CHAPTER 2Economic Framework for the Lost Profits Estimation Process

This chapter discusses two preliminary and fundamental aspects of commercial damages analysis: causality and the methodological framework for measuring damages. The first section of this chapter examines the ways in which economic analysis can be used to provide evidence of causality in commercial damages litigation. Economists employ certain statistical techniques to determine whether the plaintiff was responsible for the alleged damages of the defendant. Having established causality, the next step is determining the loss period. The loss period can be determined by many factors, including whether the losses have ended as of the trial date. Following this discussion, the methodological framework for measuring damages is introduced.

Foundation for Damages Testimony

An expert may be provided with factual assumptions that serve as a basis for testimony. This is set forth in Rule 703 of the Federal Rules of Evidence, which states: “The facts or data in the particular case on which an expert bases an opinion or inference may be those perceived by or made known to the expert at or before the hearing.” In the context of commercial damages analysis, this may involve various facts, such as the assumed actions of the opposing party in the litigation. However, the expert is not a fact witness. Rather, the expert may be asked to compute the damages that result from certain data and assumed facts. This gives rise to ...

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