to be acquired for L&H stock then worth $580 million. Within a few months of the acquisition, L&H declared bankruptcy amid an accounting fraud scandal. The plaintiffs accused Goldman Sachs of negligence for failing to conduct sufficient due diligence that would have uncovered the fraud and stopped the acquisition. The Bakers claimed that Goldman's actions effectively prevented Dragon from retaining control of the company and its allegedly valuable research and development pipeline known as the "golden eggs."

Professor Gompers opined that at the time the acquisition closed, Dragon was a troubled company that was losing money and had regularly missed its own financial projections. It was highly uncertain whether Dragon could survive as a stand-alone entity. Professor Gompers also showed that technology stocks were on a downward trend, and L&H was the only buyer willing to pay the steep price Dragon demanded. Thus, he concluded that if the company had not accepted the L&H deal, Dragon likely would have declared bankruptcy. The jury found in favor of the defendants and awarded no damages to the plaintiffs.

Novack v. GSI Commerce Inc. et al. GSI Commerce Inc. acquired flash sales retailer Rue La La in 2009 for a combination of an upfront payment and an earnout. This case stemmed from a subsequent 2011 transaction in which eBay Inc. acquired GSI. Certain GSI subsidiaries, including Rue La La, were simultaneously sold to GSI's founder and CEO Michael Rubin. The plaintiff, representing the former shareholders of Rue La La, alleged that GSI, Mr. Rubin, and eBay intentionally undervalued Rue La La to avoid paying a portion of the earnout that the former shareholders could be due under a change-in-control provision. The plaintiff's expert filed a report suggesting that the value of Rue La La as of the date of the 2011 transaction was substantially higher than what Mr. Rubin paid.

Professor Gompers submitted a valuation of the company showing that the purchase price was reasonable. He also testified on the flaws and weaknesses of the plaintiff's expert's valuation methodology.

Class Action Involving Food Product Labeling. A food manufacturer retained Cornerstone Research and Professor Dominique Hanssens of the University of California, Los Angeles, to address class certification issues related to consumer behavior. The plaintiffs alleged that the manufacturer mislabeled the amount of food in the packaging.

Professor Hanssens designed and implemented a nationwide online survey to assess the behavior, recollection, and satisfaction of the manufacturer's customers. His analysis of the survey results showed that a variety of factors influenced purchases, many customers could not recall their purchases, and the majority of customers were satisfied with their purchases. Professor Hanssens submitted an expert report and testified in deposition. He opined that the wide variety of factors influencing consumer purchases of the product undermined the plaintiffs' assumption that the alleged mislabeling was relevant to all or many putative class members. Furthermore, since many survey respondents could not recall their purchases, Professor Hanssens questioned whether these customers could reliably identify themselves as proposed class members eligible for damages. Finally, he challenged the plaintiffs' theory that consumers were harmed by the alleged mislabeling by citing consumers' high product satisfaction.

Allegations of excessive mutual funds fees. The trial in the U.S. District Court for the District of New Jersey focused on the plaintiffs' claim that AXA Equitable violated the Investment Company Act of 1940 by charging investors excessive fees for investment advisory and administrative services, and then delegated those same services to sub-advisors and sub-administrators.

Professor James testified on economies of scale, comparative fees, and investment manager risk. The judge quoted Professor James extensively in his opinion, concluding that "the Court finds James' testimony to be credible.... [T]he Court gives more weight to James than to [the plaintiffs' expert]." Regarding Professor Holder's testimony on financial, managerial, and cost accounting, the judge stated, "Holder was also a reliable and credible witness. After presenting his findings on the eight indicator factors for gross revenue reporting, Holder persuasively argued that sub-advisory and sub-administrative fees should be categorized as expenses rather than reductions in revenue." Similarly, the judge praised Professor Wermers's testimony on mutual fund performance and investment management services: "The Court finds that Wermers provided thorough descriptions of the individual funds....Wermers also pointed out flaws in the testimony provided by Plaintiffs' expert.... Thanks to Wermers, the Court found that [the plaintiffs' expert's] findings suffered from incorrect dates, untimely benchmarks, and calculation errors." The judge ruled that the trustees had not breached their fiduciary duties and that the plaintiffs had not incurred damages.

Securities class action regarding mutual fund performance. Defense counsel for a major nationwide broker dealer retained Cornerstone Research and Professor Christopher M. James of the University of Florida to analyze factors that led to the decline in late 2007 and early 2008 of the net asset value (NAV) of a proprietary ultrashort bond mutual fund. Shareholders of the fund filed a securities class action under Sections 11 and 12 of the Securities Act of 1933, alleging that the defendants falsely portrayed the fund as a conservative investment with minimal risks. Among other allegations, shareholders claimed that the fund invested more than 25 percent of its assets in non-agency mortgage-backed securities (MBS), allegedly exceeding a policy limit on the concentration of assets in any one industry. The plaintiffs claimed that this overconcentration led to the NAV decline when credit and liquidity risks materialized during the financial crisis.

Professor James worked with Cornerstone Research and submitted multiple reports, in which he analyzed the daily composition and performance of individual assets in the fund's portfolio. To determine the effect of the alleged overconcentration on NAV, Professor James also constructed a hypothetical portfolio that kept investments in non-agency MBS within the 25 percent limit by reweighing the components of the actual portfolio. Professor James found that the hypothetical portfolio NAV tracked the actual NAV very closely, showing that the alleged overconcentration in non-agency MBS did not cause the fund's NAV decline. The case settled shortly before trial.

False Claims Act Suit Involving Title IV Program The plaintiffs argued that the defendants knowingly made false claims and statements in order to obtain Title IV program eligibility. In particular, the plaintiffs alleged that the defendants violated Title IV's ban on incentive compensation, and solely based recruiters' salaries on the number of students they enrolled. The plaintiffs sought to recover treble damages based on billions of dollars of federal funds obtained by the defendants.

Professor Lazear used the defendants' diverse data systems and records to construct a complex database of personnel, compensation, and student enrollment information. To assess the validity of the plaintiffs' claims, Professor Lazear performed descriptive, statistical, and regression analyses. His findings demonstrated that the number of student enrollments was not the only factor determining recruiter compensation. Based on this analysis, Professor Lazear filed a declaration in support of summary judgment. Cornerstone Research also supported defense counsel during settlement negotiations by analyzing the defendant's potential exposure and assessing possible damages and settlement scenarios. The case settled.

U.S.A. - Canada Softwood Lumber Dispute. Cornerstone Research was retained in the fourth round of the Canada-U.S. softwood lumber dispute. Cornerstone Research worked with Professor Edward Leamer of the University of California, Los Angeles, to address the economic consequences of Canadian log export restrictions.

Professor Leamer submitted analyses before the International Trade Administration, the U.S. Department of Commerce, and the U.S. International Trade Commission on behalf of the respondents. He analyzed whether log export restrictions have a "direct and discernible effect" and benefit softwood lumber producers. Professor Leamer addressed general equilibrium effects, cross-country trade patterns, and log price differences. He found that in the long run there was no price impact of export restrictions and their elimination would have no effect.

In re Polyurethane foam antitrust litigation. Purchasers of flexible polyurethane foam alleged a long-running price-fixing conspiracy centering on sales in the United States. Barnes & Thornburg, representing one of the defendants, retained Cornerstone Research and Professor Howard Marvel, professor emeritus at The Ohio State University, as the liability and damages expert.

Professor Marvel reviewed the economic expert reports filed by the direct, indirect, and opt-out plaintiffs. He demonstrated that the models presented by the plaintiffs' experts were flawed and produced results that did not make sense from an economic standpoint. In addition, Professor Marvel analyzed the defendant company's capacity expansion, transaction data, cost and price relationships, and price increase announcements. He found that the company significantly expanded its capacity and competed vigorously by undercutting the prices offered by its rivals. His analysis showed that the company's price increase announcements and price increases closely followed the increases in its costs. Professor Marvel concluded that the company's actions were inconsistent with its alleged participation in a price-fixing conspiracy and could only be interpreted as those of an aggressive competitor taking independent actions to seize market share from its rivals. The direct, indirect, and opt-out plaintiffs settled their cases.

Proposed Merger of Aetna and Humana Enjoined.

Professor Nevo analyzed the likely effects of the proposed merger on competition involving Medicare Advantage plans and plans sold on the Affordable Care Act exchanges. He testified in the plaintiffs' case in chief and as a rebuttal witness. The court's opinion relied on Professor Nevo's testimony in multiple areas. Relevant Market. "Professor Nevo has performed a battery of tests that all point to the same conclusion: the sale of individual Medicare Advantage plans satisfies the hypothetical monopolist test and thus is a relevant product market. That result generally holds up whether Nevo uses a critical loss analysis or a merger simulation, and whether he uses his own estimates, [the defendants' expert's], or those from the academic literature." Competitive Effects. "Nevo's (largely uncontroverted) analysis suggests that there is substantial competition between Aetna and Humana. Given Nevo's analysis, it is not surprising to find significant evidence of head-to-head competition between Aetna and Humana throughout the country." Entry: Not Likely. "Hence, based on the expert analysis that the Court finds persuasive [Nevo's analysis]....entry is not likely enough to allay these concerns." Not Timely. "The Court finds Nevo's critique of [the defendants' expert's] model for equilibrium and timely entry to be persuasive." Not Sufficient. "[Nevo's] analysis is persuasive, and alone is enough to conclude that entry is not likely to be sufficient." Ms. Hammer, a CPA, evaluated whether the defendants' efficiency claims were verifiable and merger-specific, among other areas. The court found that Ms. Hammer raised valid issues regarding "several categories of claimed efficiencies" as well as "the companies' analyses...that serve to further undermine the reliability of the efficiency claims." "Hammer supported her analysis [of the defendants' efficiency claims relating to drug rebates] with a series of illustrative examples that, in the Court's view, raise real concerns about the reliability of the companies' pharmacy rebate maximization efficiencies." "On balance, the Court is unpersuaded that the efficiencies generated by the merger will be sufficient to mitigate the transaction's anticompetitive effects for consumers in the challenged markets."

Joint Development Marketing Dispute. In a dispute between two pharmaceutical companies that had jointly developed a drug, Cornerstone Research worked with an expert who assessed the business incentives of the company responsible for marketing the drug. This company was alleged to have developed an inappropriate marketing plan because it had other drugs in the therapeutic space that could potentially lose sales to the new drug

With Cornerstone Research's assistance, the expert established that the company had no inherent conflict in promoting the jointly developed drug. The expert also reviewed the marketing plan and concluded it was consistent with approaches found to be effective by academic researchers. An arbitration panel ruled that the company did not face any conflict and the marketing plan was consistent with the company's obligations under the development agreement.

Section 337 Unfair Import Investigation of Medical Devices. Retained by Sullivan & Cromwell Defense counsel for the makers of a set of medical devices retained Cornerstone Research and Professor Sean Nicholson of Cornell University in a Section 337 unfair import investigation before the U.S. International Trade Commission (ITC). The medical devices at issue were hemostatic agents that allegedly infringed certain patents held by a competing U.S. manufacturer.

Professor Nicholson evaluated the impact on the public interest if the ITC blocked the defendants' products from the U.S. market. He determined that the plaintiff and defendants were, for all practical purposes, the only two competitors in the relevant product market so that an exclusion order would substantially increase the plaintiff's market power. The defendants' product family in this case was not a new entrant but had been on the market for almost a decade and had obtained a substantial market share. Professor Nicholson showed that an exclusion of the products would impose substantial switching costs on medical practitioners and hospitals, and would negatively impact public health and welfare. Professor Nicholson also analyzed capacity data and projections to determine whether the plaintiff would be able to meet the increased demand that would result from an exclusion order. He found that the plaintiff's internal projections did not establish that it could meet the full market demand and that any shortfall would have a further negative impact on public health and welfare. Finally, Professor Nicholson reviewed the analyses of two of the plaintiff's experts on issues of commercial success and on the appropriate size of the bond to be posted for the duration of the Presidential review period. The case settled after trial.

Beef Products, Inc. et al. v. American Broadcasting Companies, Inc. et al. BPI alleged that ABC News engaged in a disinformation campaign and made numerous false statements about BPI and LFTB during its news broadcasts and in published reports. In the wake of the ABC broadcasts, the firm's sales of LFTB dropped dramatically. BPI was forced to close three of its four manufacturing plants and laid off about 700 workers.

Professor Ran Kivetz of Columbia University Business School showed that the ABC coverage of LFTB was extensive and negative. He conducted four surveys to study consumers' perceptions in response to the ABC broadcasts. These consumer surveys showed that the ABC broadcasts communicated that LFTB was not beef, not nutritious, not safe, and that BPI had improperly obtained approval for the product. Professor Kim Neuendorf of Cleveland State University showed that ABC's coverage was unprecedented, both relative to other news coverage of LFTB and to ABC's own coverage of other food-related events. She also performed an attribution analysis of tweets about "pink slime," demonstrating that ABC News was the main driver of the social media conversation on that topic. Professor Daniel Sumner of the University of California, Davis, an agricultural economist, projected but-for shipments and prices absent the ABC coverage. Using an event study approach, he developed a regression model that controlled for various factors that could affect LFTB demand and supply, including other media on the topic of "pink slime."

GE-Alstom Merger. Counsel for GE retained Cornerstone Research and Professor Anil Shivdasani of the University of North Carolina to analyze antitrust issues raised by the European Commission (EC) in its investigation of the GE-Alstom merger. The Commission approved the transaction on September 8, 2015, pending GE's sale of part of Alstom's heavy-duty gas turbine business.

Professor Shivdasani presented his results in front of a panel of EC antitrust authorities. In April 2014, GE made an offer to acquire Alstom's thermal power, renewable energy, and grid business sectors for $13.5 billion enterprise value. The EC was concerned about the merger's effect on competition in the market for heavy-duty gas turbines, and it carried out a wide-ranging antitrust investigation of this market. Professor Shivdasani conducted a financial analysis of Alstom's business model, and the relevance of that model to Alstom's competitiveness. Working with Cornerstone Research, Professor Shivdasani presented his results in front of a panel of EC antitrust authorities in July 2015. The EC announced on September 8, 2015 that the proposed transaction could go forward provided that GE sold some of Alstom's assets related to heavy-duty gas turbines to the Italian company Ansaldo.

City of Pontiac Policemen's and Firemen's Retirement System et al. v. UBS AG et al. Defense counsel retained Cornerstone Research in a putative class action in which the plaintiffs alleged that Swiss-based bank UBS was liable to shareholders for credit-crisis-related losses. The issues included whether investors could bring claims for shares purchased on a foreign exchange, if those shares were dually listed on a domestic exchange, or if the purchase followed a "buy order" placed in the United States.

The U.S. Court of Appeals for the Second Circuit held that Morrison precludes claims arising out of purchases of foreign-issued securities on a foreign exchange, even if the securities are cross-listed on a domestic U.S. exchange. The three-judge panel sided clearly with the defendants, stating in the matter of the domestic investor: "The fact that a U.S. entity places a buy order in the United States for the purchase of foreign securities on a foreign exchange is insufficient to incur irrevocable liability." The Second Circuit also rejected allegations that UBS's general statements about its asset concentrations and risk diversification, its mark-to-market valuation of mortgage-related assets, or its reputation could be construed as material information, or be the basis for "reckless conduct." The court opined, "To be 'material'...the alleged misstatement must be sufficiently specific for an investor to reasonably rely on that statement as a guarantee of some concrete fact or outcome." In addition, the judges refused to accept the plaintiffs' argument that UBS should have recognized the vulnerability and anticipated write-downs of its mortgage-related assets. Cornerstone Research supported an expert in analyzing the trading activity in UBS shares, with findings regarding the activity of foreign investors and on non-U.S. exchanges. In its decision, the Second Circuit affirmed the ruling of the Southern District of New York on all counts.

In re Whirlpool Corp. Front-Loading Washer Products Liability Litigation. The plaintiffs' allegations that some front-loading washers manufactured by Whirlpool Corporation from 2001 to 2009 suffered from a design defect.

The court certified the class for liability despite the fact that less than 5 percent of buyers reported the alleged mold-related problems at issue. Because the court did not certify the class for damages, the case was nominally about damages for two named plaintiffs. However, the plaintiffs' experts asserted in their reports and at trial that each member of the purchaser class was entitled to damages arising from price elevation or reduced willingness to pay because Whirlpool had allegedly failed to disclose the mold-related user instructions to buyers at the point of sale. Professor Bresnahan testified at trial and in two depositions, and submitted two expert reports. He opined that the plaintiffs' theory of damages had no link to the alleged washer design defect (indeed, the plaintiffs claimed all buyers were entitled to damages regardless of whether the alleged defect ever manifested itself), that the plaintiffs' nondisclosure claims were demonstrably false, and that real-world evidence contradicted the plaintiffs' survey-based conclusion as to consumers' reduced willingness to pay. The case was closely watched due to its potential influence on the framework for class certification following Wal-Mart Stores Inc. v. Dukes and Comcast Corp. v. Behrend. The Whirlpool case went to trial after the U.S. Supreme Court vacated the circuit court's class certification opinion in light of Comcast, only to have the circuit court reinstate its earlier ruling on remand. A jury in the U.S. District Court for the Northern District of Ohio found Whirlpool not liable both for the alleged defect in design and for purportedly breaching its implied warranty.

Securities class action involving corporate bond event studies.Counsel representing former executives of a publicly traded company retained Cornerstone Research and Professor René Stulz of the Ohio State University to analyze loss causation and damages in a Section 10(b) securities class action. The case posed unique challenges because the class included purchasers of eight corporate bonds that traded infrequently during the class period, in addition to purchasers of company stock. The plaintiffs alleged that the prices of the eight bonds were artificially inflated by misrepresentations related to the company's forward guidance, violations of generally accepted accounting principles (GAAP) in financial statements, and misrepresentations related to the adequacy of the company's internal controls.

The plaintiffs' expert proposed a bond event study to estimate the unexplained portion of bond price declines on the alleged corrective disclosure days, which the expert used to calculate bond price inflation. The expert based the study on matrix prices—proprietary model prices estimated by a data service—to compute daily bond returns, even though many of the bonds at issue did not trade around the alleged corrective disclosure days. Professor Stulz performed an alternative event study using actual transaction prices, and followed an established methodology for analyzing bond returns in the context of infrequent trading. Among other findings, he opined that the plaintiffs' expert mistakenly concluded that all eight bonds had statistically significant price movements on the alleged corrective disclosure days. In fact, when the analysis was done using transaction prices, few of the bonds had statistically significant price movements around those days. The case settled just prior to the filing of motions for summary judgment.

Securities and Exchange Commission v. BankAtlantic Bancorp Inc. The SEC alleged that, in 2007, the defendants misled investors about the risks associated with a portion of the bank's land loan portfolio by not disclosing information about their internal watch list and ratings downgrades.

To assess the SEC's allegations, Professor James reviewed comparable financial institutions' loan disclosures. Professor James's analysis demonstrated that disclosures of internal watch lists and ratings downgrades were not customary for the banking industry. Professor James also opined on the sudden and unexpected crisis in the credit market that erupted in August 2007 and negatively affected real-estate markets. He noted that due to the timing of this crisis, in the first and second quarters of 2007, BankAtlantic could have neither foreseen nor disclosed the loan losses that manifested in the third quarter of that year.

"All Natural" Product Labeling Class Action. A packaged foods company retained Cornerstone Research and Professor Dominique Hanssens of the University of California, Los Angeles, in a product labeling class action. The case centered on whether the "100% Natural" label on one of the company's products impacted consumers' purchasing behavior or understanding of the label's association with genetically modified organisms (GMOs).

To assess these questions, Professor Hanssens conducted an online consumer survey using test and control groups. Both groups were shown images of the product and were asked how likely they were to purchase it and what factors influenced their decision. All references to "100% Natural" were removed from the control group's images. The survey results showed no significant differences between the two groups, demonstrating the label had no discernable impact on stated purchase intent. Instead, consumers cited purchase factors such as brand, taste, and quality, with very few mentions of the "100% Natural" label. Professor Hanssens also surveyed consumers' understanding of the association between the "100% Natural" label and the presence of GMOs in the product. There were no significant differences between the two groups, indicating that the label was not a direct cause of such an association. In addition, few respondents thought "100% Natural" meant the product was free of GMOs.

Sampling In FCA Litigation Clients draw on Cornerstone Research's statistical expertise to evaluate sampling analyses performed by opposing parties to prove liability and damages in False Claims Act litigation.

We have worked on a variety of matters, including those involving allegations of off-label marketing and physician kickbacks.

Healthcare Merger Expertise. What does this mean?

When healthcare organizations merge, complicated issues arise among patients, providers, and insurers. Such mergers involve complex empirical analyses to assess competitive effects, including questions related to bargaining, quality of care, risk-sharing, and efficiencies.