Lost profits damages compensate a patentee for the sales, and the profit margin on those sales, it would have captured absent the infringement. This measure is typically only available to a patentee that itself makes and sells a competing product, since it requires reconstructing the market as it would have looked without the infringer's presence.

Courts commonly apply the Panduit test to structure the proof: demand for the patented product, the absence of acceptable noninfringing substitutes, the patentee's manufacturing and marketing capacity to have captured the lost sales, and the amount of profit it would have made. Related theories include price erosion, where the infringer's presence forced the patentee to lower its own prices, and convoyed sales, covering related products sold alongside the patented item.

In a simulation, lost profits eligibility acts as a branch condition gated on whether the patentee practices its own invention and competes directly with the accused infringer; when that gate is open, the lost-profits dial typically produces a larger, though harder to prove, damages figure than the reasonable royalty alternative.

Patentees that manufacture and sell in direct competition with the infringer pursue lost profits as the potentially larger recovery, but must invest in more rigorous economic proof of market reconstruction than reasonable royalty requires; where proof falls short for some infringing sales, a reasonable royalty is typically awarded for the remainder.