In an Illinois case, a contract for consulting services for an online platform was terminated and the terminating party was supposed to return the source code to the other party but did not, breaching the contract. The plaintiff (a startup company) sued for lost profits based on what it would have earned had it been able to monetize the platform. A jury awarded the plaintiff $18.3 million in lost profits damages. But the defendant then filed a motion for a judgment as a matter of law, and the court overturned the award.

The contract contained a provision that waived liability for “consequential” (indirect) lost profit damages, as opposed to “direct” damages, which would be recoverable. The difference between direct and consequential damages in breach of contract claims lies in the degree to which the damages are foreseeable and highly probable, the court noted.

Strict interpretation: Illinois precedent is that “damages waivers should be strictly construed against the benefitting party.” In this case, the lost profits damages were deemed consequential and indirect, which the contract precluded. The focus of the contract was for the plaintiff to provide consulting services as an independent contractor, and they were fully paid for those services. There was no “additional link in the causal chain” to connect the damages to the contract. Therefore, direct damages would have been a portion of the value of the source code that was not returned to the plaintiffs. But they did not put a value on that, nor did they seek that value as damages.

Also, Illinois law does not permit recovery of expected profits for a new commercial business. But, since the damages were considered consequential and barred by the contract, there was no need for the court to address that issue.

The case is Endless River Techs. LLC v. Trans Union LLC, 2023 U.S. Dist. LEXIS 725; 2023 WL 24101, and a case analysis and full court opinion will soon be on the BVLaw platform.