When it comes to damage calculations, the term “speculative” is effectively a death sentence. In order to provide evidentiary value, a damage calculation must be based on a reasonable degree of certainty. In Carter v. Clements Walker PLLC, et al. (“CW”), the Court found that despite an expert opinion that Carter suffered $33 million in damages, there was “no evidence in the record from which the court or a jury could conclude with reasonable certainty that Carter suffered any actual damages” and granted CW’s Motion for Summary Judgment (“MSJ”).
In this legal malpractice case, Carter (through his company RCI) claimed to have engaged CW to obtain both domestic and foreign patent protection for his invention. Because CW allegedly allowed a domestic patent application to be published before filing an application for international patent rights, Carter was unable to obtain patents in countries requiring absolute public novelty before granting a patent.
Carter’s deposition testimony revealed he:
- Never quantified or even researched the sales potential of the invention.
- Never sought to manufacture the invention, but only hoped to license it.
- Expressed no knowledge of the foreign marketing or licensing potential of the invention.
- Did not know of anyone who placed any monetary value on the invention or patent in 2007, nor could he name any company or product in the target markets for the invention that was infringing or exploiting the invention.
- Thought the patent would develop commercial value in the near future, but in 2007 he did not have any documentation or research substantiating that opinion.
The Court also noted that Carter refused production requests that may have substantiated his damages position, such as agreements, communications, meeting records, letters of intent, or term sheets regarding development, licensing, or commercialization of the invention.
After creating a record without any damages evidence, Carter attempted to rely exclusively on an expert to conclude a damage amount without establishing how damages overcome the reasonable certainty hurdle. The Court commented:
“Only Gariboldi’s report, which estimates that RCI sustained $33 million in lost profits as a result of losing foreign patent protection, even purports to provide any valuation of RCI’s damages. In light of the overwhelming evidence that neither RCI nor Carter had, at the time of his opinion, ever realized or reasonably projected any commercial value from the invention (even though it had domestic patent protection), Gariboldi’s speculative, bare-bones conclusion is insufficient to create a genuine issue of material fact on whether Carter suffered damages.”
And further noted:
“In his response to Defendants’ Motion for Summary Judgment, Carter did not include any other portions of this report, argue that it creates a genuine issue of material fact as to Carter’s damages, or otherwise attempt to support or bolster Gariboldi’s opinion.”
Instead, Carter responded to CW’s MSJ with new exhibits, namely an “infringement analysis” assessing alleged infringement of the domestic patent by a security company and internet printouts of foreign products alleged to be comparable to the invention. However there was nothing to authenticate these exhibits and no associated testimony or affidavit to explain them. Accordingly, the Court deemed the exhibits inadmissible and granted Defendant’s MSJ.
While establishing damages in an untapped market may in some cases be appropriately deemed speculative, there are approaches which may in certain cases overcome this obstacle. As noted by the Court, Carter did himself a disservice by refusing to produce documents that may have bolstered his claim and failing to integrate information into his earlier discovery responses that might have been reasonably relied upon by his expert.
Here are some practical suggestions when establishing damages:
- Recognize that damages in new markets, products, business lines, etc. need to meet the reasonable certainty criteria. Your damage calculation should not contain items that “could” occur but should be focused on amounts that overcome this hurdle. For instance, presentation of highly divergent ranges of damages is often an indication that the approach is at least in part inappropriate speculation.
- Identify factors, trends or other performance that will substantiate your expected performance.
- Use of a dedicated industry expert may be appropriate in substantial disputes involving niche industries or markets.
- Get your expert involved early. An experienced, well-qualified expert can provide valuable insight into what foundational evidence is needed and therefore should be produced in discovery.
Fulcrum Inquiry performs damages calculations.