Market Share Approaches

A patentee may be able to recover lost profits despite the presence of acceptable, noninfringing substitutes.

This market share approach allows a patentee to recover lost profits, despite the presence of acceptable, noninfringing substitutes, because it nevertheless can prove with reasonable probability sales it would have made but for the infringement.

— BIC Leisure Products v. Windsurfing Intern., 1 F. 3d 1214, 1219 (Fed. Cir. 1993).

Under Panduit, a patentee may substitute proof of its market share for proof that there are no acceptable substitutes.

This court has held that a patent owner may satisfy the second Panduit element by substituting proof of its market share for proof of the absence of acceptable substitutes.

— BIC Leisure Products v. Windsurfing Intern., 1 F. 3d 1214, 1219 (Fed. Cir. 1993).

This approach presupposes that patentee and infringer compete in the same marketplace.

this market share test also assumes that the patent owner and the infringer compete in the same market.

— BIC Leisure Products v. Windsurfing Intern., 1 F. 3d 1214, 1219 (Fed. Cir. 1993).

Defining The Relevant Market

The patentee generally must define the relevant marketplace in order to use a market share approach.

The first step in a two-supplier test is to define the relevant market. In Crystal Semiconductor, this court stated: [T]o determine a patentee's market share, the record must accurately identify the market.

— Micro Chemical, Inc. v. Lextron, Inc., 318 F. 3d 1119, 1124 (Fed. Cir. 2003).

Determining the number of suppliers may be easier after the relevant market is defined.

Once the market is defined, it generally becomes an easier task to determine how many suppliers operate in the defined relevant market.

— Micro Chemical, Inc. v. Lextron, Inc., 318 F. 3d 1119, 1124–1125 (Fed. Cir. 2003).

The starting point for an analysis of the relevant marketplace may focus on the patented invention.

The proper starting point to identify the relevant market is the patented invention. The relevant market also includes other devices or substitutes similar in physical and functional characteristics to the patented invention.

— Micro Chemical, Inc. v. Lextron, Inc., 318 F. 3d 1119, 1124 (Fed. Cir. 2003).

Products that have dramatically different characteristics or prices from the accused products are may be excluded from the relevant marketplace.

This requires an analysis which excludes alternatives to the patented product with disparately different prices or significantly different characteristics.

— Micro Chemical, Inc. v. Lextron, Inc., 318 F. 3d 1119, 1124 (Fed. Cir. 2003).

Two-supplier marketplace

A two supplier marketplace exists when patentee and infringer are the only suppliers in the relevant marketplace.

Frequently, the patent owner and infringer are the only suppliers in the market, and the owner is seeking to recover profits lost through every sale made by the infringer.

— State Industries, Inc. v. Mor-Flo Industries, Inc., 883 F. 2d 1573, 1577 (Fed. Cir. 1989).

In a two supplier marketplace, a patentee may meet its burden of proving the availability of lost profits using the two-supplier test.

under the two-supplier test, a patentee must show: 1) the relevant market contains only two suppliers, 2) its own manufacturing and marketing capability to make the sales that were diverted to the infringer, and 3) the amount of profit it would have made from these diverted sales. See id.; cf. Lam, 718 F.2d at 1064. In essence, the two-supplier market test collapses the first two Panduit factors into one two suppliers in the relevant market factor.

— Micro Chemical, Inc. v. Lextron, Inc., 318 F. 3d 1119, 1124 (Fed. Cir. 2003).

The inquiry focuses on the number of companies involved rather than the number of products.

That inquiry focuses on the number of companies involved, not the number of alternatives in the relevant market.

— Micro Chemical, Inc. v. Lextron, Inc., 318 F. 3d 1119, 1124–1125 (Fed. Cir. 2003).

When the conditions under the two-supplier test are met, it is reasonable to assume the patentee would have made the infringer’s sales.

In a two-supplier market, it is reasonable to assume, provided the patent owner has the manufacturing and marketing capabilities, that it would have made the infringer’s sales.

— Micro Chem. v. Lextron, Inc., 318 F.3d 119, 1122 (Fed. Cir. 2003).

The infringer may rebut the presumption of lost profits on every sale by proving the patentee would not have made some or all of the infringer’s sales in the but-for world.

If the patentee shows two suppliers in the relevant market, capability to make the diverted sales, and its profit margin, that showing erects a presumption of but for causation. Although the burden of persuasion remains with the patentee, the burden of going forward then shifts to the infringer. The infringer may rebut the presumption by showing that the patentee reasonably would not have made some or all of the diverted sales but for the infringement.

— Micro Chemical, Inc. v. Lextron, Inc., 318 F. 3d 1119, 1125 (Fed. Cir. 2003).

One way an infringer may rebut this presumption is by proving it would have sold an acceptable, non-infringing alternative during the infringement period.

For example, the infringer may rebut the presumption by showing that it sold another available, noninfringing substitute in the relevant market. This situation would arise only where there are two suppliers in the market, but the infringing supplier had two available alternatives: one infringing and the other noninfringing. In that situation, even absent the infringement, customers may have selected the infringer's available, noninfringing alternative over the patented invention.

— Micro Chemical, Inc. v. Lextron, Inc., 318 F. 3d 1119, 1125 (Fed. Cir. 2003).