Can a Lay Witness Offer an Expert Opinion?

Can a Lay Witness Offer an Expert Opinion? If you're a trial attorney, this question may come up more often than you'd expect, because introducing lay witnesses is one method of surprising the counterparty, since there are fewer disclosure requirements and procedures for lay witnesses than for expert witnesses in US federal and state legal proceedings.

As an expert witness (not an attorney) I find that the distinction between lay and expert witnesses is critical. Lay witnesses typically provide testimony based on their personal knowledge or observation, whereas expert witnesses are called upon to offer specialized knowledge that aids the court in understanding complex matters. However, the question often arises: can a lay witness ever give an opinion that might resemble expert testimony? The answer lies in a careful analysis of the rules of evidence and case law, which you should discuss with your legal counsel. The below represents my understanding as a non-lawyer, thus it should not be taken as legal advice.

The Role of Lay Witnesses

A lay witness is someone who testifies about facts they personally observed or experienced. According to Rule 701 of the Federal Rules of Evidence, a lay witness may offer an opinion, but only if it is:

Rationally based on their perception: The opinion must stem directly from the witness's personal observations and experiences, not from specialized or technical knowledge.

Helpful to understanding their testimony or determining a fact in issue: The opinion must assist the court or jury in grasping what the witness saw or experienced, providing clarity to otherwise factual testimony.

Not based on scientific, technical, or other specialized knowledge: If an opinion requires specialized knowledge, it falls under the domain of an expert witness, per Rule 702.

In other words, lay witnesses can offer opinions that are grounded in everyday reasoning and personal experience. For example, a lay witness may testify that someone appeared “nervous” or “angry” based on their demeanor, or that a vehicle seemed to be speeding. These observations are not considered expert opinions because they are accessible to any reasonable person without specialized training.

The Role of Expert Witnesses

An expert witness, on the other hand, is specifically qualified by knowledge, skill, experience, training, or education. Experts are called to offer testimony on subjects that require a deeper understanding beyond common experience, such as medical diagnoses, technical data, or financial calculations. Their testimony must adhere to the standards of Rule 702, which governs the admissibility of expert opinions.

The Gray Area: When Lay Testimony Resembles Expertise

There are situations where the line between lay and expert opinion blurs. In such instances, courts scrutinize the nature of the testimony to determine whether a lay witness’s opinion crosses into expert territory.

For example, in United States v. Figueroa-Lopez, a lay witness was prohibited from giving an opinion that the defendant was acting in the manner of an experienced drug trafficker. The court ruled that this opinion required specialized knowledge and, therefore, fell under the purview of expert testimony.

However, there are cases where lay testimony can approach expert-like opinions without crossing the line (i.e., when opinions are grounded in firsthand knowledge gained from practical experience, not formal expertise).

Practical Scenarios: When Lay Witnesses May Offer Opinion

• Eyewitness Accounts: A lay witness can offer opinions about the speed of a vehicle, the identity of a person they know, or the emotional state of someone they observed. These opinions are rooted in common sense and direct observation.
  
  
• Business Practices: Business owners or employees with firsthand knowledge of standard operating procedures can provide lay opinions about routine matters within their industry. For instance, a restaurant owner may testify about typical food preparation procedures without being considered an expert.
  
  
• Medical Conditions: A lay witness can testify about obvious, observable medical conditions (e.g., someone appeared to have difficulty breathing or seemed unconscious), but diagnosing a specific medical condition requires expert testimony from a medical professional.

Other Jurisdictions Differ, Including U.S. State Courts

Many US states have adopted rules that are similar or identical to the Federal Rules of Evidence, particularly Rule 701 (lay witness opinion testimony) and Rule 702 (expert witness testimony). However, states may interpret or apply these rules differently, leading to variations in what types of testimony are admissible in state courts.  For example,  New York has not formally adopted the FRE, but its courts follow a similar approach regarding lay and expert testimony. New York courts may allow a lay witness to offer opinions in certain situations where the witness has specialized knowledge from experience, but this remains limited. For instance, a New York lay witness might testify about common business practices in their industry without being formally qualified as an expert, as long as the opinion is based on personal experience and not technical or specialized knowledge.

Technically different states follow different standards for the admissibility of expert opinions, namely:

• The Daubert Standard: Under Daubert (adopted by federal courts and many states), the judge acts as a gatekeeper to ensure that expert testimony is scientifically reliable and relevant. This standard tends to be stricter in ensuring that the expert's methodology is sound and applicable.
  
  
• The Frye Standard: Some states, including California (at least historically), follow the Frye standard, which requires that the expert’s testimony be based on scientific methods that are “generally accepted” in the relevant field. Frye is often seen as a more lenient standard than Daubert in some respects.

Under California law, a lay witness may provide opinions that are rationally based on their perception and helpful to understanding the testimony or determining a fact. However, California courts may allow more flexibility in certain types of lay opinions, especially when it comes to areas like business practices or common knowledge.

The difference between Daubert and Frye standards primarily impacts expert testimony, but it also affects how strictly courts will distinguish between lay and expert opinions. A state following the Frye standard might allow lay opinions on subjects that Daubert jurisdictions would restrict to experts, depending on the situation.

Conclusion

While lay witnesses cannot offer expert opinions, they are permitted to provide certain types of opinion testimony based on their personal observations and experiences. The key is that their opinions must be rational, helpful to the trier of fact, and not based on specialized knowledge. This rule ensures that courts maintain the balance between reliable expert testimony and useful lay observations, all while upholding the integrity of the legal process.

Understanding the distinction between lay and expert testimony is vital in preparing for trial. Lawyers must ensure that lay witnesses stay within the bounds of what they are allowed to testify about, while also leveraging their observations effectively to support their case. As always, careful consideration of the rules of evidence will guide which opinions are admissible and which must be left to the experts.

When it comes to intellectual property infringement cases, having the right damages expert can make all the difference in a successful outcome. At my firm, Boschan Corp., we specialize in IP infringement damages and are here when you need a seasoned expert to support your case. As a trusted partner in forensic accounting, we’re ready to help. Visit our website: boschan.com for more information or call us today at (424) 248-8866 to clear conflicts and get started.

Intro to Royalty Audits: Who Has Royalty Audit Rights and Against Whom?

Formally referred to as "royalty examinations," royalty audits are essential for companies and individuals earning significant royalties on intellectual property (IP) such as music, film, publishing, trademarks, trade secrets, and patents. They identify underpayments or other areas of non-compliance by a licensee or business partner (a "counterparty"), usually focusing primarily on ascertaining whether a rightsholder suffered damages due to incorrect royalty calculations (e.g., identifying underreported revenues, incorrect charges and deductions, and incorrect royalty rates). This post is an overview of who has audit rights, who is on the hook for an audit, and who can conduct an audit.

Royalty Audit Rights Holders:

Usually audit rights are a deal point included in many contractual agreements between a rightsholder and a counterparty.  (Here is a link to more on such audit provision deal points.)

However, certain audit rights are not contractual, but statutory (i.e., provided for by law).  For example in the United States music industry, there are a variety of legislated royalty audit rights on the Federal level (e.g., rights to audit the Mechanical Licensing Collective (MLC)), and in California, recording artists have a statutory audit right. Native American Indian Tribal gas and oil royalty audit rights are another statutory example.

With no contractual or statutory audit right, a rightsholder's options to hold a counterparty accountable may be limited. However, it does not necessarily mean that no audit is possible. As a royalty auditor, legal counsel and I often negotiate with counterparties the terms of audits, to optimize our clients' rights. In summary, there is no law against a rightsholder requesting an audit, even if its contract is silent on audit rights. 

Further, although extensive audits normally require the cooperation of counterparties, there is a spectrum of depth in auditing. Often, meaningful audit analysis can be accomplished more superficially and/or unilaterally, without the cooperation of a counterparty. Therefore, even if a counterparty refuses to grant a rightsholder audit rights, it may be possible to complete certain audit procedures even without an agreement between the parties.

Examples of royalty audit rights holders include:

• Actors
• Agents (may not have direct audit rights but they are stakeholders in successful client outcomes and can be instrumental in organizing client audits in TV, Games and filmed entertainment)
• Artists
• Authors
• Celebrities
• Collection Societies
• Collectives
• Composers
• Consortiums holding IP rights
• Creators
• Designers
• Developers
• Directors
• Engineers
• Ex-Spouses
• Filmmakers
• Film studios
• Heirs
• Inventors
• Investors
• Landlords (who charge "percentage rent")
• Licensors
• Mixers
• Owners of land with natural resources (e.g., oil and gas)
• Photographers
• Producers
• Publishers
• Record Companies
• Rights Societies
• Screenwriters
• Songwriters
• Talent Managers and other Reps
• Unions
• Writers
  

...And any party who acquires such rights from the original rightsholder.  For a longer list by industry, and a bit more detail about how audit rights can be gained by such parties, please click here.

Counterparties Subject to Royalty Audits:

Royalty audits apply to parties who are legally or contractually obligated to pay royalties, with each industry presenting unique audit dynamics. Generally, those directly responsible for calculating and paying royalties are the most likely audit targets. However, the entity paying royalties isn’t always the one the rightsholder has a direct right to audit. For example, in the recorded music industry, producers often receive payments from record labels but have audit rights only over the artists who hired them, not the record companies themselves. In cases like this, rightsholders may need to seek creative solutions or legal counsel to obtain insights or negotiate access to the necessary financial records.

Refusals to cooperate with royalty audits, though allowed under some circumstances, can often lead to friction and closer scrutiny. Some parties attempt to restrict access by citing confidentiality or limiting the audit scope based on contract terms, such as granting access only to internal reports rather than full source documentation. In such cases, nondisclosure agreements might ease confidentiality concerns, while honoring the audit request, although this topic is best addressed in a separate post. 

Examples of parties who must defend royalty and similar audits include:

• Advertising agencies and platforms (audited by advertisers)
• Agents (audited by clients for packaging fees)
• Artists (audited by producers)
• Collection Societies (audited by publishers and writers)
• Concert Promoters (audited by live entertainers)
• Consortiums holding IP rights (audited by stakeholders such as universities)
• Ex-Spouses (audited by ex-spouses)
• Film studios (audited by talent and production companies)
• Influencers (audited by marketers and commission-based affiliates)
• Commercial real estate tenants (audited by landlords who charge "percentage rent")
• Licensors (audited by licensees; many examples listed above and below)
• Merchandise companies and trademark licensees such as fragrance companies
• Oil and gas companies (audited by landowners)
• Photography libraries and resellers (audited by photographers)
• Producers & Production Companies (audited by talent including writers)
• Publishers (audited by writers, composers, game developers)
• Record Companies (audited by recording artists, unions, and music publishers)
• Retailers (audited by influencers and commission-based affiliates)
• Rights Societies (audited by members)
• Streaming services (audited by rights collectives and other licensors)
• Touring artists (audited by record companies and other % reps)
• Unions (audited by members)

For more details and nuance on the topic of what parties can be audited, visit my lengthier blog post here.

Who Conducts Royalty Audits?

My firm, Boschan Corp., is a royalty audit service provider. Legal counsel for IP owners hire forensic accountants or royalty audit specialists such as Boschan Corp. with experience in industry-specific IP rights to conduct - or defend - audits. 

Therefore, it is unfortunate that most of the boilerplate audit provisions - including those in recently passed legislation - have not changed much since the early 1900s and most not only do not provide for sufficient documentation to be provided, but also mandate that the auditor be a CPA (Certified Public Accountant) or Chartered Accountant. While the CPA and Chartered Accountant licenses are hard earned achievements, in reality, they represent specialized credentials that are not necessary - or even relevant - for many of the analytical, digital and quantitative procedures that a modern royalty audit requires.

In summary, CPAs performing financial audits in the U.S. attest to their clients' adherence to Generally Accepted Accounting Principles (GAAP), while royalty auditors - such as those at my firm - examine the compliance of adverse parties with legal agreements and statutes, using standards and methodologies specific to each case. Thus, the goals and methods of each audit diverge significantly, as does the relationship between the auditor and the entity being audited.

Though my firm of professional accountants indeed has some CPAs on staff, our work spans highly specialized areas which require advanced expertise not covered by the CPA certification, nor by additional fraud certifications such as the CFF (Certified in Financial Forensics) or CFE (Certified Fraud Examiner).

Instead, royalty audits demand deep knowledge of financial, industry business practices, and legal frameworks, especially as they pertain to intellectual property and industry-specific financial structures.

Consequently, while some forensic accountants (including some of our own team members) maintain CPA credentials, many do not, as they find little value in keeping a license unrelated to their field of practice. In fact, CPAs who transition fully to royalty auditing, royalty accounting, or IP valuation and damages often allow their CPA licenses to lapse, recognizing that their work operates within a distinct area of expertise. Despite claims by various credentialing bodies, forensic accounting in IP valuation and royalty analysis remains without a certification that truly represents the unique skills and knowledge required for the field.

In summary, the absence of a standardized certification in our niche reflects the specialized skills and nuanced understanding needed to succeed in this type of forensic accounting, underscoring that the CPA credential—while esteemed—is not the definitive qualification for all accounting practices, especially those tied to legal and intellectual property expertise.

I encourage transactional attorneys to avail themselves of my firms' agreement redline consulting services to help suggest more favorable language to your audit provisions in order to give your client more control over the audit process, especially with respect to selecting or limiting potential royalty audit service providers.