The “Market Share” Theory of Damages in Private Enforcement Cases

• DOI: 10.1177/0003603X7301800403
• Published date: 01 December 1973
• Date: 01 December 1973
• Subject Matter: Article

THE "MARKET SHARE" THEORY OF DAMAGES

IN

PRIVATE

ENFORCEMENT

CASES

by

HUGH

GmBONS·

For

more

than

three hundred years, courts have been

wrestling with the problem of measuring the damage to a

business done by a business tort.

Particularly

vexing has

been the problem of measuring the essential damage

that

a

business

tort

causes-the

loss of sales and profits suffered by

the victim. Few questions have caused courts to waver as

strongly between liberalism and conservatism as the allowance

of lost profits. On the one hand, there has been the awareness

that

the loss of profits goes to the

heart

of the damage suffered

from abusiness tort, while on the other hand, there is the

strong

judicial policy against speculative damages. Anumber

of recent cases, particularly Zenith Radio Corp. v, Hazeltine

Research, Inc.,! have clarified and expanded the process of

measuring lost profits in private

antitrust

cases. The result

has been the emergence of a new theory,

the

"market

share"

theory, of assessing the damage caused by a business tort.

It

is based upon the proposition

that

the essential damage

from abusiness

tort

is to the firm's position in the market-

place,

and

that

its damages can be measured by the share of

total

market

sales

it

could reasonably have been expected to

attain

without the injury.

In

order to place this theory in

perspective abrief review of the

prior

state

of the law is in

order.

•Professor of Economics, Kendall College, Evanston, Illinois.

AUTHOR'S

NOTE:

The author would like to acknowledge the aid

given him by the firm of Wolfe, Hubbard, Leydig, Voit &Osann, Ltd.,

in the preparation of this article.

1Zenith Radio Corp. v. Hazeltine Research, Ine., 239 F. Supp. 51

(N.D. Ill. 1965), 388 F.2d 25 (7th Cir. 1967), 395 U.S. 100, 89 S. Ct.

1562 (1969), 418 F.2d 21 (7th Cir. 1969), 401 U.S. 321, 91 S. Ct.

795 (1971).

743

744

THE

ANTITRUST

BULLETIN

A.

THE

"BEFORE

AND

AFTER"

AND

"YARDSTICK"

THEORIES

Two approaches to measuring the loss of profits, the

"before and after" and "yardstick" tests, have been in use

for a number of years. Both of these approaches were

developed in the landmark case of Bigelow v,

RKO

Radio

Pictures,

Inc.,!'

the first successful movie suit. The plaintiff,

a movie theater, had been denied films by the defendant and

had suffered a loss in revenue as a result. Plaintiff calculated

damages on both a "before and

after"

basis, by comparing its

average profits in the five years preceding the denial of the

films with its profits in the five years following denial, and

the "yardstick" basis, by comparing

its

profits during the

damage period with the profits earned by a similarly situated

movie theater during

that

period. The two approaches yielded

damage figures

that

were remarkably similar. The Supreme

Court, overturning the Seventh Circuit, sustained both of

these approaches, holding

that:

Any other rule would enable the wrongdoer to profit by

his wrongdoing

at

the expense of his victim.

It

would be

an inducement to make wrongdoing so effective and

complete in every case as to preclude any recovery, by

rendering the measure of damages uncertain. Failure to

apply it would mean

that

the more grievous the wrong

done, the less likelihood there would be of a recovery."

In

support of this new, more liberal, approach to assessing

anticipated profits, the Court cited its decision in

Story

Parch-

ment

.....

The rule which precludes the recovery of uncertain

damages applies to such as

are

not the certain result of

the wrong, not to those damages which

are

definitely

• Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251 (1946).

aId, at 264.

•Story Parohment

Co.

v. Paterson Parohment Paper

Co.,

282

U.S. 555 (1931).