In our video series on damage issues, we introduced a number of topics relevant to the analysis and quantification of damages. One such topic was the use of assumptions. In matters involving the analysis and quantification of damages, experts invariably need to make assumptions, including:
In this article, we evaluate the issue of assumptions surrounding the plaintiff’s financial and operational capacity to meet sales volume projections. In doing so, it is illustrative to look at one area in particular, the analysis of lost profits in patent infringement matters, where there is well-established case law surrounding the evaluation of capacity in connection with the quantification of damages.
Currently, most courts evaluate entitlement to lost profits damages in patent infringement cases through the four-factor test that was set out in the Panduit case. Factor three of that test addresses whether the patent holder possessed the manufacturing and marketing capacity to meet demand for the patented product. While not an exhaustive list, or for that matter a list that is applicable to every matter, the following may represent analytical tests that can be employed to evaluate capacity in accordance with Panduit factor three:
Note that the foregoing issues regarding the evaluation of capacity may also need to factor in other effects on the damage analysis, beyond the impact on the revenue and volume assumptions. For example, if it is determined that capacity could be obtained through expansion or contract arrangements, the related costs of obtaining that additional capacity may need to be considered in the overall damage analysis.
The foregoing issues regarding the evaluation of capacity may also be applicable outside of intellectual property matters. It is easy to see how the evaluation of issues such as the plaintiff’s financial capacity to meet the claimed lost volume, or the plaintiff’s ability to reach new customers or markets could be relevant considerations when evaluating lost sales in breach of contract or other economic loss matters.
For more information on this topic, or to learn how Baker Tilly forensic, litigation and valuation advisors can help, contact our team.