Lost Profits Calculator (IP)

Enter diverted units, market share, selling price, and contribution margin to estimate lost profits under the Panduit test and a reasonable royalty damages floor.

Created by Luis GonzalezLast updated: May 9, 2026

How to Use This Calculator

1
Enter Diverted Units
Input the number of units the infringer sold that you claim would have been your sales, for example, 40,000 units.
2
Specify Plaintiff Market Share
Enter your percentage share of the relevant market, excluding the infringer. This is used in the Panduit test, for example, 60%.
3
Input Selling Price per Unit
Enter your average selling price per unit for the patented product, for example, $25.
4
Set Variable Cost Rate
Input your variable costs as a percentage of the selling price (e.g., 64%), including materials and direct labor.
5
Enter Contribution per Unit
Input your net contribution margin per unit (selling price minus incremental variable costs), for example, $9.
6
Specify Reasonable Royalty Rate
Enter the hypothetical negotiated royalty rate (as a percentage) applied to all infringing sales, serving as a damages floor, for example, 5%.
7
Calculate Lost Profits and Damages
The calculator will display your estimated lost profits, but-for units, contribution margin, reasonable royalty, and total patent damages.

Example Calculation

A patent holder claims an infringer diverted 40,000 units. The patent holder's market share is 60%, selling price is $25/unit, variable cost rate is 64%, contribution per unit is $9, and a reasonable royalty rate is 5%.

Diverted Units

40,000

Plaintiff Market Share (%)

Selling Price per Unit ($)

Variable Cost Rate (%)

Contribution per Unit ($)

Reasonable Royalty Rate (%)

Results

$216,000

Tips

Document the Panduit Factors Thoroughly

To successfully claim lost profits, you must satisfy the four Panduit factors: demand for the patented product, absence of acceptable non-infringing substitutes, manufacturing and marketing capacity to exploit the demand, and the amount of profit that would have been made. Robust evidence for each is critical.

Distinguish Variable vs. Fixed Costs

Only incremental variable costs (those directly tied to producing the diverted units) should be subtracted from revenue to determine lost profits. Fixed costs (e.g., factory rent) are generally not considered as they would have been incurred anyway. This distinction significantly impacts the calculated contribution per unit.

Understand the Royalty Floor

A reasonable royalty often serves as the minimum amount of damages an infringer must pay, even if lost profits cannot be fully proven or are lower. Always calculate both to determine the higher recovery amount, ensuring you meet the 35 U.S.C. § 284 requirement for 'damages adequate to compensate for the infringement'.

Quantifying IP Infringement: Your Lost Profits Calculator (IP)

The Lost Profits Calculator (IP) is a specialized tool for assessing damages in intellectual property infringement cases, calculating lost profits based on diverted units, market share, and contribution margin, and determining a reasonable royalty. This calculation is vital for patent holders seeking compensation for unauthorized use of their innovations. For example, if an infringer diverted 40,000 units and your market share was 60%, your lost profits could be $216,000.

Assessing Economic Harm in Intellectual Property Litigation

In intellectual property litigation, assessing economic harm requires rigorous analysis, particularly when claiming lost profits due to infringement. The legal standard for proving lost profits often revolves around the four-factor Panduit test, established in Panduit Corp. v. Stahlin Bros. Fibre Works, Inc. (1978). This test requires the patent holder to demonstrate: (1) a demand for the patented product; (2) the absence of acceptable non-infringing substitutes; (3) their manufacturing and marketing capacity to exploit the demand; and (4) the amount of profit they would have made. Expert economists and forensic accountants play a critical role in providing evidence for each factor, analyzing market data, financial statements, and cost structures. For instance, proving a 60% market share for diverted units strengthens the case for claiming those units as "but-for" sales, directly impacting the calculation of lost profits.

The Financial Logic Behind IP Lost Profits

The Lost Profits Calculator (IP) uses a multi-faceted approach to determine damages, primarily focusing on the but-for sales and the contribution margin, while also calculating a reasonable royalty as a damages floor.

The key calculations are:

But-For Units Sold:
```
But-For Units = Diverted Units × Plaintiff Market Share (%)
```
(This estimates the units the patent holder would have sold if not for the infringement.)

Lost Profits:

Lost Profits = But-For Units × Contribution per Unit ($)

Revenue Lost:

Revenue Lost = But-For Units × Selling Price per Unit ($)

Reasonable Royalty:
```
Reasonable Royalty = Diverted Units × Selling Price per Unit ($) × Reasonable Royalty Rate (%)
```
The Total Damages figure often takes the higher of the lost profits or the reasonable royalty, ensuring the patent holder is adequately compensated as per U.S. patent law.

💡 To evaluate the financial health and operational capacity of a business, which is often a factor in lost profit claims, our Working Capital Calculator can provide a snapshot of liquidity.

Calculating Lost Profits in a Patent Infringement Case

Consider a patent holder claiming an infringer diverted 40,000 units of their patented product. The patent holder's market share is 60%, the selling price per unit is $25, their variable cost rate is 64%, and their contribution per unit is $9. A reasonable royalty rate of 5% is also considered.

Here’s the step-by-step calculation:

Calculate But-For Units Sold:
- But-For Units = 40,000 diverted units × 0.60 (60% market share) = 24,000 units
Calculate Lost Profits:
- Lost Profits = 24,000 but-for units × $9 contribution per unit = $216,000
Calculate Revenue Lost:
- Revenue Lost = 24,000 but-for units × $25 selling price = $600,000
Calculate Reasonable Royalty:
- Reasonable Royalty = 40,000 diverted units × $25 selling price × 0.05 (5% royalty rate) = $50,000

In this example, the Lost Profits are $216,000, which is higher than the $50,000 reasonable royalty, making lost profits the primary damages theory.

💡 For a general understanding of business profitability, our Woodworking Business Profit Calculator offers a practical way to analyze revenue and costs.

Legal Frameworks for Intellectual Property Damages

U.S. patent law, specifically 35 U.S.C. § 284, mandates that patent holders receive "damages adequate to compensate for the infringement, but in no event less than a reasonable royalty." This statutory provision underpins the two primary theories of recovery: lost profits and a reasonable royalty. Courts apply these theories based on the evidence presented. Lost profits, typically calculated using the Panduit test, aim to put the patent holder in the position they would have been in "but for" the infringement. A reasonable royalty serves as a damages floor, compensating the patent holder for the infringer's unauthorized use of the invention. Its determination often involves the Georgia-Pacific factors, a 15-point analysis that simulates a hypothetical negotiation between a willing licensor and licensee. For example, if a patent holder's proven lost profits amount to $216,000, and the reasonable royalty is $50,000, the court would likely award the higher lost profits, fulfilling the compensation mandate of § 284.

Frequently Asked Questions

What are lost profits in intellectual property (IP) cases?

Lost profits in intellectual property (IP) cases represent the revenue and associated profits a patent holder would have earned 'but for' the infringement by a competitor. These damages aim to compensate the patent holder for sales they would have made had the infringement not occurred. To prove lost profits, plaintiffs often rely on the four-factor Panduit test, demonstrating demand, absence of substitutes, capacity, and the profit amount. For instance, if 40,000 units were diverted, and profit per unit was $9, lost profits could be $216,000.

What is the Panduit test for lost profits?

The Panduit test is a widely recognized legal framework used in U.S. patent infringement cases to prove entitlement to lost profits damages. It requires the patent holder to establish four elements: (1) a demand for the patented product, (2) the absence of acceptable non-infringing substitutes, (3) the patent holder's manufacturing and marketing capacity to exploit the demand, and (4) the amount of profit that would have been made. Meeting these criteria is essential for a successful lost profits claim, such as proving a 60% market share for diverted units.

What is a reasonable royalty in IP damages?

A reasonable royalty is a minimum damages award in patent infringement cases, representing the amount a willing licensor and licensee would have agreed upon at the time the infringement began. It acts as a floor for damages, applied when lost profits cannot be fully proven or are less than the royalty. Courts consider factors like the Georgia-Pacific factors to determine a hypothetical negotiation. For instance, if an infringer sold 40,000 units at $25 each, a 5% royalty rate would yield $50,000 in reasonable royalty damages.