Page 50 - Intellectual Property Disputes

designed the Ericsson patented product into their products. The court upheld this market segmentation,
finding that "Ericsson’s market definitions and allocations were supported by substantial and
economically sound evidence." fn 79

To prove lost profits due to price erosion, Ericsson sought to identify factors that precluded competition,
including costs to redesign the competing devices as well as the contested patent itself. Ericsson also
contended that the uniqueness of the market would have enabled it to increase volumes at a higher price.
The court acknowledged that Ericsson had "presented evidence of the high switching costs associated
with redesigning a line card, the relatively low costs of SLICs,...[and] substantial evidence of the
similarities between the two products and their markets." fn 80

The Crystal Semiconductor and Ericsson decisions demonstrate two important principles that should be
addressed in analyzing price erosion claims, namely (a) the possibility that the infringer has expanded
the market over what it would have been but for the infringement and (b) the care that should be used in
attempting to identify benchmarks.

Considerations in the Calculation of Price Erosion

In order to recover price erosion damages, the patent holder must show that but for the infringement, it
would have sold its products at higher prices. fn 81 However, an analysis would have to account for the
impact higher prices would have on the but-for quantities. fn 82

In a price erosion calculation, several factors should be examined for their potential effect on the non-
infringed price. These factors include the price elasticity of the intellectual property owner’s product that
competes with the infringing product and other factors that may influence the prices of the two
competing products, including the market structure, profit margin data, price quotes, and internal
communications from sales people describing how they were compelled to lower prices.

Price Elasticity

The price elasticity of supply and demand is often central to the calculation of damages based on alleged
price erosion. The price elasticity of demand measures the sensitivity of the quantity demanded to price
changes of the product. fn 83 Under basic economic principles of supply and demand, an increase in the
price of a product usually results in a decrease in the amount of the product demanded. fn 84 Conversely,
a decrease in price usually results in an increase in the quantity demanded. A product’s price elasticity of
demand is the percentage change in quantity demanded divided by the percentage change in price. fn 85

fn 79 Id. at 1369.

fn 80 Id.

fn 81 Ericsson, Inc. v. Harris Corp., 352 F.2d at 1378 (citing BIC Leisure Prods., Inc. v. Windsurfing Int’l, Inc., 1 F.3d 1214, 1220
(Fed. Cir. 1993)).

fn 82 See id. at 1378 (citing Crystal Semiconductor Corp. vs. TriTech Microelectronics Int’l, Inc., 246 F.3d1357 (Fed. Cir. 2001)).

fn 83 R. Pindyck and D. Rubinfeld, Microeconomics, 5th ed. (Upper Saddle River, NJ: Prentice Hall, 1998), 30.

fn 84 Id. at 30.

fn 85 Id. at 30.

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