Page 44 - Acertaining Economic Damages Calculation

The court then turned to plaintiff’s expert 2’s separate analysis. Expert 2 allocated more of Quinton’s
costs to the variable category and computed its costs separately for catheters, kits, and trays. Expert 2 in-
cluded marketing and sales, storage, packaging, and administrative expenses in her analysis of costs,
which was at odds with expert 1’s conclusion that these types of expenses did not increase with output.

The court found expert 2’s analysis of costs superior to expert 1’s analysis, stating the following:

Although costs of sales, general overhead, and the like, are not variable for small changes in out-
put over the short run, they are most assuredly variable for larger changes over the long run. fn 39

The court continued that it "must ascertain what Quinton’s costs and prices would have been had it had
the market to itself beginning in 1986," also indicating that Quinton would have had to increase produc-
tion significantly. Based on testimony by IMPRA’s witnesses that the expenses excluded by expert 1
were the "kinds of expenses [that] would have been variable costs had IMPRA itself expanded produc-
tion," the court stated that it was "not persuaded that Quinton could have avoided any of these costs as it
[would have had to] expand output" in the but-for world. fn 40

The court ordered the parties to submit a calculation of damages using expert 2’s methodology for calcu-
lation of costs, incorporating other aspects of the court’s opinion addressing additional items such as
price erosion and the appropriate infringing sales.

The court’s opinion, in this case, is a reminder to experts to consider all the evidence regarding the na-
ture of costs to be included in any lost profits analysis. Here, the court focused on the substantial in-
crease in sales that would have occurred in the but-for world of no infringement, finding that although
costs may not vary for small changes in the short run, larger changes in sales would result in costs
changing over the long run. In addition, the practitioner would be wise to consider other analyses that
may be submitted by his or her client in the dispute and the bases and evidence supporting any differ-
ences in such analyses from the practitioner’s own analysis. In the instant matter, it appears that the
court was persuaded by plaintiff’s expert 2’s analysis of costs that was also consistent with testimony as
to the nature of costs offered by defendant’s witnesses.

ERI Consulting Eng'rs, Inc. v. Swinnea, 318 S.W.3d 867 (Tex. 2010)

ERI Consulting (ERI) brought an action for breach of fiduciary duty and fraud against one of its former
owners (J. Mark Swinnea [Swinnea]), who had sold his interest to his partner in ERI Consulting but then
opened a competing business in the asbestos abatement industry, while still being employed by ERI
Consulting under a post-transaction employment contract. Companies related to Swinnea were also in-
cluded as defendants. The trial court found in favor of ERI Consulting, awarding $300,000 in lost prof-
its; forfeiture of $437,500 paid by ERI to Swinnea; forfeiture of $150,000 representing the value of an
interest in a separate business transferred to Swinnea as part of the transaction; and, $133,200 compris-
ing lease payments made after the transaction by ERI to the separate business who owned the office
building.

fn 39 Id. at 1386.

fn 40 Id.

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