Page 64 - Acertaining Economic Damages Calculation

with LightLab and had purchased Axsun to accelerate its OCT product development, taking steps to
compete against LightLab. The agreement between LightLab and Axsun contained a specific ban on
sales by Axsun to Volcano for six years.

LightLab brought suit against Axsun and Volcano for, among other things, breach of contract as well as
tortious interference and misappropriation of trade secrets and confidential information. The trial jury re-
turned a verdict in favor of LightLab on issues of liability. After a three-day voir dire of LightLab's
damages expert, the judge excluded his opinions pertaining to (a) lost profits beyond the expiration date
of the agreement and (b) lost profits based upon yet to be developed technologies, ruling that these opin-
ions were "too speculative as a matter of law." LightLab appealed.

In affirming the trial court’s decision to exclude the damages expert’s identified opinions, among other
things, the Supreme Judicial Court of Massachusetts stated the following:

...[F]rom the time LightLab was formed in 1999, until the time of the damages phase of the trial
in April 2010, LightLab never turned a profit. It had no track record of profitable sales even of its
existing OCT products. Where there was no profit even during the contract term with Axsun,
there is no reason to believe sales would be profitable after the contract ended... LightLab could
identify no lost sales resulting from the defendants' conduct. LightLab counters by saying lost
sales had not been anticipated before [Expert] was expected to testify, as the impact of losing the
development relationship with Axsun was not expected to be felt until later. Lost sales can be
highly probative of lost profits caused by a party's misconduct, and the absence of lost sales may
be highly probative of the speculative nature of a claim of damages... Moreover, the implication
of damages not being felt until the end of LightLab's development relationship with Axsun is that
there can be no damages after 2014 because there is no contractual relationship or guarantee ex-
tending such a relationship beyond 2014. (emphasis added)

In the AICPA Forensic and Valuation Services practice aid, Attaining Reasonable Certainty in Econom-
ic Damages Calculations, which devotes a full chapter to newly established business, while possible,
depending on the jurisdiction, there is often a high threshold required to obtain an award of lost profits
for businesses without an established track record of sales or profitability, or both. In this case, the court
did not believe plaintiff met this threshold.

Best Evidence and the Use of Contemporaneous Third-Party Market Data

The availability of relevant third-party market data may assist the damages expert to establish elements
of a lost profits claim with reasonable certainty. Conversely, contradictory market data has been effec-
tively used as a means of demonstrating the flaws in the opposing party’s analyses. As discussed in the
following cases, although some courts have ruled that the relevance or applicability of market data relied
upon by an expert can be considered in determining whether a damages expert’s opinions are admissi-
ble, others have found that such determinations are more appropriately subject to cross-examination and
fall under the province of a jury.

Alaska Rent-A-Car, Inc. v. Avis Budget Group, Inc., 738 F.3d 960 (9th Cir. 2013)

This case involved a settlement agreement between Avis and its licensees, which included Alaska Rent-
A-Car, prohibiting Avis from using its sales, marketing and reservation activities, operations, and per-
sonnel for any additional rental car company purchased by Avis. The district court granted a partial
summary judgment, finding that Avis had breached the agreement when it bought Budget Rent-A-Car
and merged much of the two companies' national sales and marketing staffs into one.

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