Attorneys often collect case facts during the discovery phase of litigation, then hire financial experts after settlement negotiations have been unsuccessful or just before cases go to trial. This approach can backfire if experts don’t have all the data needed to form a reliable opinion or they’re rushed to “crunch the numbers” before they testify.
Outside a litigation context, valuation professionals don’t normally value businesses using only financial statements and management forecasts. Instead, they ask for additional information and conduct site visits and management interviews as needed. These procedures help an expert gain a deep understanding of business operations, including the industry, the subject company’s strengths and weaknesses, and risks that may affect future performance.
However, in a litigation context, an expert’s access to data may be limited when valuing a business or calculating economic damages — or rebutting the opposing expert’s opinion. By participating in discovery, experts can gather information to answer questions that support (or challenge) existing assumptions, generate new assumptions, and lead to new avenues of discovery.
Likewise, in litigation, experts can assist attorneys in crafting deposition questions, interrogatories and other discovery requests designed to dig beneath 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.
Suppose the plaintiff in a patent infringement case 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 revenue from the infringing product. Then it would be up to the defendant to show the extent to which its revenue is attributable to factors other than the infringement.
A financial expert can help the defendant’s attorney develop a discovery strategy designed to obtain information about the plaintiff’s production and sales capabilities for the infringed product. This information could be used to show that the defendant possesses distinct advantages — such as superior manufacturing capabilities, a more extensive distribution network or a larger advertising budget — than the plaintiff. These advantages are independent from the infringement and would allow the defendant to generate greater revenue.
Bringing in experts early in the litigation process can help ensure comprehensive discovery of critical information, especially in cases involving complex financial matters. This helps your side develop legal strategies and supports reliable expert opinions and credible testimony.
Contact our team today if you have any questions about the discovery phase of litigation.