Key Decisions

December 2012- Lost Profits Need Not Be Proved

(filed under: Key Decisions | December 19, 2012)

Lost Profits Need Not Be Proved With Mathematical Certainty, But Cannot Be Unduly Speculative

Sargon Enterprises, Inc. v. University of Southern California
(Cal. Sup. Ct.), filed November 26, 2012

Sargon Enterprises, was a small dental implant company that had net profits of $101,000 in 1998.  It sued the University of Southern California for breach of a contract under which the university was to clinically test a new implant Sargon had patented.  Sargon sought damages for lost profits beginning in 1998, ranging from $200 million to over $1 billion.  It claimed that, but for the university’s breach of the contract, the company would have become a worldwide leader in the dental implant industry and made many millions of dollars a year in profit.

Following an evidentiary hearing, the trial court excluded as speculative the proffered testimony of an expert to the effect that the university’s breach resulted in such lost profits.

The Court of Appeal reversed.

The California Supreme Court concluded that the trial court has the duty to act as a “gatekeeper” to exclude speculative expert testimony.  It held that lost profits need not be proven with mathematical precision, but they must also not be unduly speculative.  It also held that the court acted within its discretion when it excluded opinion testimony that the company would have become extraordinarily successful had the university completed the clinical testing.