Why Experts Should Participate in the Discovery Process

Too often, experts are brought into commercial litigation late in the game — typically after settlement negotiations have failed or just before the case goes to trial. They’re asked to perform a valuation or calculate damages with documents obtained during the discovery phase, but this approach — where the attorneys collect the “facts” and the expert analyzes them — can miss valuable opportunities to strengthen the case.

Limited Data

Outside a litigation context, valuation professionals don’t normally value businesses using only financial statements and management forecasts. They ask for additional information and conduct site visits and management interviews. These procedures help the expert gain a deeper understanding of the business, its management, its industry, its strengths and weaknesses, and the risks that may affect its future performance.

Likewise, in litigation, experts can assist attorneys in crafting deposition questions, interrogatories, and other discovery requests designed to dig beneath the financial statements. An expert’s early, in-depth involvement can help provide insight into how the company achieved its historical results and what’s expected to drive future performance.

Whether valuing an asset or calculating damages — or rebutting an opponent’s valuation or damages calculation — a financial expert’s analysis is essentially forward-looking. By participating in the discovery process, the expert can gather information and answer questions that support (or challenge) existing assumptions, generate new assumptions and lead to new avenues of discovery.

How Early Involvement can Help

To illustrate this point: Suppose you represent the defendant in a trademark infringement case. The plaintiff seeks to recover damages based on the defendant’s profits from the infringing product rather than by establishing and recovering its own lost profits.

In this type of case, the plaintiff normally has the burden of proving the defendant’s revenues from the infringing product. Then it’s up to the defendant to show the extent to which its revenues are attributable to factors other than the infringement.

A valuation expert can help develop a discovery strategy designed to obtain information about the plaintiff’s capabilities in producing and selling the infringed product. This information can be used to show that the defendant possesses distinct advantages over the plaintiff, such as superior manufacturing capabilities, a more extensive distribution network, and a larger sales force and advertising budget. These advantages are independent from the infringement and would allow the defendant to generate greater revenues than the plaintiff.

A Winning Strategy

Experts who are involved early in the litigation process can help shape the discovery process. This approach helps elicit information that reinforces their opinions and lends credibility to their testimony.