Page 24 - Calculating Lost Profits

Torts

Black’s Law Dictionary defines a tort as "[a] civil wrong, other than breach of contract, for which a
remedy may be obtained, usually in the form of damages." fn 8 Torts giving rise to lost profits damages
include negligent torts and intentional torts, the latter of which affects the conduct of business.

Negligent torts are generally committed by failure to demonstrate reasonable care under the given cir-
cumstances, as a matter of law. Depending on the facts and circumstances, monetary damages based on
lost profits may be available in these instances. As an example, assume that a person inaccurately says
that chicken dishes at American Kitchen contain an average of five grams of trans fat per serving, which
causes American Kitchen to have a dramatic decrease in its sales, whereas, in fact, the chicken dishes
have an average of five grams of unsaturated fat (which is much healthier than trans fat but was con-
fused by the individual who made the comment). In this scenario, American Kitchen may be able to
claim lost profits as a result of the negligent tort, in this instance, defamation.

Intentional torts are torts that are made with intent by the wrongdoer. Economic damages in the form of
lost profits may be awarded for intentional torts, including tortious interference with a contract (or ex-
pected economic advantage), unfair competition, and fraud.

Intellectual property infringement and misappropriation matters are also torts. Intellectual property re-
fers to "a category of intangible rights protecting commercially valuable products of the human intel-
lect." fn 9 This category of intangible assets includes patents, copyrights, trademarks, and trade secrets.
The practice aid Calculating Intellectual Property Infringement Damages provides an in-depth discus-
sion of the compensatory damages remedies available to plaintiffs when patents, trademarks, or copy-
rights are infringed or trade secrets are misappropriated. As discussed in that practice aid, various dam-
ages remedies may be available to plaintiffs, including lost profits, depending on the intellectual proper-
ty infringed or misappropriated.

Antitrust violations are also torts. Antitrust laws prohibit anticompetitive conduct, including monopolies,
price fixing, and price discrimination. In antitrust litigations, plaintiffs seek to demonstrate that, absent
the unlawful conduct of the defendant, the plaintiff’s financial performance or condition would have
been better than it actually has been and will be. Lost profits may be used as a measure of damages
based on a comparison of the plaintiff’s but-for performance with actual performance that was subject to
the alleged unlawful anticompetitive behavior.

Other Matters Giving Rise to Lost Profits Analysis

Practitioners are also commonly requested to measure lost profits in conjunction with business interrup-
tion and other insurance claims and assessments. Following a business interruption, practitioners may
calculate lost profits after the occurrence of a covered event to assess the amount of claim allowed under
an insurance policy. Unlike the measurement of lost profits as a measure of damages in a litigation or

fn 8 Bryan A. Garner, Black’s Law Dictionary, Tenth Edition (2014), West Publishing Co., Thomas Reuters, United States of Ameri-
ca, p. 1626.

fn 9 Bryan A. Garner, Black’s Law Dictionary, Tenth Edition (2014), West Publishing Co., Thomas Reuters, United States of Ameri-
ca, p. 881.

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