The methodology of a lost profits calculation of damages in a breach of contract claim or intellectual property claim attempts to restore the injured party to their prior financial position. To prepare a calculation that is not viewed as speculative, evidence of loss must match the facts of the case and cannot be cherry-picked.
The calculation of lost profits is not straightforward.
An expert must consider all evidence in the record. An expert who blindly assumes all lost sales are attributable to the plaintiff, without considering other reasons the defendant could have made those sales (especially if evidence exists), is open to attack. Failure to consider sufficient relevant data (a term of art in the CPA’s standard of care) is a major reason why experts’ testimonies get excluded from cases.
We rely on the numbers and the story the numbers tell. We must use common sense and consider whether the damage methodology and assumptions align with the facts of the case. Critical questions to answer when computing lost profits damages include:
Damages must be computed with reasonable certainty. The following steps are helpful.
There will be times when specific information is not available. In that case, the expert should determine if there is sufficient relevant data to determine damages with reasonable certainty.
Why could an expert’s opinion be excluded?
Takeaway: No case is simple.
The calculation of damages based on a lost profits damage methodology is not straightforward. It is critical to find a professional who understands the pairing of the damage calculations with the evidence in the record and, more importantly, can tell the story.
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