Antitrust Law Daily Wrap Up, ADVERTISING—E.D.N.C.: Software developer’s failure to timely disclose witnesses required exclusion, (Oct 14, 2013)

By Jody Coultas, J.D.

SMD Software, Inc. failed to timely disclose witnesses in a false advertising case filed against competitor EMove, Inc., the federal district court in New Bern, North Carolina has held (SMD Software, Inc. v. EMove, Inc., October 10, 2013, Flanagan, L.). The court allowed SMD to call only one of its proposed witnesses and one witness EMove did not object to.

SMD, which develops and markets management software for the self-storage industry, alleged that competing software designer EMove published false advertising materials comparing the competing products. SMD sought to call seven new witnesses who purportedly knew of alleged post-discovery false advertising by EMove and three witnesses with knowledge of the self-storage industry to testify regarding (1) their knowledge of the parties’ products; (2) factors they consider when selecting, or advising others on the selection of, self-storage management software; and (3) the effectiveness of various marketing methods within the self-storage industry. SMD argued that the testimony of three industry witnesses replaced their lost opportunity to cross-examine EMove’s expert, who had died.

The disclosure of these new witnesses was in violation of the court’s scheduling order and untimely, according to the court. Disclosure of new witnesses was not within the scope of a supplementation ordered by the court. Had the supplementation ordered extended to new witnesses, the court would have made provisions for reopening discovery in its order, which it did not do, in reliance on a joint report. Thus, SMD did not timely and properly supplemented its Rule 26(a)(1) disclosures.

A party that lacked good cause for its failure to timely disclose may be sanctioned. In determining whether to sanction the party, courts look at (1) the explanation for the failure to obey the order; (2) the importance of the testimony; (3) the prejudice to the opposing party by allowing the disclosures; (4) the availability of alternative or lesser sanctions; (5) the interest in expeditious resolution of litigation; (6) a court’s need to manage its docket; and (7) public policy favoring disposition of cases on the merits.

Exclusion of all of the false advertising witnesses was appropriate, according to the court. SMD argued that its failure to disclose the witnesses during the discovery period was justified because it did not learn of such witnesses during the discovery period, as the testimony related to conduct that did not occur until after the discovery period closed. However, SMD’s failure to obey the court’s orders related to timely supplementation concerned the court. SMD also failed to account for why it did not disclose the possibility of these additional witnesses earlier. The false advertising witnesses would not contribute much in terms of evidence of damages.

Allowing SMD to call only one industry witness would alleviate the harm to SMD from their lost opportunity to cross-examine EMove’s deceased expert without unduly prejudicing EMove, according to the court. SMD was unable to cite any law or precedents providing that the death or other unavailability of another party’s witness provided good cause to untimely disclose the party’s own witnesses to serve as a substitute for cross-examination. Such an event does not, without more, afford good cause for untimely disclosure, especially where nothing prevented SMD from timely disclosing the witnesses. The proffered testimony may also go well beyond what SMD could have established through cross-examination of the deceased expert alone. Although SMD’s explanation for the late disclosure of the industry witnesses was lacking, the industry witnesses’ testimony was very important and touched on the heart of SMD’s case for liability and damages. Given the availability of lesser sanctions, the court found that a lesser sanction was appropriate and allowed SMD to call only one industry witness.

The case is No. 5:08-CV-403-FL.

Attorneys: Luther Donald Starling, Jr. (Daughtry, Woodard, Lawrence & Starling) for SMD Software, Inc. Christopher A. Page (Young, Moore & Henderson) for EMove, Inc.

Companies: SMD Software, Inc.; EMove, Inc.

Cases: Advertising NorthCarolinaNews