Opinion ID: 784541
Heading Depth: 3
Heading Rank: 3

Heading: Lost Profits Due to Price Erosion

Text: 24 Harris also challenges the jury's award of $645,000 for lost profits due to price erosion, arguing that Ericsson failed to provide sound economic proof for those damages. In particular, Harris contends that Jackson improperly concluded that both the Harris market and the Ericsson market were totally inelastic and that he failed to consider that Ericsson would have lost sales in response to an elevated price. Harris also asserts that Jackson relied on a flawed benchmark, the obsolete Ericsson 3762 SLIC, in his price erosion calculation. 25 Ericsson responds that an elasticity calculation is not required to recover for price erosion when the patent owner instead establishes barriers to entry. Ericsson points out that it presented evidence of two barriers to entry: the '222 patent and the costs associated with redesigning a line card, the latter of which prevented customers from switching to other manufacturers' SLICs that were not pin-compatible. In any event, Ericsson argues, any issues with elasticity were presumably resolved by the jury when it awarded Ericsson $645,000 in damages for price erosion instead of the requested $8.1 million. Finally, Ericsson maintains that the Ericsson 3762 SLIC was an ideal benchmark for the price erosion calculation because it experienced the same market conditions as the Ericsson 3764 SLIC, except that there was no Harris clone of the 3762 SLIC. 26 We agree with Ericsson that substantial evidence supports the jury's damages award for lost profits attributable to price erosion. To recover lost profits on a theory of price erosion, a patentee must show that but for infringement, it would have sold its product at a higher price. See BIC Leisure Prods., 1 F.3d at 1220. The patentee must also present evidence of the (presumably reduced) amount of product the patentee would have sold at the higher price. Crystal Semiconductor, 246 F.3d at 1357. Moreover, the patentee's price erosion theory must account for the nature, or definition, of the market, similarities between any benchmark market and the market in which price erosion is alleged, and the effect of the hypothetically increased price on the likely number of sales at that price in the market. Id. 27 To make out its theory of price erosion, Ericsson again relied on the expert testimony of Jackson, who used a benchmark methodology to assess price erosion. Jackson compared the performance of the patented product, the Ericsson 3764 SLIC, in the market affected by infringement with that of a similar product, the Ericsson 3762 SLIC, in a market free of infringement. He ultimately determined that Ericsson was entitled to $8.1 million in damages for price erosion. 28 Despite Harris's contention, we cannot say that Ericsson's theory of an inelastic market precludes it from recovering price erosion damages. In Crystal Semiconductor Corp. v. TriTech Microelectronics International, Inc., 246 F.3d 1336 (Fed.Cir. 2001), we stated that a patentee must produce credible economic evidence to show the decrease in sales, if any, that would have occurred at the higher hypothetical price. Id. at 1359 (emphasis added). Ericsson addressed that point at trial in its price erosion analysis, submitting that the unique market conditions in this case would not have resulted in decreased sales at an increased price. Namely, Ericsson presented evidence of the high switching costs associated with redesigning a line card, the relatively low costs of SLICs, and Jackson's expert opinion that those two conditions would produce an inelastic market. Although we have recognized that an inelastic market may be rare, id., it was for the jury to determine whether this was such a case based on the evidence before it. 29 Moreover, Harris has not shown that the 3762 SLIC was an inappropriate benchmark for the 3764 SLIC. On the contrary, Ericsson offered substantial evidence of the similarities between the two products and their markets. For example, Jackson testified that the only technological difference between the 3764 SLIC and the 3762 SLIC — i.e., that the former is constant current and the latter is resistive feed — would not have affected the price of the products. He also explained that the 3762 SLIC was an ideal benchmark because both AMD and Harris were competitors in the 3764 SLIC market, whereas AMD was the only competitor in the 3762 SLIC market. Thus, according to Jackson, removing Harris's infringing sales from the 3764 SLIC market would result in a market very similar to the one used as a benchmark. 30 The jury obviously did not accept Ericsson's theory of price erosion damages in its entirety, as it awarded only $645,000 of the $8.1 million that Ericsson requested. To the extent that the jury did accept Ericsson's theory of damages attributable to price erosion, however, we find that award to be supported by substantial evidence. Accordingly, we affirm the district court's denial of Harris's motion for JMOL relating to the amount of the damages award.