Calculating lost profits for breach of a non-compete agreement can be a challenging task, and different courts have adopted different approaches. In Preferred Systems Solutions v. GP Consulting, Nos. 111906, 11907 (Sept. 14, 2012), the Virginia high court affirmed a verdict of $172,395 in compensatory damages in favor of Preferred Systems Solutions (“PSS”), a government contractor, against PSS’s former subcontractor, GP Consulting, for breach of a non-compete clause in a contract between the two businesses. In so doing, the Court affirmed the use of a relatively expansive analysis of lost profits.
GP Consulting had terminated its contract with PSS and began performing similar work for another general contractor under the same blanket purchase agreement with the government. PSS opted not to pursue a temporary injunction against GP Consulting for the breach; instead it sought damages and permanent injunctive relief. As is often the case, lost profits could not be determined with precision because PSS was unable to show it was guaranteed any amount of future work under the blanket purchase agreement. Finding a clear breach of the non-compete, however, the Court endorsed a flexible measure of lost profits. The Court held that the standard of proof in Virginia does not require a “guarantee” that the plaintiff would have earned a profit but for the breach. The Court allowed PSS to use time billed by GP Consulting during the breach, citing cases from Idaho and Utah allowing an injured party to rely on profits earned by the offending competitor, combined with the established profit margin of PSS on such work, to determine lost profits.
Depending in part on the nature of the industry involved, some states require a more stringent test for calculating lost profits, measuring only the amount the plaintiff can show with specificity that it lost due to the breach. Other courts have allowed plaintiffs to recover a disgorgement of profits earned by the offending party. Here, the Supreme Court of Virginia adopted a blended approach, combining the amount of work obtained by the defendant and the profit margins of the plaintiff. This decision is a useful primer on the different ways to calculate damages in a non-compete case and suggests that it pays to be creative.