Page 49 - Acertaining Economic Damages Calculation

(DGI) that competed not only with eCommerce but also with MWA through DGI’s front-end product
offering. fn 54

The business relationship between the parties deteriorated, and the ECI Parties ultimately terminated the
agreement with MWA. MWA brought suit in a California court related to the termination, including
breach of contract claims and claims of interference with prospective economic advantage, disclosing an
unredacted copy of the license agreement in its complaint. The ECI Parties then brought suit in the Court
of Chancery of Delaware seeking a declaratory judgment that the parties had terminated the license ap-
propriately and that the ECI Parties had "not breached or tortiously interfered with the agreement or any
prospective economic advantage of MWA," as well as breach of contract claims for disclosure of confi-
dential information. MWA asserted counterclaims "nearly identical" to its claims brought in the Califor-
nia court.

After analyzing liability issues, the Court of Chancery of Delaware rejected some of MWA’s counter-
claims but found liability for certain other counterclaims. The court also found that OMD and La Crosse
had validly terminated the license agreement with MWA, limiting the period of damages to before the
valid termination. The court further noted that both parties had provided experts who testified to damag-
es, with the court describing the general construct for calculating damages:

The remedy for a breach of contract is intended to give the non-breaching party the benefit of the
bargain by putting that party in the position it would have occupied but for the breach. In as-
sessing damages for breach of contract and related claims, it is therefore important to consider
how the positions of the parties would differ in the "but-for" world – i.e., the hypothetical world
that would exist if the Agreement had been fully performed. fn 55 [citations omitted]

After addressing the appropriate lost revenue to consider in the but-for world for the contract claims, the
court addressed the parties’ experts’ analysis of the profit margin to use for calculating lost profits
through deducting the appropriate costs. The ECI Parties’ expert had used a "regression analysis of
MWA’s past financial statements and determined that MWA’s incremental costs could be expected to
constitute 72% of its sales, resulting in a 28% profit margin." fn 56 This contrasted with a 41% profit
margin calculated by MWA’s expert, who had used an account analysis methodology.

In analyzing the differences between the two methodologies and resulting calculated margins, the court
pointed to MWA’s expert’s testimony that she had "gain[ed] an understanding of the nature of each in-
dividual expense line item and how it would be expected to change with changes in revenue, as well as
an analysis of how each expense ha[d] historically changed with revenue." fn 57 The court approved
MWA’s expert’s account analysis methodology but noted the ECI Parties’ expert’s criticisms of such a
methodology:

fn 54 Additionally, eCommerce acquisitions were also identified and were parties to this litigation. These have not been identified here.

fn 55 eCommerce Indus., 2013 WL 5621678, at *43.

fn 56 Id. at *48 n.330.

fn 57 Id.

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