Authored by David Duffus
In our video series on damage issues, we introduced a number of topics relevant to the analysis and quantification of damages. One such topic was the use of assumptions. In matters involving the analysis and quantification of damages, experts invariably need to make assumptions including:
- The length of the damage period;
- The “but for” performance of the parties;
- The volume of product that would have been sold;
- The growth, if any, in sales volume and price;
- The plaintiff’s operational and financial capacity to meet the sales volume; and
- The incremental expenses applicable to the lost sales.
In this article, we evaluate the issue of the assumed damage period. In doing so, it is important to note that there is no one, defined way to establish the damage period. Rather, the damage period, including its length, can be influenced by a myriad of factors specific to the facts of the case, as well as the underlying cause of action.
Breach of Contract Cases
In a breach of contract case, the loss period may be represented by the remaining term of the contract. However, that is not a hard and fast rule. Some factors that may merit consideration in selecting an assumed damage period include, but are not limited to:
- Whether the plaintiff was successful, or is expected to be successful, in mitigating the loss, such that the damage period terminates before the end of the contract term.
- Whether there were renewal options in the contract, and whether the course of conduct of the parties supports the incorporation of renewal options into the damage period.
- Whether there is uncertainty surrounding the performance of the parties under the contract, particularly if the contract term extends for a significant period into the future.
In all of these instances, the assumed damage period may extend beyond the date of trial.
In tort cases, where there is no contract term to look to, the damage period may be represented as the period between the wrongful act, and the date when the plaintiff returns to or is expected to return to normal operations. There may be situations, however, where there is a permanent impact, such that there may be an extended damage period. Like matters involving claims for breach of contract, the assumed damage period may extend beyond the date of trial.
Intellectual Property Infringement
In matters involving claims of intellectual property infringement, where lost profits and/or reasonable royalty damages are sought, the assumed damage period will be influenced by the specific facts of the case. For example, if a patent owner’s products were marked as patented, the damage period may start when actual infringement began. In contrast, in situations where the products were not marked, the damage period may start on the date when notice of infringement was made. In any case, the assumed damage period typically ends no later than the date of trial. With that said, there may be exceptions that warrant extension of the damage period beyond the date of trial. For example, if the infringement is of a patent that is near expiration, and infringement allowed the defendant to enter the market earlier that it otherwise would have, there may be a basis for a claim for future lost profits.
While it may seem to be a straightforward exercise to select an assumed damage period, there are nuances that damage experts must understand and consider, including the facts of the case and the nature of the underlying causes of action.