In a significant 2025 decision, the Arizona Supreme Court provided critical guidance on the evidence required to claim lost profits from a failed patent licensing deal. The case, McAlister v. Loeb & Loeb, LLP, No. CV-24-0048-PR (Ariz. Sup. Ct. July 17, 2025) underscores a crucial lesson for inventors, patent owners, and potential licensees: without proof of an agreement on all material terms, a claim for lost profits is likely to fail for being too speculative. The opinion clarifies the high bar plaintiffs must clear to demonstrate damages with "reasonable certainty," especially for new business ventures.
Factual Background
The case involved inventor Roy McAlister, who held patents on clean fuel technologies through his company, McAlister Technologies, L.L.C. ("MT"). MT entered into a license agreement with Advanced Green Technologies, L.L.C. ("AGT") to commercialize the patents. AGT, in turn, retained the law firm Loeb & Loeb, LLP for its patent matters.
A dispute arose, leading McAlister to terminate the license agreement with AGT. Subsequently, McAlister alleged that Loeb & Loeb improperly filed paperwork with the USPTO and WIPO, creating a "cloud" on the title of his patents. This, he claimed, thwarted several prospective licensing deals with other parties, leading him to sue Loeb & Loeb for, among other things, the profits he lost from those failed deals.
The core of the damages claim centered on a prospective deal with an investor named Donal O'Flynn. McAlister claimed over $100 million in total lost profits, but the case ultimately hinged on whether he could prove with "reasonable certainty" that he would have received an initial $5 million payment from O'Flynn had Loeb & Loeb not allegedly interfered.
The Court's Analysis: "Reasonable Certainty" is Key
The Arizona Supreme Court reversed the Court of Appeals and affirmed the trial court's summary judgment against McAlister on the lost profits claim. The Court's decision rested on the long-standing principle that while a new business can recover lost profits, it must prove them with reasonable certainty, not speculation or conjecture.
⚠ Warning: Open Terms Kill Lost‑Profits Claims Open economic terms (up‑front fee, royalty %, timing) made the claim speculative. Lock them down.
Core Legal Takeaways:
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Issue
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Court's Analysis
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Practical Consequence
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| Burden of proof for lost profits | The claimant must establish both (i) that the deal would likely have closed (agreement on all material terms) and (ii) the amount of lost profits with “reasonable certainty.” | Mere negotiation ranges or aspirational numbers are insufficient; definitive term sheets, LOIs, or executed contracts are critical. |
| “New‑business” skepticism | Courts apply heightened scrutiny when the venture is nascent or unproven, demanding concrete market, financial, and operational evidence. | Start‑ups must marshal robust third‑party data, comparable‑company metrics, and expert models grounded in reality. |
| Speculation vs. evidence | The parties never fixed key terms: initial payment ($5 M vs. $20 M), annual royalty (‑$15 M vs. +$20 M), and payment timing. The Court deemed any profit projection “speculative.” | Document every concession and draft to avoid the “open terms” problem. |
| Expert methodology | The plaintiff’s expert assumed a $400 M+/year enterprise without business plans, cost models, or market analysis; the trial court excluded the opinion as unreliable, and the Supreme Court agreed. | Experts must model both revenues and expenses, apply grounded discount rates, and incorporate venture‑specific risks. |
| Appellate clarification | The Court vacated the court of appeals’ attempt to salvage a $5 M “up‑front” claim, reiterating that even that figure lacked an agreed framework. | Parties cannot rely on isolated testimony divorced from finalized deal economics. |
Practice Tips
For Patent Owners (potential plaintiffs)
- Lock Down Material Terms Early: Use signed term sheets or memoranda of understanding that specify up‑front fees, running royalties, payment timing, performance milestones, and termination triggers.
- Substantiate the Financial Model: Provide market studies, pro‑forma financials, and cost estimates. Courts disfavor “hockey‑stick” projections unmoored from data.
- Document Negotiation History: Keep contemporaneous emails, version‑controlled drafts, and meeting minutes to prove consensus on deal terms.
- Select & Prepare Experts Carefully: Choose valuation experts who can reconcile technical uncertainty, scale‑up costs, and comparable‑license benchmarks.
- Plead Alternative Damages: Always plead reasonable‑royalty or unjust‑enrichment theories as fallbacks in case lost profits prove too speculative.
For Law Firms Alleged to Have Disrupted Licensing (potential defendants)
- Conflict & Scope Management: Clearly define representation scope and conflicts, especially when multiple parties in a venture interact.
- Meticulous Recordkeeping: Maintain PTO filings, correspondence, and billing records to rebut fiduciary‑breach or interference claims.
- Target the Expert Early: File Daubert / Rule 702 motions where the expert’s methodology glosses over risk, expenses, or missing deal terms.
- Highlight Open Terms: Show that key economic provisions remained unsettled to undermine “reasonable certainty.”
General Tips For Licensing Counsel & Patent Owners
- Treat Licenses as State‑Law Contracts: Ensure agreements comply with governing state statutes (e.g., choice‑of‑law, UCC Article 2A for technology licensing, where applicable).
- Integrate Business & Legal Teams: Align technical feasibility studies with contractual performance obligations.
- Plan Exit & Enforcement Paths: Draft audit, milestone, and termination clauses that reduce future proof problems.
- Maintain Flexibility: Consider step‑in rights, milestone‑based payments, or staged royalties to accommodate commercialization risk.
ℹ Federal vs. State Law Note Patent validity/infringement are federal, but licensing is state contract law. Arizona principles governed damages here.
About the Author and Firm
This analysis is provided by Kama Thuo, PLLC, an engineering & technology law firm focused on patents, AI, and wireless telecom law. Roque Thuo is a patent attorney registered to practice before the U.S. Patent and Trademark Office and is licensed in Arizona and California. He is also a licensed Professional Engineer (Electrical) in Arizona, bringing a deep technical understanding to complex patent matters.
Whether you are an inventor seeking to license your technology or a company navigating an IP dispute, our firm has the technical and legal expertise to protect your interests. Contact us to learn how we can help you at www.kthlaw.com/patents.