The price-erosion theory is a method used to quantify the financial loss incurred by a company when their invention is copied by others. It assesses the potential selling price of the invention if it were protected by a patent and compares it to the actual selling price achieved when competing with the imitator.
Price-erosion theory is a concept utilised in patent law to quantify the financial loss resulting from patent infringement. It involves determining the disparity between the potential selling price of a product with patent protection and the actual selling price when competing against an infringing product. For instance, suppose a company possesses a patent for a novel phone case that they sell for $50. However, another company introduces a similar phone case for only $20, leading to a decline in sales for the original company. By employing price-erosion theory, the original company can ascertain the extent of their lost profits by subtracting the $20 price of the infringing item from their own $50 price. Another scenario could involve a pharmaceutical company holding a patent for a new medication. If a generic version of the drug is released prior to the patent expiration, the pharmaceutical company can employ price-erosion theory to determine the financial loss incurred due to the lower price of the generic version.
The Price-Erosion Theory is a legal concept that refers to the gradual decrease in the value or price of a product or service over time due to various factors such as competition, technological advancements, or changes in market demand.
Price erosion alone is not considered a violation of antitrust laws. However, if it is a result of anti-competitive practices such as predatory pricing or collusion, it may be deemed illegal.
To protect your business from price erosion, you can focus on differentiating your product or service, building brand loyalty, and constantly innovating to stay ahead of the competition. Additionally, you can explore legal options such as obtaining patents or trademarks to protect your intellectual property.
Price erosion alone is generally not considered a breach of contract unless there is a specific clause in the contract that guarantees a certain price or price stability. It is important to review the terms of your contract to determine if any such provisions exist.
In most cases, price erosion is a natural market phenomenon and not a basis for a lawsuit against a competitor. However, if your competitor is engaging in anti-competitive practices that lead to price erosion, such as predatory pricing or collusion, you may have grounds for legal action.
Price erosion alone is not typically considered unfair competition. Unfair competition generally refers to deceptive or unethical practices that harm the reputation or business interests of a competitor.
Regulatory authorities such as the Federal Trade Commission (FTC) or the Department of Justice (DOJ) may investigate allegations of anti-competitive practices that lead to price erosion. If you believe your competitor is engaging in such practices, you can file a complaint with the relevant authority.
Price erosion cannot be used as a defence in a price-fixing lawsuit. Price-fixing involves competitors conspiring to set prices at an artificially high level, which is illegal under antitrust laws.
Price erosion can be considered when calculating damages in a business dispute, especially if it can be attributed to the actions of the opposing party. However, the specific circumstances and evidence will determine the extent to which price erosion is taken into account.
In certain cases, you may be able to seek injunctive relief to prevent price erosion if you can demonstrate that it is a result of anti-competitive practices or a breach of contract. However, the success of such a claim will depend on the specific facts and circumstances of your case.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 17th April 2024.
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