Page 83 - Economic Damages Calculation

The Court of Appeals expanded on this discussion, noting that if an industry — such as the directory
business — is established, it will have a history of performance and lacks the "newness" that may give
courts pause, enabling experts to be able to develop damages models that calculate lost profits to a rea-
sonable certainty.

Here, the production, sale and distribution of telephone directories is not a new or untried busi-
ness, as evidenced by Schuler's operation of a number of such businesses from 1970–75, by the
operations of his predecessor, and by the prior operation of such a business in the Kansas City
area. It does not matter that plaintiff's directory business never got underway. fn 69

This case shows that the nature of the business in question may be of importance to an expert when cal-
culating lost profits for a new business. Courts may be more willing to allow recovery of lost profits in
an industry that is established, especially where industry data can be extrapolated to the business in
question.

Texas Instruments, Inc. v. Teletron Energy Mgmt., Inc.

In this case, Teletron Energy Management (Teletron) contracted with Texas Instruments (TI) to design
and build within 11 weeks a total of 10 working prototypes of a "new, unique voice-prompted, pro-
grammable thermostat called the T-2000," including the necessary software. fn 70 After making an initial
payment to TI, Teletron advertised the product and set up distributorships to market the product. Ulti-
mately, TI never produced a properly working unit, and gave up after 2 years.

In a breach of contract action, the jury found for Teletron and awarded it past lost profits and expenses.
However, the jury rejected Teletron’s claims for future lost profits. The trial court then set aside the
award of past lost profits, while keeping intact the jury’s award of expenses related to costs Teletron had
incurred in furtherance of the contract. On appeal, the past lost profits award was reinstated, which TI
appealed.

The Supreme Court of Texas ultimately overturned the court of appeal’s decision to reinstate the award
of past lost profits. In its opinion, the Supreme Court noted that "[t]he fact that a business is new is but
one consideration in applying the ‘reasonable certainty’ test...when there are firmer reasons to expect a
business to yield a profit, the enterprise is not prohibited from recovering merely because it is new." fn 71
The court noted that the inquiry is a "fact-intensive determination" that has "parameters," which it de-
scribed as follows:

Profits which are largely speculative, as from an activity dependent on uncertain or changing
market conditions, or on chancy business opportunities, or on promotion of untested products or
entry into unknown or unviable markets, or on the success of a new and unproven enterprise,

fn 69 Id.

fn 70 Tex. Instruments, Inc. v. Teletron Energy Mgmt., Inc., 877 S.W.2d 276, 277 (Tex. 1994).

fn 71 Id. at 280.

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