The Accuracy and Manipulability of Lost Profits Damages Calculations: Should The Trier of Fact Be "Reasonably Certain?"

The accuracy and manipulability of calculations for lost profits damages are critical determinants of the ability of harmed parties to receive just compensation in a wide range of legal cases including antitrust, fraud, false advertising, intellectual property infringement, and breach of contract. They are also important determinants of the deterrent effects of the law. Using a sample of over 5,000 U.S. firms, we show that simple damages methods are capable of being substantially inaccurate. We also show that damages methods in general are highly susceptible to manipulation. In the absence of reasonable justifications for why particular data sets and methods were chosen for calculating damages, there can be little certainty that proffered damages are accurate and free of manipulation and, therefore, little certainty that goals such as just compensation and optimal deterrence are being properly promoted.