Lost profits and loss of chance (gain manqué et perte de chance)

Lost profits are the gain of which the victim has been deprived as a result of the damage, as opposed to the loss actually suffered. Article 1231-2 of the French Civil Code provides, in contractual matters, that the damages owed to the creditor are, as a rule, for the loss sustained and the gain of which it has been deprived, and the same distinction governs non-contractual liability. Loss of chance, a related notion, compensates the present and certain disappearance of a favourable prospect.

Lost profits in infringement cases

In intellectual property, lost profits correspond mainly to the sales the proprietor or its licensee would have made but for the infringement. They are calculated by applying to the share of the infringing mass that would have been diverted to the victim the margin the victim would have earned. The proprietor must show that it was exploiting the right, that it had sufficient production and marketing capacity and that customers would have switched to its products, taking into account the competing products available. Price erosion and lost sales of associated products may be added where established.

Loss of chance

According to settled case law of the Court of Cassation, loss of chance is compensated in proportion to the chance lost and cannot equal the benefit that chance would have brought had it materialised. It applies where the link between the infringement and the expected gain remains uncertain, for example the chance of concluding licences, winning a tender or entering a new market. The probability adopted must be reasoned, and a purely hypothetical prospect is not compensable.

Limits

A proprietor that does not itself exploit its right cannot claim lost profits on sales it would not have made, and its compensation then takes the form of a reasonable royalty. An exclusive licensee may obtain compensation for its own loss, distinct from that of the proprietor. Lost profits cannot be combined with a royalty calculated on the same base, but the share of the mass the victim would not have captured may be compensated by a royalty, as part of an assessment of damages by separate heads.

Key points

Lost profits are the largest head of loss and the most demanding in terms of evidence. Industrial capacity, actual margins and market structure should be documented even before issuing a writ, as the diversion rate will be fiercely contested. Where the case remains uncertain, it is prudent to put forward an alternative claim for loss of chance or a royalty rather than risk dismissal.

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This glossary entry is general in scope and does not constitute legal advice.

Dhenne Avocats litigates patent disputes before the Paris Judicial Court, the Paris Court of Appeal and the Unified Patent Court. Where the question arises in a real case, the useful moment is almost always before proceedings are issued.

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