Guides · Commercial

Lost-Profits Experts: Reasonable Certainty and Rule 702

Lost profits are often the largest number in a commercial case, and they rest on an expert's projection of what would have happened but for the breach or tort. State law sets the standard of proof, usually reasonable certainty. Federal Rule of Evidence 702 decides whether the projection reaches the jury at all. This guide covers both: reasonable certainty, the standard methods, new businesses, causation and mitigation, and the grounds on which damages experts are excluded.

Guide 11 of 11 · October 27, 2026 · 8 min read
On this page
  1. Reasonable certainty
  2. The
  3. The yardstick
  4. New businesses
  5. Causation,
  6. The Rule 702
  7. What to prepare

Reasonable certainty: the substantive standard

The New York Court of Appeals stated the classic rule in Kenford Co. v. County of Erie, 67 N.Y.2d 257 (N.Y. 1986): "First, it must be demonstrated with certainty that such damages have been caused by the breach and, second, the alleged loss must be capable of proof with reasonable certainty. In other words, the damages may not be merely speculative, possible or imaginary, but must be reasonably certain and directly traceable to the breach, not remote or the result of other intervening causes." Experts often address only the second part; the fact of loss comes first.

Reasonable certainty does not mean precision. The Supreme Court held in Story Parchment Co. v. Paterson Parchment Paper Co., 282 U.S. 555 (1931), that where the wrong itself prevents exact measurement, "while the damages may not be determined by mere speculation or guess, it will be enough if the evidence show the extent of the damages as a matter of just and reasonable inference, although the result be only approximate."

The Texas Supreme Court describes the test as flexible but bounded. In Texas Instruments, Inc. v. Teletron Energy Management, Inc., 877 S.W.2d 276 (Tex. 1994), it held that the test does not lack "clear parameters": "Profits which are largely speculative, as from an activity dependent on uncertain or changing market conditions, or on chancy business opportunities, or on promotion of untested products or entry into unknown or unviable markets, or on the success of a new and unproven enterprise, cannot be recovered."

The before-and-after method

For an established business, the common approach compares performance before (and sometimes after) the wrongful conduct with the damages period. Teletron quotes the Texas formulation that an established business's "preexisting profit, together with other facts and circumstances, may indicate with reasonable certainty the amount of profits lost," adjusted for "the normal increase in business which might have been expected in the light of past development."

The method is rarely the problem; the inputs are. In Manpower, Inc. v. Insurance Co. of the State of Pennsylvania, 732 F.3d 796 (7th Cir. 2013), a business interruption claim after a building collapse, the district court found that the expert's "use of the before-and-after method and his decision to use basic growth-rate extrapolation was reliable," but excluded the opinion because its 7.76% growth rate came from the five months before the collapse, while the longer history showed negative average growth. The Seventh Circuit reversed, reasoning that "[t]he reliability of data and assumptions used in applying a methodology is tested by the adversarial process and determined by the jury; the court's role is generally limited to assessing the reliability of the methodology."

That passage is exactly the kind of statement the 2023 amendment targeted. As the en banc Federal Circuit quoted it, the Advisory Committee note observed that "many courts have held that the critical questions of the sufficiency of an expert's basis, and the application of the expert's methodology, are questions of weight and not admissibility. These rulings are an incorrect application of Rules 702 and 104(a)." EcoFactor, Inc. v. Google LLC, 137 F.4th 1333 (Fed. Cir. 2025) (en banc). The court's own formulation draws the line damages experts now face: "While the credibility of an expert's damages calculation is properly left to a jury, a determination of reliability under Rule 702 is an essential prerequisite." A short or unrepresentative base period, chosen without explanation, is now squarely a basis question for the judge.

The yardstick method and comparables

When the plaintiff's own history is short or unreliable, experts turn to a yardstick: comparable businesses, markets, or products. The yardstick is only as good as the comparison. In Kenford, a 20-year profit projection for operating a sports and entertainment facility failed in part because "[a]t the time of the breach, there was only one other facility in this country to use as a basis of comparison." The "multitude of assumptions" required put the projection "beyond the capability of even the most sophisticated procedures to satisfy the legal requirements of proof with reasonable certainty."

The opposite failure is refusing to look at comparables at all. In Zenith Electronics Corp. v. WH-TV Broadcasting Corp., 395 F.3d 416 (7th Cir. 2005), the counterclaimant's expert projected sales for a digital broadcasting service in San Juan without using data from other markets. "Each market is unique, [the expert] insisted, making experience elsewhere irrelevant." The district judge concluded that the "failure to look outside San Juan, even for a reality check, meant that he lacked 'sufficient' facts." Asked what method he used, the expert answered "my expertise" or a variant, and the Seventh Circuit held: "He was relying on intuition, which won't do." It added that "[a] witness who invokes 'my expertise' rather than analytic strategies widely used by specialists is not an expert as Rule 702 defines that term."

A defensible yardstick explains why each comparable fits, adjusts for remaining differences, and tests sensitivity to the choice.

New businesses

The modern rule treats newness as an evidentiary problem rather than a bar. Kenford stated that for a new business "a stricter standard is imposed for the obvious reason that there does not exist a reasonable basis of experience upon which to estimate lost profits with the requisite degree of reasonable certainty."

Teletron explains how that works in practice. "The fact that a business is new is but one consideration in applying the 'reasonable certainty' test." The rule "does not deny recovery by a new business simply because it is new." Instead, "[t]he mere hope for success of an untried enterprise, even when that hope is realistic, is not enough for recovery of lost profits. When there are firmer reasons to expect a business to yield a profit, the enterprise is not prohibited from recovering merely because it is new." The "enterprise" is "not the business entity, but the activity." Teletron itself recovered nothing because "a working model of the T-2000 never existed," and its "expectations were at best hopeful; in reality, they were little more than wishful."

For a new venture, the expert's job is to supply the "firmer reasons": the principals' track record in the same activity, an established product, signed contracts or orders, and a market with observable data.

Causation, mitigation, and alternative explanations

The amount must exclude losses from other causes. The Supreme Court made the point for class damages in Comcast Corp. v. Behrend, 569 U.S. 27 (2013): "a model purporting to serve as evidence of damages in this class action must measure only those damages attributable to that theory." The same logic governs any commercial model that lumps lawful and unlawful conduct together.

Courts do not require an expert to rule out everything. In Crabar/GBF, Inc. v. Wright, 142 F.4th 576 (8th Cir. 2025), the Eighth Circuit affirmed admission of a lost-profits opinion in a trade secret and tortious interference case, noting that "while there is no requirement to consider every possible alternative explanation, an expert 'must account for "obvious" alternatives.'" It rejected the argument that the model rested on too many assumptions, because reliance on assumptions "cannot be sufficient to mandate exclusion; otherwise, expert testimony on lost profits would rarely be admissible because every model relies on assumptions and no model can account for every conceivably relevant factor." Disputes over customer retention and the defendant's ability to enter the market lawfully were left for cross-examination. The trial preceded the 2023 amendment, and the court said it did "not decide whether our holding here would be the same if the amendments had been in effect at trial."

Mitigation is the other half of causation. Losses the plaintiff could reasonably have avoided, and costs it saved, are not recoverable; an expert who ignores evident mitigation has failed to account for an obvious alternative.

The Rule 702 grounds that exclude damages experts

The decisions reduce to a few recurring grounds: a projection resting on experience rather than a testable method (Zenith); a base period, growth rate, or comparable that is unexplained or contradicted by the record, a Rule 702(b) basis question for the court (EcoFactor); stacked speculative assumptions over a long horizon (Kenford); and a model that does not isolate the conduct at issue or account for obvious alternatives (Comcast, Crabar). Underlying all of them is the analytical gap: the Supreme Court held in General Electric Co. v. Joiner, 522 U.S. 136 (1997), that nothing in Daubert or the rules "requires a district court to admit opinion evidence that is connected to existing data only by the ipse dixit of the expert."

What to prepare

  • State the substantive standard under the governing law, including any heightened rule for new businesses.
  • Prove the fact of loss and its causal link to the wrong before quantifying the amount.
  • For before-and-after, justify the base period and growth rate against the full available history, and show results under alternatives.
  • For a yardstick, document why each comparable was chosen and how differences were adjusted.
  • For a new venture, assemble the "firmer reasons": track record in the activity, contracts, and market data.
  • Separate lawful from unlawful conduct and quantify other causes of decline, including market conditions.
  • Deduct avoided costs and address mitigation opportunities explicitly.
  • When attacking, frame the challenge as basis or application under amended Rule 702, not disagreement with the result.

Supreme Mind builds Expert Witness AI Agents for litigation, for any expert on any matter, from case intake to settlement. For a commercial damages dispute, a lawyer can pick the damages expert as a class of expert, and one run returns a brief in four sections: the expert's likely opinion, ranked cross-examination weaknesses, the Daubert / Rule 702 attack surface, and a directional settlement range. Experts are de-identified composites of a class, never a named individual; supporting quotations are checked verbatim against the public record, and nothing it produces is filed or testifies. A complete sample brief is free, and the method explains how it works.

Sources

This guide is general information, not legal advice.

How each court of appeals applies amended Rule 702: see the Rule 702 tracker.

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Experts in this guide's practice

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The series

11Commercial · October 27, 2026Lost-Profits Experts: Reasonable Certainty and Rule 70210Mass tort · October 20, 2026General Causation in Mass Torts: Bradford Hill Under Rule 70209Securities · October 19, 2026Section 11 Damages and Negative Causation08Antitrust · October 19, 2026Overcharge Regressions in Price-Fixing Cases07Antitrust · October 19, 2026How Often Courts Exclude Antitrust Economists, and Why06Securities · October 13, 2026Loss Causation, Damages and the Inflation Ribbon05Securities · October 6, 2026Market Efficiency at Class Certification: Cammer and Krogman04Any expert · September 29, 2026Amended Rule 702 After Nearly Three Years: What Courts Exclude03Antitrust · September 22, 2026Common Impact and Pass-Through at Class Certification02Securities · September 15, 2026Price Impact at Class Certification After Goldman01Securities · September 8, 2026Daubert Challenges to Event Studies in Securities Cases

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