SJC Issues Decision Concerning Recovery Of Lost Profits Damages In Commercial Litigation

In a noteworthy recent decision addressing the parameters of damages in commercial litigation, the Massachusetts Supreme Judicial Court (SJC) affirmed an order excluding expert testimony concerning future lost profits damages relating to "yet-to-be conceived future products." In LightLab Imaging, Inc. v. Axsun Technologies, Inc., SJC-11374 (July 28, 2014), the SJC held that the trial court was well within its discretion to exclude an expert economist's testimony in support of a plaintiff's claim for future lost profits based on a "hypothetical new product" and extending more than twenty years beyond the term of the contract at issue. In so doing, the SJC took the opportunity to reiterate that a court's role as "gatekeeper" does not end upon the expert's invocation of a generally-accepted methodology. Rather, a court must still evaluate the reliability of the offered testimony, including, in the context of lost profit damages, the projections and assumptions underlying it. Where the underlying forecasts are based on assumptions that are too speculative as a matter of law, such testimony is appropriately excluded.

LightLab Imaging involved a commercial dispute over optical coherence tomography (OCT) systems used to image human coronary arteries. The plaintiff and one of the defendants were parties to a supply agreement, pursuant to which the defendant was to supply lasers for use in the plaintiff's OCT systems exclusively through April 2014, with non-exclusive supply rights for two years thereafter. During the course of the supply agreement, the second defendant - one of the plaintiff's competitors who had not yet entered the OCT market - acquired the first defendant and, through due diligence, received access to certain of the plaintiff's alleged trade secrets. The plaintiff sued both companies, alleging that the defendants' conduct interfered with a joint development relationship that would have led to future innovations of the lasers being supplied to the plaintiff and stripped the plaintiff of its "first-mover advantage" in the OCT market. The case proceeded to trial in three phases: liability, damages, and injunctive relief. In the liability phase, the defendants were found liable for misappropriation of trade secrets, breach of contract, and tortious interference with contract.

The plaintiff's primary damages claim was for future lost profits, including alleged profits running twenty years past the expiration of the supply agreement...