NERA: Publication - A Note on the Law & Economics of Acceptable Non-Infringing Alternatives

A Note on the Law & Economics of Acceptable Non-Infringing Alternatives

1 October 1998
By Dr. Phillip Beutel

In the damages phase of every patent infringement case, two questions must be answered: (i) Were there non-infringing alternatives to the patented product? and (ii) How acceptable were they to consumers?

The existence or absence of non-infringing alternatives sometimes is merely asserted by the parties or supported only by anecdotal evidence. While in some cases this may be the best information available, from an economic perspective the answers to these questions may help determine:

Whether the patent owner can claim lost profits or must be limited to reasonable royalties
The amount an accused infringer would have been willing to pay as a reasonable royalty
If the patent owner is permitted by the Court to follow Mor-Flo, the percentage of the allegedly infringing sales it would be entitled to claim
If there are many acceptable substitutes, whether the patent owner can claim price erosion damages or, at a minimum, the extent of those damages

In this NERA Brief, Senior Vice President Dr. Phillip Beutel reviews the relationship between these damage theories and the non-infringing alternatives question.

NERA Economic Consulting

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A Note on the Law & Economics of Acceptable Non-Infringing Alternatives