NERA Expert Provides Expert Testimony on Calculation of Lost Profits for a Claim Under the Trade-marks Act (Canada)

The Situation

The parties to the dispute were each distributors of competing expandable garden hose products (among various other consumer products), each of which were marketed as “As Seen on TV” products. The Plaintiff by Counterclaim (Plaintiff) had sought damages in connection with its claims for lost sales to a major Canadian retail chain as a result of certain alleged conduct of the Defendant by Counterclaim (Defendant), including the making of false and misleading statements, to discredit the products or business of the Plaintiff. The Defendant had unsuccessfully sued the Plaintiff for patent infringement in relation to these expandable hose products. The Plaintiff countersued, claiming that the Defendant made threats to sue certain retailers for selling the Plaintiff’s product, which the Defendants alleged was infringing.

NERA's Role

Counsel for the Defendant retained NERA to provide an independent assessment of the Plaintiff’s damage calculations. The Plaintiff prepared a damage calculation without the assistance of an independent expert. This damage calculation was based on certain assumptions regarding the volume of lost sales that it would have made but-for the alleged wrongful conduct of the Defendant, and the corresponding profits from those sales.

NERA Vice President Bradley A. Heys provided an expert report and testimony responding to the Plaintiff’s calculation of lost profits. Mr. Heys explained the types of analysis and information that would have been necessary to support the calculation of lost profits but which were absent from the Plaintiff’s calculations. In particular, Mr. Heys explained that the Plaintiff’s damage calculations did not consider (i) any contemporaneous forecasts or other market data that could have benchmarked the but-for level of sales of the product in total, or to any particular retail chain; (ii) the seasonal patterns of sales of the product with which the assumed but-for volume of sales was inconsistent; (iii) the possibility that Plaintiff mitigated any lost sales (or could reasonably have mitigated any lost sales) through sales to other retailers (including with the support of TV promotion, which the Plaintiffs had, without explanation, failed to conduct); or (iv) that there were likely additional saved costs resulting from the allegedly lower volume of sales that should have been deducted from any lost profit calculation.

Mr. Heys also pointed out certain errors in the Plaintiff’s damage calculation which led the claimed amount to be overstated, even given the alleged volume of lost sales.

The Result

On August 30, 2016, the Federal Court of Canada issued its decision dismissing the Plaintiff’s claim for lost profits under section 7(a) of the Trade-marks Act. The Federal Court found that there was “no causal link between the false and misleading statements made by [the Defendant] and the damages alleged to have been suffered by [the Plaintiff].”

The Court further commented on the evidence, as to the quantification of damages. In particular, the Court held that the Plaintiff’s evidence on this point was “quite unsatisfactory” and listed many of the issues raised by Mr. Heys:

“The evidence as to quantification of [the Plaintiff’s] claim … is heavily criticized by [the Defendant’s] expert Heys. Having read [the affidavit of the Plaintiff’s fact witness] and Heys' report and observed each of them in the witness box I have concluded that the evidence of [the Plaintiff’s fact witness] is quite unsatisfactory. It includes fundamental errors such as confusing US and Canadian dollars. It fails to take into account items such as cost of shipping and receiving. In estimating what the sales … would have been in a "but for" would [sic] the use of [data for] … a screen product … is unsatisfactory. The manner in which [the Plaintiff’s fact witness] handled himself in the witness box when dealing with these issues has led me to conclude that he is not at all familiar with such calculations or adept in handling the topic. I would find that [the Plaintiff] has not satisfactorily established a quantification of its damages.”

Read the decision here.